<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1999
REGISTRATION NO. 333-76415
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 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
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<S> <C> <C>
=============================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------
Common stock, $0.0001 par value.................. $70,000,000 $19,460.00(2)
=============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2) 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 -- , 1999.
================================================================================
PROSPECTUS
, 1999
[GOTO.COM LOGO]
SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
GOTO.COM, INC.:
- We have pioneered an
online marketplace where
any participating
advertiser can bid in an
ongoing auction for
introductions to
self-qualified,
prospective consumers.
- GoTo.com, Inc.
140 West Union Street
Pasadena, California 91103
(626) 685-5600
PROPOSED SYMBOL AND MARKET:
- GOTO/NASDAQ NATIONAL
MARKET
THE OFFERING:
- - GoTo.com is offering shares of its common stock.
- - The underwriters have an option to purchase an additional shares
from GoTo.com to cover over-allotments.
- - This is our initial public offering, and no public market currently
exists for our shares.
- - 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.
- - Closing: , 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Per Share Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Public offering price (Estimated): $ $
Underwriting fees:
Proceeds to Company:
- -----------------------------------------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
SALOMON SMITH BARNEY
THOMAS WEISEL PARTNERS LLC
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
<PAGE> 3
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........................ 4
Use of Proceeds..................... 18
Dividend Policy..................... 18
Corporate Information............... 18
Capitalization...................... 19
Dilution............................ 20
Selected Financial Data............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 22
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business............................ 30
Management.......................... 42
Certain Transactions................ 52
Principal Stockholders.............. 54
Description of Capital Stock........ 57
Shares Eligible for Future Sale..... 61
Underwriting........................ 63
Legal Matters....................... 65
Experts............................. 65
Available Information............... 66
Index to Financial Statements....... F-1
</TABLE>
i
<PAGE> 4
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.
GOTO.COM
GoTo.com has pioneered an online marketplace where any participating
advertiser can bid in an ongoing auction for introductions to self-qualified,
prospective consumers. The GoTo.com marketplace serves the needs of three
constituencies: Internet consumers, advertisers and destination Web sites.
GoTo.com improves a consumer's ability to quickly and easily find relevant
search listings for advertisers of information, products and services while also
providing advertisers with a cost-effective way to target potential consumers.
In addition, GoTo.com outsources its search service to destination Web sites as
part of its Search Syndication Network. Advertisers are attracted to GoTo.com as
a result of the large number of consumer acquisition opportunities, and
consumers are attracted to GoTo.com by the breadth of relevant advertiser links
displayed on our service. The GoTo.com Search Syndication Network affords
destination Web sites the opportunity to enhance their users' experience and to
generate additional revenue from their consumer audiences.
Search results on the GoTo.com service are rank-ordered through a
competitive bid process whereby each advertiser's bid represents the amount it
will pay GoTo.com for each consumer click-through. The advertiser with the
highest bid is listed first in the search results, with the remaining
advertisers appearing in descending bid amount order. Since advertisers must pay
for each click-through to their Web site, advertisers select and bid on those
search terms that are most relevant to their business offerings, which leads to
relevant results for consumers. The GoTo.com service has grown to support over
6,000 advertisers bidding on over 150,000 keywords generating nearly 200,000
paid click-throughs per day. We believe that a critical mass of advertisers and
consumers supports a self-reinforcing cycle that stimulates growth in
marketplace participants and transactions.
1
<PAGE> 5
THE OFFERING
Common stock offered by
GoTo.com........................ shares
Common stock to be outstanding
after this offering........... 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 April 14, 1999. This table
excludes:
- 3,827,104 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."
2
<PAGE> 6
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 shares of our common stock in this offering at an
offering price of $ per share after deducting underwriting
discounts, commissions and estimated offering expenses and the
application of the net proceeds therefrom. See "Capitalization" and "Use
of Proceeds."
- The exercise of warrants outstanding at December 31, 1998 to purchase
63,272 shares of common stock.
<TABLE>
<CAPTION>
TWELVE MONTHS THREE MONTHS ENDED
ENDED ---------------------------------------------
DECEMBER 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1998
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................... $ 822 $ 38 $ 19 $ 185 $ 580
Cost of revenue............................... 1,429 10 101 596 722
-------- ----- ------- ------- -------
Gross profit (loss)........................... (607) 28 (82) (411) (142)
Operating expenses:
Marketing and sales......................... 9,645 174 1,119 3,697 4,655
General and administrative(a)............... 1,655 179 236 511 729
Product development(a)...................... 1,232 168 150 302 612
Amortization of deferred compensation....... 1,199 232 154 525 288
-------- ----- ------- ------- -------
Total operating expenses...................... 13,731 753 1,659 5,035 6,284
-------- ----- ------- ------- -------
Loss from operations.......................... (14,338) (725) (1,741) (5,446) (6,426)
Interest income, net........................ 316 1 48 139 128
-------- ----- ------- ------- -------
Loss before provision for income taxes........ (14,022) (724) (1,693) (5,307) (6,298)
Provision for income taxes.................... 1 -- -- -- 1
-------- ----- ------- ------- -------
Net loss...................................... $(14,023) $(724) $(1,693) $(5,307) $(6,299)
======== ===== ======= ======= =======
Historical basic and dilutive net loss per
share(b).................................... $ (1.36)
========
Pro forma net loss per share(b)............... $ (0.75)
========
Shares used to compute historical basic and
dilutive loss per share(b).................. 10,296
Shares used to compute pro forma loss per
share(b).................................... 18,714
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $16,357
Working capital......................................... 15,215
Total assets............................................ 19,969
Long term capital lease obligations..................... 183
Total stockholders' equity.............................. 16,397
</TABLE>
- -------------------------
(a) Included in general and administrative and product development expenses are
non-cash charges totaling $370,000 related to common stock and warrants as
compensation to non-employees during the twelve months ended December 31,
1998.
(b) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
3
<PAGE> 7
RISK FACTORS
You should carefully consider the risks described below before buying
shares in this offering.
WE HAVE A LIMITED OPERATING HISTORY.
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 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;
- competition;
- need to manage changing operations, including our recent implementation
of a new financial and accounting system;
- reliance upon the Internet for commerce;
- reliance upon general economic conditions;
- reliance upon strategic relationships; and
- dependence upon and need to hire key personnel.
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. 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.
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 for the year ended December 31, 1998 and as of
December 31, 1998, we had an accumulated deficit of $14.1 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. For
more detailed information regarding our operating results and financial
condition, please see
4
<PAGE> 8
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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 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 forming strategic relationships;
- loss of strategic relationships;
- the mix of paying vs. non-paying search results on the GoTo.com service;
- our ability to significantly increase our distribution channels;
- competition;
- 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
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<PAGE> 9
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 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 CRITICAL MASS OF ADVERTISERS AND CONSUMERS.
Our success is dependent upon achieving significant market acceptance of
our service by advertisers and consumers. 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. Although we believe that our service
offers a cost-effective advertising solution, our competitors and potential
competitors may offer more cost-effective advertising solutions, which could
damage our business. In addition, although we believe our service provides more
relevant search results than those provided by traditional search methods, 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 critical mass of advertisers and consumers would seriously harm
our business.
WE ARE CURRENTLY DEPENDENT UPON ONLINE MARKETING PARTNERS, AND OUR FUTURE
SUCCESS IS DEPENDENT UPON FURTHER DEVELOPING AND ENHANCING OUR SEARCH
SYNDICATION NETWORK.
We depend on traffic from a limited number of sources, particularly
Microsoft Corporation, Netscape Communications Corp. (a wholly owned subsidiary
of America Online) and Dogpile and a limited number of other third-party Web
sites that participate in our 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. We generally obtain traffic from these
sources pursuant to short term agreements. There can be no assurance that we
will be successful in renewing any of these agreements on commercially
acceptable terms. We also 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 our 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 our Search Syndication Network,
which is new and unproven. If we are unable to extend or obtain new agreements
or arrangements for traffic
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<PAGE> 10
on commercially acceptable terms or expand our Search Syndication Network, our
business will be damaged.
WE ARE DEPENDENT UPON OTHER STRATEGIC PARTNERS.
GoTo.com also depends on significant non-distribution related partnerships.
We rely on Inktomi Corporation as the sole source of supplemental search results
to our paid results, which constitute a very high percentage of the search
results displayed by GoTo.com. We also rely on 24/7 Media, Inc. to provide
advertising sales for us as well as for some participants in our Search
Syndication Network. The loss of either of these key relationships could damage
our business. In addition, our contract with Inktomi Corporation 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. 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, 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.
Most providers of Web directories, search and information services offer
additional features and content that GoTo.com has elected not to offer. Also,
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
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<PAGE> 11
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 HAVE CAPACITY CONSTRAINTS AND SYSTEM DEVELOPMENT RISKS THAT COULD DAMAGE OUR
CUSTOMER RELATIONS OR INHIBIT OUR POSSIBLE GROWTH, AND WE NEED TO EXPAND OUR
MANAGEMENT SYSTEMS AND CONTROLS.
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 any significant
increases in the numbers of 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. We do not believe that our data repositories,
financial systems and other technology resources are secure from security
breaches or sabotage. 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. 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.
In addition, our growth has placed, and our anticipated future growth will
continue to place, a significant strain on our management systems and controls.
Our current management systems and controls are inadequate to support our
anticipated growth. We expect that we will need to continue to improve our
financial and managerial controls and reporting systems and procedures.
WE ARE IN THE PROCESS OF IMPLEMENTING NEW FINANCIAL AND ACCOUNTING SYSTEMS WHICH
MAY NOT WORK AS EXPECTED.
We are in the process of implementing new financial and accounting
reporting software. In connection with this implementation, we have encountered
difficulties integrating the new software with certain of our other information
systems. Additionally,
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<PAGE> 12
we are in the process of upgrading certain of our other information systems and
internal controls. If we grow rapidly, we will face additional challenges in
upgrading and maintaining these systems. If we fail to successfully implement
and integrate these 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.
OUR ADVERTISING REVENUE IS CONCENTRATED AMONG A LIMITED NUMBER OF ADVERTISERS.
Although no advertiser accounted for more than 10% of our revenue for the
quarter ended December 31, 1998, 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. If our major advertisers
were to substantially cut back advertising purchases or stop using our services,
our business would be seriously harmed. We do not have formal contractual
relationships with any of our advertisers. 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 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. The failure of the Internet to continue to develop as a commercial
and business medium would adversely affect our business.
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
9
<PAGE> 13
misappropriate proprietary information, cause interruptions in our operations or
damage our brand and reputation. 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 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 in Sunnyvale, California. Pasadena and
Sunnyvale exist on or near known earthquake fault zones. Our systems and
operations are vulnerable to damage or interruption from fire, floods,
earthquakes, power loss, telecommunications failures, break-ins, sabotage and
similar events. 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.
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 75 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. 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. In particular, the services of
10
<PAGE> 14
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.
To date, we have suffered 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.
WE FACE RISKS OF CLAIMS FROM THIRD PARTIES FOR INTELLECTUAL PROPERTY
INFRINGEMENT 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 or trademark 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.
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.
Royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. 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,
11
<PAGE> 15
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 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. In February
1999 we sued these companies for violating federal trademark law and engaging in
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. Even if we are successful, this litigation 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 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. 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"
generic top-level domains. The regulation of domain names in the United States
and in foreign countries is subject to change in the near future. Such changes
in the United States are expected to 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.
