<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1999
REGISTRATION NO. 333-76415
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 6 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GOTO.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7379 95-4652060
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
140 WEST UNION STREET
PASADENA, CA 91103
(626) 685-5600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JEFFREY S. BREWER
CHIEF EXECUTIVE OFFICER
140 WEST UNION STREET
PASADENA, CA 91103
(626) 685-5600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C>
LARRY SONSINI BROOKS STOUGH
MARTY KORMAN RENEE F. LANAM
TODD CLEARY ANDREAS A. NICHOLAS
WILSON SONSINI GOODRICH & ROSATI GUNDERSON DETTMER STOUGH VILLENEUVE FRANKLIN &
PROFESSIONAL CORPORATION HACHIGIAN, LLP
650 PAGE MILL ROAD 155 CONSTITUTION DRIVE
PALO ALTO, CALIFORNIA 94304 MENLO PARK, CALIFORNIA 94025
(650) 493-9300 (650) 321-2400
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), 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 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,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO BE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ----------------------------------------------------------------------------------------------------------------------
Common stock, $0.0001 par
value....................... 5,750,000 shares $14.00 $80,500,000 $22,379.00(3)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 750,000 shares that the underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(3) Previously paid.
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 SUCH SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
SUBJECT TO COMPLETION -- JUNE 8, 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
, 1999 GOTO.COM LOGO
5,000,000 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
GOTO.COM, INC.:
- We have created an online
auction where advertisers
bid for introductions to
consumers seeking
information, services and
products.
PROPOSED SYMBOL AND MARKET:
- GOTO/NASDAQ NATIONAL
MARKET
- GoTo.com is not affiliated
with the Walt Disney
Company, Infoseek
Corporation or the "GO
Network."
THE OFFERING:
- - 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 $13.00 and $14.00.
- - The underwriters have an option to purchase an additional 750,000 shares
from GoTo.com to cover over-allotments.
- - Closing: , 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Per Share Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to GoTo.com:
- -----------------------------------------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
- --------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS DETERMINED WHETHER THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. NOR HAVE THEY MADE, NOR WILL THEY MAKE, ANY
DETERMINATION AS TO WHETHER ANYONE SHOULD BUY THESE SECURITIES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
In connection with this offering, the underwriters have reserved up to 500,000
shares of common stock being sold by GoTo.com for sale at the public offering
price to officers, employees, advertisers, vendors and other persons selected by
GoTo.com.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
SALOMON SMITH BARNEY
THOMAS WEISEL PARTNERS LLC
DLJDIRECT INC.
<PAGE> 3
[INSIDE FRONT COVER]
[Graphic Header: The GoTo.com Marketplace]
GoTo.com has created and operates an online marketplace that introduces
consumers who search the Internet using keyword terms to advertisers who have
bid in an ongoing auction for priority placement in the search results for those
keywords. Advertisers pay GoTo.com each time a consumer clicks on the
advertiser's Web site listing. The GoTo.com marketplace enables advertisers to
choose the bid amount and advertisement placement that is optimal for their
business. Because advertisers must pay GoTo.com for each click-through to their
Web site, they select and bid only on keywords most relevant to their offerings.
Accordingly, we believe GoTo.com improves a consumer's ability to find relevant
Web sites.
We believe a large and active base of advertisers, consumers and
network affiliates in our marketplace can stimulate growth in bidding, searches
and paid click-through transactions.
[Graphic: 3 end-to-end arrows in a circle] Search made simple.(TM)
GoTo.com is dedicated to assisting
consumers in finding the most
relevant results for the widest
variety of searches.
GoTo.com's banner-free home page permits fast loading and features a
prominent search box that makes it easier for users to find what they
are looking for on the Internet.
[Graphic: GoTo.com search box as it appears on GoTo.com's Web site.]
By foregoing advertising relationships and extraneous content, GoTo.com
eliminates the inherent conflict in assisting consumers to locate relevant
information and to pass quickly through GoTo.com to the desired information
source. In the GoTo.com marketplace, consumers are able to find relevant search
listings for information, products and services from our more than 7,500
participating advertisers who place hundreds of thousands of search listings in
the GoTo.com marketplace.
<PAGE> 4
[Graphic Header: The GoTo.com Marketplace]
[Graphic: 3 end-to-end arrows in a circle] Search Syndication Network.(TM)
GoTo.com offers its search service at no charge to destination Web
sites participating in what we call the "search syndication
network." This provides Web sites with the opportunity to enhance
their users' experience with search functionality and to generate
additional revenue from their consumer audiences.
[Graphic: Excerpt from page of search results
listed on Web site of infospace.com, a network
affiliate of GoTo.com]
Integrated Search
-----------------
GoTo.com provides a free
search offering that
participants in the search
syndication network, who we
call "network affiliates," can
easily incorporate into the
"look and feel" and navigation
of their Web sites. Consumers
can search the Web within the
network affiliate's site
because both the GoTo.com
search box and the search
results are provided directly
on the network affiliate's
site. GoTo.com offers an
outsourced solution for
network affiliates to generate
revenue by selling targeted
banner advertising on the
search results pages.
Search-in-a-Box
---------------
GoTo.com offers a simple and free search product
that enables network affiliates to provide Internet
search capability from a GoTo.com search box on
their Web sites. Search results are delivered on the
GoTo.com site. Network affiliates generate revenue
each time a user searches from their sites.
[Graphic: GoTo.com search box as
it appears on network affiliates'
sites]
<PAGE> 5
[Graphic Header: The GoTo.com Marketplace]
[Graphic: 3 end-to-end arrows in a circle] Targeted Pay-for-Performance
Advertising.(TM)
The GoTo.com marketplace offers any online advertiser
the ability to specifically target consumerswho are
interested in the information, products or services
offered by the advertiser. This results in efficient
and cost-effective advertising expenditures.
Advertisers bid in an open auction format for placement in the search results
provided for the specific keywords which are relevant to their sites.
Advertisers pay only for consumers who click on their listings in the GoTo.com
search results.
[Graphic: Search results display for the keywords "fly fishing" on the GoTo.com
Web site.]
Advertisers maintain precise control over their keyword selection, bids
and total amount spent on GoTo.com. As a result, advertisers manage the
placement of their listings in the GoTo.com search results and their cost
of customer acquisition.
<PAGE> 6
You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.
GoTo.com owns common law rights in the United States in the service marks
GOTO.COM, GOTO, the GOTO.COM logo, SEARCH MADE SIMPLE and other marks. In
addition, GoTo.com has applied for federal registrations of these four marks and
other marks, including PAY FOR PERFORMANCE, TARGETED PAY-FOR-PERFORMANCE
ADVERTISING and SEARCH SYNDICATION NETWORK. All other trademarks or service
marks appearing in this prospectus are trademarks or service marks of others.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Use of Proceeds..................... 20
Dividend Policy..................... 20
Corporate Information............... 20
Capitalization...................... 21
Dilution............................ 22
Selected Financial Data............. 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 24
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business............................ 35
Management.......................... 48
Transactions with Related Parties... 58
Principal Stockholders.............. 60
Description of Capital Stock........ 63
Shares Eligible for Future Sale..... 66
Underwriting........................ 69
Legal Matters....................... 72
Experts............................. 72
Available Information............... 73
Index to Financial Statements....... F-1
</TABLE>
i
<PAGE> 7
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information you
should consider before buying shares in the offering. You should read the entire
prospectus carefully.
INVESTMENT RISKS
An investment in this offering involves risk. The market for Internet
products, services and advertising is new, rapidly evolving and intensely
competitive. Our service has achieved only limited market acceptance to date.
GoTo.com was founded in September of 1997 and has a limited operating history
and a history of operating losses. GoTo.com's losses for the year ended December
31, 1998 and March 31, 1999 were $14.0 million and $7.4 million, respectively.
At March 31, 1999, GoTo.com's accumulated deficit, or accumulated net loss since
inception, was $21.5 million. GoTo.com expects to incur net losses for the
foreseeable future.
GOTO.COM
OUR BUSINESS
GoTo.com created and operates an online marketplace that introduces
consumers and advertisers. Consumers conduct keyword searches using the GoTo.com
search service at our Web site and at thousands of other sites across the
Internet that carry our search service. Advertisers bid in an ongoing auction
for priority placement in the keyword search results with the highest bidder's
site appearing first in the results. Each advertiser pays GoTo.com the amount of
its bid whenever a consumer clicks on an advertiser's listing in the search
results. An advertiser only pays GoTo.com for those consumers who actively
indicate their interest by clicking on the advertiser's Web site listing. In
addition, since advertisers on GoTo.com choose how much they pay for each
consumer, GoTo.com enables each advertiser to choose the bid amount that is
optimal for its business. Because advertisers must pay GoTo.com for each
click-through to their Web site, they select and bid only on keywords most
relevant to their offerings. Further, GoTo.com search result pages are not
filled with multiple banner advertisements, which allows these pages to load
quickly, and a search on the GoTo.com service leads directly to a list of 40
results per page. Consequently, we believe GoTo.com improves a consumer's
ability to quickly and easily find relevant Web sites providing information,
products and services.
GoTo.com attracts consumers to its Web site through online and traditional
advertising. GoTo.com also attracts consumers through what we call the "search
syndication network," a network of Web sites that have included the GoTo.com
search service on their sites or that direct consumer traffic to the GoTo.com
Web site. GoTo.com enables Web sites participating in the search syndication
network, who GoTo.com calls "network affiliates," to include a search box and
GoTo.com search results on their sites. This affords these network affiliates
the opportunity to enhance their users' experience with Internet search
capabilities and to generate additional revenue from the sale of advertising on
resulting search pages. Because GoTo.com derives its revenue primarily from
advertiser paid click-through transactions, GoTo.com offers its search service
at no cost to its network affiliates.
1
<PAGE> 8
A growing number of consumers using the GoTo.com search service at Web
sites across the Internet increases the incentive for advertisers to bid in the
GoTo.com marketplace. In turn, a breadth of relevant advertiser links increases
the value to consumers of using the GoTo.com search service. Consequently, we
believe a large and active base of advertisers, consumers and network affiliates
in our marketplace can stimulate growth in bidding, searches and paid
click-through transactions. Increases in these paid click-through transactions
result in greater revenue for GoTo.com. From the month ended December 31, 1998
to the month ended April 30, 1999, the number of consumer searches in the
GoTo.com marketplace increased approximately 85% to over 100 million per month
and the number of active, paying advertisers in our marketplace increased
approximately 150% to over 7,500. Over the same period, the number of paid
click-throughs per month on our service increased approximately 400% to over 10
million.
MARKET OPPORTUNITY
In an effort to retain consumer attention and generate more advertising
revenues, traditional search sites have added additional content and services,
which has resulted in a conflict with consumers' desires to locate relevant
information and pass quickly through a search site to the desired information
source. As a result of this conflict as well as the growth in volume and
diversity of Internet content, searches now frequently generate hundreds and
often even thousands of results, many of which may have little relevance to the
consumers' interest. Moreover, most Internet advertising, like traditional media
advertising, requires advertisers to pay for each consumer who sees or may see
an advertisement, rather than only those consumers who specifically express
interest in the advertised information, products or services. This approach does
not allow advertisers to take full advantage of the Internet's unique attributes
for targeted marketing. GoTo.com therefore believes that there is a significant
market opportunity for an online marketplace that facilitates introductions
between advertisers and consumers. GoTo.com serves these constituencies by
providing consumers with quick, easy and relevant search listings and providing
advertisers with a cost-effective way to target potential consumers.
OUR STRATEGY
GoTo.com's objective is to expand participation and increase transactions
in its online marketplace. Key elements of GoTo.com's strategy include:
- - INCREASE ADVERTISERS THROUGH AUTOMATED SIGN UP. Because advertisers on
GoTo.com can easily sign up and manage their bidding and accounts through
our automated processes, and because every keyword can support hundreds of
GoTo.com advertisers, we believe that GoTo.com can support a growing
marketplace with a larger number of advertisers than traditional online
advertising solutions.
- - EXPAND CONSUMER BASE WITH SEARCH SYNDICATION NETWORK. We intend to
increase consumer traffic on our service by growing the search syndication
network and increasing consumer marketing and acquisition initiatives.
- - UTILIZE TECHNOLOGY TO FURTHER EXPAND OPERATIONS INFRASTRUCTURE. We intend
to utilize our technology to grow an efficient operations infrastructure
enabling millions of billing events for hundreds of thousands of
advertisers at a high quality service level and at a relatively low
internal cost.
2
<PAGE> 9
- - DERIVE STRATEGIC ADVANTAGE FROM EFFICIENT COST STRUCTURE. Our business
model allows us to control costs because it does not require us to carry
any physical inventory or maintain a large sales or editorial
infrastructure, so we are able to direct the capital that would otherwise
be used for these purposes toward growing our business, enhancing our
services, building brand awareness and pursuing other strategic
opportunities.
------------------------
Our principal executive offices are located at 140 West Union Street,
Pasadena, California 91103, and our telephone number is (626) 685-5600.
THE OFFERING
Common stock offered by
GoTo.com........................ 5,000,000 shares
Common stock to be outstanding
after this offering........... 43,397,921 shares
Use of proceeds................. We plan to use the proceeds from this
offering for general corporate purposes,
principally working capital, capital
expenditures and additional marketing and
sales efforts, as well as potential
acquisitions.
Proposed Nasdaq National Market
symbol........................ GOTO
This table is based on shares outstanding as of May 15, 1999. This table
excludes:
- 3,737,675 shares of common stock reserved for issuance under our 1998
stock option plan, and
- 2,000,000 shares available for issuance under our 1999 employee stock
purchase plan.
This table also assumes that the underwriters do not exercise the option
granted by GoTo.com to purchase additional shares in the offering. See
"Underwriting."
3
<PAGE> 10
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes the statement of operations and balance
sheet data for our business. For a more detailed explanation of these financial
data, see "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements
located elsewhere in this prospectus. The pro forma as adjusted balance sheet
data reflects the following assumptions:
- The receipt of approximately $25 million in proceeds from the issuance of
3,628,447 shares of preferred stock on April 14, 1999.
- The conversion of all outstanding shares of preferred stock including the
preferred stock issued on April 14, 1999.
- The sale of 5,000,000 shares of our common stock in this offering at an
estimated offering price of $13.00 per share after deducting underwriting
discounts, commissions and estimated offering expenses and the
application of the resulting net proceeds.
- The exercise of warrants outstanding at March 31, 1999 to purchase
104,971 shares of common stock.
Included in general and administrative and product development expenses are
non-cash charges totaling $370,000 related to common stock and warrants issued
as compensation to non-employees during the twelve months ended December 31,
1998, and $180,000 related to warrants as compensation to non-employees during
the three months ended March 31, 1999, respectively.
<TABLE>
<CAPTION>
TWELVE MONTHS THREE MONTHS ENDED
ENDED -----------------------------------------------------
DECEMBER 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................................... $ 822 $ 38 $ 19 $ 185 $ 580 $ 1,451
Cost of revenue.............................. 1,429 10 101 596 722 957
-------- ----- ------- ------- ------- -------
Gross profit (loss).......................... (607) 28 (82) (411) (142) 494
Operating expenses:
Marketing and sales........................ 9,645 174 1,119 3,697 4,655 4,614
General and administrative................. 1,655 179 236 511 729 1,555
Product development........................ 1,232 168 150 302 612 520
Amortization of deferred compensation...... 1,199 232 154 525 288 1,297
-------- ----- ------- ------- ------- -------
Total operating expenses..................... 13,731 753 1,659 5,035 6,284 7,986
-------- ----- ------- ------- ------- -------
Loss from operations......................... (14,338) (725) (1,741) (5,446) (6,426) (7,492)
Interest income, net....................... 316 1 48 139 128 132
-------- ----- ------- ------- ------- -------
Loss before provision for income taxes....... (14,022) (724) (1,693) (5,307) (6,298) (7,360)
Provision for income taxes................... 1 -- -- -- 1 --
-------- ----- ------- ------- ------- -------
Net loss..................................... $(14,023) $(724) $(1,693) $(5,307) $(6,299) $(7,360)
======== ===== ======= ======= ======= =======
Historical basic and dilutive net loss per
share...................................... $ (1.36) $ (0.68)
========
Pro forma net loss per share................. $ (0.75) $ (0.24)
========
Shares used to compute historical basic and
dilutive loss per share.................... 10,296 10,894
Shares used to compute pro forma loss per
share...................................... 18,714 30,387
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $11,195 $ 95,731
Working capital......................................... 9,154 93,690
Total assets............................................ 16,679 101,050
Long term debt and capital lease obligations............ 590 590
Total stockholders' equity.............................. 11,075 95,610
</TABLE>
4
<PAGE> 11
RISK FACTORS
You should carefully consider the risks described below before buying
shares in this offering.
WE HAVE A LIMITED OPERATING HISTORY.
Because we have recently begun operations, it is difficult to evaluate our
business and our prospects. Our revenue and income potential is unproven and our
business model is still emerging. GoTo.com was founded in September of 1997 and
has a limited operating history. We launched a proof-of-concept version of our
service in December 1997. Our "pay-for-performance" model was announced in
February 1998, and, following further proof-of-concept testing, the service was
officially launched on June 1, 1998. An investor in our common stock must
consider the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets. These risks include our:
- complete dependence on online advertising and consumer search services
with only limited market acceptance;
- need to develop and upgrade our infrastructure, including internal
controls, transaction processing systems, data storage and retrieval
systems and Web site;
- need to manage changing operations, including our recent implementation
of a new financial and accounting system; and
- dependence upon and need to hire key personnel including software
developers.
We cannot assure you that the GoTo.com service will retain its existing, or
attract new, advertisers, consumers and network affiliates, achieve significant
additional revenues or improve operating margins in future periods. There can be
no assurance that GoTo.com's service will achieve commercial success and, if it
does not, the price of our common stock will decline.
WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES.
We have not achieved profitability. We expect to incur net losses for the
foreseeable future and may never become profitable. We incurred a net loss of
approximately $14.0 million and $7.4 million for the year ended December 31,
1998 and the three months ended March 31, 1999, respectively, and as of March
31, 1999, we had an accumulated deficit of $21.5 million.
Our limited operating history makes it difficult to forecast our future
operating results. Although our revenue has grown in recent quarters, we cannot
be certain that this growth will continue. We expect to continue to increase our
marketing and sales, product development and general and administrative
expenses. As a result we will need to generate significant additional revenue
and/or raise additional funds to achieve profitability. If we do achieve
profitability, we cannot be certain that we will sustain or increase it.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS BECAUSE
OF MANY FACTORS, AND ANY OF THESE COULD ADVERSELY AFFECT OUR STOCK PRICE.
We believe that quarter-to-quarter comparisons of our operating results are
not a good indication of our future performance. It is likely that in some
future quarter our operating
5
<PAGE> 12
results may be below the expectations of public market analysts and investors
and, as a result of these or other factors, the price of our common stock may
fall. Our operating results have varied widely in the past, and we expect that
they will continue to vary significantly from quarter-to-quarter due to a number
of factors, including:
- demand for our online services by advertisers and consumers, including
the number of searches performed by consumers and the rate at which they
click-through to paid search listing advertisements;
- prices paid by advertisers using the GoTo.com service, which are not
determined by GoTo.com;
- our costs of attracting consumers to the GoTo.com Web site, including
costs of receiving exposure on third-party Web sites and advertising
costs;
- costs related to agreements with suppliers of consumer traffic to our
service and professional services;
- loss of these agreements;
- the mix of paying vs. non-paying search results on the GoTo.com service;
- our ability to significantly increase our distribution channels;
- the amount and timing of operating costs and capital expenditures
relating to expansion of our operations;
- costs and delays in introducing new GoTo.com services and improvements to
existing services;
- changes in the growth rate of Internet usage and acceptance by consumers
of electronic commerce;
- technical difficulties, system failures or Internet downtime;
- government regulations related to the Internet;
- our ability to upgrade and develop our information technology systems and
infrastructure;
- costs related to acquisitions of technologies or businesses; and
- general economic conditions, as well as those specific to the Internet
and related industries.
As a result of our limited operating history, it is difficult to accurately
forecast our revenue, and we have limited meaningful historical financial data
upon which to base planned operating expenses. We plan to significantly increase
our operating expenses to expand our marketing and sales operations, broaden our
customer support capabilities and fund greater levels of product development. We
base our current and future expense levels on our operating plans and estimates
of future revenue, and our expenses are relatively fixed. Revenue and operating
results are difficult to forecast because they generally depend upon the volume
of the searches conducted on our service, the amounts bid by advertisers for
keyword search listings on the service and the number of advertisers that bid on
the service, none of which are under our control. As a result, we may be unable
to adjust our spending in a timely manner to compensate for any unexpected
revenue shortfall. We also
6
<PAGE> 13
may be unable to increase our spending and expand our operations in a timely
manner to adequately meet user demand to the extent it exceeds our expectations.
OUR SUCCESS DEPENDS UPON ACHIEVING A LARGE AND ACTIVE BASE OF ADVERTISERS AND
CONSUMERS.
Our ability to increase the volume of transactions on our service and the
amounts bid by our advertisers is dependent upon achieving market acceptance
from more advertisers and consumers using our service. Our service has achieved
only limited market acceptance to date. Internet advertising in general is at an
early stage of development. Most potential advertisers have only limited
experience advertising on the Internet and have not devoted a significant
portion of their advertising expenditures to Internet advertising. Advertising
through priority placement on our search service in particular has been
introduced only recently, and we cannot predict the level of its acceptance as
an advertising medium, even if we achieve initial market acceptance. Our service
may not achieve significant acceptance by consumers. Among other things, because
our service prioritizes search results based on advertising bids associated with
keywords rather than on algorithmic or other traditional search and retrieval
technologies, consumers may perceive our results to be less objective than those
provided by traditional search methods. Failure to achieve and maintain a large
and active base of advertisers and consumers would seriously harm our business.
WE DEPEND ON A LIMITED NUMBER OF SOURCES TO DIRECT CONSUMERS TO OUR SERVICE TO
CONDUCT SEARCHES.
The consumers who conduct searches on our service come from a limited
number of sources. Our sources for consumers conducting searches are providers
of Internet browsers such as Netscape Communicator and Microsoft Internet
Explorer; aggregators of search offerings of various providers; our Web site;
banner advertising; and the search syndication network. Although sources of
consumer traffic to our service fluctuate, in any given month we typically
depend upon one or a few of these sources for a significant majority of traffic
and searches conducted on our service. In particular, Microsoft Corporation,
Netscape Communications Corp. (a wholly owned subsidiary of America Online) and
Dogpile, our three largest sources of search traffic, collectively directed
consumers to our service who accounted for approximately 50% of our search
revenue in March 1999. We generally obtain traffic from these sources through
short term agreements. Our contract with Netscape expires at the end of June
1999, our contract with Microsoft expires in September 1999 unless terminated
earlier or extended in the event that traffic delivered under the contract fails
to meet certain specifications and our contract with Dogpile expires in April
2000. There can be no assurance that we will be successful in renewing any of
these agreements on commercially acceptable terms as a result of competition
among providers of Internet search services.
OUR FUTURE SUCCESS IS DEPENDENT UPON FURTHER DEVELOPING AND ENHANCING THE SEARCH
SYNDICATION NETWORK.
We believe that our future success in penetrating our target markets
depends in part on our ability to further develop and maintain relationships
with network affiliates in the search syndication network. These network
affiliates provide their users with GoTo.com search capabilities on their sites
or direct their traffic to our Web site. We believe these relationships are
important in order to facilitate broad market acceptance of our service and
enhance our sales. Our future ability to attract consumers to our service is
dependent upon the growth of the search syndication network, which is new and
unproven. If we are
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unable to successfully develop and maintain relationships with network
affiliates in our search syndication network, our business will be damaged.
OUR CONTRACTS WITH NETWORK AFFILIATES ARE GENERALLY TERMINABLE AT ANY TIME.
Our agreement with network affiliates are generally terminable at will by
either party. Our network affiliates can generally terminate these agreements at
any time. The loss of our agreements with our existing network affiliates could
damage our business. Further, if we are unable to extend or obtain new
agreements or arrangements for traffic on commercially acceptable terms,
including with network affiliates, our business will be damaged.
WE ARE DEPENDENT UPON OTHER COMPANIES WHO SUPPLY SERVICES TO US.
We also depend on non-distribution related relationships. Following the
paid advertising search results offered to consumers on our service, we offer
search results provided by Inktomi Corporation. We rely on Inktomi as the sole
source of these additional search results, which constitute a very high
percentage of the search results displayed by GoTo.com. For example, for March
1999, this percentage was approximately 82%. We also rely on 24/7 Media, Inc. to
provide advertising sales for us as well as for some participants in the search
syndication network. The loss of either of these key relationships could damage
our business. Our contract with Inktomi expires in April 2000 and our contract
with 24/7 Media expires in March 2001. There can be no assurance that we will be
successful in renewing these contracts on commercially acceptable terms or that
our costs with respect to these contracts will not increase following any
renewal. If we are unable to develop future key relationships or maintain and
enhance our existing relationships, our business will be damaged.
OUR INDUSTRY IS HIGHLY COMPETITIVE, AND WE CANNOT ASSURE YOU THAT WE WILL BE
ABLE TO COMPETE EFFECTIVELY.
The market for Internet products, services and advertising is new, rapidly
evolving and intensely competitive. GoTo.com currently or potentially competes
with many other providers of Web directories, search and information services as
well as traditional media for consumer attention and advertising expenditures.
We expect competition to intensify in the future. Barriers to entry may not be
significant, and current and new competitors may be able to launch new Web sites
at a relatively low cost. Accordingly, we believe that our success will depend
heavily upon achieving significant market acceptance before our competitors and
potential competitors introduce competing services.
GoTo.com competes with online services, other Web sites and advertising
networks such as DoubleClick Inc., 24/7 Media, Inc. and Net Gravity Inc., as
well as traditional offline media such as television, radio and print for a
share of advertisers' total advertising budgets. We believe that the number of
companies selling Web-based advertising and the available inventory of
advertising space has recently increased substantially. Accordingly, GoTo.com
may face increased pricing pressure for the sale of advertisements and direct
marketing opportunities, which could adversely affect our business and operating
results.
GoTo.com also competes with providers of Web directories, search and
information services, all of whom offer advertising, including, among others,
America Online, Inc. (AOL.com, NetFind and Netscape Netcenter), AskJeeves, Inc.,
CNET, Inc. (Snap), Excite, Inc. (including WebCrawler and Magellan), Inktomi
Corporation, LookSmart, Ltd., Lycos, Inc. (including HotBot), Microsoft
Corporation (LinkExchange, Inc. and msn.com), The Walt Disney Company/Infoseek
Corporation (including the Go Network)
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and Yahoo! Inc. In addition, we expect that other companies will offer directly
competing services in the future. For example, AltaVista, a division of Compaq
Computer Corporation, has announced it will offer such a service.
Many of these competitors, as well as potential entrants into our market,
have longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. Many of these current and potential competitors can devote
substantially greater resources to promotion and Web site and systems
development than we can. In addition, as the use of the Internet and other
online services increases, larger, well-established and well-financed entities
may continue to acquire, invest in or form joint ventures with providers of Web
directories, search and information services or advertising solutions, and
existing providers of Web directories, search and information services or
advertising solutions may continue to consolidate. In addition, providers of
Internet browsers and other Internet products and services who are affiliated
with providers of Web directories and information services in competition with
the GoTo.com service may more tightly integrate these affiliated offerings into
their browsers or other products or services. Any of these trends would increase
the competition we face and could adversely affect our business and operating
results.
WE ARE DEPENDENT UPON MAINTAINING AND EXPANDING OUR COMPUTER AND COMMUNICATIONS
SYSTEMS.
Our failure to achieve or maintain high capacity data transmission without
system downtime and achieve improvements to our transaction processing systems
and network infrastructure would adversely affect our business and results of
operations. Our success, in particular our ability to provide high quality
customer service, largely depends on the efficient and uninterrupted operation
of our computer and communications systems in order to accommodate the consumers
and advertisers using our service. Our success also depends upon our ability to
rapidly expand our transaction-processing systems and network infrastructure
without any systems interruptions in order to accommodate any significant
increases in use of our service. We believe that our current
transaction-processing systems and network infrastructure are insufficient to
support our future growth. Although we are enhancing and expanding our
transaction-processing systems and network infrastructure, we have experienced
periodic systems interruptions and infrastructure failures, which we believe
will continue to occur. In the past, limitations of our technology
infrastructure have prevented us from maximizing our business opportunities. In
addition, many of our software systems are custom-developed and we rely on our
employees and certain third-party contractors to develop and maintain these
systems. If certain of these employees or contractors become unavailable to us,
we may experience difficulty in improving and maintaining these systems.
Furthermore, we expect that we will continue to be required to manage multiple
relationships with various software and equipment vendors whose technologies may
not be compatible, as well as relationships with other third parties to maintain
and enhance our technology infrastructure.
WE ARE IN THE PROCESS OF IMPLEMENTING NEW FINANCIAL AND ACCOUNTING SYSTEMS WHICH
MAY NOT WORK AS EXPECTED.
If we fail to successfully implement and integrate new financial reporting
and information systems, or we are not able to scale these systems with our
growth, we may not have adequate, accurate or timely financial information.
Failure to have adequate, accurate or timely financial information would harm
our business and could lead to volatility in our stock price. We are in the
process of implementing new financial and accounting reporting software which we
expect to complete prior to or during the third
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quarter of 1999, although we cannot assure you that implementation will not take
longer. In connection with this implementation, we have encountered difficulties
integrating the new software with certain of our other information systems.
Additionally, we are in the process of upgrading certain sales databases used
for finance, sales and account management. If we grow rapidly, we will face
additional challenges in upgrading and maintaining these systems.
OUR ADVERTISING REVENUE IS CONCENTRATED AMONG A LIMITED NUMBER OF ADVERTISERS.
If our major advertisers were to substantially cut back advertising or stop
using our services, our business would be seriously harmed. Although no
advertiser accounted for more than 10% of our revenue for the quarter ended
March 31, 1999, a significant majority of our total revenue is derived from a
small proportion of our advertisers. We believe that a substantial amount of
revenue from advertising sales in any given future period may come from a
relatively small number of advertisers. We do not have formal contractual
relationships with many of our advertisers and when we do have contracts, most
are terminable at any time by the advertiser. As a result, we cannot assure you
that any of our advertisers will purchase advertising from us in the future.
CONTINUED ADOPTION OF THE INTERNET AS A METHOD OF CONDUCTING BUSINESS IS
NECESSARY FOR OUR FUTURE GROWTH.
The failure of the Internet to continue to develop as a commercial and
business medium would adversely affect our business. The widespread acceptance
and adoption of the Internet by traditional businesses for conducting business
and exchanging information is likely only if the Internet provides these
businesses with greater efficiencies and improvements.
FAILURE TO EXPAND INTERNET INFRASTRUCTURE COULD LIMIT OUR FUTURE GROWTH.
The recent growth in Internet traffic has caused frequent periods of
decreased performance, and if Internet usage continues to grow rapidly, the
Internet's infrastructure may not be able to support these demands and its
performance and reliability may decline. If outages or delays on the Internet
occur frequently or increase in frequency, overall Web usage, including usage of
our Web site in particular, could grow more slowly or decline. Our ability to
increase the speed and scope of our services to users is ultimately limited by
and dependent upon the speed and reliability of both the Internet and our
advertisers' and consumers' internal networks. Consequently, the emergence and
growth of the market for our services depends upon improvements being made to
the entire Internet as well as to our individual advertisers' and consumers'
networking infrastructures to alleviate overloading and congestion.
INCREASED SECURITY RISKS OF ONLINE COMMERCE MAY DETER FUTURE USE OF OUR
SERVICES.
Concerns over the security of transactions conducted on the Internet and
the privacy of consumers may also inhibit the growth of the Internet and other
online services generally, and online commerce in particular. Our failure to
prevent security breaches could significantly harm our business and results of
operations. We cannot be certain that advances in computer capabilities, new
discoveries in the field of cryptography, or other developments will not result
in a compromise or breach of the algorithms we use to protect our transaction
data. Anyone who is able to circumvent our security measures could
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misappropriate proprietary information, cause interruptions in our operations or
damage our brand and reputation. We do not believe that our data repositories,
financial systems and other technology resources are secure from security
breaches or sabotage and we occasionally experience attempts at "hacking" or
security breaches. We may be required to incur significant costs to protect
against security breaches or to alleviate problems caused by breaches. Any
well-publicized compromise of security could deter people from using the
Internet to conduct transactions that involve transmitting confidential
information or downloading sensitive materials, which would adversely affect the
business of our advertisers and, accordingly, our business.
WE FACE THE RISKS OF SYSTEM FAILURES.
We currently do not have a disaster recovery plan in effect and do not have
fully redundant systems for our services at an alternate site. A disaster such
as fire, flood, earthquake, power loss, telecommunications failure, break-in,
sabotage or a similar event could severely damage our business and results of
operations because our services could be interrupted for an indeterminate length
of time. Our operations depend upon our ability to maintain and protect our
computer systems, all of which are located in our principal headquarters in
Pasadena, California and at an offsite location managed by a third party,
Frontier Global Center, in Sunnyvale, California. Pasadena and Sunnyvale exist
on or near known earthquake fault zones. The occurrence of a natural disaster or
unanticipated problems at our principal headquarters or at the third-party
facility could cause interruptions or delays in our business, loss of data or
render us unable to provide our services. In addition, failure by the
third-party facility to provide the data communications capacity required by us,
as a result of human error, natural disaster or other operational disruptions,
could cause interruptions in our service. The occurrence of any or all of these
events could adversely affect our reputation, brand and business which could
cause the price of our common stock to decline.
WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS IN RECENT PERIODS, AND
ANY FAILURE TO MANAGE THIS GROWTH COULD DAMAGE OUR BUSINESS.
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We have increased, and plan to continue to increase, the
scope of our operations. These expansion efforts could be expensive and put a
strain on management, and, if we do not manage growth properly, it could
adversely affect our business. Our headcount has grown and will continue to grow
substantially. Prior to February 1998, we had no employees, although a small
number of personnel with Bill Gross' idealab! and certain consultants were
performing services for us. At March 31, 1999, we had a total of 83 employees.
We will need to expand our infrastructure, which will include hiring certain key
employees, including without limitation, key employees in marketing and
technology development. Hiring such employees has historically been difficult,
and we cannot assure you that we will be able to successfully attract and retain
a sufficient number of qualified personnel.
OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS,
AND THESE OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE.
Our future success depends upon the continued service of our executive
officers and other key technology, marketing, sales and support personnel. Our
key employees include Jeffrey Brewer, Ted Meisel, Todd Tappin, Harry Chandler,
James Gallinatti, Jr., Stephanie
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Sarka, Talmadge O'Neill, Tom Soulanille, Gregory Robleski, Dan Scholnick, Eric
Hovanec, Joshua Metzger, Paul Ryan and Paul Schulz. None of our officers or key
employees is bound by an employment agreement for any specific term. If we lost
the services of one or more of our key employees, or if one or more of our
executive officers or employees decided to join a competitor or otherwise
compete directly or indirectly with us, this could have a significant adverse
effect on our business and could cause the price of our stock to decline. In
particular, the services of key members of our research and development team
would be difficult to replace. We cannot assure you that we will be able to
successfully retain our key personnel or, in the event we were to lose the
services of any key personnel, to replace such personnel.
WE ARE EXPOSED TO RISKS ASSOCIATED WITH CREDIT CARD FRAUD.
We have suffered losses and may continue to suffer losses as a result of
orders placed with fraudulent credit card data, even though the associated
financial institution approved payment of the orders. Under current credit card
practices, a merchant is liable for fraudulent credit card transactions when, as
is the case with the transactions we process, that merchant does not obtain a
cardholder's signature. A failure to adequately control fraudulent credit card
transactions would adversely affect our business and could cause a decline in
our stock price.
WE FACE RISKS OF CLAIMS FROM THIRD PARTIES FOR INTELLECTUAL PROPERTY
INFRINGEMENT AND OTHER MATTERS THAT COULD ADVERSELY AFFECT OUR BUSINESS.
Our services operate in part by making Internet services and content
available to our users. This creates the potential for claims to be made against
us, either directly or through contractual indemnification provisions with third
parties. These claims might, for example, be made for defamation, negligence,
copyright, trademark or patent infringement, personal injury, invasion of
privacy or other legal theories. We receive correspondence alleging some of
these types of claims from time to time. Any claims could result in costly
litigation and be time consuming to defend, divert management's attention and
resources, cause delays in releasing new or upgrading existing services or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all.
Litigation regarding intellectual property rights is common in the Internet
and software industries. We expect that Internet technologies and software
products and services may be increasingly subject to third-party infringement
claims as the number of competitors in our industry segment grows and the
functionality of products in different industry segments overlaps.
There can be no assurance that our services do not infringe the
intellectual property rights of third parties. A successful claim of
infringement against us and our failure or inability to license the infringed or
similar technology could adversely affect our business.
WE MAY NOT BE ABLE TO PROTECT THE INTELLECTUAL PROPERTY RIGHTS UPON WHICH OUR
BUSINESS RELIES.
Our success and ability to compete are substantially dependent upon our
internally developed technology and data resources, which we protect through a
combination of
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copyright, trade secret and trademark law. We have no patents issued to date on
our technology.
We are aware that certain other companies are using or may have plans to
use the terms "GoTo," "Go," "Go2" and variations of these terms as part of a
company name, domain name, trademark or service mark. In addition, we have
received notice from companies claiming superior rights to marks such as these.
We cannot assure you that additional companies will not claim such superior
rights or that we will not be subject to infringement claims. A successful
infringement claim by the owner of a mark including "GoTo" or a variation could
require us to change our name, which would be expensive and disruptive to our
business. Further, despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
services, technology and other intellectual property, and we cannot be certain
that the steps we have taken will prevent any misappropriation or confusion
among consumers and advertisers.
WE ARE ENGAGED IN LITIGATION WITH THE WALT DISNEY COMPANY AND CERTAIN OF ITS
AFFILIATES, INCLUDING INFOSEEK CORPORATION, THAT COULD SERIOUSLY HARM OUR
BUSINESS.
We are engaged in litigation that will be expensive to pursue and will be
distracting to our management and other employees. Any adverse developments
resulting from this litigation could seriously harm our business. We believe
that The Walt Disney Company and certain of its affiliates, including Infoseek
Corporation, are infringing our GoTo.com logo. On February 18, 1999 we sued
these companies and two affiliated companies in the United States District Court
for the Central District of California alleging violation of federal trademark
law and unfair competition. Our lawsuit is based on the use by these companies
of a "GO" design mark to provide Internet services, including a search engine in
connection with their "Go Network." We are seeking to prevent these companies
from using this "GO" design mark as well as other remedies. The lawsuit is at a
preliminary stage, and we cannot assure you that the outcome of this litigation
will be favorable to us. For example, we may not prevail and be able to stop
these companies from causing confusion among consumers and advertisers through
continued use of the "GO" design mark. In addition, these companies could file
counterclaims or separate lawsuits or other proceedings against us, possibly
seeking to prevent us from using the GoTo.com logo or other relief. An
unfavorable result could affect the value of or even prevent us from using the
GoTo.com logo.
WE MAY NOT BE ABLE TO PROTECT OUR INTERNET DOMAIN NAME.
The Internet domain name we use, "GoTo.com," is an extremely important part
of our business and we may not be able to protect it. The acquisition and
maintenance of domain names generally are regulated by governmental agencies and
their designees. For example, in the United States, the National Science
Foundation has appointed Network Solutions, Inc. as the current exclusive
registrar for the ".com," ".net" and ".org" domains. The regulation of domain
names in the United States and in foreign countries is subject to change in the
near future. We believe that such changes in the United States may include a
transition from the current system to a system that is controlled by a
non-profit corporation and the creation of domains in addition to ".com," ".net"
and ".org." Governing bodies may establish other domains, appoint additional
domain name registrars or modify the requirements for holding domain names. As a
result, we may be unable to acquire or maintain relevant domain names in all
countries in which we conduct business. Furthermore, the relationship between
regulations governing domain names and laws
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protecting trademarks and similar proprietary rights is unclear. Therefore, we
may be unable to prevent third parties from acquiring domain names that are
similar to, infringe upon or otherwise decrease the value of our trademarks and
other proprietary rights. Third parties have acquired domain names that include
"goto" or varieties thereof both in the United States and elsewhere.
WE MAY NEED ADDITIONAL CAPITAL WHICH COULD DILUTE THE OWNERSHIP INTEREST OF
INVESTORS.
We require substantial working capital to fund our business. If we raise
additional funds through the issuance of equity, equity-related or convertible
debt securities, these securities may have rights, preferences or privileges
senior to those of the rights of our common stock and our stockholders may
experience additional dilution. We cannot be certain that additional financing
will be available to us on favorable terms when required, or at all. Since our
inception, we have experienced negative cash flow from operations and expect to
experience significant negative cash flow from operations in the future. We
currently anticipate that the net proceeds of this offering, together with our
available funds, will be sufficient to meet our anticipated needs for working
capital and capital expenditures through at least the next 12 months. However,
we may need to raise additional funds prior to the expiration of this period or
at a later date.
POTENTIAL ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS,
DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS.
We may make investments in or acquire complementary products, technologies
and businesses. These acquisitions and investments could disrupt our ongoing
business, distract our management and employees and increase our expenses. If we
acquire a company, we could face difficulties in assimilating that company's
personnel and operations. In addition, the key personnel of the acquired company
may decide not to work for us. Acquisitions of additional services or
technologies also involve risks of incompatibility and the need for integration
into our existing services and marketing, sales and support efforts. If we
finance the acquisitions by issuing equity securities, this could dilute our
existing stockholders. Any amortization of goodwill or other assets, or other
charges resulting from the costs of these acquisitions, could adversely affect
our operating results.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR INTERNAL OPERATING SYSTEMS OR OUR SERVICES
COULD ADVERSELY AFFECT OUR BUSINESS.
We cannot assure you that we will not experience unanticipated negative
consequences from year 2000 problems, including material costs caused by
undetected errors or defects in the technology used in our internal systems.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
the year 2000 and 21st century dates from other 20th century dates. As a result,
computer systems and/or software products used by many companies may need to be
upgraded to solve this problem.
Our online services and their associated and supporting tools, Web sites
and infrastructure were designed and developed to be year 2000 compliant. Our
internal systems, including those used to deliver our services, utilize
third-party hardware and software. We have begun the process of contacting the
vendors of these infrastructure products in order to gauge their year 2000
compliance. Based on vendors' representations
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received thus far, we believe that the third-party hardware and software we use
is year 2000 compliant, although we have not heard from all of these vendors.
To date, we have spent less than an estimated $10,000 to address year 2000
issues. We presently estimate that the total remaining cost of addressing year
2000 issues will not be material. These estimates were derived utilizing a
number of assumptions, including the assumption that we have already identified
any significant year 2000 issues. However, these assumptions may not be
accurate, and actual results could differ materially from those anticipated. In
view of our year 2000 review and remediation efforts to date, the recent
development of our services, the recent installation of our information
technology equipment and systems, we do not consider contingency planning to be
necessary at this time. We believe that the most likely worst case scenario is
that the Internet fails and we are unable to offer our services.
If we discover that certain of our services need modification, or certain
of our third-party hardware and software is not year 2000 compliant, we will try
to make modifications to our services and systems on a timely basis. We do not
believe that the cost of these modifications will materially affect our
operating results. However, we cannot assure you that we will be able to modify
these products, services and systems in a timely, cost-effective and successful
manner and the failure to do so could have a material adverse effect on our
business and operating results.
SPENDING BY OUR ADVERTISERS TO EVALUATE AND ADDRESS YEAR 2000 COMPLIANCE COULD
RESULT IN LOWER DEMAND FOR OUR SERVICES.
Year 2000 compliance issues also could cause a significant number of
companies, including our current advertisers, to reevaluate their current system
needs and, as a result, consider switching to other systems and means of
advertising. This could result in a material adverse effect on our business,
operating results and financial condition. Also, during the next six months
there is likely to be an increased advertiser focus on addressing year 2000
compliance issues, creating the risk that advertisers may reallocate
expenditures to fix year 2000 problems of existing systems. Although we have not
experienced these effects to date, if advertisers defer Internet advertising and
commerce and related services because of such a reallocation, it would adversely
affect our business and operating results.
OUR MARKET MAY UNDERGO RAPID TECHNOLOGICAL CHANGE AND OUR FUTURE SUCCESS WILL
DEPEND ON OUR ABILITY TO MEET THE CHANGING NEEDS OF OUR INDUSTRY.
For our business to survive and grow, we must continue to enhance and
improve the functionality and features of our online services. The Internet and
the online advertising industry are rapidly changing. If new industry standards
and practices emerge, our existing services, technology and systems may become
obsolete. Our future success will depend on our ability to do the following:
- license and internally develop leading technologies useful in our
business;
- enhance our existing services;
- develop new services and technologies that address the increasingly
sophisticated and varied needs of prospective consumers; and
- respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
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Developing our services and other proprietary technology entails
significant technical and business risks, as well as substantial costs. We may
use new technologies ineffectively, or we may fail to adapt our services,
transaction-processing systems and network infrastructure to user requirements
or emerging industry standards. If we face material delays in introducing new
services, products and enhancements, our users may forego the use of our
services and use those of our competitors.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES MAY DAMAGE OUR BUSINESS.
The laws and regulations applicable to the Internet and our services are
evolving and unclear and could damage our business. There are currently few laws
or regulations directly applicable to access to, or commerce on, the Internet.
Due to the increasing popularity and use of the Internet, it is possible that
laws and regulations may be adopted, covering issues such as user privacy,
defamation, pricing, taxation, content regulation, quality of products and
services, and intellectual property ownership and infringement. Such legislation
could expose GoTo.com to substantial liability as well as dampen the growth in
use of the Internet, decrease the acceptance of the Internet as a communications
and commercial medium, or require GoTo.com to incur significant expenses in
complying with any new regulations. The European Union has recently adopted
privacy and copyright directives that may impose additional burdens and costs on
international operations. In addition, several telecommunications carriers,
including America's Carriers' Telecommunications Association, are seeking to
have telecommunications over the Internet regulated by the Federal
Communications Commission, or FCC, in the same manner as other
telecommunications services. Because the growing popularity and use of the
Internet has burdened the existing telecommunications infrastructure and many
areas with high Internet usage have begun to experience interruptions in phone
services, local telephone carriers, such as Pacific Bell, have petitioned the
FCC to regulate the Internet and to impose access fees. Increased regulation or
the imposition of access fees could substantially increase the costs of
communicating on the Internet, potentially decreasing the demand for our
service. A number of proposals have been made at the federal, state and local
level that would impose additional taxes on the sale of goods and services
through the Internet. Such proposals, if adopted, could substantially impair the
growth of electronic commerce and could adversely affect us. Also, Congress
recently passed (and the President has signed into law) the Digital Millenium
Copyright Act, which is intended to reduce the liability of online service
providers for listing or linking to third-party Web sites that include materials
that infringe copyrights. Congress also recently passed (and the President has
signed into law) the Children's Online Protection Act and the Children's Online
Privacy Act, which will restrict the distribution of certain materials deemed
harmful to children and impose additional restrictions on the ability of online
services to collect user information from minors. Further, Congress recently
passed (and the President has signed into law) the Protection of Children from
Sexual Predators Act, which mandates that electronic communication service
providers report facts or circumstances from which a violation of child
pornography laws is apparent. GoTo.com is currently reviewing this legislation,
and cannot currently predict the effect, if any, that this legislation will have
on our business. There can be no assurance that this legislation will not impose
significant additional costs on our business or subject GoTo.com to additional
liabilities. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, copyright, defamation, obscenity
and personal privacy is uncertain. GoTo.com may be subject to claims that our
services violate such laws. Any new legislation or regulation in the United
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States or abroad or the application of existing laws and regulations to the
Internet could damage our business and cause the price of our common stock to
decline.
Due to the global nature of the Internet, it is possible that the
governments of other states and foreign countries might attempt to regulate its
transmissions or prosecute GoTo.com for violations of their laws. GoTo.com might
unintentionally violate such laws. Such laws may be modified, or new laws may be
enacted, in the future. Any such development could damage our business.
WE MAY INCUR LIABILITIES FOR THE ACTIVITIES OF USERS OF OUR SERVICE.
The law relating to the liability of providers of online services for
activities of their users is currently unsettled and could damage our business.
We do not carry insurance that will indemnify us for liability for activities of
our users. We are aware that certain of our advertisers' Web sites offer or
contain information about alcohol, tobacco, firearms, adult material and other
products, services and information that may be subject to regulation by local,
state or federal authorities. In addition, our advertisers' Web sites may
contain text, images or information that could infringe third-party copyrights,
trademarks or other intellectual property rights. We cannot assure you that
GoTo.com will successfully avoid civil or criminal liability for unlawful
activities carried out by users of our service. The imposition upon GoTo.com of
potential liability for unlawful activities of users of our service could
require us to implement measures to reduce our exposure to such liability, which
may require us, among other things, to spend substantial resources or to
discontinue certain service offerings. Any costs incurred as a result of such
liability or asserted liability could damage our business.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
Our management can spend the proceeds from this offering in ways with which
the stockholders may not agree. The net proceeds of this offering are not
allocated for specific uses other than working capital and general corporate
purposes, which gives our management broad discretion on the use of these
proceeds. We cannot predict that the proceeds will be invested to yield a
favorable return.
OUR SECURITIES HAVE NO PRIOR MARKET, AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING.