WE MAY NEED ADDITIONAL CAPITAL WHICH COULD DILUTE THE OWNERSHIP INTEREST OF
INVESTORS.
We require substantial working capital to fund our business. 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
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<PAGE> 16
period or at a later date. 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.
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 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.
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.
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<PAGE> 17
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.
To remain competitive, 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 competitors introduce new products
and services embodying new technologies, or 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.
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.
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
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<PAGE> 18
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 Web, 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 these pieces of 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
States or abroad or the application of existing laws and regulations to the
Internet could damage our business.
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. 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.
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<PAGE> 19
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
The net proceeds of this offering are not allocated for specific uses other
than working capital and general corporate purposes. Our management can spend
most of the proceeds from this offering in ways with which the stockholders may
not agree. We cannot predict that the proceeds will be invested to yield a
favorable return. See "Use of Proceeds."
OUR SECURITIES HAVE NO PRIOR MARKET, AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE 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. See "Underwriting"
for a discussion of the factors considered in determining the initial public
offering price. 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.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
After this offering, we will have outstanding shares of
common stock, based upon shares outstanding as of April 14, 1999 and including
the shares offered hereby (assuming no exercise of the underwriters'
over-allotment option). The remaining 38,238,352 shares of common stock
outstanding after this offering will be available for sale in the public market
as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
<S> <C>
32,659,264 180 days after the date of this prospectus
5,579,088 Between December 1999 and April 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. 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.
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. See "Shares Eligible for Future
Sale" and "Underwriting."
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 % of our outstanding common stock following the completion
of this offering. These stockholders, 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. See "Principal Stockholders."
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<PAGE> 20
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, Bylaws
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. See "Description of
Capital Stock." In addition, 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 and charter documents could make us less attractive to a third party
who may want to acquire us.
WE DO NOT INTEND TO DECLARE DIVIDENDS.
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future. See
"Dividend Policy."
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.
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<PAGE> 21
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock
offered by us are estimated to be $64 million after deducting the underwriting
discount, estimated offering expenses and assuming no exercise of the
underwriters' over-allotment option to purchase shares from us.
We expect to use the net proceeds for general corporate purposes,
principally working capital, capital expenditures 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.
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<PAGE> 22
CAPITALIZATION
The following table sets forth the following information:
- the actual capitalization of GoTo.com as of December 31, 1998;
- 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 December
31, 1998 to purchase 63,272 shares of common stock; and
- the pro forma as adjusted capitalization to give effect to the sale of
shares of common stock at the estimated initial public
offering price of $ per share in this offering, less
underwriting discounts and commissions and estimated offering expenses
payable by GoTo.com.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................... $ 16,357 $ 41,357
======== ========
Long-term capital lease obligations......... $ 183 $ 183
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,
10,443,862 shares issued and
outstanding, actual; 200,000,000 shares
authorized, 33,565,456 shares issued
and outstanding, pro forma; and
200,000,000 shares authorized,
shares issued and
outstanding, pro forma as adjusted..... 1 3
Additional paid-in capital................ 3,212 56,855
Deferred compensation.................. (1,318) (1,318)
Accumulated deficit.................... (14,143) (14,143)
-------- -------- -------
Total stockholders' equity............. 16,397 41,397
-------- -------- -------
Total capitalization........................ $ 16,580 $ 41,580
======== ======== =======
</TABLE>
This table excludes shares of common stock reserved for issuance under
GoTo.com's stock option and employee stock purchase plans, including 5,000,471
shares subject to outstanding options as of December 31, 1998. Upon the closing
of this offering there will be an aggregate of 10,500,000 shares of common stock
reserved under these plans.
See "Management -- Incentive Stock Plans," "Description of Capital Stock"
and Note 3 of Notes to Financial Statements.
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<PAGE> 23
DILUTION
The pro forma net tangible book value of our common stock on December 31,
1998 was $41.4 million, or approximately $1.23 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 occurred on December 31, 1998, 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 net pro forma 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 shares of common stock offered by this prospectus at an estimated
price of $ 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 $ , or approximately $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $ per share to new investors.
<TABLE>
<S> <C> <C>
Estimated public offering price per share................... $
Pro forma net tangible book value per share as of
December 31, 1998..................................... $ 1.23
Increase per share attributable to new investors....... $
As adjusted pro forma net tangible book value per share
after the offering........................................ $
Dilution in pro forma net tangible book value per share to
new investors............................................. $
</TABLE>
This table excludes all options and warrants that will remain outstanding
upon completion of this offering. As of December 31, 1998, there were options
and warrants outstanding to purchase a total 5,063,743 shares of common stock
with an average exercise price of $0.17 per share. See Notes 3 and 4 of Notes to
Financial Statements. The exercise of outstanding options and warrants having an
exercise price less than the offering price would increase the dilutive effect
to new investors.
The following table sets forth, as of December 31, 1998, 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 $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 33,628,728 % $ 54,143,944 % $ 1.62
New investors............... % % $
------------ ------- ------------- -------
Total............. 100.0% $ 100.0%
============ ======= ============= =======
</TABLE>
The table above assumes the issuance of 3,628,447 shares of preferred stock
on April 14, 1999 and the issuance of 63,272 shares of common stock upon
exercise of warrants outstanding as of December 31, 1998.
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new public investors will be increased to or
approximately % of the total number of shares of our common stock
outstanding after this offering.
20
<PAGE> 24
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. Our
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,
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1998 1998 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................ $ 22 $ 822 $ 38 $ 19 $ 185 $ 580
Cost of revenue........................ 6 1,429 10 101 596 722
------ -------- ----- ------- ------- -------
Gross profit (loss).................... 16 (607) 28 (82) (411) (142)
Operating expenses:
Marketing and sales.................. 65 9,645 174 1,119 3,697 4,655
General and administrative(a)........ 24 1,655 179 236 511 729
Product development(a)............... 46 1,232 168 150 302 612
Amortization of deferred
compensation....................... -- 1,199 232 154 525 288
------ -------- ----- ------- ------- -------
Total operating expenses............... 135 13,731 753 1,659 5,035 6,284
------ -------- ----- ------- ------- -------
Loss from operations................... (119) (14,338) (725) (1,741) (5,446) (6,426)
Interest income, net................. -- 316 1 48 139 128
------ -------- ----- ------- ------- -------
Loss before provision for income
taxes................................ (119) (14,022) (724) (1,693) (5,307) (6,298)
Provision for income taxes............. 1 1 -- -- -- 1
------ -------- ----- ------- ------- -------
Net loss............................... $ (120) $(14,023) $(724) $(1,693) $(5,307) $(6,299)
====== ======== ===== ======= ======= =======
Historical basic and dilutive loss per
share(b)............................. $(0.01) $ (1.36)
====== ========
Pro forma net loss per share(b)........ $ (0.75)
========
Shares used to compute historical basic
and dilutive loss per share(b)....... 9,869 10,296
Shares used to compute pro forma loss
per share(b)......................... 18,714
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1997 1998
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 87 $16,357
Working capital......................................... 18 15,215
Total assets............................................ 214 19,969
Long term capital lease obligations..................... -- 183
Total stockholders' equity.............................. 123 16,397
</TABLE>
- -------------------------
(a) Included in general and administrative and product development expenses are
non-cash charges totaling $370,000 related to common stock and warrants as
compensation to non-employees during the twelve months ended December 31,
1998.
(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.
21
<PAGE> 25
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 pioneered an online marketplace where any participating
advertiser can bid in an ongoing auction for introductions to self-qualified,
prospective consumers. GoTo.com improves a consumer's ability to quickly and
easily find relevant search listings for advertisers of information, products
and services while also providing advertisers with a cost-effective way to
target potential consumers. In addition, GoTo.com outsources its search service
to destination Web sites as part of its Search Syndication Network. 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. GoTo.com has devoted significant resources to
launching its search service, including developing an infrastructure and
building a management team. Since June 1, 1998 the GoTo.com service has grown to
support over 6,000 advertisers bidding on over 150,000 keywords generating
nearly 200,000 paid click-throughs per day.
Our revenue consists of search listing advertisements and banner
advertisements. 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 relationships
with Web browsers and Web sites aggregating search results from multiple search
engines. 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.
We have a limited operating history on which to base an evaluation of our
business and prospects. You must consider our prospects in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development,
22
<PAGE> 26
particularly companies in new and rapidly evolving markets such as online
commerce. Such risks for us include, but are not limited to:
- an evolving and unproven business model;
- competition;
- dependence on a few sources for consumer traffic on our service;
- the absence of long-term contracts with advertisers or partners; and
- management of growth.
To address these risks, we must, among other things:
- maintain and expand our advertiser base;
- implement and successfully execute our business and marketing strategy;
- continue to develop and upgrade our technology and transaction-processing
systems;
- improve our Web site;
- provide superior customer service;
- respond to competitive developments; and
- attract, retain and motivate qualified personnel.
We cannot assure you that we will be successful in addressing such risks,
and our failure to do so could have a material adverse effect on our business,
prospects, financial condition and results of operations.
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 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.
23
<PAGE> 27
RESULTS OF OPERATIONS
The following table sets forth the results of operations for GoTo.com on a
quarterly basis for the twelve months ended December 31, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue................................ $ 38 $ 19 $ 185 $ 580
Cost of revenue........................ 10 101 596 722
----- ------- ------- -------
Gross profit (loss).................... 28 (82) (411) (142)
Operating expenses:
Marketing and sales.................. 174 1,119 3,697 4,655
General and administrative(a)........ 179 236 511 729
Product development(a)............... 168 150 302 612
Amortization of deferred
compensation...................... 232 154 525 288
----- ------- ------- -------
Total operating expenses............... 753 1,659 5,035 6,284
----- ------- ------- -------
Loss from operations................... (725) (1,741) (5,446) (6,426)
Interest income, net................. 1 48 139 128
----- ------- ------- -------
Loss before provision for income
taxes................................ (724) (1,693) (5,307) (6,298)
Provision for income taxes............. -- -- -- 1
----- ------- ------- -------
Net loss............................... $(724) $(1,693) $(5,307) $(6,299)
===== ======= ======= =======
</TABLE>
- -------------------------
(a) Included in general and administrative and product development expenses are
non cash charges totaling $370,000 related to common stock and warrants as
compensation to non-employees during the twelve months ended December 31,
1998.
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 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
24
<PAGE> 28
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. Marketing and sales expenses increased in each of
the quarters presented. 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. 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. 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. 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
25
<PAGE> 29
$1.3 million will be 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. 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.
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. See Note 2 of Notes to Financial Statements.
26
<PAGE> 30
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 $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 $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 $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 $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 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.
27
<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES
GoTo.com has historically satisfied its cash requirements primarily through
private placements of equity securities and lease financings. Through April 14,
1999, GoTo.com has raised approximately $53.9 million through equity financings.
See Notes 3 and 7 to Notes to Financial Statements.
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 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 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.
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.
As of December 31, 1998, GoTo.com's principal sources of liquidity
consisted of $16.4 million of cash and cash equivalents. 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. 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 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
28
<PAGE> 32
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.
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, 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.
29
<PAGE> 33
BUSINESS
GOTO.COM
GoTo.com has pioneered an online marketplace where any participating
advertiser can bid in an ongoing auction for introductions to self-qualified,
prospective consumers. The GoTo.com marketplace serves the needs of three
constituencies: Internet consumers, advertisers and destination Web sites.