The trading market price of our common stock may decline below the initial
public offering price. In addition, an active public market for GoTo.com's
common stock may not develop or be sustained after this offering. Before this
offering, there has not been a public market for our common stock. The initial
public offering price has been determined by negotiations between GoTo.com and
the representatives of the underwriters.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
If our stockholders sell substantial amounts of common stock in the public
market, including shares issued upon the exercise of outstanding options, the
market price of our common stock could fall. After this offering, we will have
outstanding 43,397,921 shares of common stock, based upon shares outstanding as
of May 15, 1999 and including the 5,000,000 shares offered hereby (assuming no
exercise of the underwriters' over-allotment option), of which 23,121,594 of
these 43,397,921 shares will be issued upon conversion of
17
<PAGE> 24
outstanding preferred stock upon completion of this offering. The 38,397,921
shares of common stock outstanding as of May 15, 1999 will be available for sale
in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
<S> <C>
301,756 Prior to 180 days after the date of this prospectus
32,588,048 180 days after the date of this prospectus
5,538,117 Between December 1999 and May 2000
</TABLE>
The above table assumes the effectiveness of certain lock-up arrangements
with the underwriters under which the stockholders have agreed not to sell or
otherwise dispose of their shares of common stock. The table also includes
2,655,068 shares which, as of May 15, 1999, were subject to repurchase by
GoTo.com and transfer restrictions as a result of vesting agreements. Most of
the shares that will be available for sale after the 180th day after the date of
this prospectus or afterwards will be subject to certain volume limitations
because they are held by affiliates of GoTo.com. In addition, we cannot assure
you that the underwriters will not remove these lock-up restrictions prior to
180 days after the offering without prior notice.
WE WILL BE CONTROLLED BY OUR CURRENT STOCKHOLDERS, EVEN AFTER THE OFFERING.
idealab! Holdings, L.L.C., idealab! Capital Management I, LLC, Draper
Fisher Jurvetson, Moore Capital Management, Inc. and Global Retail Partners,
L.P. and/or entities affiliated with them will, in the aggregate, beneficially
own approximately 59.7% of our outstanding common stock following the completion
of this offering. In addition, Bill Gross, a director of GoTo.com, serves as
Managing Member of idealab! Holdings, L.L.C. and as Managing Director of
idealab! Capital Management I, LLC, and exercises voting and investment power
over shares held beneficially by those entities. The stockholders listed above
if acting together, would be able to significantly influence all matters
requiring approval by our stockholders, including the election of directors and
the approval of mergers or other business combination transactions.
OUR CHARTER DOCUMENTS AND CHANGE OF CONTROL SEVERANCE AGREEMENTS WITH OUR
MANAGEMENT WILL MAKE IT MORE DIFFICULT TO ACQUIRE US.
Provisions of our Amended and Restated Certificate of Incorporation and
Bylaws could make it more difficult for a third party to acquire us, even if
doing so would be beneficial to our stockholders. For example, our board of
directors is divided into three classes, with one class being elected each year
by our stockholders, which generally makes it more difficult for stockholders to
replace a majority of directors and obtain control of our board. In addition,
stockholder meetings may be called only by our board of directors, the chairman
of the board and the president, advanced notice is required prior to stockholder
proposals, and stockholders may not act by written consent. Further, we have
authorized preferred stock that is undesignated, making it possible for the
board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
GoTo.com.
Delaware law also could make it more difficult for a third party to acquire
us. Specifically, Section 203 of the Delaware General Corporation Law may have
an anti-takeover effect with respect to transactions not approved in advance by
the board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by our
stockholders.
18
<PAGE> 25
In addition, in April 1999, we entered into Change of Control Severance
Agreements with members of our senior management providing for certain benefits,
including acceleration of option vesting, to these members if they are
terminated other than for cause following an acquisition of GoTo.com. These
agreements could make us less attractive to a third party who may want to
acquire us because they will make any replacement of management more expensive.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN.
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify these
forward-looking statements. This prospectus also contains forward-looking
statements attributed to certain third parties relating to their estimates
regarding the growth of the Internet, Internet advertising and online commerce
markets and spending. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described above and elsewhere in this prospectus.
19
<PAGE> 26
USE OF PROCEEDS
The net proceeds to us from the sale of the 5,000,000 shares of common
stock offered by us are estimated to be $59.4 million after deducting the
underwriting discount, estimated offering expenses and assuming no exercise of
the underwriters' over-allotment option to purchase 750,000 shares from us.
We expect to use the net proceeds for general corporate purposes,
principally working capital, capital expenditures, including upgrades to
transaction processing systems and network infrastructure, and additional
marketing and sales efforts. In addition, we may use a portion of the net
proceeds to acquire complementary products, technologies or businesses; however,
we currently have no commitments or agreements for such acquisitions and are not
involved in any negotiations related to such acquisitions. We intend to invest
the net proceeds of this offering in interest-bearing, investment-grade
securities until they are used.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
CORPORATE INFORMATION
Our principal executive offices are located at 140 West Union Street,
Pasadena, California 91103, and our telephone number is (626) 685-5600.
GoTo.com owns common law rights in the United States in the service marks
GOTO.COM, GOTO, the GOTO.COM logo, SEARCH MADE SIMPLE and other marks. In
addition, GoTo.com has applied for federal registrations of these four marks and
other marks, including PAY FOR PERFORMANCE, TARGETED PAY-FOR-PERFORMANCE
ADVERTISING and SEARCH SYNDICATION NETWORK. All other trademarks or service
marks appearing in this prospectus are trademarks or service marks of others. We
are engaged in litigation with the Walt Disney Company and certain of its
affiliates, including Infoseek Corporation. An unfavorable result in any
counterclaims or separate litigation with these parties could affect the value
of, or even prevent us from using, the GOTO.COM logo.
20
<PAGE> 27
CAPITALIZATION
The following table sets forth the following information:
- the actual capitalization of GoTo.com as of March 31, 1999;
- the pro forma capitalization of GoTo.com after giving effect to the sale
of 3,628,447 shares of preferred stock for an aggregate purchase price of
approximately $25 million on April 14, 1999, conversion of all
outstanding shares of convertible preferred stock into 23,121,594 shares
of common stock and the exercise of warrants outstanding as of March 31,
1999 to purchase 104,971 shares of common stock; and
- the pro forma as adjusted capitalization to give effect to the sale of
5,000,000 shares of common stock at the estimated initial public offering
price of $13.00 per share in this offering, less underwriting discounts
and commissions and estimated offering expenses payable by GoTo.com.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................... $ 11,195 $ 36,381 $ 95,731
======== ======== ========
Long-term capital lease obligations and
debt...................................... $ 590 $ 590 $ 590
Stockholders' equity:
Convertible preferred stock, issuable in
series, $0.0001 par value, 20,187,401
shares authorized, 19,493,147 shares
issued and outstanding, actual;
10,000,000 shares authorized and no
shares issued and outstanding, pro
forma and pro forma as adjusted........ 28,645 -- --
Common stock, $0.0001 par value;
45,000,000 shares authorized,
13,426,320 shares issued and
outstanding, actual; 200,000,000 shares
authorized, 36,652,885 shares issued
and outstanding, pro forma; and
200,000,000 shares authorized,
41,652,885 shares issued and
outstanding, pro forma as adjusted..... 1 3 4
Additional paid-in capital................ 7,466 61,294 120,643
Deferred compensation.................. (3,534) (3,534) (3,534)
Accumulated deficit.................... (21,503) (21,503) (21,503)
-------- -------- --------
Total stockholders' equity............. 11,075 36,260 95,610
-------- -------- --------
Total capitalization........................ $ 11,665 $ 36,850 $ 96,200
======== ======== ========
</TABLE>
This table excludes 7,517,242 shares of common stock reserved for issuance
under GoTo.com's stock option and employee stock purchase plans, including
2,752,984 shares subject to outstanding options as of March 31, 1999 with an
average exercise price of $0.19 per share.
21
<PAGE> 28
DILUTION
The pro forma net tangible book value of our common stock on March 31, 1999
was $36.1 million, or approximately $0.98 per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets less total
liabilities, assuming the issuance of 3,628,447 shares of Series D preferred
stock on April 14, 1999 and exercise of all outstanding warrants occurred on
March 31, 1999, divided by the number of shares of common stock outstanding,
after giving effect to the conversion of all preferred stock including the
Series D preferred stock. Dilution in pro forma net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of our common stock in this offering and the pro forma net tangible
book value per share of our common stock immediately afterwards. After giving
effect to our sale of 5,000,000 shares of common stock offered by this
prospectus at an estimated price of $13.00 per share and after deducting the
underwriting discount and estimated offering expenses payable by us, our pro
forma net tangible book value would have been $95.6 million, or approximately
$2.30 per share. This represents an immediate increase in pro forma net tangible
book value of $1.32 per share to existing stockholders and an immediate dilution
in pro forma net tangible book value of $10.70 per share to new investors.
<TABLE>
<S> <C> <C>
Estimated public offering price per share................... $ 13.00
Pro forma net tangible book value per share as of March
31, 1999.............................................. $ 0.98
Increase per share attributable to new investors....... 1.32
-------
As adjusted pro forma net tangible book value per share
after the offering........................................ 2.30
-------
Dilution in pro forma net tangible book value per share to
new investors............................................. $ 10.70
=======
</TABLE>
This table excludes all options that will remain outstanding upon
completion of this offering. As of March 31, 1999, there were options
outstanding to purchase a total 2,752,984 shares of common stock with an average
exercise price of $0.19 per share. The exercise of outstanding options having an
exercise price less than the offering price would increase the dilutive effect
to new investors.
The following table sets forth, as of March 31, 1999, the differences
between the number of shares of common stock purchased from us, the total price
and average price per share paid by existing stockholders and by the new
investors, before deducting expenses payable by us, using the estimated public
offering price of $13.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 36,652,885 88.0% $ 54,841,599 45.8% $ 1.50
New investors............... 5,000,000 12.0% 65,000,000 54.2% $ 13.00
------------ ------- ------------- -------
Total............. 41,652,885 100.0% $ 119,841,599 100.0%
============ ======= ============= =======
</TABLE>
The existing stockholder amounts in the table above assumes the issuance of
3,628,447 shares of preferred stock on April 14, 1999 and the issuance of
104,971 shares of common stock upon exercise of warrants outstanding as of March
31, 1999.
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new public investors will be increased to 5,750,000 or
approximately 13.6% of the total number of shares of our common stock
outstanding after this offering.
22
<PAGE> 29
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements appearing elsewhere in this prospectus.
The statement of operations data set forth below for the period from September
15, 1997 (inception) to December 31, 1997 and the year ended December 31, 1998,
and the balance sheet data at December 31, 1997 and 1998 are derived from our
audited financial statements included elsewhere in this prospectus. The
statement of operations data for the three-month periods ended March 31, 1998
and 1999 and the balance sheet data as of March 31, 1999 are derived from
unaudited financial statements included elsewhere in this prospectus. Other
quarterly statement of operations data set forth below is derived from our
unaudited quarterly financial statements not included elsewhere herein. In our
opinion, these unaudited financial statements have been prepared on the same
basis as our audited financial statements and reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of our results of operations and financial position for these
periods. The historical results are not necessarily indicative of results to be
expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
INCEPTION TO TWELVE MONTHS ENDED MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1998 1998 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................... $ 22 $ 822 $ 38 $ 19 $ 185 $ 580 $ 1,451
Cost of revenue............. 6 1,429 10 101 596 722 957
------ -------- ----- ------- ------- ------- -------
Gross profit (loss)......... 16 (607) 28 (82) (411) (142) 494
Operating expenses:
Marketing and sales....... 65 9,645 174 1,119 3,697 4,655 4,614
General and
administrative(a)....... 24 1,655 179 236 511 729 1,555
Product development(a).... 46 1,232 168 150 302 612 520
Amortization of deferred
compensation............ -- 1,199 232 154 525 288 1,297
------ -------- ----- ------- ------- ------- -------
Total operating expenses.... 135 13,731 753 1,659 5,035 6,284 7,986
------ -------- ----- ------- ------- ------- -------
Loss from operations........ (119) (14,338) (725) (1,741) (5,446) (6,426) (7,492)
Interest income, net...... -- 316 1 48 139 128 132
------ -------- ----- ------- ------- ------- -------
Loss before provision for
income taxes.............. (119) (14,022) (724) (1,693) (5,307) (6,298) (7,360)
Provision for income
taxes..................... 1 1 -- -- -- 1 --
------ -------- ----- ------- ------- ------- -------
Net loss.................... $ (120) $(14,023) $(724) $(1,693) $(5,307) $(6,299) $(7,360)
====== ======== ===== ======= ======= ======= =======
Historical basic and
dilutive loss per
share(b).................. $(0.01) $ (1.36) $ (0.68)
====== ======== =======
Pro forma net loss per
share(b).................. $ (0.75) $ (0.24)
======== =======
Shares used to compute
historical basic and
dilutive loss per
share(b).................. 9,869 10,296 10,894
Shares used to compute pro
forma loss per share(b)... 18,714 30,387
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------ ----------------
1997 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 87 $16,357 $11,195
Working capital.......................................... 18 15,215 9,154
Total assets............................................. 214 19,969 16,679
Long term debt and capital lease obligations............. -- 183 590
Total stockholders' equity............................... 123 16,397 11,075
</TABLE>
- -------------------------
(a) Included in general and administrative and product development expenses are
non-cash charges totaling $370,000 related to common stock and warrants
issued as compensation to non-employees during the twelve months ended
December 31, 1998 and $180,000 related to warrants issued as compensation to
non-employees during the three months ended March 31, 1999, respectively.
(b) See Note 1 of Notes to the Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
23
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements, the accuracy of which
involve risks and uncertainties. We use words such as "anticipates," "believes,"
"plans," "expects," "future," "intends" and similar expressions to identify
forward-looking statements. This prospectus also contains forward-looking
statements attributed to certain third parties relating to their estimates
regarding the growth of the Internet, Internet advertising and online commerce
markets and spending. Prospective investors should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus. GoTo.com's actual results could differ materially from those
anticipated in these forward-looking statements for many reasons, including the
risks faced by GoTo.com described in "Risk Factors" and elsewhere in this
prospectus.
OVERVIEW
GoTo.com has created and operates an online marketplace that introduces
consumers who search the Internet using keyword terms to advertisers who have
bid in an ongoing auction for priority placement in the search results for those
keywords. Each advertiser pays GoTo.com the amount of its bid whenever a
consumer clicks on the advertiser's listings in the search results. Advertisers
must pay for each click-through, so they bid only on keywords relevant to their
offerings. Further, GoTo.com search result pages are not filled with multiple
banner advertisements, which allows these pages to load quickly, and a search on
the GoTo.com service leads directly to a list of 40 results per page.
Consequently, we believe GoTo.com offers consumers quick, easy and relevant
search results. In addition, the GoTo.com marketplace enables each advertiser to
choose the bid amount and advertisement placement that is optimal for its
business, which we believe provides advertisers with a cost-effective way to
target consumers. Consumers access the GoTo.com search service at our Web site
and through what we call the "search syndication network," a network of Web
sites that have integrated the GoTo.com search service into their sites or that
direct consumer traffic to our site.
A growing number of consumers using the GoTo.com search service at Web
sites across the Internet increases the incentive for advertisers to bid in the
GoTo.com marketplace. In turn, a breadth of relevant advertiser links increases
the value to consumers of using the GoTo.com search service. Consequently, we
believe a large and active base of advertisers, consumers and network affiliates
in our marketplace can stimulate growth in bidding, searches and paid
click-throughs transactions. From the month ended December 31, 1998 to the month
ended April 30, 1999, the number of consumer searches in the GoTo.com
marketplace increased approximately 85% to over 100 million per month and the
number of active, paying advertisers in our marketplace increased approximately
150% to over 7,500. Over the same period, the number of paid click-throughs per
month on our service increased approximately 400% to over 10 million.
GoTo.com was incorporated in September of 1997 and has a limited operating
history. We launched a proof-of-concept version of our search service in the
fiscal year ended December 31, 1997. Our pay-for-performance service was
announced in February 1998, and following further proof-of-concept testing, was
officially launched on June 1, 1998. Our service has achieved only limited
market acceptance to date. GoTo.com has devoted significant resources to
launching its search service, including developing an infrastructure
24
<PAGE> 31
and building a management team. GoTo.com's losses for the year ended December
31, 1998 and March 31, 1999 were $14.0 million and $7.4 million, respectively.
Our revenue consists of search listing advertisements and banner
advertisements. For the quarter ended March 31, 1999, banner advertisement
revenue constituted less than 15% of our revenue. Search listing advertisement
revenue is determined by multiplying the number of click-throughs on paid search
results by the amounts bid for applicable keywords. Search listing revenue is
recognized when earned based on click-through activity to the extent that the
advertiser has deposited sufficient funds with us or collection is probable.
Banner advertisement revenue is recognized when earned under the terms of the
contractual arrangement with the advertiser or advertising agency, provided that
collection is probable.
We believe that our search service will be more attractive to advertisers
as more consumers use it for their search needs and more attractive to consumers
as more advertisers bid for placement in our search results. A significant
component of our expenses consists of costs incurred to attract consumers to our
service. To date, we have primarily attracted consumers through online and
offline marketing, including radio and outdoor advertising as well as
advertising on the Internet. We expect to continue to rely upon these sources
for a significant proportion of consumer searches conducted on our service. Our
future success is dependent upon reducing our consumer acquisition costs and
increasing the revenue we derive from this traffic.
RESULTS OF OPERATIONS
The following table sets forth the results of operations for GoTo.com on a
quarterly basis for the five quarters ended March 31, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue.............................. $ 38 $ 19 $ 185 $ 580 $ 1,451
Cost of revenue...................... 10 101 596 722 957
----- ------- ------- ------- -------
Gross profit (loss).................. 28 (82) (411) (142) 494
Operating expenses:
Marketing and sales................ 174 1,119 3,697 4,655 4,614
General and administrative(a)...... 179 236 511 729 1,555
Product development(a)............. 168 150 302 612 520
Amortization of deferred
compensation.................... 232 154 525 288 1,297
----- ------- ------- ------- -------
Total operating expenses............. 753 1,659 5,035 6,284 7,986
----- ------- ------- ------- -------
Loss from operations................. (725) (1,741) (5,446) (6,426) (7,492)
Interest income, net............... 1 48 139 128 132
----- ------- ------- ------- -------
Loss before provision for income
taxes.............................. (724) (1,693) (5,307) (6,298) (7,360)
Provision for income taxes........... -- -- -- 1 --
----- ------- ------- ------- -------
Net loss............................. $(724) $(1,693) $(5,307) $(6,299) $(7,360)
===== ======= ======= ======= =======
</TABLE>
- -------------------------
(a) Included in general and administrative and product development expenses are
non-cash charges totaling $370,000 related to common stock and warrants
issued as compensation to non-employees during the twelve months ended
December 31, 1998 and $180,000 related to warrants issued as compensation to
non-employees during the three months ended March 31, 1999.
25
<PAGE> 32
QUARTERLY RESULTS OF OPERATIONS
REVENUE
Revenue for the first quarter of 1998 was attributable to banner revenue
generated during an early proof-of-concept version of our Web site, which was
introduced during fiscal 1997 and continued into the first quarter of 1998.
GoTo.com officially launched its site on June 1, 1998. Revenues declined in the
second quarter of 1998 as a result of our de-emphasis of sales of banner
advertising during this period in favor of developing our search listing
marketplace. Revenue increased in the third and fourth quarter of 1998 and first
quarter of 1999 as a result of significant growth in our search listing revenue
which increased as a result of growth in our advertiser base and an increase in
the number of consumers using our service. We expect that search listing
advertisement revenue will represent an increasing percentage of total revenue
in future periods.
COST OF REVENUE
Cost of revenue consists primarily of costs associated with maintaining our
Web site and fees paid to outside service providers that provide and manage our
unpaid listings and banner advertisements. Costs associated with maintaining our
Web site include salaries of related personnel, depreciation of Web site
equipment, co-location charges for our Web site equipment and software license
fees. Cost of revenue increased in each quarter presented. The increase was
primarily due to the growth of database and hardware costs associated with
increases in capacity requirements resulting from growth of traffic, searches
and click-through activity. The increase was also due to an increase in
personnel associated with maintaining the Web site. Further, increases in
traffic increased our expenses associated with the outside service provider
supplying our unpaid listings. We anticipate cost of revenue to continue to
increase as our traffic and number of advertisers increase.
OPERATING EXPENSES
Marketing and Sales. Marketing and sales expenses consist primarily of our
advertising and promotional expenditures such as online links from other Web
sites, banner advertisements on other sites and public relations, as well as
payroll and related expenses for personnel engaged in marketing, customer
service and sales functions.
Our sales and marketing contracts with other Web sites provide that we pay
these Web sites to direct traffic to our search service through online links
placed on their sites as well as banner advertisements promoting our service on
their sites. These banner advertisements contain online links to our Web site.
We also have contracts with Web sites that aggregate the search offerings of
several providers of search services. These contracts provide that our search
service is included in the aggregated search offerings on these sites. Our
contracts with providers of Internet browsers, like Microsoft Internet Explorer
and Netscape Communicator, provide that our search service is offered as an
offering on the browser's search page or as part of the browser's search
functionality. These contracts with other Web sites and browser providers are
typically short term, generally expiring within a year or less. Our costs for
traffic under these contracts vary widely and are generally incurred on either a
per impression basis where we pay a specified amount for each consumer who views
the Web page upon which the link or banner advertisement is placed, or a
click-through basis where we pay for each consumer who clicks through to our
service. Generally, these contracts do not require minimum payments, although
our contract with Microsoft Corporation provides for a minimum payment of $6
million paid in
26
<PAGE> 33
four installments. Set forth below are descriptions of certain of our existing
and historical agreements with Web sites and browser providers.
Microsoft: GoTo.com and Microsoft entered into a one-year agreement dated
September 16, 1998 under which Microsoft agreed to deliver at least 180 million
impressions to GoTo.com by placing GoTo.com's search service in various versions
of Microsoft's browser in exchange for which GoTo.com agreed to pay Microsoft
$6,000,000, payable in four equal quarterly installments. Expenses under this
agreement were $1.5 million and $1.5 million during the year ended December 31,
1998 and the three months ended March 31, 1999, respectively. Remaining
commitments to Microsoft under this agreement as of March 31, 1999 were
approximately $1.5 million. If the number of impressions under this agreement
continues at current levels, we do not expect to make additional payments under
the agreement other than as described above.
Netscape Home Page Agreement: In April 1999, Netscape and GoTo.com entered
into an agreement providing for GoTo.com to appear as one of the search engine
providers in the search portion of the Netscape home page. This agreement
originally expired on May 31, 1999 but was extended until June 30, 1999.
GoTo.com paid Netscape $100,000 as a guaranteed minimum under this agreement.
Under the agreement, Netscape guaranteed that GoTo.com will receive no fewer
than 2 million clicks per month and that GoTo.com would appear at the top of the
listing of search engine providers a minimum of 10% of the time. Any traffic in
excess of two and one-half million click-throughs will be charged to GoTo.com at
the rate of $0.04 per click-through.
Netscape Search Page Agreement: On June 1, 1998 Netscape and GoTo.com
entered into an agreement providing for GoTo.com to appear as one of the search
engine providers on the Netscape search page. This agreement originally expired
on May 31, 1999 but was extended until June 30, 1999. Under this agreement,
GoTo.com pays Netscape a monthly price based on the number of clicks from the
search page to the GoTo.com Web site. The monthly price ranges from $20,000 per
month to $60,000 per month based on the number of clicks generated from the
search page to GoTo.com's Web site in that month. Expenses under this agreement
were $210,000 and $90,000 during the year ended December 31, 1998 and the three
months ended March 31, 1999, respectively. Under this agreement, remaining
commitments to Netscape as of March 31, 1999 were approximately $60,000.
Netscape Advertiser Acquisition Agreement: On October 29, 1998, Netscape
and GoTo.com entered into an agreement under which Netscape places a link on
Netscape's Web site to information about becoming an advertiser on GoTo.com. The
cost for this agreement ranges from $0.40 per click from Netscape's Web site if
clicks are fewer than 1,650 clicks in any month, to $20,000 per month to $60,000
per month depending on the number of clicks in any particular month. Expenses
under this agreement were $30,000 and $40,000 during the year ended December 31,
1998 and the three months ended March 31, 1999.
Netscape Bookmark Agreement: On July 15, 1998 Netscape and GoTo.com entered
into a one-year agreement that placed GoTo.com in the Search Bookmark category
that is part of Netscape Communicator. Under this agreement, GoTo.com pays
Netscape $0.10 per click-through. Expenses under this agreement were $25,000 and
$65,000 during the year ended December 31, 1998 and the three months ended March
31, 1999.
Netscape Banner Ads: Banner advertising expense related to Netscape was
$1.5 million and $585,000 during the year ended December 31, 1998 and the three
months
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ended March 31, 1999, respectively. GoTo.com purchased banner ads from Netscape
for a three month period beginning April 1, 1999 for a monthly fee of $195,000
for 43,333,333 impressions in each month.
theglobe: GoTo.com and theglobe.com, Inc. entered into a one-year agreement
effective September 17, 1998 under which GoTo.com is the sole search provider
for theglobe.com. Under the agreement, GoTo.com incurs a minimum monthly expense
of $12,500, for a total of $150,000 over the term of the agreement, in addition
to certain expenses which may result from revenue sharing arrangements.
Goto.com's total expenses under this agreement were $57,000 and $45,000 during
the year ended December 31, 1998 and the three months ended March 31, 1999,
respectively.
Warner Brothers: GoTo.com and Warner Bros. Online entered into a one year
agreement beginning October 1, 1998 under which GoTo.com search boxes were
placed on Warner Bros. Online's web sites. In exchange for impressions at Warner
Bros. Online, GoTo.com has agreed to pay Warner Bros. Online $22,000 per month
for the first six months under the agreement and $44,000 per month for the
subsequent six months plus up to an additional $150,000 for promotions. The
agreement can be extended if Warner Bros. Online has not supplied GoTo.com with
at least 5.1 million visits by September 30, 1999. Expenses under this agreement
were $135,000 and $140,000 during the year ended December 31, 1998 and the three
months ended March 31, 1999. Remaining commitments to Warner Bros. Online as of
March 31, 1999 were approximately $275,000.
Xoom: Xoom and GoTo.com entered into an agreement beginning November 30,
1998 that would provide for GoTo.com to be the exclusive search provider for
Xoom.com and other Xoom properties. Under the agreement, GoTo.com agreed to pay
Xoom $500,000. In addition, GoTo.com agreed to pay monthly payments beginning in
January 1999, totaling $400,000 for the twelve-month period. Xoom, in turn, was
to provide GoTo.com with a minimum of 30 million clicks during the term of the
agreement. This agreement was terminated on May 7, 1999 and Xoom paid GoTo.com
$740,000 to terminate the agreement and GoTo.com made a final payment of
$40,000. Prior to the termination of the agreement, expenses were $70,000 and
$210,000 during the year ended December 31, 1998 and the three months ended
March 31, 1999, respectively.
In addition to the expenses relating to the agreements noted above,
additional expenses for all other Web sites were $3.3 million and $1.2 million
for the year ended December 31, 1998 and the three months ended March 31, 1999,
respectively.
Marketing and sales expenses increased throughout 1998. The increase was
primarily related to preparation for the official launch of our Web site, which
occurred in June 1998, and continued efforts to expand our presence throughout
the Internet. The increase was also attributable to an increase in marketing and
sales personnel from no employees on January 1, 1998 to 29 such employees on
December 31, 1998. However, these costs decreased slightly, $41,000, from the
fourth quarter of 1998 to the first quarter of 1999. This slight decrease was
due to slightly less advertising by GoTo.com during the first quarter of 1999.
We believe that continued investment in marketing, sales and distribution is
critical to attaining our strategic objectives and as a result, expect these
costs to continue increasing in the future.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses for executive and administrative
personnel; facilities; professional services, including consulting; travel and
other general corporate expenses.
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General and administrative expenses increased in each of the quarters presented.
These increases were primarily due to increases in headcount and related
expenses associated with the hiring of personnel and professional services. We
expect general and administrative expenses to continue to increase as we expand
our staff and incur additional costs related to the growth of our business and
compliance with the reporting obligations of a public company.
Product Development. Product development expenses consist primarily of
payroll and related expenses for personnel responsible for development of
features and functionality for our service as well as license fees for software
used in product development and depreciation for related equipment. Product
development expenses decreased in the second quarter of 1998 as a result of
certain consulting services incurred only in the first quarter as well as the
transition of some of these consultants to employees of GoTo.com and associated
decreases in compensation expense. Product development expenses increased during
the third and fourth quarters of 1998. The increase was primarily due to
increased staffing and associated costs relating to enhancing features and
functionality of our Web site, search experience and customer service. However,
costs decreased from the fourth quarter 1998 to the first quarter 1999. This
decrease was primarily due to a decrease in the use of outside services
partially offset by an increase in personnel. We believe that continued
investment in product development is critical to attaining our strategic
objectives and as a result, expect product development expenses to continue
increasing in the future.
Amortization of Deferred Compensation. In connection with this offering of
shares of our common stock, certain stock options granted during the year ended
December 31, 1998, the quarter ended March 31, 1999 and on April 6, 1999 have
been considered to be compensatory for financial accounting purposes. Total
compensation associated with these stock options amounted to $7.6 million. This
amount represents the difference between the exercise price of the stock options
and the deemed fair value of our common stock at the time of the grants or
issuances. Compensation associated with these stock options is amortized and
expensed over the applicable vesting periods. Approximately $1.2 million was
charged to operations for the twelve months ended December 31, 1998,
approximately $1.3 million was amortized and charged to operations for the
quarter ended March 31, 1999 and the remaining $5.1 million will be amortized
and charged over the vesting periods of the applicable options through the
fiscal year ending December 31, 2003 using a graded methodology. The stock
option compensation relates only to stock options awarded to employees, while
salaries and related benefits are included in the applicable cost of revenue or
operating expense line item. Issuances of common stock and warrants to non-
employees as compensation are included in the applicable cost of revenue or
operating expense line item.
INTEREST INCOME, NET
Interest income, net, consists primarily of earnings on our cash and cash
equivalents, net of interest expense attributable to equipment leases and any
taxes. Net interest income increased during the second and third quarters of
1998 and decreased during the fourth quarter of 1998. However, net interest
income increased from the fourth quarter 1998 to the first quarter 1999. These
changes were primarily due to fluctuations in average cash and cash equivalent
balances as we received funds from our financing activities. We expect interest
income, net, to increase following this offering as a result of increased cash
balances resulting from this offering.
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INCOME TAXES
As of December 31, 1998 we had $12.4 million of net operating loss
carryforwards for federal income tax purposes, which begin to expire in 2012. We
have provided a full valuation allowance on the deferred tax asset, consisting
primarily of net operating loss carryforwards, because of uncertainty regarding
its realizability. Certain changes in the ownership of our common stock, as
defined in the Internal Revenue Code of 1986 may limit the utilization of these
carryforwards.
THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1999
Our revenue increased to approximately $1.5 million for the quarter ended
March 31, 1999 compared to approximately $38,000 for the quarter ended March 31,
1998 as a result of continued growth in our advertiser base and the number of
consumers using our product. Cost of revenue increased to approximately $1.0
million for the quarter ended March 31, 1999 compared to approximately $10,000
for the quarter ended March 31, 1998 primarily due to increased database and
hardware capacity requirements and an increase in the number of personnel
required to support our Web site. Marketing and sales expenses increased to
approximately $4.6 million for the quarter ended March 31, 1999 compared to
approximately $174,000 for the quarter ended March 31, 1998, primarily due to an
increased distribution of our search service and additional personnel for
marketing and sales functions. General and administrative expenses increased to
approximately $1.6 million for the quarter ended March 31, 1999 compared to
approximately $179,000 for the quarter ended March 31, 1998, as a result of
increased headcount and related expenses associated with the hiring of
additional personnel and increased professional services, which were primarily
due to costs associated with this offering. Product development expenses
increased to approximately $520,000 for the quarter ended March 31, 1999
compared to approximately $168,000 for the quarter ended March 31, 1998 as a
result of increased staffing and associated costs relating to enhancing features
and functionality to our Web site and search service. Net interest income
increased to approximately $132,000 for the quarter ended March 31, 1999
compared to approximately $1,000 for the quarter ended March 31, 1998 as a
result of an increase in earnings on cash and cash equivalent balances.
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TWELVE MONTHS ENDED DECEMBER 31, 1998 AND INCEPTION TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
INCEPTION TO TWELVE MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
(IN THOUSANDS)
<S> <C> <C>
Revenue..................................... $ 22 $ 822
Cost of revenue............................. 6 1,429
------ --------
Gross profit (loss)......................... 16 (607)
Operating expenses:
Marketing and sales....................... 65 9,645
General and administrative(a)............. 24 1,655
Product development(a).................... 46 1,232
Amortization of deferred compensation..... -- 1,199
------ --------
Total operating expenses.................... 135 13,731
------ --------
Loss from operations........................ (119) (14,338)
Interest income, net...................... -- 316
------ --------
Loss before provision for income taxes...... (119) (14,022)
Provision for income taxes.................. 1 1
------ --------
Net loss.................................... $ (120) $(14,023)
====== ========
</TABLE>
- -------------------------
(a) Included in general and administrative and product development expenses are
non-cash charges totalling $370,000 related to common stock and warrants as
compensation to non-employees during the twelve months ended December 31,
1998.
Our fiscal year runs from January 1 through December 31. We were founded in
September of 1997. We completed proof-of-concept testing and formally commenced
operations on June 1, 1998. As a result of these factors, comparisons between
the fiscal years ended December 31, 1997 and 1998 have limited meaning.
Our revenue increased to approximately $822,000 for the twelve months ended
December 31, 1998 compared to approximately $22,000 for the period from
inception to December 31, 1997 as a result of our commencement of operations as
well as growth in our advertiser base and an increase in the number of consumers
using our product. Cost of revenue increased to approximately $1.4 million for
the twelve months ended December 31, 1998 from approximately $6,000 for the
period from inception to December 31, 1997 primarily due to increased database
and hardware capacity requirements as well as an increase in the number of
personnel required to support our Web site. Marketing and sales expenses
increased to approximately $9.6 million for the twelve months ended December 31,
1998 from approximately $65,000 for the period from inception to December 31,
1997, primarily as a result of increased distribution of our search service and
additional personnel for marketing and sales functions. General and
administrative expenses increased to approximately $1.7 million for the twelve
months ended December 31, 1998 from approximately $24,000 for the period from
inception to December 31, 1997 primarily due to increased headcount and related
expenses associated with the hiring of additional personnel and increased
professional services. Product development expenses increased to approximately
$1.2 million for the twelve months ended December 31, 1998 from approximately
$46,000 for the period from inception to December 31, 1997 primarily due to
increased staffing and associated costs relating to enhancing features and
functionality to our Web site, search experience and customer service. Net
interest income increased to approximately $316,000 for the twelve months
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ended December 31, 1998 from no interest income for the period from inception to
December 31, 1997 primarily due to earnings on cash and cash equivalent
balances.
LIQUIDITY AND CAPITAL RESOURCES
GoTo.com has historically satisfied its cash requirements primarily through
private placements of equity securities. GoTo.com also increases liquidity by
leasing rather than buying some equipment. Through May 15, 1999, GoTo.com has
raised approximately $53.9 million through equity financings.
Net cash used in operating activities totaled approximately $46,000 for the
period from inception through December 31, 1997 and $11.2 million for the year
ended December 31, 1998. The increase in the year ended December 31, 1998 was
primarily attributable to cash used in marketing and sales efforts as well as
product development, partially offset by increases in revenue. Net cash used in
operating activities totaled $252,000 for the quarter ended March 31, 1998 and
$5.1 million for the quarter ended March 31, 1999. The increase in the quarter
ended March 31, 1999 was primarily attributable to cash used in marketing and
sales efforts as well as product development, partially offset by increases in
revenue.
Net cash used in investing activities totaled approximately $110,000 for
the period from inception through December 31, 1997 and $1.6 million for the
year ended December 31, 1998. This increase resulted primarily from capital
expenditures for property and equipment. Net cash used in investing activities
totaled approximately $94,000 for the quarter ended March 31, 1998 and $1.1
million for the quarter ended March 31, 1999. This increase resulted from
capital expenditures for properties and equipment.
Net cash provided by financing activities totaled approximately $243,000
for the period from inception through December 31, 1997 and $29.0 million for
the year ended December 31, 1998. The increase resulted primarily from the net
proceeds from issuances of convertible preferred stock. Net cash provided by
financing activities totaled approximately $2.7 million for the quarter ended
March 31, 1998 and $1.0 million for the quarter ended March 31, 1999. The
decrease was primarily due to the lack of equity financing activities during the
quarter ended March 31, 1999.
On April 14, 1999, the Company issued 3,628,447 shares of preferred stock
for $6.89 per share and received gross proceeds of approximately $25 million.
GoTo.com's principal sources of liquidity consisted of $16.4 million of
cash and cash equivalents, as of December 31, 1998, and $11.2 million of cash
and cash equivalents as of March 31, 1999. Although GoTo.com has no material
long-term commitments for capital expenditures, it anticipates an increase in
its capital expenditures consistent with anticipated growth of operations,
infrastructure and personnel.
GoTo.com believes that the net proceeds from this offering, combined with
its current cash and short-term investments, will be sufficient to meet its
anticipated liquidity needs for working capital and capital expenditures for at
least 12 months from the date of this offering. After this period, GoTo.com may
seek additional capital through the issuance of debt or equity depending upon
results of operations, market conditions or unforeseen opportunities. GoTo.com's
future liquidity and capital requirements will depend upon numerous factors. The
pace of expansion of GoTo.com's operations will affect GoTo.com's capital
requirements. GoTo.com may also have increased capital requirements in order to
respond to competitive pressures. In addition, GoTo.com may need additional
capital to
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fund acquisitions of complementary products, technologies or businesses.
GoTo.com's forecast of the period of time through which its financial resources
will be adequate to support its operations is a forward-looking statement that
involves risks and uncertainties and actual results could vary materially as a
result of the factors described above. If GoTo.com requires additional capital
resources, GoTo.com may seek to sell additional equity or debt securities or
obtain a bank line of credit. The sale of additional equity or convertible debt
securities could result in additional dilution to GoTo.com's stockholders. There
can be no assurance that any financing arrangements will be available in amounts
or on terms acceptable to GoTo.com, if at all.
YEAR 2000 COMPLIANCE
We cannot assure you that we will not experience unanticipated negative
consequences from year 2000 problems, including material costs caused by
undetected errors or defects in the technology used in our internal systems.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
the year 2000 and 21st century dates from other 20th century dates. As a result,
computer systems and/or software products used by many companies may need to be
upgraded to solve this problem.
Our online services and their associated and supporting tools, Web sites
and infrastructure were designed and developed to be year 2000 compliant. Our
internal systems, including those used to deliver our services, utilize
third-party hardware and software. We have begun the process of contacting the
vendors of these infrastructure products in order to gauge their year 2000
compliance. Based on vendors' representations received thus far, we believe that
the third-party hardware and software we use is year 2000 compliant, although we
have not heard from all of these vendors.
To date, we have spent less than an estimated $10,000 to address year 2000
issues. We presently estimate that the total remaining cost of addressing year
2000 issues will not be material. These estimates were derived utilizing a
number of assumptions, including the assumption that we have already identified
any significant year 2000 issues. However, these assumptions may not be
accurate, and actual results could differ materially from those anticipated. In
view of our year 2000 review and remediation efforts to date, the recent
development of our services, the recent installation of our information
technology equipment and systems, we do not consider contingency planning to be
necessary at this time. We believe that the most likely worst case scenario is
that the Internet fails and we are unable to offer our services.
If we discover that certain of our services need modification, or certain
of our third-party hardware and software is not year 2000 compliant, we will try
to make modifications to our services and systems on a timely basis. We do not
believe that the cost of these modifications will materially affect our
operating results. However, we cannot assure you that we will be able to modify
these products, services and systems in a timely, cost-effective and successful
manner and the failure to do so could have a material adverse effect on our
business and operating results.
Year 2000 compliance issues also could cause a significant number of
companies, including our current advertisers, to reevaluate their current system
needs and, as a result, consider switching to other systems and means of
advertising. This could result in a material adverse effect on our business,
operating results and financial condition. Also,
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during the next six months there is likely to be an increased advertiser focus
on addressing year 2000 compliance issues, creating the risk that advertisers
may reallocate expenditures to fix year 2000 problems of existing systems.
Although we have not experienced these effects to date, if advertisers defer
Internet advertising and commerce and related services because of such a
reallocation, it would adversely affect our business and operating results.
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BUSINESS
OVERVIEW
GoTo.com has created and operates an online marketplace that introduces
consumers who search the Internet using keyword terms to advertisers who have
bid in an ongoing auction for priority placement in the search results for those
keywords. Each advertiser pays GoTo.com the amount of its bid whenever a
consumer clicks on the advertiser's listings in the search results. Advertisers
must pay for each click-through, so they bid only on keywords relevant to their
offerings. Further, GoTo.com search result pages are not filled with multiple
banner advertisements, which allows these pages to load quickly, and a search on
the GoTo.com service leads directly to a list of 40 results per page.
Consequently, we believe GoTo.com offers consumers quick, easy and relevant
search results. In addition, the GoTo.com marketplace enables each advertiser to
choose the bid amount and advertisement placement that is optimal for its
business, which we believe provides advertisers with a cost-effective way to
target consumers. Consumers access the GoTo.com search service at our Web site
and through what we call the "search syndication network," a network of Web
sites that have integrated the GoTo.com search service into their sites or that
direct consumer traffic to our site.
INDUSTRY OVERVIEW
GROWTH OF CONSUMER USE AND COMMERCIALIZATION OF THE INTERNET
The Internet is a global medium, enabling millions of people worldwide to
share information, communicate and conduct business electronically. The
availability of powerful new tools that facilitate the development and
distribution of Internet content has led to a proliferation of information,
products and services offered on the Internet and dramatic growth in the number
of consumers using the Internet. International Data Corporation, commonly
referred to as IDC, estimates that the number of Internet users will grow from
approximately 97 million worldwide in 1998 to approximately 320 million
worldwide by the end of 2002. In addition, commerce conducted over the Internet
has grown and is expected to continue to grow dramatically. IDC estimates that
the percentage of Internet users buying goods and services on the Internet will
increase from approximately 28% at the end of 1998 to approximately 40% in 2002,
and that over the same period of time, the total value of goods and services
purchased over the Internet will increase from approximately $32.4 billion to
approximately $425.7 billion.
GROWTH IN INTERNET ADVERTISING AND INITIAL DEPENDENCE ON A FEW LARGE
PORTALS
The Internet has emerged as an attractive new medium for advertisers of
information, products and services to reach consumers. Forrester Research
estimates that the total worldwide dollar value of Internet advertising will
increase from $1.5 billion in 1998 to $15.2 billion in 2003, including $10.4
billion in the United States.
Historically, advertisers have been particularly attracted to sites
providing Web directories or search engines, such as Yahoo! and Excite. These
search services enable consumers to search the Internet for a listing of Web
sites based on a specific topic, product or service of interest. Search services
are, after e-mail, the most frequently used tool on the Internet. As a result,
Web sites providing search services offer advertisers significant reach into the
Internet audience. These Web sites also offer advertisers the opportunity to
target consumer interests based on keyword or topical search requests.
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Many Web sites providing search capabilities have realized that increasing
the number, frequency and duration of consumer visits to their sites yields
greater potential advertising and electronic commerce opportunities.
Accordingly, these search sites have evolved into "portals" which, in addition
to providing consumers with search functionality, deliver a broader array of
content and services in an effort to retain consumers at their sites.
CONSUMERS' UNMET SEARCH NEEDS
The traditional search services of the portals have had difficulty scaling
as the volume and diversity of Internet content has grown. For example, on the
portals, consumers must frequently click-through multiple branches of a
hierarchical directory to locate relevant Web sites. This unwieldy process
actually benefits the portals because they can earn additional advertising
revenue by exposing consumers to multiple pages and prolonging the search
process.
In addition, traditional search engines rely upon an unregulated process
for assigning results to keywords that often generates irrelevant search
listings. Search engines that use automated search technology to catalog search
results generally rely on invisible Web site descriptions or "meta tags" that
are authored by Web site operators. Operators may freely tag their sites as they
choose. Consequently, some operators tag their sites with popular search terms
which are not relevant because by doing so they may attract additional consumer
attention at little or no marginal cost. In addition, many Web sites have
similar tags, and automated search technology is not equipped to prioritize
results in accordance with consumers' preferences.
The portals' objective to retain the consumer and thereby realize
additional advertising revenue is in direct conflict with the consumer's desire
to quickly and easily find relevant information, products and services. As a
result of this conflict and the difficulties traditional search engines are
encountering as the number of Web sites on the Internet continues to grow,
consumer searches now frequently generate hundreds and often even thousands of
results, many of which may have little relevance to the consumer's interest.
LIMITATIONS OF TRADITIONAL INTERNET ADVERTISING
As a result of portals' cost of revenue and operating expenses, portals
have focused on sales of advertisements to relatively large accounts, often on
an exclusive basis. Consequently, GoTo.com believes Internet advertising to date
has generally been limited to a relatively small number of large advertisers
capable of paying significant advertising fees.
Moreover, traditional online advertising fails to exploit many of the
unique attributes of the Internet. Internet advertising can offer a level of
targetability, interactivity and measurability not generally available in other
media. With the proper tools, Internet advertisers have the ability to target
their messages to specific groups of consumers and receive prompt feedback as to
the effectiveness of their advertising campaigns. Accordingly, the Internet can
give advertisers the opportunity to develop one-to-one relationships with
consumers worldwide without a local market presence. However, to date, Internet
advertising has primarily taken the form of banner or sponsorship advertisements
which, like traditional media advertising, are typically priced with advertisers
paying for exposures to potential consumers. This approach, which is called
impression-based advertising, inefficiently exploits the Internet's direct
marketing potential, resulting in low consumer click-through rates averaging
approximately 1%. Advertisers therefore are paying for
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exposure to many viewers who are not interested in the product or service
advertised. As a result of these factors, advertisers are increasingly
concluding that portals do not represent an effective Internet advertising
solution. Jupiter Communications estimates that less than 5% of companies are
highly likely to renew their current advertising agreements with portal sites.
OUTSOURCED INTERNET SERVICES
To date, online advertising spending has been highly concentrated on portal
sites. Like the portals, other Web sites seek to attract and retain consumer
attention and maximize the revenue opportunity represented by that attention.
Web sites other than large portals currently represent approximately 85% of all
page views on the Web according to Forrester Research. However, as a result of
the concentration of Internet advertising on the portals, other Web sites are
disadvantaged in their efforts to monetize consumer attention. In an effort to
more effectively capitalize on their consumer audiences and provide more
valuable advertising vehicles, many Web sites are now outsourcing popular
consumer services and content offerings. In traditional media such as
television, radio and print, syndicated content has been widely used by local
media in order to augment their core programming and, in so doing, extend their
audience reach and retention. On the Internet, providers have emerged offering
Web sites syndicated services such as search, e-mail and mapping as well as
content such as stock quotes and news wires. Web sites use these offerings to
enhance consumer usage, loyalty and retention.
THE NEED FOR AN ONLINE CONSUMER AND ADVERTISER MARKETPLACE
Conventional search increasingly generates multiple pages of irrelevant
results. At the same time, the diffusion of consumer attention across the
Internet, the concentration of online advertising on large Web sites, the
pricing of Internet advertisements on an impression basis with significant
minimum expenditure requirements, and the frequent use of exclusive
arrangements, have made it increasingly difficult for advertisers to cost-
effectively acquire qualified consumer leads on the Internet. This is
particularly true for advertisers seeking to reach targeted markets, despite the
unique abilities of the Internet to facilitate direct marketing. As a result,
consumers' needs and advertisers' desires to meet those needs often go
unmatched. GoTo.com believes there is a significant need for a sophisticated,
distributed online marketplace to serve both of these constituencies by
providing a targeted, cost-effective Internet advertising solution.
THE GOTO.COM SOLUTION
We believe the GoTo.com marketplace offers consumers quick, easy and
relevant search results while providing advertisers with a cost-effective way to
target consumers. Key elements of GoTo.com's solution include the following:
SEARCH MADE SIMPLE. GoTo.com is dedicated to assisting consumers in easily
finding what they are looking for on the Internet. GoTo.com does not fill its
home page with banner advertisements, which facilitates faster downloading than
portal search engines. Instead, the GoTo.com home page prominently features the
GoTo.com search box, without distractions, which we believe enables consumers to
easily execute their searches. By generating a list of 40 results per page,
GoTo.com frequently allows consumers to locate a relevant destination site on
the first page of results. By foregoing exclusive advertising relationships and
extraneous content, GoTo.com removes the otherwise inherent conflict in
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assisting consumers to locate relevant information and to pass quickly through
GoTo.com to the desired information source.
Since advertisers must pay for each click-through to their Web site,
advertisers select and bid on those search keywords that are most relevant to
their offerings. We believe this improves a consumer's ability to quickly and
easily find relevant search listings for information, products and services on
the GoTo.com service. GoTo.com believes that its pay-for-performance advertising
model aligns advertiser and consumer interests. Consequently, we believe
GoTo.com can provide more relevant and higher quality search results by
assigning a cost to advertiser placement decisions. In an independent online
consumer survey recently conducted by NPD Online Research and funded by a number
of providers of search services including GoTo.com, GoTo.com ranked ahead of
Yahoo!, Excite, Lycos and Infoseek in the category "frequency of finding
information sought every time."
TARGETED PAY-FOR-PERFORMANCE ADVERTISING. Any advertiser in the GoTo.com
marketplace is able to specifically target those consumers who are interested in
the information, products or services offered by the advertiser. We believe
GoTo.com enables highly efficient and cost-effective advertising expenditures.
Advertisers pay only for consumers who elect to visit the advertiser's Web site
after searching targeted keywords on which the advertiser has bid. As a result,
advertisers pay only for self-qualified leads rather than exposures to potential
consumers, as with impression-based advertising.
Advertisers maintain control on a real-time basis over the amounts of their
bids for keywords they have selected and the aggregate amount spent on
advertising with GoTo.com. As a result, advertisers are able to precisely
control their costs of customer acquisition using the GoTo.com service. In
addition, GoTo.com does not enter into exclusive advertising arrangements,
thereby enabling access to the marketplace by all potential advertisers.
SEARCH SYNDICATION NETWORK. GoTo.com offers its search service at no charge
to Web sites participating in what we call the "search syndication network," a
network of Web sites that have included the GoTo.com search service on their
sites or that direct consumer traffic to the GoTo.com Web site. Web sites
participating in our search syndication network, who we call "network
affiliates," can provide Internet search capabilities with a search box on their
sites which generate GoTo.com search results while maintaining the look, feel
and navigation features specific to the network affiliates' sites. This enables
network affiliates to enhance their users' experience with search functionality
and to generate additional revenue from the consumer audiences visiting their
sites through the sale of advertising on search pages. Because GoTo.com focuses
on deriving its revenue primarily from search results rather than banner
advertising, GoTo.com can provide these benefits without charging licensing or
set-up fees and without competition for consumer attention for non-search
content. Also, GoTo.com offers an outsourced solution for selling banner
advertising for searches conducted on network affiliates' sites, and allows the
network affiliates to keep resulting banner advertising revenue. GoTo.com's
agreements with its network affiliates are generally terminable at any time by
either party. Through the search syndication network, GoTo.com is building
relationships with network affiliates that are intended to increase the number
of click-throughs delivered to advertisers, which would increase the value of
the GoTo.com advertising proposition.
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GOTO.COM STRATEGY
GoTo.com's objective is to expand participation and increase transactions
in its online marketplace. We believe that a critical mass of advertisers,
consumers and network affiliates supports a self-reinforcing cycle that
stimulates growth in the number of marketplace participants which, in turn, can
increase the efficiency of the GoTo.com service. We further believe that this
efficiency will increase the competition for prominent search result placement
and may, thereby, increase the amounts advertisers are willing to bid for
participation in the GoTo.com marketplace. We believe that advertisers are
attracted to GoTo.com as a result of the large number of opportunities to create
interested consumers, and that consumers are attracted to GoTo.com by the
breadth of relevant advertiser links displayed on the GoTo.com service. A large
and active base of paying advertisers increases GoTo.com's ability to generate
comprehensive, relevant search results and to monetize consumer search requests.
The resulting revenue opportunity provides the incentive for GoTo.com's network
affiliates to direct traffic to our syndicated search offering. Key elements of
GoTo.com's strategy are:
INCREASE ADVERTISERS THROUGH AUTOMATED SIGN UP. The GoTo.com marketplace
currently supports over 7,500 advertisers. GoTo.com intends to substantially
increase the number of paying advertisers using the GoTo.com marketplace
primarily through the use of its online automated sign up form. To build further
advertiser participation, GoTo.com will also leverage its reputation for
pay-for-performance, direct response marketing among advertisers and their
intermediaries, such as advertising consultants and media buyers. GoTo.com
intends to reach these constituencies through multiple marketing channels,
including targeted online marketing, mailings, sponsorship of Web sites where
advertisers congregate, participation at trade shows and appearances in
advertising industry periodicals. We believe that the GoTo.com marketplace is
scalable and can support a broader and deeper array of advertisers than
traditional online advertising solutions. Accordingly, GoTo.com intends to
capture a significant share of the advertising from the growing number of new
online businesses.
EXPAND CONSUMER BASE WITH SEARCH SYNDICATION NETWORK. The GoTo.com
marketplace currently supports over 10 million paid consumer click-throughs per
month. GoTo.com intends to substantially increase the number of consumers
participating in the GoTo.com marketplace. By providing the GoTo.com search
engine as a syndicated service to destination Web sites, GoTo.com plans to
leverage and grow the search syndication network to greatly expand its consumer
reach. Further, GoTo.com intends to increase traffic at the GoTo.com home page
through a variety of consumer marketing and acquisition initiatives, including
search box banner advertisements as well as through paid placements within
browser environments and payments to destination Web sites that direct traffic
to the GoTo.com home page.
UTILIZE TECHNOLOGY TO FURTHER EXPAND OPERATIONS INFRASTRUCTURE. The
services GoTo.com currently provides to advertisers include automated account
creation and keyword bidding, as well as a proprietary account maintenance
product that allows advertisers to log-in to a secure Web site where they can
perform basic account management functions such as adding funds to their
accounts, viewing performance reports and changing their bids. GoTo.com intends
to utilize its technology to grow an efficient and scalable operations
infrastructure enabling millions of billing events for hundreds of thousands of
advertisers at a high quality service level and at a relatively low internal
cost. In addition, GoTo.com plans to continue to enhance the services it
provides to advertisers. GoTo.com also intends to increasingly automate the sale
of advertising, enabling
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advertisers to have greater control over, and satisfaction with, advertising on
the GoTo.com marketplace. GoTo.com reduces its cost of revenue and customer
service costs because a majority of advertisers open and maintain their accounts
with GoTo.com through an automated interface.
DERIVE STRATEGIC ADVANTAGE FROM EFFICIENT COST STRUCTURE. GoTo.com believes
that its business model provides a number of competitive advantages. The
advertisers participating in the GoTo.com marketplace provide their own Web site
descriptions and, through competitive bidding, with bid amounts visible to all
participants, rank and set the prices paid for search results. This reduces the
costs GoTo.com must pay to perform these tasks. In addition, our business model
does not require us to carry any physical inventory or build or manage creative
materials. GoTo.com is therefore able to direct the capital that would otherwise
be used for these purposes towards growing our business, enhancing our services,
building brand awareness and pursuing other strategic opportunities.
THE GOTO.COM SERVICE
SEARCH TOOL
Consumers use the GoTo.com service to locate desired providers of
information, products and services. The home page of GoTo.com's stand-alone Web
site features a prominent search box and no banner advertising, enabling the
page to load quickly. In addition, consumers can access the GoTo.com service
from any of the approximately 40,000 Web sites currently participating in the
search syndication network. After entering a targeted keyword search, consumers
are presented with a list of 40 search results per page. This relatively large
number of results per page frequently enables one-click searches. Consumers then
access the desired Web site by clicking on the hypertext links included in the
search results. To further assist consumers in locating desired Web sites,
GoTo.com search results pages include suggested related searches.
AUCTION FOR PRIORITY PLACEMENT OF SEARCH RESULTS
GoTo.com search results are prioritized for consumers based on advertiser
bids for placement within the listing. Paying advertisers are listed in
descending bid order, with the highest bidder appearing at the top of the search
results. Bids are expressed as the amount advertisers pay GoTo.com for each
consumer click-through. As evidenced by the superior consumer click-through
rates associated with the top search result listings, consumers are attracted to
advertisers listed highest in the search results. Based on GoTo.com search data,
a disproportionate number of GoTo.com consumers click on the first, second or
third Web sites listed. Following paid priority results, GoTo.com offers a
listing of Web sites generated by traditional search technology provided through
a partnership with Inktomi Corporation.
Advertiser bid amounts are displayed under each search result. By
disclosing bids to both consumers and other advertisers, GoTo.com promotes an
open and efficient marketplace. Using the open bidding information, advertisers
are able to determine the bids necessary to achieve their desired ranking, which
enables competition among advertisers and promotes greater relevancy for
consumers.
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ADVERTISING ON GOTO.COM
GoTo.com offers a self-service, automated online form where advertisers can
sign up and bid for search listings. Potential advertisers find the GoTo.com Web
site directly or through custom offer pages on other sites. On the welcome page
of the sign up form, potential advertisers are able to link to a frequently
asked questions page that contains information about GoTo.com's editorial
policies, instructions for opening a new account and account maintenance
information.
As part of the sign up process, advertisers enter basic contact information
and select a unique user ID and password for accessing and maintaining account
information online using GoTo.com's proprietary account maintenance product.
Each advertiser also enters keywords on which it wishes to bid, the bid amounts
and information about the advertiser's Web site including a title customized for
the applicable keyword, a description of its Web site offerings and information
necessary for hypertext linking. Advertisers are only required to provide a
textual description of their offerings, as opposed to labor-intensive graphics
and other multimedia content, which significantly enlarges the number of
potential participants.
During the sign up process, advertisers also enter payment information.
Advertisers must currently commit to a minimum initial payment of $25.00. An
advertiser may choose to pay by check or credit card. After entering payment
information, advertisers are presented with the terms and conditions of
advertising on the GoTo.com service, which must be accepted before an order is
processed. After the advertiser accepts these terms, a confirmation screen
appears with a tracking number for the advertiser's convenience. If an
advertiser contacts GoTo.com's customer service, the tracking number enables us
to quickly find the advertiser's enrollment application. Once the sign up
process has been completed, the advertiser receives a confirmation by e-mail
that the sign up form was received by GoTo.com.
By automating the sale and maintenance of advertising accounts, GoTo.com
enables advertisers to have greater control over, and satisfaction with, the
advertising process, while simultaneously reducing GoTo.com's cost of revenue.
GoTo.com also employs an experienced sales and support team to attract large
accounts, to review advertising for relevancy and to assist advertisers in cases
where more personal attention is required.
GoTo.com offers advertisers a variety of payment plans to ensure that
advertisers maintain sufficient funds in their GoTo.com account and remain
active on the service. Advertisers on the GoTo.com service may pay for
advertising in advance, or for qualified accounts, may elect to be invoiced.
GoTo.com notifies advertisers using its service by e-mail when account balances
are running low. Advertisers may authorize GoTo.com to either charge them on a
monthly basis to refresh their account or charge them an additional fixed amount
each time their account approaches a zero balance.
To promote fairness and efficiency, GoTo.com has adopted marketplace rules
and policies. For example, advertisers are not permitted to bid on search
results unrelated to their Web site offerings, use false or misleading
advertising, or engage in defamation, harassment or other illegal activity. Each
advertiser's compliance with these rules and policies is enforced in part by
other advertisers participating in the service. The GoTo.com service also uses
proprietary fraud protection systems designed to ensure that advertisers pay
only for genuine click-throughs by consumers.
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MARKETING AND SALES
GoTo.com attracts consumer attention to its service through direct
marketing efforts, as well as through the search syndication network. GoTo.com
attracts consumers with banner advertisements incorporating the GoTo.com search
box on several major Web sites. In addition to online marketing with
high-traffic Web sites, GoTo.com has established relationships with browsers
that offer GoTo.com search functionality as a default search service in rotation
with other providers of search functionality.
Our sales and marketing contracts with other Web sites provide that we pay
these Web sites to direct traffic to our search service through online links
placed on their sites as well as banner advertisements promoting our service on
their sites. These banner advertisements contain online links to our Web site.
We also have contracts with Web sites that aggregate the search offerings of
several providers of search services. These contracts provide that our search
service is included in the aggregated search offerings on these sites. Our
contracts with providers of Internet browsers, like Microsoft Internet Explorer
and Netscape Communicator, provide that our search service is offered as an
offering on the browser's search page or as part of the browser's search
functionality. These contracts with other Web sites and browser providers are
typically short term, generally expiring within a year or less. Our costs for
traffic under these contracts vary widely and are generally incurred on either a
per impression basis where we pay a specified amount for each consumer who views
the Web page upon which the link or banner advertisement is placed, or a
click-through basis where we pay for each consumer who clicks through to our
service. Generally, these contracts do not require minimum payments, although
our contract with Microsoft Corporation provides for a minimum payment of $6
million paid in four installments. Set forth below are descriptions of certain
of our existing and historical agreements with Web sites and browser providers.
Microsoft: GoTo.com and Microsoft entered into a one-year agreement dated
September 16, 1998 under which Microsoft agreed to deliver at least 180 million
impressions to GoTo.com by placing GoTo.com's search service in various versions
of Microsoft's browser in exchange for which GoTo.com agreed to pay Microsoft
$6,000,000, payable in four equal quarterly installments. Expenses under this
agreement were $1.5 million and $1.5 million during the year ended December 31,
1998 and the three months ended March 31, 1999, respectively. Remaining
commitments to Microsoft under this agreement as of March 31, 1999 were
approximately $1.5 million. If the number of impressions under this agreement
continues at current levels, we do not expect to make additional payments under
the agreement other than as described above.
Netscape Home Page Agreement: In April 1999, Netscape and GoTo.com entered
into an agreement providing for GoTo.com to appear as one of the search engine
providers in the search portion of the Netscape home page. This agreement
originally expired on May 31, 1999 but was extended until June 30, 1999.
GoTo.com paid Netscape $100,000 as a guaranteed minimum under this agreement.
Under the agreement, Netscape guaranteed that GoTo.com will receive no fewer
than 2 million clicks per month and that GoTo.com would appear at the top of the
listing of search engine providers a minimum of 10% of the time. Any traffic in
excess of two and one-half million click-throughs will be charged to GoTo.com at
the rate of $0.04 per click-through.
Netscape Search Page Agreement: On June 1, 1998 Netscape and GoTo.com
entered into an agreement providing for GoTo.com to appear as one of the search
engine providers on the Netscape search page. This agreement originally expired
on May 31, 1999 but was
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extended until June 30, 1999. Under this agreement, GoTo.com pays Netscape a
monthly price based on the number of clicks from the search page to the GoTo.com
Web site. The monthly price ranges from $20,000 per month to $60,000 per month
based on the number of clicks generated from the search page to GoTo.com's Web
site in that month. Expenses under this agreement were $210,000 and $90,000
during the year ended December 31, 1998 and the three months ended March 31,
1999, respectively. Under this agreement, remaining commitments to Netscape as
of March 31, 1999 were approximately $60,000.
Netscape Advertiser Acquisition Agreement: On October 29, 1998, Netscape
and GoTo.com entered into an agreement under which Netscape places a link on
Netscape's Web site to information about becoming an advertiser on GoTo.com. The
cost for this agreement ranges from $0.40 per click from Netscape's Web site if
clicks are fewer than 1,650 clicks in any month, to $20,000 per month to $60,000
per month depending on the number of clicks in any particular month. Expenses
under this agreement were $30,000 and $40,000 during the year ended December 31,
1998 and the three months ended March 31, 1999.
Netscape Bookmark Agreement: On July 15, 1998 Netscape and GoTo.com entered
into a one-year agreement that placed GoTo.com in the Search Bookmark category
that is part of Netscape Communicator. Under this agreement, GoTo.com pays
Netscape $0.10 per click-through. Expenses under this agreement were $25,000 and
$65,000 during the year ended December 31, 1998 and the three months ended March
31, 1999.
Netscape Banner Ads: Banner advertising expense related to Netscape was
$1.5 million and $585,000 during the year ended December 31, 1998 and the three
months ended March 31, 1999, respectively. GoTo.com purchased banner ads from
Netscape for a three month period beginning April 1, 1999 for a monthly fee of
$195,000 for 43,333,333 impressions in each month.
theglobe: GoTo.com and theglobe.com, Inc. entered into a one-year agreement
effective September 17, 1998 under which GoTo.com is the sole search provider
for theglobe.com. Under the agreement, GoTo.com incurs a minimum monthly expense
of $12,500, for a total of $150,000 over the term of the agreement, in addition
to certain expenses which may result from revenue sharing arrangements.
Goto.com's total expenses under this agreement were $57,000 and $45,000 during
the year ended December 31, 1998 and the three months ended March 31, 1999,
respectively.
Warner Brothers: GoTo.com and Warner Bros. Online entered into a one year
agreement beginning October 1, 1998 under which GoTo.com search boxes were
placed on Warner Bros. Online's web sites. In exchange for impressions at Warner
Bros. Online, GoTo.com has agreed to pay Warner Bros. Online $22,000 per month
for the first six months under the agreement and $44,000 per month for the
subsequent six months plus up to an additional $150,000 for promotions. The
agreement can be extended if Warner Bros. Online has not supplied GoTo.com with
at least 5.1 million visits by September 30, 1999. Expenses under this agreement
were $135,000 and $140,000 during the year ended December 31, 1998 and the three
months ended March 31, 1999. Remaining commitments to Warner Bros. Online as of
March 31, 1999 were approximately $275,000.
Xoom: Xoom and GoTo.com entered into an agreement beginning November 30,
1998 that would provide for GoTo.com to be the exclusive search provider for
Xoom.com and other Xoom properties. Under the agreement, GoTo.com agreed to pay
Xoom $500,000. In addition, GoTo.com agreed to pay monthly payments beginning in
January
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1999, totaling $400,000 for the twelve-month period. Xoom, in turn, was to
provide GoTo.com with a minimum of 30 million clicks during the term of the
agreement. This agreement was terminated on May 7, 1999 and Xoom paid GoTo.com
$740,000 to terminate the agreement and GoTo.com made a final payment of
$40,000. Prior to the termination of the agreement, expenses were $70,000 and
$210,000 during the year ended December 31, 1998 and the three months ended
March 31, 1999, respectively.
In addition to the expenses relating to the agreements noted above,
additional expenses for all other Web sites were $3.3 million and $1.2 million
for the year ended December 31, 1998 and the three months ended March 31, 1999,
respectively.
GoTo.com has also established a search syndication network consisting of
approximately 40,000 destination Web sites operated by third parties across the
Internet. Web sites in the search syndication network may participate in two
ways.
First, network affiliate sites can place a GoTo.com search box on their
site and earn a payment for each consumer they deliver to the GoTo.com home
page. Web sites interested in receiving payment for directing traffic to
GoTo.com's Web site fill out an application form at our site. Once the
application form is accepted, the Web site receives a confirmation e-mail from
us, which directs the network affiliate to a Web site where it can obtain a
search box to place on its site. At this Web site, the network affiliate can
also obtain traffic information and revenue reports. GoTo.com offers network
affiliates several different search box options. Once a network affiliate
selects a search box, it receives a tracking ID that enables GoTo.com, with
assistance from a third party provider, to track traffic from the network
affiliate to GoTo.com. Payments by GoTo.com to network affiliates participating
in this program are made once per quarter.
Second, GoTo.com generates traffic on its service by syndicating the
GoTo.com search service to other sites. Through this part of the search
syndication network, a consumer queries the GoTo.com search engine at a Web site
operated by a network affiliate and receives search results without leaving the
affiliate's site.
Network affiliates electing to host GoTo.com search functionality on their
sites can take advantage of any or all of the following benefits:
- acquire turnkey search service without the need to develop and manage it
in-house;
- generate revenues without the costs and challenges associated with
building and maintaining their own advertising sales force;
- enable rapid implementation of search functionality with no out-of-pocket
investment; and
- build and maintain brand loyalty by delivering content with the look,
feel and navigation features specific to each network affiliate, creating
the impression to consumers that they have not left the network
affiliate's site.
To build further advertiser participation, GoTo.com will leverage its
reputation for pay-for-performance, direct response marketing among advertisers
and their intermediaries, such as advertising consultants and media buyers.
GoTo.com intends to reach these constituencies through multiple marketing
channels, including targeted online marketing, mailings, sponsorship of Web
sites where advertisers congregate, participation at trade shows and appearances
in advertising industry periodicals.
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TECHNOLOGY
The GoTo.com technical operating environment is designed to provide the
best search experience on the Internet to our consumers, advertisers and network
affiliates. GoTo.com intends to continue investing in its technology
infrastructure to maintain and enhance its competitive advantage.
GoTo.com makes its services available to advertisers and consumers through
a combination of its own proprietary technology and commercially available
technology from industry leading providers such as Sun Microsystems, Cisco and
Oracle. GoTo.com also relies upon Frontier Global Center, a third party located
in Sunnyvale, California, to provide Web hosting services, including hardware
support and service and network coordination. GoTo.com also maintains its data
warehouse at this third party's facilities. Any disruption in the Internet
access or other services provided by this third party could have a material
adverse effect on our business. Accordingly, our research and development
efforts include the development and implementation of business continuity and
disaster recovery systems, improvement of data retention, backup and recovery
processes and systems and standardization of technology platforms.
COMPETITION
The market for Internet products, services and advertising is new, rapidly
evolving and intensely competitive. GoTo.com currently or potentially competes
with many other providers of Web directories, search and information services as
well as traditional media for consumer attention and advertising expenditures.
We expect competition to intensify in the future. Barriers to entry may not be
significant, and current and new competitors may be able to launch new Web sites
at a relatively low cost. Accordingly, we believe that our success will depend
heavily upon achieving significant market acceptance before our competitors and
potential competitors introduce competing services.
GoTo.com competes with online services, other Web sites and advertising
networks such as DoubleClick, Inc., 24/7 Media, Inc. and Net Gravity Inc., as
well as traditional offline media such as television, radio and print for a
share of advertisers' total advertising budgets. We believe that the number of
companies selling Web-based advertising and the available inventory of
advertising space has recently increased substantially. Accordingly, GoTo.com
may face increased pricing pressure for the sale of advertisements and direct
marketing opportunities, which could adversely affect our business and operating
results.
GoTo.com also competes with providers of Web directories, search and
information services, all of whom offer advertising, including, among others,
America Online, Inc. (AOL.com, NetFind and Netscape Netcenter), AskJeeves, Inc.
CNET, Inc. (Snap), Excite, Inc. (including WebCrawler and Magellan), Inktomi
Corporation, LookSmart, Ltd., Lycos, Inc. (including HotBot), Microsoft
Corporation (LinkExchange, Inc. and msn.com), The Walt Disney Company/Infoseek
Corporation (including the Go Network) and Yahoo! Inc. In addition, we expect
that other companies will offer directly competing services in the future. For
example, AltaVista, a division of Compaq Computer Corporation has announced it
will offer such a service.
Many of these competitors, as well as potential entrants into our market,
have longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. Many of these current and potential competitors can devote
substantially greater resources to promotion and Web site and systems
development than we can. In addition, as the use of the Internet and other
online services increases, larger, well-established and well-financed entities
may continue to acquire, invest in or form joint ventures with providers of Web
directories,
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search and information services or advertising solutions, and existing providers
of Web directories, search and information services or advertising solutions may
continue to consolidate. In addition, providers of Internet browsers and other
Internet products and services who are affiliated with providers of Web
directories and information services in competition with the GoTo.com service
may more tightly integrate these affiliated offerings into their browsers or
other products or services. Any of these trends would increase the competition
we face and could adversely affect our business and operating results.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES
Our services operate in part by making Internet services and content
available to our users. This creates the potential for claims to be made against
us, either directly or through contractual indemnification provisions with third
parties. These claims might, for example, be made for defamation, negligence,
copyright, trademark or patent infringement, personal injury, invasion of
privacy or other legal theories. We receive correspondence alleging some of
these types of claims from time to time. Any claims could result in costly
litigation and be time consuming to defend, divert management's attention and
resources, cause delays in releasing new or upgrading existing services or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all.
Litigation regarding intellectual property rights is common in the Internet
and software industries. We expect that Internet technologies and software
products and services may be increasingly subject to third-party infringement
claims as the number of competitors in our industry segment grows and the
functionality of products in different industry segments overlaps.
There can be no assurance that our services do not infringe the
intellectual property rights of third parties. A successful claim of
infringement against us and our failure or inability to license the infringed or
similar technology could adversely affect our business.
Our success and ability to compete are substantially dependent upon our
internally developed technology and data resources, which we protect through a
combination of copyright, trade secret and trademark law. We have no patents
issued to date on our technology.
We are aware that certain other companies are using or may have plans to
use the terms "GoTo," "Go," "Go2" and variations of these terms as part of a
company name, domain name, trademark or service mark. In addition, we have
received notice from companies claiming superior rights to marks such as these.
We cannot assure you that additional companies will not claim such superior
rights or that we will not be subject to infringement claims. A successful
infringement claim by the owner of a mark including "GoTo" or a variation could
require us to change our name, which would be expensive and disruptive to our
business. Further, despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
services, technology and other intellectual property, and we cannot be certain
that the steps we have taken will prevent any misappropriation or confusion
among consumers and advertisers.
We are engaged in litigation that will be expensive to pursue and will be
distracting to our management and other employees. Any adverse developments
resulting from this litigation could seriously harm our business. We believe
that The Walt Disney Company and certain of its affiliates, including Infoseek
Corporation, are infringing our GoTo.com logo. On February 18, 1999 we sued
these companies and two affiliated companies in the United States District Court
for the Central District of California alleging violation of federal trademark
law and unfair competition. Our lawsuit is based on the use by these
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companies of a "GO" design mark to provide Internet services, including a search
engine in connection with their "Go Network." We are seeking to prevent these
companies from using this "GO" design mark as well as other remedies. The
lawsuit is at a preliminary stage, and we cannot assure you that the outcome of
this litigation will be favorable to us. For example, we may not prevail and be
able to stop these companies from causing confusion among consumers and
advertisers through continued use of the "GO" design mark. In addition, these
companies could file counterclaims or separate lawsuits or other proceedings
against us, possibly seeking to prevent us from using the GoTo.com logo or other
relief. An unfavorable result could affect the value of or even prevent us from
using the GoTo.com logo.
The Internet domain name we use, "GoTo.com," is an extremely important part
of our business and we may not be able to protect it. The acquisition and
maintenance of domain names generally are regulated by governmental agencies and
their designees. For example, in the United States, the National Science
Foundation has appointed Network Solutions, Inc. as the current exclusive
registrar for the ".com," ".net" and ".org" domains. The regulation of domain
names in the United States and in foreign countries is subject to change in the
near future. The Company believes that such changes in the United States may
include a transition from the current system to a system that is controlled by a
non-profit corporation and the creation of additional top-level domains.
Governing bodies may establish additional top-level domains, appoint additional
domain name registrars or modify the requirements for holding domain names. As a
result, we may be unable to acquire or maintain relevant domain names in all
countries in which we conduct business. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we may be unable to prevent third
parties from acquiring domain names that are similar to, infringe upon or
otherwise decrease the value of our trademarks and other proprietary rights.
Third parties have acquired domain names that include "goto" or varieties
thereof both in the United States and elsewhere.
EMPLOYEES
As of March 31, 1999, GoTo.com had 83 full-time employees, 24 of whom were
engaged in product development, 35 in marketing and sales, and 24 in finance,
administration and operations. Sales and marketing employees include customer
service representatives, salespeople, sales administration personnel, marketing
and communications personnel and creative services personnel. GoTo.com's future
success depends, in part, on its continuing ability to attract, train and retain
highly qualified technical, sales and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that GoTo.com will be able
to recruit and retain sufficient numbers of qualified personnel. None of
GoTo.com's employees is represented by a labor union. GoTo.com has not
experienced any work stoppages and considers its relations with its employees to
be good.
FACILITIES
GoTo.com leases approximately 10,000 square feet of office space in a
single office building located in Pasadena, California. GoTo.com believes its
current facilities will not be adequate to sustain the anticipated increase in
headcount for the 1999 fiscal year.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of GoTo.com as of May 15, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeffrey S. Brewer.............. 30 Chief Executive Officer and Director
Ted Meisel..................... 35 President and Chief Operating Officer
Todd Tappin.................... 37 Chief Financial Officer
Harry Chandler................. 45 Executive Vice President
Stephanie A. Sarka............. 36 Senior Vice President of Marketing
James B. Gallinatti Jr......... 43 Vice President of Sales and Service
Alan Colner(2)................. 44 Director
Timothy Draper(1).............. 40 Director
William Elkus.................. 47 Director
William Gross(2)............... 40 Director
Robert M. Kavner(1)(2)......... 55 Director, Chairman of the Board
Linda Fayne Levinson(1)........ 57 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Jeffrey S. Brewer has served as Chief Executive Officer since March 1,
1998, and as a Director since June 25, 1998. From March 1998 to May 1999 he also
served as President. From August 1995 to January 1998, he was a founder and
served as Chief Technology Officer of Ticketmaster Online-CitySearch, Inc.
(formerly CitySearch, Inc.), an online provider of city guides and live event
ticketing. From June 1994 to August 1995, he served as Manager of Online
Development at Knowledge Adventure, Inc., an educational software developer of
multimedia CD-ROMs for children. Mr. Brewer received his B.A. in Economics from
Southern Methodist University.
Ted Meisel has served as Chief Operating Officer since December 1, 1998 and
has served as President since May 1999. From April 1996 to November 1998, he
served in a variety of roles at Ticketmaster Online-CitySearch, Inc. (formerly
CitySearch, Inc.), an online provider of city guides and live event ticketing,
most recently as Vice President of the Products and Technology Group. From
November 1991 to March 1996, he worked at McKinsey & Company, a management
consulting firm, most recently as an Engagement Manager. Mr. Meisel holds a B.A.
in History from Dartmouth College and a J.D. from Stanford Law School.
Todd Tappin has served as Chief Financial Officer since October 1, 1998.
From March 1992 to October 1998, Mr. Tappin served as Senior Vice President of
Finance for News Corp.-Twentieth Century Fox, where he oversaw all Finance,
Strategic Planning and Business Development for the Home Entertainment and
Interactive Divisions, and as the General Manager of Twentieth Century Fox's
Home Entertainment Division in Canada. Mr. Tappin began his professional career
as a certified public accountant at Deloitte, Haskins and Sells. He holds a B.S.
in Business from the University of Colorado.
Harry Chandler has served as Executive Vice President since March 29, 1999.
From April 1994 to March 1999, he served as Director of New Business Development
at the Los Angeles Times. From 1991 to 1994, he served as President of Dream
City Films. Mr. Chandler holds a B.A. in Communications from Stanford
University.
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<PAGE> 55
Stephanie A. Sarka has served as Senior Vice President of Marketing since
March 23, 1998. From March 1993 to September 1997, Ms. Sarka worked for Mark
Cross, the American luxury goods brand, where she served first as Senior Manager
of Product Management, then as Director of Merchandise Planning & Brand
Development, then as Divisional Vice President & General Manager. Ms. Sarka
holds a B.A. in Economics from Stanford University and an M.B.A. from Harvard
Business School.
James B. Gallinatti Jr. has served as Vice President of Sales and Service
since March 30, 1998. From May 1996 to September 1997, Mr. Gallinatti served as
Vice President of Sales and Marketing at Austin James, Inc., a consumer software
company. From June 1986 to July 1995, he worked for Lotus Development
Corporation in a variety of roles, including West Coast Regional Director of
Sales from March 1990 to June 1994, and Director of Marketing for cc:Mail from
June 1994 to July 1995. Mr. Gallinatti received his B.A. in Human Biology from
Stanford University.
Alan Colner has served as a Director of GoTo.com since November 11, 1998.
Mr. Colner has served as Managing Director, Private Equity Investments at Moore
Capital Management, Inc. since August 1996. From 1988 until 1996, he was a
Managing Director of Corporate Advisors, L.P., the general partner of Corporate
Partners, a private equity fund affiliated with Lazard Freres & Co. LLC. Mr.
Colner serves as a director of iVillage Inc. and NextCard Inc. He also serves on
the board of directors of several private companies. Mr. Colner received his
B.A. from Yale University and his M.B.A. from the Stanford University Graduate
School of Business.
Timothy Draper has served as a Director of GoTo.com since June 25, 1998.
Mr. Draper founded and has served as Managing Director of Draper Fisher
Jurvetson, a venture capital firm, since July 1985. He serves on the board of
directors of PLX Technology Inc. He also serves on the board of directors of
several private companies. Mr. Draper received his B.S. in Electrical
Engineering from Stanford University and his M.B.A. from Harvard Business
School.
William Elkus has served as a Director of GoTo.com since March 29, 1999.
Mr. Elkus has served as Managing Director of idealab! Capital Management I, LLC,
a venture capital firm, since March 1998. From January 1994 to December 1997, he
was a co-founder and served as Managing Director of Klein Investment Group LP, a
merchant bank. He serves on the board of directors of several private companies.
Mr. Elkus received an S.B. in Mathematics from MIT, an S.M. in Management from
MIT Sloan School of Management and a J.D. from Harvard Law School.
William Gross has served as a Director of GoTo.com since its inception. He
also served as President and Chief Executive Officer of GoTo.com from its
inception until March 1, 1998 and served as Chairman of the Board from
GoTo.com's inception until November 1998. Since March 1996, Mr. Gross was a
founder and served as Chairman of the Board, Chief Executive Officer and
President of Bill Gross' idealab!, an incubator and venture capital firm
specializing in Internet companies. He also has served as a Managing Director of
idealab! Capital Management I, LLC, a venture capital firm, since March 1998.
From June 1991 to January 1997, he served as Chairman of Knowledge Adventure,
Inc., an educational software developer of multimedia CD-ROMs for children,
which was founded by Mr. Gross. From February 1986 to March 1991, he was a
developer at Lotus Development Corporation. Mr. Gross serves on the board of
directors of Ticketmaster Online-CitySearch, Inc. (formerly CitySearch, Inc.),
an online provider of city guides and live event ticketing. He also serves on
the board of directors of several private companies.
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<PAGE> 56
Mr. Gross received his B.S. in Mechanical Engineering from the California
Institute of Technology.
Robert M. Kavner has served as Chairman of the Board of Directors since
November 11, 1998. Mr. Kavner has served as a General Partner of Bill Gross'
idealab!, an incubator and venture capital firm specializing in Internet
companies, since December 1998. From September 1995 to December 1998, he served
as President and Chief Executive Officer of On Command Corporation, a supplier
of in-room entertainment and information services to the lodging industry. From
June 1994 to September 1995, he served as an advisor to Creative Artists Agency.
From May 1984 to May 1994, he served as an Executive Vice President of AT&T,
where he acted as Chief Executive Officer of Multimedia Products and Services.
Mr. Kavner currently serves on the board of directors of the following public
companies: Fleet Financial Group, Earthlink Networks and Ticketmaster
Online-CitySearch, Inc. (formerly CitySearch, Inc.), an online provider of city
guides and live event ticketing. He also serves on the board of directors of
several private companies. Mr. Kavner received his B.B.A. in Business Management
from Adelphi University.
Linda Fayne Levinson has served as a Director of GoTo.com since November
25, 1998. Ms. Levinson has served as a principal of Global Retail Partners,
L.P., a private equity investment fund financing early stage companies, since
April 1997. From 1994 to 1997, she served as President of Fayne Levinson
Associates, a management consulting firm. Ms. Levinson serves on the board of
directors of Genentech, Inc., NCR Corporation, Administaff Inc. and Jacobs
Engineering Group. She also serves on the board of directors of several private
companies. Ms. Levinson received her A.B. in Russian Studies from Barnard
College, her M.A. in Russian Literature from Harvard University, and her M.B.A
from New York University.
CLASSIFIED BOARD
GoTo.com's certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving a staggered
three-year term. As a result, a portion of GoTo.com's board of directors will be
elected each year. To implement the classified structure, prior to the
consummation of the offering, two of the nominees to the board will be elected
to one-year terms, two will be elected to two-year terms and three will be
elected to three-year terms. Thereafter, directors will be elected for
three-year terms. Jeffrey Brewer, Timothy Draper and Robert Kavner have been
designated Class I directors whose term expires at the 2000 annual meeting of
stockholders. William Elkus and William Gross have been designated Class II
directors whose term expires at the 2001 annual meeting of stockholders. Linda
Fayne Levinson and Alan Colner have been designated Class III directors whose
term expires at the 2002 annual meeting of stockholders. See "Description of
Capital Stock--Delaware Anti-Takeover Law and Certain Charter and Bylaw
Provisions."
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of the directors, officers or key
employees of GoTo.com.
BOARD COMMITTEES
GoTo.com established both an audit committee and compensation committee in
January 1999.
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<PAGE> 57
GoTo.com's audit committee consists of Messrs. Draper and Kavner and Ms.
Levinson. The audit committee reviews the internal accounting procedures of
GoTo.com and consults with and reviews the services provided by GoTo.com's
independent accountants.
GoTo.com's compensation committee consists of Messrs. Colner, Gross and
Kavner. The compensation committee reviews and recommends to the board of
directors the compensation and benefits of GoTo.com's employees. It also sets
executive salary levels and determines option grants under the Company's stock
option programs.
GoTo.com's executive compensation program has been designed to ensure that
the compensation provided to executive officers is closely aligned with
GoTo.com's financial performance and, ultimately, the creation of stockholder
value, and to ensure that GoTo.com can attract and retain key executives
critical to its long-term success.
The compensation committee establishes the salary of each executive
officer, including the Chief Executive Officer, by considering the salaries of
executive officers in similar positions with comparably sized companies in
GoTo.com's industry and in related industries, based upon survey data obtained
from various sources, the experience and contribution levels of the individual
executive officers, the Company's financial performance during the past year,
and, in the case of executive officers other than the Chief Executive Officer,
the recommendations of the Chief Executive Officer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of GoTo.com's board of
directors or compensation committee.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from GoTo.com for
their service as members of the board of directors.
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<PAGE> 58
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below summarizes the compensation earned for services rendered to
GoTo.com in all capacities for the fiscal years ended December 31, 1997 and
December 31, 1998, by each person serving as GoTo.com's Chief Executive Officer
in the fiscal year ended December 31, 1998. These executives are referred to as
the Named Executive Officers elsewhere in this prospectus. No GoTo.com executive
officer earned more than $100,000 in salary and bonus during the fiscal year
ended December 31, 1998.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(3)
<S> <C> <C> <C> <C>
Jeffrey S. Brewer(1)............... 1998 $70,833 -- 1,586,869
President and Chief Executive
Officer
William Gross(2)................... 1998 -- -- --
President and Chief Executive 1997 -- -- --
Officer
</TABLE>
- -------------------------
(1) Mr. Brewer joined GoTo.com as Chief Executive Officer on March 1, 1998 and
served as President from March 1998 to May 1999. He currently is compensated
with an annual salary of $85,000.
(2) Mr. Gross served as President and Chief Executive Officer of GoTo.com from
its inception until March 1, 1998. He received no compensation from GoTo.com
for his service as President and Chief Executive Officer.
(3) These options were granted pursuant to GoTo.com's 1998 stock option plan and
are options to purchase common stock of GoTo.com.
OPTION GRANTS DURING LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers in the fiscal year ended
December 31, 1998, including the potential realizable value over the ten-year
term of the options, based on assumed rates of stock appreciation of 5% and 10%,
compounded annually. These assumed rates of appreciation comply with the rules
of the Securities and Exchange Commission and do not represent GoTo.com's
estimate of future stock price. Actual gains, if any, on stock option exercises
will depend on the future performance of GoTo.com's common stock.
In fiscal year 1998, GoTo.com granted options to purchase up to an
aggregate of 4,888,610 shares to employees, directors and consultants. All
options were granted under GoTo.com's 1998 stock option plan at exercise prices
at or above the fair market value of GoTo.com's common stock on the date of
grant, as determined in good faith by the board of directors. All options have a
term of ten years. Optionees may pay the exercise price by cash, check or
delivery of already-owned shares of GoTo.com's common stock. All options are
immediately exercisable upon grant; however, any unvested shares are subject to
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<PAGE> 59
repurchase by GoTo.com at their cost in the event of the optionee's termination
of employment.
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
-------------------------------------------------- AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN LAST PRICE EXPIRATION -------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Jeffrey S. Brewer..... 1,586,869 32.5% $0.15 03/01/08 $149,696 $379,359
William Gross......... -- -- -- -- -- --
</TABLE>
AGGREGATE OPTION EXERCISES DURING THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers
information concerning exercisable and unexercisable options held as of December
31, 1998. No Named Executive Officer exercised options during the fiscal year
ended December 31, 1998.
The "Value of Unexercised In-the-Money Options at December 31, 1998" is
based on a value of $0.30 per share, the fair market value of GoTo.com's common
stock as of December 31, 1998, as determined by the board of directors, less the
per share exercise price multiplied by the number of shares issued upon exercise
of the option. All options were granted under GoTo.com's 1998 stock option plan.
All options are immediately exercisable upon grant; however, any unvested shares
are subject to repurchase by GoTo.com at their cost in the event of the
optionee's termination of employment.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Jeffrey S. Brewer.......... 1,586,869(1) -- $238,030(2) --
William Gross.............. -- -- -- --
</TABLE>
- -------------------------
(1) Of these shares, 1,057,913, if purchased, would be subject to a right of
repurchase by GoTo.com at a price of $0.15 per share as of December 31,
1998.
(2) Of this amount, $79,343 relates to shares not subject to a right of
repurchase by GoTo.com, and $158,687 relates to shares subject to a right of
repurchase by GoTo.com, as of December 31, 1998.
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<PAGE> 60
INCENTIVE STOCK PLANS
1999 EMPLOYEE STOCK PURCHASE PLAN
GoTo.com's 1999 Employee Stock Purchase Plan, or the 1999 Purchase Plan,
was adopted by the board of directors and stockholders of GoTo.com in April
1999. A total of 2,000,000 shares of common stock have been reserved for
issuance under the 1999 Purchase Plan, plus annual increases equal to the lesser
of 1,000,000 shares, 3% of the outstanding shares on such date, or a lesser
amount determined by the board of directors. No shares have been issued under
the 1999 Purchase Plan.
The 1999 Purchase Plan, which is intended to qualify under Section 423 of
the Internal Revenue Code of 1986, contains successive six-month offering
periods. The offering periods generally start on the first trading day on or
after March 1 and September 1 of each year, except for the first offering
period, which commences on the first trading day on or after the effective date
of this offering and ends on the last trading day on or before February 28,
2000.
Employees are eligible to participate if they are customarily employed by
GoTo.com or any participating subsidiary for at least 20 hours per week and for
more than five months in any calendar year. However, any employee who either
immediately after grant owns stock possessing 5% or more of the total combined
voting power or value of all classes of the capital stock of GoTo.com, or whose
rights to purchase stock under all of GoTo.com's employee stock purchase plans
accrues at a rate that exceeds $25,000 worth of stock for each calendar year,
may not be granted an option to purchase stock under the 1999 Purchase Plan. The
1999 Purchase Plan permits participants to purchase common stock through payroll
deductions of up to 15% of the participant's "compensation." Compensation is
defined as the participant's base straight time gross earnings and commissions,
exclusive of payments for overtime, profit sharing payments, shift premium
payments, incentive compensation, incentive payments and bonuses. The maximum
number of shares a participant may purchase during a single offering period is
25,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock of GoTo.com at the end of each offering period. The price
of stock purchased under the 1999 Purchase Plan is 85% of the lower of the fair
market value of the common stock at the beginning or at the end of the offering
period. Participants may end their participation at any time during an offering
period, and they will be paid their payroll deductions to date. Participation
ends automatically upon termination of employment with GoTo.com.
Rights granted under the 1999 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1999 Purchase Plan. The 1999 Purchase Plan provides
that, in the event of a merger of GoTo.com with or into another corporation or a
sale of substantially all of GoTo.com's assets, each outstanding option may be
assumed or substituted for by the successor corporation. If the successor
corporation refuses to assume or substitute for the outstanding options, the
offering period then in progress will be shortened and a new exercise date will
be set. The 1999 Purchase Plan will terminate in 2009. The board of directors
has the authority to amend or terminate the 1999 Purchase Plan, except that no
such action may adversely affect any outstanding rights to purchase stock under
the 1999 Purchase Plan.
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<PAGE> 61
1998 STOCK PLAN
GoTo.com's 1998 Stock Plan, or the 1998 Plan, provides for the granting to
employees of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, and for the granting to employees, directors and
consultants of nonstatutory stock options and stock purchase rights. The 1998
Plan, as amended, was approved by the board of directors and stockholders of
GoTo.com in April 1999. Unless terminated sooner, the 1998 Plan will terminate
automatically in 2008. A total of 8,500,000 shares of common stock is reserved
for issuance pursuant to the 1998 Plan, of which 2,012,039 are available for
future grants as of May 15, 1999, plus annual increases equal to the lesser of:
- 7,500,000 shares;
- 4% of the outstanding shares on such date; or
- a lesser amount determined by the board of directors.
The 1998 Plan may be administered by the board of directors or a committee
of the board of directors, which committee shall, in the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Internal Revenue Code, consist of two or more "outside
directors" within the meaning of Section 162(m) of the Internal Revenue Code.
The 1998 Plan administrator has the power to determine the terms of the options
or stock purchase rights granted, including the exercise price, the number of
shares subject to each option or stock purchase right, exercisability and the
form of consideration payable upon exercise. The board of directors has the
authority to amend, suspend or terminate the 1998 Plan, provided that no such
action may affect any share of common stock previously issued and sold or any
option previously granted under the 1998 Plan.
Options and stock purchase rights granted under the 1998 Plan are not
generally transferable by the optionee, and each option and stock purchase right
is exercisable during the lifetime of the optionee only by the optionee. Options
granted under the 1998 Plan generally must be exercised within three months of
the optionee's separation of service from GoTo.com, or within twelve months
after the optionee's termination by death or disability, but in no event later
than the expiration of the option's ten-year term. In the case of stock purchase
rights, unless the 1998 Plan administrator determines otherwise, the optionee's
restricted stock purchase agreement will grant GoTo.com a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
service for GoTo.com for any reason (including death or disability). The
purchase price for shares repurchased pursuant to the purchaser's restricted
stock purchase agreement will be the original price paid by the purchaser and
may be paid by cancellation of any indebtedness to GoTo.com. The repurchase
option will lapse at a rate determined by the 1998 Plan administrator. The
exercise price of all incentive stock options granted under the 1998 Plan must
be at least equal to the fair market value of the common stock on the date of
grant. The exercise price of nonstatutory stock options and stock purchase
rights granted under the 1998 Plan is determined by the 1998 Plan administrator,
but with respect to nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, the exercise price must at least be equal to the fair
market value of the common stock on the date of grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of GoTo.com's outstanding capital stock, the exercise price of any
incentive
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<PAGE> 62
stock option granted must equal at least 110% of the fair market value of the
common stock on the date of grant, and the term of any incentive stock option
must not exceed five years. The term of all other options granted under the 1998
Plan may not exceed ten years.
The 1998 Plan provides that, in the event of a merger of GoTo.com with or
into another corporation or a sale of substantially all of GoTo.com's assets,
each outstanding option and stock purchase right will be assumed or an
equivalent option or stock purchase right substituted by the successor
corporation. If each outstanding option or stock purchase right is not assumed
or substituted, the 1998 Plan administrator is required to notify the optionees
that each such option or stock purchase right will be fully vested and
exercisable, including shares as to which it would not otherwise be vested or
exercisable, for a period of 15 days from the date of notice, and the option or
stock purchase right will terminate upon the expiration of such period.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
GoTo.com has not entered into employment agreements with its executive
officers, and their employment may be terminated at any time at the discretion
of GoTo.com's board of directors. GoTo.com has entered into Change in Control
Severance Agreements with Ted Meisel, Todd Tappin, Harry Chandler, James B.
Gallinatti Jr., Stephanie A. Sarka, Talmadge O'Neill, Tom Soulanille, Gregory
Robleski, Dan Scholnick, Erik Hovanec, Joshua Metzger, Paul Ryan and Paul Schulz
who are employees of GoTo.com. These agreements provide that, in the event of
the employee's involuntary termination without cause within 12 months after a
change in control of GoTo.com, the employee will be entitled to six months of
severance pay, potential payments for health care continuation coverage and
immediate vesting of his or her options.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
GoTo.com's certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for any of
the following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
GoTo.com's certificate of incorporation and bylaws provide that GoTo.com
will indemnify its directors and executive officers and may indemnify its other
officers and employees and other agents to the fullest extent permitted by law.
GoTo.com believes that indemnification under its bylaws covers at least
negligence and gross negligence on the part
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<PAGE> 63
of indemnified parties. GoTo.com's bylaws also permit it to secure insurance on
behalf of any officer, director, employee or other agent for any liability
arising out of his or her actions in such capacity, regardless of whether the
bylaws would permit indemnification.
GoTo.com has entered into agreements to indemnify its directors and certain
officers, in addition to indemnification provided in GoTo.com's bylaws. These
agreements, among other things, provide for indemnification of GoTo.com's
directors and officers for expenses, judgments, fines and settlement amounts
incurred by any such person in any action or proceeding arising out of such
person's services as a director or officer of GoTo.com or at the request of
GoTo.com. GoTo.com believes that these provisions and agreements are necessary
to attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
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TRANSACTIONS WITH RELATED PARTIES
FINANCING TRANSACTIONS AND CHANGE IN CONTROL SEVERANCE AGREEMENTS WITH
MANAGEMENT AND OTHERS
1. In connection with its financing activities, GoTo.com issued shares of
its preferred stock to certain investors who beneficially own more than 5% of
GoTo.com's capital stock or whose principals serve as directors of GoTo.com.
These transactions and relationships are described below.
- In March 1998, GoTo.com issued a total of 471,111 shares of Series A
Preferred Stock to various investors at a purchase price of $0.45 per
share. Of the total number of shares of Series A Preferred Stock issued,
222,222 shares were issued to Bill Gross' idealab!.
- In May 1998, GoTo.com issued a total of 8,311,688 shares of Series B
Preferred Stock to various investors at a purchase price of $0.77 per
share. Of the total number of shares of Series B Preferred Stock issued,
2,597,403 shares were issued to entities affiliated with idealab! Capital
Management I, LLC, 4,009,769 shares were issued to entities affiliated
with Draper Fisher Jurvetson, and 649,351 shares were issued to entities
affiliated with Moore Capital Management, Inc.
- In July 1998, November 1998 and December 1998, GoTo.com issued a total of
10,710,348 shares of Series C Preferred Stock to various investors at a
purchase price of $2.076 per share. Of the total number of shares of
Series C Preferred Stock issued, 963,392 shares were issued to entities
affiliated with idealab! Capital Management I, LLC, 438,218 shares were
issued to entities affiliated with Draper Fisher Jurvetson, 4,850,001
shares were issued to entities affiliated with Moore Capital Management,
Inc., and 1,830,443 shares were issued to entities affiliated with Global
Retail Partners, L.P.
- In April 1999, GoTo.com issued a total of 3,628,447 shares of Series D
Preferred Stock to various investors at a purchase price of $6.89 per
share. Of the total number of shares of Series D Preferred Stock issued,
703,993 were issued to idealab! Holdings, L.L.C., 370,110 were issued to
entities affiliated with idealab! Capital Management I, LLC, 230,813
shares were issued to entities affiliated with Draper Fisher Jurvetson,
571,604 shares were issued to entities affiliated with Moore Capital
Management, Inc., and 190,230 shares were issued to entities affiliated
with Global Retail Partners, L.P.