GoTo.com improves a consumer's ability to quickly and easily find relevant
search listings for advertisers of information, products and services while also
providing advertisers with a cost-effective way to target potential consumers.
In addition, GoTo.com outsources its search service to destination Web sites as
part of its Search Syndication Network. Advertisers are attracted to GoTo.com as
a result of the large number of consumer acquisition opportunities, and
consumers are attracted to GoTo.com by the breadth of relevant advertiser links
displayed on our service. The GoTo.com Search Syndication Network affords
destination Web sites the opportunity to enhance their users' experience and to
generate additional revenue from their consumer audiences.
Search results on the GoTo.com service are rank-ordered through a
competitive bid process whereby each advertiser's bid represents the amount it
will pay GoTo.com for each consumer click-through. The advertiser with the
highest bid is listed first in the search results, with the remaining
advertisers appearing in descending bid amount order. Since advertisers must pay
for each click-through to their Web site, advertisers select and bid on those
search terms that are most relevant to their business offerings, which leads to
relevant results for consumers. The GoTo.com service has grown to support over
6,000 advertisers bidding on over 150,000 keywords generating nearly 200,000
paid click-throughs per day. We believe that a critical mass of advertisers and
consumers supports a self-reinforcing cycle that stimulates growth in
marketplace participants and transactions.
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
30
<PAGE> 34
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.
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.
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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 on an impression
basis with advertisers paying for exposures to potential consumers.
Impression-based advertising inefficiently exploits the Internet's direct
marketing potential, resulting in low consumer click-through rates averaging
approximately 1%. 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 destination 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
destination 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 destination 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 destination Web sites syndicated services such
as search, e-mail and mapping as well as content such as stock quotes and news
wires. Destination 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.
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THE GOTO.COM SOLUTION
GoTo.com has pioneered an online marketplace where any participating
advertiser can bid in an ongoing auction for introductions to self-qualified,
prospective consumers. The GoTo.com marketplace serves the needs of three
constituencies: Internet consumers, advertisers and destination Web sites.
GoTo.com improves a consumer's ability to quickly and easily find relevant
search listings for advertisers of information, products and services while also
providing advertisers with a cost-effective way to target potential consumers.
In addition, GoTo.com outsources its search service to destination Web sites as
part of its Search Syndication Network. Advertisers are attracted to GoTo.com as
a result of the large number of consumer acquisition opportunities, and
consumers are attracted to GoTo.com by the breadth of relevant advertiser links
displayed on our service. The GoTo.com Search Syndication Network affords
destination Web sites the opportunity to enhance their users' experience and to
generate additional revenue from their consumer audiences.
Search results on the GoTo.com service are rank-ordered through a
competitive bid process whereby each advertiser's bid represents the amount it
will pay GoTo.com for each consumer click-through. The advertiser with the
highest bid is listed first in the search results, with the remaining
advertisers appearing in descending bid amount order. Since advertisers must pay
for each click-through to their Web site, advertisers select and bid on those
search terms that are most relevant to their business offerings, which leads to
relevant results for consumers. The GoTo.com service has grown to support over
6,000 advertisers bidding on over 150,000 keywords generating nearly 200,000
paid click-throughs per day. We believe that a critical mass of advertisers and
consumers supports a self-reinforcing cycle that stimulates growth in
marketplace participants and transactions.
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 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 assisting consumers
to locate relevant information and to pass quickly through GoTo.com to the
desired information source.
GoTo.com believes that its pay-for-performance advertising model aligns
advertiser and consumer interests. Consequently, 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, 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. 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.
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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 destination Web sites participating in its Search Syndication Network.
Participating Web sites provide search functionality on their sites using the
GoTo.com service while maintaining the look, feel and navigation features
specific to their site. Because GoTo.com focuses on deriving its revenue
primarily from search results rather than banner advertising, GoTo.com can
provide these Web sites with search functionality 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. Through its
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.
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. Advertisers are attracted to GoTo.com
as a result of the large number of consumer acquisition opportunities, and
consumers are attracted to GoTo.com by the breadth of relevant advertiser links
displayed on GoTo.com. A critical mass 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:
EXPAND ADVERTISER BASE. The GoTo.com marketplace currently supports over
6,000 advertisers. GoTo.com intends to substantially increase the number of
paying advertisers using the GoTo.com marketplace. 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. 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.
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EXPAND CONSUMER BASE. The GoTo.com marketplace currently supports nearly
200,000 of paid consumer click-throughs per day. 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 its 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.
LEVERAGE TECHNOLOGY TO CREATE SCALE AND COMPETITIVE ADVANTAGE. 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 leverage 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
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.
LEVERAGE UNIQUE BUSINESS MODEL. 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 over 40,000 Web sites currently participating in our 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.
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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.
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
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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.
MARKETING AND SALES
GoTo.com attracts consumer attention to its service through direct
marketing efforts, as well as through our 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.
GoTo.com has also established a Search Syndication Network consisting of
over 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.
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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.
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 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.
We cannot assure you that our technology infrastructure is secure from
unauthorized access. See "Risk Factors -- We Have Capacity Constraints and
System Development Risks That Could Damage Our Customer Relations or Inhibit Our
Possible Growth, and We Need to Expand Our Management Systems and Controls." We
also cannot assure you that we will not experience unanticipated negative
consequences from year 2000 problems. See "Risk Factors -- Potential Year 2000
Problems with Our Internal Operating Systems or Our Services Could Adversely
Affect Our Business" and "-- Spending by Our Advertisers to Evaluate and Address
Year 2000 Compliance Could Result in Lower Demand For Our Services."
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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, 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.
Most providers of Web directories, search and information services offer
additional features and content that GoTo.com has elected not to offer. Also,
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.
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 or trademark infringement,
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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.
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.
Royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. 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 servicemark. 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 believe that The Walt Disney Company and certain of its affiliates,
including Infoseek Corporation, are infringing our GoTo.com logo. In February
1999 we sued these companies for violating federal trademark law and engaging in
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 and engaging in other activities, 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 for 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, 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. Even if we are successful, this litigation could
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.
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The Internet domain name we use, "GoTo.com," is an extremely important part
of our business. 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"
generic top-level domains. The regulation of domain names in the United States
and in foreign countries is subject to change in the near future. Such changes
in the United States are expected to 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 75 full-time employees, 18 of whom were
engaged in product development, 38 in marketing and sales, and 19 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 April 1, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeffrey S. Brewer.............. 29 President, Chief Executive Officer and Director
Ted Meisel..................... 35 Chief Operating Officer
Todd Tappin.................... 37 Chief Financial Officer
Harry Chandler................. 45 Executive Vice President
Stephanie A. Sarka............. 35 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 President and Chief Executive Officer since
March 1, 1998, and as a Director since June 25, 1998. 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.
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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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. Prior to joining Moore Capital
Management, Inc., 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> 47
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. 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.
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.
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<PAGE> 48
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.
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.
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
Officer 1997 -- -- --
</TABLE>
- -------------------------
(1) Mr. Brewer joined GoTo.com as President and Chief Executive Officer on March
1, 1998. 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.
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<PAGE> 49
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 4,888,410 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
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 $0.30 per share, the fair market value of GoTo.com's common
stock as of December 31, 1998, as determined by the board of directors, less the
per share exercise price multiplied by the number of shares issued upon exercise
of the option. All options were granted under GoTo.com's 1998 stock option plan.
All options are immediately
46
<PAGE> 50
exercisable upon grant; however, any unvested shares are subject to repurchase
by GoTo.com at their cost in the event of the optionee's termination of
employment.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998($)
---------------------------- ----------------------------
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> 51
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 (i) 1,000,000 shares, (ii) 3% of the outstanding shares on such date, or
(iii) 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 (i)
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 (ii)
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> 52
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 2,013,664 are available for
future grants as of April 14, 1999, plus annual increases equal to the lesser of
(i) 7,500,000 shares, (ii) 4% of the outstanding shares on such date, or (iii) 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 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.
49
<PAGE> 53
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 and Joshua Metzger, 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 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.
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<PAGE> 54
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.
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<PAGE> 55
CERTAIN TRANSACTIONS
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 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.
On October 7, 1998, GoTo.com entered into a lease with Bill Gross' idealab!
for approximately 10,000 square feet of office space. The lease term is from
October 7, 1998
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<PAGE> 56
until January 31, 2003, and 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.
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.
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 and Joshua Metzger, 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.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth information regarding the
beneficial ownership of GoTo.com's common stock as of April 14, 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
38,238,352 shares of common stock outstanding as of April 14, 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 shares to cover over-allotments, if any.
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<PAGE> 58
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 24.0%
Entities affiliated with idealab!
Capital Management I, LLC(2)...... 3,930,905 10.3
Entities affiliated with Draper
Fisher Jurvetson(3)............... 4,678,800 12.2
Entities affiliated with Moore
Capital Management, Inc.(4)....... 6,070,956 15.9
Global Retail Partners, L.P. and
affiliated entities(5)............ 2,020,673 5.3
DIRECTORS AND OFFICERS:
Jeffrey S. Brewer(6)................. 1,586,869 4.1
Alan Colner(7)....................... 6,070,956 15.9
Timothy Draper(8).................... 4,901,688 12.8
William Elkus(9)..................... 3,930,905 10.3
William Gross(10).................... 13,123,787 34.3
Robert M. Kavner(11)................. 395,871 1.0
Linda Fayne Levinson(12)............. 2,020,673 5.3
All directors and officers as a group
(12 persons)(13)..................... 29,956,169 75.9
</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.
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<PAGE> 59
(6) Includes 793,435 shares subject to a right of repurchase by GoTo.com as of
April 14, 1999.
(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
April 14, 1999. Although 62,284 of Mr. Kavner's options to purchase shares
were vested as of April 14, 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 1,427,439 shares that are subject to repurchase by GoTo.com as of
April 14, 1999, and 552,224 options to purchase shares which, if exercised,
would be subject to repurchase by GoTo.com as of April 14, 1999.
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<PAGE> 60
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 32,902,967 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. See "Dividend Policy." 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. 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.
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.
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.
57
<PAGE> 61
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 upon conversion of
GoTo.com (the "registrable securities") are entitled to certain rights with
respect to registration of such shares under the Securities Act of 1933. These
rights are provided under the terms of agreements between GoTo.com and the
holders of registrable securities, as set forth below.
Pursuant to the Series A Preferred Stockholders' Rights Agreement, the
holders of 471,111 shares of common stock issued upon conversion of the Series A
Preferred Stock of GoTo.com have the following rights. The holders of at least
50% of the then-outstanding registrable securities issued upon conversion of the
Series A Preferred Stock ("Series A Conversion Stock") may require on two
separate occasions that GoTo.com register their shares for public resale on Form
S-3, if the value of the securities to be registered is at least $500,000. In
the event that, after an initial public offering with anticipated proceeds of at
least $5,000,000, GoTo.com elects to register any of its shares of common stock
for purposes of effecting any public offering, the holders of Series A
Conversion Stock 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, with respect to each holder of Series A Conversion Stock, at such time as
the holder (i) is able to sell all Series A Conversion Stock held by the holder
under Rule 144 in a three-month period or (ii) is entitled to sell all Series A
Conversion Stock held by it pursuant to Rule 144(k) of the Securities Act.
Pursuant to the Series B Preferred Stockholders' Rights Agreement, the
holders of 8,311,688 shares of common stock issued upon conversion of the Series
B Preferred Stock of GoTo.com have the following rights. The holders of at least
50% of the then-outstanding registrable securities issued upon conversion of the
Series B Preferred Stock ("Series B Conversion Stock") may require on two
separate occasions that GoTo.com register their shares for public resale on Form
S-3, if the value of the securities to be registered is at least $500,000. In
the event that, after an initial public offering with anticipated proceeds of at
least $5,000,000, GoTo.com elects to register any of its shares of common stock
for purposes of effecting any public offering, the holders of Series B
Conversion Stock 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, with respect to each holder of Series B Conversion Stock, at such time as
the holder (i) is able to sell all Series B Conversion Stock held by the holder
under Rule 144 in a three-month period or (ii) is entitled to sell all Series B
Conversion Stock held by it pursuant to Rule 144(k) of the Securities Act.
Pursuant to the Series C Preferred Stockholders' Rights Agreement, the
holders of 10,710,348 shares of common stock issued upon conversion of the
Series C Preferred Stock of GoTo.com have the following rights. Beginning one
year from the date of an initial public offering of common stock with
anticipated proceeds of at least $5,000,000, the holders of at least 50% of the
then-outstanding registrable securities issued upon
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<PAGE> 62
conversion of the Series C Preferred Stock ("Series C Conversion Stock") may
require on two separate occasions that GoTo.com register their shares for public
resale on Form S-3 or Form S-1, if the value of the securities to be registered
is at least $2,000,000 in the case of a Form S-1 and at least $500,000 in the
case of a Form S-3. In the event that, after an initial public offering with
anticipated proceeds of at least $5,000,000, GoTo.com elects to register any of
its shares of common stock for purposes of effecting any public offering, the
holders of Series C Conversion Stock 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, with respect to each holder of Series C
Conversion Stock, at such time as the holder (i) holds less than 1% of the total
outstanding shares of common stock of GoTo.com or (ii) is entitled to sell all
Series C Conversion Stock held by it pursuant to Rule 144(k) of the Securities
Act.
Pursuant to the Series D Preferred Stockholders' Rights Agreement, the
holders of 3,628,447 shares of common stock issued upon conversion of the Series
D Preferred Stock of GoTo.com 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 the then-outstanding registrable securities issued upon
conversion of the Series D Preferred Stock ("Series D Conversion Stock") may
require on two separate occasions that GoTo.com register their shares for public
resale on Form S-3 or Form S-1, if the value of the securities to be registered
is at least $2,000,000 in the case of a Form S-1 and at least $500,000 in the
case of a Form S-3. In the event that, after an initial public offering with
anticipated proceeds of at least $30,000,000 at a per share price of at least
$2.60, GoTo.com elects to register any of its shares of common stock for
purposes of effecting any public offering, the holders of Series D Conversion
Stock 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, with respect
to each holder of Series D Conversion Stock, at such time as the holder (i)
holds less than 1% of the total outstanding shares of common stock of GoTo.com
or (ii) is entitled to sell all Series D Conversion Stock held by it pursuant to
Rule 144(k) of the Securities Act.
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
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<PAGE> 63
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.
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.
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<PAGE> 64
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.
Upon completion of this offering, GoTo.com will have outstanding
shares of common stock based upon shares outstanding as of April 14, 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 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 38,238,352 shares of common stock held by
existing stockholders are "Restricted Shares" as that term is defined in Rule
144. Almost all 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, none of these shares will be resellable until 181 days after the date
of this prospectus. Beginning 181 days after the date of this prospectus,
approximately 32,659,264 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 4,672,896 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, 111,111 Restricted Shares will
be eligible for sale on February 10, 2000, and 3,628,447 shares will be eligible
for sale on April 14, 2000, all of which are subject to volume limitations under
Rule 144. In addition, as of April 14, 1999, there were outstanding 1,813,440
options and warrants to purchase 104,971 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.
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<PAGE> 65
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 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, 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 April 14, 1999, options to purchase a total of 1,813,440 shares
were outstanding and 3,827,104 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. See "Description of Capital Stock--Registration
Rights." 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> 66
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated , 1999, the underwriters named below, who are
represented by Donaldson, Lufkin & Jenrette Securities Corporation, Salomon
Smith Barney Inc. and Thomas Weisel Partners LLC, have severally agreed to
purchase from GoTo.com 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.........
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
offered hereby are subject to approval by their counsel of legal matters
concerning the offering and to condition precedents that must be satisfied by
GoTo.com. The underwriters are obligated to purchase and accept delivery of all
the shares of common stock offered hereby, other than those shares covered by
the over-allotment option described below, if any are purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part 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 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., a selected dealer and an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation. The underwriters have agreed to allocate a
limited number of shares to DLJdirect Inc. for sale to its brokerage account
holders.
GoTo.com has granted 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 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 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.
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GoTo.com has agreed to indemnify the underwriters against liabilities which
may arise in connection with the offering, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make.
GoTo.com's executive officers, directors and certain other stockholders and
option holders 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.
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:
- The history of and the prospects for the industry in which GoTo.com
competes
- The past and present operations of GoTo.com
- The historical results of operations of GoTo.com
- The prospects for future earnings of GoTo.com
- 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 Unites 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
64
<PAGE> 68
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.
Global Retail Partners, L.P. and its affiliates, each an affiliate of
Donaldson, Lufkin & Jenrette Securities Corporation, are stockholders of
GoTo.com, beneficially owning approximately % of GoTo.com's outstanding
common stock following completion of this offering, and Linda Fayne Levinson, a
director of GoTo.com, is a principal of Global Retail Partners, L.P. See
"Principal Stockholders" and "Certain Transactions."
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 20 filed
public offerings of equity securities, of which six have been completed, and has
acted as a syndicate member in an additional eight 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 contractual relationship with GoTo.com pursuant to the
underwriting agreement entered into in connection with this offering.
LEGAL MATTERS
The validity of the common stock offered hereby 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
65
<PAGE> 69
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.
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.
66
<PAGE> 70
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> 71
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, except for the
third paragraph of Note 1, as
to which the date is April 14, 1999
F-2
<PAGE> 72
GOTO.COM, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31
AS OF DECEMBER 31 1998
1997 1998 -------------
-----------------
(UNAUDITED)
SEE NOTE 7
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 87 $ 16,357
Accounts receivable, net of allowance of $0 and $86 for
1997 and 1998, respectively............................. 22 356
Other receivables......................................... -- 90
Prepaid expenses.......................................... -- 60
Prepaid marketing expenses................................ -- 1,741
----- --------
Total current assets........................................ 109 18,604
Property and equipment:
Furniture and fixtures.................................... -- 17
Computer hardware......................................... 56 1,033
Computer software......................................... 1 561
----- --------
57 1,611
Accumulated depreciation and amortization................. (3) (275)
----- --------
54 1,336
Other assets................................................ 51 29
----- --------
Total assets................................................ $ 214 $ 19,969
===== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 91 $ 2,881
Accrued expenses.......................................... -- 217
Deferred revenues......................................... -- 181
Current portion of capital lease obligations.............. -- 110
----- --------
Total current liabilities................................... 91 3,389
Long-term capital lease obligations......................... -- 183
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 and $212 at December 31, 1997
and 1998, respectively
Shares issued and outstanding--none and 471 at
December 31, 1997 and 1998, respectively............. -- 212 $ --
Series B and C Preferred Stock; aggregate liquidation
preference over Common Stockholders and Series A
Preferred Stockholders; $28,634 at December 31, 1998
Shares issued and outstanding--19,022 at December 31,
1998................................................. -- 28,433 --
Common Stock, $.0001 par value, 45,000 shares
authorized; Shares issued and outstanding--10,017 and
10,444 at December 31, 1997 and 1998, respectively,
(33,565 shares outstanding pro forma (unaudited))...... 1 1 3
Additional paid-in capital on Common Stock.............. 242 3,212 56,855
Deferred compensation................................... -- (1,318) (1,318)
Accumulated deficit..................................... (120) (14,143) (14,143)
----- -------- --------
Total stockholders' equity.................................. 123 16,397 $ 41,397
----- -------- ========
Total liabilities and stockholders' equity.................. $ 214 $ 19,969
===== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 73
GOTO.COM, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 15,
1997
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
------------- -----------
<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........................ 24 1,655
Product development............................... 46 1,232
Amortization of deferred compensation............. -- 1,199
------------ -----------
135 13,731
------------ -----------
Loss from operations................................ (119) (14,338)
Other income (expense):
Interest expense.................................. -- (19)
Interest income................................... -- 335
------------ -----------
Loss before provision for income taxes.............. (119) (14,022)
Provision for income taxes.......................... 1 1
------------ -----------
Net loss............................................ $ (120) $ (14,023)
============ ===========
Historical basic and dilutive net loss per share.... $ (0.01) $ (1.36)
Pro forma net loss per share........................ $ (0.75)
Weighted average shares used to compute historical
basic and dilutive net loss per share............. 9,869 10,296
Weighted average shares used to compute pro forma
net loss per share................................ 18,714
</TABLE>
See accompanying notes.
F-4
<PAGE> 74
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)
=== ==== ========== ======= ====== == ====== =======
<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
======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 75
GOTO.COM, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM SEPTEMBER 15
1997 (INCEPTION) YEAR ENDED
THROUGH DECEMBER 31 DECEMBER 31
1997 1998
------------------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................. $(120) $(14,023)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of deferred stock option
compensation.......................... -- 1,199
Other common stock and warrants
compensation.......................... -- 370
Depreciation and amortization............ 5 294
Changes in operating assets and
liabilities:
Accounts receivable...................... (22) (334)
Other receivables........................ -- (90)
Prepaid expenses......................... -- (60)
Prepaid marketing expenses............... -- (1,741)
Accounts payable and accrued expenses.... 91 3,007
Deferred revenues........................ -- 181
----- --------
Net cash used in operating activities.... (46) (11,197)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and
equipment............................. (57) (1,554)
Other assets............................. (53) --
----- --------
Net cash used in investing activities.... (110) (1,554)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of Common
Stock................................. 243 6
Proceeds from the issuance of Preferred
Stock................................. -- 28,722
Proceeds from lease line................. -- 330
Repayments under lease line.............. -- (37)
----- --------
Net cash provided by financing
activities............................ 243 29,021
----- --------
Net increase in cash and cash
equivalents........................... 87 16,270
Cash and cash equivalents at beginning of
period................................ -- 87
----- --------
Cash and cash equivalents at end of
period................................ $ 87 $ 16,357
===== ========
Supplemental disclosures
Income taxes paid........................ $ -- $ 2
Interest paid............................ $ -- $ 11
</TABLE>
See accompanying notes.
F-6
<PAGE> 76
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 operates an Internet marketplace where any online advertiser can
bid in an ongoing auction for introductions to self-qualified, prospective
consumers. 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 our Search Syndication Network.
The Company operates in one reportable business segment.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern. The Company has raised $29.0
million in equity capital since its inception and has cash balances of $16.4
million as of December 31, 1998. However, the Company has incurred significant
operating losses and negative cash flows from operating activities since its
inception and will need to continue to increase revenues and possibly obtain
additional financing to continue to fund its operations and expansion strategy.
Management's plans with respect to these conditions include the receipt of
$25 million from the issuance of Series D Preferred Stock subsequent to December
31, 1998 (See Note 7). The Company believes that the proceeds raised through the
sale of the Series D Preferred Stock, in addition to revenue generated from
expansion of the Company's services in the marketplace will support the
Company's operations through 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> 77
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
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.