With respect to the above preferred stock issuances, shares issued to Bill
Gross' idealab! currently are held by idealab! Holdings, L.L.C., which is the
beneficial owner of more than 5% of GoTo.com's outstanding capital stock, and
William Gross, the Managing Member of idealab! Holdings, L.L.C., serves as a
director of GoTo.com. idealab! Capital Management I, LLC is the beneficial owner
of more than 5% of GoTo.com's outstanding capital stock, and William Gross and
William Elkus, Managing Directors of idealab! Capital Management I, LLC, serve
as directors of GoTo.com. Draper Fisher Jurvetson is the beneficial owner of
more than 5% of GoTo.com's outstanding capital stock, and Timothy Draper, a
principal of Draper Fisher Jurvetson, serves as a director of GoTo.com. Moore
Capital Management, Inc. may be deemed the beneficial owner of more than 5% of
GoTo.com's outstanding capital stock, and Alan Colner, a principal of Moore
Capital Management, Inc., serves as a director of GoTo.com. Global Retail
Partners, L.P. and its
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affiliates are the beneficial owner of more than 5% of GoTo.com's outstanding
capital stock, and Linda Fayne Levinson, a principal of Global Retail Partners,
L.P., serves as a director of GoTo.com. Global Retail Partners, L.P. is an
affiliate of Donaldson, Lufkin & Jenrette Securities Corporation, an underwriter
of this offering. See "Underwriting."
2. GoTo.com has entered into Change in Control Severance Agreements with
Ted Meisel, Todd Tappin, Harry Chandler, James B. Gallinatti Jr., Stephanie A.
Sarka, Talmadge O'Neill, Tom Soulanille, Gregory Robleski, Dan Scholnick, Erik
Hovanec, Joshua Metzger, Paul Ryan and Paul Schulz who are employees of
GoTo.com. These agreements provide that, in the event of the employee's
involuntary termination without cause within 12 months after a change in control
of GoTo.com, the employee will be entitled to six months of severance pay,
potential payments for health care continuation coverage and immediate vesting
of his or her options.
FINANCING TRANSACTIONS, SUBLEASE AND SUPPORT SERVICES AGREEMENTS WITH PROMOTERS
Bill Gross' idealab! may be deemed a promoter of GoTo.com. Listed below are
all transactions between GoTo.com and Bill Gross' idealab! from GoTo.com's
inception until the present.
1. On September 16, 1997, GoTo.com issued 8,400,000 shares of Common Stock
to Bill Gross' idealab! for an aggregate offering price of $84,000.
2. From GoTo.com's inception until March 31, 1999, Bill Gross' idealab!
provided GoTo.com with management services, such as payroll and benefits
administration, facilities management and accounting services. Bill Gross'
idealab! also currently provides GoTo.com with Internet connection and e-mail
services, as well as a small number of administrative services.
3. On February 1, 1999, GoTo.com entered into a Sublease Agreement with
Bill Gross' idealab! for approximately 10,506 square feet of office space. The
lease term is from February 1, 1999 until January 31, 2003 and is cancellable
with a 90 day written notice by GoTo.com. The lease provides for a rate of $2.00
per square foot per month, to increase by $0.10 each year of the lease term. The
Sublease Agreement amends a short-form Lease Terms agreement between the parties
dated October 7, 1998.
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<PAGE> 66
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth information regarding the
beneficial ownership of GoTo.com's common stock as of May 15, 1999, by the
following individuals or groups:
- each person or entity who is known by GoTo.com to own beneficially more
than 5% of GoTo.com's outstanding stock
- each of the Named Executive Officers
- each director of GoTo.com
- all directors and executive officers as a group
Except as otherwise indicated, and subject to applicable community property
laws, the persons named in the table below have sole voting and investment power
with respect to all shares of common stock held by them.
Applicable percentage ownership in the following table is based on
38,397,921 shares of common stock outstanding as of May 15, 1999, as adjusted to
reflect the conversion of all outstanding shares of preferred stock upon the
closing of this offering.
To the extent that any shares are issued upon exercise of options, warrants
or other rights to acquire GoTo.com's capital stock that are presently
outstanding or granted in the future or reserved for future issuance under
GoTo.com's stock plans, there will be further dilution to new public investors.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option. GoTo.com has granted the underwriters an option
to purchase up to 750,000 shares to cover over-allotments, if any.
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<PAGE> 67
PRINCIPAL STOCKHOLDERS TABLE
<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
---------------------- -----------------------
NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
idealab! Holdings, L.L.C.(1)......... 9,192,882 23.9% 9,192,882 21.2%
Entities affiliated with idealab!
Capital Management I, LLC(2)...... 3,930,905 10.2 3,930,905 9.1
Entities affiliated with Draper
Fisher Jurvetson(3)............... 4,678,800 12.2 4,678,800 10.8
Entities affiliated with Moore
Capital Management, Inc.(4)....... 6,070,956 15.8 6,070,956 14.0
Global Retail Partners, L.P. and
affiliated entities(5)............ 2,020,673 5.3 2,020,673 4.7
DIRECTORS AND OFFICERS:
Jeffrey S. Brewer(6)................. 1,586,869 4.0 1,586,869 3.6
Alan Colner(7)....................... 6,070,956 15.8 6,070,956 14.0
Timothy Draper(8).................... 4,901,688 12.8 4,901,688 11.3
William Elkus(9)..................... 3,930,905 10.2 3,930,905 9.1
William Gross(10).................... 13,123,787 34.2 13,123,787 30.2
Robert M. Kavner(11)................. 395,871 1.0 395,871 0.9
Linda Fayne Levinson(12)............. 2,020,673 5.3 2,020,673 4.7
All directors and officers as a group
(12 persons)(13)..................... 30,201,169 75.7 30,201,169 67.3
</TABLE>
- -------------------------
(1) The address of idealab! Holdings, L.L.C. is 130 West Union Street,
Pasadena, California 91103.
(2) Includes 2,623,134 shares held of record by idealab! Capital Partners I-A,
LP, and 1,307,771 shares held of record by idealab! Capital Partners I-B,
LP. idealab! Capital Management I, LLC is the general partner of idealab!
Capital Partners I-A, LP and idealab! Capital Partners I-B, LP, and
exercises voting and investment power over the shares held by those
entities. The address of idealab! Capital Management I, LLC is 130 West
Union Street, Pasadena, California 91103.
(3) Includes 317,773 shares held of record by Draper Fisher Partners Fund IV,
L.L.C., 139,193 shares held of record by Draper Associates LP and 4,221,834
shares held of record by Draper Fisher Associates Fund IV, L.P. The address
of Draper Fisher Jurvetson is 400 Seaport Court, Suite 250, Redwood City,
California 94063.
(4) Includes 3,838,074 shares held of record by Moore Global Investments, Ltd.,
1,382,948 shares held of record by Multi-Strategies Fund Ltd., 303,548
shares held of record by Multi-Strategies Fund, L.P., and 546,386 shares
held of record by Remington Investment Strategies, L.P. Moore Capital
Management, Inc. exercises voting and investment power with respect to
portfolio assets held for the accounts of Moore Global Investments, Ltd.
and Multi-Strategies Fund Ltd. Moore Capital Advisors, L.L.C. is the sole
general partner of Multi-Strategies Fund, L.P. and Remington Investment
Strategies, L.P. Mr. Louis M. Bacon is the majority shareholder of Moore
Capital Management, Inc. and is the majority equity holder of Moore Capital
Advisors, L.L.C. As a result, Mr. Bacon may be deemed to be the beneficial
owner of the aggregate shares held by Moore Global Investments, Ltd.,
Multi-Strategies Fund Ltd., Multi-Strategies Fund, L.P. and Remington
Investment Strategies, L.P. The address of Moore Capital Management, Inc.
and Moore Capital Advisors, L.L.C. is 1251 Avenue of the Americas, 53rd
Floor, New York, New York 10020.
(5) Includes 1,295,547 shares held of record by Global Retail Partners, L.P.,
386,047 shares held of record by DLJ Diversified Partners, L.P., 143,365
shares held of record by DLJ Diversified Partners-A, L.P., 84,221 shares
held of record by GRP Partners, L.P., 89,196 shares held of record by
Global Retail Partners Funding Inc. and 22,297 shares held of record by DLJ
ESC II, L.P. The address of Global Retail Partners, L.P. is 2121 Avenue of
the Stars, Suite 1630, Los Angeles, California 90067.
(6) Includes 793,435 shares subject to a right of repurchase by GoTo.com as of
May 15, 1999.
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<PAGE> 68
(7) Represents 6,070,956 shares held of record by entities affiliated with
Moore Capital Management, Inc. Mr. Colner serves as Managing Director,
Private Equity Investments, at Moore Capital Management, Inc., which is the
trading advisor of Moore Global Investments, Ltd. and Multi-Strategies Fund
Ltd. He does not have voting or investment power with respect to the shares
of securities owned by Moore Global Investments, Ltd., Multi-Strategies
Fund Ltd., Multi-Strategies Fund, L.P. or Remington Investment Strategies,
L.P., and disclaims beneficial ownership of such shares.
(8) Includes 4,678,800 shares held of record by entities affiliated with Draper
Fisher Jurvetson and 222,888 shares held of record by the Timothy Draper
Living Trust. Mr. Draper is a Managing Director of Draper Fisher Jurvetson
and a trustee of the Timothy Draper Living Trust, and exercises voting and
investment power over shares held beneficially by those entities.
(9) Represents 3,930,905 shares held of record by entities affiliated with
idealab! Capital Management I, LLC. Mr. Elkus is a Managing Director of
idealab! Capital Management I, LLC, and exercises voting and investment
control over shares held by that entity.
(10) Represents 9,192,882 shares held of record by idealab! Holdings, L.L.C. and
3,930,905 shares held of record by entities affiliated with idealab!
Capital Management I, LLC. Mr. Gross is the Managing Member of idealab!
Holdings, L.L.C. and a Managing Director of idealab! Capital Management I,
LLC, and exercises voting and investment power over shares held
beneficially by those entities.
(11) Includes options to purchase 311,417 shares, 249,133 of which, if
purchased, would be subject to a right of repurchase by GoTo.com as of May
15, 1999. Although 62,284 of Mr. Kavner's options to purchase shares were
vested as of May 15, 1999, all of his 311,417 options to purchase shares
will vest as of the closing of this offering.
(12) Represents 2,020,673 shares held of record by Global Retail Partners, L.P.
and its affiliates. Ms. Levinson is a principal of Global Retail Partners,
L.P. Ms. Levinson disclaims beneficial ownership of all shares owned by
Global Retail Partners, L.P. and its affiliates, except for any
proportional interest in such shares.
(13) Includes 1,549,138 shares that are subject to repurchase by GoTo.com as of
May 15, 1999, and 660,224 options to purchase shares which, if exercised,
would be subject to repurchase by GoTo.com as of May 15, 1999.
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<PAGE> 69
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, GoTo.com will be authorized to issue
200,000,000 shares of common stock, $0.0001 par value, and 10,000,000 shares of
undesignated preferred stock, $0.0001 par value. The following description of
GoTo.com's capital stock does not purport to be complete and is subject to and
qualified in its entirety by GoTo.com's certificate of incorporation and bylaws,
which are included as exhibits to the registration statement of which this
prospectus forms a part, and by the provisions of applicable Delaware law.
COMMON STOCK
As of March 31, 1999, there were 32,919,467 shares of common stock
outstanding, which were held of record by approximately 100 stockholders, as
adjusted for conversion of all outstanding shares of convertible preferred stock
into an aggregate of 19,493,147 shares of common stock, which will occur upon
the closing of this offering.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. The holders of common stock have no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. In the event of a liquidation, dissolution or
winding up of GoTo.com, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding.
GoTo.com has a classified board of directors consisting of three classes of
directors, each serving a staggered three-year term. GoTo.com's stockholder may
not vote cumulatively in the election of directors.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in control of GoTo.com without further
action by the stockholders.
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<PAGE> 70
Upon the completion of this offering, no shares of preferred stock will be
outstanding, and GoTo.com has no present plans to issue any shares of preferred
stock.
WARRANTS
At March 31, 1999, there were warrants outstanding to purchase 104,971
shares of common stock. All such warrants terminate immediately prior to an
initial public offering of GoTo.com's common stock.
REGISTRATION RIGHTS
The holders of 23,121,594 shares of common stock are entitled to certain
rights with respect to registration of sales of these shares under the
Securities Act of 1933. These rights are provided under the terms of agreements
between GoTo.com and the holders of these shares, as described below. Future
sales of substantial amounts of common stock, including shares issued upon
exercise of outstanding options and warrants, in the public market following
this offering could adversely affect market prices prevailing from time to time
and could impair GoTo.com's ability to raise capital through sale of its equity
securities.
The holders of 471,111 of these shares have the following rights: The
holders of at least 50% of these 471,111 shares may require on two separate
occasions that GoTo.com register their shares for public resale, if the value of
the securities to be registered is at least $500,000. Also, if after this
offering, GoTo.com elects to register any of its shares of common stock for a
public offering, the holders of these 471,111 shares are entitled to include
their shares of common stock in the registration, although GoTo.com may reduce
the number of shares proposed to be registered in view of market conditions. All
such registration rights will terminate on the third anniversary following the
consummation of this offering or earlier for any holder who can sell his or her
shares under certain circumstances in any three month period without requiring
registration.
The holders of 8,311,688 of these shares have the following rights: The
holders of at least 50% of these 8,311,688 shares may require on two separate
occasions that GoTo.com register their shares for public resale if the value of
the securities to be registered is at least $500,000. Also, if after this
offering, GoTo.com elects to register any of its shares of common stock for a
public offering, the holders of these 8,311,688 shares are entitled to include
their shares of common stock in the registration, although GoTo.com may reduce
the number of shares proposed to be registered in view of market conditions. All
such registration rights will terminate on the third anniversary following the
consummation of this offering or earlier for any holder who can sell his or her
shares under certain circumstances in any three month period without requiring
registration.
The holders of 10,710,348 of these shares have the following rights:
Beginning one year from the date of this offering the holders of at least 50% of
these 10,710,348 shares may require on two separate occasions that GoTo.com
register their shares for public resale if the value of the securities to be
registered is at least $500,000, or $2 million for certain registrations
requiring greater disclosures. Also, if after this offering, GoTo.com elects to
register any of its shares of common stock for a public offering, the holders of
these 10,710,348 shares are entitled to include their shares of common stock in
the registration, although GoTo.com may reduce the number of shares proposed to
be registered in view of market conditions. All such registration rights will
terminate on the fifth anniversary following the consummation of this offering
or earlier for any holder who
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<PAGE> 71
can sell his or her shares under certain circumstances in any three month period
without requiring registration.
The holders of 3,628,447 of these shares have the following rights:
Beginning one year from the date of an initial public offering of common stock
with anticipated proceeds of at least $30,000,000 at a per share price of at
least $2.60, the holders of at least 50% of these 3,628,447 shares may require
on two separate occasions that GoTo.com register their shares for public resale,
if the value of the securities to be registered is at least $500,000, or $2
million for certain registrations requiring greater disclosures. Also, if after
this offering, GoTo.com elects to register any of its shares of common stock for
purposes of effecting any public offering, the holders of these 3,628,447 shares
are entitled to include their shares of common stock in the registration,
although GoTo.com may reduce the number of shares proposed to be registered in
view of market conditions. All such registration rights will terminate on the
fifth anniversary following the consummation of this offering or earlier for any
holder who can sell his or her shares under certain circumstances in any three
month period without requiring registration.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and GoTo.com's certificate of
incorporation and bylaws could make the following more difficult:
- the acquisition of GoTo.com by means of a tender offer;
- acquisition of GoTo.com by means of a proxy contest or otherwise; or
- the removal of GoTo.com's incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
GoTo.com to first negotiate with GoTo.com's board of directors. GoTo.com
believes that the benefits of increased protection of its potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to acquire
or restructure GoTo.com outweigh the disadvantages of discouraging such
proposals, because negotiation of such proposals could result in an improvement
of their terms.
Election and Removal of Directors. GoTo.com's board of directors is divided
into three classes. The directors in each class will serve for a three-year
term, one class being elected each year by GoTo.com's stockholders. See
"Management-Classified Board." This system of electing and removing directors
may tend to discourage a third party from making a tender offer or otherwise
attempting to obtain control of GoTo.com, because it generally makes it more
difficult for stockholders to replace a majority of the directors.
Stockholder Meetings. Under GoTo.com's bylaws, only the board of directors,
the chairman of the board and the president may call special meetings of
stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. GoTo.com's bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
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<PAGE> 72
Delaware Anti-Takeover Law. GoTo.com is subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless the
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with affiliates
and associates, owns or within three years prior to the determination of
interested stockholder status, did own, 15% or more of a corporation's voting
stock. The existence of this provision may have an anti-takeover effect with
respect to transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
Elimination of Stockholder Action By Written Consent. GoTo.com's
certificate of incorporation eliminates the right of stockholders to act by
written consent without a meeting.
Absence of Cumulative Voting. GoTo.com's certificate of incorporation and
bylaws do not provide for cumulative voting in the election of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of GoTo.com. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of GoTo.com.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services L.L.C.
NASDAQ NATIONAL MARKET LISTING
GoTo.com has applied for listing of its shares on the Nasdaq National
Market under the symbol "GOTO."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock of
GoTo.com, and there can be no assurance that a significant public market for the
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 following this offering
could adversely affect market prices prevailing from time to time and could
impair GoTo.com's ability to raise capital through sale of its equity
securities. As described below, no shares currently outstanding will be
available for sale immediately after this offering because of certain
contractual restrictions on resale. Sales of substantial amounts of common stock
of GoTo.com in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of GoTo.com to raise equity
capital in the future.
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<PAGE> 73
Upon completion of this offering, GoTo.com will have outstanding 43,397,921
shares of common stock based upon shares outstanding as of May 15, 1999,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants prior to completion of this offering. Of
these shares, the 5,000,000 shares sold in this offering will be freely tradable
without restriction under the Securities Act except for any shares purchased by
"affiliates" of GoTo.com, as that term is defined in Rule 144 under the
Securities Act of 1933. The remaining 38,397,921 shares of common stock held by
existing stockholders are "Restricted Shares" as that term is defined in Rule
144. 38,096,165 of such Restricted Shares are subject to lock-up agreements
providing that, with certain limited exceptions, the stockholder will not offer,
sell, contract to sell or otherwise dispose of any common stock or any
securities that are convertible into common stock for a period of 180 days after
the date of this prospectus without the prior written consent of Donaldson,
Lufkin & Jenrette. As a result of these lock-up agreements, notwithstanding
possible earlier eligibility for sale under the provisions of Rules 144, 144(k)
and 701, 301,756 of these shares will be resellable prior to 181 days after the
date of this prospectus. Beginning 181 days after the date of this prospectus,
approximately 38,096,165 Restricted Shares will be eligible for sale in the
public market, all of which are subject to volume limitations under Rule 144,
except 1,556,667 shares eligible for sale under Rule 144(k) and 4,762,325 shares
eligible for sale under Rule 701. Of those Restricted Shares not eligible for
sale beginning 181 days after the date of this prospectus, 1,830,443 Restricted
Shares will be eligible for sale on December 14, 1999, 9,087 Restricted Shares
will be eligible for sale on December 22, 1999, 3,671,888 shares will be
eligible for sale on April 14, 2000, and 26,699 shares will be eligible for sale
on May 5, 2000 all of which are subject to volume limitations under Rule 144. In
addition, as of May 15, 1999, there were outstanding 1,725,636 options and
warrants to purchase 34,831 shares of common stock, some of which will be
exercised prior to this offering. All such options and warrants are subject to
lock-up agreements. Donaldson, Lufkin & Jenrette may, in its sole discretion and
at any time without notice, release all or any portion of the securities subject
to lock-up agreements; however, any release shall apply pro-rata to all
stockholders subject to the lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person 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% of the number of shares of common stock then outstanding which will
equal approximately 433,979 shares immediately after this offering; or
- 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 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about GoTo.com. Under Rule 144(k), a person who is not deemed to have been an
affiliate of GoTo.com 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, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement,
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<PAGE> 74
of Rule 144. Any employee, officer or director of or consultant to GoTo.com who
purchased shares under 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. However, all Rule
701 shares are subject to lock-up agreements and will only become eligible for
sale at the earlier of the expiration of the 180-day lock-up agreements or no
sooner than 90 days after the offering upon obtaining the prior written consent
of Donaldson, Lufkin & Jenrette.
Following the effectiveness of this offering, GoTo.com will file a
Registration Statement on Form S-8 registering 10,500,000 shares of common stock
subject to outstanding options or reserved for future issuance under its stock
plans. As of May 15, 1999, options to purchase a total of 1,725,636 shares were
outstanding and 3,737,675 shares were reserved for future issuance under
GoTo.com's stock plan. Common stock issued upon exercise of outstanding vested
options or issued under GoTo.com's purchase plan, other than common stock issued
to affiliates of GoTo.com, is available for immediate resale in the open market.
Also beginning six months after the date of this offering, holders of
23,121,594 Restricted Shares will be entitled to certain registration rights for
sale in the public market. Registration of such shares under the Securities Act
would result in such shares becoming freely tradable without restriction under
the Securities Act, except for shares purchased by affiliates, immediately upon
the effectiveness of such registration.
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<PAGE> 75
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated , 1999, the underwriters named below, for whom
Donaldson, Lufkin & Jenrette Securities Corporation, DLJdirect Inc., Salomon
Smith Barney Inc. and Thomas Weisel Partners LLC are acting as representatives,
have severally agreed to purchase from GoTo.com for resale to the public,
directly or through dealers, the respective number of shares of common stock set
forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
------------- ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
DLJdirect Inc...............................................
Salomon Smith Barney Inc....................................
Thomas Weisel Partners LLC..................................
Total.............................................
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase and accept delivery of the shares of common stock in
the offering are subject to approval by their counsel of legal matters
concerning the offering and to conditions precedents that must be satisfied by
GoTo.com. The underwriters are obligated to purchase and accept delivery of all
the shares of common stock in the offering, other than those shares covered by
the over-allotment option described below, if any are purchased.
The underwriting agreement provides that the underwriters will severally
agree to purchase shares of common stock from the Company at per share and
propose to make a public offering of those shares at the initial public offering
price set forth on the cover of this prospectus. If the shares are sold at the
initial public offering price, the underwriters will receive a fee, referred to
as the underwriting fee, of $ per share. We expect that the underwriting fee
will be 7% of the initial public offering price.
In addition to offering part of the shares of common stock directly to the
public at the initial public offering price, the underwriters plan to offer part
of the shares to dealers, including the underwriters, at such price less a
concession not in excess of $ per share. The underwriters may allow, and
such dealers may re-allow, to other dealers a concession not in excess of $
per share. After the initial offering of the common stock, the public offering
price and other selling terms may be changed by the representatives of the
underwriters at any time without notice. The underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
An electronic prospectus will be available on the Web site maintained by
DLJdirect Inc., one of the underwriters and an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation.
The underwriting agreement provides that GoTo.com will grant to the
underwriters an option, exercisable for 30 days after the date of this
prospectus, to purchase, from time to time, in whole or in part, up to an
aggregate of 750,000 additional shares of common stock at the initial public
offering price less underwriting discounts and commission. The underwriters may
exercise the option solely to cover over-allotments, if any, made in
69
<PAGE> 76
connection with the offering. To the extent that the underwriters exercise the
option, each underwriter will become obligated, subject to conditions contained
in the underwriting agreement, to purchase its pro rata portion of such
additional shares based on the underwriters' percentage underwriting commitment
as indicated in the above table.
The underwriting agreement also provides that GoTo.com will indemnify the
underwriters against liabilities which may arise in connection with the
offering, including liabilities under the Securities Act of 1933, and contribute
to payments that the underwriters may be required to make.
As required by the underwriting agreement, each of GoTo.com's officers,
directors and other stockholders and option holders who hold in the aggregate
shares of common stock and options (including shares held by officers and
directors) have agreed not to:
- 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, other than shares
acquired in the initial public offering or on the Nasdaq National Market,
or any securities convertible into or exercisable or exchangeable for
common stock
- 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 above is to be
settled by delivery of common stock or other securities, in cash, or
otherwise.
Donaldson, Lufkin & Jenrette Securities Corporation may choose to release
some of these shares from such restrictions prior to the expiration of the
180-day period lock-up period, although it has no current intention of doing so.
In addition, during such 180-day period, GoTo.com has also agreed not to
file any registration statement with respect to, and each of its executive
officers, directors and stockholders of GoTo.com have agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
The following table sets forth the items of compensation considered to be
underwriting compensation under the rules of the National Association of
Securities Dealers:
<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
------------- -------------- --------------
<S> <C> <C> <C>
Underwriting fees paid by us...........
Expenses payable by us.................
Deemed compensation paid by us......... $114,407 $114,407
Total..................................
</TABLE>
Global Retail Partners, L.P. and its affiliates, each an affiliate of
Donaldson, Lufkin & Jenrette Securities Corporation, are stockholders of
GoTo.com and Linda Fayne Levinson, a director of GoTo.com, is a principal of
Global Retail Partners, L.P. In December of 1998, Global Retail Partners, L.P.
and its affiliates acquired an aggregate of 1,830,443 shares of our Series C
Preferred Stock. In April of 1999 Global Retail Partners, L.P. and its
affiliates acquired an aggregate of 190,230 shares of our Series D Preferred
Stock. Certain affiliates of Donaldson, Lufkin & Jenrette, Inc., the corporate
parent of Donaldson,
70
<PAGE> 77
Lufkin & Jenrette Securities Corporation, have an aggregate economic interest in
approximately 154,833 shares of such Series C Preferred Stock and 16,091 shares
of such Series D Preferred Stock (referred to as the "Affiliated Series D
Stock"). All shares of Series C Preferred Stock and Series D Preferred Stock
will automatically convert to common stock at the time of this offering. The
Affiliated Series D Stock will be subject to an agreement with the National
Association of Securities Dealers that restricts the sale, transfer, pledge,
assignment or hypothecation of such shares for one year from the effective date
of this offering, except to officers or partners of the entities currently
holding such stock. The additional compensation included in the chart above was
computed based on the difference in the maximum offering price and the price
paid for the Affiliated Series D Stock as demonstrated in the table below.
<TABLE>
<CAPTION>
AFFILIATED PRICE PAID PRICE DEEMED
SHARES PER SHARE DIFFERENCE COMPENSATION
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Series D...................... 16,091 $6.89 $7.11 $114,407
</TABLE>
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price of the shares of common stock
offered will be determined by negotiation among GoTo.com and the underwriters.
The factors to be considered in determining the initial public offering price
include:
- Our history and the prospects for the industry in which we compete
- Our past and present operations
- Our historical results of operations
- Our prospects for future earnings
- The recent market prices of securities of generally comparable companies
- The general condition of the securities markets at the time of the
offering
Other than in the United States, no action has been taken by GoTo.com or
the underwriters that would permit a public offering of the shares of common
stock offered in any jurisdiction where action for that purpose is required. The
shares of common stock offered may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and observe any restrictions
relating to the offering and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any shares of common stock offered in any jurisdiction in which such an
offer or a solicitation is unlawful.
In connection with the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot the offering,
creating a syndicate short position. The underwriters may bid for and stabilize
the price of the common stock. In addition, the underwriting syndicate may
reclaim selling concessions from syndicate members and selected dealers if they
repurchase previously distributed common stock in syndicate covering
transactions, in stabilizing transactions or otherwise. 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.
71
<PAGE> 78
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on 37 filed
public offerings of equity securities, of which seventeen have been completed,
and has acted as a syndicate member in an additional ten public offerings of
equity securities. Thomas Weisel Partners does not have any material
relationship with GoTo.com or any of its officers, directors or controlling
persons, except with respect to its rights and obligations in the underwriting
agreement to be entered into in connection with this offering.
The underwriters have reserved for sale, at the initial public offering
price, up to 500,000 shares of the common stock to be sold in the offering for
officers, employees, advertisers, vendors and other persons selected by
GoTo.com. The number of shares available for sale to the general public will be
reduced to the extent these individuals and entities purchase these reserved
shares. Any reserved shares not so purchased will be offered by the underwriters
to the general public on the same basis as other shares sold in this offering.
LEGAL MATTERS
The validity of the common stock in the offering will be passed upon for
GoTo.com by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters will be passed upon for the underwriters
by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California. As of the date of this prospectus, certain investment partnerships
composed of certain current and former members of and persons associated with
Wilson Sonsini Goodrich & Rosati, Professional Corporation, as well as certain
individual attorneys of this firm, beneficially own an aggregate of 164,894
shares of GoTo.com's common stock on an as-converted to common stock basis.
EXPERTS
The financial statements of GoTo.com, Inc. as of December 31, 1997 and 1998
and for the period from September 15, 1997 (inception) through December 31, 1997
and the year ended December 31, 1998 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
72
<PAGE> 79
AVAILABLE INFORMATION
GoTo.com has filed with the Securities and Exchange Commission a
registration statement on Form S-1 with respect to the 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 GoTo.com and its common
stock, see the registration statement and the exhibits and schedules thereto.
Any document GoTo.com files may be read and copied at the Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information about the
public reference rooms. GoTo.com's filings with the Commission are also
available to the public from the Commission's Web site at http://www.sec.gov.
Upon completion of this offering, GoTo.com 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.
73
<PAGE> 80
GOTO.COM, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
FINANCIAL STATEMENTS
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 81
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
GoTo.com, Inc.
We have audited the accompanying balance sheets of GoTo.com, Inc. as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the period from September 15, 1997
(inception) through December 31, 1997 and for the year 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 GoTo.com, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from September 15, 1997 (inception) through December 31, 1997,
and for the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
April 2, 1999
F-2
<PAGE> 82
GOTO.COM, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
AS OF MARCH 31 MARCH 31
DECEMBER 31 1999 1999
1997 1998 ----------- -------------
----------------
(UNAUDITED)
(UNAUDITED) SEE NOTE 7
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 87 $ 16,357 $ 11,195
Accounts receivable, net of allowance of $0, $86 and $97
for 1997, 1998, and March 31, 1999, respectively........ 22 356 699
Other receivables......................................... -- 90 162
Prepaid expenses and other................................ -- 60 292
Prepaid marketing expenses................................ -- 1,741 1,820
----- -------- --------
Total current assets........................................ 109 18,604 14,168
Property and equipment:
Furniture and fixtures.................................... -- 17 203
Computer hardware......................................... 56 1,302 2,122
Computer software......................................... 1 292 611
----- -------- --------
57 1,611 2,936
Accumulated depreciation and amortization................. (3) (275) (444)
----- -------- --------
54 1,336 2,492
Other assets................................................ 51 29 19
----- -------- --------
Total assets................................................ $ 214 $ 19,969 $ 16,679
===== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 91 $ 2,816 $ 3,506
Accrued expenses.......................................... -- 282 616
Deferred revenues......................................... -- 181 474
Current portion of debt................................... -- -- 111
Current portion of capital lease obligations.............. -- 110 307
----- -------- --------
Total current liabilities................................... 91 3,389 5,014
Long-term debt.............................................. -- -- 99
Long-term capital lease obligations......................... -- 183 491
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock; $.0001 par value, 20,187
shares authorized:
Series A Preferred Stock; liquidation preference over
Common Stockholders; none, $212 and $212 (unaudited)
for 1997, 1998 and March 31, 1999, respectively
Shares issued and outstanding--none, 471 and 471
(unaudited) for 1997, 1998 and March 31, 1999,
respectively (no shares pro forma (unaudited))....... -- 212 212 $ --
Series B and C Preferred Stock; aggregate liquidation
preference over Common Stockholders and Series A
Preferred Stockholders; none, $28,634 and $28,634
(unaudited) for 1997, 1998 and March 31, 1999,
respectively
Shares issued and outstanding--none, 19,022 and 19,022
(unaudited) for 1997, 1998 and March 31, 1999,
respectively (no shares pro forma (unaudited))....... -- 28,433 28,433 --
Common Stock, $.0001 par value, 45,000 shares
authorized; Shares issued and outstanding--10,017,
10,444 and 13,426 (unaudited) for 1997, 1998 and March
31, 1999, respectively, (36,653 shares outstanding pro
forma (unaudited))..................................... 1 1 1 3
Additional paid-in capital on Common Stock.............. 242 3,212 7,466 61,294
Deferred compensation................................... -- (1,318) (3,534) (3,534)
Accumulated deficit..................................... (120) (14,143) (21,503) (21,503)
----- -------- -------- --------
Total stockholders' equity.................................. 123 16,397 11,075 $ 36,260
----- -------- -------- ========
Total liabilities and stockholders' equity.................. $ 214 $ 19,969 $ 16,679
===== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 83
GOTO.COM, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 15,
1997
(INCEPTION)
THROUGH YEAR ENDED THREE MONTHS ENDED
DECEMBER 31 DECEMBER 31 MARCH 31
1997 1998 1998 1999
------------- ----------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue........................ $ 22 $ 822 $ 38 $ 1,451
Cost of revenue................ 6 1,429 10 957
-------- -------- -------- ---------
Gross profit (loss)............ 16 (607) 28 494
Operating expenses:
Marketing and sales.......... 65 9,645 174 4,614
General and administrative... 24 1,655 179 1,555
Product development.......... 46 1,232 168 520
Amortization of deferred
compensation.............. -- 1,199 232 1,297
-------- -------- -------- ---------
135 13,731 753 7,986
-------- -------- -------- ---------
Loss from operations........... (119) (14,338) (725) (7,492)
Other income (expense):
Interest expense............. -- (19) -- (38)
Interest income.............. -- 335 1 170
-------- -------- -------- ---------
Loss before provision for
income taxes................. (119) (14,022) (724) (7,360)
Provision for income taxes..... 1 1 -- --
-------- -------- -------- ---------
Net loss....................... $ (120) $(14,023) $ (724) $ (7,360)
======== ======== ======== =========
Historical basic and dilutive
net loss per share........... $ (0.01) $ (1.36) $ (0.07) $ (0.68)
Pro forma net loss per share... $ (0.75) $ (0.07) $ (0.24)
Weighted average shares used to
compute historical basic and
dilutive net loss per
share........................ 9,869 10,296 10,017 10,894
Weighted average shares used to
compute pro forma net loss
per share.................... 18,714 10,043 30,387
</TABLE>
See accompanying notes.
F-4
<PAGE> 84
GOTO.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
SERIES A SERIES B AND C PAID-IN
CONVERTIBLE CONVERTIBLE COMMON CAPITAL ON
PREFERRED STOCK PREFERRED STOCK STOCK COMMON DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK COMPENSATION
------ ------ ---------- ------- ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock......... -- $ -- -- $ -- 10,017 $1 $ 242 $ --
Issuance of Series A Convertible
Preferred stock................ -- -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- -- --
--- ---- ---------- ------- ------ -- ------ -------
BALANCE AT DECEMBER 31, 1997....... -- 10,017 1 242 --
Issuance of Common Stock for cash
and services................... -- -- -- -- 427 -- 286 --
Issuance of Series A Convertible
Preferred Stock................ 471 212 -- -- -- -- -- --
Issuance of Series B Convertible
Preferred Stock and capital
contribution................... -- -- 8,312 6,281 -- -- 77 --
Issuance of Series C Convertible
Preferred Stock................ -- -- 10,710 22,152 -- -- -- --
Issuance of warrants............. -- -- -- -- -- -- 90 --
Stock option compensation........ -- -- -- -- -- -- 2,517 (2,517)
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 1,199
Net loss......................... -- -- -- -- -- -- -- --
--- ---- ---------- ------- ------ -- ------ -------
BALANCE AT DECEMBER 31, 1998....... 471 212 19,022 28,433 10,444 1 3,212 (1,318)
Exercise of common stock options
(unaudited).................... -- -- -- -- 2,982 -- 561 --
Issuance of warrants
(unaudited).................... -- -- -- -- -- -- 180 --
Stock option compensation
(unaudited).................... -- -- -- -- -- -- 3,513 (3,513)
Amortization of deferred
compensation (unaudited)....... -- -- -- -- -- -- -- 1,297
Net loss (unaudited)............. -- -- -- -- -- -- -- --
--- ---- ---------- ------- ------ -- ------ -------
BALANCE AT MARCH 31, 1999
(UNAUDITED)...................... 471 $212 19,022 $28,433 13,426 $1 $7,466 $(3,534)
=== ==== ========== ======= ====== == ====== =======
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
----------- --------
<S> <C> <C>
Issuance of Common Stock......... $ -- $ 243
Issuance of Series A Convertible
Preferred stock................ -- --
Net loss......................... (120) (120)
-------- --------
BALANCE AT DECEMBER 31, 1997....... (120) 123
Issuance of Common Stock for cash
and services................... -- 286
Issuance of Series A Convertible
Preferred Stock................ -- 212
Issuance of Series B Convertible
Preferred Stock and capital
contribution................... -- 6,358
Issuance of Series C Convertible
Preferred Stock................ -- 22,152
Issuance of warrants............. -- 90
Stock option compensation........ -- --
Amortization of deferred
compensation................... -- 1,199
Net loss......................... (14,023) (14,023)
-------- --------
BALANCE AT DECEMBER 31, 1998....... (14,143) 16,397
Exercise of common stock options
(unaudited).................... -- 561
Issuance of warrants
(unaudited).................... -- 180
Stock option compensation
(unaudited).................... -- --
Amortization of deferred
compensation (unaudited)....... -- 1,297
Net loss (unaudited)............. (7,360) (7,360)
-------- --------
BALANCE AT MARCH 31, 1999
(UNAUDITED)...................... $(21,503) $ 11,075
======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 85
GOTO.COM, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 15
1997
(INCEPTION)
THROUGH YEAR ENDED THREE MONTHS ENDED
DECEMBER 31 DECEMBER 31 MARCH 31
1997 1998 1998 1999
------------ ----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................. $(120) $(14,023) $ (724) $ (7,360)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization of deferred stock option
compensation...................... -- 1,199 232 1,297
Other common stock and warrants
expense........................... -- 370 151 180
Depreciation and amortization........ 5 294 14 179
Changes in operating assets and
liabilities:
Accounts receivable.................. (22) (334) 16 (343)
Other receivables.................... -- (90) -- (72)
Prepaid expenses and other........... -- (60) -- (232)
Prepaid marketing expenses........... -- (1,741) -- (79)
Accounts payable and accrued
expenses.......................... 91 3,007 59 1,024
Deferred revenues.................... -- 181 -- 293
----- -------- -------- --------
Net cash used in operating
activities........................ (46) (11,197) (252) (5,113)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment......................... (57) (1,554) (94) (1,088)
Other assets......................... (53) -- -- --
----- -------- -------- --------
Net cash used in investing
activities........................ (110) (1,554) (94) (1,088)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of Common
Stock............................. 243 6 -- 561
Proceeds from the issuance of
Preferred Stock................... -- 28,722 212 --
Proceeds from lease line............. -- 330 -- 587
Repayments under lease line.......... -- (37) -- (82)
Repayment of debt.................... -- -- -- (27)
Proceeds from stockholder funding.... -- -- 2,500 --
----- -------- -------- --------
Net cash provided by financing
activities........................ 243 29,021 2,712 1,039
----- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents.................. 87 16,270 2,366 (5,162)
Cash and cash equivalents at
beginning of period............... -- 87 87 16,357
----- -------- -------- --------
Cash and cash equivalents at end of
period............................ $ 87 $ 16,357 $ 2,453 $ 11,195
===== ======== ======== ========
Supplemental disclosures:
Income taxes paid.................... $ -- $ 2 $ -- $ --
Interest paid........................ $ -- $ 11 $ -- $ 28
Financing obligation incurred........ $ -- $ -- $ -- $ 237
</TABLE>
See accompanying notes.
F-6
<PAGE> 86
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
GENERAL
GoTo.com, Inc. (the Company or GoTo.com) was incorporated on September 15,
1997, in the state of Delaware and officially launched its Web site on June 1,
1998. GoTo.com has created and operates an online marketplace that facilitates
introductions between consumers who search the Internet for information,
products or services using keyword terms with advertisers who have bid in an
ongoing auction for priority placement in the search results for those keywords.
Advertisers competitively bid on keyword search terms that are most relevant to
their business offerings. Advertisers are rank-ordered in search results based
on bid amounts, which are expressed as the amount the advertiser pays GoTo.com
for each consumer click-through to the advertiser's Web site. The advertiser
with the highest bid is listed first in the search results, with the remaining
advertisers appearing in descending bid amount order. Priority placement
increases the likelihood that a consumer will click-through to the advertiser's
Web site. Consumers access GoTo.com at our branded stand-alone Web site and
through Web sites that participate in the search syndication network. The
Company operates in one reportable business segment.
UNAUDITED INTERIM RESULTS
The accompanying balance sheet as of March 31, 1999, the statements of
operations and cash flows for the three months ended March 31, 1998 and 1999 and
the statement of stockholders' equity for the three months ended March 31, 1999
are unaudited. The unaudited interim financial statements have been prepared on
the same basis as the annual financial statements and, in the opinion of
management, reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly the Company's financial position,
results of operations and cash flows as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999. The financial data and other information
disclosed in these notes to the financial statements related to these periods
are unaudited. The results for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1999.
ESTIMATES AND ASSUMPTIONS
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 and
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could differ materially from those
estimates.
REVENUE RECOGNITION
Revenue consists of search listing advertisements and banner
advertisements. Banner advertising arrangements are short-term in duration and
have no minimum guarantees.
F-7
<PAGE> 87
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Search listing advertising enables the advertisers to determine their
placement within the GoTo.com search term results by placing a bid (the price
they will pay when a user clicks through to their site) for each keyword search
item that they select. The amount of the bid determines the placement of the
advertiser's site within the search results. Search listing advertisement
revenue is determined by multiplying the number of click-throughs on paid search
results by the price bid for the particular keyword listing at the time of the
click-through. Search listing advertising revenues are earned and recognized as
actual click-throughs occur to the extent the customer has deposited sufficient
funds with the Company or provided that the collection of any resulting
receivable is probable.
Banner advertisement arrangements provide for the Company to receive
specified amounts each time a customer's banner advertisement is made visible to
a user (an impression) and/or each time a user clicks-through to the
advertiser's web site. Banner advertisement revenue is recognized when earned
under the terms of the contractual arrangement with the advertiser or agency,
provided that collection of the resulting receivable is probable. Under the
terms of these arrangements revenues are generally earned when the banner
advertisement is displayed or when the click-through occurs.
COST OF REVENUE
Cost of revenue consists primarily of the cost of serving the Company's Web
site and fees paid to outside resources that provide unpaid line item search
results and other outside resources that assist in placing, managing and
tracking banner advertisements. Cost associated with serving the Web site
includes salaries, depreciation of Web site equipment, co-location charges for
equipment, and software licensing fees.
PRODUCT DEVELOPMENT
Product development expenses consist of expenses incurred by the Company in
the development and creation of its Internet site. Product development expenses
include compensation and related expenses, costs of computer hardware and
software, and costs incurred in developing features and functionality of the
service. Product development costs are expensed as incurred.
CASH AND CASH EQUIVALENTS
The Company considers those investments which are highly liquid, readily
convertible to cash and which mature within three months from the original date
of purchase as cash equivalents.
F-8
<PAGE> 88
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ONLINE MARKETING PARTNERS
The Company enters into short-term agreements with other internet companies
(partners) whereby the Company provides search services within the partners' Web
sites or the partners provide a link to the Company's site. In some cases, the
Company pays the partners fees based on the term of the agreement, and amount of
traffic the Company receives from the web sites. Some of these fees are paid at
the beginning of the contract resulting in prepaid distribution partner fees and
some of the fees are billed during the term of the contracts resulting in
accrued partner fees. The fees are charged to marketing and sales expense
ratably over the contract or based on actual traffic received under the terms of
the agreements. A significant portion of the Company's revenue has been
generated from traffic provided by only a few of the Company's online marketing
partners.
The Company expenses advertising costs as incurred. For the period from
inception through December 31, 1997, the year ended December 31, 1998, and the
three months ended March 31, 1999, the Company incurred advertising costs of
$29,000, $8.8 million and $4.2 million, respectively.
CONCENTRATION OF CREDIT RISK
Accounts receivable are typically unsecured and are due from customers
primarily located in the United States. Credit losses have generally been within
management's expectations. At December 31, 1998 and March 31, 1999 one customer
represented 13% and 19%, respectively, of total accounts receivable.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided using
the straight-line method based upon estimated useful lives of the assets, which
range from two to five years. Leasehold improvements are recorded at cost.
Amortization is provided using the straight-line method over the shorter of the
term of the related lease or estimated useful lives of the assets.
LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." The Company assesses the impairment of long-lived assets and
certain identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss would be recognized when estimated future cash flows expected to
result from the use of the asset and its eventual disposition is less
F-9
<PAGE> 89
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
than its carrying amount. No such impairment losses have been identified by the
Company.
DEFERRED REVENUE
Deferred revenue represents all payments received from customers in excess
of revenue earned based on line item click-through activity and will be
recognized as actual click-throughs occur.
INCOME TAXES
Income taxes are accounted for under Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS No. 109,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
ACCOUNTING FOR STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," requires that
stock awards granted subsequent to January 1, 1995, be recognized as
compensation expense based on their fair value at the date of grant.
Alternatively, a company may account for granted stock awards under Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees," and disclose pro forma income amounts which would have resulted from
recognizing such awards at their fair value. The Company has elected to account
for stock-based compensation expense under APB No. 25 and make the required pro
forma disclosures for compensation expense (see Note 4).
EARNINGS (LOSS) PER SHARE COMPUTATION
Historical basic net loss per share is computed using the weighted average
number of shares of Common Stock outstanding excluding the unvested portion of
stock issued in connection with the exercise of such options subject to
repurchase. Historical dilutive net loss per share is computed using the
weighted average number of shares of common stock outstanding plus the dilutive
effects of options, convertible Preferred Stock and non-vested stock. Historical
basic and dilutive loss per share are the same since shares associated with
stock options and the Convertible Preferred Stock are not included as they are
antidilutive.
Pro forma net loss per share (unaudited) is computed using the weighted
average number of shares of Common Stock outstanding excluding the unvested
portion of stock issued in connection with the exercise of such options subject
to repurchase, including the pro forma effects of the automatic conversion of
the Company's Convertible Preferred
F-10
<PAGE> 90
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock into shares of the Company's Common Stock effective upon the closing of
the Company's initial public offering as if such conversion occurred at the
issuance date.
The following table sets forth the computation of basic and pro forma net
loss per share for the periods indicated (in thousands except per share data):
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 15,
1997
(INCEPTION)
THROUGH YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31 MARCH 31
1997 1998 1998 1999
------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net loss......................... $ (120) $(14,023) $ (724) $ (7,360)
======= ======== ======== ========
Denominator:
Denominator for basic
calculation -- Weighted
average shares................ 9,869 10,296 10,017 10,894
Weighted average effect of pro
forma securities:
Series A Convertible Preferred
Stock......................... 360 26 471
Series B Convertible Preferred
Stock......................... 5,403 -- 8,312
Series C Convertible Preferred
Stock......................... 2,655 -- 10,710
-------- -------- --------
Denominator for pro forma
calculation................... 18,714 10,043 30,387
======== ======== ========
Net loss per share:
Historical basic and diluted..... $ (0.01) $ (1.36) $ (0.07) $ (0.68)
Pro forma (unaudited)............ $ (0.75) $ (0.07) $ (0.24)
</TABLE>
F-11
<PAGE> 91
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. INCOME TAXES
As a result of the net operating losses incurred since inception, no income
tax provision has been recorded except for state minimum taxes of approximately
$1,000 for 1997 and 1998. The following is a reconciliation of the statutory
federal income tax rate to the Company's effective income tax rate:
<TABLE>
<CAPTION>
SEPTEMBER 15, 1997
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Statutory federal rate.................... (34)% (34)%
State income taxes (net of federal
benefit)................................ (5) (5)
Valuation allowance....................... 41 37
Nondeductible stock compensation.......... -- 3
Other..................................... (2) (1)
--- ---
--% --%
=== ===
</TABLE>
The components of the deferred tax assets and related valuation allowance
at December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1997 1998
---- -------
(IN THOUSANDS)
<S> <C> <C>
Other....................................................... $ 7 $ 167
Net operating loss carryforwards............................ 43 4,955
---- -------
Deferred tax assets......................................... 50 5,122
Valuation allowance......................................... (50) (5,122)
---- -------
$ -- $ --
==== =======
</TABLE>
Due to the uncertainty surrounding the timing of realizing the benefits of
its deferred tax assets in future tax returns, the Company has recorded a
valuation allowance against its deferred tax assets.
The Company has net operating loss carryforwards for federal and state tax
purposes of approximately $12,438,000 expiring beginning in the years 2012
through 2018 for federal and 2005 through 2006 for state. The net operating
losses can be carried forward to offset future taxable income. Utilization of
the above carryforwards will be subject to utilization limitations, which may
inhibit the Company's ability to use carryforwards in the future.
The Company also has federal and state credit carryforwards of
approximately $28,000 and $22,000, respectively, expiring beginning in the years
2012 through 2018, which may be used to offset future liabilities.
F-12
<PAGE> 92
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
3. STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
In November 1998, the Company amended its Certificate of Incorporation to,
among other matters, increase the total number of authorized shares of Common
and Preferred Stock to 45,000,000 and 20,187,401, respectively. In conjunction
with this amendment, the Company authorized 500,000 shares of Series A Preferred
Stock (Series A), 8,500,000 shares of Series B Preferred Stock (Series B), and
11,187,401 shares of Series C Preferred Stock (Series C).
As part of the Series B Preferred Stock financing the Company's founder
paid a consultant 111,111 shares of the Company's Common Stock owned by the
Company's founder for services provided in connection with the Series B
Preferred Stock financing. The exchange of the founder's shares was recorded at
the fair market value of the Common Stock, on the date of the exchange, as a
contribution to capital and cost of the Series B Preferred financing.