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
F-8
<PAGE> 78
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and the year ended December 31, 1998, the
Company incurred advertising costs of $29,000 and $8.8 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 one customer represented 13% 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 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.
F-9
<PAGE> 79
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 net loss per share is computed using the weighted average number
of shares of Common Stock outstanding. 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, including the pro forma
effects of the automatic conversion of the Company's Convertible Preferred 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.
F-10
<PAGE> 80
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table sets forth the computation of basic and pro forma net
loss per share for the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 15, 1997
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------ -----------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Numerator:
Net loss.................................. $ (120) $ (14,023)
=========== ============
Denominator:
Denominator for basic
calculation -- Weighted average
shares................................. 9,869 10,296
----------- ------------
Weighted average effect of pro forma
securities:
Series A Convertible Preferred Stock...... 360
Series B Convertible Preferred Stock...... 5,403
Series C Convertible Preferred Stock...... 2,655
------------
Denominator for pro forma calculation..... 18,714
============
Net loss per share:
Historical basic and diluted.............. $ (0.01) $ (1.36)
Pro forma (unaudited)..................... (0.75)
</TABLE>
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>
F-11
<PAGE> 81
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. INCOME TAXES (CONTINUED)
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> 82
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
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 (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>
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 at December 31, 1998:
<TABLE>
<CAPTION>
COMMON SHARES
ISSUABLE UPON
CONVERSION
OR EXERCISE
DESCRIPTION OF INSTRUMENT -------------
<S> <C>
Series A Convertible Preferred Stock........................ 471,111
Series B Convertible Preferred Stock........................ 8,311,688
Series C Convertible Preferred Stock........................ 10,710,348
Stock Options outstanding................................... 5,000,471
Stock options available for future grant.................... 999,529
Common Stock purchase warrants.............................. 63,272
----------
Common Stock reserved....................................... 25,556,419
==========
</TABLE>
F-13
<PAGE> 83
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. STOCKHOLDERS' EQUITY (CONTINUED)
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, 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.
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.
F-14
<PAGE> 84
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
3. STOCKHOLDERS' EQUITY (CONTINUED)
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. 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 the warrants was $90,000 which was
recorded in general and administrative expenses in 1998.
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 at the
date of grant amounted to an aggregate of $2,517,000. 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 future potential of the
Company at the time of grant or issuance. The amortization of deferred
compensation will be charged to operations ratably on a graded methodology basis
over the vesting period of the options. The typical vesting period of the
options is 20% immediately upon grant with the remaining balance vesting evenly
over the following four years. Of the $2,517,000 of stock option compensation,
$1,199,000 was expensed during the year ended December 31, 1998 and $1,318,000
was deferred and reflected as a reduction of stockholders' equity as of December
31, 1998. The stock option compensation relates only to stock options awarded to
employees; while 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 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
F-15
<PAGE> 85
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. STOCK OPTION PLANS (CONTINUED)
following four years. The Company has the right to repurchase unvested shares
issued upon exercise of the option.
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
===== =====
</TABLE>
The following table summarizes information regarding options outstanding
and options exercisable at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING
------------------------------------ EXERCISABLE
WEIGHTED -----------------------------
AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE OF CONTRACTUAL EXERCISE AS OF EXERCISE
PRICES SHARES LIFE PRICE DECEMBER 31, 1998 PRICE
- --------------------- --------- ----------- -------- ----------------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
$0.15 - 0.45 5,000 6.9 years $0.16 1,367 $0.18
========= ========= ===== ========= =====
</TABLE>
Options available for future grant totaled 999,529 at December 31, 1998.
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>
F-16
<PAGE> 86
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
4. STOCK OPTION PLANS (CONTINUED)
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>
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 management fee for the use of its facilities and
the services provided. The total management fee was $59,000 and $229,000 during
the period from inception through December 31, 1997, and the year ended December
31, 1998, respectively. Management believes these amounts are materially
representative of the fair value of services provided. In October 1998, the
Company entered into a lease agreement beginning in February 1999 (date of move
in), with Bill Gross' idealab! for office space in a building adjacent to the
Bill Gross' idealab! facility. 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.
F-17
<PAGE> 87
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. COMMITMENTS AND CONTINGENCIES
LEASES
At December 31, 1998, future lease commitments, including the lease with
Bill Gross' idealab! discussed in Note 5, under these agreements were as
follows:
<TABLE>
<CAPTION>
RELATED PARTY
OPERATING CAPITAL
LEASE LEASE
------------- -------
(IN THOUSANDS)
<S> <C> <C>
1999..................................................... $ 220 $136
2000..................................................... 251 136
2001..................................................... 263 79
2002..................................................... 275 -
2003..................................................... 23 -
------ ----
Total minimum lease payments............................. $1,032 351
====== ----
Less amount representing interest........................ 58
----
$293
====
</TABLE>
Total rent expense was $2,000 and $116,000 during the period from July 1,
1997 (inception) through December 31, 1997, and the year ended December 31,
1998, 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.
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)
From January 1, 1999 through March 31, 1999, the Company granted options to
purchase 748,871 shares of Common Stock at exercise prices ranging from $0.30 to
$1.50. On April 6, April 12 and April 23, 1999, the Company granted options to
purchase 413,454, 335,540 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
F-18
<PAGE> 88
GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
7. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT (UNAUDITED)
(CONTINUED)
the exercise prices amounted to an aggregate of $3,512,000 and $1,530,000 for
the grants made in the quarter ended March 31, 1999 and on April 6,
respectively. 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 December 31, 1998, 33,565,196 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 as of December 31, 1998. 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, 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-19
<PAGE> 89
================================================================================
, 1999
[LOGO]
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> 90
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....................................... $ 19,460
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..................................... 53,040
----------
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> 91
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. On September
16, 1997, GoTo.com also purchased certain assets in exchange for 100,000 shares
of Common Stock valued at an aggregate price of $15,000 and certain assets in
exchange for 500,000 shares of Common Stock valued at an aggregate price of
$75,000.
2. 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.
3. On April 14, 1998, GoTo.com issued 276,084 shares of Common Stock to
consultants in exchange for services rendered worth $41,412.60.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. On December 20, 1998, GoTo.com issued 40,000 shares of Common Stock to
a consultant in exchange for services rendered worth $3,200.
11. 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.
12. 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> 92
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.
13. 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.
14. Between July 1, 1997 and April 14, 1999, GoTo.com granted stock options
to purchase 6,501,136 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.
15. Between January 13, 1999 and April 14, 1999, an aggregate of 4,672,896
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. Such sales of Common Stock and Preferred Stock were made in reliance
upon the exemptions from registration set forth in Section 4(2) of the
Securities Act of 1933 and Rule 506 of Regulation D promulgated thereunder for
transactions not involving a public offering. Issuances of options and shares
upon exercise of options to GoTo.com's employees and consultants were made
pursuant to 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> 93
<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.
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>
- -------------------------
+ Certain portions of this exhibit have been granted confidential treatment by
the Commission. The omitted portions have been separately filed with the
Commission.
* 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 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
II-4
<PAGE> 94
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> 95
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 28th day of April, 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 April 28, 1999
- --------------------------------------------------- Executive Officer and
(Jeffrey S. Brewer) Director (Principal
Executive Officer)
TODD TAPPIN* Chief Financial April 28, 1999
- --------------------------------------------------- Officer (Principal
(Todd Tappin) Financial Officer)
ROBERT M. KAVNER* Chairman of the Board April 28, 1999
- ---------------------------------------------------
(Robert M. Kavner)
WILLIAM GROSS* Director April 28, 1999
- ---------------------------------------------------
(William Gross)
ALAN COLNER* Director April 28, 1999
- ---------------------------------------------------
(Alan Colner)
TIMOTHY DRAPER* Director April 28, 1999
- ---------------------------------------------------
(Timothy Draper)
LINDA FAYNE LEVINSON* Director April 28, 1999
- ---------------------------------------------------
(Linda Fayne Levinson)
</TABLE>
II-6
<PAGE> 96
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
WILLIAM ELKUS* Director April 28, 1999
- ---------------------------------------------------
(William Elkus)
*By: /s/ JEFFREY S. BREWER
---------------------------------------------
(Jeffrey S. Brewer,
Attorney-in-Fact)
</TABLE>
II-7
<PAGE> 97
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> 98
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.
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>
- -------------------------
+ Certain portions of this exhibit have been granted confidential treatment by
the Commission. The omitted portions have been separately filed with the
Commission.
* To be filed by amendment.
** Previously filed.
<PAGE> 1
Exhibit 5.1
[WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
April 26, 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, 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 10.4
GOTO.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean GoTo.com, Inc., a Delaware corporation, and
any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
and commissions, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of such determination, as reported
in The Wall Street Journal or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock prior
to the date of such determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board, or;
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Period" shall mean a period of approximately six (6)
months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after March 1 and terminating on the
last Trading Day in the period ending the following August 31, or commencing on
the first Trading Day on or after September 1 and terminating on the last
Trading Day in the period ending the following February 28; provided, however,
that the first Offering Period under the Plan shall commence with the first
Trading Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on the last
Trading Day on or before February 28, 2000. The duration of Offering Periods may
be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
-2-
<PAGE> 3
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive Offering
Periods with a new Offering Period commencing on the first Trading Day on or
after March 1 and September 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 20 hereof; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the last Trading Day on or before February 28, 2000. The
Board shall have the power to change the duration of Offering Periods (including
the commencement dates thereof) with respect to future offerings without
stockholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such
-3-
<PAGE> 4
authorization is applicable, unless sooner terminated by the participant as
provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during an
Offering Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of
-4-
<PAGE> 5
the Company's Common Stock determined by dividing such Employee's payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase Price;
provided that in no event shall an Employee be permitted to purchase during each
Offering Period more than 25,000 shares (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The Option shall expire on the last day
of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on which
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, the shares purchased upon exercise of his or her
option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll
-5-
<PAGE> 6
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 2,000,000 shares, plus an annual increase to be added on the first day
of the Company's fiscal year beginning in 2000 equal to the lesser of (i)
1,000,000 shares, (ii) 3% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. If, on a given Exercise Date, the number
of shares with respect to which options are to be exercised exceeds the number
of shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan
-6-
<PAGE> 7
in the event of such participant's death prior to exercise of the option. If a
participant is married and the designated beneficiary is not the spouse, spousal
consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the
-7-
<PAGE> 8
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as provided
in Section 19 and Section 20 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
-8-
<PAGE> 9
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
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<PAGE> 10
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-10-
<PAGE> 11
EXHIBIT A
GOTO.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:_______________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in the
GoTo.com, Inc. 1999 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee
Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
_______________________________ .
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at the
time of such disposition in an amount equal to the excess of the fair
market value of the shares at the time such shares were purchased by me
over the price which I paid for the shares. I hereby agree to notify the
Company in writing within 30 days after the date of any
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<PAGE> 12
disposition of shares and I will make adequate provision for Federal,
state or other tax withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year
holding period, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition,
and that such income will be taxed as ordinary income only to the extent
of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase
price which I paid for the shares, or (2) 15% of the fair market value of
the shares on the first day of the Offering Period. The remainder of the
gain, if any, recognized on such disposition will be taxed as capital
gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
--------------------------------------------------
(First) (Middle) (Last)
------------------------- --------------------------------------------
Relationship
--------------------------------------------
(Address)
Employee's Social
Security Number:
--------------------------------------------
Employee's Address:
--------------------------------------------
--------------------------------------------
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<PAGE> 13
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
------------------- ------------------------------------------
Signature of Employee
------------------------------------------
Spouse's Signature (If beneficiary other
than spouse)
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<PAGE> 14
EXHIBIT B
GOTO.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the GoTo.com, Inc.
1999 Employee Stock Purchase Plan which began on ___________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
--------------------------------------
--------------------------------------
--------------------------------------
Signature:
--------------------------------------
Date:
--------------------------------
<PAGE> 1
EXHIBIT 10.10
INFORMATION SERVICES AGREEMENT
This Information Services Agreement ("Agreement") is entered into as of
4/30, 1998 (the "Effective Date"), by and between Inktomi Corporation, a
Delaware corporation with its principal place of business at 1900 South Norfolk
Street, Suite 310, San Mateo, California, 94403 ("Inktomi") and GOTO.COM, a
Delaware Corporation with its principal place of business at 130 W. Union St.,
Pasadena, CA 91103 ("Customer").
RECITALS
A. Inktomi provides services utilizing certain technology for searching
and indexing the Internet (the "Inktomi Search Engine," as more fully defined
below).
B. Customer wishes Inktomi to provide search engine services using the
Inktomi Search Engine in accordance with the terms and conditions of this
Agreement.
AGREEMENT
In consideration of the foregoing and the mutual promises contained herein
the parties agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
will have the indicated meanings:
1.1. "Database" means Inktomi's full text index database of Web
pages accessible by end users of the Site at any given time.
1.2. A "Results Set" means the data set presented to an end-user of
the Site consisting of between zero and one hundred records on a page in
response to a search query.
1.3. "Initial Search Page" means the first Web page, accessible on
the Site, which enables end-users of the Site to initiate and send search
queries to the Inktomi Search Engine.
1.4. "Inktomi Data Protocol" means the written specification on how
an Interface communicates and interacts with the Inktomi Search Engine.
1.5. "Inktomi Search Engine" means Inktomi's current Search Engine
as of the Effective Date, inclusive of the Database, as the same may be
upgraded, modified, changed, or enhanced by Inktomi at its sole discretion. The
Inktomi Search Engine does not and will not include features, options and
modules developed and customized specifically for third parties and provided to
such third parties on an exclusive basis, or features, options, modules and
future products which Inktomi licenses or provides separately.
<PAGE> 2
1.6. "Inktomi Technology" means the Inktomi Search Engine, the
Inktomi Data Protocol, the Interface Construction Tools and all other computer
software, technology and/or documentation which is supplied by Inktomi for use
in or in connection with delivery of the Services, including without limitation
all source code and object code therefor and all algorithms, ideas and
Intellectual Property Rights therein.
1.7. "Intellectual Property Rights" means any and all rights
existing from time to time under patent law, copyright law, semiconductor chip
protection law, moral rights law, trade secret law, trademark law, unfair
competition law, publicity rights law, privacy rights law, and any and all other
proprietary rights, and any and all applications, renewals, extensions and
restorations thereof, now or hereafter in force and effect worldwide.
1.8. "Interface" means the editorial and graphical content and
design of the Web pages served to end users of the Site, including without
limitation the Initial Search Page, all Results Pages, instruction pages,
frequently asked questions pages and any Site end user terms and guidelines.
1.9. "Interface Construction tools" means all software tools, if
any, in object code form, provided by Inktomi to assist Customer to build the
Interface to the Inktomi Search Engine, including without limitation Inktomi's
application server currently known as Forge.
1.10. "Results Pages" means all Web pages displaying search results
presented to end-users directly as a result of accessing the query mechanisms of
the Inktomi Search Engine.
1.11. "Search Engine" means computer software which crawls the
Internet, downloads and analyzes text and other data, sorts and organizes the
data, creates an index of accessible data, and, after receiving a particular
search request (in the form of a word query), locates material accessible in the
database, and presents the results of the search.
1.12. "Site" means a single, primary Web site established and
maintained by Customer through which end-users may access the Inktomi Search
Engine and run searches against the Database. "Site" includes sites linked to
Customer's primary Web site so as to access the Inktomi Search Engine as
authorized under Section 2.2.
1.13. "Services" means the Internet search engine services to be
provided by Inktomi for Customer under this Agreement, as more fully described
on Exhibit A.
1.14. "Term" shall have the meaning indicated in Section l0.
1.15. "Web" means the so-called World Wide Web, containing, inter
alia, pages written in hypertext markup language (HTML) and/or any similar
successor technology.
1.16. "Web Page" means a document on the Internet which may be
viewed in its entirety without leaving the applicable distinct URL address.
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<PAGE> 3
1.17. "Web site" means a collection of inter-related Web pages.
2. Provision of Services, Site Implementation.
2.1. Services and Site Implementation. Subject to the terms and
conditions of this Agreement, Inktomi shall provide the Services to Customer for
use in the Site, such services to be provided substantially in accordance with
the functionality specifications, performance criteria and limitations specified
on Exhibit A. Throughout the Term, the Inktomi Search Engine used to provide the
Services as described in Exhibit A hereunder will be substantially the same
Search Engine used by Inktomi to provide similar services to its other general
search customers and will include substantially the same features and
functionality then offered by Inktomi to its other general search customers.
Inktomi, at its own expense, shall provide all data transmission capacity
(bandwidth), disk storage, server capacity and other hardware and software
required to run the Inktomi Search Engine and maintain the Database. Customer,
at its own expense, shall create the Interface to the Inktomi Search Engine for
the Site, and shall provide all disk storage, server capacity and other hardware
and software required to run and maintain the Site and the Interface, and to
serve advertisements on the Interface. Inktomi shall provide reasonable
assistance (through telephone, e-mail, the Web, or fax) to Customer during
regular business hours regarding development of the Interface and integration of
the same with the Inktomi Search Engine. Customer, at its own expense, shall
provide all data transmission capacity (bandwidth) required to connect to and
receive information from the Inktomi Search Engine. Customer may not cache
Results Pages or any other information obtained from the Database.
2.2. Distribution of Customer Engine. Customer may make the Results
Sets available to end-users of third party sites subject to the provisions of
this Section and all other terms and conditions of this Agreement. Customer may
make the Results Sets available only in connection with the distribution of
Customer's search engine services to such third party sites and may not resell
or distribute the Inktomi Services. No Inktomi Technology may be provided to
such sites but the Results Sets shall be made available only through links to
Customer's site or similar means which prevent direct access to the Inktomi
Search Engine by such third party end users. Customer will provide such services
only pursuant to a written agreement which is at least as protective of the
Inktomi Technology as the terms of this Agreement and which contains a
disclaimer of all warranties and limitations of liability on behalf of Inktomi
in a form reasonably acceptable to Inktomi.
2.3. Test Cluster. During the development period for the Interface,
Customer shall only have access through the Inktomi Data Protocol to a
non-production version of the Inktomi Search Engine (the "Test Cluster"). Upon
completion of the Interface and all desired testing against the Test Cluster,
Customer shall present the Interface to Inktomi for review and testing against
the production version of the Inktomi Search Engine. Inktomi shall promptly
notify Customer of any problems or issues discovered by Inktomi regarding the
Interface. Once cleared by Inktomi, Inktomi shall provide access to Customer to
the production version of the Inktomi Search Engine. Customer may run reasonable
tests against the Test Cluster and the production version of the Inktomi Search
Engine, provided however that Customer may not conduct any load testing (prior
to commercial launch of its search service) without the prior
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<PAGE> 4
consent of Inktomi. Load testing as used herein means the generation and
delivery of more than five queries per second.
2.4. Inktomi Data Protocol. Promptly following execution of this
Agreement, Inktomi shall provide the Inktomi Data Protocol and the Interface
Construction Tools to Customer. Inktomi grants to Customer a nontransferable,
nonexclusive license during the Term to use the Inktomi Data Protocol and the
Interface Construction Tools solely to create and maintain the Interface to the
Inktomi Search Engine for the Site.
2.5. Other Services. Upon request, and provided that Customer is
current with service fees due under this Agreement, Inktomi may provide
additional services beyond the services set forth herein. Any such service shall
be mutually agreed by the parties, shall be provided at Inktomi's then
applicable consulting rates and charges and, unless a separate written agreement
is entered into shall be deemed rendered pursuant to this Agreement.
Authorizations, issued under this Agreement shall be sequentially numbered and
attached.
2.6. Inktomi Technology. As between Customer and Inktomi, Customer
acknowledges that Inktomi owns all right, title and interest in and to the
Inktomi Technology (except for any software licensed by third parties to
Inktomi), and that Customer shall not acquire any right, title, and interest in
or to the Inktomi Technology, except as expressly set forth in this Agreement.
Customer shall not modify, adapt, translate, prepare derivative works from,
decompile, reverse engineer, disassemble or otherwise attempt to derive source
code from any Inktomi software or documentation. Customer will not remove,
obscure, or alter Inktomi's copyright notice, trademarks, or other proprietary
rights notices affixed to or contained within any Inktomi software or
documentation.
2.7. Interface. As between Inktomi and Customer, Inktomi
acknowledges that Customer owns all right, title and interest, including without
limitation all Intellectual Property Rights, in and to the Interface (except for
any software licensed by third parties to Customer and except for editorial
content regarding the use and functionality of the Inktomi Search Engine
provided by Inktomi to Customer for incorporation into the Site, which content
shall be and remain Inktomi Technology), and that Inktomi shall not acquire any
right, title or interest in or to the Interface, except as expressly set forth
in this Agreement.
2.8. Nonexclusive Services. Customer understands that Inktomi will
provide the Services on a nonexclusive basis. Customer acknowledges that Inktomi
has customized and provided, and will continue to customize and provide, its
software and technology to other parties for use in connection with a variety of
applications, including search engine applications. Nothing in this Agreement
will be deemed to limit or restrict Inktomi from customizing and providing its
software and technology to other parties for any purpose, including in
connection with search engine applications, or in any way affect the rights
granted to such other parties. Inktomi reserves the right to notify other
customers of the signing of this Agreement, but agrees not to provide such
notice earlier than two weeks before a public announcement by Customer of its
business relationship with Inktomi or two weeks before commercial launch of its
search service, whichever is later.
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<PAGE> 5
3. Attribution; Trademark License; House Ads.
3.1. Attribution. The Initial Search Page and all Results Pages
shall conspicuously display a graphic to be provided by Inktomi that indicates
that Inktomi's technology is being used. This graphic shall measure at least 120
X 30 pixels, and may provide a link to Inktomi's Web site located at
www.inktomi.com. Inktomi will provide Customer with appropriate graphics for the
Inktomi icon. Such phrasing and the Inktomi icon shall be visible on all pages
but may appear "below the fold".
3.2. Trademark License. Inktomi hereby grants Customer a
nontransferable, nonexclusive license under Inktomi's trademarks during the Term
to display the Inktomi icon and to advertise the availability of Inktomi
software on the Site. Customer hereby grants to Inktomi a nontransferable,
nonexclusive license under Customer's trademarks during the Term to advertise
that Customer is using Inktomi's Services. Each party will submit advertising
materials containing the other party's trademarks to the other party before
release to the public for inspection, and such other party will have the right
to modify any such advertisements. Except as set forth in this Section, nothing
in this Agreement shall grant or shall be deemed to grant to one party any
right, title or interest in or to the other party's trademarks. All use of
Customer's trademarks by Inktomi shall inure to the benefit of Customer and all
uses of Inktomi trademarks by Customer shall inure to the benefit of Inktomi. At
no time during or after the term of this Agreement shall one party challenge or
assist others to challenge the trademarks of the other party (except to the
extent such restriction is prohibited by applicable law) or the registration
thereof or attempt to register any trademarks, marks or trade names confusingly
similar to those of the other party.