The following table summarizes the issuances of the Preferred Stock
outstanding at December 31, 1998 and March 31, 1999 (in thousands, except per
share data):
<TABLE>
<CAPTION>
AMOUNT ORIGINAL
(NET OF PER SHARE
SHARES ISSUANCE ISSUANCE
OUTSTANDING COST) PRICE DATE OF ISSUANCE
----------- -------------- --------- -----------------
<S> <C> <C> <C> <C>
Series A............. 471 $ 212 $0.45 March 26, 1998
Series B............. 8,312 6,281 0.77 May 7, 1998
Series C............. 4,850 10,032 2.076 July 31, 1998
Series C............. 4,021 8,316 2.076 November 12, 1998
Series C............. 1,839 3,804 2.076 December 14, 1998
------ -------
19,493 $28,645
====== =======
</TABLE>
F-13
<PAGE> 93
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
The following table is presented to summarize the Common Stock reserved for
future issuance upon conversion of the outstanding Preferred Stock, exercise of
warrants and stock options:
<TABLE>
<CAPTION>
COMMON SHARES ISSUABLE UPON
CONVERSION OR EXERCISE
-----------------------------
DECEMBER 31 MARCH 31
1998 1999
DESCRIPTION OF INSTRUMENT ------------- -------------
<S> <C> <C>
Series A Convertible Preferred Stock.............. 471,111 471,111
Series B Convertible Preferred Stock.............. 8,311,688 8,311,688
Series C Convertible Preferred Stock.............. 10,710,348 10,710,348
Stock options outstanding......................... 5,000,471 2,752,984
Stock options available for future grant.......... 999,529 264,258
Common Stock purchase warrants.................... 63,272 104,971
---------- ----------
Common Stock reserved............................. 25,556,419 22,615,360
========== ==========
</TABLE>
PREFERRED STOCK
Each share of Preferred Stock is convertible, at the holder's option, into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $0.45 in the case of Series A, $0.77 in the case of
Series B, and $2.076 in the case of Series C by the Conversion Price, as
defined. At December 31, 1998 and March 31, 1999, the Conversion Price of the
Series A, Series B and Series C Preferred Stock was $0.45, $0.77 and $2.076
respectively. The Conversion Price is subject to adjustment based on certain
anti-dilution provisions. In the event of a Qualified Public Offering, as
defined, of the Company's equity securities with proceeds from such offering in
the amount of $30 million or greater and a per share selling price of $2.60 or
greater, all outstanding Preferred Stock will automatically be converted into
Common Stock, based on the then effective conversion ratios. The holders of the
Preferred Stocks also have certain registration rights, which under certain
circumstances, allow them to require the Company to register their shares at the
expense of the Company.
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the holders of Series B and Series C are
entitled to receive prior and in preference to any distribution of any assets or
surplus funds to the holders of the Series A Preferred Stock and the holders of
the Common Stock in an amount per share equal to $0.77 and $2.076, respectively,
plus an amount equal to any dividends declared but unpaid on such shares. After
payment or setting apart of payment to the holders of the Series B and C, each
share of Series A Preferred Stock is entitled to receive, prior and in
preference to any distribution to Common Stock holders an amount per share equal
to $0.45 plus an amount equal to any dividends declared but unpaid on such
shares.
F-14
<PAGE> 94
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
The voting rights of the Series A, Series B, and Series C are equal to one
vote for each share of Common Stock into which such Preferred Stock may be
converted. The holders of the Series B and C have certain specific voting
rights, as defined, with respect to the election of directors of the Company.
The Company's Amended and Restated Certificate of Incorporation include certain
protective provisions which require a majority vote of the holders of the Series
A, Series B and Series C with respect to certain actions of the board of
directors including changing the rights, preferences and privileges of the
Preferred Stockholders, changing the number of shares authorized of each Series,
repurchasing Common Stock, increasing or decreasing the members of the board of
directors, declaring a dividend on the Common Stock, and consummating a merger,
consolidation, reorganization or other business combination.
Each share of Series A, Series B and Series C entitles the holder to
receive, when and if declared by the board of directors, noncumulative dividends
in cash at an annual rate of $0.0315, $0.054 and $0.145 per share, respectively
(as adjusted for any stock splits, combinations and the like). Series B and
Series C dividends are payable in preference and prior to any payment of any
dividend on Series A Preferred Stock and the Common Stock. Dividends payable on
Series A Preferred Stock are payable in preference to any payment of any
dividend on the Common Stock.
WARRANTS
In September and November of 1998, the Company issued warrants in exchange
for certain consulting services to purchase 63,272 shares in total of the
Company's Common Stock at exercise prices ranging from $0.77 to $2.076 per
share. In February 1999, the Company issued additional warrants in exchange for
certain consulting and other services to purchase 41,699 shares of the Company's
Common Stock at exercise prices ranging from $2.076 to $5.00 per share. The
warrants are fully exercisable upon issuance and expire upon the earlier of 1)
five years from the date of issuance, 2) a change in control of the Company or
3) immediately before an initial public offering of the Company's Common Stock.
The deemed fair value of warrants issued in 1998 and the three months ended
March 31, 1999 was $90,000 and $180,000, respectively; these amounts were
recorded in general and administrative expenses in the respective periods.
DEFERRED STOCK OPTION COMPENSATION
The excess of the deemed fair value of the Company's Common Stock over the
exercise price of options granted during the year ended December 31, 1998 and
the three months ended March 31, 1999 at the date of grant amounted to an
aggregate of $2,517,000 and $3,513,000, respectively. The deemed fair value of
the Common Stock was determined by the Company based on the selling prices of
contemporaneous sales of each Series of Preferred Stock considering the relative
rights and privileges of each security, the stages of development of the
Company's business and the inherent risks and perceived
F-15
<PAGE> 95
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
future potential of the Company at the time of grant or issuance. The typical
vesting period of the options is 20% immediately upon grant with the remaining
balance vesting evenly over the following four years. The amortization of
deferred compensation will be charged to operations on a graded methodology
basis over the vesting period of the options. During the year ended December 31,
1998 and the three months ended March 31, 1999, deferred compensation
amortization of $1,199,000 and $1,297,000, respectively, was recorded. At
December 31, 1998 and March 31, 1999, deferred compensation of $1,318,000 and
$3,534,000, respectively, was reflected as a reduction of stockholders' equity.
The deferred compensation amortization relates only to stock options awarded to
employees; the salaries and related benefits of these employees are included in
the applicable cost of revenue or operating expense line item.
OTHER STOCK COMPENSATION
In addition, the Company sold or issued 427,195 shares of Common Stock to
various consultants during 1998 at prices less than the deemed fair value of the
Common Stock on the day it was sold. The excess of the deemed fair value of the
Common Stock on the day it was sold aggregating $280,000 was recognized as
consulting expense.
4. STOCK OPTION PLANS
The Company has a Stock Option Plan which provides for the granting of
options for the purchase of up to 6,000,000 shares of the Company's Common
Stock. Under terms of the plan, options may be granted to employees, nonemployee
directors or consultants at prices not less than the fair value at the date of
grant. Options granted to nonemployees are recorded at the value of negotiated
services received. All options are immediately exercisable, however, shares
issuable upon exercise of the option vest typically 20% immediately upon grant
of the option with the remaining balance vesting evenly over the following four
years. The Company has the right to repurchase unvested shares issued upon
exercise of the option.
F-16
<PAGE> 96
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
4. STOCK OPTION PLANS (CONTINUED)
Information relating to the outstanding stock options is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Outstanding at inception........................... -- --
Granted.......................................... 115 $0.44
Exercised........................................ -- --
Canceled......................................... -- --
------ -----
Outstanding at December 31, 1997................... 115 0.44
Granted.......................................... 4,888 0.15
Exercised........................................ -- --
Canceled......................................... (3) 0.15
------ -----
Outstanding at December 31, 1998................... 5,000 0.16
Granted.......................................... 749 0.37
Exercised........................................ (2,982) 0.19
Cancelled........................................ (14) 0.17
------ -----
Outstanding at March 31, 1999 2,753 $0.19
====== =====
</TABLE>
The following table summarizes information regarding options outstanding
and options exercisable (in thousands except per share data):
<TABLE>
<CAPTION>
OUTSTANDING AND EXERCISABLE
------------------------------------
WEIGHTED
AVERAGE WEIGHTED
NUMBER REMAINING AVERAGE
OF CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE PRICE
- ------------------------------------------- --------- ----------- --------
<S> <C> <C> <C>
December 31, 1998
$0.15 - 0.45 5,000 9.2 $0.16
========= === =====
March 31, 1999
$0.15 - 1.50 2,753 9.1 $0.19
========= === =====
</TABLE>
Options available for future grant totaled 999,529 and 264,258 at December
31, 1998 and March 31, 1999, respectively.
F-17
<PAGE> 97
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
4. STOCK OPTION PLANS (CONTINUED)
The fair value of these options were estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 15,
1997
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Risk free interest rate..................... 6% 5.14%
Expected lives (in years)................... 4 4
Dividend yield.............................. -- --
Expected volatility......................... -- --
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Under SFAS No.
123, the Company would have incurred an additional compensation expense of zero,
and $51,000 for the period from inception through December 31, 1997 and for the
year ended December 31, 1998, respectively.
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 15,
1997
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
-------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net loss, as reported................ $(120) $(14,023)
Pro forma net loss................... (120) (14,074)
Pro forma historical basic and
diluted loss per share............. (0.01) (1.37)
Pro forma loss per share............. (0.01) (0.75)
</TABLE>
Applying SFAS No. 123 in the pro forma disclosure may not be representative
of the effects on pro forma net income (loss) for future years as options vest
over several years and additional awards will likely be made each year.
5. RELATED PARTY TRANSACTIONS
During 1997 and 1998, the Company shared facilities and received certain
management services including certain accounting, payroll processing, access to
shared local area computer communications network, and general business
insurance from Bill Gross' idealab!, a significant stockholder of the Company.
Bill Gross' idealab! charges a
F-18
<PAGE> 98
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
management fee for the use of its facilities and the services provided. In
October 1998, the Company entered into a lease agreement beginning in February
1999 with Bill Gross' idealab! for office space in a building adjacent to the
Bill Gross' idealab! facility. The lease is cancellable with a 90 day written
notice from the Company. The total management and leasing fee was $59,000,
$229,000 and $75,000 during the period from inception through December 31, 1997,
the year ended December 31, 1998, and the three months ended March 31, 1999,
respectively. Management believes these amounts are materially representative of
the fair value of services provided. From inception through March 1, 1998, the
Company's founder and significant stockholder was the President and Chief
Executive Officer of the Company and received no compensation for his service.
The value of these services was not material to the financial statements. During
March 1998 certain stockholders provided temporary funding of $2.5 million to
the Company which carried no interest. In early May 1998 this funding was
contributed to the Company in return for Series B Preferred Stock.
6. COMMITMENTS AND CONTINGENCIES
LEASES
At December 31, 1998, noncancellable future lease commitments were as
follows:
<TABLE>
<CAPTION>
CAPITAL
LEASE
--------------
(IN THOUSANDS)
<S> <C>
1999........................................................ $136
2000........................................................ 136
2001........................................................ 79
----
Total minimum lease payments................................ 351
Less amount representing interest........................... 58
----
$293
====
</TABLE>
Total rent expense was $2,000, $116,000 and $62,000 during the period from
July 1, 1997 (inception) through December 31, 1997, the year ended December 31,
1998, and the three months ended March 31, 1999, respectively.
EQUIPMENT FINANCING ARRANGEMENT
At December 31, the Company had a line of credit arrangement with a leasing
institution that provides for a capital equipment lease line of up to a maximum
of $1,500,000. The terms of the agreement include a requirement for the Company
to keep an unrestricted cash balance of no less than $1.0 million at any time.
The Company was in compliance as of December 31, 1998. Under this agreement,
$1,207,000 was available for future financing transactions at December 31, 1998.
F-19
<PAGE> 99
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
During the quarter ended March 31, 1999 the Company obtained an additional
equipment financing line of credit with a lender in the amount of $1 million.
Under terms of the agreement, the credit line can apply to qualified equipment
delivered and funded not later than January 31, 2000 and the lender will be
repaid over a 36-month period. Title to the assets will reside with the Company
and the assets will be pledged as collateral.
Under the two arrangements, $1,580,000 was available for future financing
transactions at March 31, 1999.
OTHER DEBT
During January 1999 the Company executed a licensing and consulting
agreement with a software vendor for the implementation of a new financial
reporting system. The cost has been financed by an affiliate of the vendor and
will be repaid in quarterly installments of $34,000 through the end of fiscal
2000. Implementation of the system is anticipated to be completed during the
third quarter of 1999.
MARKETING PARTNER COMMITMENTS
The Company is obligated to make payments totaling $4.6 million in 1999
under contracts to provide search services to its marketing partners.
7. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT (UNAUDITED)
On April 6, April 12 and April 23, 1999, the Company granted options to
purchase 413,454, 338,765 and 20,000 shares of Common Stock at exercise prices
of $2.50, $6.20 and $6.20 per share, respectively. The excess of the deemed fair
market value of the Common Stock, determined using a methodology similar to that
applied during 1998, over the exercise prices amounted to an aggregate of
$1,530,000 for the grants on April 6. The Company intends to record related
compensation expense ratably using a graded methodology over the vesting period
of the options.
On April 14, 1999, the Company issued 3,628,447 shares of Series D
Preferred Stock for $6.89 per share and gross proceeds of approximately $25
million. The Series D Preferred Stock carry rights and privileges similar to
those of the Series B and C Preferred Stock and automatically convert into
Common Stock upon the closing of a qualified initial public offering, as
defined.
In April 1999, the Board of Directors approved the filing of the Company's
Registration Statement on Form S-1 with the Securities and Exchange Commission
to reflect the proposed sale by the Company of shares of Common Stock.
If the initial public offering is consummated under the terms presently
anticipated, all of the outstanding Preferred Stock will automatically convert
into Common Stock. On an unaudited pro forma basis, using the conversion price
as of March 31, 1999, 36,652,885
F-20
<PAGE> 100
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
7. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT (UNAUDITED)
(CONTINUED)
shares of Common Stock would have been issued and outstanding assuming all of
the outstanding Preferred Stock, including the Series D Preferred Stock issued
in April 1999, converted into Common Stock and all outstanding warrants were
exercised as of March 31, 1999. The pro forma effect on stockholders' equity, as
adjusted for the assumed conversion of the Preferred Stock, including the Series
D Preferred Stock issued in April 1999, and exercise of all outstanding warrants
is set forth on the accompanying balance sheet.
In April 1999 the Board of Directors also approved the establishment, upon
the closing of the Company's initial public offering, of the 1999 Employee Stock
Purchase Plan (1999 Purchase Plan) and the amended and restated 1998 Stock Plan
(1998 Plan). The 1999 Purchase Plan initially reserves 2,000,000 shares of
Common Stock for future issuance which will increase annually by the lesser of
1,000,000 shares, 3% of the outstanding shares on such date, or a lesser amount
determined by the Board. The 1999 Purchase Plan provides for successive six
month offering periods and allows eligible employees to participate in the plan
through payroll deductions that will be used to purchase Common Stock at the end
of each six month period for the lesser of 85% of the price of the Common Stock
at the beginning or the end of the six month offering period.
The 1998 Plan provides for the granting of stock options to employees,
directors and consultants. A total of 8,500,000 shares of Common Stock has been
initially reserved for issuance under the 1998 Plan and this amount will
increase annually by the lessor of 7,500,000 shares, 4% of the outstanding
shares on such date, or a lesser amount determined by the Board of Directors.
Upon completion of the Company's initial public offering the number of
common and undesignated preferred shares authorized for issuance will be
200,000,000 and 10,000,000, respectively.
F-21
<PAGE> 101
[INSIDE BACK COVER]
[Graphic Header: The GoTo.com Marketplace]
[Graphic: 3 end-to-end arrows in a circle] Tools of the GoTo.com Marketplace
GoTo.com offers advertisers control over their
advertising in the marketplace by providing a range of
online tools to manage their accounts and achieve
optimal results.
[Graphic: Page of account maintenance center
where advertisers can view the terms they have
bid on and the amount of each bid.]
GoTo.com has an online account maintenance center where advertisers can:
Revise bids on current search terms
View activity reports
Deposit funds into their accounts
[Graphic: Summary report where advertisers can view the
amount owed based on number of clicks to the advertisers' Web
sites.]
GoTo.com also offers advertisers
online tools to:
Add new search terms
Change the descriptions of
their Web sites in the search
listings
Get suggestions on additional
search terms on which to bid
<PAGE> 102
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
LOGO
5,000,000 SHARES OF COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SALOMON SMITH BARNEY
THOMAS WEISEL PARTNERS LLC
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of GoTo.com
have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock may be required
to deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as an underwriter and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 103
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 GoTo.com in connection with
the sale of common stock being registered. All amounts are estimates, except the
SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee....................................... $ 22,379
NASD filing fee............................................ 7,500
Nasdaq National Market listing fee......................... 100,000
Printing and engraving costs............................... 250,000
Legal fees and expenses.................................... 450,000
Accounting fees and expenses............................... 200,000
Blue Sky fees and expenses................................. 10,000
Transfer Agent and Registrar fees.......................... 10,000
Miscellaneous expenses..................................... 50,121
----------
Total............................................ $1,100,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article V of GoTo.com's Amended and Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of GoTo.com's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of GoTo.com, if such
person acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of GoTo.com, and, with respect to any criminal
action or proceeding, the indemnified party had no reason to believe his or her
conduct was unlawful.
GoTo.com has entered into indemnification agreements with its directors and
certain officers, in addition to indemnification provided for in its Bylaws, and
intends to enter into indemnification agreements with any new directors and
certain new officers in the future.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the underwriters of GoTo.com and its executive officers and
directors, and by GoTo.com of the underwriters for certain liabilities,
including liabilities arising under the Securities Act of 1933, in connection
with matters specifically provided in writing by the underwriters for inclusion
in the Registration Statement.
II-1
<PAGE> 104
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 15, 1997, the date of GoTo.com's incorporation, GoTo.com
has issued and sold unregistered securities in the amounts, at the times, and
for the aggregate amounts of consideration listed as follows:
1. On September 16, 1997, GoTo.com issued 8,400,000 shares of Common Stock
to Bill Gross' idealab! for an aggregate offering price of $84,000.
2. On September 16, 1997, GoTo.com purchased a domain name in exchange for
100,000 shares of Common Stock valued at an aggregate price of $15,000.
3. On September 16, 1997, GoTo.com purchased a license for certain
technology in exchange for 500,000 shares of Common Stock valued at an aggregate
price of $75,000.
4. On September 30, 1997, GoTo.com issued 1,516,667 shares of Common Stock
to 12 investors for an aggregate offering price of $227,500.05.
5. On April 14, 1998, GoTo.com issued 276,084 shares of Common Stock to
consultants in exchange for services rendered worth $41,412.60.
6. On March 26, 1998, GoTo.com issued 471,111 shares of Series A Preferred
Stock to Bill Gross' idealab! and three other investors for an aggregate
offering price of $211,999.95.
7. On April 7, 1998, GoTo.com issued 111,111 shares of Common Stock to
Bruce Hendricks for an aggregate offering price of $2,222.22.
8. On May 7, 1998, GoTo.com issued 8,311,688 shares of Series B Preferred
Stock to entities affiliated with idealab! Capital Management I, LLC, entities
and individuals affiliated with Draper Fisher Jurvetson, entities affiliated
with Moore Capital Management, Inc. and to other investors at a price of $0.77
per share, for an aggregate offering price of $6,399,999.70.
9. On July 31, 1998, GoTo.com issued 4,850,001 shares of Series C Preferred
Stock to entities affiliated with Moore Capital Management, Inc. at a price of
$2.076 per share, for an aggregate offering price of $10,068,602.07.
10. On November 12, 1998, GoTo.com issued 4,020,817 shares of Series C
Preferred Stock to Kline Hawkes California SBIC, L.P., entities affiliated with
Integral Capital Partners, entities affiliated with idealab! Capital Management
I, LLC, entities and individuals affiliated with Draper Fisher Jurvetson, and to
other investors at a price of $2.076 per share, for an aggregate offering price
of $8,347,216.09.
11. On December 14, 1998, GoTo.com issued 1,830,443 shares of Series C
Preferred Stock to entities affiliated with Global Retail Partners, L.P. at a
per share price of $2.076, for an aggregate offering price of $3,799,999.67.
12. On December 20, 1998, GoTo.com issued 40,000 shares of Common Stock to
a consultant in exchange for services rendered worth $3,200.
13. On December 22, 1998, GoTo.com issued 9,087 shares of Series C
Preferred Stock to seven investors at a price of $2.076 per share, for an
aggregate offering price of $18,864.61.
14. On April 14, 1999, GoTo.com issued 3,628,447 shares of Series D
Preferred Stock to The Goldman Sachs Group, L.P. and other persons and entities
not previously stockholders of GoTo.com, as well as to idealab! Holdings,
L.L.C., entities affiliated with
II-2
<PAGE> 105
idealab! Capital Management I, LLC, entities and individuals affiliated with
Draper Fisher Jurvetson, entities affiliated with Moore Capital Management,
Inc., entities affiliated with Global Retail Partners, L.P., Kline Hawkes
California SBIC, L.P., entities affiliated with Integral Capital Partners, and
to other investors at a per share price of $6.89, for an aggregate offering
price of $25,000,000.
15. Between September 15, 1998 and February 24, 1999, GoTo.com issued
warrants to purchase up to 104,971 shares of Common Stock at exercise prices
ranging from $0.77 to $5.00 per share.
16. Between July 1, 1997 and May 15, 1999, GoTo.com granted stock options
to purchase 6,501,561 shares of Common Stock at exercise prices ranging from
$0.15 to $6.20 per share to employees and consultants pursuant to its 1998 stock
option plan.
17. Between January 13, 1999 and May 15, 1999, an aggregate of 4,762,325
shares of Common Stock were issued upon exercise of options under GoTo.com's
1998 stock option plan.
No underwriters were engaged in connection with the foregoing sales of
securities. The sales of securities listed in items 1-8, 12 and 14-15 above were
made in reliance upon the exemptions from registration in Section 4(2) of the
Securities Act of 1933 for transactions not involving a public offering. The
sales of Securities listed in items 9-11 and 13 above were made in reliance upon
the exemptions from registration in Rule 506 of Regulation D promulgated under
Section 4(2)for transactions not involving a public offering. Issuances of
options and shares upon exercise of options to GoTo.com's employees and
consultants, which are listed in items 16 and 17 above, were made under Rule 701
promulgated under the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of
GoTo.com to be in effect after the closing of the offering
made under this Registration Statement.
3.2** Amended and Restated Bylaws of GoTo.com to be in effect
after the closing of the offering made under this
Registration Statement.
4.1** Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1** Form of Indemnification Agreement between GoTo.com and
certain of its officers and each of its directors.
10.2** Form of Change of Control Severance Agreement between
GoTo.com and certain of its officers.
10.3** 1998 Stock Plan and forms of option agreements thereunder.
10.4** 1999 Employee Stock Purchase Plan and form of agreement
thereunder.
10.5** Series A Preferred Stockholders' Rights Agreement among
GoTo.com and certain investors.
10.6** Amended and Restated Series B Preferred Stockholders' Rights
Agreement among GoTo.com and certain investors.
10.7** Series C Preferred Stockholders' Rights Agreement among
GoTo.com and certain investors.
</TABLE>
II-3
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
10.8** Series D Preferred Stockholders' Rights Agreement among
GoTo.com and certain investors.
10.9** Sublease Agreement dated February 1, 1999 between GoTo.com
and Bill Gross' idealab!.
10.10** Information Services Agreement dated April 30, 1998 between
GoTo.com and Inktomi Corporation.
10.11 Premier Search Services Agreement dated September 16, 1998
between GoTo.com and Microsoft Corporation.
10.12** Letter of Agreement dated April 1, 1999 between GoTo.com and
Pile, Inc.
10.13** GlobalCenter Master Service Agreement between GoTo.com, and
GlobalCenter, Inc.
10.14 Distinguished Provider Agreement dated May 13, 1998 between
GoTo.com and Netscape Communications Corporation
10.15 Distinguished Provider Agreement between GoTo.com and
Netscape Communications Corporation
10.16 Amendment No. 1 to U.S. English Language Net Search Services
Agreement -- Distinguished Provider dated May 19, 1999
between GoTo.com and Netscape Communications Corporation
10.17 Insertion Order dated March 11, 1999 between GoTo.com and
Netscape Communications Corporation
10.18 Amendment No. 1 to Bookmark Program Agreement dated August
1, 1999 between GoTo.com and Netscape Communications
Corporation
10.19 Amendment No. 1 to Netscape Communications Corporation U.S.
English-Language Net Search Program Distinguished Provider
Services Agreement dated April 30, 1999 between GoTo.com and
Netscape Communications Corporation
10.20 Insertion Order dated September 15, 1998 between GoTo.com
and Warner Bros. Online
23.1** Consent of Independent Accountants.
23.2** Consent of Counsel (see Exhibit 5.1).
24.1** Power of Attorney (see Page II-6).
27.1** Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or 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 by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or
II-4
<PAGE> 107
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 a director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 108
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 Pasadena,
State of California, on the 17th day of June, 1999.
GOTO.COM, INC.
By: /s/ JEFFREY S. BREWER
-----------------------------------
Jeffrey S. Brewer
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
JEFFREY S. BREWER* President, Chief June 17, 1999
- --------------------------------------------------- Executive Officer and
(Jeffrey S. Brewer) Director (Principal
Executive Officer)
TODD TAPPIN* Chief Financial June 17, 1999
- --------------------------------------------------- Officer (Principal
(Todd Tappin) Financial Officer)
ROBERT M. KAVNER* Chairman of the Board June 17, 1999
- ---------------------------------------------------
(Robert M. Kavner)
WILLIAM GROSS* Director June 17, 1999
- ---------------------------------------------------
(William Gross)
ALAN COLNER* Director June 17, 1999
- ---------------------------------------------------
(Alan Colner)
TIMOTHY DRAPER* Director June 17, 1999
- ---------------------------------------------------
(Timothy Draper)
LINDA FAYNE LEVINSON* Director June 17, 1999
- ---------------------------------------------------
(Linda Fayne Levinson)
</TABLE>
II-6
<PAGE> 109
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
WILLIAM ELKUS* Director June 17, 1999
- ---------------------------------------------------
(William Elkus)
*By: /s/ JEFFREY S. BREWER
---------------------------------------------
(Jeffrey S. Brewer,
Attorney-in-Fact)
</TABLE>
II-7
<PAGE> 110
GOTO.COM, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FROM SEPTEMBER 15, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997 AND
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
---------- ----------
BALANCE AT CHARGED TO AMOUNT BALANCE AT
BEGINNING OF COSTS AND CHARGED TO END OF
PERIOD EXPENSES RESERVE PERIOD
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
December 31, 1997............ $-- $ -- $-- $ --
December 31, 1998............ $-- $86,000 $-- $86,000
</TABLE>
S-1
<PAGE> 111
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of
GoTo.com to be in effect after the closing of the offering
made under this Registration Statement.
3.2** Amended and Restated Bylaws of GoTo.com to be in effect
after the closing of the offering made under this
Registration Statement.
4.1** Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1** Form of Indemnification Agreement between GoTo.com and
certain of its officers and each of its directors.
10.2** Form of Change of Control Severance Agreement between
GoTo.com and certain of its officers.
10.3** 1998 Stock Plan and forms of option agreements thereunder.
10.4** 1999 Employee Stock Purchase Plan and form of agreement
thereunder.
10.5** Series A Preferred Stockholders' Rights Agreement among
GoTo.com and certain investors.
10.6** Amended and Restated Series B Preferred Stockholders' Rights
Agreement among GoTo.com and certain investors.
10.7** Series C Preferred Stockholders' Rights Agreement among
GoTo.com and certain investors.
10.8** Series D Preferred Stockholders' Rights Agreement among
GoTo.com and certain investors.
10.9** Sublease Agreement dated February 1, 1999 between GoTo.com
and Bill Gross' idealab!.
10.10** Information Services Agreement dated April 30, 1998 between
GoTo.com and Inktomi Corporation.
10.11 Premier Search Services Agreement dated September 16, 1998
between GoTo.com and Microsoft Corporation.
10.12** Letter of Agreement dated April 1, 1999 between GoTo.com and
Pile, Inc.
10.13** GlobalCenter Master Service Agreement between GoTo.com, Inc.
and GlobalCenter, Inc.
10.14 Distinguished Provider Agreement dated May 13, 1998 between
GoTo.com and Netscape Communications Corporation
10.15 Distinguished Provider Agreement between GoTo.com and
Netscape Communications Corporation
10.16 Amendment No. 1 to U.S. English Language Net Search Services
Agreement -- Distinguished Provider dated May 19, 1999
between GoTo.com and Netscape Communications Corporation
10.17 Insertion Order dated March 11, 1999 between GoTo.com and
Netscape Communications Corporation
10.18 Amendment No. 1 to Bookmark Program Agreement dated August
1, 1999 between GoTo.com and Netscape Communications
Corporation
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ------- ----
<S> <C> <C>
10.19 Amendment No. 1 to Netscape Communications Corporation U.S.
English-Language Net Search Program Distinguished Provider
Services Agreement dated April 30, 1999 between GoTo.com and
Netscape Communications Corporation
10.20 Insertion Order dated September 15, 1998 between GoTo.com
and Warner Bros. Online
23.1** Consent of Independent Accountants.
23.2** Consent of Counsel (see Exhibit 5.1).
24.1** Power of Attorney. (see Page II-6).
27.1** Financial Data Schedules.
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
__________ Shares
GOTO.COM, INC.
Common Stock
UNDERWRITING AGREEMENT
June __, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DLJdirect, INC.
SALOMON SMITH BARNEY, INC.
THOMAS WEISEL PARTNERS LLC
As representatives of the
several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Underwriters:
Goto.com, Inc., a Delaware corporation (the "COMPANY"), proposes to
issue and sell ____________ shares of its Common Stock (Par Value .0001) (the
"FIRM SHARES") to the several underwriters named in Schedule I hereto (the
"UNDERWRITERS"). The Company also proposes to issue and sell to the several
Underwriters not more than an additional _______ shares of its Common Stock (Par
Value .0001) (the "ADDITIONAL SHARES") if requested by the Underwriters as
provided in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter referred to collectively as the "SHARES". The shares of common stock
of the Company to be outstanding after giving effect to the sales contemplated
hereby are hereinafter referred to as the "COMMON STOCK".
SECTION 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "ACT"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is
<PAGE> 2
hereinafter referred to as the "REGISTRATION STATEMENT"; and the prospectus in
the form first used to confirm sales of Shares is hereinafter referred to as the
"PROSPECTUS". If the Company has filed or is required pursuant to the terms
hereof to file a registration statement pursuant to Rule 462(b) under the Act
registering additional shares of Common Stock (a "RULE 462(b) REGISTRATION
STATEMENT"), then, unless otherwise specified, any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462(b)
Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements.
On the basis of the representations and warranties contained in this Agreement,
and subject to its terms and conditions, the Company agrees to issue and sell,
and each Underwriter agrees, severally and not jointly, to purchase from the
Company at a price per Share of $______ (the "PURCHASE Price") the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule I
hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to _______ Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. The Underwriters may exercise their right to purchase Additional
Shares in whole or in part from time to time by giving written notice thereof to
the Company within 30 days after the date of this Agreement. You shall give any
such notice on behalf of the Underwriters and such notice shall specify the
aggregate number of Additional Shares to be purchased pursuant to such exercise
and the date for payment and delivery thereof, which date shall be a business
day (i) no earlier than two business days after such notice has been given (and,
in any event, no earlier than the Closing Date (as hereinafter defined)) and
(ii) no later than ten business days after such notice has been given. If any
Additional Shares are to be purchased, each Underwriter, severally and not
jointly, agrees to purchase from the Company the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) which bears the same proportion to the total number of Additional
Shares to be purchased from the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I bears to the total number of
Firm Shares.
The Company hereby agrees not to (i) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock and stock
options pursuant to the Company's existing stock option and stock purchase plans
(ii) the Company may issue shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof and
(iii) the Company may offer and/or sell shares of
2
<PAGE> 3
Common Stock or securities convertible or exercisable into such shares (in one
or more steps) in an acquisition of another corporation or entity provided that
(1) such shares, when aggregated with any other shares issued pursuant to this
clause (iii), represent less than twenty percent (20%) of the Company's
outstanding shares of Common Stock as of the date hereof including the Shares
sold in the initial public offering of the Shares and (2) the acquisition be
effected pursuant to an acquisition agreement providing (A) that the recipients
of any securities of the Company issued pursuant to such an acquisition agree to
be bound by lock-up restrictions substantially similar to the agreements to be
entered into by the stockholders of the Company as contemplated hereby and in
form and substance reasonably satisfactory to the Underwriters, (B) that
certificates representing any securities of the Company issued pursuant to such
acquisition bear restrictive legends referring to the lock-up provisions
contained in the acquisition agreement, and (C) that appropriate stop-transfer
instructions with respect to any securities of the Company issued pursuant to
such acquisition be supplied to the Company's stock transfer agent). The Company
also agrees not to file any registration statement with respect to any shares of
Common Stock or any securities convertible into or exchangeable for Common Stock
for a period of 180 days after the date of the Prospectus without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation. The
Company shall, prior to or concurrently with the execution of this Agreement,
deliver an agreement executed by (i) each of the directors and officers of the
Company and (ii) each stockholder, optionholder and warrantholder listed on
Annex I hereto to the effect that such person will not, during the period
commencing on the date such person signs such agreement and ending 180 days
after the date of the Prospectus, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, (A) engage in any of the
transactions described in the first sentence of this paragraph or (B) make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock.
SECTION 3. Terms of Public Offering. The Company is advised by you
that the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Company shall deliver the Shares, with any transfer taxes thereon duly paid by
the respective Sellers, to Donaldson, Lufkin & Jenrette Securities Corporation
through the facilities of The Depository Trust Company ("DTC"), for the
respective accounts of the several Underwriters, against payment to the Company
of the Purchase Price therefore by wire transfer of Federal or other funds
immediately available in New York City. The certificates representing the Shares
shall be made available for inspection not later than 9:30 A.M., New York City
time, on the business day prior to the Closing Date or the applicable Option
Closing Date, as the case may be, at the office of DTC or its designated
custodian (the "DESIGNATED OFFICE"). The time and date of delivery and payment
for the Firm Shares shall be 9:00 A.M., New York City time, on ________, 1999 or
such other time on the same or such other date as Donaldson, Lufkin & Jenrette
Securities Corporation and the Company shall agree in writing. The time and date
of delivery for the Firm Shares are hereinafter referred to as the
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"CLOSING DATE". The time and date of delivery and payment for any Additional
Shares to be purchased by the Underwriters shall be 9:00 A.M., New York City
time, on the date specified in the applicable exercise notice given by you
pursuant to Section 2 or such other time on the same or such other date as
Donaldson, Lufkin & Jenrette Securities Corporation and the Company shall agree
in writing. The time and date of delivery for any Additional Shares are
hereinafter referred to as an "OPTION CLOSING DATE".
The documents to be delivered on the Closing Date or any Option
Closing Date on behalf of the parties hereto pursuant to Section 8 of this
Agreement shall be delivered at the offices of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, L.L.P, 155 Constitution Drive, Menlo Park,
California, 94025 and the Shares shall be delivered at the Designated Office,
all on the Closing Date or such Option Closing Date, as the case may be.
SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to
confirm such advice in writing, (i) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to the
Prospectus or for additional information, (ii) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement or
of the suspension of qualification of the Shares for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purposes, (iii) when
any amendment to the Registration Statement becomes effective, (iv) if the
Company is required to file a Rule 462(b) Registration Statement after the
effectiveness of this Agreement, when the Rule 462(b) Registration Statement has
become effective and (v) of the happening of any event during the period
referred to in Section 5(d) below which makes any statement of a material fact
made in the Registration Statement or the Prospectus untrue or which requires
any additions to or changes in the Registration Statement or the Prospectus in
order to make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
(b) To furnish to you four signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you and each Underwriter designated by
you such number of conformed copies of the Registration Statement as so filed
and of each amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which
shall be satisfactory to you, and to file the Prospectus in such form with the
Commission within the applicable period specified in Rule 424(b) under the Act;
during the period specified in Section 5(d) below, not to file any further
amendment to the Registration Statement and not to make any amendment or
supplement to the Prospectus of which you shall not previously have been advised
or to which you shall reasonably object after being so advised; and, during such
period, to prepare and file with the Commission, promptly upon your reasonable
request, any amendment to the Registration Statement or amendment or supplement
to the Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its
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<PAGE> 5
best efforts to cause any such amendment to the Registration Statement to become
promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first
business day after the date of this Agreement and from time to time thereafter
for such period as in the opinion of counsel for the Underwriters a prospectus
is required by law to be delivered in connection with sales by an Underwriter or
a dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request; provided, however, that
after ten (10) months from the date of this Agreement, the Underwriter shall be
obligated to reimburse the Company for expenses related to any such prospectus
delivery.
(e) If during the period specified in Section 5(d), any event
shall occur or condition shall exist as a result of which, in the opinion of
counsel for the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if, in the opinion of counsel for the Underwriters, it is necessary to amend
or supplement the Prospectus to comply with applicable law, forthwith to prepare
and file with the Commission an appropriate amendment or supplement to the
Prospectus so that the statements in the Prospectus, as so amended or
supplemented, will not in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with applicable
law, and to furnish to each Underwriter and to any dealer as many copies thereof
as such Underwriter or dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate
with you and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders
as soon as practicable an earnings statement covering the twelve-month period
ending June 30, 2000 that shall satisfy the provisions of Section 11(a) of the
Act, and to advise you in writing when such statement has been so made
available.
(h) During the period of three years after the date of this
Agreement, to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such
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<PAGE> 6
other publicly available information concerning the Company and its
subsidiaries, if any, as you may reasonably request.
(i) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel and the Company's accountants in connection with the registration and
delivery of the Shares under the Act and all other fees and expenses in
connection with the preparation, printing, filing and distribution of the
Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to any
of the foregoing, including the mailing and delivering of copies thereof to the
Underwriters and dealers in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares, (iv) all
expenses in connection with the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several states and
all costs of printing or producing any Preliminary and Supplemental Blue Sky
Memoranda in connection therewith (including the filing fees and fees and
disbursements of counsel for the Underwriters in connection with such
registration or qualification and memoranda relating thereto), (v) the filing
fees and disbursements of counsel for the Underwriters in connection with the
review and clearance of the offering of the Shares by the National Association
of Securities Dealers, Inc., (vi) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to the listing of the Shares on
the Nasdaq National Market, (vii) the cost of printing certificates representing
the Shares, (viii) the costs and charges of any transfer agent, registrar and/or
depositary, and (ix) all other costs and expenses incident to the performance of
the obligations of the Company hereunder for which provision is not otherwise
made in this Section.
(j) To use reasonable efforts to list for quotation the Shares
on the Nasdaq National Market and to maintain the listing of the Shares on the
Nasdaq National Market for a period of three years after the date of this
Agreement.
(k) To use reasonable efforts to do and perform all things
required or necessary to be done and performed under this Agreement by the
Company prior to the Closing Date or any Option Closing Date, as the case may
be, and to satisfy all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the
effectiveness of this Agreement does not cover all of the Shares, to file a Rule
462(b) Registration Statement with the Commission registering the Shares not so
covered in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the
date of this Agreement and to pay to the Commission the filing fee for such Rule
462(b) Registration Statement at the time of the filing thereof or to give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
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SECTION 6. Representations and warranties of the company. The
Company represents and warrants to each underwriter that:
(a) The Registration Statement has become effective (other
than any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any Rule 462(b) Registration Statement filed
after the effectiveness of this Agreement will become effective no later than
10:00 P.M., New York City time, on the date of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or, to the Company's knowledge,
threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and (iv)
the Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the Act, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or omissions
in any preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(d) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to carry on its business
as described in the Prospectus and to own, lease and operate its properties, and
is duly qualified and is in good standing as a foreign corporation authorized to
do business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so
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<PAGE> 8
qualified would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company (a "Material Adverse
Effect").
(e) The Company does not presently own or control, directly or
indirectly, any material interest in any other corporation, association, or
other business entity.
(f) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens granted or
issued by the Company relating to or entitling any person to purchase or
otherwise to acquire any shares of the capital stock of the Company, except as
otherwise disclosed in or contemplated by the Registration Statement and except
for up to 200,000 options granted, and option and warrant exercises since May
15, 1999.
(g) All the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights; and the Shares have been
duly authorized and, when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, will be validly issued, fully
paid and non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights, other than the right of repurchase held by the
Company with respect to certain outstanding shares.
(h) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(i) The Company is not in violation of its charter or bylaws
or, except as would not have a Material Adverse Effect, in default in the
performance of any obligation, agreement, covenant or condition contained in any
indenture, loan agreement, mortgage, lease or other agreement or instrument to
which the Company is a party or by which the Company or its property is bound.
(j) The execution, delivery and performance of this Agreement
by the Company, the compliance by the Company with all the provisions hereof and
the consummation of the transactions contemplated hereby will not (i) require
any consent, approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be required under
the securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or bylaws of the Company or, except as would not have a Material
Adverse Effect, any indenture, loan agreement, mortgage, lease or other
agreement or instrument to which the Company is a party or by which the Company
or its property is bound, (iii) violate or conflict with any applicable law or
any rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over the Company or its property or (iv)
result in the suspension, termination or revocation of any Authorization (as
defined below) of the Company or any other impairment of the rights of the
holder of any such Authorization.
(k) To the Company's knowledge, the Company owns or possesses,
or can acquire on reasonable terms, all patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential
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information, systems or procedures), trademarks, service marks and trade names
("intellectual property") currently employed by it in connection with the
business now operated by it except where the failure to own or possess or
otherwise be able to acquire such intellectual property would not, singly or in
the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operation of the Company; and except as
disclosed in the Registration Statement (specifically including, but not limited
to, the disclosure under the caption "Risk Factors--We may not be able to
protect the intellectual property rights upon which our business relies; We face
risks of claims from third parties for intellectual property infringement and
other matters that could adversely affect our business"), the Company has not
received any notice of infringement of or conflict with asserted rights of
others with respect to any of such intellectual property which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a material adverse effect on the business, prospects, financial condition
or results of operations of the Company.
(l) No relationship, direct or indirect, exists between or
among the Company, on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company, on the other hand, which is required by
the Act to be described in the Registration Statement or the Prospectus which is
not so described.
(m) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(n) There are no legal or governmental proceedings pending or
threatened to which the Company is or is reasonably likely to be a party or to
which any of its property is or is reasonably likely to be subject that are
required to be described in the Registration Statement or the Prospectus and are
not so described; nor are there any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
so described or filed as required.
(o) The Company has not violated any foreign, federal, state
or local law or regulation relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("ENVIRONMENTAL LAWS"), any provisions of the Employee
Retirement Income Security Act of 1974, as amended, or any provisions of the
Foreign Corrupt Practices Act, or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company.
(p) The Company has such permits, licenses, consents,
exemptions, franchises, authorizations and other approvals (each, an
"AUTHORIZATION") of, and has made all
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filings with and notices to, all governmental or regulatory authorities and
self-regulatory organizations and all courts and other tribunals, including,
without limitation, under any applicable Environmental Laws, as are necessary to
own, lease, license and operate its properties and to conduct its business,
except where the failure to have any such Authorization or to make any such
filing or notice would not, singly or in the aggregate, have a material adverse
effect on the business, prospects, financial condition or results of operations
of the Company. Each such Authorization is valid and in full force and effect
and the Company is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company; except where such failure to be
valid and in full force and effect or to be in compliance, the occurrence of any
such event or the presence of any such restriction would not, singly or in the
aggregate, have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company.
(q) There are no costs or liabilities incurred by the Company
associated with Environmental Laws (including, without limitation, any capital
or operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any Authorization, any related constraints
on operating activities and any reasonably likely liabilities to third parties)
which would, singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company.
(r) This Agreement has been duly authorized, executed and
delivered by the Company.
(s) Ernst & Young, LLP are independent public accountants with
respect to the Company as required by the Act.
(t) The financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
on the basis stated therein at the respective dates or for the respective
periods to which they apply; such statements and related schedules and notes
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; the supporting schedules, if any, included in the Registration
Statement present fairly in accordance with generally accepted accounting
principles the information required to be stated therein; and the other
financial and statistical information and data set forth in the Registration
Statement and the Prospectus (and any amendment or supplement thereto) are, in
all material respects, accurately presented and prepared.
(u) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not
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be, an "investment company" as such term is defined in the Investment Company
Act of 1940, as amended.
(v) Except as disclosed in the Registration Statement, there
are no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(w) Since the respective dates as of which information is
given in the Prospectus other than as set forth in the Prospectus (exclusive of
any amendments or supplements thereto subsequent to the date of this Agreement),
(i) there has not occurred any material adverse change or any development
involving a prospective material adverse change in the condition, financial or
otherwise, or the earnings, business, management or operations of the Company
(ii) there has not been any material adverse change or any development involving
a prospective material adverse change in the capital stock or in the long-term
debt of the Company, and (iii) the Company has not incurred any material
liability or obligation, direct or contingent.
(x) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be deemed to
be a representation and warranty by the Company to the Underwriters as to the
matters covered thereby.
SECTION 7. Indemnification. (a) The Company agrees to indemnify and
hold harmless each Underwriter, its directors, its officers and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), from and against any and all losses, claims, damages, liabilities and
judgments (including, without limitation, any legal or other expenses reasonably
incurred in connection with investigating or defending any matter, including any
action, that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter, or any person controlling such Underwriter,
who failed to deliver a Prospectus, as then amended or supplemented, (so long as
the Prospectus and any amendments or supplements thereto was provided by the
Company to the several Underwriters in the requisite quantity and on a timely
basis to permit proper delivery on or prior to the Closing Date) to the person
asserting any losses, claims, damages, liabilities or judgments caused by any
untrue statement or alleged untrue statement of a material fact contained in
such preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, if such material
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misstatement or omission or alleged material misstatement or omission was cured
in the Prospectus, as so amended or supplemented, and such Prospectus was
required by law to be delivered at or prior to the written confirmation of sale
to such person.
(a) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
to the same extent as the foregoing indemnity from the Company to such
Underwriter but only with reference to information relating to such Underwriter
furnished in writing to the Company by such Underwriter through you expressly
for use in the Registration Statement (or any amendment thereto), the Prospectus
(or any amendment or supplement thereto) or any preliminary prospectus.
(b) In case any action shall be commenced involving any person
in respect of which indemnity may be sought pursuant to Section 7(a) or 7(b)
(the "indemnified party"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 7(a) and 7(b), the Underwriter shall not be
required to assume the defense of such action pursuant to this Section 7(c), but
may employ separate counsel and participate in the defense thereof, but the fees
and expenses of such counsel, except as provided below, shall be at the expense
of such Underwriter). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by Donaldson, Lufkin & Jenrette Securities Corporation, in the case
of parties indemnified pursuant to Section 7(a), and by the Company, in the case
of parties indemnified pursuant to Section 7(b). The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with the indemnifying party's written consent or (ii)
effected without the indemnifying party's written consent if the settlement is
entered into more than twenty business days after the indemnifying party shall
have received a request from the indemnified party for reimbursement for
reasonably incurred and bona fide fees and expenses of counsel (in
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<PAGE> 13
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party shall
have failed to comply with such reimbursement request. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(c) To the extent the indemnification provided for in this
Section 7 is unavailable to an indemnified party or insufficient in respect of
any losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 7(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions, but before deducting expenses) received
by the Company, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Shares, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any matter, including any
action, that could have given rise to such losses, claims, damages, liabilities
or judgments. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the
13
<PAGE> 14
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7(d) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint.
(d) The remedies provided for in this Section 7 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
SECTION 8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, such Rule
462(b) Registration Statement shall have become effective by 10:00 P.M., New
York City time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by Jeffrey Brewer and Todd Tapin in their
capacities as the President, Chief Executive Officer and Chief Financial Officer
of the Company, confirming the matters set forth in Sections 6(t), 8(a) and 8(b)
and that the Company has complied with all of the agreements and satisfied all
of the conditions herein contained and required to be complied with or satisfied
by the Company on or prior to the Closing Date.
(d) Since the respective dates as of which information is
given in the Prospectus other than as set forth in the Prospectus (exclusive of
any amendments or supplements thereto subsequent to the date of this Agreement),
(i) there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise , or the earnings,
business, management or operations of the Company, (ii) there shall not have
been any change or any development involving a prospective change in the capital
stock or in the long-term debt of the Company and (iii) the Company shall have
not incurred any liability or obligation, direct or contingent, the effect of
which, in any such case described in clause 8(d)(i), 8(d)(ii) or 8(d)(iii), in
your judgment, is material and adverse and, in your judgment, makes it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.