4. Warranties and Disclaimer.
4.1. Inktomi Warranties. Inktomi warrants that during the Term (i)
it has full power and authority to enter into this Agreement, (ii) it has not
previously and will not grant any rights in the Inktomi Technology to any third
party that are inconsistent with the rights granted to Customer hereunder, and
(iii) the software comprising the Inktomi Search Engine does not impermissibly
include any trade secrets or copyrighted subject matter owned by a third party.
Inktomi does not warrant that the Services will meet all of Customer's
requirements or that performance of the Services will be uninterrupted or
error-free. INKTOMI MAKES NO OTHER WARRANTY OF ANY KIND, WHETHER EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR USE, AND NONINFRINGEMENT.
4.2. Inktomi Obligations. Inktomi's sole obligation and Customer's
sole remedy under the foregoing Warranties is to use its reasonable efforts to
correct any nonconformity within a reasonable period of time.
4.3. Customer Warranties. Customer warrants that: (i) it has full
power and authority to enter into this Agreement, (ii) it will seek all
necessary governmental approvals required to effectuate this Agreement; and
(iii) it shall perform the on-line services provided by
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<PAGE> 6
Customer through the Site in accordance with all federal, state and local laws,
including all professional registration requirements related thereto.
5. End-User Support. Customer, at its own expense shall provide first
level customer support services to end-users of the Site. Inktomi, at its own
expense, shall provide second level technical support services to Customer
regarding the operation of the Inktomi Search Engine. Such support services will
be provided as set forth in Exhibit C.
6. Payments.
6.1. Service Fees. Customer shall pay Inktomi service fees in the
amount and on terms specified on Exhibit B attached hereto.
6.2. Records. Customer shall keep complete and accurate records
pertaining to use of the Services in connection with the Site and with respect
to its distribution activities under Section 2.2. Such records shall be
maintained for a two-year period following termination or expiration of this
Agreement. Inktomi shall have the right to examine Customer's records from time
to time but no more than once every six (6) months to determine compliance with
this Agreement. Such examination shall be conducted at reasonable times during
Customer's normal business hours and upon at least ten (10) business days'
advance notice and in a manner so as not to interfere unreasonably with the
conduct of Customer's business. If any such examination indicates that Customer
has underpaid by more than five percent (5%) of the aggregate payments due for
the period subject to such examination, Customer shall reimburse Inktomi for
reasonable costs of such examination.
6.3. Taxes. Customer shall be responsible for all sales taxes and
other similar taxes imposed by any federal, state or local governmental entity
on the transactions contemplated by this Agreement, excluding taxes based upon
Inktomi's net income. When Inktomi has the legal obligation to pay or collect
such taxes, the appropriate amount shall be invoiced to and paid by Customer
unless Customer provides Inktomi with a valid tax exemption certificate
authorized by the appropriate taxing authority.
6.4. Payment. All fees quoted and payments made hereunder shall be
in U.S. Dollars. Customer shall pay all amounts due under this Agreement to
Inktomi at the address indicated at the beginning of this Agreement or such
other location as Inktomi designated in writing.
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<PAGE> 7
7. Confidentiality.
7.1. Definition of Confidential Information. All information and
documents disclosed or produced by either party in the course of this Agreement
which are disclosed in written form and identified by a marking thereon as
proprietary, or oral information which is defined at the time of disclosure and
confirmed in writing within ten (10) business days of its disclosure, shall be
deemed the "Confidential Information" of the disclosing party. Notwithstanding
the above, the parties agree that any information (in any form, whether in
tangible or intangible) relating to the Inktomi Search Engine, the Inktomi
Technology, the Inktomi Data Protocol, the Interface Construction Tools is
considered Confidential Information.
7.2. Treatment of Confidential Information. Each party agrees to
protect the other party's Confidential Information in the same manner as such
party protects its own Confidential Information of substantially similar
proprietary value, but in no case less than reasonable care. Each party agrees
that it will use the Confidential Information of the other party only for the
purposes of this Agreement and that it will not divulge, transfer, sell,
license, lease, or otherwise disclose or release any such information or
documents to third parties, with the exception of (i) its employees or
subcontractors who require access to such for purposes of carrying out such
party's obligation hereunder and (ii) persons who are employed as auditors by a
public accounting firm or by a federal or state agency. Each party will use
reasonable efforts to advise any person obtaining Confidential Information that
such information is proprietary and to obtain a written agreement obligating
such person to maintain the confidentiality of any Confidential Information
belonging to the party or its suppliers.
7.3. No Other Confidential Information. Neither party shall have
any obligation under this Section 7 for information of the other party which the
receiving party can substantiate with documentary evidence that has been or is
(i) developed by the receiving party independently and without the benefit of
information disclosed hereunder by the disclosing party; (ii) lawfully obtained
by the receiving party from a third party without restriction and without breach
of this Agreement; (iii) publicly available without breach of this Agreement;
(iv) disclosed without restriction by the disclosing party to a third party; or
(v) known to the receiving party prior to its receipt from the disclosing party.
8. Indemnification.
8.1. Inktomi Indemnification. Inktomi shall defend and/or settle,
and pay damages awarded pursuant to, any third party claim brought against
Customer which, if true, would constitute a breach of any warranty,
representation or covenant made by Inktomi under this Agreement; provided that
Customer promptly notifies Inktomi in writing of any such claim and promptly
tenders the control of the defense and settlement of any such claim to Inktomi
at Inktomi's expense and with Inktomi's choice of counsel. Customer shall
cooperate with Inktomi, at Inktomi's expense, in defending or settling such
claim and Customer may join in defense with counsel of its choice at its own
expense. Inktomi shall not reimburse Customer for any expenses incurred by
Customer without the prior written approval of Inktomi.
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<PAGE> 8
8.2. Customer Indemnification. Customer shall defend and/or settle,
and pay damages awarded pursuant to, any third party claim brought against
Inktomi (a) related to the services provided by Customer through the Site or
representations, claims or statements pertaining thereto, and (b) which, if
true, would constitute a breach of any warranty, representation or covenant made
by Customer under this Agreement; provided that Inktomi promptly notifies
Customer in writing of any such claim and promptly tenders the control of the
defense and settlement of any such claim to Customer at Customer's expense and
with Customer's choice of counsel. Inktomi shall cooperate with Customer, at
Customer's expense, in defending or settling such claim and Inktomi may join in
defense with counsel of its choice at its own expense. Customer shall not
reimburse Inktomi for any expenses incurred by Inktomi without the prior written
approval of Customer.
9. Limitation of Liability. EXCEPT FOR LIABILITY ARISING OUT OF OR
RELATED TO BREACH OF THE CONFIDENTIALITY PROVISIONS OR SERVICE/LICENSE
RESTRICTIONS HEREIN, NEITHER PARTY WILL BE LIABLE FOR ANY LOST PROFITS OR COSTS
OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OF FOR ANY INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING DAMAGES FOR LOST DATA, HOWEVER
CAUSED AND UNDER ANY THEORY OF LIABILITY, INCLUDING BUT NOT LIMITED TO CONTRACT,
PRODUCTS LIABILITY, STRICT LIABILITY AND NEGLIGENCE, AND WHETHER OR NOT IT WAS
OR SHOULD HAVE BEEN AWARE OR ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. EXCEPT
FOR AMOUNTS INKTOMI MAY BE REQUIRED TO PAY UNDER SECTION 8.1 ABOVE, IN NO EVENT
WILL INKTOMI'S LIABILITY ARISING OUT OF THIS AGREEMENT EXCEED THE NET AMOUNT
INKTOMI HAS ACTUALLY RECEIVED FROM CUSTOMER UNDER THIS AGREEMENT. THE PARTIES
AGREE THAT THIS SECTION 9 REPRESENTS A REASONABLE ALLOCATION OF RISK.
10. Term and Termination.
10.1. Term. The term of this Agreement (the "Term") shall commence
on the Effective Date and shall continue in force for a period of two years
thereafter, unless earlier terminated as provided herein.
10.2. Termination for Breach. Either party may suspend performance
and/or terminate this Agreement if the other party materially breaches any term
or condition of this Agreement and fails to cure that breach within thirty (30)
days after receiving written notice of the breach.
10.3. Termination due to Insolvency. Either party may suspend
performance and/or terminate this Agreement if the other 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 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
party thereof.
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10.4. Effect of Termination. Upon the termination of this Agreement
for any reason (i) all license rights granted herein shall terminate, (ii)
Customer shall immediately pay to Inktomi all amounts due and outstanding as of
the date of such termination and (iii) each party shall return to the other
party, or destroy and certify the destruction of, all Confidential Information
of the other party.
10.5. Survival. In the event of any termination or expiration of
this Agreement for any reason, Sections 1, 2.6, 2.7, 4, 6, 7, 8, 9, 10 and 11
shall survive termination. Neither party shall be liable to the other party for
damages of any sort resulting solely from terminating this Agreement in
accordance with its terms.
10.6. Remedies. Each party acknowledges that its breach of the
confidentiality or service/license restrictions contained herein may cause
irreparable harm to the other party, the extent of which would be difficult to
ascertain. Accordingly, each party agrees that, in addition to any other
remedies to which the other party may be legally entitled, such party shall have
the right to seek immediately injunctive relief in the event of a breach of such
sections by the other party or any of its officers, employees, consultants or
other agents.
11. Miscellaneous.
11.1. Capacity. Each party warrants that it has full power to enter
into and perform this Agreement, and the person signing this Agreement on either
party's behalf has been duly authorized and empowered to enter in such
agreement. Each party further acknowledges that it has read this Agreement,
understands it and agrees to be bound by it. Each party acknowledges that such
party has not been induced to enter into such agreements by any representations
or statements, oral or written, not expressly contained herein or expressly
incorporated by reference.
11.2. Notice. Any notice required for or permitted by this
Agreement shall be in writing and shall be delivered as follows with notice
deemed given as indicated: (i) by personal delivery when delivered personally,
(ii) by overnight courier upon written verification of receipt, (iii) by
telecopy or facsimile transmission when confirmed by telecopier or facsimile
transmission report, or (iv) by certified or registered mail, return receipt
requested, upon verification of receipt. All notices must be sent to the
addresses first described above or to such other address that the receiving
party may have provided for the purpose of notice in accordance with this
Section.
11.3. Assignment. Neither party may assign its rights or delegate
its obligations under this Agreement without the other party's prior written
consent, except to the surviving entity in a merger or consolidation in which it
participates or to a purchaser of all or substantially all of its assets, so
long as such surviving entity or purchaser shall expressly assume in writing the
performance of all of the terms of this Agreement.
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11.4. No Third Party Beneficiaries. All rights and obligations of
the parties hereunder are personal to them. This Agreement is not intended to
benefit, nor shall it be deemed to give rise to, any rights in any third party.
11.5. Governing Law. This Agreement will be governed and construed,
to the extent applicable, in accordance with United States law, and otherwise,
in accordance with California law, without regard to conflict of law principles.
Any dispute or claim arising out of or in connection with this Agreement shall
be finally settled by binding arbitration in San Mateo County, California under
the Commercial Rules of the American Arbitration Association by one arbitrator
appointed in accordance with said rules. Judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
11.6. Independent Contractors. The parties are independent
contractors. Neither party shall be deemed to be an employee, agent, partner or
legal representative of the other for any purpose and neither shall have any
right, power or authority to create any obligation or responsibility on behalf
of the other.