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<PAGE> 15
(e) You shall have received on the Closing Date an opinion (in
the form attached hereto as Exhibit A), dated the Closing Date, of Wilson,
Sonsini, Goodrich & Rosati, LLP, counsel for the Company, to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State of
Delaware, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing as a foreign corporation in
California;
(ii) all the outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive similar rights pursuant to the
Company's Certificate of Incorporation or Bylaws or applicable federal or
California law or Delaware law or, to our knowledge any agreement or instrument
filed as an exhibit to the Registration Statement or pursuant to [list financing
documents] (the "Financing Documents");
(iii) the Shares have been duly authorized and, when
issued and delivered to the Underwriters against payment therefor as provided by
this Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar rights
pursuant to the Company's Certificate of Incorporation or Bylaws or applicable
federal or California law or Delaware corporate law or, to our knowledge, any
agreement or instrument filed as an exhibit to the Registration Statement;
(iv) this Agreement has been duly authorized,
executed and delivered by the Company;
(v) the authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in the Prospectus;
(vi) the Registration Statement has become effective
under the Act, no stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, to such counsel's knowledge, pending before or
contemplated by the Commission;
(vii) the statements under the captions "Risk
Factors--Government regulation and legal uncertainties may damage our business;
We will be controlled by our current stockholders, even after the offering; Our
charter documents and change of control severance agreements with our management
will make it more difficult to acquire us; Future sales of our common stock may
depress our stock price", "Management--Classified Board; Incentive Stock Plans;
Employment Agreements and Change of Control Arrangements; Limitations on
Directors' Liability and Indemnification," "Underwriters" (which shall be
limited to the description of the Underwriting Agreement); "Description of
Capital Stock" in the Prospectus and Items 14 and 15 of Part II of the
Registration Statement, insofar as such statements constitute a summary of the
legal matters, documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings;
15
<PAGE> 16
(viii) to such counsel's knowledge, the Company is not
in violation of its charter or bylaws;
(ix) the execution, delivery and performance of this
Agreement by the Company, the compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby will not (A)
require any consent, approval, authorization or other order of, or qualification
with, any court or governmental body or agency customarily applicable to these
types of transactions (except such as may be required under the securities or
Blue Sky laws of the various states or any applicable foreign jurisdictions),
(B) conflict with or constitute a breach of any of the terms or provisions of,
or a default under, the charter or bylaws of the Company or any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is filed as an
Exhibit to the Registration Statement, to which the Company is a party or by
which the Company or its property is bound, or the Financing Documents or (C)
violate or conflict with any applicable law or any rule or regulation
customarily applicable to these types of transactions, or, to such counsel's
knowledge, any judgment, order or decree of any court or any governmental body
or agency having jurisdiction over the Company or its property;
(x) such counsel does not know of any legal or
governmental proceedings pending or threatened in writing to which the Company
is or might reasonably likely be a party or to which any of its property is or
could be subject that are required to be described in the Registration Statement
or the Prospectus and are not so described, or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not so described or filed as required;
(xi) the Company is not and, after giving effect to
the offering and sale of the Shares and the application of the proceeds thereof
as described in the Prospectus, will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended; and
(xii) to such counsel's knowledge and except as
disclosed in the Registration Statement, there are no contracts, agreements or
understandings between the Company and any person granting such person the right
to require the Company to file a registration statement under the Act with
respect to any securities of the Company or to require the Company to include
such securities with the Shares registered pursuant to the Registration
Statement; and
In addition, such counsel shall state that although such counsel has
not passed upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus and has not made any independent check or
verification thereof, such counsel has participated in the preparation of the
Registration Statement and the Prospectus and in conferences with certain
officers and other representatives of the Company, representatives of the
independent public accountants for the Company, and representatives of the
Underwriters and the Underwriters' counsel at which the contents of the
Registration Statement and the Prospectus were discussed, and on the basis of
and subject to the foregoing, such counsel believes that (i) the Registration
Statement and the
16
<PAGE> 17
Prospectus (except for financial statements and related schedules and financial
and statistical data, other than industry data derived from sources cited in the
Prospectus, therein as to which no belief or opinion need be expressed) comply
as to form in all material respects with the Securities Act of 1933, as amended
and the rules and regulations of the Securities and Exchange Commission
thereunder, and (ii) no facts have come to the attention of such counsel which
causes counsel to believe (A) that, as of its effective date, the Registration
Statement (other than the financial statements and related schedules and
financial and statistical data, other than industry data derived from sources
cited in the Prospectus, therein, as to which no belief or opinion need be
expressed) contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading or (B) that as of the date of such legal
opinion and as of its effective date, the Prospectus (other than the financial
statements and related schedules and financial and statistical data, other than
industry data derived from sources cited in the Prospectus, therein, as to which
no belief or opinion need be expressed) contained an untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading.
The opinion of Wilson Sonsini shall further state the Wilson Sonsini
does not represent the Company with respect to the litigation with The Walt
Disney Company and certain of its affiliates, or other trademark matters,
(collectively, "Trademark Matters") however, nothing has come to its attention
which causes it to believe that, as of its effective date, the description of
the Trademark Matters contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
The opinion of Wilson Sonsini described in Section 8(e) above shall
be rendered to you at the request of the Company and shall so state therein.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Brinks Hofer Gilson & Lione, in the form attached hereto as Exhibit B.
(g) You shall have received on the Closing Date an opinion,
dated the Closing Date, of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel for the Underwriters, as to the matters referred to in
Sections 8(e)(iii), 8(e)(iv), 8(e)(vii) (but only with respect to the statements
under the caption "Description of Capital Stock" and "Underwriting") and the
last paragraph of 8(e).
In giving such opinions with respect to the matters covered by the
last paragraph of Section 8(e), counsel for the Company and counsel for the
Underwriters may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification except as
specified.
(h) You shall have received, on each of the date hereof and
the Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and
17
<PAGE> 18
substance satisfactory to you, from Ernst & Young, LLP, independent public
accountants, containing the information and statements of the type ordinarily
included in accountants' "comfort letters" to Underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(i) The Company shall have delivered to you the agreements
specified in Section 2 hereof which agreements shall be in full force and effect
on the Closing Date.
(j) The Shares shall have been duly listed for quotation on
the Nasdaq National Market.
(k) The Company shall not have failed on or prior to the
Closing Date to perform or comply with any of the agreements herein contained
and required to be performed or complied with by the Company on or prior to the
Closing Date.
The several obligations of the Underwriters to purchase any
Additional Shares hereunder are subject to the delivery to you on the applicable
Option Closing Date of such documents as you may reasonably request with respect
to the good standing of the Company in the States of California and Delaware,
the due authorization and issuance of such Additional Shares and other matters
reasonably related to the issuance of such Additional Shares.
SECTION 9. Effectiveness of Agreement and Termination. This
Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time on or prior to the
Closing Date by you by written notice to the Company if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company, (v) the
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such
18
<PAGE> 19
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
is not more than one-tenth of the total number of Firm Shares or Additional
Shares, as the case may be, to be purchased on such date by all Underwriters,
each non-defaulting Underwriter shall be obligated severally, in the proportion
which the number of Firm Shares set forth opposite its name in Schedule I bears
to the total number of Firm Shares which all the non-defaulting Underwriters
have agreed to purchase, or in such other proportion as you may specify, to
purchase the Firm Shares or Additional Shares, as the case may be, which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
on such date; provided that in no event shall the number of Firm Shares or
Additional Shares, as the case may be, which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 9 by
an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to you
and the Company for purchase of such Firm Shares are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter and the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. If, on an Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased on such
date, the non-defaulting Underwriters shall have the option to (i) terminate
their obligation hereunder to purchase such Additional Shares or (ii) purchase
not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase on such date in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
SECTION 10. Miscellaneous. Notices given pursuant to any provision
of this Agreement shall be addressed as follows: (i) if to the Company, to Todd
Tappin, 140 West Union Street, Pasadena, California 91103 and (ii) if to any
Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company and the several
Underwriters set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Shares, regardless of (i) any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, the
Company, the officers or directors of the Company or any person controlling the
Company, (ii) acceptance of the Shares and payment for them hereunder and (iii)
termination of this Agreement.
19
<PAGE> 20
If for any reason the Shares are not delivered by or on behalf of
the Company as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 9), the Company agrees to reimburse the
several Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has agreed
to pay pursuant to Section 5(i) hereof. The Company also agrees to reimburse the
several Underwriters, their directors and officers and any persons controlling
any of the Underwriters for any and all fees and expenses (including, without
limitation, the fees disbursements of counsel) incurred by them in connection
with enforcing their rights hereunder (including, without limitation, pursuant
to Section 7 hereof), provided such party is deemed to be the prevailing party.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the
Underwriters, the Underwriters' directors and officers, any controlling persons
referred to herein, the Company's directors and the Company's officers who sign
the Registration Statement and their respective successors and assigns, all as
and to the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Shares from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with
the laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
The parties agree to perform their obligations under this Agreement
in good faith.
20
<PAGE> 21
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
GOTO.COM, INC.
By:__________________________________
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DLJdirect, INC.
SALOMON SMITH BARNEY, INC.
THOMAS WEISEL PARTNERS LLC
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:____________________________
<PAGE> 22
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm
Shares to be
Underwriters Purchased
- ------------ --------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities
Corporation
DLJdirect, Inc.
Salomon Smith Barney, Inc.
Thomas Weisel Partners LLC
Total
</TABLE>
<PAGE> 23
ANNEX I
[Insert names of stockholders of the Company who will be required to sign
lock ups]
<PAGE> 1
Exhibit 5.1
[WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
June 16, 1999
GoTo.com, Inc.
140 West Union Street
Pasadena, California 91103
RE: REGISTRATION STATEMENT ON FORM S-1
Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission on April 16, 1999 (the "Registration
Statement") in connection with the registration under the Securities Act of
1933, as amended, of shares of your Common Stock, $0.0001 par value (the
"Shares"). As your counsel in connection with this transactions, we have
examined the proceedings taken and are familiar with the proceedings proposed
to be taken by you in connection with the issuance and sale of the Shares
pursuant to the plan of distribution set forth in the Registration Statement.
It is our opinion that, the Shares are and have been duly authorized and
when issued and sold in the manner described in the Registration Statement, the
Shares will be legally and validly issued, fully-paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement and any amendments thereto.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI,
Professional Corporation
/s/ Wilson, Sonsini, Goodrich & Rosati
<PAGE> 1
EXHIBIT 10.11
PREMIER SEARCH SERVICES AGREEMENT
This Premier Search Services Agreement (the "Agreement") is entered into and
effective as of the later of the two signature dates below (the "Effective
Date") by and between MICROSOFT CORPORATION, a Washington corporation, located
at One Microsoft Way, Redmond, WA 98052 ("Microsoft") and GoTo.com, Inc., a
Delaware corporation located at 130 West Union Street, Pasadena, CA 91103
("Company").
RECITALS
Company owns and makes available to Internet users a search service enabling
Web users to conduct searches to locate information on the Internet.
Microsoft wishes to provide its end-users of Microsoft Internet Explorer the
ability to access Company's search services in accordance with the terms and
conditions of this Agreement.
AGREEMENT
1. DEFINITIONS
1.1 "Above the Fold" means the placement of particular items within a Web page
in a manner that is visible to an end-user without any scrolling in a
640x480 pixel resolution; provided that if a particular item is too large
to be completely visible to an end-user without scrolling, the placement
may continue below the fold.
1.2 "Click Through" means an end-user action associated with clicking on a
space provided for submitting a search query, which may be preceded by the
insertion of text into a search query space provided for such purpose. The
result of such an action is typically a set of search results.
1.3 "Default Placement" means the recurring placement of a search service on
the IE 3.x Page and/or the Pane which occurs upon specific end-user
selection of such search service as such end-user's default, which
placement may then be utilized by the end-user to initiate a search query
against the such search service. Default Placement alters and overrides
subsequent Rotational Placement unless and until such Default Placement is
disabled. Provided that the Default Placement is enabled, a Default
Placement will generate an Impression each and every time that the
end-user accesses the IE 3.x Page or the Pane subsequent to the Default
Placement.
1.4 "Default Selected Service" means the search service which appears on the
IE 3.x Page and/or the Pane as a result of a Default Placement.
1.5 "Drop Down" means the listing of all of the Premier Providers' search
services with only one Premier Provider visible (without end-user
interaction with the Drop Down) to the end-user at any one time from which
an end-user can initiate a User Placement. The Drop Down may include a
particular Other Search Service Provider solely as a result of a Default
Placement.
1.6 "Impression" means an end-user visible exposure of the Search Service
resulting from a Rotational Placement, Default Placement or User Placement
where such exposure is either delivered by a Microsoft hosted server or
re-directed to the Search Service at the Primary Web Site by a Microsoft
hosted server.
1.7 "IE 3.x, 4.x or 5.x" means the United States versions of Microsoft
Internet Explorer version 3.0, 4.0 or 5.0 (when available) as applicable
and any subsequent updates to such versions, but shall specifically not
include any later versions of Microsoft Internet Explorer (e.g. IE 6.x, IE
7.x, etc.),
Company Search Services Agreement Page 1
<PAGE> 2
1.8 "IE 3.x Page" means the initial Web page that would be delivered to the
end-user upon clicking the Search Button contained within IE3.x
irrespective of the method utilized by the end-user to access such Web
page.
1.9 "Link" means a link on a Web page that end-users can click on to access
another Web page.
1.10 "Pane" means the section within the Web page which would be delivered to
the end-user upon clicking the Search Button contained within IE 4.x/5.x
irrespective of the method utilized by the end-user to access such Web
page.
1.11 "Premier Provider" means each third party participating in Microsoft's
Premier Search Program.
1.12 "Premier Search Program" means the placement of the Premier Providers'
search services within IE 3.x, 4.x and 5.x.
1.13 "Other Search Service Providers" means third party providers of search
services other than the Premier Providers.
1.14 "Primary Web Site" means the Company Web site currently located at the URL
http://www.goto.com, or any successor site thereof.
1.15 "Rotational Placement" means the automatic placement of a search service
on the IE 3.x Page and/or the Pane without any action taken by the
end-user with respect to the Selection Mechanism, which placement may be
utilized by the end-user to initiate a search query against such search
service. A Rotational Placement will result in an Impression being
delivered.
1.16 "Rotational Selected Service" means the search service which appears on
the IE 3.x Page and/or the Pane as a result of a Rotational Placement.
1.17 "Search Button" means the button featured as part of IE 3.x, 4.x or 5.x
that is accessible to end-users and is labeled "Search" (or similar term)
as shown in Appendices A and B to Exhibit B or such other successor
feature implemented by Microsoft which provides a similar function.
1.18 "Search Service" means Company's search service currently known as
"GoTo.com" which performs searches of Company's database and/or the
Internet based on requests submitted over the Internet and is accessible
to end-users at the Primary Web Site.
1.19 "Selection Mechanism" means the Drop Down, Stack or any other similar
mechanism which is implemented by Microsoft on the IE 3.x Page or the Pane
for the purpose of referring a search service to the end-user and
subsequently allowing the end-user to initiate a User Placement.
1.20 "Site" means the United States version of the Microsoft portal Web site
currently located at http://home.microsoft.com, or such other replacement
site as designated by Microsoft.
1.21 "Stack" means the listing of all of the Premier Providers' search services
such that all are visible with only one clearly demarcated as the selected
search service, from which an end-user can initiate a User Placement.
1.22 "Term" means that period during which Microsoft will deliver Impressions
pursuant to this Agreement, which shall begin on September 1, 1998 (the
"Term Commencement Date") and shall continue through August 31, 1999,
inclusive, unless terminated or extended as provided for elsewhere in this
Agreement. Notwithstanding the immediately preceding sentence, Microsoft
may elect to delay the Term Commencement Date by up to thirty (30) days,
provided that in such event, the
Company Search Services Agreement Page 2
<PAGE> 3
expiration date of the Term shall be delayed by an equal number of days.
1.23 "Trademarks" means Company's Search Service logos as set forth on
Exhibit C and the Company trade names that are owned by or licensed to
Company and provided by Company to Microsoft under this Agreement.
1.24 "User Placement" means the non-recurring placement of a search service
on the IE 3.x Page and/or the Pane which occurs upon specific end-user
utilization of the Selection Mechanism to change the search service,
provided that subsequent Rotational Placement is not affected. Such
utilization of the Search Mechanism will replace the Rotational Selected
Service with the User Selected Service in a particular instance, which
placement may then be utilized by the end-user to initiate a search
query against the such search service. A User Placement will result in
an Impression being delivered.
1.25 "User Selected Service" means the search service which appears on the IE
3.x Page and/or the Pane as a result of a User Placement.
1.26 "Web" means that portion of the Internet commonly referred to as the
World Wide Web.
2. TERMS
2.1 Provided that company satisfies its obligations as set forth in Exhibit
A as attached hereto and by this reference fully incorporated herein,
Microsoft will place the Search Service by the Term Commencement Date
within IE 3.x, 4.x or 5.x in accordance with the specifications set
forth in Exhibit B (the "Placement Specifications") as attached hereto
and by this reference fully incorporated herein.
2.2 In connection with the placement of the Search Service as described in
this Agreement, Company hereby grants Microsoft a non-exclusive, royalty
free, worldwide limited right to use and display the Trademarks.
3. IMPRESSIONS
3.1 During the Term, Microsoft will deliver no less than 180,000,000
Impressions (the "Guaranteed Impressions").
3.2 Microsoft will make good faith efforts to deliver no less than thirty
percent (30%) of the Guaranteed Impressions during the first six (6)
months of the Term, provided that Microsoft's failure or inability to
deliver such number of Impressions within such time will not be a breach
of this Agreement.
3.3 At any time after Microsoft has completed delivery of the Guaranteed
Impressions Microsoft may, in its sole discretion, discontinue the
rotation of the Search Service as described in Exhibit B, provided that
the Search Service will remain accessible to end-users by means of the
Selection Mechanism.
3.4 Company shall pay for Impressions delivered in excess of the Guaranteed
Impressions at the CPM specified in Section 4.2, provided that the total
amount payable by Company pursuant to this Agreement shall not exceed
the Payment Cap (as defined in Section 4).
3.5 If, at the end of the Term, Microsoft has not delivered the Guaranteed
Impressions, Microsoft will extend the Term for the placement of the
Search Service as described in Exhibit B until the earlier of an
additional three (3) month period or until the Guaranteed Impressions
are delivered. If, at the end of such additional three (3) month
period, Microsoft has not delivered the Guaranteed Impressions,
Microsoft shall have the option, at its sole discretion, to elect to (a)
extend the Term for the placement of the Search Service as described in
Exhibit B until the earlier of an additional three (3) month period (the
"Second Period") or until the Guaranteed Impressions are delivered; (b)
replace such
Company Search Services Agreement Page 3
<PAGE> 4
shortfall with a program component of equivalent value as mutually approved
by both parties; or (c) refund to Company an amount equal to Thirty Three
dollars and thirty three cents (US $33.33) per one thousand (1,000)
Impressions (the "Refund Rate") times the amount of the shortage of
Impressions (i.e. Guaranteed Impressions less the number of Impressions
delivered). If Microsoft elects option (a) above and has not delivered the
Guaranteed Impressions by the end of the Second Period then Company will
receive a refund in an amount equal to the Refund Rate times the amount of
the shortage of Impressions (i.e. Guaranteed Impressions less the number of
Impressions delivered by Microsoft through the end of the Second Period)
within thirty (30) days of the end of the Second Period).
3.6 During the Term, Microsoft agrees to keep complete records relating to the
delivery of Impressions. Within twenty (20) days after the last day of
each calendar month of the Term, Microsoft shall submit to Company a
report stating the number of Impressions delivered during the applicable
month. Not more than once during the period beginning on the Term
Commencement Date and ending thirty (30) days following the last day of
the Term, Company shall have the right to commence an audit and/or
inspection to be made, at its expense, of the applicable Microsoft records
in order to verify reports on delivered Impressions issued by Microsoft.
Any such audit shall be conducted by a mutually acceptable third party,
provided that such party agrees in advance to maintain all information
obtained during such audit in confidence pursuant to a written agreement
approved in advance by Microsoft. Company acknowledges and agrees that
Microsoft may comply with Company's audit request by providing copies in
electronic form of server logs reflecting the Impressions delivered. All
information received by Company and/or its auditor in connection with such
audit shall be subject to the confidentiality provisions of this
Agreement. If, upon completion of its audit, Company reasonably determines
that there are discrepancies in the number of Impressions reported as
having been delivered and the number of Impressions actually delivered.
Company shall initiate good faith discussions with Microsoft regarding the
nature and scope of Company's concerns with respect to such discrepancies,
indicating each such concern with as much specificity as possible. If an
audit reveals that Company has paid Microsoft for any Impressions that
were not delivered, and Microsoft agrees with such audit, Microsoft shall
at its discretion either (a) offset any over paid amount against any
amounts due and payable by Company, (b) deliver a number of additional
Impressions sufficient to equal the number of Impressions for which
Company has paid Microsoft, or (c) refund to Company an amount equal to
those Impressions reported and paid, but not delivered. In no event shall
Company initiate any legal action with regard to the number of Impressions
delivered hereunder later than sixty (60) days following the last day of
the Term.
4. PAYMENTS
4.1 Company shall pay to Microsoft Six Million dollars (US $6,000,000) in four
equal payments of One Million Five Hundred Thousand dollars (US $1,500,000)
as follows: (a) the first payment shall be due within twenty-four (24)
hours of Company's receipt of a fully executed copy of this Agreement; (b)
the second payment shall be due no later than ninety (90) days following
the Term Commencement Date; (c) the third payment shall be due no later
than one hundred eighty (180) days following the Term Commencement Date;
and (d) the fourth payment shall be due no later than two hundred and
seventy (270) days following the Term Commencement Date.
4.2 If, during the Term, the number of Impressions delivered by Microsoft
exceeds the Guaranteed Impressions, Company shall remit to Microsoft within
thirty (30) days of Company's receipt of the applicable statement an
additional payment for each excess Impression calculated at the rate of
Seventeen dollars (US $17) for each additional one thousand (1,000)
Impressions ("CPM") delivered in excess of the Guaranteed Impressions, as
applicable.
4.3 Notwithstanding the foregoing, in no event shall Company be required to pay
Microsoft more than Nine Million dollars (US $9,000,000) (the "Payment
Cap") in the aggregate for Impressions delivered (Guaranteed Impressions
and excess Impressions) during the Term pursuant to this Agreement.
Company Search Services Agreement Page 4
<PAGE> 5
4.4 All payments to be made pursuant to this Agreement shall be made via a
wire transfer as directed by Microsoft with a remittance copy faxed to the
attention of Billing Manager Deana Schroeder at 425-936-7329.
5. NON-EXCLUSIVITY; CONFIDENTIALITY; PRESS RELEASES
5.1 Nothing in this Agreement will be construed as restricting either party's
ability to acquire, license, develop, manufacture or distribute for
itself, or have others acquire, license, develop, manufacture or
distribute for itself, content, software, news, sites, search services,
search results or the like, which is the same or similar to that
contemplated by this Agreement, or to market, promote and distribute same
in addition to that contemplated by this Agreement.
5.2 The parties acknowledge and agree that the terms and conditions of the
Microsoft Corporation Non-Disclosure Agreement dated as of August 7, 1998
("NDA") entered into by and between the parties are incorporated into this
Agreement as if fully set forth herein and that all of the terms of this
Agreement (including but not limited to its existence) and all discussions
and negotiations related thereto are considered Confidential Information
as defined in the NDA. In the event that any of the incorporated terms of
the NDA are inconsistent with or conflict with this Agreement, then the
terms of this Agreement shall control.
5.3 Notwithstanding Section 5.2 above, each party further agrees that the
incorporated restrictions in the NDA with respect to Confidential
Information shall survive the termination of this Agreement. Each party may
disclose the terms and conditions of this Agreement to its employees,
affiliates and its immediate legal and financial consultants on a need to
know basis as required in the ordinary course of that party's business,
provided that such employees, affiliates and/or legal and/or financial
consultants agree in writing in advance of disclosure to be bound by the
NDA and this Section 5, and may disclose Confidential Information as
required by government or judicial order, provided each party gives the
other party prompt notice of such order and complies with any protective
order (or equivalent) imposed on such disclosure.
5.4 Each party acknowledges that monetary damages may not be a sufficient
remedy for unauthorized disclosure or use of Confidential Information and
that each party may seek, without waiving any other rights or remedies,
such injunctive or equitable relief as may be deemed proper by a court of
competent jurisdiction.
5.5 Microsoft will issue an initial press release relating to the
establishment of the Premier Search Program, which will describe the
relationship between Microsoft and the Premier Providers, including
Company, and which may include an estimate of the total revenue generated
by Microsoft in connection with the Premier Search Program. Company shall
be provided with an opportunity to provide a quote and/or information to be
included in such initial press release. Except as specified above, neither
party will issue any press release or make any public announcement(s)
relating in any way whatsoever to this Agreement or the relationship
established by this Agreement without the express prior written consent of
the other party, which consent shall not be unreasonably withheld,
provided that Microsoft may make informational references to the Premier
Search Program and the Company's participation in such program in other
publicity and press releases without obtaining Company's consent.
6. WARRANTIES AND INDEMNIFICATION
6.1 Company. Company warrants and represents that: (i) it has sufficient
authority to enter into this Agreement; (ii) all materials delivered by
Company to Microsoft and/or to end-users accessing the Search Service
through IE 3.x, 4.x and/or 5.x pursuant to this Agreement including
without limitation the Trademarks, Search Service UI, and/or, solely with
respect to its relationship with Microsoft
Company Search Services Agreement Page 5
<PAGE> 6
under this Agreement, search results do not infringe the copyrights,
trademarks, service marks or any other proprietary right of any third
party; (iii) solely with respect to its relationship with Microsoft under
this Agreement, the search results provided to Microsoft for inclusion in
the Pane do not and will not contain any libelous, or materially false or
misleading statements and do not otherwise infringe on the rights of any
third party; (iv) the Search Service and all actions occurring as a result
of the Search Service are in compliance with all applicable laws; and (v)
Company will not permit to appear in, or be uploaded to any Microsoft
property or equipment, including the Pane, any messages, data, images or
programs, that would violate the property rights of others, including
unauthorized copyrighted text, images, programs or trade secrets or other
confidential and/or proprietary information, or trademarks or service marks
used in an infringing fashion. Company will indemnify Microsoft from and
against any loss, claim, liability, damage, action or cause of action
(including, without limitation, reasonable attorneys' fees) brought against
Microsoft by a third party and arising from or related to any breach by
Company of the foregoing warranties, provided that Microsoft cooperates as
set forth in Section 6.3. Microsoft reserves the right to immediately
discontinue the placement and placement of the Search Service as provided
in this Agreement, pending the satisfactory resolution of such matter, in
the event that Microsoft receives notice which alleges that the Search
Service or any portion thereof or any materials delivered hereunder (a)
violate any applicable laws, and/or (b) infringe the copyrights,
trademarks, service marks or any other proprietary right of any third
party. In the event that Company is in material breach of the warranties
set forth in this Section 6.1(ii), (iii) or (v) and such breach relates
solely to search results that cannot be controlled by Company, then
Microsoft's remedies for such breach shall be limited to (a) requiring
Company to fulfill its indemnity obligation as set forth in this section;
and (b) terminating this Agreement in accordance with Section 8.3 provided
that if Microsoft elects to terminate this Agreement then Company shall
receive a refund in an amount equal to the Refund Rate times the difference
between the number of Impressions delivered through the date of the
termination and the Guaranteed Impressions.
6.2 Microsoft. Microsoft warrants and represents that it has sufficient
authority to enter into this Agreement. Microsoft will indemnify Company
from and against any loss, claim, liability, damage, action or cause of
action (including, without limitation, reasonable attorneys' fees) brought
against Company by a third party and arising from or related to any breach
by Microsoft of the foregoing warranties, provided that Company cooperates
as set forth in Section 6.3.
6.3 Indemnification Process. If any action shall be brought against either
party (the "Claimant") in respect to which indemnity may be sought from the
other party (the "Indemnifying Party") pursuant to the provisions of this
Section 6, the Claimant shall promptly notify the Indemnifying Party in
writing, specifying the nature of the action and the total monetary amount
sought or other such relief as is sought therein. The Claimant shall
cooperate with the Indemnifying Party at the Indemnifying Party's expense
in all reasonable respects in connection with the defense of any such
action. The Indemnifying Party may upon written notice to Claimant
undertake to conduct all proceedings or negotiations in connection
therewith, assume the defense thereof, and if it so undertakes, it shall
also undertake all other required steps or proceedings to settle or defend
any such action, including the employment of counsel which shall be
satisfactory to Claimant, and payment of all expenses. Claimant shall have
the right to employ separate counsel and participate in the defense. The
Indemnifying Party shall reimburse Claimant upon demand for any payments
made or loss suffered by it at any time after the date of tender, based
upon the judgment of any court of competent jurisdiction or pursuant to a
bona fide compromise or settlement of claims, demands, or actions, in
respect to any damages to which the foregoing relates.
6.4 THE ABOVE WARRANTIES ARE THE ONLY WARRANTIES MADE BY THE PARTIES. EACH
PARTY DISCLAIMS ANY AND ALL OTHER WARRANTIES OR REPRESENTATION EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES
Company Search Services Agreement Page 6
<PAGE> 7
OF MERCHANTABILITY, TITLE, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR
PURPOSE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, COMPANY
EXPRESSLY ACKNOWLEDGES AND AGREES THAT MICROSOFT HAS NOT MADE ANY EXPRESS
OR IMPLIED REPRESENTATIONS, ASSURANCES, AND/OR WARRANTIES REGARDING THE
NUMBER OF CLICK THROUGHS OR WEB PAGE VIEWS WHICH MAY BE GENERATED BY THE
IMPRESSIONS DELIVERED HEREUNDER AND THAT COMPANY HAS NOT RELIED ON ANY
STATEMENTS BY MICROSOFT OR ANY THIRD PARTIES IN RELATION THERETO IN
ENTERING INTO THIS AGREEMENT.
7. LIMITATION OF LIABILITIES
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES, ARISING OUT OF OR RELATED TO
THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, AND THE LIKE,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
THIS SECTION SHALL NOT APPLY TO EITHER PARTY'S (A) ABILITY TO OBTAIN
INJUNCTIVE OR OTHER EQUITABLE RELIEF; (B) CONFIDENTIALITY OBLIGATIONS UNDER
SECTION 5; AND (C) WARRANTIES AND INDEMNIFICATION OBLIGATIONS UNDER SECTION
6.
8. RENEWAL AND TERMINATION
8.1 Agreement Period. This Agreement shall commence on the Effective Date and
continue through the Term unless earlier terminated as provided in this
Section 8. In the event that Company does not deliver the required
materials in a timely manner as described in Exhibit A, then Microsoft may
elect, in its sole discretion, to extent the Term by a period not to exceed
the number of days by which Company was late in delivering the required
materials.
8.2 Renewal. If either party desires to extend the Term, then such party shall
give written notice to the other party no later than thirty (30) days prior
to the expected expiration date. If such notice is given by either party,
the parties shall negotiate the terms and conditions of such extension in
good faith for a thirty (30) day period beginning on the date the
receiving party receives such notice. If no such notice is given or if the
parties fail to reach an agreement on such extension prior to the
expiration date following the giving of such notice, this Agreement shall
terminate as set forth in Section 8.1.
8.3 Termination For Cause. In addition to any other rights and/or remedies that
either party may have under the circumstances, all of which are expressly
reserved, either party may terminate this Agreement immediately upon
written notice at any time if:
(a) The other party is in material breach of any material warranty,
representation, term, condition or covenant of this Agreement, other
than those contained in Section 5.2 and 5.3, and fails to cure that
breach within seven (7) business days after written notice thereof; or
(b) The other party is in material breach of Section 5.2 or 5.3; or
(c) Either party becomes insolvent or makes any assignment for the benefit
of creditors or similar transfer evidencing insolvency; or suffers or
permits the commencement of any form of insolvency or receivership
proceeding; or has any petition under any bankruptcy law filed against
it, which petition is not dismissed within sixty (60) days of such
filing; or has a trustee or receiver appointed for its business or
assets or any part thereof.
Page 7
Company Search Services Agreement
<PAGE> 8
8.4 Effect of Termination. In the event of termination or expiration of this
Agreement for any reason each and every clause which by its nature is
intended to survive the termination of this Agreement including, without
limitation, Sections 5, 6, 7, 8, and 9 shall survive termination. For the
avoidance of doubt, if Microsoft terminates this Agreement pursuant to
Section 8.3 or 9.3, Company shall nonetheless be required to pay all
amounts set forth in this Agreement. Upon termination both parties shall,
upon written request, return or certify destruction of Confidential
Information of the other party. Neither party shall be liable to the other
for damages of any sort resulting solely from terminating this Agreement in
accordance with its terms.
9. GENERAL
9.1 Independent Contractors. The parties are independent contractors with
respect to each other, and nothing in this Agreement shall be construed as
creating an employer-employee relationship, a partnership, agency
relationship or a joint venture between the parties.
9.2 Governing Law. This Agreement shall be governed by the laws of the State of
Washington as though entered into by Washington residents and to be
performed entirely within the State of Washington. Company consents to
exclusive jurisdiction and venue in the state and federal courts sitting in
King County, Washington. In any action or suit to enforce any right or
remedy under this Agreement or to interpret any provision of this
Agreement, the prevailing party shall be entitled to recover its costs,
including reasonable attorneys' fees.
9.3 Assignment. This Agreement and any rights and/or obligations hereunder may
be assigned by Microsoft but may not be assigned by Company without
Microsoft's prior written approval, except as stated otherwise in this
Section 9.3. Any attempted assignment, sub-license, transfer, encumbrance
or other disposal without such consent shall be void and shall constitute a
material default and breach of this Agreement. In the event that Company
sells all or substantially all of its assets or stock then the following
shall apply:
(a) If such sale takes place prior to one hundred eighty one (181) days
following the Term Commencement Date, Microsoft shall have the option to
either (i) preapprove in writing the assignment of this Agreement and all
rights and obligations hereunder; or (ii) terminate this Agreement with
immediate effect and Company shall be required to pay all amounts set forth
in this Agreement;
(b) If such sale takes place on or subsequent to one hundred eighty one
(181) days following the Term Commencement Date but prior to two hundred
and seventy one (271) days following the Term Commencement Date, Microsoft
shall have the option to either (i) preapprove in writing the assignment of
this Agreement and all rights and obligations hereunder; or (ii) at
Microsoft's reasonable discretion, terminate this Agreement with immediate
effect and Company shall be relieved of its obligation to make any payment
pursuant to Section 4.1 which is owing subsequent to such termination date
provided that if Microsoft has delivered in excess of 135,000,000
Impressions by the date of termination then Company shall remit to
Microsoft an amount equal to Thirty Three dollars and thirty three cents
(US $33.33) per one thousand Impressions times the number of Impressions
delivered in excess of 135,000,000 Impressions, provided that if the number
of Impressions delivered by Microsoft exceeds the Guaranteed Impressions
the provisions of Section 4.2 shall apply with regard to any Impressions
delivered in excess of the Guaranteed Impressions.
(c) If such sale takes place on or subsequent to two hundred and seventy
one (271) days following the Term Commencement Date, Microsoft shall have
the option to either (i) preapprove in writing the assignment of this
Agreement and all rights and obligations hereunder; or (ii) at Microsoft's
reasonable discretion, terminate this Agreement with immediate effect and,
if Microsoft has not delivered the Guaranteed Impressions by the date of
termination, then Company shall receive a
Company Search Services Agreement Page 8
<PAGE> 9
refund in an amount to the Refund Rate times the difference between the
number of Impressions delivered through the date of the termination and the
Guaranteed Impressions provided that such refund shall not exceed One
Million Five Hundred Thousand dollars (US $1,500,000) if the date of the
termination is prior to one (1) year after the Term Commencement Date. For
the avoidance of doubt, the amount of the refund, if any, applicable to a
termination which occurs subsequent to one (1) year following the Term
Commencement Date as described in this Section 9.3(c) shall not be subject
to the limitation set forth in the immediately preceding sentence. If the
number of Impressions delivered by Microsoft exceeds the Guaranteed
Impressions the provisions of Section 4.2 shall apply with regard to any
Impressions delivered in excess of the Guaranteed Impressions.
9.4 Construction. In the event that any provision of this Agreement conflicts
with governing law or if any provision is held to be null, void or
otherwise ineffective or invalid by a court of competent jurisdiction, (i)
such provision shall be deemed to be restated to reflect as nearly as
possible the original intentions of the Parties in accordance with
applicable law, and (ii) the remaining terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect. This
Agreement has been negotiated by the parties and their respective counsel
and will be interpreted fairly in accordance with its terms and without
any strict construction in favor of or against either party. The section
headings used in this Agreements are intended for convenience only and
shall not be deemed to affect in any manner the meaning or intent of this
Agreement or any provision hereof.
9.5 Notices. All notices and requests in connection with this Agreement shall
be given in writing and shall be deemed given as of the day they are
received either by messenger, delivery service, or in the United States of
America mails, postage prepaid, certified or registered, return receipt
requested, and addressed as follows:
To Company: To Microsoft:
Todd Tappin Microsoft Corporation
Goto.com One Microsoft Way
130 West Union St. Redmond, WA 98052-6399
Pasadena, CA 91103 Attn:
Phone: (624) 535- Phone:
Fax: (626) 535-2701 Fax:
Copy to:
Law & Corporate Affairs, US Legal
Fax: (425) 936-7409
or to such other address as a party may designate pursuant to this notice
provision.
9.6 Entire Agreement. This Agreement does not constitute an offer by Microsoft
and it shall not be effective until signed by both parties. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous
agreements or communications. This Agreement shall not be modified except
by a written agreement dated subsequent to the date of this Agreement and
signed on behalf of Company and Microsoft by their respective duly
authorized representatives. No waiver of any breach of any provision of
this Agreement shall constitute a waiver of any prior, concurrent or
subsequent breach of the same or any other provisions hereof, and no
waiver shall be effective unless made in writing and signed by an
authorized representative of the waiving party.
Company Search Services Agreement Page 9
<PAGE> 10
The parties have caused this Agreement to be executed by their duly
authorized representatives as of the Effective Date.
MICROSOFT CORPORATION GOTO.COM, INC.
/s/ LAURA JENNINGS /s/ JEFFREY BREWER
------------------------------ ------------------------------
By (signature) By (signature)
LAURA JENNINGS JEFFREY BREWER
------------------------------ ------------------------------
Name (print) Name (print)
Vice President CEO
------------------------------ ------------------------------
Title Title
September 16, 1998 August 27, 1998
------------------------------ ------------------------------
Date Date
Company Search Services Agreement Page 10
<PAGE> 11
Microsoft Confidential 09/15/98
AMENDMENT 1
TO THE PREMIER SEARCH SERVICES AGREEMENT
This Amendment No. 1 ("Amendment") to the Premier Search Services Agreement
("Agreement") between the parties hereto dated as of even date herewith, is
made and entered into by and between MICROSOFT CORPORATION, a Washington
corporation, located at One Microsoft Way, Redmond, WA 98052 ("Microsoft") and
GOTO.COM, INC., a Delaware corporation, located at 130 West Union Street,
Pasadena, CA 91103 ("Company") as of September 16, 1998.
In consideration of the mutual covenants and representations contained in this
Amendment, the parties hereby agree that notwithstanding anything to the
contrary contained in the Agreement the following shall apply:
1. Section 1.10 shall be deleted and replaced with the following: "Pane"
means, with regard to IE 4.x, the section within the Web page which would
be delivered to the end-user upon clicking the Search Button contained
within IE 4.x and, with regard to IE 5.x, the Web page, section of the Web
page or other mechanism for submitting a search query which would be
accessible to the end-user upon clicking the Search Button contained within
IE 5.x, irrespective of the method utilized by the end-user to access such
Web pages or mechanism.
2. In Exhibit A, Section A.(2), line 1 and line 2: delete "and 5.x".
3. In Exhibit A, Section A.(3) the first sentence shall be deleted and
replaced with the following: URLs: (a) an IE 3.x frame URL, (b) an IE 4.x
search pane URL, and (c) an IE 5.x search URL.
4. In Exhibit A, Section A.(3), line 2: delete "/5.x".
5. In Exhibit A, Section C.(5), add the following at the end of the sentence:
", provided that with respect to IE 5.x, Microsoft may elect to have the
search results delivered to an alternative location".
6. In Exhibit B. Section (1)(b): (I) all references to the "Pane" shall be
revised to "Pane of IE 4.x", (II) the reference to "Panes" in line 3 shall
be revised to "Pane of IE 4.x", and (III) in line 2: delete "and 5.x".
7. In Exhibit B, Section (1): (I) change "(c)" to "(d)"; and (II) add "(c)"
Microsoft will feature the Search Service prominently and Above the Fold in
the Pane of IE 5.x".
8. In Exhibit B, Section (2): (I) in line 1, delete the comma after IE 3.x and
replace with "and"; and (II) in line 2, delete "and IE 5.x".
9. Except as expressly provided herein, the Agreement is not otherwise
modified in any respect and all of its terms and conditions shall remain in
full force and effect. This Amendment will not be effective until signed by
both parties.
MICROSOFT CORPORATION GOTO.COM, INC.
By (Signature) /s/ LAURA JENNINGS /s/ TODD TAPPIN
------------------------- ----------------------------
Name: (Print) LAURA JENNINGS TODD TAPPIN
------------------------- ----------------------------
Title: Vice President CFO
------------------------- ----------------------------
<PAGE> 12
Microsoft Confidential 09/15/98
AMENDMENT 2
TO THE PREMIER SEARCH SERVICES AGREEMENT
This Amendment No. 2 ("Amendment") to the Premier Search Services Agreement
("Agreement") between the parties hereto dated as of even date herewith, is made
and entered into by and between MICROSOFT CORPORATION, a Washington corporation,
located at One Microsoft Way, Redmond, WA 98052 ("Microsoft") and GOTO.COM,
INC., a Delaware corporation, located at 130 West Union Street, Pasadena, CA
91103 ("Company") as of September 16, 1998.
In consideration of the mutual covenants and representations contained in this
Amendment, the parties hereby agree that notwithstanding anything to the
contrary contained in the Agreement the following shall apply:
1. The following shall be added at the end of Section 3.1: "With regard solely
to the inclusion of the Search Service in IE 5.x, for the purpose of determining
the number of Impressions delivered by Microsoft in IE 5.x, only Click Throughs
shall be deemed to be Impressions (as opposed to Impressions generated as a
result of Rotational Placements, Default Placements or User Placements).
2. Except as expressly provided herein, the Agreement is not otherwise modified
in any respect and all of its terms and conditions shall remain in full force
and effect. This Amendment will not be effective until signed by both parties.
MICROSOFT CORPORATION GOTO.COM, INC.
By (signature) /s/ LAURA JENNINGS /s/ TODD TAPPIN
------------------- ----------------
Name: (Print) Laura Jennings Todd Tappin
Title: Vice President CFO
<PAGE> 1
EXHIBIT 10.14
[LOGO]
NETSCAPE COMMUNICATIONS CORPORATION
U.S. ENGLISH-LANGUAGE NET SEARCH PROGRAM
DISTINGUISHED PROVIDER SERVICES AGREEMENT
Cover Sheet
------
GoTo.com Inc.
- -------------------------------------------------------------------------------
Full legal name of Distinguished Provider ("Distinguished Provider")
130 West Union Street, Pasadena, CA 91103 USA
- --------------------------------------------------------------------------------
Address of Distinguished Provider's City State Zip/Country
Principal Place of Business
Contact Person: Talmadge O'Neill
Contact Person's Phone: 626-535-2872 Fax: 626-535-2701 E-mail [email protected]
------------ ------------ -----------------
Distinguished Provider is organized in the state of Delaware
---------------------------
IMPORTANT NOTICE; UPON EXECUTION BY THE PARTIES, THIS NETSCAPE COMMUNICATIONS
CORPORATION ("NETSCAPE") U.S. ENGLISH LANGUAGE NET SEARCH PROGRAM-DISTINGUISHED
PROVIDER SERVICES AGREEMENT, OF WHICH THIS PAGE IS A COVER SHEET, ALLOWS
DISTINGUISHED PROVIDER TO PARTICIPATE IN THE NET SEARCH PROGRAM AS DESCRIBED
HEREIN. BY SIGNING THIS COVER SHEET, DISTINGUISHED PROVIDER AGREES TO ALL THE
TERMS AND CONDITIONS ATTACHED (COLLECTIVELY, THE "AGREEMENT"). FAILURE TO
COMPLY WITH THIS AGREEMENT MAY RESULT IN TERMINATION.
OBJECTIVE: To direct users of a Netscape client software Internet browser
product ("Browser") to U.S. English-language Internet search and directory
services.
Distinguished Provider Category : Search for Products & Services
-----------------------------------
Territory: United States
-------------
Local Language: U.S. English
------------
Distinguished Period: 1 year, from June 1, 1998 (Launch) to May 31, 1999.
------------------------------------------------------
Effective Date: Date of Netscape's Acceptance
-----------------------------
DISTINGUISHED PROVIDER NETSCAPE COMMUNICATIONS CORPORATION
GoTo.com, Inc.
By: /s/ JEFFREY BREWER By:
---------------------------- --------------------------------
Name: Jeffrey Brewer Name:
-------------------------- ------------------------------
Title: CEO Title:
------------------------- -----------------------------
Date: 5/13/98 Date of Acceptance ("Effective
-------------------------- Date")
-----------------------------
Address: 501 East Middlefield Road,
Mountain View, CA 94043
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DISTINGUISHED PROVIDER SERVICES TERMS AND CONDITIONS
1. Distinguished Provider. The entity ("Distinguished Provider") named on
the Cover Sheet to this agreement ("Agreement") provides a featured search
and directory service for the U.S. English-language HTML page accessible by the
public via the Internet at the Universal Resource Locator ("URL") http://home.
netscape.com/escapes/search, or such other URL as Netscape may designate from
time to time in writing (the "Page"). The page is part of the collection of
U.S. English-language HTML documents accessible by the public via the Internet
at the URL http://home.netscape.com and/or at such other URL or URL's as
Netscape may designate ("Netscape's U.S. English-language Web Site"). The Page
may also be accessed by users of the Netscape-distributed English-language
version of the Browser by pressing or "clicking" on the Net Search Button, or
such other methods as Netscape may specify from time to time. Notwithstanding
the foregoing. Netscape reserves the right to determine other means whereby
users may access pages which provide Internet search and directory services
on Netscape's U.S. English-language Web Site including, but not limited to,
through the use of mirror sites and pointers based on a user's IP address, and
which pages are separate and distinct from the Page described in this Agreement.
2. Distinguished Period. Unless sooner terminated as provided for in this
Agreement, Netscape will maintain the Distinguished Listing (as defined below)
on the Page from the evening of June 1, 1998 until May 31, 1999
("Distinguished Period"). The parties may, upon mutual written agreement no
less than 30 days prior to the end of the Distinguished Period, extend the term
of this Agreement for an additional 12 month period upon terms and conditions
agreed to by the parties: provided, however, nothing contained herein shall
obligate either party to agree to extend the term of this Agreement.
3. Exposure on Page. (a) Netscape will list Distinguished Provider's name in
the Distinguished Provider portion of the Page ("Distinguished Listing")(below
the logos of any Premier Provider participating in Netscape's Net Search
Program). Distinguished Provider shall retain all right, title and interest in
and to the Distinguished Listing. The specifications of the Distinguished
Listing and its placement on the Page are set forth on Exhibit A hereto.
Netscape may, upon notice to Distinguished Provider, (i) change the position of
the Distinguished Listing on the Page, (ii) revise Exhibit A, or (iii) redesign
or reconfigure Netscape's U.S. English-language Web Site, the Page and/or the
manner in which an end user interacts with any of the pages of Netscape's U.S.
English-language Web Site, and Distinguished Provider shall promptly (and in
any event, within no more than 1 week following receipt of the notice) supply
Netscape with a revised Distinguished Listing which conforms to the
specifications of the revised Exhibit A. (b) Netscape will produce the Page, as
set forth on Exhibit A which Exhibit Netscape may revise from time to time,
such that when an end user presses or "clicks" on the Distinguished Listing,
the end user's Browser will access/ ("Distinguished Link") Distinguished
Provider's applicable HTML page located at the applicable URL (as supplied by
Distinguished Provider) for such page on Distinguished Provider's Web site
("Distinguished URL"). Distinguished Provider hereby grants Netscape a
royalty-free worldwide license to use, display, perform, reproduce and
distribute the Distinguished Listing. Distinguished Link and Distinguished URL
and such other licenses with respect to the Distinguished Listing,
Distinguished Link and Distinguished URL necessary to fulfill the intention of
this Agreement. (c) Netscape will use reasonable commercial efforts to remedy
any material misplacement of the Distinguished Listing on the Page or any
material malfunctioning of the Distinguished Link under the control of
Netscape, provided Distinguished Provider will fully cooperate with Netscape to
remedy any such material malfunctioning or misplacement, and provided further
that Netscape shall not incur liability for any failure to remedy such material
malfunctioning or misplacement if such remedy is not within the reasonable
control of Netscape.
4. Fees and Taxes. (a) For the benefits provided to Distinguished Provider
during the Distinguished Period, Distinguished Provider shall pay Netscape in
accordance with the following tiered pricing based on clicks:
Tier 1: Up to 5,000 average Clicks per day = US$20,000 per
month
Tier 2: 5,001-15,000 average Clicks per day = US$30,000 per
month
Tier 3: 15,001-45,000 average Clicks per day = US$40,000 per
month
Tier 4: 45,001-90,000 average Clicks per day = US$50,000 per
month
Tier 5: 90,001 or more average Clicks per day = US$60,000 per
month
("Click" means an action typically resulting from a user positioning his mouse
cursor on a clickable hyperlink and selecting or clicking on that hyperlink.
Clicks are counted as a redirection of a user's click through the Netscape
server access logs to the Distinguished Providers Page).
Netscape will invoice Distinguished Provider monthly based on the average
daily Clicks for the first month. If the average daily Clicks per month for
successive months is lower or higher than the initial month, Netscape will
provide an adjusted invoice accordingly. In the event a termination date falls
short of a full month, then Netscape will invoice Distinguished Provider
prorata for that portion of the month prior to termination. During the first
month only, Netscape will also provide Distinguished Provider with weekly Click
reports. (b) All amounts payable to Netscape must be paid in a single payment
within 30 days of the date of Netscape's invoice. All payments shall be made by
wire transfer or remittance in accordance with Netscape's instructions on such
invoice. Past due amounts shall bear interest at the lower of 1-1/2% per month
or the maximum rate allowed by law until paid in full. All payments by
Distinguished Provider are in U.S. Dollars and are exclusive of any applicable
taxes. Distinguished Provider shall pay, indemnify and hold Netscape harmless
from all import duties, customs fees, levies or imposts, and all sales, use,
value added, consumption, withholding or other taxes of any nature, other than
taxes on Netscape's net income, including penalties and interest, and all
government permit or license fees assessed upon or with respect to any payments
by Distinguished Provider (except to the extent Distinguished Provider provides
Netscape with a valid tax exemption certificate). If any applicable law
requires Distinguished Provider to withhold amounts from any payments to
Netscape hereunder, (i) Distinguished Provider shall effect such withholding,
remit such amounts to the appropriate taxing authorities and promptly furnish
Netscape with tax receipts evidencing the payments of such amounts, and
(ii) the sum payable by
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Distinguished Provider upon which the deduction or withholding is based shall
be increased to the extent necessary to ensure that, after such deduction or
withholding, Netscape receives and retains, free from liability for such
deduction or withholding, a net amount equal to the amount Netscape would have
received and retained in the absence of such required deduction or withholding.
5. Additional Distinguished Provider Benefits. (a) Every 3 months during the
Distinguished Period, Netscape will provide Distinguished Provider at no charge
with 500,000 page views of banner advertising service on Netscape's U.S.
English-language Web Site, as such services are described in the Banner
Advertising Terms and Conditions attached hereto as Exhibit C (or such
advertisement's equivalent, in Netscape's reasonable discretion) during the
Distinguished Period. The advertising shall be scheduled at Netscape's
discretion as inventory becomes available and shall end no later than the end of
the Distinguished Period; provided Distinguished Provider supplies Netscape with
the graphic files and other materials and information within the timeframes and
as set forth in the specifications of the applicable Netscape advertising
program and as reasonably requested by Netscape to produce the advertisement.
Distinguished Provider shall enter into Netscape's standard form of advertising
agreement. (b) During the Distinguished Period, Distinguished Provider may
purchase additional advertising on Netscape's U.S. English-language Web Site for
advertising that will run during the Distinguished Period for the service of
Distinguished Provider at a discount of 10% off Netscape's then standard rates
for such advertising.
6. "Netscape Now" Button Display. In addition to the other obligations set
forth in this Agreement, Distinguished Provider will Display the "Netscape Now"
button prominently above the fold of either (i) Distinguished Provider's home
page on Distinguished Provider's Web site, or (ii) on all pages linked to the
Distinguished URL, and use best efforts to include the following statement (or a
statement designated by Netscape and generally used by Netscape as a successor
to the following statement or in connection with any successor program to
Netscape's Netscape Now program) next to the Netscape Now button: "This site is
best viewed with Netscape Communicator. Download Netscape Now!" (or such higher
non-beta version as is then available). Distinguished Provider will produce the
page such that when an end user presses or clicks on the Netscape Now button (or
such other button used in connection with any successor program to the Netscape
Now program), the end user's Internet client software will access the applicable
HTML page located at a URL supplied by Netscape. On any page on which the
Netscape Now button, or a successor button, is displayed, the Netscape Now
button shall be top-most and left-most, and equal to or greater in size and
prominence than the virtual button or other graphic for any third party Internet
client software or software provider. Distinguished Provider shall use
reasonable commercial efforts promptly to remedy any misplacement of the
Netscape Now button on its home page or other pages or any malfunctioning of the
button, provided Netscape will cooperate with Distinguished Provider to remedy
any such misplacement or malfunctioning, and provided further that Distinguished
Provider shall not incur liability for any failure to remedy such misplacement
or malfunctioning if such remedy is not within the reasonable control of
Distinguished Provider. In the event that Netscape replaces the Netscape Now
program with a successor program, Netscape shall advise Distinguished Provider
and Distinguished Provider shall produce the page to conform to such successor
program, provided Distinguished Provider's obligations under such successor
program shall not be materially increased. Netscape hereby grants Distinguished
Provider a nonexclusive, nontransferable, nonassignable, nonsublicensable
license to perform and display the Netscape Now button directly in connection
with fulfilling the foregoing obligation. Distinguished Provider's use of the
Netscape Now button shall be in accordance with Netscape's reasonable policies
regarding advertising and trademark usage as established from time to time by
Netscape, including the guidelines of the Netscape Now Program published on
Netscape's U.S. English-language Web Site. Distinguished Provider acknowledges
that the Netscape Now button is a proprietary logo of Netscape and contains
Netscape's trademarks. In the event that Netscape determines that Distinguished
Provider's use of the Netscape Now button is inconsistent with Netscape's
quality standards, then Netscape shall have the right to suspend immediately
such use of the Netscape Now button. Distinguished Provider understands and
agrees that the use of the Netscape Now button in connection with this Agreement
shall not create any right, title or interest in or to the use of the Netscape
Now button or associated trademarks and that all such use and goodwill
associated with the Netscape Now button and associated trademarks will inure to
the benefit of Netscape. Distinguished Provider agrees not to register or use
any trademark that is similar to the Netscape Now button. Distinguished Provider
further agrees that it will not use the Netscape Now button in a misleading
manner or otherwise in a manner that could tend to reflect adversely on Netscape
or its products.
7. Distinguished Provider Obligations. Distinguished Provider will: (a) Use at
least 1 current version of Netscape core Web server software product (currently
comprised of Netscape Enterprise Server) to maintain Distinguished Provider's
Web site and, if requested, provide Netscape of evidence of such use:
(b) Implement HTML Frames, layers, dynamic HTML pages, Java, JavaScript or the
then current client software technology (or subsequent features displayable by
the Browser, within the beta testing period of the availability of such
features) ("Site Features") for display with those Internet software clients
capable of displaying the site Features on (i) the Distinguished Provider's Web
site, provided that Distinguished Provider shall use reasonable commercial
efforts to implement the Site Features on Distinguished Provider's Web site in a
location and in a fashion as Netscape may agree, and (ii) at least 1 HTML page
located at the Distinguished URL (or on an HTML page located further down the
directory tree from the page located at the Distinguished URL; provided
Distinguished Provider will use reasonable efforts to implement the Site
Features as high in such directory tree structure as possible), and, where
appropriate, on all other HTML pages of Distinguished Provider's Web site:
provided Distinguished Provider shall not be required to implement the Site
Features on pages of any secondary Web site of Distinguished Provider that
Distinguished Provider is required to construct to satisfy Distinguished
Provider's obligations under any third party contract existing as of the
Effective date of this Agreement. Netscape shall use reasonable commercial
efforts to help Distinguished Provider implement changes in order to comply with
new Site Features: (c) Include on the page served to an end user in conjunction
with the results of the end user's search query a "mailto" link which users of
Distinguished Provider's service can use to direct questions or help requests to
Distinguished Provider. Distinguished Provider will use reasonable efforts to
reply promptly, but in any event within 1 week, to any such question or help
request: and (d) Not provide or implement any means or functionality which would
(i) alter or modify, or enable end users to
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alter or modify, the Browser standard user Interface or configuration,
(ii) disable any functionality of the Browser or any other Internet browser
software, or (iii) modify the functioning of pages served from Netscape's U.S.
English-language Web Site.
8. Usage Reports. (a) Distinguished Provider will provide Netscape, via
email to the email address set forth below, with usage reports ("Usage Reports")
containing the information and in the format set forth in Exhibit B hereto. The
Usage Reports shall be delivered within 15 days following the end of each month
during the Distinguished Period. The parties may, by mutual written agreement,
alter the content and format of the Usage Reports. (b) Netscape will provide
Distinguished Provider with monthly click reports within 15 days following the
end of each month during the Distinguished Period. Such reports will contain
the daily clicks for each day of that month, the monthly total of clicks and
the daily average of clicks for that month.
9. Termination. Either party may terminate this Agreement if the other party
materially breaches its obligations hereunder and such breach remains uncured
for 15 days following notice to the breaching party of the breach or as
otherwise provided in Section 10. At anytime during the first 28 calendar days
of the Distinguished Period, Distinguished Provider may terminate this
Agreement for convenience upon 7 days prior written notice to Netscape.
Thereafter, either party may terminate this Agreement for convenience upon 90
days prior written notice to the other party. Upon any termination or
expiration of this Agreement, Netscape shall immediately cease providing to
Distinguished Provider the benefits described herein, including, without
limitation, the benefits described in Sections 3 and 5 hereof.
10. Right to Refuse. Netscape will have the right to review the contents and
format of the HTML page located at the Distinguished URL and the Distinguished
Listing. If Netscape, in its sole discretion at any time determines that the
HTML page located at the Distinguished URL or the Distinguished Listing
contains any material, or presents any material in a manner, that Netscape
deems inappropriate for any reason. Netscape will inform Distinguished Provider
of the reason Netscape has made such determination and may (i) refuse to
include the Distinguished Listing in the Page, and/or (ii) immediately
terminate this Agreement if Distinguished Provider has not revised to
Netscape's reasonable satisfaction the HTML page located at the Distinguished
URL or the Distinguished Listing within 1 business day of written notice from
Netscape. If Netscape, in its sole discretion, at any time determines that the
Distinguished Provider's Web site contains any material, or presents any
material in a manner, that Netscape deems inappropriate for any reason,
Netscape may immediately terminate this Agreement upon notice to Distinguished
Provider. Netscape reserves the right to refuse to include in the Page any
Distinguished Listing that does not completely conform to the specification
set forth in Exhibit A.
11. Responsibility For Distinguished Listing. Distinguished Provider is solely
responsible for any legal liability arising out of or relating to the
Distinguished Listing and/or any material to which users can link through the
Distinguished Listing. Distinguished Provider represents and warrants that it
holds the necessary rights to permit the use of the Distinguished Listing,
Distinguished URL and Distinguished Link by Netscape for the purpose of this
Agreement; and that the permitted use, reproduction, distribution, or
transmission of the Distinguished Listing and any material to which users can
link through the Distinguished Listing will not violate any criminal laws or
any rights of any third parties, including, but not limited to, infringement or
misappropriation of any copyright, patent, trademark, trade secret, music,
image, or other proprietary or property right, false advertising, unfair
competition, defamation, invasion of privacy or rights of celebrity, violation
of any antidiscrimination law or regulation, or any other right of any person
or entity. Distinguished Provider agrees to indemnify Netscape and to hold
Netscape harmless from any and all liability, loss, damages, claims, or causes
of action, including reasonable legal fees and expenses that may be incurred by
Netscape, arising out of or related to Distinguished Provider's breach of any
of the foregoing representations and warranties.
12. Limitation of Liability. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE
OTHER FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON
BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, AND WHETHER OR
NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THE
LIABILITY OF EITHER PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER WHETHER IN
CONTRACT OR TORT OR ANY OTHER LEGAL THEORY IS LIMITED TO AND SHALL NOT EXCEED
THE PAYMENT DUE FROM DISTINGUISHED PROVIDER HEREUNDER. THE LIMITATIONS IN THIS
SECTION DOT NOT APPLY TO SECTION II (RESPONSIBILITY) OR SECTION 13
(CONFIDENTIALITY).
13. Confidentially. (a) "Confidential Information" shall mean this Agreement
(including but not limited to any monthly reports and invoices) and all
information a party discloses to the other which has been either
(i) characterized in writing as confidential at the time of its disclosure or
(ii) orally characterized as confidential at the time of disclosure, except for
information which the receiving party can demonstrate: (a) is previously
rightfully known to the receiving party without restriction on disclosure:
(b) is or becomes, from no act or failure to act on the part of the receiving
party, generally known in the relevant industry or public domain: (c) is
disclosed to the receiving party by a third party as a matter or right and
without restriction on disclosure; or (d) is independently developed by the
receiving party without access to the Confidential Information. Each receiving
party shall at all times, both during the term hereof and for a period of at
least 5 years after termination, keep in confidence all the disclosing party's
Confidential Information using a standard of care the receiving party uses with
its own information of this nature, but in no event less than reasonable care.
The receiving party shall not use the disclosing party's Confidential
Information other than in the course of its duties hereunder. Neither party
acquires any intellectual property rights under this Agreement or through any
disclosure hereunder, except the limited right to use such Confidential
Information in accordance with this Agreement. The Confidential Information
under this Agreement is delivered "AS IS" and all representations or
warranties, whether express or implied, including warranties or conditions for
fitness for a particular purpose, merchantability, title and non-infringement
are hereby disclaimed. Without the prior written consent of the disclosing
party, the receiving party shall not disclose the disclosing party's
Confidential Information except on a "need to know" basis to an employee or
contractor under binding obligations of confidentiality substantially similar to
those set forth herein. If a receiving party is legally compelled to disclose
any of the disclosing party's Confidential Information, then, prior to such
disclosure, the receiving party will (x) assert the privileged and confidential
nature of the Confidential Information and (y) cooperate fully with the
disclosing party in protecting against any such disclosure and/or obtaining a
protective order narrowing the scope of such disclosure and/or use of the
Confidential Information. In the event such protection is not obtained, the
receiving party shall disclose the
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Confidential Information only to the extent necessary to comply with applicable
legal requirements. The information contained in the Usage Reports provided
hereunder shall be deemed the Confidential Information of both parties. Either
party may use such Confidential Information internally, but shall not disclose
such Confidential Information to any third party. Notwithstanding the
foregoing, (a) Information contained in the Usage Reports which is available to
Netscape through other sources shall not be Distinguished Provider Confidential
Information; and (b) Netscape may aggregate the Information in the Usage
Reports with information from other sources, and the aggregated information
shall not be Distinguished Provider Confidential Information.
14. Records; Audit. Netscape shall maintain accurate records reflecting the
number of billable Clicks recorded on Netscape's server access logs. At
Distinguished Provider's expense, Distinguished Provider shall have the right,
at a mutually agreeable time during normal business hours and upon at least 15
business days prior notice, to conduct an audit to verify Click data upon which
invoices are based.
15. General. (a) The parties hereto are independent contractors and shall
have no power or authority to bind the other party or to assume or create any
obligation or responsibility, express or implied, on behalf of the other party
or in the other party's name. This Agreement shall not be construed to create
or imply any partnership, agency, joint venture, or any other form of legal
association between the parties. (b) Distinguished Provider may not assign this
Agreement in whole or in part, by operation of law or otherwise, without
Netscape's prior written consent, and any attempted assignment of this
Agreement by Distinguished Provider without such consent will be null and void.
Netscape may assign this Agreement or its rights hereunder, or delegate its
duties hereunder. This Agreement shall apply to and bind any permitted
successor or assigns of the parties hereto. (c) Any dispute hereunder will be
negotiated between the parties commencing upon written notice from one party to
the other. Settlement discussions and materials will be confidential and
inadmissible in any subsequent proceeding without both parties' consent. If the
dispute is not resolved by negotiation within 45 days following such notice,
the parties will refer the dispute to non-binding mediation conducted by
JAMS/EndDispute. The parties will share the costs of mediation. If the dispute
is not resolved after 45 days of mediation, the parties will refer the dispute
to binding arbitration by JAMS/EndDispute in Santa Clara County, California.
The results of any arbitration will be final and non-appealable, except that
either party may petition any court of competent Jurisdiction to review any
decision relating to intellectual property matters (including the scope of
license rights), vacating or modifying erroneous conclusions of law or findings
of fact not supported by substantial evidence. The arbitrator may fashion any
legal or equitable except punitive or exemplary damages, which both parties
waive. The arbitrator will render a written decision, which may be entered in
and enforced by any court of competent jurisdiction, but which will have no
preclusive effect in other matters involving third parties. The losing party
will pay the costs of the arbitration and the reasonable legal fees and
expenses of the prevailing party, as determined by the arbitrator. The parties
will jointly pay arbitration costs pending a final allocation by the
arbitrator. At any point in the dispute resolution process, either party may
seek injunctive relief preserving the status quo pending the outcome of that
process. Except as noted, the parties waive any right to judicial process.
California law, without regard to its conflict-of-law provisions, will govern
this Agreement. The U.S. Arbitration Act and JAMS/EndDispute rules will govern
the arbitration process. Absent fraudulent concealment, neither party may raise
a claim more than 3 years after it arises or any shorter period provided by
applicable statutes of limitations. (d) Neither party will be liable to the
other party for any failure or delay in performance caused by reasons beyond
such party's reasonable control, and such failure or delay will not constitute
a breach of this Agreement. (e) Any notices under this Agreement shall be in
English, in writing, and sent by confirmed facsimile internationally-recognized
express delivery service, or certified or registered mail, return receipt
requested, to the address specified in the Cover Sheet, or such other address
as the party specifies in writing. Notice by confirmed facsimile or express
delivery service will be deemed received and effective upon delivery. Notice by
certified or registered mail will be deemed received and effective 5 days after
dispatch. Notices to Netscape shall be to the attention of the Legal
Department, Netscape Communications Corporation, 501 East Middlefield Road,
Mountain View, California 94043. (f) The waiver of any breach or default of this
Agreement will not constitute a waiver of any subsequent breach or default, and
will not act to amend or negate the rights of the waiving party. (g) If one or
more of the provisions contained in this Agreement is determined to be invalid,
illegal or unenforceable in any respect under any applicable statute or rule of
law, then such provision will be considered inoperable to the extent of such
invalidity, illegality or unenforceability, and the remainder of this Agreement
will continue in full force and effect. The parties hereto agree to replace any
such invalid, illegal or unenforceable provision with a new provision that has
the most nearly similar permissible economic and legal effect. (h) This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. For purposes hereof, a facsimile copy of this Agreement, including
the Cover Sheet hereto, shall be deemed to be an original. Notwithstanding the
foregoing, the parties shall deliver original execution copies of this Agreement
to one another as soon as practicable following execution thereof.
(i) Distinguished Provider will not issue a press release regarding the
activities described in this Agreement without Netscape's prior written consent.
Distinguished Provider will not disclose the existence of this Agreement until
after Netscape publicly issues a press release regarding this Agreement.
(j) This Agreement is the complete and exclusive agreement between the parties
with respect to the subject matter hereof, superseding and replacing any and all
prior agreements, communications, and understandings (both written and verbal)
regarding such subject matter. This Agreement may only be modified, or any
rights under it waived, by a written document executed by both parties. (k) In
order to bind the parties to this Agreement, their duly authorized
representatives have executed the Cover Sheet to this Agreement.
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EXHIBIT A
NetSearch Distinguished Provider Program
Preliminary Specification - Subject to Change
Description:
Distinguished Providers will be listed under one of three columns on the Net
Search page. The column headings are probably: Explore the Web, Find a Business
or Person, Search for a Product or Service.
Maintenance:
The Net Search page will be updated every Thursday. Name or URL changes are due
a minimum of one week prior to the requested change date, and will be
implemented the following Thursday. Changes should be emailed directly to
Audrey Crane, [email protected]
Specifications:
Listings may not include any alteration in font face, style, size or color.
Listings should fit in the table attached (see Appendix A) without wrapping on
the reference platform. Wrapping will be checked on our "worst-case" system,
configured as follows: A PC running Windows 95, with the settings configured
for small fonts, resolution set at 640x480, and a Viewsonic P775 (17 inch)
monitor. We will use Netscape Navigator version 4.05, with the Proportional
Font set at 12pt Times New Roman, and the Fixed Font set at 10pt Courier New
(all default settings).
Net Search Distinguished Provider Description Pages
Description:
Three pages will be linked to from the headers of each of the Distinguished
Provider columns on the Net Search page. The pages themselves will include a
brief description of the category. They will also include brief descriptions
and a logo of each Distinguished Provider, listed in the same order as they are
listed on the Net Search page.
Specifications:
Copy: Seventy-five words or less in paragraph format. Please take this
opportunity to provide the user with helpful content by describing the
unique features that set your service apart, and avoid using directly
competitive terms, such as 'best', 'top', 'fastest', etc. For guidelines,
http://www.useit.com/alertbox/9710a.html has some useful information,
especially the promotional writing vs. concise and objective writing.
Netscape reserves editorial rights to alter copy in any way deemed
necessary to keep the copy within Netscape's editorial style.
Logo: Logo must be less than 100 pixels wide and 70 pixels tall. In
addition, the height multiplied by the width must be less than or equal to
2500 pixels. (For example, if the logo is 100 pixels wide, it can only be
25 pixels tall. If the logo is 50 pixels wide, it can be 50 pixels tall. If
the logo is 35 pixels wide, it can be 70 pixels tall.)
URL: The description label and logo will link to each Distinguished
Provider's URL as listed in the Distinguished Provider column on the
NetSearch page itself. A different URL may be used as submitted by a
provider, with the condition that the URL is not a redirect that disables
the users ability to use the back button in the browser to get back to the
NetSearch page. In order that users who have rating or blocking software
installed and/or operating, we ask that our Distinguish Providers label
their site with an appropriate rating. Netscape software supports two types
of ratings labels, see Appendix B for an explanation and details.
Maintenance:
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These three pages will be updated every Thursday. Logo or copy changes are
due a minimum of one week prior to the requested change date, and will be
implemented the following Thursday. Changes should be emailed directly to
Audrey Crane, [email protected]
Technical or production related questions should be directed to:
Audrey Crane
Producer, NetSearch
[email protected]
650-937-4021
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EXHIBIT 10.15
[LOGO]
NETSCAPE COMMUNICATIONS CORPORATION
U.S. ENGLISH-LANGUAGE NET SEARCH PROGRAM
DISTINGUISHED PROVIDER SERVICES AGREEMENT
Agreement No. 005064
------
GoTo.com
- -------------------------------------------------------------------------------
Full legal name of Distinguished Provider ("Distinguished Provider")
130 Union Street Pasadena, CA 91103
- --------------------------------------------------------------------------------
Address of Distinguished Provider's City State Zip/Country
Principal Place of Business
Contact Person's Phone: 626-535-2872 Fax: 626-535-2701 E-mail [email protected]
------------ ------------ --------------
Distinguished Provider is organized in the state of Delaware
---------------------------
IMPORTANT NOTICE; UPON EXECUTION BY THE PARTIES, THIS NETSCAPE COMMUNICATIONS
CORPORATION ("NETSCAPE") U.S. ENGLISH LANGUAGE NET SEARCH PROGRAM-DISTINGUISHED
PROVIDER SERVICES AGREEMENT, OF WHICH THIS PAGE IS A COVER SHEET, ALLOWS
DISTINGUISHED PROVIDER TO PARTICIPATE IN THE NET SEARCH PROGRAM AS DESCRIBED
HEREIN. BY SIGNING THIS COVER SHEET, DISTINGUISHED PROVIDER AGREES TO ALL THE
TERMS AND CONDITIONS ATTACHED (COLLECTIVELY, THE "AGREEMENT"). FAILURE TO
COMPLY WITH THIS AGREEMENT MAY RESULT IN TERMINATION.
OBJECTIVE: To direct users of an Internet browser product ("Browser") to U.S.
English-language Internet search and directory services.
Distinguished Provider Category : Special Services
------------------------
Territory: United States
-------------
Local Language: U.S. English
------------
Distinguished Period: 1 year, from October 29, 1998 (Launch) to May 31, 1999.
------------------------------------------------------
Effective Date: Date of Netscape's Acceptance
-----------------------------
DISTINGUISHED PROVIDER NETSCAPE COMMUNICATIONS CORPORATION
- -------------------------------
By: By:
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Name: Name:
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Title: Title:
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Date: Date of Acceptance ("Effective
-------------------------- Date")
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Address: 501 East Middlefield Road,
Mountain View, CA 94043
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DISTINGUISHED PROVIDER SERVICES TERMS AND CONDITIONS
1. Distinguished Provider. The entity ("Distinguished Provider") named on
the Cover Sheet to this agreement ("Agreement") provides a featured search
and directory service for the U.S. English-language HTML page accessible by the
public via the Internet at the Universal Resource Locator ("URL") http://home.
netscape.com/escapes/search, or such other URL as Netscape may designate from
time to time in writing (the "Page"). The page is part of the collection of
U.S. English-language HTML documents accessible by the public via the Internet
at the URL http://home.netscape.com and/or at such other URL or URL's as
Netscape may designate ("Netscape's U.S. English-language Web Site"). The Page
may also be accessed by users of the Netscape-distributed English-language
version of the Browser by pressing or "clicking" on the Net Search Button, or
such other methods as Netscape may specify from time to time. Notwithstanding
the foregoing. Netscape reserves the right to determine other means whereby
users may access pages which provide Internet search and directory services
on Netscape's U.S. English-language Web Site including, but not limited to,
through the use of mirror sites and pointers based on a user's IP address, and
which pages are separate and distinct from the Page described in this Agreement.
2. Distinguished Period. Unless sooner terminated as provided for in this
Agreement, Netscape will maintain the Distinguished Listing (as defined below)
on the Page from the evening of October 29, 1998 until May 31, 1999
("Distinguished Period"). The parties may, upon mutual written agreement no
less than 30 days prior to the end of the Distinguished Period, extend the term
of this Agreement for an additional 12 month period upon terms and conditions
agreed to by the parties: provided, however, nothing contained herein shall
obligate either party to agree to extend the term of this agreement.
3. Exposure on Page. (a) Netscape will list Distinguished Provider's name in
the Distinguished Provider portion of the Page ("Distinguished Listing")(below
the logos of any Premier Provider participating in Netscape's Net Search
Program). Distinguished Provider shall retain all right, title and interest in
and to the Distinguished Listing. The specifications of the Distinguished
Listing and its placement on the Page are set forth on Exhibit A hereto.
Netscape may, upon notice to Distinguished Provider, (i) change the position of
the Distinguished Listing on the Page, (ii) revise Exhibit A, or (iii) redesign
or reconfigure Netscape's U.S. English-language Web Site, the Page and/or the
manner in which an end user interacts with any of the pages of Netscape's U.S.
English-language Web Site, and Distinguished Provider shall promptly (and in
any event, within no more than 1 week following receipt of the notice) supply
Netscape with a revised Distinguished Listing which conforms to the
specifications of the revised Exhibit A. (b) Netscape will produce the Page, as
set forth on Exhibit A which Exhibit Netscape may revise from time to time,
such that when an end user presses or "clicks" on the Distinguished Listing,
the end user's Browser will access/link ("Distinguished Link") Distinguished
Provider's applicable HTML page located at the applicable URL (as supplied by
Distinguished Provider) for such page on Distinguished Provider's Web site
("Distinguished URL"). Distinguished Provider hereby grants Netscape a
royalty-free worldwide license to use, display, perform, reproduce and
distribute the Distinguished Listing. Distinguished Link and Distinguished URL
and such other licenses with respect to the Distinguished Listing,
Distinguished Link and Distinguished URL necessary to fulfill the intention of
this Agreement. (c) Netscape will use reasonable commercial efforts to remedy
any material misplacement of the Distinguished Listing on the Page or any
material malfunctioning of the Distinguished Link under the control of
Netscape, provided Distinguished Provider will fully cooperate with Netscape to
remedy any such material malfunctioning or misplacement, and provided further
that Netscape shall not incur liability for any failure to remedy such material
malfunctioning or misplacement if such remedy is not within the reasonable
control of Netscape.
4. Fees and Taxes. (a) For the benefits provided to Distinguished Provider
during the Distinguished Period, Distinguished Provider shall pay Netscape in
accordance with the following tiered pricing based on clicks:
Tier 0: Up to 1,650 average Clicks per day = US$0.40 per click
Tier 1: 1,651-5,000 average Clicks per day during any month = US$20,000 per
month
Tier 2: 5,001-15,000 average Clicks per day during any month = US$30,000 per
month
Tier 3: 15,001-45,000 average Clicks per day during any month = US$40,000 per
month
Tier 4: 45,001-90,000 average Clicks per day during any month = US$50,000 per
month
Tier 5: 90,001 or more average Clicks per day during any month = US$60,000 per
month
("Click" means an action typically resulting from a user positioning his mouse
cursor on a clickable hyperlink and selecting or clicking on that hyperlink.
Clicks are counted as a redirection of a user's click through the Netscape
server access logs to the Distinguished Providers Page).
Netscape will invoice Distinguished Provider monthly based on the average
daily Clicks for the first month. If the average daily Clicks per month for
successive months is lower or higher than the initial month, Netscape will
provide an adjusted invoice accordingly. In the event a termination date falls
short of a full month, then Netscape will invoice Distinguished Provider
prorata for that portion of the month prior to termination. During the first
month only, Netscape will also provide Distinguished Provider with weekly Click
reports. (b) All amounts payable to Netscape must be paid in a single payment
within 30 days of the date of Netscape's invoice. All payments shall be made by
wire transfer or remittance in accordance with Netscape's instructions on such
invoice. Past due amounts shall bear interest at the lower of 1-1/2% per month
or the maximum rate allowed by law until paid in full. All payments by
Distinguished Provider are in U.S. Dollars and are exclusive of any applicable
taxes. Distinguished Provider shall pay, indemnify and hold Netscape harmless
from all import duties, customs fees, levies or imposts, and all sales, use,
value added, consumption, withholding or other taxes of any nature, other than
taxes on Netscape's net income, including penalties and interest, and all
government permit or license fees assessed upon or with respect to any payments
by Distinguished Provider (except to the extent Distinguished Provider provides
Netscape with a valid tax exemption certificate). If any applicable law
requires Distinguished Provider to withhold amounts from any payments to
Netscape hereunder, (i) Distinguished Provider shall effect such withholding,
remit such amounts to the appropriate taxing authorities and promptly furnish
Netscape with tax receipts evidencing the payments of such amounts, and
(ii) the sum payable by
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Distinguished Provider upon which the deduction or withholding is based shall
be increased to the extent necessary to ensure that, after such deduction or
withholding, Netscape receives and retains, free from liability for such
deduction or withholding, a net amount equal to the amount Netscape would have
received and retained in the absence of such required deduction or withholding.
5. Additional Distinguished Provider Benefits. (a) Every 3 months during the
Distinguished Period, Netscape will provide Distinguished Provider
at no charge with 500,000 page views of banner advertising service on
Netscape's U.S. English-language Web Site, as such services are described in
the Banner Advertising Terms and Conditions attached hereto as Exhibit C (or
such advertisement's equivalent, in Netscape's reasonable discretion) during
the Distinguished Period. The advertising shall be scheduled at Netscape's
discretion as inventory becomes available and shall end no later than the end
of the Distinguished Period; provided Distinguished Provider supplies Netscape
with the graphic files and other materials and information within the
timeframes and as set forth in the specifications of the applicable Netscape
advertising program and as reasonably requested by Netscape to produce the
advertisement. Distinguished Provider agrees to cooperate and work with
Netscape in connection with each design request. Distinguished Provider shall
enter into Netscape's standard form of advertising agreement. (b) During the
Distinguished Period, Distinguished Provider may purchase additional advertising
on Netscape's U.S. English-language Web Site for advertising that will run
during the Distinguished Period for the service of Distinguished Provider at a
discount of 10% off Netscape's then standard rates for such advertising.
6. "Netscape Now" Button Display. The following shall not apply as long as
Distinguished Provider has a policy of not accepting similar promotional
buttons or channels. Otherwise, in addition to the other obligations set forth
in this Agreement, Distinguished Provider will Display the "Netscape Now"
button prominently above the fold of either (i) Distinguished Provider's home
page on Distinguished Provider's Web site, or (ii) on all pages linked to the
Distinguished URL, and use best efforts to include the following statement (or
a statement designated by Netscape and generally used by Netscape as a
successor to the following statement or in connection with any successor
program to Netscape's Netscape Now program) next to the Netscape Now button:
"This site is best viewed with Netscape Communicator. Download Netscape Now!"
(or such higher non-beta version as is then available). Distinguished Provider
will produce the page such that when an end user presses or clicks on the
Netscape Now button (or such other button used in connection with any successor
program to the Netscape Now program), the end user's Internet client software
will access the applicable HTML page located at a URL supplied by Netscape. On
any page on which the Netscape Now button, or a successor button, is displayed,
the Netscape Now button shall be top-most and left-most, and equal to or
greater in size and prominence than the virtual button or other graphic for any
third party Internet client software or software provider. Distinguished
Provider shall use reasonable commercial efforts promptly to remedy any
misplacement of the Netscape Now button on its home page or other pages or any
malfunctioning of the button, provided Netscape will cooperate with
Distinguished Provider to remedy any such misplacement or malfunctioning, and
provided further that Distinguished Provider shall not incur liability for any
failure to remedy such misplacement or malfunctioning if such remedy is not
within the reasonable control of Distinguished Provider. In the event that
Netscape replaces the Netscape Now program with a successor program, Netscape
shall advise Distinguished Provider and Distinguished Provider shall produce the
page to conform to such successor program, provided Distinguished Provider's
obligations under such successor program shall not be materially increased.
Netscape hereby grants Distinguished Provider a nonexclusive, nontransferable,
nonassignable, nonsublicensable license to perform and display the Netscape Now
button directly in connection with fulfilling the foregoing obligation.
Distinguished Provider's use of the Netscape Now button shall be in accordance
with Netscape's reasonable policies regarding advertising and trademark usage
as established from time to time by Netscape, including the guidelines of the
Netscape Now Program published on Netscape's U.S. English-language Web Site.
Distinguished Provider acknowledges that the Netscape Now button is a
proprietary logo of Netscape and contains Netscape's trademarks. In the event
that Netscape determines that Distinguished Provider's use of the Netscape Now
button is inconsistent with Netscape's quality standards, then Netscape shall
have the right to suspend immediately such use of the Netscape Now button.
Distinguished Provider understands and agrees that the use of the Netscape Now
button in connection with this Agreement shall not create any right, title or
interest in or to the use of the Netscape Now button or associated trademarks
and that all such use and goodwill associated with the Netscape Now button and
associated trademarks will inure to the benefit of Netscape. Distinguished
Provider agrees not to register or use any trademark that is similar to the
Netscape Now button. Distinguished Provider further agrees that it will not use
the Netscape Now button in a misleading manner or otherwise in a manner that
could tend to reflect adversely on Netscape or its products.
7. Distinguished Provider Obligations. Distinguished Provider will: (a) Use at
least 1 current version of Netscape core Web server software product (currently
comprised of Netscape Enterprise Server) to maintain Distinguished Provider's
Web site and, if requested, provide Netscape of evidence of such use:
(b) Implement HTML Frames, layers, dynamic HTML pages, Java, JavaScript or the
then current client software technology (or subsequent features displayable by
the Browser, within the beta testing period of the availability of such
features) ("Site Features") for display with those Internet software clients
capable of displaying the site Features on (i) the Distinguished Provider's Web
site, provided that Distinguished Provider shall use reasonable commercial
efforts to implement the Site Features on Distinguished Provider's Web site in a
location and in a fashion as Netscape may agree, and (ii) at least 1 HTML page
located at the Distinguished URL (or on an HTML page located further down the
directory tree from the page located at the Distinguished URL; provided
Distinguished Provider will use reasonable efforts to implement the Site
Features as high in such directory tree structure as possible), and, where
appropriate, on all other HTML pages of Distinguished Provider's Web site:
provided Distinguished Provider shall not be required to implement the Site
Features on pages of any secondary Web site of Distinguished Provider that
Distinguished Provider is required to construct to satisfy Distinguished
Provider's obligations under any third party contract existing as of the
Effective Date of this Agreement. Netscape shall use reasonable commercial
efforts to help Distinguished Provider implement changes in order to comply with
new Site Features: (c) Include on the page served to an end user in conjunction
with the results of the end user's search query a "mailto" link which users of
Distinguished Provider's service can use to direct questions or help requests to
Distinguished Provider. Distinguished Provider will use reasonable efforts to
reply promptly, but in any event within 1 week, to any such question or help
request: and (d) Not provide or implement any means or functionality which would
(i) alter or modify, or enable end users to
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alter or modify, the Browser standard user Interface or configuration,
(ii) disable any functionality of the Browser or any other Internet browser
software, or (iii) modify the functioning of pages served from Netscape's U.S
English-language Web Site.
8. Usage Reports. (a) Distinguished Provider will provide Netscape, via
email to the email address set forth below, with usage reports ("Usage Reports")
containing the information and in the format set forth in Exhibit B hereto. The
Usage Reports shall be delivered within 15 days following the end of each month
during the Distinguished Period. The parties may, by mutual written agreement,
alter the content and format of the Usage Reports. (b) Netscape will provide
Distinguished Provider with monthly click reports within 15 days following the
end of each month during the Distinguished Period. Such reports will contain
the daily clicks for each day of that month, the monthly total of clicks and
the daily average of clicks for that month.
9. Termination. Either party may terminate this Agreement if the other party
materially breaches its obligations hereunder and such breach remains uncured
for 15 days following notice to the breaching party of the breach or as
otherwise provided in Section 10. At anytime during the first 28 calendar days
of the Distinguished Period, Distinguished Provider may terminate this
Agreement for convenience upon 7 days prior written notice to Netscape.
Thereafter, either party may terminate this Agreement for convenience upon 90
days prior written notice to the other party. Upon any termination or
expiration of this Agreement, Netscape shall immediately cease providing to
Distinguished Provider the benefits described herein, including, without
limitation, the benefits described in Sections 3 and 5 hereof.
10. Right to Refuse. Netscape will have the right to review the contents and
format of the HTML page located at the Distinguished URL and the Distinguished
Listing. If Netscape, in its sole discretion any any time determines that the
HTML page located at the Distinguished URL or the Distinguished Listing
contains any material, or presents any material in a manner, that Netscape
deems inappropriate for any reason. Netscape will inform Distinguished Provider
of the reason Netscape has made such determination and may (i) refuse to
include the Distinguished Listing in the Page, and/or (ii) immediately
terminate this Agreement if Distinguished Provider has not revised to
Netscape's reasonable satisfaction the HTML page located at the Distinguished
URL or the Distinguished Listing within 1 business day of written notice from
Netscape. If Netscape, in its sole discretion, at any time determines that the
Distinguished Provider's Web site contains any material, or presents any
material in a manner, that Netscape deems inappropriate for any reason,
Netscape may immediately terminate this Agreement upon notice to Distinguished
Provider. Netscape reserves the right to refuse to include in the Page any
Distinguished Listing that does not completely conform to the specification
set forth in Exhibit A.
11. Responsibility For Distinguished Listing. Distinguished Provider is solely
responsible for any liability arising out of or relating to (i) the
Distinguished Listing, Distinguished URL, or Distinguished Link (ii) any
material to which users can link through any of the foregoing, or (iii) any use
of Distinguished Provider's search and directory service pursuant to this
Agreement, (collectively, the "Services"). Distinguished Provider represents and
warrants that it holds the necessary rights to permit the use of the Services by
Netscape for the purpose of this Agreement and that the permitted use,
reproduction, distribution, or transmission of the Services and any material to
which users can link through the Services will not violate any criminal laws or
any rights of any third parties, including, but not limited to, infringement or
misappropriation of any copyright, patent, trademark, trade secret, music,
image, or other proprietary or property right, false advertising, unfair
competition, defamation, invasion of privacy or rights of celebrity, violation
of any antidiscrimination law or regulation, or any other right of any person or
entity. Distinguished Provider agrees to indemnify Netscape and to hold Netscape
harmless from any and all liability, loss, damages, claims or causes of action
including reasonable legal fees and expenses that may be incurred by Netscape,
arising out of or related to Distinguished Provider's breach of any of the
foregoing responsibilities.
12. Limitation of Liability. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE
OTHER FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON
BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, AND WHETHER OR
NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THE
LIABILITY OF EITHER PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER WHETHER IN
CONTRACT OR TORT OR ANY OTHER LEGAL THEORY IS LIMITED TO AND SHALL NOT EXCEED
THE PAYMENT DUE FROM DISTINGUISHED PROVIDER HEREUNDER. THE LIMITATIONS IN THIS
SECTION DOT NOT APPLY TO SECTION II (RESPONSIBILITY) OR SECTION 13
(CONFIDENTIALITY).
13. Confidentially. (a) "Confidential Information" shall mean this Agreement
(including but not limited to any monthly reports and invoices) and all
information a party discloses to the other which has been either
(i) characterized in writing as confidential at the time of its disclosure or
(ii) orally characterized as confidential at the time of disclosure, except for
information which the receiving party can demonstrate: (a) is previously
rightfully known to the receiving party without restriction on disclosure:
(b) is or becomes, from no act or failure to act on the part of the receiving
party, generally known in the relevant industry or public domain: (c) is
disclosed to the receiving party by a third party as a matter or right and
without restriction on disclosure: or (d) is independently developed by the
receiving party without access to the Confidential Information. Each receiving
party shall at all times, both during the term hereof and for a period of at
least 5 years after termination, keep in confidence all the disclosing party's
Confidential Information using a standard of care the receiving party uses with
its own information of this nature, but in no event less than reasonable care.
The receiving party shall not use the disclosing party's Confidential
Information other than in the course of its duties hereunder. Neither party
acquires any intellectual property rights under this Agreement or through any
disclosure hereunder, except the limited right to use such Confidential
Information in accordance with this Agreement. The Confidential Information
under this Agreement is delivered "AS IS" and all representations or
warranties, whether express or implied, including warranties or conditions for
fitness for a particular purpose, merchantability, title and non-infringement
are hereby disclaimed. Without the prior written consent of the disclosing
party, the receiving party shall not disclose the disclosing party's
Confidential Information except on a "need to know" basis to an employee or
contractor under binding obligations of confidentiality substantially similar to
those set forth herein. If a receiving party is legally compelled to disclose
any of the disclosing party's Confidential Information, then, prior to such
disclosure, the receiving party will (x) assert the privileged and confidential
nature of the Confidential Information and (y) cooperate fully with the
disclosing party in protecting against any such disclosure and/or obtaining a
protective order narrowing the scope of such disclosure and/or use of the
Confidential Information. In the event such protection is not obtained, the
receiving party shall disclose the
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Confidential Information only to the extent necessary to comply with applicable
legal requirements. The information contained in the Usage Reports provided
hereunder shall be deemed the Confidential Information of both parties. Either
party may use such Confidential Information internally, but shall not disclose
such Confidential Information to any third party. Notwithstanding the
foregoing, (a) Information contained in the Usage Reports which is available to
Netscape through other sources shall not be Distinguished Provider Confidential
Information; and (b) Netscape may aggregate the Information in the Usage
Reports with information from other sources, and the aggregated information
shall not be Distinguished Provider Confidential Information.
14. Records; Audit. Netscape shall maintain accurate records reflecting the
number of billable Clicks recorded on Netscape's server access logs. If an
audit finds Netscape has over billed GoTo.com. the overcharged amount will be
refunded immediately. At Distinguished Provider's expense, Distinguished
Provider shall have the right, at a mutually agreeable time during normal
business hours and upon at least 15 business days prior notice, to conduct an
audit to verify Click data upon which invoices are based.
15. General. (a) The parties hereto are independent contractors and shall
have no power or authority to bind the other party or to assume or create any
obligation or responsibility, express or implied, on behalf of the other party
or in the other party's name. This Agreement shall not be construed to create
or imply any partnership, agency, joint venture, or any other form of legal
association between the parties. (b) Distinguished Provider may not assign this
Agreement in whole or in part, by operation of law or otherwise, without
Netscape's prior written consent, and any attempted assignment of this
Agreement by Distinguished Provider without such consent will be null and void.
Netscape may assign this Agreement or its rights hereunder, or delegate its
duties hereunder. This Agreement shall apply to and bind any permitted
successor or assigns of the parties hereto. (c) Any dispute hereunder will be
negotiated between the parties commencing upon written notice from one party to
the other. Settlement discussions and materials will be confidential and
inadmissible in any subsequent proceeding without both parties' consent. If the
dispute is not resolved by negotiation within 45 days following such notice,
the parties will refer the dispute to non-binding mediation conducted by
JAMS/EndDispute. The parties will share the costs of mediation. If the dispute
is not resolved after 45 days of mediation, the parties will refer the dispute
to binding arbitration by JAMS/EndDispute in Santa Clara County, California.
The results of any arbitration will be final and non-appealable, except that
either party may petition any court of competent Jurisdiction to review any
decision relating to intellectual property matters (including the scope of
license rights), vacating or modifying erroneous conclusions of law or findings
of fact not supported by substantial evidence. The arbitrator may fashion any
legal or equitable except punitive or exemplary damages, which both parties
waive. The arbitrator will render a written decision, which may be entered in
and enforced by any court of competent jurisdiction, but which will have no
preclusive effect in other matters involving third parties. The losing party
will pay the costs of the arbitration and the reasonable legal fees and
expenses of the prevailing party, as determined by the arbitrator. The parties
will jointly pay arbitration costs pending a final allocation by the
arbitrator. At any point in the dispute resolution process, either party may
seek injunctive relief preserving the status quo pending the outcome of that
process. Except as noted, the parties waive any right to judicial process.
California law, without regard to its conflict-of-law provisions, will govern
this Agreement. The U.S. Arbitration Act and JAMS/EndDispute rules will govern
the arbitration process. Absent fraudulent concealment, neither party may raise
a claim more than 3 years after it arises or any shorter period provided by
applicable statutes of limitations. (d) Neither party will be liable to the
other party for any failure or delay in performance caused by reasons beyond
such party's reasonable control, and such failure or delay will not constitute
a breach of this Agreement. (e) Any notices under this Agreement shall be in
English, in writing, and sent by confirmed facsimile internationally-recognized
express delivery service, or certified or registered mail, return receipt
requested, to the address specified in the Cover Sheet, or such other address
as the party specifies in writing. Notice by confirmed facsimile or express
delivery service will be deemed received and effective upon delivery. Notice by
certified or registered mail will be deemed received and effective 5 days after
dispatch. Notices to Netscape shall be to the attention of the Legal
Department, Netscape Communications Corporation, 501 East Middlefield Road,
Mountain View, California 94043. (f) The waiver of any breach or default of this
Agreement will not constitute a waiver of any subsequent breach or default, and
will not act to amend or negate the rights of the waiving party. (g) If one or
more of the provisions contained in this Agreement is determined to be invalid,
illegal or unenforceable in any respect under any applicable statute or rule of
law, then such provision will be considered inoperable to the extent of such
invalidity, illegality or unenforceability, and the remainder of this Agreement
will continue in full force and effect. The parties hereto agree to replace any
such invalid, illegal or unenforceable provision with a new provision that has
the most nearly similar permissible economic and legal effect. (h) This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. For purposes hereof, a facsimile copy of this Agreement, including
the Cover Sheet hereto, shall be deemed to be an original. Notwithstanding the
foregoing, the parties shall deliver original execution copies of this Agreement
to one another as soon as practicable following execution thereof.
(i) Distinguished Provider will not issue a press release regarding the
activities described in this Agreement without Netscape's prior written consent.
Distinguished Provider will not disclose the existence of this Agreement until
after Netscape publicly issues a press release regarding this Agreement.
(j) This Agreement is the complete and exclusive agreement between the parties
with respect to the subject matter hereof, superseding and replacing any and all
prior agreements, communications, and understandings (both written and verbal)
regarding such subject matter. This Agreement may only be modified, or any
rights under it waived, by a written document executed by both parties. (k) In
order to bind the parties to this Agreement, their duly authorized
representatives have executed the Cover Sheet to this Agreement.
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EXHIBIT A
NetSearch Distinguished Provider Program
Preliminary Specification - Subject to Change
Description:
Distinguished Providers will be listed under one of three columns on the Net
Search page. The column headings are probably: Explore the Web, Find a Business
or Person, Search for a Product or Service.
Maintenance:
The Net Search page will be updated every Thursday. Name or URL changes are due
a minimum of one week prior to the requested change date, and will be
implemented the following Thursday. Changes should be emailed directly to
Audrey Crane, [email protected]
Specifications:
Listings may not include any alteration in font face, style, size or color.
Listings should fit in the table attached (see Appendix A) without wrapping on
the reference platform. Wrapping will be checked on our "worst-case" system,
configured as follows: A PC running Windows 95, with the settings configured
for small fonts, resolution set at 640x480, and a Viewsonic P775 (17 inch)
monitor. We will use Netscape Navigator version 4.05, with the Proportional
Font set at 12pt Times New Roman, and the Fixed Font set at 10pt Courier New
(all default settings).
Net Search Distinguished Provider Description Pages
Description:
Three pages will be linked to from the headers of each of the Distinguished
Provider columns on the Net Search page. The pages themselves will include a
brief description of the category. They will also include brief descriptions
and a logo of each Distinguished Provider, listed in the same order as they are
listed on the Net Search page.
Specifications:
Copy: Seventy-five words or less in paragraph format. Please take this
opportunity to provide the user with helpful content by describing the
unique features that set your service apart, and avoid using directly
competitive terms, such as 'best', 'top', 'fastest', etc. For guidelines,
http://www.useit.com/alertbox/9710a.html has some useful information,
especially the promotional writing vs. concise and objective writing.
Netscape reserves editorial rights to alter copy in any way deemed
necessary to keep the copy within Netscape's editorial style.
Logo: Logo must be less than 100 pixels wide and 70 pixels tall. In
addition, the height multiplied by the width must be less than or equal to
2500 pixels. (For example, if the logo is 100 pixels wide, it can only be
25 pixels tall. If the logo is 50 pixels wide, it can be 50 pixels tall. If
the logo is 35 pixels wide, it can be 70 pixels tall.)
URL: The description label and logo will link to each Distinguished
Provider's URL as listed in the Distinguished Provider column on the
NetSearch page itself. A different URL may be used as submitted by a
provider, with the condition that the URL is not a redirect that disables
the users ability to use the back button in the browser to get back to the
NetSearch page. In order that users who have rating or blocking software
installed and/or operating, we ask that our Distinguish Providers label
their site with an appropriate rating. Netscape software supports two types
of ratings labels, see Appendix B for an explanation and details.