11.7. Force Majeure. Neither party shall be liable hereunder by
reason of any failure or delay in the performance of its obligations hereunder
(except for the payment of money) on account of strikes, shortages, riots,
insurrection, fires, flood, storm, explosions, earthquakes, acts of God, war,
governmental action, or any other cause which is beyond the reasonable control
of such party.
11.8. Compliance with Law. Each party shall be responsible for
compliance with all applicable laws, rules and regulations, if any, related to
the performance of its obligations under this Agreement.
11.9. Waiver. The failure of either party to require performance by
the other party of any provision shall not affect the full right to require such
performance at any time thereafter; nor shall the waiver by either party of a
breach of any provision hereof be taken or held to be a waiver of the provision
itself.
11.10. Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be contrary to law, such provision shall be
changed and interpreted so as to best accomplish the objectives of the original
provision to the fullest extent allowed by law and the remaining provisions of
this Agreement shall remain in full force and effect.
11.11. Headings. The section headings appearing in this Agreement
are inserted only as a matter of convenience and in no way define, limit,
construe or describe the scope or extent of such paragraph, or in any way affect
such agreements.
11.12. Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which will be considered an original, but
all of which together will constitute one and the same instrument.
10
<PAGE> 11
11.13. Entire Agreement. This Agreement, and the Exhibits hereto,
constitute the entire agreement between the parties with respect to the subject
matter hereof. This Agreement supersedes, and the terms of this Agreement
govern, any other prior or collateral agreements with respect to the subject
matter hereof. Any amendments to this Agreement must be in writing and executed
by an officer of the parties.
IN WITNESS WHEREOF, the parties have caused this Information Services
Agreement to be signed by their duly authorized representatives.
CUSTOMER INKTOMI CORPORATION
By: /s/ JEFFREY BREWER By: /s/
------------------------------ --------------------------------
Name: Jeffrey Brewer Name:
---------------------------- ------------------------------
Title: CEO Title:
--------------------------- -----------------------------
11
<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 *** 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
*** Omitted and filed separately with the Commission.
<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 *** per ***
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 *** in four equal payments of *** 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 ***
for each additional *** 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 *** (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
*** Omitted and filed separately with the Commission.
<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.
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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 *** Impressions by
the date of termination then Company shall remit to Microsoft an amount
equal to *** per *** Impressions times the number of Impressions delivered
in excess of *** 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
*** Omitted and filed separately with the Commission.
<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 *** 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
*** Omitted and filed separately with the Commission.
<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 10.12
GOTO.COM AND DOGPILE
LETTER OF AGREEMENT
AFFILIATE
This Agreement is made and entered into as of the 1st day of April, 1999
(the "Effective Date") by and between GoTo.com, Inc., a Delaware corporation
with its principal place of business at 140 West Union Street, Pasadena,
California 91103 ("GoTo.com"), and Pile, Inc., through its division Dogpile,
with its principal place of business at 612 Radcliffe Drive, Davis, California,
95616 ("Dogpile").
1. Services. Dogpile shall position GoTo.com's search results on the first
page of all Dogpile's meta-search results in a manner and format to be mutually
agreed upon by the parties. The First Page is defined as the first page a user
sees after typing a search on Dogpile and requesting to see Dogpile's
meta-search results.
(i) So long as Dogpile's First Page of meta-search results consists
of content from three (3) third party providers of search results or other
similar content (herein "Content Providers"), Dogpile guarantees that no other
Content Provider will receive preferential treatment. Preferential treatment is
defined as allowing the order of the other Content Providers on the First Page
to be determined by means other than a fully parallel, first come, first serve
basis.
(ii) Should Dogpile grant more than three (3) Content Providers a
position on its First Page of meta-search results, it agrees to give
preferential treatment to GoTo's results by retrieving GoTo's results using
Thunderston's Texis Webscript software in a manner which will guarantee GoTo a
first or second place position unless its return time is longer than the sum of
the response time of any two other Content Providers.
2. Term and Termination. The Agreement shall commence on the Effective
Date and continue indefinitely thereafter (the "Term"). The Agreement shall be
non-terminable for the initial twelve (12) months of the Term, provided,
however, that if Dogpile puts a fourth Content Provider on the First Page,
GoTo.com will have the right to terminate on thirty (30) days written notice.
After the first twelve months of the term, either party may terminate the
Agreement by giving the other party at least thirty (30) days' written notice
of its intention to terminate the Agreement.
3. Reporting and Payment.
(i) Dogpile shall keep accurate records of the number of Impressions
viewed. For purposes of this Agreement, an "Impression" shall mean each time
that a user of Dogpile's web site located at http://www.dogpile.com (the
"Dogpile Site") is shown a Dogpile Site web page listing ten or more GoTo.com
search results where GoTo.com has delivered ten or more results to the Dogpile
Site. In the event that the total number of search results delivered by GoTo.com
for a given subject is less than ten (10) results, an "Impression" shall mean
the display of all available GoTo.com search results.
<PAGE> 2
(ii) No sooner than 15 days after the end of each calendar
month, Dogpile shall calculate the total number of Impressions recorded during
such calendar month, rounded to the nearest thousand (the "Monthly Total") and
shall invoice GoTo.com for the CPM Fees due for such month, as that term is
defined and calculated according to the fee schedule in Exhibit A.
(iii) GoTo.com shall pay to Dogpile those CPM Fees due no later
than fifteen (15) days after receipt of the monthly invoice from Dogpile.
4. Warranty and Indemnity.
(i) Each party shall defend the other party from any claims,
actions or allegations of third parties, the facts of which would constitute a
breach of the warranties in this Section 4 ("Indemnified Claims") and pay all
damages and costs finally awarded or, at the indemnifying party's option, shall
settle such Indemnified Claims and pay the amount of the settlement and all
associated costs. The party seeking indemnification shall notify the
indemnifying party of any action, suit, proceeding or investigation
("Proceeding") for which indemnification is sought, provided that any failure to
notify the indemnifying party will not relieve the indemnifying party from any
liability or obligation which it may have to any indemnified person except to
the extent of any material prejudice to the indemnifying party resulting from
such failure. If any such proceeding is brought against an indemnified person,
the indemnifying party will be entitled to participate therein and to assume the
defense thereof within 30 days after notice shall have been given to it by the
indemnified person pursuant to the preceding sentence. Each indemnified person
will be obligated to cooperate reasonably with the indemnifying party, at the
expense of the indemnifying party, in connection with such defense and the
compromise or settlement of any such Proceeding.
(ii) GoTo.com represents and warrants to Dogpile that as of the
Effective Date, to the best of its knowledge, none of GoTo Marks or Content
fail to comply with applicable laws and regulations (including, for example,
licensing requirements and administrative or professional rules). For purposes
of this Agreement, "Marks" shall mean any trademark, trade name, service marks,
logo, slogan and copyright and proprietary notices associated with a party's
products or services. For purposes of this Agreement, "Content" shall mean the
textual and graphical materials displayed on a certain web site.
(iii) Dogpile represents and warrants to GoTo.com that, to the
best of its knowledge, Dogpile's Marks or Content do not or will not infringe
any trademark, service mark, copyright, right to publicity, right of privacy or
other intellectual property right of a third party, constitute false, deceptive
or unfair advertising or disparagement under applicable law, or fail to comply
with applicable laws and regulations (including, for example, licensing
requirements and administrative or professional rules).
(iv) EXCEPT AS SET FORTH IN SECTIONS 4(ii) AND 4(iii), NEITHER
PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND HEREBY DISCLAIMS THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5. General.
-2-
<PAGE> 3
(i) UNDER NO CIRCUMSTANCES SHALL EITHER PARTY OR ANY OF THEIR
AFFILIATES BE LIABLE TO THE OTHER PARTY FOR (A) INDIRECT, INCIDENTAL,
CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THE PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM THE USE OR INABILITY TO USE
EITHER PARTY'S SERVICES OR CONTENT OR ANY OTHER PROVISION OF THIS AGREEMENT,
SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST
BUSINESS OR (B) DAMAGES IN EXCESS OF THE AMOUNTS PAID BY GOTO.COM TO DOGPILE
UNDER THIS AGREEMENT.
(ii) This Agreement may not be assigned by either party without the
other party's prior written approval except in the case of a merger or sale of
all or substantially all of a party's assets, in which case the acquired party
shall notify the other party within five (5) days of the announcement of such
merger or asset sale, and the acquired party's successor in interest must assume
all of the acquired party's obligations. Except as otherwise provided, this
Agreement shall be binding upon and inure to the benefit of the parties'
successors and lawful assigns.
(iii) GoTo.com and Dogpile agree that the terms of this Agreement are
confidential and shall not be disclosed to any third party without the prior
written consent of the other party.
(iv) During the Term, and during the 60 day period immediately
following the Term, GoTo.com shall have the right, upon reasonable notice,
during business hours, at GoTo.com's own expense, through an independent auditor
chosen by GoTo.com and subject to Dogpile's approval, to audit Dogpile's
computer generated logs that relate to amounts payable under this Agreement. If
an audit of the appropriate computer generated logs reveals that GoTo.com has
underpaid any CPM Fees due to Dogpile under this Agreement for the period under
audit, then GoTo.com shall promptly pay to Dogpile the amount of the
underpayment. Similarly, if an audit of Dogpile's records reveals that Dogpile
has overcharged any CPM Fees due to Dogpile under this Agreement, then Dogpile
shall promptly pay to GoTo.com the amount of the overcharge. If the amount of
either underpayment or overcharge for the period under audit equals or exceeds
five percent (5.0%) of the total amount owed during such period, then the party
who has underpaid or overcharged shall reimburse the other party for all costs
and expenses incurred in connection with conducting the audit.
(v) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA AND THE PARTIES CONSENT TO JURISDICTION IN THE STATE AND
FEDERAL COURTS IN CALIFORNIA.
(vi) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter superceding any prior written
agreements and communications (oral and written) regarding such subject matter.
It shall not be modified except by a written agreement and signed on behalf of
GoTo.com and Dogpile.
6. Survival. Provisions of Section 4 (Warranty and Indemnity) and Section 5
(General) will survive any termination or expiration of this Agreement.
-3-
<PAGE> 4
7. Counterparts. This Agreement may be executed by exchange of signature
pages by facsimile and/or in any number of counterparts, each of which shall be
an original as against any party whose signature appears thereon and all of
which together shall constitute one and the same instrument.
***This Space Intentionally Left Blank***
-4-
<PAGE> 5
Whereby the parties execute this Agreement as of the Effective Date.
GoTo.com Dogpile
Signature: /s/ Todd Tappin Signature: /s/ Aaron Flin
------------------------ ------------------------
Name: Todd Tappin Name: Aaron Flin
Title: CFO Title: CEO
Date: 4/6/99 Date: 4/7/99
-5-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated April 2, 1999 except for the third paragraph of Note 1
as to which the date is April 14, 1999, in Amendment No. 1 to the Registration
Statement (Form S-1) and related Prospectus of GoTo.com, Inc. for the
registration of shares of its common stock.
Our audit also included the financial statement schedule of GoTo.com, Inc.
listed in Item 16(b). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Los Angeles
April 28, 1999 Ernst & Young LLP
/s/ ERNST & YOUNG LLP