Maintenance:
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These three pages will be updated every Thursday. Logo or copy changes are
due a minimum of one week prior to the requested change date, and will be
implemented the following Thursday. Changes should be emailed directly to
Audrey Crane, [email protected]
Technical or production related questions should be directed to:
Audrey Crane
Producer, NetSearch
[email protected]
650-937-4021
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EXHIBIT 10.16
[NETSCAPE LETTERHEAD]
AMENDMENT NO. 1 TO
U.S. ENGLISH LANGUAGE NET SEARCH SERVICES AGREEMENT
DISTINGUISHED PROVIDER
NO. 005064
This Amendment No. 1 (the "Amendment") is entered into by and between Netscape
Communications Corporation, a Delaware corporation and wholly owned subsidiary
of America Online, Inc., with principal offices at 501 E. Middlefield Road,
Mountain View, California 94043 ("Netscape") and GoTo.com, a Delaware
corporation with offices at 130 Union Street, Pasadena, California 91103
("Distinguished Provider") effective as of the date of execution by Netscape
("Amendment Effective Date").
WHEREAS, the parties have entered into a U.S. English Language Net Search
Services Agreement -- Distinguished Provider -- effective December 15, 1998
(the "Agreement"); and
WHEREAS, the parties wish to modify and supplement the provisions of such
Agreement;
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. The Distinguished Period shall be extended one (1) additional month
through June 30, 1999.
2. Capitalized terms defined in the Agreement shall have the same meaning in
this Amendment as in the Agreement.
3. Except as explicitly modified, all terms, conditions and provisions of the
Agreement shall continue in full force and effect.
4. In the event of any inconsistency or conflict between the Agreement and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
5. This Amendment and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter
are superseded by the Agreement and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives, effective as of the
Amendment Effective Date.
NETSCAPE COMMUNICATIONS CORPORATION GOTO.COM
By: By: /s/ TODD TAPPIN
----------------------------------- -----------------------------------
Signature Signature
Name: Name: Todd Tappin
--------------------------------- ---------------------------------
Print or Type Print or Type
Title: Title: CFO
-------------------------------- --------------------------------
Date: Date: 5/19/99
--------------------------------- ---------------------------------
1
<PAGE> 1
EXHIBIT 10.17
NETSCAPE COMMUNICATIONS CORPORATION
INSERTION ORDER
================================================================================
Legal name of Advertiser GoTo.com Advertiser's Agency
------------------ ----------------
Address of Principal Place of Business Agency Contact
---------------------
140 W. Union St.
- ------------------------------------------ Agency Address
---------------------
City Pasadena State CA Zip 91103 City State Zip
--------------- ------ ------- ------------ --- ------
Advertiser Contact Tad Benson Phone Fax
------------------------ ----------- ---------------
Phone 626.685.5712 E-mail
------------------------------------- -----------------------------
Fax 626.685.5601
---------------------------------------
E-mail [email protected]
------------------------------------
State/country of organization
-------------
If Advertiser is not a corporation, please Netscape Web Site (specify
specify form of organization "country" and "language")
-------------- ----------
- ------------------------------------------ -----------------------------------
================================================================================
IMPORTANT NOTICE: THIS INSERTION ORDER IS SUBJECT TO NETSCAPE'S ACCEPTANCE AND
WILL BE EFFECTIVE AS OF THE ACCEPTANCE DATE BELOW. BY SUBMISSION OF THIS
INSERTION ORDER, ADVERTISER AGREES TO BE BOUND BY THE TERMS SET FORTH HEREIN
AND IN THE NETSCAPE STANDARD TERMS AND CONDITIONS FOR ADVERTISING AVAILABLE AT
URL: http://home.netscape.com/ads/termsandconditions.html (COLLECTIVELY,
"AGREEMENT"). FAILURE TO COMPLY WITH THE AGREEMENT MAY RESULT IN IMMEDIATE
TERMINATION OF THIS AGREEMENT.
Should GoTo.com become a NetSearch premier partner, GoTo.com will have the
option of canceling this contract without penalty immediately once the premier
position launches.
Scheduling/Pricing Information
- ------------------------------
<TABLE>
<S> <C> <C> <C> <C>
April 1-30 43,333,333 impressions Netsearch banner $195,000.00
May 1-31 43,333,333 impressions Netsearch banner $195,000.00
June 1-30 43,333,333 impressions Netsearch banner $195,000.00
April 1-June 30 130,000,000 impressions Netsearch banner $585,000.00
</TABLE>
Net Amounts: $1,170,000.00 gross
- -------------------------------------- --------------------------
Start Date: April 1, 1999 Discounts: 50% total discount
--------------------------- ----------------------------
End Date: June 30, 1999 Taxes (if any):
----------------------------- -----------------------
Bill to: client Amount Due: $585,000 Net
------------------------------ ---------------------------
PO Number bill $195,000 per month
----------------------------- -----------------------
ADVERTISER: If Advertiser's agency ACCEPTANCE BY:
signs below, such Advertiser's agency
hereby represents that it has full NETSCAPE COMMUNICATION CORPORATION
authority to bind the Advertiser set
forth above.
Signature: /s/ TODD TAPPIN Signature:
---------------------------- ----------------------------
Name: Todd Tappin Name:
--------------------------------- ---------------------------------
Title: CFO Title:
-------------------------------- --------------------------------
Date: 3/11/99 Acceptance Date:
--------------------------------- ----------------------
Advertiser Contact: Tad Benson Netcenter Ad Sales Rep: Debi Lefbovitz
------------------- ---------------
Phone: 626/685-5712
--------------------------------
<PAGE> 2
Netscape Communications Corporation
Standard Terms and Conditions for Advertising
These terms and conditions ("Standard Terms") shall be deemed incorporated by
reference into any insertion order (the "Insertion Order") submitted by the
Advertiser or its agency set forth in the Insertion Order (collectively,
"Advertiser") and shall govern the Insertion Order, superseding all terms
therein except for those relating to advertisement scheduling and pricing. All
Insertion Orders are subject to acceptance by Netscape. Rates and the Standard
Terms are subject to change without notice. Netscape reserves the right to
refuse or cancel any Insertion Order, without cause, at any time. The Standard
Terms and Insertion Order shall be collectively known as the "Agreement."
Advertiser and its agency (if applicable) shall be jointly and severally
responsible under this Agreement.
1. Term of Agreement. The term of this Agreement commences on the Acceptance
Date set forth in the Insertion Order and terminates on the End Date set forth
in the Insertion Order.
2. Terms of Payment. Advertiser, if advertising with Netscape for the first
time, must submit a completed Netscape credit application. If no credit
application is submitted or the request for credit is denied by Netscape (in
its sole discretion), the Insertion Order must be paid in advance of the
advertisement Start Date set forth in the Insertion Order. If Netscape approves
the request for credit, Netscape will invoice Advertiser as set forth in the
Insertion Order. Payment as set forth in the Insertion Order shall be made to
Netscape Communications Corporation ("Netscape") within 30 days of the date of
invoice. Amounts paid after such date shall bear interest at the rate of
one-and-one-half percent per month (or the highest rate permitted by law, if
less) until paid in full. In the event of any failure by Advertiser to make
payment, Advertiser will be responsible for all reasonable expenses (including
attorneys' fees) incurred by Netscape in collecting such amounts. All payments
due hereunder are in U.S. dollars and are exclusive of any applicable taxes.
Advertiser shall be responsible for all applicable taxes.
3. Positioning. Except as otherwise expressly provided in the Insertion Order,
positioning of advertisements within the Netscape website or on any page is at
the sole discretion of Netscape.
4. Renewal. Except as expressly set forth in the Insertion Order, any renewal
of the Insertion Order and acceptance of any additional advertising order shall
be at Netscape's sole discretion. Pricing for any renewal period is subject to
change by Netscape from time to time.
5. No Assignment or Resale of Ad Space. Advertiser may not resell, assign or
transfer any of its rights hereunder. Any attempt by Advertiser to resell,
assign or transfer such rights shall result in immediate and automatic
termination of this Agreement, without liability to Netscape.
6. Provision of Advertising Materials. (a) Advertiser will provide all
materials for the advertisement in accordance with Netscape's policies in
effect from time to time, including without limitation the manner of
transmission to Netscape and the lead-time prior to publication of the
advertisement. Netscape shall not be required to publish any advertisement that
is not received in accordance with such policies and reserves the right, at
Netscape's sole discretion, to charge Advertiser, at the rate specified in the
Insertion Order, for inventory held by Netscape pending receipt of acceptable
materials from Advertiser which are past due, or publish in substitution any
prior advertisement submitted by Advertiser until such time as Netscape can
reasonably begin publication of the advertisement set forth in the Insertion
Order. All changes to advertisement must be made in writing to
[email protected] and prior to the lead-time deadline. Advertiser hereby
grants to Netscape a non-exclusive, worldwide, fully paid license to use,
perform, reproduce, display, transmit and distribute the advertisement and all
contents therein in accordance herewith. (b) If Advertiser uses third parties to
serve the advertisement hereunder ("Third Parties"), Advertiser shall be
responsible for such Third Parties complying with the terms of this Agreement.
7. Statistics. Unless specified in the Insertion Order, Netscape makes no
guarantee with respect to usage statistics or levels of impressions for any
advertisement. Advertiser acknowledges that delivery statistics provided by
Netscape are the official and definitive measurements of Netscape's performance
on any delivery obligations provided in the Insertion Order. No other
measurements or usage statistics (including those of Advertiser or Third
Parties) shall be accepted by Netscape or have any effect on this Agreement. An
"impression" means each occurrence of a display of an advertisement.
8. Right to Reject Advertisement. All contents of advertisements (including
those served by Third Parties) are subject to Netscape's approval. Netscape
reserves the right to reject or cancel any advertisement, Insertion Order, URL
link, space reservation or position commitment, at any time, for any reason
whatsoever (including belief by Netscape that any placement thereof may subject
Netscape to criminal or civil liability).
9. No Warranty. NETSCAPE MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT
TO ANY MATTER, INCLUDING WITHOUT LIMITATION ADVERTISING AND OTHER SERVICES, AND
EXPRESSLY DISCLAIMS THE WARRANTIES OR CONDITIONS OF NONINFRINGEMENT,
MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE.
10. Limitations of Liability. In the event that Netscape fails to publish an
advertisement in accordance with the schedule provided in the Insertion Order,
or in the event that Netscape fails to deliver the number of impressions
specified in the Insertion Order (if any) by the End Date specified in the
Insertion Order, or in the event of any other failure, technical or otherwise
of such advertisement to appear as provided in the Insertion Order, the sole
liability of Netscape and exclusive remedy of Advertiser shall be limited to, at
Netscape's sole discretion, placement of the advertisement at a later time in a
comparable position, or extension of the End Date specified in the Insertion
Order until the total impressions are delivered. In no event shall Netscape be
liable for any act or omission, or any event directly or indirectly resulting
from any act or omission, of Third Parties (if any). IN NO EVENT SHALL NETSCAPE
BE LIABLE UNDER THIS AGREEMENT FOR ANY CONSEQUENTIAL, SPECIAL, LOST PROFITS,
INDIRECT OR OTHER DAMAGES, WHETHER BASED IN CONTRACT, TORT OR OTHERWISE, EVEN
IF NETSCAPE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
NETSCAPE'S AGGREGATE LIABILITY UNDER THIS AGREEMENT FOR ANY CLAIM IS LIMITED TO
THE AMOUNT RECEIVED BY NETSCAPE FROM ADVERTISER FOR THE INSERTION ORDER GIVING
RISE TO THE CLAIM. Without limiting the foregoing, Netscape shall have no
liability for any failure or delay resulting from any governmental action,
fire, flood, insurrection, earthquake, power failure, riot, explosion, embargo,
strikes whether legal or illegal, labor or material shortage, transportation
interruption of any kind, work slowdown or any other condition affecting
production or delivery in any
1
<PAGE> 3
manner beyond the control of Netscape. Advertiser acknowledges that Netscape
has entered into this Agreement in reliance upon the limitations of liability
set forth herein and that the same is an essential basis of the bargain between
the parties.
11. Advertiser's Representations; Indemnification. Advertiser represents and
warrants to Netscape, and Third Parties (if any), that Advertiser holds all
necessary rights to permit the use of the advertisement by Netscape for the
purpose of this Agreement; and that the use, reproduction, distribution,
transmission or display of advertisement, any data regarding users, and any
material to which users can link, or any products or services made available to
users, through the advertisement will not (a) violate any criminal laws or any
rights of any third parties or (b) contain any material that is unlawful or
otherwise objectionable, including without limitation any material that
encourages conduct that would constitute a criminal offense, give rise to civil
liability, or otherwise violate any applicable law. Advertiser agrees to
indemnify, defend and hold Netscape and Third Parties (if any) harmless from
and against any and all liability, loss, damages, claims or causes of action,
including reasonable legal fees and expenses, arising out of or related to (i)
breach of any of the foregoing representations and warranties, or (ii) any
third party claim arising from use of or access to the advertisement under this
Agreement or any material to which users can link, or any products or services
made available to users, through the advertisement under this Agreement.
12. Cancellations. Except as otherwise provided in the Insertion Order, the
Insertion Order is non-cancelable by Advertiser. If Advertiser cancels the
Insertion Order, in whole or in part, Advertiser agrees to pay any additional
short rate charges.
13. Construction. No term or condition other than those set forth in the
Standard Terms or in the Insertion Order relating to advertisement scheduling
and pricing shall be binding on Netscape unless in a writing signed by duly
authorized representatives of the parties. In the event of any inconsistency
between the Insertion Order and the Standard Terms, the Standard Terms shall
control. This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof and supersedes all prior and
contemporaneous agreements and communications, whether oral or written, between
the parties relating to the subject matter hereof, and all past courses of
dealing or industry customs. The terms and conditions hereof shall prevail
exclusively over any written instrument submitted by Advertiser, including
Advertiser's insertion order, and Advertiser hereby disclaims any terms therein,
except for terms therein relating to advertisement scheduling and pricing.
14. Confidentiality. "Confidential Information" shall mean (i) advertisements,
prior to publication, (ii) the Insertion Order and any Netscape statistics
which shall be deemed Netscape Confidential Information; and/or (iii) any
information designated in writing, or identified orally at time of disclosure,
by the disclosing party as "confidential" or "proprietary." During the term of
this Agreement, and for a period of two years following any End Date, neither
party will use or disclose any Confidential Information of the other party
except as specifically contemplated herein. The foregoing restriction does not
apply to information that: (i) has been independently developed by the
receiving party without access to the other party's Confidential Information;
(ii) has become publicly known through no breach of this Section 14 by the
receiving party; (iii) has been rightfully received from a third party
authorized to make such disclosure; (iv) has been approved for release in
writing by the disclosing party; or (v) is required to be disclosed by a
competent legal or governmental authority.
15. Termination; Effect of Termination. In the event of a material breach by
Advertiser, Netscape may terminate this Agreement immediately without notice or
cure period, without liability to Netscape. In the event of any termination,
Advertiser shall remain liable for any amount due under an Insertion Order for
advertisement delivered by Netscape and such obligation to pay shall survive
any termination of this Agreement. If the parties contemplate any provision to
survive any termination or expiration of this Agreement, such provision shall
survive such termination or expiration. At the request of the disclosing party,
the receiving party shall return all of the disclosing party's Confidential
Information to the disclosing party.
16. Miscellaneous. This Agreement (i) shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
principles of conflicts of law; and (ii) will not be governed by the United
Nations Convention of Contracts for the International Sale of Goods. This
Agreement may be amended only by a writing executed by a duly authorized
representative of each party. Advertiser shall make no public announcement
regarding the existence or content of the Insertion Order without Netscape's
prior written approval, which approval shall not be unreasonably withheld. Any
dispute hereunder will be negotiated in good faith between the parties within
45 days commencing upon written notice from one party to the other. Any notices
under this Agreement shall be sent to the addresses set forth in the Insertion
Order (or in a separate writing) by facsimile or nationally-recognized express
delivery service and deemed given upon receipt. The waiver of any breach or
default of this Agreement will not constitute a waiver of any subsequent breach
or default, and will not act to amend or negate the rights of the waiving
party. If any provision contained in this Agreement is determined to be
invalid, illegal or unenforceable in any respect under any applicable law, then
such provision will be severed and replaced with a new provision that most
closely reflects the original intention of the parties, and the remaining
provisions of this Agreement will remain in full force and effect.
2
<PAGE> 1
EXHIBIT 10.18
[NETSCAPE LOGO] Netscape Agreement #
004574-1
AMENDMENT No. 1 TO
Bookmark Program Agreement
This Amendment No. 1 (the "Amendment") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
Goto.com, a company organized under the laws of Delaware, with principal
offices at 130 West Union St., Pasadena, CA 91103 ("Participant") and effective
as of the date of execution by Netscape ("Amendment Effective Date").
WHEREAS, the parties have entered into a Bookmark Program Agreement effective
8/1, 1998 (the "Agreement"); and
WHEREAS, the parties wish to modify the provisions of such Agreement;
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. A. The "Version" (as referenced on the Cover Sheet) is updated from 4.06
to 4.5 Beta.
B. The "Period" (as referenced on the Cover Sheet) during which this
Agreement is in force, is extended to begin on "7/15/98" and still
continue until 7/31/99.
C. The "per Click" charge (as referenced on the Cover Sheet) will be
waived for the first 16 days from 7/15/98 until 7/31/98.
2. Capitalized terms defined in the Agreement shall have the same meaning in
this Amendment as in the Agreement.
3. Except as explicitly modified, all terms, conditions and provisions of the
Agreement shall continue in full force and effect.
4. In the event of any inconsistency or conflict between the Agreement and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
5. This Amendment and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter are
superseded by the Agreement and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives, effective as of the
Amendment Effective Date.
NETSCAPE COMMUNICATIONS "PARTICIPANT"
CORPORATION
By: /s/ Noreen G. Bergin By: /s/ Stephanie A. Sarka
---------------------------- ----------------------------
Signature Signature
Name: Noreen G. Bergin Name: Stephanie A. Sarka
-------------------------- --------------------------
Print or Type Print or Type
Title: Senior Vice President, Title: SVP Marketing
Finance & Corporate -------------------------
Controller
-------------------------
Date: 7/28/98 Date: 7/13/98
-------------------------- --------------------------
BM Contract 4.06-4 Shots Amendment doc JDD7/10/95
Amendment No. __ Rev. 032398
CONFIDENTIAL
<PAGE> 2
[NETSCAPE LOGO]
NETSCAPE COMMUNICATIONS CORPORATION
BOOKMARK PROGRAM AGREEMENT
Cover Sheet
No. [ILLEGIBLE]
GoTo.com, Inc. (GoTo.com)
- -----------------------------------------------------------------------------
Full legal name of Participant ("Participant")
130 West Union Street, Pasadena CA 91103
- -----------------------------------------------------------------------------
Address of Participant's Principal City State Zip/Country
Place of Business
Contact: Stephanie Sarka Phone: 626/535-2808 Fax: 626/535-2701
E-mail: [email protected]
130 West Union Street, Pasadena CA 91103
- -----------------------------------------------------------------------------
Bill To Address City State Zip/Country
Participant is organized in the state of Delaware
IMPORTANT NOTICE: UPON EXECUTION BY THE PARTIES, THIS NETSCAPE COMMUNICATIONS
CORPORATION ("NETSCAPE") BOOKMARK PROGRAM AGREEMENT, OF WHICH THIS PAGE IS A
COVER SHEET, ALLOWS PARTICIPANT TO PARTICIPATE IN THE BOOKMARK PROGRAM AS
DESCRIBED HEREIN. BY SIGNING THIS COVER SHEET, PARTICIPANT AGREES TO ALL THE
TERMS AND CONDITIONS ATTACHED (COLLECTIVELY, THE "AGREEMENT"). FAILURE TO
COMPLY WITH THIS AGREEMENT MAY RESULT IN TERMINATION.
Bookmark Production Information:
Netscape client software: Netscape-distributed Local Language Versions of
the Netscape Communicator
Version(s): Netscape Communicator 4.06 release (and all future "4.x" releases
between 8/1/98 and 7/31/99)
Bookmark Category: Search
Bookmark Title (no more than 25 characters): GoTo.com
Bookmark URL: http://www.goto.com/
Local Language: US.English
Platform(s): All platforms made generally commercially available by Netscape.
Period: 8/1/98 - 7/31/99
Payment Terms:
Cost Per Click: $0 Engineering Fee plus $0.10 cost per Click for 12 months.
Payable in accordance with the following schedule: $0.10 per Click per month,
with no annual cap. All totals are stated net of Participant's agency discount.
All amounts payable to Netscape must be paid in a single payment within 30 days
of the date of Netscape's invoice. All payments shall be made by wire transfer
or remittance in accordance with Netscape's instructions on such invoice. Past
due amounts shall bear interest at the lower of 1-1/2% per month or the maximum
rate allowed by law until paid in full.
GOTO.COM GO2 TECHNOLOGIES, INC. NETSCAPE COMMUNICATIONS CORPORATION
By: /s/ Stephanie A. Sarka By: /s/ Noreen G. Bergin
------------------------------- -------------------------------
Name: Stephanie A. Sarka Name: Noreen G. Bergin
----------------------------- -----------------------------
Title: SVP Mktg. Title: Senior Vice President,
Finance & Corporate Controller
---------------------------- ----------------------------
Date: 7/9/98 Date of Acceptance
----------------------------- ("Effective Date"): 7/28/98
---------------
Address: 501 East Middlefield Road,
Mountain View, CA 94043
<PAGE> 3
BOOKMARK PROGRAM TERMS & CONDITIONS
1. Definitions. "Advertisement" means the graphic (GIF) file, or file of such
other format as Netscape may designate from time to time, supplied by
Participant to be published by Netscape on Netscape's U.S. English-Language Web
Site and which may contain a link to Participant's web site or to a web site
specified by Participant. "Bookmark" means a graphic HTML link to a Bookmark
URL as such Bookmarks are included in the functionality of the Netscape
Communicator. "Bookmark Folder" means the collection of Bookmarks, grouped by
topic and included in one folder in a Netscape Communicator Bookmark menu.
"Bookmark Title" means the descriptive name of Participant's Bookmark as set
forth in the Cover Sheet. "Bookmark URL" means the URL which Participant
specifies as the Internet address linked to Participant's Bookmark. "Bookmarked
Page" means the Internet page located at the Bookmark URL and accessed when an
End User selects Participant's Bookmark. "Click" means an action typically
resulting from an End User positioning their mouse cursor on a clickable
hyperlink and selecting or clicking on that hyperlink. "Clicks" are counted as
a redirection of a user's click through the Netscape server access logs to the
Participants Bookmark URL. "End User" means any individual who deploys the
Netscape Communicator software. "Local Language" means the language Version of
the Netscape Communicator as such language is specified in the Cover Sheet.
"Netscape Communicator" means the unmodified Local Language Version of
Netscape-distributed and pre-configured Internet client software.
"Participant's Bookmark" means the Bookmark Title and Bookmark URL selected by
Participant for inclusion in this Bookmark program, and as such Bookmark Title
and Bookmark URL are set forth in the Cover Sheet. "Platform" means the
software operating system platform specified in the Cover Sheet. "Rate Card"
means the information regarding Netscape advertising services, rates, and
technical requirements for Participant's submissions for publication on
Netscape's U.S. English-language Web Site. "Slotting Fee" means the one-time
nonrecurring engineering payment to Netscape by Participant for Participant's
inclusion in the Bookmark program. "Version" means a release of the Netscape
Communicator client software made commercially available by Netscape and
distributed in accordance with this Agreement.
2. Netscape Services. (a) Subject to the terms and conditions of this
Agreement, Netscape shall include in certain Versions of the Netscape
Communicator, a pre-loaded Bookmark for access to the Bookmark URL, as
specified by Participant on the Cover Sheet. The Participant's Bookmark shall
be included in Versions of the Netscape Communicator localized into the Local
Language and configured for the Platforms. Participant hereby acknowledges that
the Bookmark, although preset in the shipping Version of the Netscape
Communicator, may be reconfigured, customized or deleted by an End User. (b)
Netscape will create an index of topical bookmarks which will appear in a
drop-down menu when an End User selects a particular toolbar within the
Netscape Communicator user interface. Netscape may revise the Netscape
Communicator's user interface, provided that Participant's Bookmark shall be
included in any such revisions.
3. Fees and Taxes. (a) For the benefits and services provided by Netscape to
Participant hereunder, Participant shall pay Netscape the fees set forth on the
Cover Sheet. Netscape will issue a report and invoice Participant on a monthly
basis for the payment due based on the Clicks received by Participant's
Bookmark. Such report and invoice amount shall be Confidential Information. (b)
All payments by Participant are in U.S. Dollars and are exclusive of any
applicable taxes. Participant shall pay, indemnify and hold Netscape harmless
from all import duties, customs fees, levies or imports, and all sales, use,
value added, consumption, withholding or other taxes of any nature, other than
taxes on Netscape's net income, including penalties and interest, and all
government permit or license fees assessed upon or with respect to any payments
by Participant (except to the extent Participant provides Netscape with a valid
tax exemption certificate). If any applicable law requires Participant to
withhold amounts from any payments to Netscape hereunder, (i) Participant shall
effect such withholding, remit such amounts to the appropriate taxing
authorities and promptly furnish Netscape with tax receipts evidencing the
payments of such amounts, and (ii) the sum payable by Participant upon which
the deduction or withholding is based shall be increased to the extent
necessary to ensure that, after such deduction or withholding, Netscape
receives and retains, free from liability for such deduction or withholding, a
net amount equal to the amount Netscape would have received and retained in the
absence of such required deduction or withholding.
4. Participant Obligations. This Section 4 shall only apply if and when
Participant includes any other third party buttons, trademarks or logos or
otherwise promotes third parties on its Web Site. (a) During the term of this
Agreement, Participant agrees to display the "Netscape Now" button prominently
above the fold on the Bookmarked Page. Participant will produce the Bookmarked
Page such that when an End User presses or "clicks" on the Netscape Now button
(or such other button used in connection with any successor program to the
Netscape Now program), the End User's Internet client software will access the
applicable HTML page located at a URL supplied by Netscape. On the Bookmarked
Page, the Netscape Now button shall be top-most and left-most, and equal to or
greater in size and prominence than the virtual button or other graphic for any
third party Internet client or server software or online service. Participant
shall use reasonable commercial efforts promptly to remedy any misplacement of
the Netscape Now button on the Bookmarked Page or any malfunctioning of the
button, provided Netscape will cooperate with Participant to remedy any such
misplacement or malfunctioning, and provided further that Participant shall not
incur liability for any failure to remedy such misplacement or malfunctioning
if such remedy is not within the reasonable control of Participant. In the
event that Netscape replaces the Netscape Now program with a successor program,
Netscape shall advise Participant and Participant shall produce the Bookmarked
Page to conform to such successor program, provided Participant's obligations
under such successor program shall not be materially increased. Netscape hereby
grants Participant a nonexclusive, nontransferable, license to
2
<PAGE> 4
perform and display the Netscape Now button directly in connection with
fulfilling the obligations set forth above. Participant's use of the Netscape
Now button shall be in accordance with Netscape's reasonable policies regarding
trademark usage as established from time to time by Netscape, including the
guidelines of the Netscape Now Program published on Netscape's U.S.
English-language Website. Participant acknowledges that the Netscape Now button
is a proprietary logo of Netscape and contains Netscape's trademarks. In the
event that Netscape determines that Participant's use of the Netscape Now button
is inconsistent with Netscape's quality standards, then Netscape shall have the
right in immediately suspend such use of the Netscape Now button. Participant
understands and agrees that the use of the Netscape Now button in connection
with this Agreement shall not create any right, title or interest in or to the
use of the Netscape Now button or associated trademarks and that all such use
and goodwill associated with the Netscape New button and associated trademarks
will inure to the benefit of Netscape. Participant agrees not to register or use
any trademark that is similar to the Netscape Now button. Participant further
agrees that it will not use the Netscape Now button in a misleading manner or
otherwise in a manner that could tend to reflect adversely on Netscape or its
products. (b) Participant will use reasonable commercial efforts promptly to
remedy any material malfunctioning of Participant's Bookmark Advertisement and
the Bookmarked Page. Participant warrants that Participant's Bookmark
Advertisement and the Bookmarked Page will function in accordance with the
specifications for this Bookmark Program or the Netscape Advertising Program. In
the case of a breach of the warranties in this Section 4(b) (and in addition to
any rights Netscape may have), Participant shall remedy such nonconforming,
unsuitable or inaccurate Advertisement, Participant's Bookmark or Bookmarked
Page within a reasonable period of time (not to exceed 10 days) of notice of
each condition.
5. Right to Refuse. Netscape will have the right to review the contents and
format of Participant's Bookmark, the Bookmarked Page, Advertisement and/or any
material to which End Users can link through the Bookmarked Page or the
Advertisement. If Netscape, in its sole discretion, at any time determines that
the contents and format of Participant's Bookmark, the Bookmarked Page,
Advertisement and/or any material to which End Users can link through the
Bookmarked Page or the Advertisement contains any material, or presents any
material in a manner that Netscape deems inappropriate for any reason, Netscape
will inform Participant of the reason Netscape has made such determination and
may (i) refuse to include Participant's Bookmark, Advertisement or Bookmark URL
in the Netscape Communicator, and/or (ii) immediately terminate this Agreement
if Participant has not revised to Netscape's reasonable satisfaction the
contents and format of Participant's Bookmark, the Bookmarked Page,
Advertisement and/or any material to which End User's can link through the
Bookmarked Page or the Advertisement within 1 business day of written notice
from Netscape. If Netscape, in its sole discretion, at any time determines that
pages on Participant's web site linked to the Bookmarked Page contain any
material, or presents any material in a manner that Netscape deems inappropriate
for any reason, Netscape may immediately terminate this Agreement upon notice to
Participant. Netscape reserves the right to refuse to include any Bookmark for
any reason whatsoever.
6. Responsibility. Participant is solely responsible for any liability arising
out of or relating to Participant's Bookmark, the Bookmarked Page, Advertisement
and/or any material to which End Users can link through the Bookmarked Page or
the Advertisement. Participant represents and warrants that it holds the
necessary rights to permit the use of the Participant's Bookmark and
Advertisement by Netscape for the purpose of this Agreement and that the
permitted use, reproduction, distribution, or transmission of Participant's
Bookmark, the Bookmarked Page, Advertisement and any material to which End Users
can link through the Bookmarked Page or the Advertisement will not violate any
local laws or applicable international laws, any criminal laws or any rights of
any third parties, including, but not limited to, infringement or
misappropriation of any copyright, patent, trademark, trade secret, music,
image, or other proprietary or property right, false advertising, unfair
competition, defamation, invasion of privacy or rights of celebrity, violation
of any antidiscrimination law or regulation, or any other right of any person or
entity. Participant agrees to indemnify Netscape and to hold Netscape harmless
from any and all liability, loss, damages, claims, or causes of action,
including reasonable legal fees and expenses that may be incurred by Netscape,
arising out of or related to Participant's breach of any of the foregoing
representations and warranties.
7. Limitation of Liability. (a) IN NO EVENT WILL NETSCAPE BE LIABLE TO
PARTICIPANT FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED
ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, AND WHETHER OR
NOT THAT NETSCAPE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. NETSCAPE'S
TOTAL LIABILITY HEREUNDER, WHETHER IN CONTRACT OR TORT OR ANY OTHER LEGAL
THEORY, IS LIMITED TO AND SHALL NOT EXCEED AMOUNTS RECEIVED FROM PARTICIPANT
HEREUNDER. (b) The parties have agreed that the limitations and exclusions of
liability specified in this Agreement will survive and apply even if any limited
remedy specified in this Agreement will survive and apply even if any limited
remedy specified in this Agreement is found to have failed of its essential
purpose. (c) Participant acknowledges that Netscape has entered into this
Agreement in reliance upon the limitations of liability and the disclaimers of
damages set forth herein, and that the same form an essential basis of the
bargain and allocation of risks between the parties.
8. Confidentiality. (a) "Confidential Information" shall mean this Agreement
(including but not limited to any monthly reports and invoices) and all
information a party discloses to the other which has been either (i)
characterized in writing as confidential at the time of its disclosure or (ii)
orally characterized as confidential at the time of disclosure except for
information which the receiving party can demonstrate (A) is previously
rightfully known to the receiving party without restriction or disclosure; (B)
is or becomes, from no act or failure to act on the part of the receiving party,
generally known in the relevant industry or public domain; (C) is disclosed to
the receiving party by a third party as a matter of right and without
restriction on disclosures; or (D) is independently developed by the receiving
party without access to the
[Company Name]
Bookmark Program Agreement
CONFIDENTIAL
3
<PAGE> 5
Confidential Information. Each receiving party shall at all times, both during
the term hereof and for a period of at least three (3) years after termination,
keep in confidence all the disclosing party's Confidential Information using a
standard of care the receiving party uses with its own information of this
nature, but in no event less than reasonable care. The receiving party shall
not use the disclosing party's Confidential Information other than in the
course of its duties hereunder. Neither party acquires any intellectual
property rights under this Agreement or through any disclosure hereunder,
except the limited right to use such Confidential Information in accordance
with this Agreement. The Confidential Information under this Agreement is
delivered "AS IS" and all representations or warranties, whether express or
implied, including warranties or conditions for fitness for a particular
purpose, merchantability, title and noninfringement are hereby disclaimed.
Without the prior written consent of the disclosing party, the receiving party
shall not disclose the disclosing party's Confidential Information except on a
"need to know" basis to an employee or contractor under binding obligations of
confidentiality substantially similar to those set forth herein. If a receiving
party is legally compelled to disclose any of the disclosing party's
Confidential Information, then, prior to such disclosure, the receiving party
will (x) assert the privileged and confidential nature of the Confidential
Information and (y) cooperate fully with the disclosing party in protecting
against any such disclosure and/or obtaining a protective order narrowing the
scope of such disclosure and/or use of the Confidential Information. In the
event such protection is not obtained, the receiving party shall disclose the
Confidential Information only to the extent necessary to comply with the
applicable legal requirements.
9. RECORDS; AUDIT: Netscape shall maintain accurate records reflecting the
number of billable Clicks recorded on Netscape's server access logs. At
Participant's expense, Participant shall have the right, at a mutually
agreeable time during normal business hours and upon at least 15 business days
prior notice, to conduct an audit to verify Click data upon which invoices are
based.
10. TERMINATION. (a) Participant may terminate Netscape's right to incorporate
Participant's Bookmark into new Versions of the Netscape Communicator on 90
days written notice to Netscape. Following such 90 day period, Netscape may
continue to distribute any Versions of the Netscape Communicator which were
released during the term of this Agreement (b) Netscape may terminate this
Agreement on 30 days written notice to Participant or as provided in Section 5.
Following any termination or expiration of this Agreement, Netscape may
continue to distribute any Netscape Communicator which was released during the
term of this Agreement. (c) The provisions of Section 1 (Definitions), Section
3 (Fees and Taxes), Section 6 (Responsibility), Section 7 (Limitation of
Liability), Section 8 (Confidentiality) and Section 11 (General) will survive
any termination or expiration of this Agreement. Any rights Netscape has to
distribute a Version of the Netscape Communicator which includes Participant's
Bookmark, will also survive termination or expiration of this Agreement.
Provisions of other Sections which, by their nature, must remain in effect
beyond the termination or expiration of this Agreement shall also survive.
11. GENERAL. (a) The parties hereto are independent contractors and shall have
no power or authority to bind the other party or to assume or create any
obligation or responsibility, express or implied, on behalf of the other party
or in the other party's name. This Agreement shall not be construed to create or
imply any partnership, agency, joint venture, or any other form of legal
association between the parties. (b) Participant may not assign this Agreement
in whole or in part, by operation of law or otherwise, without Netscape's prior
written consent, and any attempted assignment of this Agreement by Participant
without such consent will be null and void. Netscape may assign this Agreement
or its rights hereunder, or delegate its duties hereunder. This Agreement shall
apply to and bind any permitted successor or assigns of the parties hereto. (c)
Any dispute hereunder will be negotiated between the parties commencing upon
written notice from one party to the other. Settlement discussions and materials
will be confidential and inadmissible in any subsequent proceeding without both
parties' consent. If the dispute is not resolved by negotiation within 45 days
following such notice, the parties will refer the dispute to non-binding
mediation conducted by JAMS/EndDispute. The parties will share the costs of
mediation. If the dispute is not resolved after 45 days of mediation, the
parties will refer the dispute to binding arbitration by JAMS/EndDispute in
Santa Clara County, California. The results of any arbitration will be final and
non-appealable, except that either party may petition any court of competent
jurisdiction to review any decision relating to intellectual property matters
(including the scope of license rights), vacating or modifying erroneous
conclusions of law or findings of fact not supported by substantial evidence.
The arbitrator may fashion any legal or equitable except punitive or exemplary
damages, which both parties waive. The arbitrator will render a written
decision, which may be entered in and enforced by any court of competent
jurisdiction, but which will have no preclusive effect in other matters
involving third parties. The losing party will pay the costs of the arbitration
and the reasonable legal fees and expenses of the prevailing party, as
determined by the arbitrator. The parties will jointly pay arbitration costs
pending a final allocation by the arbitrator. At any point in the dispute
resolution process, either party may seek injunctive relief preserving the
status quo pending the outcome of that process. Except as noted, the parties
waive any right to judicial process. California law, without regard to its
conflict-of-law provisions, will govern this Agreement. The U.S. Arbitration Act
and JAMS/EndDispute rules will govern the arbitration process. Absent fraudulent
concealment, neither party may raise a claim more than 3 years after it arises
or any shorter period provided by applicable statutes of limitations. (d)
Neither party will be liable to the other party for any failure or delay in
performance caused by reasons beyond such party's reasonable control, and such
failure or delay will not constitute a breach of this Agreement. (e) Any notices
under this Agreement shall be in English, in writing, and sent by confirmed
facsimile, internationally-recognized express delivery service, or certified or
registered mail, return receipt requested, to the address specified in the Cover
Sheet, or such other address as the party specifies in writing. Notice by
confirmed facsimile or express delivery service will be deemed received and
effective upon delivery. Notice by certified or registered mail will be deemed
received and
[Company Name]
Bookmark Program Agreement
CONFIDENTIAL 4 Rev. 63098
JDD 2c
<PAGE> 6
effective 5 days after dispatch. Notices to Netscape shall be to the attention
of the Legal Department, Netscape Communications Corporation, 501 East
Middlefield Road, Mountain View, California 94043. (f) The waiver of any breach
or default of this Agreement will not constitute a waiver of any subsequent
breach or default, and will not act to amend or negate the rights of
the waiving party. (g) If one or more of the provisions contained in this
Agreement is determined to be invalid, illegal or unenforceable in any respect
under any applicable statute or rule of law, then such provision will be
considered inoperable to the extent of such invalidity, illegality or
unenforceability, and the remainder of this Agreement will continue in full
force and effect. The parties hereto agree to replace any such invalid, illegal
or unenforceable provision with a new provision that has the most nearly
similar permissible economic and legal effect. (h) This Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. For purposes hereof, a facsimile copy of this Agreement, including
the Cover Sheet hereto, shall be deemed to be an original. Notwithstanding the
foregoing, the parties shall deliver original execution copies of this
Agreement to one another as soon as practicable following execution thereof.
(i) Participant will not issue a press release regarding the activities
described in this Agreement without Netscape's prior written consent.
Participant will not disclose the existence of this Agreement until after
Netscape publicly issues a press release regarding this Agreement. (j) This
Agreement is the complete and exclusive agreement between the parties with
respect to the subject matter hereof, superseding and replacing any and all
prior agreements, communications, and understandings (both written and verbal)
regarding such subject matter. This Agreement may only be modified, or any
rights under it waived, by a written document executed by both parties. (k)
duly authorized representatives of the parties hereto have executed the Cover
Sheet to this Agreement.
5
<PAGE> 1
EXHIBIT 10.19
[NETSCAPE LETTERHEAD]
AMENDMENT NO. 1 TO
NETSCAPE COMMUNICATIONS CORPORATION
U.S. ENGLISH-LANGUAGE NET SEARCH PROGRAM
DISTINGUISHED PROVIDER SERVICES AGREEMENT
AGREEMENT NO. 005064-1
This Amendment No. 1 (the "Amendment") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
GoTo.com, a Delaware corporation located at 140 West Union Street, Pasadena,
California 91103 ("Distinguished Provider") effective as of the date of
execution by Netscape ("Amendment Effective Date").
WHEREAS, the parties have entered into a Netscape Communications Corporation
U.S. English-Language Net Search Program Distinguished Provider Agreement
effective December 15, 1998 (the "Agreement"); and
WHEREAS, the parties wish to modify and supplement the provisions of such
Agreement;
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. Search Widget Placement. Netscape will list Distinguished Provider's name
in the stack ("Listing") for the search widget on the Netcenter homepage
located at URL http://home.netscape.com/ or such other URL as Netscape may
designate from time to time in writing (the "Search Widget"). The Search
Widget is currently located above the fold where the phrase "Search the Web
with" appears. The Listing will be added to the drop down box along with
the other names in the stack.
2. Rotation Percentage. The Listing will appear at the top of the Search
Widget stack a minimum of 10% of the time that the Search Widget is served
up to end users ("Rotation Percentage"). Distinguished Provider
acknowledges the Rotation Percentage is an annualized target, and that,
accordingly at any given time the display of the Listing at the top of the
stack may be adjusted by Netscape to occur above or below the Rotation
Percentage.
3. Minimum Guaranteed Clicks. Netscape guarantees that Distinguished Provider
shall receive no fewer than a total of 2 million Clicks per month from the
Search Widget Listing during the Amendment Term (the "Minimum Guaranteed
Clicks").
4. Fees and Prepayments. Distinguished Provider shall pay Netscape $.04 per
Click for the Search Widget Listing during the Amendment Term.
Distinguished Provider will pay Netscape a nonrefundable prepayment of
US$100,000 due on the Amendment Effective Date for traffic to be delivered
for the remainder of April and the month of May based on an estimated 2.5
million Clicks at $.04 per Click. Any traffic delivered by Netscape in
excess of the prepayment amounts shall be invoiced by Netscape to
Distinguished Provider at the $.04 per Click rate.
5. Make-Good. If, at the end of the Amendment Term, Netscape has not delivered
the Minimum Guaranteed Clicks then Netscape will, at its discretion: (i)
continue the Listing beyond the Amendment Term until such time as the
Minimum Guaranteed Clicks have been achieved; or (ii)
<PAGE> 2
deliver to Distinguished Provider a program of equivalent value as a remedy
for the shortfall of Clicks; or (iii) apply the value of the shortfall (as
determined by the $0.04 per Click rate) as a credit to Distinguished
Provider against banner ad impressions (valued at the rate of $4.50 per
CPM) in excess of the current minimum monthly payment commitments under the
existing Advertising Insertion Order between the parties. The remedy set
forth in this section shall be Distinguished Provider's sole and exclusive
remedy, and Netscape's sole and exclusive obligation in regard to delivery
of the Minimum Guaranteed Clicks.
6. Search Widget Usage Report. Netscape will provide Distinguished Provider
with an additional Usage Report, as described in Section 8 of the
Agreement, specifically for the Search Widget traffic.
7. Amendment Term. The Search Widget Listing will commence upon the Amendment
Effective Date and continue through May 31, 1999. At Netscape's option, and
upon written agreement of the parties, this Amendment may be extended for 1
additional month subject to the same terms and conditions herein, including
pricing.
8. Capitalized terms defined in the Agreement shall have the same meaning in
this Amendment as in the Agreement.
9. Except as explicitly modified, all terms, conditions and provisions of the
Agreement shall continue in full force and effect.
10. In the event of any inconsistency or conflict between the Agreement and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
11. This Amendment and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter are
superseded by the Agreement and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives, effective as of the
Amendment Effective Date.
NETSCAPE COMMUNICATIONS CORPORATION GOTO.COM
By: /s/ KENT WAKEFORD By: /s/ TODD TAPPIN
----------------------------------- -----------------------------------
Signature Signature
Name: Kent Wakeford Name: Todd Tappin
--------------------------------- ---------------------------------
Print or Type Print or Type
Title: Director, Business Affairs Title: CFO
-------------------------------- --------------------------------
Date: 04/30/99 Date: 4/23/99
--------------------------------- ---------------------------------
"Amendment Effective Date"
2
<PAGE> 1
EXHIBIT 10.20
[LOGO]
Warner Bros. Online Insertion Order
Today's Date: September 15, 1998
Client: GoTo.com
Job No: 091598Gol.rs
Start Date: October 1, 1998
End Date: September 30, 1999
Total Impressions: 15,000,000\month for 1 year.
Net Payments: $550,000
$400,000 for distribution and online carriage of GoTo.com
on Warner Bros. Online and
$150,000 for additional promotion as outlined
Guaranteed monthly payments, first payment due with contract signing,
subsequent payments due net 45 upon receipt:
Months 1-3: $22,000\month
Months 4-6: $22,000\month
Months 7-12: $44,000\month
Plus, promotions will be invoiced as the promotion is run, payable upon receipt
of invoice.
Warner Bros. Online agrees to extend this agreement at 15,000,000 page
views\month for a 120 day make good period should GoTo.Com not have received
5,100,000 visits by September 30, 1999. If on January 31, 2000, GoTo.com shall
not have received 5,100,000 visits, Warner Bros. Online will deliver an equal
value of the shortfall in promotional considerations to be agreed upon by both
parties.
General Description of Advertising:
Outlined in proposal above.
Designation of Sites for GoTo.Com:
www.warnerbros.com, www.entertaindom.com and those sites linked from these
pages wholly owned or controlled by Warner Bros. Online
Banner Size (standard IAS): 234 x 60, 125 x 125, 138 x 65, 88 x 31
<PAGE> 2
[LOGO]
URL's Which Link to the Banners: to be provided by GoTo.com
Alternative Text Required if User's Graphics are Turned Off: to be provided by
GoTo.com
Media Type: .gif and animated .gif, html where possible.
Reporting: Weekly reports of impressions and click-throughs due on Thursdays
by 5:00pm EST.
Notes/Comments:
The details of the promotion and online components of this insertion order are
contained in the above proposal dated September 15, 1998.
Contact Information
Name: Stephanie Sarka
Talmadge O'Neill
Address: 130 West Union Street
City, State Zip: Pasadena, CA 91103
Phone: 626-535-2808
Email: [email protected]
[email protected]
Production/Tech Contact:
Phone:
e-mail:
WB Contact Info:
Richard Sutton
Vice President
Sales and Client Marketing
[email protected]
212-636-5053
<PAGE> 3
[WARNER BROTHERS LOGO]
fax 212-636-5380
David Yousefeh
Ad Insertion
[email protected]
818-977-3225
818-977-3135
Anna Pielecha
Reporting
[email protected]
212-636-5382
WARNER BROS. ONLINE
General Advertising Provisions
The following are general terms and conditions governing advertising placed on
the online (commercial or internet) sites as described above in "Designation of
sites for GoTo.com" ("Site") controlled by Warner Bros. Online ("WB Online").
1. WB Online is not responsible for errors or omissions in any advertising
materials provided by the advertiser or its agency. WB Online is not
responsible for any appropriate advertising materials delivered to WB
Online less that 72 hours prior to the start date.
2. All advertisements are accepted and made available WB Online on the Site
upon the representation by the advertiser and agency that they are
authorized to make available on the Site the entire contents and subject
matter thereof. In consideration of the placement of advertisements on the
Site and any linkage to the advertiser's site, the advertiser and agency
will indemnify and save WB Online and its affiliated and related entities
harmless from and against any and all loss or expense arising out of the
appearance of such advertisements on the Site, or on the advertiser's site
as linked through the Site, including without limitation, those resulting
from claims or suits for defamation, violation of privacy or publicity,
misrepresentation or copyright, trademark or patent infringement. The
advertiser (Goto.com) has no obligation to indemnify WB Online unless,
upon notice by advertiser that there is a potential problem with the
appearance of an advertisement, WB immediately removes such advertisement
and ceases to make it available and inserts replacement ad provided by
advertiser. The advertiser and agency agree not to make promotional or
merchandising reference to WB Online in any way except with the express
permission of WB Online for each use. It is understood and agreed that the
advertiser and agency are jointly and separately liable for the payment of
invoices for advertising made available on the Site hereunder.
3. Neither WB Online nor its affiliated or related entities shall be subject
to any liability whatsoever for any failure to provide reference or access
to all or any part of the advertising due to systems failures or other
technological failures of WB Online. However, WB Online is still obligated
to provide the minimum Site visits.
<PAGE> 4
[WARNER BROTHERS LOGO]
4. No conditions, printed or otherwise, appearing on contracts, insertion
orders or instructions which conflict with the provisions of the terms set
forth herein will be binding on WB Online.
5. Orders for advertising shall be non-cancelable prior to the first date on
which such advertising is scheduled to appear within the Site and through
the advertising period agreed to pursuant to the insertion order.
6. WB Online reserves the right to reject or cancel any advertising and/or
linkage to an advertiser's site for any reasons which WB Online believes in
good faith are detrimental to the operation of WB Online. However if WB
Online does so cancel any advertising, then it must refund to advertiser
any fees received by WB Online for Site visits that have not occurred as of
the date of cancellation.
7. Unless otherwise specifically agreed by WB Online and the advertiser, no
cash discounts, volume discounts or other discounted rates will be
available.
8. Invoices will be rendered on or about the first date on which the
advertising is scheduled to appear on the Site. Payments will be due within
45 days from the date of the invoice unless otherwise agreed on the
insertion order. At least $100,000 of the monies due are payable on April
1, 1999.
9. Either party shall have the right to terminate this agreement upon 90 days
written notice in the event either party is bought by or acquires an
interest in or engages in any type of joint venture with a competitor of
the other. At this point, all visits delivered may be invoiced at .08 cents
per visit.
10. At 8 months into the agreement should Warner Bros. Online have delivered
fewer than 50% of the scheduled visits, goto.com will have the option to
reduce the monthly payments to no lower than $30,000\month until Warner
Bros. is back on schedule.
Agreed to by: Agreed to by:
/s/ JEFFREY BREWER /s/ RICHARD SUTTON
- ------------------ ------------------
Jeffrey Brewer Richard Sutton
CEO, GoTo.Com Vice President\Sales and Client Marketing
Date: Date:
