<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1998
REGISTRATION NO. 333-62323
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
INFOSPACE.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7375 91-1718107
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
15375 N.E. 90TH STREET
REDMOND, WASHINGTON 98052
(425) 882-1602
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
NAVEEN JAIN
CHIEF EXECUTIVE OFFICER
INFOSPACE.COM, INC.
15375 N.E. 90TH STREET
REDMOND, WASHINGTON 98052
(425) 882-1602
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
STEPHEN M. GRAHAM BARRY E. TAYLOR
RICHARD C. SOHN PATRICK J. SCHULTHEIS
S. PAUL SASSALOS CRAIG D. NORRIS
PERKINS COIE LLP BENJAMIN L. CHUN
1201 THIRD AVENUE, 40TH FLOOR WILSON SONSINI GOODRICH & ROSATI
SEATTLE, WASHINGTON 98101-3099 PROFESSIONAL CORPORATION
(206) 583-8888 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 493-9300
---------------
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
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 THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED DECEMBER 3, 1998
4,000,000 SHARES
[LOGO OF INFO SPACE.COM APPEARS HERE]
COMMON STOCK
All of the 4,000,000 shares of Common Stock offered hereby are being sold by
the Company. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $9.00 and $11.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Common Stock has been approved for listing on the
Nasdaq National Market under the symbol INSP, subject to official notice of
issuance.
--------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share.............................. $ $ $
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Total (3).............................. $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $1,800,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 600,000 additional shares of Common Stock solely to cover over-
allotments, if any. If all shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1998, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
NATIONSBANC MONTGOMERY SECURITIES LLC
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
, 1998
<PAGE>
INSIDE FRONT COVER
[ARTWORK]
ENABLING REAL WORLD CONTENT FOR THE INTERNET OF TODAY AND TOMORROW
[Circle containing the Company's logo surrounded by logos of the Company's
affiliates and photos of alternative Internet access devices]
InfoSpace.com provides its content services to a network of existing and
emerging Internet portals, destination sites and suppliers of PCs and other
Internet access devices. The Company has agreements with more than
90 affiliates covering more than 90 Web sites.
GATEFOLD
ENABLING REAL WORLD CONTENT FOR THE INTERNET OF TODAY AND TOMORROW
AGGREGATION
InfoSpace.com has acquired the rights to a wide range of content from more
than 65 third-party content providers. The Company focuses on content with
broad appeal, such as yellow pages and white pages, maps, classified
advertisements, real-time stock quotes, information on local businesses and
events, weather forecasts and horoscopes.
[InfoSpace.com web screen displaying content from third-party content
providers, and various provider logos]
INTEGRATION
The cornerstone of the Company's content is its nationwide yellow pages and
white pages directory information. Using its proprietary technology, the
Company integrates this directory information with other value-added content to
create "The Ultimate Directory" to find people, places and things in the real
world.
[Several InfoSpace.com web screens displaying integrated information,
including maps, lists of hotels and restaurants, city information and
information on an individual or business]
SYNDICATION
The Company has agreements with more than 90 affiliates covering more than 900
web sites. InfoSpace.com's content services provide its affiliates with content
that helps to increase the convenience, relevance and enjoyment of their users'
visits, thereby promoting increased traffic and repeat usage.
[Three affiliate web screens displaying content provided by InfoSpace.com, and
various affiliate logos]
The Company's technology has been designed to support affiliates across
multiple platforms and formats, including the growing number of emerging
Internet access devices such as cellular phones, pagers, screen phones,
television set-top boxes, online kiosks and personal digital assistants.
[Photos of various alternative Internet access devices]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. The Common Stock offered hereby
involves a high degree of risk. See "Risk Factors."
THE COMPANY
InfoSpace.com is a leading aggregator and integrator of content services for
syndication to a broad network of affiliates, including existing and emerging
Internet portals, destination sites and suppliers of PCs and other Internet
access devices, such as cellular phones, pagers, screen phones, television set-
top boxes, online kiosks and personal digital assistants. The Company focuses
on content with broad appeal, such as yellow pages and white pages, maps,
classified advertisements, real-time stock quotes, information on local
businesses and events, weather forecasts and horoscopes. By aggregating content
from multiple sources and integrating it with related content to increase its
usefulness, the Company serves as a single source of value-added content. The
Company's affiliates include AOL, Netscape, Microsoft, Lycos, MetaCrawler,
Playboy, Dow Jones (The Wall Street Journal Interactive Edition), ABC LocalNet
and CBS's affiliated TV stations. The Company's services provide affiliates
with content that helps to increase the convenience, relevance and enjoyment of
their users' visits, thereby promoting increased traffic and repeat usage.
This, in turn, provides enhanced advertising and electronic commerce revenue
opportunities to affiliates with minimal additional investment. By leveraging
the Company's content relationships and technology, affiliates are free to
focus on their core competencies.
The Company has acquired the rights to a wide range of content from more than
65 third-party content providers. The cornerstone of the Company's content
services is its nationwide yellow pages and white pages directory information.
Using its proprietary technology, the Company integrates this directory
information with other value-added content to create "The Ultimate Guide" to
find people, places and things in the real world. As an example of the power of
the Company's contextual integration, a salesperson using the Company's content
services can, from the results of a single query, find the name and address of
a new customer, obtain directions to his or her office, check the weather
forecast and, typically, make an online reservation at the nearest hotel,
browse the menu of a nearby restaurant and review a schedule of entertainment
events for the locale.
The Company's content services are designed to be highly flexible and
customizable, enabling affiliates to select from among the Company's broad
range of content services only those desired. One of the Company's principal
strengths is its internally developed technology, which enables it to easily
and rapidly add new affiliates by employing a distributed, scalable
architecture adapted specifically for its Internet-based content services. The
Company helps its affiliates build and maintain their brands by delivering
content with the look and feel and navigation features specific to each
affiliate, creating the impression to end users that they have not left the
affiliate's site. The Company's technology has been designed to support
affiliates across multiple platforms and formats, including the growing number
of emerging Internet access devices. The Company's affiliate relationships
typically provide for revenue sharing from advertising sold by the Company and
the affiliates whose sites incorporate the Company's content where
advertisements are placed.
InfoSpace.com derives substantially all of its revenues from national
advertising, promotions and local Internet yellow pages advertising. Through
its direct sales force, the Company offers a variety of national advertising
and promotions that enable advertisers to access both broad and targeted
audiences. The Company also sells local Internet yellow pages advertising
through cooperative sales relationships with established independent yellow
pages publishers, media companies and direct marketing companies. The Company
believes that these relationships provide the Company access to local sales
expertise and customer relationships that give it an advantage over competitors
while minimizing the Company's investment in its own sales infrastructure.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. 4,000,000 shares
Common Stock to be outstanding after this
offering....................................... 19,116,012 shares (1)
Use of proceeds................................. For working capital and other general corporate
purposes.
Proposed Nasdaq National Market symbol.......... INSP
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 1, 1996 NINE MONTHS
(INCEPTION) ENDED
TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -----------------
1996 1997 1997 1998
------------- ------------ ------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues....................... $ 199 $ 1,685 $ 932 $ 5,374
Total operating expenses (2)... 504 1,724 1,068 7,930
Loss from operations (2)....... (402) (450) (384) (3,664)
Net loss....................... $ (381) $ (429) $ (366) $ (3,588)
Basic and diluted net loss per
share (3)..................... $(0.04) $ (0.04) $ (0.03) $ (0.28)
Shares used in computing basic
net loss per share
calculations (3).............. 9,280 10,941 10,940 12,639
Shares used in computing
diluted net loss per share
calculations (3).............. 9,280 10,998 10,987 12,639
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------
ACTUAL AS ADJUSTED (4)
------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $10,289 $45,689
Working capital....................................... 12,630 48,030
Total assets.......................................... 23,397 58,797
Total stockholders' equity............................ 20,661 56,061
</TABLE>
- --------------------
(1) Based on shares outstanding at September 30, 1998. Excludes as of September
30, 1998 (i) 1,785,049 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $2.19 per
share, (ii) 3,531,719 shares of Common Stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $6.79 per
share, (iii) 1,505,450 shares of Common Stock reserved for future issuance
under the Company's Restated 1996 Flexible Stock Incentive Plan (the "1996
Plan"), and (iv) 450,000 shares of Common Stock reserved for issuance under
the Company's 1998 Employee Stock Purchase Plan (the "ESPP"). See
"Management--Benefit Plans," "Description of Capital Stock" and Notes 3 and
9 of the Company's Notes to Consolidated Financial Statements.
(2) For the nine months ended September 30, 1998, includes a write-off of in-
process research and development of $2.8 million.
(3) See Note 7 of the Company's Notes to Consolidated Financial Statements for
information concerning the determination of net loss per share.
(4) As adjusted to reflect the sale and issuance of 4,000,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $10.00 per share and the receipt of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
--------------------
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option and gives effect to a one-
for-two reverse stock split of the Company's outstanding Common Stock
consummated in August 1998.
4
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve known and
unknown risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. Actual results could differ
materially from those discussed in the forward-looking statements as a result
of certain factors, including those set forth below and elsewhere in this
Prospectus. The following risk factors should be considered carefully in
addition to the other information in this Prospectus before purchasing the
shares of Common Stock offered hereby.
Limited Operating History; History of Losses and Anticipated Future
Losses. The Company was founded in March 1996 and, accordingly, has a very
limited operating history on which to base an evaluation of its business and
prospects. The Company has incurred net losses since its inception, including
losses of approximately $381,000, $429,000 and $3.6 million for the period
from March 1, 1996 (inception) to December 31, 1996, the year ended December
31, 1997 and the nine months ended September 30, 1998, respectively. At
September 30, 1998, the Company had an accumulated deficit of approximately
$4.4 million. Although the Company has experienced sequential quarterly growth
in revenues over the past five quarters, the Company expects to incur
significant operating losses on a quarterly basis for the foreseeable future,
and there can be no assurance that the Company will be profitable in any
future period. Since its inception, the Company has been engaged primarily in
the development of its technology, the acquisition of rights to third-party
content, the sale of national advertising, the establishment of relationships
with independent yellow pages publishers, media companies and direct marketing
companies and the establishment of relationships with existing and emerging
Internet portals, destination sites and suppliers of PCs and other Internet
access devices, such as cellular phones, pagers, screen phones, television
set-top boxes, online kiosks and personal digital assistants (collectively,
"Internet points-of-entry"). The Company's prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in their early stage of development, particularly companies in new
and rapidly evolving markets such as Internet services. Such risks include,
but are not limited to, an evolving and unpredictable business model,
uncertain adoption of the Internet as a commercial or advertising medium,
dependence on relationships with third parties, dependence on key personnel,
management of growth, rapidly changing technology and competition. To address
these risks and be able to achieve and sustain profitability, the Company
must, among other things: (i) develop and maintain strategic relationships
with content providers and Internet points-of-entry; (ii) identify and acquire
the rights to additional content; (iii) successfully integrate new features
with its content services; (iv) expand its sales and marketing efforts,
including relationships with third parties to sell local advertising for the
Company's Internet yellow pages directory services; (v) maintain and increase
its affiliate and advertiser base; (vi) successfully expand into international
markets; (vii) retain and motivate qualified personnel; and (viii)
successfully respond to competitive developments. There can be no assurance
that the Company will effectively address the risks it faces, and the failure
to do so could have a material adverse effect on the Company's business,
financial condition and results of operations. For these and other reasons,
there can be no assurance that the Company will ever achieve or sustain
profitability. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Evolving and Unproven Business Model. The Company's business model is to
aggregate content from third-party content providers, integrate related
content, syndicate these content services to leading Internet points-of-entry
and generate revenues from the sale of advertisements and promotions on the
Web pages that deliver the Company's content services. The syndication
business model is relatively new to the Internet and is unproven. As such, the
Company's business model may not be successful, and the Company may need to
change its business model. Almost half of the Company's user traffic is
generated through the Company's own Web site, rather than through its
affiliate network. The Company's ability to generate significant advertising
and promotion revenues by syndicating content services will depend, in part,
on its ability to acquire the rights to information from third-party content
providers and to market successfully its content services to Internet points-
of-entry that currently do not rely substantially on third-party sources for
their content needs and do not
5
<PAGE>
typically utilize content services that are readily available to their
competitors. In addition, the Company intends to rely on independent yellow
pages publishers, media companies and direct marketing companies for the sale
of local advertising on the Company's Internet yellow pages directory
services, which strategy may prove to be unsuccessful. The Company's
relationships with its content providers, affiliates and advertisers are
evolving, subject to frequent change and frequently informal. There can be no
assurance that the Company's relationships with content providers, affiliates
and advertisers will not evolve in a manner that is adverse to the Company.
The Company intends to continue to develop its business model as it explores
opportunities internationally and in new and unproven areas such as electronic
commerce and in providing content services for emerging Internet access
devices. There can be no assurance that the Company's business model will be
successful. See "Business--The InfoSpace.com Solution" and "--Strategy."
Unpredictability of Future Results of Operations; Expected Fluctuations in
Quarterly Results of Operations; Seasonality. As a result of the Company's
limited operating history and the emerging nature of the markets in which it
competes, the Company is unable to accurately forecast its revenues. The
Company plans its operating expenses based on anticipated revenues. If
revenues in a particular period do not meet expectations, it is likely that
the Company will not be able to adjust significantly its level of expenditures
for such period, which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company plans to
increase significantly its operating expenses in order to, among other things:
(i) expand its affiliate network, which may include the payment of additional
carriage fees to certain affiliates; (ii) expand its sales and marketing
operations and hire more salespersons; (iii) increase its advertising and
promotional activities; (iv) develop and upgrade its technology and purchase
equipment for its operations and network infrastructure; (v) expand
internationally; and (vi) expand its content services. Certain Internet
points-of-entry require the Company to make payments or pay other
consideration in exchange for including the Company's content services on
their Web site and other Internet points-of-entry may in the future require
payments for access to their Web site or Internet access device. Additionally,
the Company may incur costs relating to the acquisition of content or the
acquisition of businesses or technologies. To the extent that such expenses
precede or are not subsequently followed by increased revenues, the Company's
business, financial condition and results of operations could be materially
adversely affected.
The Company's results of operations have varied on a quarterly basis during
its short operating history and will fluctuate significantly in the future as
a result of a variety of factors, many of which are outside the Company's
control. Factors that may affect the Company's quarterly results of operations
include, but are not limited to: (i) the addition or loss of affiliates; (ii)
variable demand for the Company's content services by its affiliates; (iii)
the cost of acquiring and the availability of content; (iv) the overall level
of demand for content services; (v) the Company's ability to attract and
retain advertisers and content providers; (vi) seasonal trends in Internet
usage and advertising placements; (vii) the amount and timing of fees paid by
the Company to certain of its affiliates to include the Company's content
services on their Web sites; (viii) the productivity of the Company's direct
sales force and the sales forces of the independent yellow pages publishers,
media companies and direct marketing companies that sell local Internet yellow
pages advertising for the Company; (ix) the amount and timing of expenditures
for expansion of the Company's operations, including the hiring of new
employees, capital expenditures and related costs; (x) the Company's ability
to continue to enhance, maintain and support its technology; (xi) the
Company's ability to attract and retain personnel; (xii) the introduction of
new or enhanced services by the Company, its affiliates and their respective
competitors; (xiii) price competition or pricing changes in Internet
advertising and Internet services, such as the Company's content services;
(xiv) technical difficulties, system downtime, system failures or Internet
brown-outs; (xv) political or economic events and governmental actions
affecting Internet operations or content; and (xvi) general economic
conditions and economic conditions specific to the Internet. Any one of these
factors could cause the Company's revenues and operating results to vary
significantly in the future. In addition, as a strategic response to changes
in the competitive environment, the Company may from time to time make certain
pricing, service or marketing decisions or acquisitions that could cause
significant declines in the Company's quarterly results of operations. Also,
the Company currently is involved in a lawsuit filed by a former employee
involving certain claims to purchase Common Stock and has received a letter on
behalf of an alleged former employee involving certain claims to purchase
Common Stock. To the extent the Company
6
<PAGE>
is required to issue shares of Common Stock or options to purchase Common
Stock, the Company would recognize an expense, which could have a material
adverse effect on the Company's results of operations for the period in which
such issuance occurs and any such issuance would be dilutive to existing
stockholders. See "--Legal Proceedings."
The Company has experienced, and expects to continue to experience,
seasonality in its business, with reduced user traffic on its affiliate
network expected during the summer and year-end vacation and holiday periods,
when usage of the Internet has typically declined. Advertising sales in
traditional media, such as broadcast and cable television, generally decline
in the first and third quarters of each year. Depending on the extent to which
the Internet and commercial online services are accepted as an advertising
medium, seasonality in the level of advertising expenditures could become more
pronounced for Internet-based advertising. Seasonality in Internet service
usage and advertising expenditures is likely to cause quarterly fluctuations
in the Company's results of operations and could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Due to the foregoing factors, the Company's revenues and operating results
are difficult to forecast. The Company believes that its quarterly revenues,
expenses and operating results will vary significantly in the future and that
period-to-period comparisons are not meaningful and are not indicative of
future performance. As a result of the foregoing factors, it is likely that in
some future quarters or years the Company's results of operations will fall
below the expectations of securities analysts or investors, which would have a
material adverse effect on the trading price of the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Selected Quarterly Operating Results."
Reliance on Advertising and Promotion Revenues; Risks Associated With
Advertising Arrangements. The Company derives substantially all of its
revenues from the sale of advertisements and promotions on the Web pages that
deliver the Company's content services and expects that advertising and
promotion revenues will continue to account for substantially all of its
revenues in the foreseeable future. The Company's ability to increase its
advertising and promotion revenues will depend on, among other things,
national and local advertisers' acceptance of the Internet as an attractive
and sustainable medium, the development of a large base of end users of the
Company's content services having demographic characteristics attractive to
advertisers, the success of the Company's strategy to sell local Internet
yellow pages advertising through independent yellow pages publishers, media
companies and direct marketing companies, the expansion and productivity of
the Company's advertising sales force and the development of the Internet as
an attractive platform for electronic commerce. To date, substantially all of
the Company's revenues have been derived from national advertising and
promotions and the Company has not yet generated significant revenues from
local Internet yellow pages advertising, which the Company is relying on as a
significant source of future revenues. The Company intends to rely in
significant part on sales of local Internet yellow pages advertising generated
by the sales forces of independent yellow pages publishers, media companies
and direct marketing companies. The failure to generate these sales would have
a material adverse effect on the Company's business, financial condition and
results of operation. A significant portion of the Company's advertiser base
is comprised of other Internet companies, many of which are experiencing rapid
growth and have limited operating histories. Consequently, these companies
represent higher than normal credit risks to the Company. The Company's bad
debt expense represented approximately 8.2% and 9.7% of revenues in the
quarters ended June 30, 1998 and September 30, 1998, respectively. There can
be no assurance that the Company will be successful in generating significant
future national and local advertising and promotion revenues, and the failure
to do so would have a material adverse effect on the Company's business,
financial condition and results of operations. See "--Dependence on Sales by
Third Parties," "--Risks Associated With International Expansion,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Advertising and Promotions."
The Company's national advertising arrangements typically require the
Company to guarantee minimum levels of impressions or click throughs. These
arrangements expose the Company to potentially significant financial risks,
including the risk that the Company may fail to deliver required minimum
levels of impressions or click throughs, in which case the Company typically
continues to provide advertising without compensation
7
<PAGE>
until such levels are met. In addition, such advertisers may terminate their
agreements or may renew their agreements on less favorable terms to the
Company. In connection with certain promotion arrangements and content
agreements, the Company guarantees the availability of advertising space.
There can be no assurance that the Company will have sufficient inventory
either to meet such guarantees or to sell additional promotions and
advertisements. The Company also provides customized advertising campaigns for
certain of its advertisers which may require the dedication of resources and
significant programming and design efforts to accomplish. In addition, the
Company has granted exclusivity to certain of its advertisers and may in the
future grant additional exclusivity to additional advertisers. Such
exclusivity arrangements may have the effect of preventing the Company, for
the duration of such arrangements, from accepting advertising within a
particular subject matter in the Company's content services or across part or
all of the Company's content services. The inability of the Company to enter
into further advertising or promotion arrangements as a result of its
exclusivity arrangements could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Advertising and Promotions."
Reliance on Affiliate Relationships. The Company's ability to generate
revenues from advertising and promotions depends on its ability to secure and
maintain distribution for its content services on acceptable commercial terms
through a wide range of affiliates. The Company expects that revenues
generated from the sale of advertisements and promotions delivered through its
network of affiliates will continue to account for a significant portion of
the Company's revenues for the foreseeable future. In particular, the Company
expects that a limited number of its affiliates, including Netscape
Communications Corporation ("Netscape"), America Online, Inc. ("AOL"),
Microsoft Network, LLC and Lycos, Inc. ("Lycos") will account for a
substantial portion of its affiliate traffic and, therefore, revenues over
time. The Company's distribution arrangements with its affiliates typically
are for limited durations of between six months and two years and are
generally terminable after six months. There can be no assurance that such
arrangements will be renewed upon expiration of their terms. The Company and
each affiliate generally share a portion of the revenues generated by
advertising on the Web pages that deliver the Company's content services. The
Company has recently entered into agreements with Netscape and AOL under which
the Company has paid, and will in the future pay, certain carriage fees to
Netscape and AOL. Under its agreement with Netscape, which provides for a one-
year term with automatic renewal provisions, the Company paid licensing fees
to Netscape and is obligated to make additional payments to Netscape based on
the number of click throughs to the Company's services. Netscape guarantees to
the Company a certain minimum level of use of the Company's yellow pages and
white pages directory services. The agreement with AOL relating to the
Company's white pages directory services has a three-year term, which may be
extended for an additional year and subsequently renewed for up to three
successive one-year terms at AOL's discretion. This agreement may be
terminated by AOL upon acquisition by AOL of a competing white pages directory
services business or for any reason after 18 months, upon payment of a
termination fee, or at any time in the event of a change of control of the
Company. Under this agreement, the Company will pay to AOL a quarterly
carriage fee and share with AOL revenues generated by advertising on the
Company's white pages directory services delivered to AOL. Under the terms of
the agreement related to the Company's classifieds information services, the
Company has agreed to provide classified advertising development and
management services to AOL for two years, with up to three one-year extensions
at AOL's discretion. AOL will pay to the Company a quarterly fee and share
with the Company revenues generated by payments by individuals and commercial
listing services for listings on the AOL classifieds service. This agreement
may be terminated at any time in the event of a change of control of the
Company. There can be no assurance that the Company's relationship with
Netscape or AOL will be profitable or result in benefits to the Company that
outweigh the costs of the relationship.
The Company's affiliate relationships are in an early stage of development,
and there can be no assurance that affiliates, especially major affiliates,
will not demand a greater portion of advertising revenues or require the
Company to make payments for access to any such affiliate's site or device.
There can be no assurance that the Company would be able to timely or
effectively replace any major affiliate with other affiliates with comparable
traffic patterns and user demographics. The loss of any major affiliate or an
adverse change in the Company's pricing model could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Affiliate Network."
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Dependence on Advertising Sales by Third Parties; Limited History of
Internet Yellow Pages Advertising. The Company relies on arrangements with
independent yellow pages publishers, media companies and direct marketing
companies to generate local Internet yellow pages advertising revenues,
primarily from enhanced listings on the Company's Internet yellow pages
directory services in the form of enhanced yellow pages listings. Under its
arrangements with independent yellow pages publishers, the Company typically
provides exclusive rights to the publisher to sell local advertising in a
specific geographic area and does not restrict the publisher's ability to sell
advertising for any other source. The Company currently expects that a greater
portion of its future advertising revenues will be derived from these
relationships. There can be no assurance, however, that the sales forces of
these independent yellow pages publishers, media companies and direct
marketing companies will actively pursue this opportunity to sell local
Internet yellow pages advertisements to their customers, that their customers
will purchase Internet advertising or that significant revenues will be
generated by these relationships. The Company's independent yellow pages
publishers, media companies and direct marketing companies have only recently
begun to offer local Internet yellow pages advertising and, as such, have
extremely limited experience in forecasting and executing Internet advertising
business models. The Company's future operating plans are based, in part, on
the local Internet yellow pages forecasts of the independent yellow pages
publishers, media companies and direct marketing companies with which it has
relationships. The Company cannot accurately predict the timing or the extent
of the success of these local advertising efforts. These sales forces
generally do not have experience selling Internet advertising to local
advertisers, and the Company may have to expend significant time and effort in
training such sales forces. Further, the independent yellow pages publishers,
media companies and direct marketing companies have broad discretion in
setting advertising rates, and there can be no assurance that they will
develop a profitable business model. The Company also relies on the
advertisement production infrastructure of these companies for the billing and
collection of local advertising payments and the production and filing of
display advertisements and button advertisements. The failure of the sales
forces of independent yellow pages publishers, media companies and direct
marketing companies to successfully transfer print advertisements to
advertisements in the Company's Internet yellow pages directory services or
for these sales relationships to otherwise generate meaningful revenues for
the Company or for these companies to cease to maintain and support an
advertisement production infrastructure could have a material adverse effect
on the Company's business, financial condition and results of operations.
These risks are also applicable to the Company's ability to generate revenues
from its international operations. See "--Risks Associated With International
Expansion" and "Business--Advertising and Promotions."
Uncertain Adoption of the Internet as an Advertising Medium. Most
advertising agencies and potential advertisers, particularly local
advertisers, have only limited experience with the Internet as an advertising
medium and have not devoted a significant portion of their advertising
expenditures to Internet advertising. There can be no assurance that
advertisers or advertising agencies will allocate or continue to allocate
funds for Internet advertising or that they will find such advertising to be
effective for promoting their products and services relative to traditional
methods of advertising. In addition, use of the Internet for advertising in
international markets is at a much earlier stage of development than in the
United States.
There are no widely accepted standards for the measurement of the
effectiveness of Internet advertising, and there can be no assurance that such
standards will develop sufficiently to support Internet advertising as a
significant advertising medium. Advertising rates are typically based on the
number of impressions received, and the Company's advertising customers may
not accept the Company's or other third parties' measurements of impressions
on the Web sites of the Company's affiliates utilizing the Company's content
services or such measurements may contain errors.
There is fluid and intense competition in the sale of advertising on the
Internet, resulting in a wide range of rates quoted and a variety of pricing
models offered by different vendors for a variety of advertising services,
which makes it difficult to project future levels of advertising revenues that
will be realized generally or by any specific company. It is also difficult to
predict which pricing models will be adopted by the industry or advertisers.
For example, widespread adoption of advertising rates based on the number of
click throughs
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from the Company's content services to advertisers' Web pages, instead of
rates based solely on the number of impressions, could materially adversely
affect the Company's revenues.
Acceptance of the Internet among advertisers and advertising agencies will
also depend, to a large extent, on the level of use of the Internet by
consumers and on the growth in the commercial use of the Internet. The
Internet may not prove to be a viable commercial market for a number of
reasons, including lack of acceptable security technologies, potentially
inadequate development of the necessary infrastructure, such as a reliable
network backbone, or timely development and commercialization of non-PC based
Internet appliances or performance improvements, including high speed modems.
In addition, "filter" software programs that limit or remove advertising from
the Web user's desktop are available. The widespread adoption of such software
by users could have a material adverse effect on the viability of advertising
on the Internet. Despite industry forecasts of growth in advertising on the
Internet, such growth may not occur or may occur more slowly than estimated.
If the commercial use of the Internet does not develop, or if the Internet
does not develop as an effective and measurable medium for advertising, the
Company's business, financial condition and results of operations will be
materially adversely affected. See "Business--Industry Background" and "--
Advertising and Promotions."
Risks Associated With Short-Term National Advertising Contracts. National
advertisements, which constitute a significant current and expected future
source of revenues, are typically sold pursuant to agreements with terms of
less than six months. Consequently, the Company's national advertising
customers may change or cancel their advertising expenditures, or move their
advertising to competing Internet sites or from the Internet to traditional
media, quickly and with minimal penalty, thereby increasing the Company's
exposure to competitive pressures and fluctuations in revenues and results of
operations. In selling national advertising, the Company also depends to a
significant extent on advertising agencies, which exercise substantial control
over the placement of advertisements for the Company's existing and potential
national advertising customers. There can be no assurance that current
advertisers will continue to purchase advertising from the Company or that the
Company will attract additional advertisers. If the Company loses advertising
customers, fails to attract new customers or is forced to reduce advertising
rates in order to retain or attract customers, the Company's business,
financial condition and results of operations will be materially adversely
affected. See "Business--Advertising and Promotions."
Dependence on a Limited Number of Advertisers. A substantial portion of the
Company's revenues to date have been derived from a limited number of
advertisers, and the Company expects that a limited number of advertisers will
continue to account for a significant percentage of the Company's revenues for
the foreseeable future. In particular, 800-U.S. Search, Inc. ("800-U.S.
Search") accounted for approximately 20.1% of the Company's revenues for the
nine months ended September 30, 1998 and approximately 38.1% of accounts
receivable at September 30, 1998. The Company's top ten advertisers accounted
for an aggregate of 51.4% of the Company's revenues during the same period.
The loss of one or more of these advertisers, including, but not limited to,
800-U.S. Search, could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
nonpayment or late payment of amounts due by a significant advertiser could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Advertising and
Promotions."
Dependence on Third-Party Content. The Company's future success depends in
large part on its ability to aggregate, integrate and syndicate content of
broad appeal over the Internet to its affiliates. The Company typically does
not create its own content. Rather, the Company acquires the rights to
substantially all of the information it distributes from more than 65 third-
party content providers, including infoUSA, Inc. (formerly known as American
Business Information, Inc., "infoUSA") (national white and yellow pages),
Carroll Publishing, Inc. (government directories), Leisure Planet, Inc.
(enhanced hotel information), CareerPath, Inc. (employment listings) and ETAK,
Inc. ("ETAK") (mapping and directions). In particular, the Company is
substantially dependent on yellow pages and white pages data from infoUSA. The
Company's ability to maintain its relationships with such content providers
and to build new relationships with additional content providers is critical
to the success of the Company's business. In general, the licenses with the
third-party
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content providers are short term and do not require the Company to pay the
content provider a royalty or other fee for the right to include the content
on the Company's content services. However, the Company enters into revenue-
sharing arrangements with certain content providers and pays certain core
content providers, such as infoUSA and ETAK, a one-time or periodic fee or fee
per content query, and there can be no assurance that content providers will
not demand a greater portion of advertising revenues or require more fees for
access to content. In certain instances the Company enters into exclusive
relationships, which may limit the Company's ability to enter into additional
content agreements. The Company's inability to secure licenses from content
providers or the termination of a significant number of content provider
agreements would decrease the attractiveness to end users of the Company's
content and the amount of content that the Company can distribute to its
affiliates. This could result in decreased traffic on the Web sites that
deliver the Company's content services and, as a result, decreased advertising
and electronic commerce revenues, which would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Content Services."
Dependence on Key Personnel; Need for Additional Personnel. The Company's
performance is substantially dependent on the continued services of its
executive officers and other key personnel. The loss of the services of any of
its executive officers or other key employees could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company maintains key person life insurance on Naveen Jain,
its Chief Executive Officer, in the amount of $5.0 million, the sole
beneficiary of which is the Company. The Company does not maintain key person
life insurance policies on any of its other employees. The Company does not
have employment agreements with any of its employees, and the employment
relationships of such personnel with the Company are, therefore, at will. The
Company's future success also depends on its ability to identify, attract,
hire, train, retain and motivate highly skilled technical, managerial, sales
and marketing personnel. The Company has increased the number of employees
from 15 at January 1, 1998 to 48 at September 30, 1998 and intends to hire a
significant number of sales, business development, marketing, technical and
administrative personnel during the next year. Competition for such personnel
is intense, and there can be no assurance that the Company will successfully
attract, assimilate or retain a sufficient number of qualified personnel. The
failure to retain and attract the necessary technical, managerial, sales and
marketing and administrative personnel could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Employees" and "Management."
Management of Growth; New Management Team; Limited Senior Management
Resources. The Company has rapidly and significantly expanded its operations
and anticipates further significant expansion to accommodate expected growth
in its customer base and market opportunities. This expansion has placed, and
is expected to continue to place, a significant strain on the Company's
management, operational and financial resources. In 1998, the Company has
added a number of key managerial, technical and operations personnel,
including its President and Chief Operating Officer, Chief Financial Officer
and Vice President, Legal and Business Affairs, who have only recently joined
the Company, and expects to add additional key personnel in the near future.
The Company is significantly increasing its employee base, which has increased
from 15 at January 1, 1998 to 48 at September 30, 1998. The Company has a
short operating history and only in August 1998 hired a Chief Financial
Officer and other accounting personnel. The Company has not implemented
sophisticated operational, accounting and information systems, procedures and
controls. In addition, in the past the Company's controls have not been
adequate to ensure proper communication within the Company regarding, and to
properly document, the terms of certain of the Company's written and verbal
contracts. The Company has taken a number of steps to improve its accounting
and information systems, procedures and controls, including the hiring of a
Chief Financial Officer and a Vice President, Legal and Business Affairs and
other financial and administrative personnel, and has adopted new procedures
in these areas. However, there can be no assurance that such steps will be
adequate. To manage the expected growth of its operations and personnel, the
Company will be required to significantly improve or replace existing
operational, accounting and information systems, procedures and controls, and
to expand, train and manage its growing employee base. The Company also will
be required to continue to expand its finance, administrative and
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operations staff. Further, the Company's management will be required to
maintain and expand its relationships with various Internet content providers,
advertisers, Internet points-of-entry and other third parties necessary to the
Company's business. There can be no assurance that the Company will complete
in a timely manner the improvements to its systems, procedures and controls
necessary to support the Company's future operations, that management will be
able to hire, train, retain, motivate and manage required personnel or that
Company management will be able to successfully identify, manage and exploit
existing and potential market opportunities. The Company's inability to manage
growth effectively could have a material adverse effect on its business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business--
Employees" and "Management."
Risks Associated With International Expansion. A key component of the
Company's strategy is to expand its operations into international markets. The
Company has entered into a joint venture agreement with Thomson Directories
Limited ("Thomson") to replicate the Company's content services in Europe. The
joint venture, TDL InfoSpace (Europe) Limited ("TDL InfoSpace"), has targeted
the United Kingdom as its first market, and content services were launched in
the third quarter of 1998. The Company expects that TDL InfoSpace will expand
its content services to other European countries. Under the joint venture
agreement, each of the Company and Thomson is obligated to negotiate with TDL
InfoSpace and the other party to jointly offer content services in other
European countries prior to offering such services independently or with other
parties. To date, the Company has limited experience in developing and
syndicating localized versions of its content services internationally. There
can be no assurance that the Company will successfully execute its business
model in these markets. In addition, Internet usage and Internet advertising
are at an earlier stage of development internationally than in the United
States. The Company is relying on its business partner in Europe for U.K.
directory information and local sales forces and may enter into similar
relationships if it expands into other international markets. Accordingly, the
Company's success in such markets will be directly linked to the success of
its business partners in such activities. There can be no assurance that such
business partners will be successful or that such business partners will
dedicate sufficient resources to the business relationship. The failure of the
Company's business partners to successfully establish operations and sales and
marketing efforts in such markets could have a material adverse effect on the
Company's business, financial condition and results of operations. See "--
Evolving and Unproven Business Model," "--Uncertain Adoption of the Internet
as an Advertising Medium," "--Dependence on Sales by Third Parties" and
"Business--International Expansion."
There are certain risks inherent in doing business in international markets,
such as unexpected changes in regulatory requirements, potentially adverse tax
consequences, work stoppages, export restrictions, export controls relating to
encryption technology, tariffs and other trade barriers, difficulties in
staffing and managing foreign operations, political instability,
transportation delays, changing economic conditions, expropriations, exposures
to different legal standards (particularly with respect to intellectual
property and distribution of information over the Internet), burdens with
complying with a variety of foreign laws, fluctuations in currency exchange
rates, and seasonal reductions in business activity during the summer months
in Europe and certain other parts of the world. Any of these factors could
have a material adverse effect on the success of the Company's international
operations and, consequently, on the Company's business, financial condition
and results of operations.
Intense Competition. The market for Internet products and services is highly
competitive, with no substantial barriers to entry, and the Company expects
that competition will continue to intensify. The market for the Company's
content services has only recently begun to develop, is rapidly evolving and
is likely to be characterized by an increasing number of market entrants with
competing products and services. Although the Company believes that the
diversity of the Internet market may provide opportunities for more than one
provider of content services similar to those of the Company, it is possible
that one or a few suppliers may dominate one or more market sectors. The
Company believes that the primary competitive factors in the market for
Internet content services are (i) the ability to provide content of broad
appeal, which is likely to result in increased user traffic and increase the
brand name value of the Internet point-of-entry to which the
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services are provided; (ii) the ability to meet the specific content demands
of a particular Internet point-of-entry; (iii) the cost-effectiveness and
reliability of the content services; (iv) the ability to provide content that
is attractive to advertisers; (v) the ability to achieve comprehensive
coverage of a particular category of content; and (vi) the ability to
integrate related content to increase the utility of the content services
offered. There can be no assurance that the Company's competitors will not
develop content services that are superior to those of the Company or achieve
greater market acceptance than the Company's services. Any failure of the
Company to provide services that achieve success in the short term could
result in an insurmountable loss in market share and brand acceptance and
could, therefore, have a material adverse effect on the Company's business,
financial condition and results of operations.
While the Company is unaware of any companies that compete with all of the
Company's content services, there are companies that offer services addressing
certain of the Company's target markets. In addition, some of these
competitors are currently members of the Company's affiliate network or
currently provide content included in the Company's content services. The
Company's directory services compete with other Internet yellow pages and
white pages directory services, including AnyWho?, a division of AT&T Corp.
("AT&T"), GTE SuperPages, Switchboard, ZIP2, directory services offered by the
Regional Bell Operating Companies (the "RBOCs"), including Big Yellow by Bell
Atlantic/NYNEX, infoUSA's Lookup USA, Microsoft Sidewalk and Yahoo! Yellow
Pages and White Pages. In addition, specific services provided by the Company
compete with specialized content providers. TDL InfoSpace's directory services
will compete with British Telecom's YELL service and Scoot (UK) Limited in the
United Kingdom and, as the Company expands internationally into other markets,
it expects to face competition from other established providers of directory
services. In the future, the Company may encounter competition from providers
of Web browser software, including Netscape and Microsoft Corporation
("Microsoft"), online services and other providers of Internet services that
elect to syndicate their own product and service offerings, such as AOL,
Yahoo! Inc. ("Yahoo!"), Excite, Inc. ("Excite"), Infoseek Corporation
("Infoseek"), Lycos, Wired Digital Inc.'s HotBot ("HotBot"), go2net, Inc.'s
MetaCrawler ("MetaCrawler"), CNET, Inc.'s Snap! ("Snap!") and traditional
media companies expanding onto the Internet, such as Time/Warner, Inc.
("Time/Warner"), ABC, CBS, NBC, Dow Jones & Company, Inc. ("Dow Jones"), The
Walt Disney Company ("Disney") and the Fox Broadcasting Company ("Fox").
A number of the Company's current advertising customers have established
relationships with certain of the Company's competitors and future advertising
customers may establish similar relationships. In addition, the Company
competes with online services and other Web site operators, as well as
traditional offline media such as print (including print yellow pages
directories) and television for a share of advertisers' total advertising
budgets. Competition among current and future suppliers of Internet content
services, as well as competition with other media for advertising placements,
could result in significant price competition and reductions in advertising
revenues.
Many of the Company's current competitors, as well as a number of potential
new competitors, have significantly greater financial, technical, marketing,
sales and other resources than the Company. There can be no assurance that the
Company will be able to compete successfully against its current and future
competitors. The Company's failure to compete with its competitors' product
and service offerings or for advertising revenues would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Competition."
Risk of System Failures, Delays and Inadequacies. The performance,
reliability and availability of the Company's content services and syndication
infrastructure are critical to its reputation and ability to attract and
retain affiliates, advertisers and content providers. The Company's computer
and communications hardware is located at its main headquarters in Redmond,
Washington and in additional hosting facilities provided by Exodus
Communications, Inc. ("Exodus Communications") and Savvis Communications
Corporation ("Savvis Communications") in Seattle, Washington. The Company's
systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, Internet breakdowns, break-ins,
earthquake and similar events. The Company does not presently have a formal
disaster
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recovery plan and does not carry sufficient business interruption insurance to
compensate it for losses that may occur. Services based on sophisticated
software and computer systems often encounter development delays and the
underlying software may contain undetected errors that could cause system
failures when introduced. Any system error or failure that causes interruption
in availability of content or an increase in response time could result in a
loss of potential or existing affiliates, advertisers, content providers or
end users and, if sustained or repeated, could reduce the attractiveness of
the Company's content services to such entities or individuals. In addition,
because the Company's advertising revenues are directly related to the number
of advertisements delivered by the Company to users, system interruptions that
result in the unavailability of the Company's content services or slower
response times for users would reduce the number of advertisements delivered
and reduce revenues. The occurrence of any of the foregoing risks could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Technology and Infrastructure" and
"Business--Facilities."
Pending Legal Proceedings. On April 15, 1998, a former employee of the
Company filed a complaint in the Superior Court for Santa Clara County,
California alleging, among other things, that he has the right in connection
with his employment to purchase shares of Common Stock representing up to 5%
of the equity of the Company as of an unspecified date. In addition, the
former employee is also seeking compensatory damages, plus interest, punitive
damages, emotional distress damages and injunctive relief preventing any
capital reorganization or sale that would cause the plaintiff not to be a 5%
owner of the equity of the Company. The Company removed the suit to the
Federal District Court for the District of Northern California. The Company
has answered the complaint and denied the claims. Nevertheless, while the
Company believes its defenses to the former employee's claims are meritorious,
litigation is inherently uncertain, and there can be no assurance that the
Company will prevail in the suit. As of September 30, 1998, the Company has
accrued a liability of $240,000 for estimated settlement costs. To the extent
the Company is required to issue shares of Common Stock or options to purchase
Common Stock as a result of the suit, the Company would recognize an expense
equal to the number of shares issued multiplied by the fair value of the
Common Stock on the date of issuance, less the exercise price of any options
required to be issued, to the extent that this amount exceeds the expense
already accrued as of September 30, 1998. This could have a material adverse
effect on the Company's results of operations, and any such issuance would be
dilutive to existing stockholders. The exercise price of any options which the
Company may be required to issue as a result of the suit is unknown, but could
be as low as $0.01 per share. See Note 5 of the Company's Notes to
Consolidated Financial Statements.
On December 2, 1998, the Company received a letter on behalf of an alleged
former employee of the Company claiming that he was terminated without cause
and is entitled to an option to purchase up to 2,000,000 shares of Common
Stock at an exercise price of $0.01 per share. The alleged former employee has
offered to settle the claims for a cash payment of $50,000 and 250,000 shares
of Common Stock. Should the Company not accept the offer, the alleged former
employee has threatened to file suit against the Company on December 11, 1998
seeking 2,000,000 shares of Common Stock plus attorneys' fees and treble
damages (consisting of an additional 4,000,000 shares of Common Stock) under
the Massachusetts Consumer Protection Act (Chapter 93A), and membership on the
Company's Board of Directors. (The Company believes the alleged former
employee's claims do not reflect the one-for-two reverse stock split of the
Common Stock consummated in August 1998.) The Company is currently
investigating the claims and believes they have no merit. Nevertheless,
litigation is inherently uncertain and, should litigation ensue, there can be
no assurance that the Company would prevail in such a suit. To the extent the
Company is required to issue shares of Common Stock or options to purchase
Common Stock as a result of the claims, the Company would recognize an expense
equal to the number of shares issued multiplied by the fair value of the
Common Stock on the date of issuance, less the exercise price of any options
required to be issued. This could have a material adverse effect on the
Company's results of operations, and any such issuances would be dilutive to
existing stockholders.
Risk of Capacity Constraints; Reliance on Internally Developed Software and
Systems. A key element of the Company's strategy is to generate a high volume
of traffic accessing its content services. Accordingly, the satisfactory
performance, reliability and availability of the Company's data network
infrastructure are
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critical to the Company's reputation and its ability to attract and retain
affiliates and maintain adequate service levels. The Company's revenues
depend, in large part, on the number of users that access the Company's
content services. Any system interruptions that result in the unavailability
of the Company's content services would reduce the volume of users able to
access its content services and the attractiveness of the Company's service
offerings to its affiliates, advertisers and content providers, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company has developed custom software for its network servers, including
its Web Server Technology, Database Technology and Remote Data Aggregation
Engine. This software may contain undetected errors, defects or "bugs."
Although the Company has not experienced material adverse effects resulting
from any such errors or defects to date, there can be no assurance that errors
or defects will not be discovered in the future, and, once discovered, there
can be no assurance that any such errors or defects can be fixed. Any
substantial increase in the volume of traffic on the Internet points-of-entry
that deliver the Company's content services will require the Company to expand
and upgrade further its technology, transaction-processing systems and network
infrastructure. In addition, to the extent the Company expands into electronic
commerce, significant modifications to its systems may be required. The
Company could experience periodic temporary capacity constraints, which may
cause unanticipated system disruptions, slower response times and lower levels
of customer service. There can be no assurance that the Company will be able
to accurately project the rate or timing of increases, if any, in the use of
its content services or timely expand and upgrade its systems and
infrastructure to accommodate such increases. Any inability to do so could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Technology and Infrastructure."
Rapid Technological Change. The market for Internet products and services
and the online commerce industry are characterized by rapidly changing
technology, evolving industry standards and customer demands and frequent new
product and service introductions and enhancements. These characteristics are
exacerbated by the emerging nature of this market and the fact that many
companies are expected to introduce new Internet services in the near future.
The Company's future success depends in significant part on its ability to
improve the performance, content and reliability of the Company's content
services in response to both evolving demands of the market and competitive
product offerings, and there can be no assurance that the Company will be
successful in such efforts. The widespread adoption of new Internet
technologies or standards could require substantial expenditures by the
Company to modify or adapt its content services. See "Business--Industry
Background," "--Strategy," "--Competition" and "--Content Services."
Dependence on the Internet Infrastructure. The Company's success depends in
large part on the maintenance of the Internet infrastructure, such as a
reliable network backbone that provides adequate speed, data capacity and
security, and timely development of products, such as high-speed modems, that
enable reliable Internet access and services. To the extent that the Internet
continues to experience significant growth in the number of users, frequency
of use and amount of data transmitted, there can be no assurance that the
Internet infrastructure will continue to be able to support the demands placed
on it or that the performance or reliability of the Internet will not be
adversely affected by this continued growth. In addition, the Internet could
lose its commercial viability as a form of media due to delays in the
development or adoption of new standards and protocols to process increased
levels of Internet activity. There can be no assurance that the infrastructure
or complementary products and services necessary to establish and maintain the
Internet as a viable commercial medium will be developed or, if they are
developed, that the Internet will become a viable commercial medium for the
Company or its advertisers. If the necessary infrastructure or complementary
services or facilities are not developed, or if the Internet does not become a
viable commercial medium or platform for advertising, promotions and
electronic commerce, the Company's business, financial condition and results
of operations would be materially adversely affected. See "Business--Industry
Background."
Liability for Information Received From the Internet. The Company faces
possible liability for defamation, negligence, copyright, patent or trademark
infringement and other claims, such as product or service liability, based on
the nature and content of the materials that it provides. Such claims have
been
15
<PAGE>
brought, sometimes successfully, against Internet companies in the past. The
law in these areas is unclear, and, accordingly, the Company is unable to
predict the possible existence or extent of its liability in this area or
related areas. Further, the Company does not verify the accuracy of the
information supplied by third-party content providers. While the Company
carries general liability insurance with limits of $1.0 million, the Company's
insurance may not cover potential claims of this type, or may not be adequate
to indemnify the Company for all liability that may be imposed. Any imposition
of liability that is not covered by insurance or is in excess of insurance
coverage could have a material adverse effect on the Company's business,
financial condition and results of operations. See "--Governmental Regulation
and Legal Uncertainties."
A key component of the Company's content services is its yellow pages and
white pages directories. From time to time, the Company has been contacted by
individuals who believed their phone numbers or addresses were unlisted even
though they appeared in the Company's directory information. The Company's
white pages directories are not always updated to delete phone numbers or
addresses when individuals change from listed to unlisted information. The
Company has not been subject to any claims regarding unlisted numbers and
addresses to date; however, there can be no assurance that such claims will
not be made in the future or as to the Company's potential liability for such
claims.
Security Risks. Despite the implementation of security measures, the
Company's networks may be vulnerable to unauthorized access, computer viruses
and other disruptive problems. A party who is able to circumvent security
measures could misappropriate proprietary information or cause interruptions
in the Company's Internet operations. Internet and online service providers
have in the past experienced, and may in the future experience, interruptions
in service as a result of the accidental or intentional actions of Internet
users, current and former employees or others. The Company may be required to
expend significant capital or other resources to protect against the threat of
security breaches or to alleviate problems caused by such breaches. Although
the Company intends to continue to implement industry-standard security
measures, there can be no assurance that measures implemented by the Company
will not be circumvented in the future. Eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to users accessing Web pages that deliver the Company's
content services, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Technology and Infrastructure--Data Network Infrastructure" and
"Business--Facilities."
A significant barrier to online communications and commerce is the inability
to ensure secure transmission of information over public networks. To the
extent that the Company expands its electronic commerce services, it intends
to rely on encryption and authentication technology licensed from third
parties to provide the security and authentication necessary to effect secure
transmission of confidential information, such as customer credit card
numbers. There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments will
not result in a compromise of the algorithms used by the Company to protect
customer transaction data. If any such compromise of the Company's security
were to occur, it could have a material adverse effect on the Company's
reputation, business, financial condition and results of operations. Concerns
over the security of transactions conducted on the Internet and other online
services and the privacy of users may also inhibit the growth of the Internet
and other online services generally, and the Web in particular, especially as
a means of conducting commercial transactions. To the extent that activities
of the Company or third-party contractors involve the storage and transmission
of proprietary information, such as credit card numbers, security breaches
could damage the Company's reputation and expose the Company to a risk of loss
or litigation and possible liability. There can be no assurance that the
Company's security measures will prevent security breaches or that failure to
prevent such security breaches will not have a material adverse effect on the
Company's business, financial condition and results of operations.
Intellectual Property and Proprietary Rights. The Company's success depends
significantly upon its proprietary technology. The Company currently relies on
a combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect its proprietary rights. All
Company employees have executed confidentiality and non-use agreements which
transfer any rights they may
16
<PAGE>
have in copyrightable works or patentable technologies to the Company. In
addition, prior to entering into discussions with potential content providers
and affiliates regarding the Company's business and technologies, the Company
generally requires that such parties enter into a non-disclosure agreement. If
these discussions result in a license or other business relationship, the
Company also generally requires that the agreement setting forth the parties'
respective rights and obligations include provisions for the protection of the
Company's intellectual property rights. For example, the Company's standard
affiliate agreement provides that the Company retains ownership of all patents
and copyrights in the Company's technology and requires its customers to
display the Company's copyright and trademark notices.
The Company has applied for registration of certain service marks and
trademarks, including "InfoSpace," "InfoSpace.com" and its logo in the United
States and in other countries, and will seek to register additional service
marks and trademarks, as appropriate. There can be no assurance that the
Company will be successful in obtaining the service marks and trademarks for
which it has applied. In addition, a patent is pending in the United States
relating to the Company's electronic commerce technology and the Company is
filing patent applications relating to other aspects of its technology,
including the methods by which information is obtained and provided to end
users of its content services. There can be no assurance that any patent with
respect to the Company's technology will be granted or that if granted such
patent will not be challenged or invalidated. There also can be no assurance
that the Company will develop proprietary products or technologies that are
patentable, that any issued patent will provide the Company with any
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have a material adverse effect on the Company's
ability to conduct business. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may copy aspects of the Company's
products or services or obtain and use information that the Company regards as
proprietary. The laws of some foreign countries do not protect proprietary
rights to as great an extent as do the laws of the United States, and the
Company does not currently have any patents or patent applications pending in
any foreign country. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology or duplicate the
Company's products or design around patents issued to the Company or other
intellectual property rights of the Company. The failure of the Company to
adequately protect its proprietary rights or its competitors' successful
duplication of its technology could have a material adverse effect on the
Company's business, financial condition and results of operations.
There has been frequent litigation in the computer industry regarding
intellectual property rights. The Company has in the past been subject to
claims regarding its intellectual property rights. While all such claims have
been resolved, there can be no assurance that third parties will not in the
future claim infringement by the Company with respect to current or future
products, trademarks or other proprietary rights. Any such claims could be
time-consuming, result in costly litigation, diversion of management's
attention, cause product or service release delays, require the Company to
redesign its products or services or require the Company to enter into royalty
or licensing agreements. These royalty or licensing agreements, if required,
may not be available on terms acceptable to the Company, or at all, any of
which occurrences could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Intellectual Property."
Governmental Regulation and Legal Uncertainties. The Company is not
currently subject to direct regulation by any domestic or foreign governmental
agency, other than regulations applicable to businesses generally, and laws or
regulations directly applicable to access to online commerce. However, due to
the increasing popularity and use of the Internet and other online services,
it is possible that laws and regulations will be adopted with respect to the
Internet or other online services covering issues such as user privacy,
pricing, content, taxation, copyrights, distribution and characteristics and
quality of products and services. Such regulation could limit growth in the
use of the Internet generally and decrease the acceptance of the Internet as a
communications and commercial medium, which could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company may be subject to Sections 5 and 12 of the Federal
Trade Commission Act (the "FTC Act"), which regulate advertising in all media,
17
<PAGE>
including the Internet, and require advertisers to have substantiation for
advertising claims before disseminating advertisements. The FTC Act prohibits
the dissemination of false, deceptive, misleading and unfair advertising, and
grants the Federal Trade Commission (the "FTC") enforcement powers to impose
and seek civil and criminal penalties, consumer redress, injunctive relief and
other remedies upon persons who disseminate prohibited advertisements. The
Company could be subject to liability under the FTC Act if it were found to
have participated in creating and/or disseminating a prohibited advertisement
with knowledge, or had reason to know that the advertising was false or
deceptive. The FTC recently brought several actions charging deceptive
advertising via the Internet, and is actively seeking new cases involving
advertising via the Internet.
The Company may also be subject to the provisions of the recently enacted
Communications Decency Act (the "CDA"), which, among other things, imposes
substantial monetary fines and/or criminal penalties on anyone who distributes
or displays certain prohibited material over the Internet or knowingly permits
a telecommunications device under its control to be used for such purpose.
Although the manner in which the CDA will be interpreted and enforced and its
effect on the Company's operations cannot yet be fully determined, the CDA
could subject the Company to substantial liability. The CDA could also limit
the growth of the Internet generally and decrease the acceptance of the
Internet as an advertising medium.
Other federal, state, local or foreign laws, regulations and policies,
either now existing or that may be adopted in the future, may apply to the
business of the Company and may subject the Company to significant liability,
significantly limit growth in Internet usage, prevent the Company from
offering certain Internet products or services, or otherwise have a material
adverse effect on the Company's business, financial condition and results of
operations. These laws, regulations and policies may apply to matters such as,
but not limited to, copyright, trademark, unfair competition, antitrust,
property ownership, negligence, defamation, indecency, obscenity, personal
privacy, trade secrecy, encryption, taxation and patents.
Moreover, the applicability to the Internet and other online services of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. Any such new legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to the Company's business, or the application of existing laws
and regulations to the Internet and other online services could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Governmental Regulation."
Risks Associated With Acquisitions. The Company has in the past, and may in
the future, pursue acquisitions of complementary technologies or businesses.
However, there can be no assurance that the Company will identify suitable
acquisition opportunities. Future acquisitions by the Company may result in
potentially dilutive issuances of equity securities and the incurrence of
additional debt and contingent liabilities, large one-time write-offs and
amortization expenses related to goodwill and other intangible assets, which
could adversely affect the Company's results of operations or the price of the
Company's Common Stock. In June 1998, the Company acquired Outpost Network,
Inc. ("Outpost"), which included the acquisition of certain electronic
commerce technology (the "Outpost Technology") and the hiring of approximately
ten employees. The form of the transaction was a merger, whereby a wholly
owned subsidiary of the Company was merged with and into Outpost, with Outpost
as the surviving corporation. As a result of the merger, the former
shareholders of Outpost received 1,499,988 shares of the Company's Common
Stock and cash in lieu of fractional shares. In addition, the Company agreed
to offer employment to certain employees of Outpost. Acquisitions involve
numerous risks, including difficulties in the assimilation of the operations,
products, technology, information systems and personnel of the acquired
company, the diversion of management's attention from other business concerns,
risks of entering markets in which the Company has no direct prior experience
and the potential loss of key employees of the acquired company. There can be
no assurance that the Company will successfully integrate the Outpost
Technology and personnel or any other businesses, technologies or personnel
that might be acquired in the future, and the Company's failure to do so could
have a material adverse effect on the Company's business, financial condition
and results of
18
<PAGE>
operations. Although it has no present understandings, commitments or
agreements with respect to any material acquisitions or investments, the
Company may use a portion of the net proceeds of this offering for future
acquisitions. See "Use of Proceeds."
Uncertain Need and Availability of Additional Funding. Although the Company
believes that, following this offering, its cash reserves and cash flows from
operations will be adequate to fund its operations at least through the end of
1999, there can be no assurance that such sources will be adequate or that
additional funds will not be required either during or after such period.
There can be no assurance that additional financing will be available or, if
available, that it will be available on terms favorable to the Company or its
stockholders. If additional funds are raised through the issuance of equity
securities, the percentage ownership of the then current stockholders of the
Company will be reduced. If adequate funds are not available to satisfy either
short- or long-term capital requirements, the Company may be required to limit
its operations significantly. The Company's future capital requirements are
dependent upon many factors, including, but not limited to, the rate at which
the Company expands its sales and marketing operations, the amount and timing
of fees paid to affiliates to include the Company's content services on their
site or service, the extent to which the Company expands its content services,
the extent to which the Company develops and upgrades its technology and data
network infrastructure, the rate at which the Company expands internationally
and the response of competitors to the Company's service offerings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Control by Principal Stockholder and His Family. Upon completion of this
offering, Naveen Jain, the Company's Chief Executive Officer and Chairman of
the Board, together with his wife and trusts controlled by members of his
family, will beneficially own approximately 52.5% of the Common Stock (51.0%
if the Underwriters' over-allotment option is exercised in full). As a result,
upon completion of this offering, the Jain family will be able to (i) elect,
or defeat the election of, the Company's directors, (ii) amend or prevent
amendment of the Company's Restated Certificate of Incorporation or Restated
Bylaws, (iii) effect or prevent a merger, sale of assets or other corporate
transaction and (iv) control the outcome of any other matter submitted to the
stockholders for vote. The Company's public stockholders, for so long as they
hold less than 50% of the outstanding voting power of the Company, will not be
able to control the outcome of such transactions. The extent of ownership by
the Jain family may have the effect of preventing a change of control of the
Company or discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of the Company, which in turn could
have a material adverse effect on the market price of the Common Stock or
prevent the Company's stockholders from realizing a premium over the then
prevailing market prices for their shares of Common Stock. See "Management,"
"Certain Transactions" and "Principal Stockholders."
Year 2000 Compliance. Many currently installed computer systems and software
products are coded to accept only two-digit entries in the date code field and
cannot distinguish 21st century dates from 20th century dates. These date code
fields will need to distinguish 21st century dates from 20th century dates
and, as a result, many companies' software and computer systems may need to be
upgraded or replaced in order to comply with such "Year 2000" requirements.
The Company has reviewed its internally developed information technology
systems and programs and believes that its systems are Year 2000 compliant and
that there are no significant Year 2000 issues within the Company's systems or
services. Noninformation technology systems that utilize embedded technology,
such as microcontrollers, may also need to be replaced or upgraded to become
Year 2000 compliant. However, the Company believes that it does not use any
noninformation technology systems. Because the Company believes that its
systems are Year 2000 compliant, it has not engaged in any official process
designed to assess potential costs associated with Year 2000 risks. The
Company utilizes third-party prepackaged software that may not be Year 2000
compliant. The Company believes that any defective software would be upgraded.
However, failure of such third-party prepackaged software to operate properly
with regard to the Year 2000 and thereafter, could require the Company to
incur unanticipated expenses to remedy any problems, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, the purchasing patterns of its advertisers
may be affected by Year 2000 issues as companies expend significant resources
to correct their current systems
19
<PAGE>
for Year 2000 compliance. These expenditures may result in reduced funds
available for Internet advertising, which could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company, to date, has not made any assessment of the Year 2000 risks
associated with its third-party prepackaged software or its advertisers, and
therefore is unable to determine whether lost revenues or expenses associated
with such risks would be material. The Company has not made any contingency
plans to address such risks. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance."
No Prior Public Market; Possible Volatility of Stock Price. Prior to this
offering, there has been no public market for the Common Stock, and there can
be no assurance that an active trading market will develop or, if one does
develop, that it will be maintained. The initial public offering price, which
will be determined by negotiations between the Company and the Representatives
of the Underwriters, may not be indicative of prices that will prevail in the
trading market. The trading price of the Common Stock is likely to be highly
volatile and could be subject to wide fluctuations in response to factors such
as actual or anticipated variations in quarterly results of operations, the
addition or loss of affiliates or content providers, announcements of
technological innovations, new products or services by the Company or its
competitors, changes in financial estimates or recommendations by securities
analysts, conditions or trends in the Internet and online commerce industries,
changes in the market valuations of other Internet, online service or software
companies, announcements by the Company of significant acquisitions, strategic
partnerships, joint ventures or capital commitments, additions or departures
of key personnel, sales of Common Stock, general market conditions and other
events or factors, many of which are beyond the Company's control. In
addition, the stock market in general, and the Nasdaq National Market and the
market for Internet and technology companies in particular, has experienced
extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of such companies. These broad
market and industry factors may materially and adversely affect the market
price of the Common Stock, regardless of the Company's operating performance.
The trading prices of the stocks of many technology companies are at or near
historical highs and reflect price-earnings ratios substantially above
historical levels. There can be no assurance that these trading prices and
price earnings ratios will be sustained.
Shares Eligible for Future Sale. Sales of a substantial number of shares of
the Common Stock in the public market following this offering could adversely
affect prevailing market prices of the Common Stock. The 4,000,000 shares of
Common Stock offered hereby will be tradeable without restriction in the
public market unless purchased by an affiliate of the Company. The remaining
shares of outstanding Common Stock will be "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). Other than the shares offered hereby (i) no shares will be
eligible for sale as of the date of this Prospectus, (ii) approximately
308,724 shares may be saleable at various times between 90 and 180 days after
the date of this Prospectus, (iii) approximately 14,012,918 shares will be
eligible for sale 180 days after the date of this Prospectus upon the
expiration of lock-up agreements with the Underwriters and (iv) approximately
1,044,370 shares will become eligible for sale thereafter at various times
upon the expiration of their respective one-year holding periods. Hambrecht &
Quist LLC currently has no plans to release any portion of the securities
subject to these lock-up agreements. When determining whether or not to
release shares from the lock-up agreements, Hambrecht & Quist LLC will
consider, among other factors, market conditions at the time, the number of
shares proposed to be released or for which the release is being requested and
a stockholder's reasons for requesting the release. Upon the closing of this
offering, holders of 1,722,089 shares of Common Stock and warrants to purchase
3,020,499 shares of Common Stock are entitled to certain rights with respect
to the registration of such shares under the Securities Act. In addition, the
Company intends to file a registration statement on Form S-8 under the
Securities Act approximately 180 days after the date of this Prospectus to
register approximately 3,490,499 shares of Common Stock reserved for issuance
under the Company's 1996 Plan and the ESPP. See "Description of Capital
Stock--Registration Rights" and "Shares Eligible for Future Sale."
Antitakeover Effect of Certain Charter Provisions and Applicable Law; Right
of First Negotiation. The Company's Board of Directors has the authority to
issue up to 15,000,000 shares of Preferred Stock and to
20
<PAGE>
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders of the Company. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change of control of the Company, may discourage bids for the Common Stock at
a premium over the market price of the Common Stock and may adversely affect
the market price of, and the voting and other rights of the holders of, Common
Stock. The Company has no present plans to issue shares of Preferred Stock.
The Company's Restated Certificate of Incorporation and Restated Bylaws
provide for the establishment of a classified Board of Directors,
supermajority voting provisions with respect to certain business combinations,
limitations on the ability of stockholders to call special meetings, the lack
of cumulative voting for directors and procedures for advance notification of
stockholder nominations and proposals. AOL holds certain rights of first
negotiation with respect to proposals or discussions that would result in a
sale of a controlling interest in the Company or other merger, asset sale or
other disposition that effectively results in a change of control of the
Company. These charter provisions, certain provisions of Washington and
Delaware law and AOL's right of first negotiation could delay, deter or
prevent a change of control of the Company. See "Description of Capital
Stock."
No Specific Use of Proceeds. The Company has not designated any specific use
for the net proceeds from the sale by the Company of the Common Stock offered
hereby. The Company expects to use the net proceeds for general corporate
purposes, including working capital to fund anticipated operating losses,
payment of additional carriage fees and capital expenditures. The Company may,
when the opportunity arises, use an unspecified portion of the net proceeds to
acquire or invest in complementary businesses, products and technologies. From
time to time, in the ordinary course of business, the Company expects to
evaluate potential acquisitions of such businesses, products or technologies.
However, the Company has no present understandings, commitments or agreements
with respect to any material acquisition or investment. Accordingly,
management will have significant discretion in applying the net proceeds of
this offering. The failure of management to apply such funds effectively could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations. See "Use of Proceeds."
Immediate and Substantial Dilution. The initial public offering price is
substantially higher than the net tangible book value per outstanding share of
Common Stock. Accordingly, purchasers of the Common Stock offered hereby will
suffer an immediate and substantial dilution of $7.48 per share (based on an
assumed initial public offering price of $10.00 per share). Additional
dilution will occur upon exercise of outstanding stock options and warrants
granted by the Company and in the event the Company issues shares of Common
Stock as a result of a lawsuit filed by a former employee. See "Dilution" and
"Business--Legal Proceedings."
Benefits of This Offering to Existing Stockholders. This offering will
provide substantial benefits to the current stockholders of the Company.
Consummation of this offering is expected to create a public market for the
Common Stock held by current stockholders, including executive officers and
certain directors of the Company. Existing stockholders paid approximately
$16,400,000 for an aggregate of approximately 15,100,000 shares of Common
Stock as of September 30, 1998. Based on an assumed initial public offering
price of $10.00 per share, the value of the shares held by such existing
stockholders is approximately $151,000,000, and therefore the unrealized gain
to existing stockholders of the Company resulting from this offering would be
approximately $134,600,000. See "Principal Stockholders" and "Shares Eligible
for Future Sale."
21
<PAGE>
THE COMPANY
The Company began operations in March 1996 as a Washington corporation and
was incorporated in Delaware in April 1996, at which time operations in the
Washington corporation were transferred to the Delaware corporation. As used
in this Prospectus, references to the "Company" and "InfoSpace.com" refer to
InfoSpace.com, Inc., its predecessors and its consolidated subsidiaries. The
Company's executive offices are located at 15375 N.E. 90th Street, Redmond,
Washington 98052, and its telephone number is (425) 882-1602.
The Company has applied for federal registration of the marks "InfoSpace,"
"InfoSpace.com" and the Company's logo. This Prospectus also contains the
trademarks of other companies.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,000,000 shares of
Common Stock offered by the Company hereby, at an assumed initial public
offering price of $10.00 per share, after deducting the estimated underwriting
discount and offering expenses, are estimated to be approximately $35.4
million (approximately $41.0 million if the Underwriters' over-allotment
option is exercised in full).
The principal purposes of this offering are to obtain additional capital, to
create a public market for the Common Stock, to facilitate future access by
the Company to public equity markets and to provide increased visibility and
credibility in a marketplace where many of the Company's current and potential
competitors are or will be publicly held companies. The Company has no
specific plan for the net proceeds of this offering. The Company expects to
use the net proceeds for general corporate purposes, including working capital
to fund anticipated operating losses, payment of additional carriage fees and
capital expenditures. The Company may, when the opportunity arises, use an
unspecified portion of the net proceeds to acquire or invest in complementary
businesses, products and technologies. From time to time, in the ordinary
course of business, the Company expects to evaluate potential acquisitions of
such businesses, products or technologies. However, the Company has no present
understandings, commitments or agreements with respect to any material
acquisition or investment. See "Risk Factors -- Risks Associated With
Acquisitions" and "-- No Specific Use of Proceeds."
Pending use of the net proceeds for the above purposes, the Company intends
to invest such funds in short-term, interest-bearing, investment-grade
securities and use such funds for general corporate purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings and
therefore does not anticipate paying any cash dividends in the foreseeable
future.
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998 (i) on an actual basis and (ii) as adjusted to give effect
to the sale and issuance by the Company of the 4,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $10.00 per
share and the receipt of the estimated net proceeds therefrom. This table
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $0.0001 par value per share; 15,000,000
shares authorized; no shares issued and outstanding,
actual and as adjusted................................. $ -- $ --
Common Stock, $0.0001 par value per share; 50,000,000
shares authorized; 15,116,012 shares issued and
outstanding, actual; 19,116,012 shares issued and
outstanding, as adjusted (1)........................... 2 2
Additional paid-in capital.............................. 25,440 60,840
Accumulated deficit..................................... (4,397) (4,397)
Unearned compensation................................... (384) (384)
------- -------
Total stockholders' equity............................ 20,661 56,061
------- -------
Total capitalization................................ $20,661 $56,061
======= =======
</TABLE>
- ---------------------
(1) Excludes as of September 30, 1998 (i) 1,785,049 shares of Common Stock
issuable upon exercise of outstanding options at a weighted average
exercise price of $2.19 per share, (ii) 3,531,719 shares of Common Stock
issuable upon exercise of outstanding warrants at a weighted average
exercise price of $6.79 per share, (iii) 1,505,450 shares of Common Stock
reserved for future issuance under the 1996 Plan, and (iv) 450,000 shares
of Common Stock reserved for issuance under the ESPP. See "Management--
Benefit Plans," "Description of Capital Stock" and Note 3 of the Company's
Notes to Consolidated Financial Statements.
23
<PAGE>
DILUTION
As of September 30, 1998, the Company had a net tangible book value of
approximately $12.8 million, or $0.85 per share of Common Stock. Net tangible
book value per share represents the amount of total tangible assets of the
Company reduced by the Company's total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the receipt by the
Company of the estimated net proceeds from the sale of the 4,000,000 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $10.00 per share, the adjusted net tangible book value of
the Company as of September 30, 1998 would have been approximately $48.2
million or $2.52 per share. This represents an immediate increase in net
tangible book value of $1.67 per share to existing stockholders and an
immediate dilution of $7.48 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $10.00
Net tangible book value per share before this offering........ $0.85
Increase per share attributable to new investors.............. 1.67
-----
Adjusted net tangible book value per share after this offering.. 2.52
------
Dilution per share to new investors............................. $ 7.48
======
</TABLE>
The following table sets forth as of September 30, 1998, the differences
between existing stockholders and new investors with respect to the number of
shares of Common Stock purchased from the Company, the total consideration
paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 15,116,012 79.1% $16,395,969 29.1% $ 1.08
New investors.......... 4,000,000 20.9 40,000,000 70.9 10.00
---------- ----- ----------- -----
Total................ 19,116,012 100.0% $56,395,969 100.0%
========== ===== =========== =====
</TABLE>
Other than as noted above, the foregoing computations assume the exercise of
no stock options or warrants after September 30, 1998. As of September 30,
1998, options to purchase 1,785,049 shares of Common Stock were outstanding,
with a weighted average exercise price of $2.19 per share, and warrants to
purchase 3,531,719 shares of Common Stock were outstanding, with a weighted
average exercise price of $6.79 per share. To the extent that the outstanding
options or warrants, or any options or warrants issued in the future, are
exercised, there will be further dilution to new investors.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Company's Consolidated Financial Statements
and Notes thereto and other financial information included elsewhere in this
Prospectus. The selected consolidated statements of operations data for the
period from March 1, 1996 (inception) to December 31, 1996, for the year ended
December 31, 1997 and for the nine months ended September 30, 1998 and the
selected consolidated balance sheet data at December 31, 1996 and 1997 and
September 30, 1998 are derived from the audited consolidated financial
statements of the Company, which have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports included elsewhere herein,
and are included elsewhere in this Prospectus. The selected consolidated
statements of operations data for the nine months ended September 30, 1997 and
the selected consolidated balance sheet data at September 30, 1997 are derived
from unaudited consolidated financial statements of the Company, which in the
opinion of management include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
information set forth therein. The historical results are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
MARCH 1, 1996 ENDED
(INCEPTION) YEAR ENDED SEPTEMBER 30,
TO DECEMBER DECEMBER 31, ----------------
31, 1996 1997 1997 1998
------------- ------------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues........................ $ 199 $1,685 $ 932 $ 5,374
Cost of revenues................ 97 411 248 1,108
------ ------ ------- -------
Gross profit.................... 102 1,274 684 4,266
Operating expenses:
Product development........... 109 213 158 307
Sales and marketing........... 231 830 591 2,439
General and administrative.... 164 681 319 2,384
Write-off of in-process
research and development..... -- -- -- 2,800
------ ------ ------- -------
Total operating expenses.... 504 1,724 1,068 7,930
------ ------ ------- -------
Loss from operations............ (402) (450) (384) (3,664)
Other income, net............... 21 21 18 76
------ ------ ------- -------
Net loss........................ $ (381) $ (429) $ (366) $(3,588)
====== ====== ======= =======
Basic and diluted net loss per
share (1)...................... $(0.04) $(0.04) $(0.03) $(0.28)
====== ====== ======= =======
Shares used in computing basic
net loss per share calculations
(1)............................ 9,280 10,941 10,940 12,639
Shares used in computing diluted
net loss per share calculations
(1)............................ 9,280 10,998 10,987 12,639
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED
BALANCE SHEET
DATA:
Cash and cash
equivalents. $ 690 $ 324 $10,289
Working
capital..... 825 543 12,630
Total assets. 1,072 1,398 23,397
Total
stockholders'
equity...... 1,020 1,028 20,661
</TABLE>
- ---------------------
(1) See Note 7 of the Company's Notes to Consolidated Financial Statements for
information concerning the determination of net loss per share.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
In addition to historical information, the following "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contains
certain forward-looking statements that involve known and unknown risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are
not limited to, those discussed below and in the section entitled "Risk
Factors," as well as those discussed elsewhere herein.
OVERVIEW
InfoSpace.com is a leading aggregator and integrator of content services for
syndication to a broad network of affiliates, including existing and emerging
Internet portals, destination sites and suppliers of PCs and other Internet
access devices such as cellular phones, pagers, screen phones, television set-
top boxes, online kiosks and personal digital assistants. The Company began
operations in March 1996. During the period from inception through December
31, 1996, the Company had insignificant revenues and was primarily engaged in
the development of technology for the aggregation, integration and syndication
of Internet content and the hiring of employees. In 1997, the Company expanded
its operations, adding business development and sales personnel in order to
capitalize on the opportunity to generate Internet advertising revenues. The
Company began generating material revenues in 1997 through the sale of
advertising on Web pages that deliver its content services. In May 1997, the
Company acquired Yellow Pages on the Internet, LLC ("YPI"), a Washington
limited liability company that provided Internet yellow pages directory
information. In July 1997, the Company added a sales office in the San
Francisco Bay Area. In June 1998, the Company acquired Outpost, a Washington
corporation engaged primarily in electronic commerce through the sale of cards
and gifts via the Internet. The number of Company employees was 13 as of
January 1, 1997, 15 as of January 1, 1998 and 48 as of September 30, 1998.
The Company derives substantially all of its revenues from the sale of
national advertising, promotions and local Internet yellow pages advertising.
National advertising consists of banner advertisements and other forms of
national advertising that are sold on a cost per thousand impressions ("CPM")
basis on Web pages that deliver the Company's content services. Examples of
banner advertisements include: (i) mass market placements for general
rotation; (ii) targeted placements for specified audiences; and (iii) targeted
placements for specified audiences in specified geographic areas. The most
common of the Company's nonbanner advertisements are known as "button
advertisements" and "textlinks," but also include customized advertising
solutions developed for specific advertisers. Revenues from national
advertising are recognized ratably over the related contractual term. A
portion of the Company's advertising revenues is shared with affiliates whose
sites incorporate the Company's content where advertisements are placed. The
Company records such revenue sharing as an expense in cost of revenues.
National advertising agreements generally have terms of less than six months
and guarantee a minimum number of impressions or click throughs. CPMs vary
depending on the type of advertisement purchased and the specificity of
targeting requested. Rates for banner advertising generally range from $10 to
$20 CPM for general rotation across undifferentiated users to $50 or greater
CPM for targeted category or geographic advertisements. The Company's rates
for button advertisements and textlinks are lower than those for banner
advertisements. Actual CPMs depend upon a variety of factors, including,
without limitation, the degree of targeting, the duration of the advertising
contract and the number of impressions purchased, and are often negotiated on
a case-by-case basis. Because of these factors, actual CPMs experienced by the
Company may fluctuate. The guarantee of minimum levels of impressions or click
throughs exposes the Company to
26
<PAGE>
potentially significant financial risks, including the risk that the Company
may fail to deliver required minimum levels of user impressions or click
throughs, in which case the Company typically continues to provide advertising
without compensation until such levels are met. See "Risk Factors--Reliance on
Advertising and Promotion Revenues."
In addition to its CPM-based national advertising, the Company also sells
promotions, which are integrated packages of advertising that bundle such
features as button and textlink advertisements, sponsorships of specific
categories of content or content services and electronic commerce features.
Promotions also include co-branding and distribution services that the Company
provides to content providers, for which the Company receives a carriage fee.
Promotion arrangements vary in terms and duration, but generally have longer
terms than arrangements for the Company's CPM-based advertising. The fee
arrangements are individually negotiated with advertisers and are based on the
range and the extent of customization. These arrangements typically include
minimum monthly payments. To the extent that the advertiser offers an
electronic commerce opportunity in its promotion, the Company may derive
transaction revenues based on the level of transactions made through its
promotion for the advertiser.
The Company has formed cooperative sales relationships with leading
independent yellow pages publishers, media companies and direct marketing
companies to sell local Internet yellow pages advertising on the Company's
yellow pages directory services in the form of enhanced yellow pages listings.
The local sales forces of these companies are empowered to sell Internet
yellow pages advertising on the Company's directory services, which are
bundled with the traditional print advertising they sell. Internet yellow
pages advertising agreements provide for terms of one year, with pricing
comparable to print yellow pages advertising, typically paid in monthly
installments. Costs to local advertisers generally range from $50 to $300 or
greater per year, depending on the types of enhancements selected. Agreements
for the Company's cooperative sales relationships typically have terms of one
to five years and provide for revenue sharing, which varies from relationship
to relationship. Typically, these agreements provide for guaranteed minimum
levels of payments to the Company based on floor prices of the listing
enhancements that are sold. These guaranteed minimum payments are recognized
ratably over the related contract term, and revenues earned above the
guaranteed minimum payment are recognized over the term that the local
advertising is provided.
In July 1998, the Company entered into a joint venture agreement with
Thomson to form TDL InfoSpace to replicate the Company's content services in
Europe. TDL InfoSpace has targeted the United Kingdom as its first market, and
content services were launched in the third quarter of 1998. Under the joint
venture agreement, Thomson will provide its directory information to TDL
InfoSpace and sell Internet yellow pages advertising for the joint venture
through its local sales forces. The Company also will license its technology
and provide hosting services to TDL InfoSpace. Each of the Company and Thomson
purchased a 50% interest in TDL InfoSpace and are required to provide
reasonable working capital to TDL InfoSpace. As of September 30, 1998, the
Company had contributed $496,000 to the joint venture. The Company accounts
for its investment in the joint venture under the equity method. In the
quarter ended September 30, 1998, the Company recorded a loss from the joint
venture of $76,000.
Effective as of July 1, 1998, the Company entered into two trademark license
agreements with Netscape to license two of Netscape's trademarks for a one-
time nonrefundable license fee. The trademark license fees will be capitalized
and amortized over one year, the expected useful life of the trademarks.
The Company entered into two directory services agreements with Netscape
effective as of July 1, 1998. Under these agreements, which provide for a one-
year term, with automatic renewal, the Company serves as the exclusive
provider of co-branded yellow pages and white pages directory services on the
Netscape home page (Netcenter). Netscape has guaranteed the Company a minimum
level of use of the Company's yellow pages and white pages directories, and
the Company has agreed to pay Netscape a carriage fee each quarter equal to
the product of (x) the cost per click through as specified in the applicable
directory services agreement and (y) the number of click throughs delivered by
Netscape, up to a specified maximum. The Company accrues monthly a liability
for the estimated click throughs delivered. Netscape reports the number
27
<PAGE>
of click throughs by month on a quarterly basis and invoices the Company on a
quarterly basis. Payments to Netscape will be recorded as sales and marketing
expenses during the quarter in which the click throughs occur. The Company
expects Netscape to meet the minimum guaranteed click throughs during the
period of the directory services agreements. In the event that Netscape fails
to deliver the guaranteed minimum number of click throughs, Netscape has
agreed to either continue the link to the Company's content services beyond
the term of the agreement until the guaranteed minimum click throughs have
been achieved or deliver to the Company a program of equivalent value as a
remedy for the shortfall in click throughs. Netscape and the Company will
share advertising revenue generated from a search of the Company's directory
services initiated on Netscape's home page.
On August 24, 1998, the Company entered into agreements with AOL to provide
white pages directory and classifieds information services to AOL. Pursuant to
the white pages directory services agreement, the Company has agreed to
provide to AOL white pages listings and directory service. The Company is
required to pay to AOL a quarterly carriage fee, the retention of which is
conditioned on the quarterly achievement of a minimum number of searches on
the AOL white pages site. The quarterly carriage fee is paid in advance at the
beginning of the quarter in which the searches are expected to occur and is
recorded as a prepaid expense in the quarter it is paid. The fee is refundable
if the minimum number of searches on the AOL white pages site for such quarter
is not achieved. In addition, AOL has guaranteed to the Company a minimum
number of searches over the term of the agreement. In the event that AOL does
not deliver the guaranteed minimum number of searches over the term of the
agreement, AOL has agreed to pay to the Company a cash penalty payment. The
Company will share with AOL revenues generated by advertising on the Company's
white pages directory services delivered to AOL. The Company is entitled to a
greater percentage of advertising revenue than is AOL if the amount of such
revenue received by the Company is less than the carriage fees paid to AOL.
The Company has agreed to provide white pages directory services to AOL for
a three-year term beginning on the date of first commercial launch
(anticipated to be November 1998), which term may be extended for four
additional one-year terms at AOL's discretion. The agreement may be terminated
by AOL for any reason after 18 months or at any time upon the acquisition by
AOL of a competing white pages directory services business. In the event of
any such termination, AOL is required to pay a termination fee to the Company.
In addition, without the payment of a termination fee, AOL has the right to
terminate the agreement in the event of a change of control of the Company.
The Company has agreed to provide classifieds information services to AOL
for a two-year term, with up to three one-year extensions at AOL's discretion.
AOL has agreed to pay to the Company a quarterly fee and will share with the
Company revenues generated from payments by individuals and commercial listing
services for listings on the AOL classifieds service.
Pursuant to the terms of these agreements, the Company has granted AOL the
right to negotiate with the Company exclusively and in good faith for a period
of 30 days with respect to proposals or discussions that would result in a
sale of a controlling interest of the Company or other merger, asset sale or
other disposition that effectively results in a change of control of the
Company.
In connection with the agreements, on August 24, 1998, the Company issued to
AOL warrants to purchase up to 989,916 shares of Common Stock, which warrants
vest in 16 equal quarterly installments over four years, conditioned on the
delivery by AOL of a minimum number of searches each quarter on the Company's
white pages directory service. The warrants have an exercise price of $12.00
per share.
The revenue and revenue sharing under the agreements with AOL will be
accounted for under the Company's existing revenue recognition policies
described in the Company's Notes to Consolidated Financial Statements. The
Company expects AOL to meet the minimum number of searches each quarter.
Accordingly, the total carriage fee payments to be made under the white pages
directory services agreement will be recognized ratably over the term of the
agreement as sales and marketing expense. However, if AOL does not
28
<PAGE>
deliver the minimum searches on the AOL white pages during that quarter, then
AOL is obligated to refund the quarterly carriage fee paid for that specific
quarter, in which case the Company would credit prepaid expense and reduce the
total cost of the white pages directory services agreement by the amount of
the refund. The adjusted total cost of the agreement would be recognized
ratably over the remaining term of the agreement as sales and marketing
expense, which term would include the quarter in which AOL did not deliver the
minimum number of searches. For at least the first two years of the white
pages agreement, the Company expects that actual carriage fee payments will
exceed the sales and marketing expense recorded for the quarter in which the
payment is made. As such, the Company expects to experience increases in its
prepaid expense account during this time. Any termination fee paid to the
Company by AOL will be recognized as revenue when paid. The warrants will be
valued under the fair value method, as required under Statement of Financial
Accounting Standards ("SFAS") 123, and amortized ratably over the four-year
vesting period.
The Company anticipates that carriage fees paid to certain affiliates to
include the Company's content services on their Web sites will continue for
the foreseeable future, and the Company may also pay such carriage fees to
other affiliates under arrangements similar to those with Netscape and AOL.
Further, the Company anticipates incurring material additional costs in the
fourth quarter of 1998, and substantially larger amounts in 1999 and
thereafter, for more traditional forms of advertising and public relations.
The Company has incurred losses since its inception and as of September 30,
1998 had an accumulated deficit of approximately $4.4 million. For the nine
months ended September 30, 1998, the Company's net loss totaled $3.6 million,
including a $2.8 million write-off associated with the Company's acquisition
of Outpost. See "--Technology From the Outpost Acquisition."
The Company believes that its future success will depend largely on its
ability to continue to offer content services that are attractive to its
existing and potential future affiliates. Accordingly, the Company plans to
increase significantly its operating expenses in order to, among other things:
(i) expand its affiliate network, which may require the payment of additional
carriage fees to certain affiliates; (ii) expand its sales and marketing
operations and hire more salespersons; (iii) increase its advertising and
promotional activities; (iv) develop and upgrade its technology and purchase
equipment for its operations and network infrastructure; (v) expand
internationally; and (vi) expand its content services. As such, the Company
expects to continue to incur operating losses for the foreseeable future.
In light of the rapidly evolving nature of the Company's business and
limited operating history, the Company believes that period-to-period
comparisons of its revenues and operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
Although the Company has experienced sequential quarterly growth in revenues
over the past five quarters, it does not believe that its historical growth
rates are necessarily sustainable or indicative of future growth.
29
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain consolidated statements of operations
data for the Company's seven most recent quarters, as well as such data
expressed as a percentage of revenues. This information has been derived from
the Company's unaudited consolidated financial statements. In management's
opinion, this unaudited information has been prepared on the same basis as the
annual consolidated financial statements and includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation for the quarters presented. This information should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1997 1997 1997 1997 1998 1998 1998
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 244 $ 222 $ 466 $ 753 $1,015 $ 1,840 $2,519
Cost of revenues........ 59 88 101 163 224 336 548
----- ----- ----- ----- ------ ------- ------
Gross profit............ 185 134 365 590 791 1,504 1,971
Operating expenses:
Product development... 55 55 48 55 50 99 158
Sales and marketing... 168 191 232 239 434 470 1,536
General and
administrative....... 87 96 136 362 324 856 1,203
Write-off of in-
process research and
development.......... -- -- -- -- -- 2,800 --
----- ----- ----- ----- ------ ------- ------
Total operating
expenses........... 310 342 416 656 808 4,225 2,897
Loss from operations.... (125) (208) (51) (66) (17) (2,721) (926)
Other income, net....... 7 6 5 3 5 38 33
----- ----- ----- ----- ------ ------- ------
Net loss................ $(118) $(202) $ (46) $ (63) $ (12) $(2,683) $ (893)
===== ===== ===== ===== ====== ======= ======
<CAPTION>
AS A PERCENTAGE OF REVENUES
-----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1997 1997 1997 1997 1998 1998 1998
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 24.2 39.6 21.7 21.6 22.1 18.3 21.8
----- ----- ----- ----- ------ ------- ------
Gross profit............ 75.8 60.4 78.3 78.4 77.9 81.7 78.2
Operating expenses:
Product development... 22.5 24.8 10.3 7.3 4.9 5.4 6.3
Sales and marketing... 68.9 86.0 49.8 31.7 42.8 25.5 61.0
General and
administrative....... 35.7 43.2 29.2 48.1 31.9 46.5 47.8
Write-off of in-
process research and
development.......... -- -- -- -- -- 152.2 --
----- ----- ----- ----- ------ ------- ------
Total operating
expenses........... 127.1 154.0 89.3 87.1 79.6 229.6 115.1
Loss from operations.... (51.3) (93.6) (11.0) (8.7) (1.7) (147.9) (36.9)
Other income, net....... 2.9 2.7 1.1 0.4 0.5 2.1 1.3
----- ----- ----- ----- ------ ------- ------
Net loss................ (48.4)% (90.9)% (9.9)% (8.3)% (1.2)% (145.8)% (35.6)%
===== ===== ===== ===== ====== ======= ======
</TABLE>
30
<PAGE>
RESULTS OF OPERATIONS
Revenues. Substantially all of the Company's revenues are currently derived
from national advertising, promotions and local Internet yellow pages
advertising. Revenues increased during each of the five quarters ended
September 30, 1998, primarily as a result of continued expansion of the
Company's affiliate network, increased sales and marketing efforts and
increased use of the Company's content services. A portion of the Company's
revenues represent barter transactions resulting from the exchange by the
Company with another company of banner advertising space for reciprocal banner
advertising space or for content licenses. Barter revenues aggregated $165,000
for the four quarters in 1997 and were $195,000 for the quarter ended
March 31, 1998, $189,000 for the quarter ended June 30, 1998 and $257,000 for
the quarter ended September 30, 1998. The Company records the associated
expense of the advertising used in advertising barter exchanges in sales and
marketing expenses and the expense of the advertising for content licenses in
cost of revenues.
The Company has experienced, and expects to continue to experience,
seasonality in its business, with reduced user traffic on its affiliate
network expected during the summer and year-end vacation and holiday periods,
when usage of the Internet has typically declined. Advertising sales in
traditional media, such as broadcast and cable television, generally decline
in the first and third quarters of each year. Depending on the extent to which
the Internet and commercial online services are accepted as an advertising
medium, seasonality in the level of advertising expenditures could become more
pronounced for Internet-based advertising. Seasonality in Internet service
usage and advertising expenditures is likely to cause quarterly fluctuations
in the Company's results of operations and could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Cost of Revenues. Cost of revenues consists of expenses associated with the
enhancement, maintenance and support of the Company's content services,
including salaries and related employee benefits for customer service
representatives and webmasters, communication costs such as high-speed
Internet access with dedicated DS-3 communication lines, equipment
depreciation, license fees related to third-party content, amortization of
purchased advertising agreements and costs of aggregation and syndication of
content, which is the amounts paid to affiliates pursuant to revenue-sharing
arrangements. For the seven quarters ended September 30, 1998, the largest
expenditures were for license fees related to third-party content, Internet
access and salaries and related benefits. These expenses have continued to
increase in absolute dollars and have remained relatively constant as a
percentage of revenues over the five quarters ended September 30, 1998. These
expenses are expected to continue to increase in absolute dollars.
Product Development Expenses. Product development expenses consist
principally of personnel costs, and include expenses for research, design and
development of the proprietary technology used by the Company for the
aggregation, integration and delivery of its content services. These expenses
remained relatively constant for the five quarters ended March 31, 1998 and
increased by approximately $49,000 in the quarter ended June 30, 1998, with
approximately $47,500 of the increase attributable to personnel costs. Product
development expenses increased by an additional $59,000 in the quarter ended
September 30, 1998, with all of the increase attributable to personnel costs.
These expenses declined significantly as a percentage of revenues due to the
Company's revenue growth during the seven quarters ended September 30, 1998.
The Company intends to increase these expenses significantly in future periods
in order to maintain and enhance the Company's technology. These expenses may
vary as a percentage of revenues.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of salaries and related benefits for sales and marketing personnel,
traditional advertising and promotional expenses, trademark licensing and
carriage fees paid to certain affiliates to include the Company's content
services on their Web sites, sales office expenses and travel expenses. These
expenses have continued to increase over the seven quarters ended September
30, 1998 to support the continued expansion of the Company's business. Total
sales and marketing expenses for the four quarters ended December 31, 1997
totaled approximately $830,000, and
31
<PAGE>
increased to a total of approximately $904,000 for the two subsequent quarters
ended June 30, 1998. Thus, a quarterly average in the first half of calendar
1998 included sales and marketing expenditures of approximately $452,000,
compared to a quarterly average in calendar 1997 of $208,000, which equates to
an average increase of 118% in quarterly sales and marketing expenditures, or
$244,000 per quarter. Of this $244,000 average increase, approximately 33% was
attributable to increased personnel costs, approximately 48% to increased
barter advertising expense, and approximately 19% to advertising and marketing
and other sales expenses. Sales and marketing expenses increased significantly
in the quarter ended March 31, 1998 as a result of an increase in barter
transactions, and continued to increase in the quarter ended June 30, 1998 due
to higher expenses required to support growth of the Company's revenues. Sales
and marketing expenses increased significantly in the quarter ended September
30, 1998 as a result of trademark licensing and carriage fees. The expenses
for barter advertising increased from $39,000 in the quarter ended December
31, 1997 to approximately $163,000 in the quarter ended March 31, 1998, then
declined to approximately $147,000 in the quarter ended June 30, 1998, and
increased to $176,000 in the quarter ended September 30, 1998. Trademark
licensing and carriage fees were not material from inception through the
quarter ended June 30, 1998 and were $927,000 in the quarter ended September
30, 1998. These constituted the majority of expense increases between these
periods. These expenses have fluctuated significantly as a percentage of
revenues over the seven quarters ended September 30, 1998. The Company
anticipates substantial additional near-term increases in sales and marketing
expenses of a magnitude comparable to the increases experienced for the
quarter ended September 30, 1998 due to continued expansion of its sales and
marketing efforts, a substantial increase in trademark licensing and carriage
fees paid to certain affiliates to include the Company's content services on
their Web sites, including under the recent agreements with Netscape and AOL,
and increases in traditional forms of advertising and public relations. The
Company expects these expenses will be significantly higher in absolute
dollars and as a percentage of revenues for at least the quarter ended
December 31, 1998. See Note 5 of the Company's Notes to Consolidated Financial
Statements.
General and Administrative Expenses. General and administrative expenses
consist primarily of fees for professional services, bad debt expenses,
accrued litigation costs, general office expenses, salaries and related
benefits for administrative and executive staff, state taxes and occupancy
expenses. Sequential increases in quarterly general and administrative
expenses were due primarily to increased staffing levels necessary to manage
and support the Company's expanding operations. General and administrative
expenses increased from $324,000 in the quarter ended March 31, 1998 to
approximately $856,000 in the quarter ended June 30, 1998. These expenses for
the quarter ended June 30, 1998, included an increase in the accrual for bad
debts of $151,000, due primarily to the write-off of amounts receivable from a
single customer, a $132,000 increase in professional services, and a $240,000
reserve for a pending lawsuit. See "Risk Factors--Legal Proceedings" and Note
5 of the Company's Notes to Consolidated Financial Statements. General and
administrative expenses increased from $856,000 in the quarter ended June 30,
1998 to approximately $1.2 million in the quarter ended September 30, 1998.
This net increase of $347,000 was comprised of an approximately $152,000
increase in amortization of goodwill plus increases in occupancy and moving
expenses, computer equipment expenses, professional services, bad debt
expenses and salaries, partially offset by the absence of a litigation accrual
of $240,000 which was made in the quarter ended June 30, 1998. Bad debt
expenses for the quarter represented approximately $245,000, primarily for two
major and several minor customers. A significant portion of the Company's
advertiser base has been comprised of emerging growth companies with limited
operating histories and limited financial resources. Consequently, these
companies represent higher than normal credit risks to the Company. The
Company's bad debt expense represented approximately 8.2% and 9.7% of revenues
in the quarters ended June 30, 1998 and September 30, 1998. The Company has
established formal credit and collection policies which were implemented
during the quarter ended September 30, 1998. Prior to the establishment of
these policies, the Company did not review the credit worthiness of new
customers. With the implementation of these new policies, the Company expects
bad debt expense as a percentage of revenues to decrease as revenues increase.
The Company closely monitors the aging of accounts receivable, but records the
allowance based on specifically identified accounts. The Company anticipates
that general and administrative expenses will continue to increase in absolute
dollars due to a number of factors, including the recent addition of several
officers and managers to the Company's payroll
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and the expected hiring of additional personnel to support increased
operations, higher occupancy expenses associated with the Company's new
facility and increased costs associated with being a public company. In
addition, these expenses will include approximately $243,000 per quarter for
the next four years for the amortization of goodwill. However, these expenses
may vary as a percentage of revenues.
Write-Off of In-Process Research and Development. Write-offs of in-process
research and development
are recorded at the time an acquisition is completed. The quarter ended
June 30, 1998 includes a $2.8 million write-off of in-process research and
development costs associated with the Company's acquisition of Outpost.
Other Income. Other income consists primarily of interest income for all
periods. Beginning in the quarter ended September 30, 1998, other income
includes income or losses attributable to the Company's 50% interest in TDL
InfoSpace, the Company's joint venture with Thomson. For the quarter ended
September 30, 1998, the Company recorded a joint venture loss of $76,000.
Provision for Income Taxes. Net operating losses have been incurred to date
on a cumulative basis, and no tax benefit has been recorded.
Net Loss. The Company has sustained losses in all seven quarters ended
September 30, 1998, and the cumulative losses through that date were $4.4
million. The Company expects to incur operating losses on a quarterly basis
for the foreseeable future.
FACTORS AFFECTING QUARTERLY RESULTS OF OPERATIONS
The Company's results of operations have varied on a quarterly basis during
its short operating history and will fluctuate significantly in the future as
a result of a variety of factors, many of which are outside the Company's
control. Factors that may affect the Company's quarterly results of operations
include, but are not limited to: (i) the addition or loss of affiliates; (ii)
variable demand for the Company's content services by its affiliates; (iii)
the cost of acquiring and the availability of content; (iv) the overall level
of demand for content services; (v) the Company's ability to attract and
retain advertisers and content providers; (vi) seasonal trends in Internet
usage and advertising placements; (vii) the amount and timing of fees paid by
the Company to certain of its affiliates to include the Company's content
services on their Web sites; (viii) the productivity of the Company's direct
sales force and the sales forces of the independent yellow pages publishers,
media companies and direct marketing companies that sell local Internet yellow
pages advertising for the Company; (ix) the amount and timing of expenditures
for expansion of the Company's operations, including the hiring of new
employees, capital expenditures and related costs; (x) the Company's ability
to continue to enhance, maintain and support its technology; (xi) the
Company's ability to attract and retain personnel; (xii) the introduction of
new or enhanced services by the Company, its affiliates and their respective
competitors; (xiii) price competition or pricing changes in Internet
advertising and Internet services, such as the Company's content services;
(xiv) technical difficulties, system downtime, system failures or Internet
brown-outs; (xv) political or economic events and governmental actions
affecting Internet operations or content; and (xvi) general economic
conditions and economic conditions specific to the Internet. Any one of these
factors could cause the Company's revenues and operating results to vary
significantly in the future. In addition, as a strategic response to changes
in the competitive environment, the Company may from time to time make certain
pricing, service or marketing decisions or acquisitions that could cause
significant declines in the Company's quarterly results of operations. Also,
the Company currently is involved in a lawsuit filed by a former employee
involving certain claims to purchase Common Stock. While the Company believes
its defenses are meritorious, litigation is inherently uncertain, and the
Company may be required to issue to the plaintiff shares of Common Stock or
options to purchase Common Stock. To the extent the Company is required to
issue shares of Common Stock or options to purchase Common Stock, the Company
would recognize an expense, which could have a material adverse effect on the
Company's results of operations for the period in which such issuance occurs,
and any such issuance would be dilutive to existing stockholders. See
"Business--Legal Proceedings."
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The Company's limited operating history and the emerging nature of its
markets make any prediction of future revenues difficult. The Company's
expense levels are based, in part, on its expectations with regard to future
revenues, and to a large extent such expenses are fixed, particularly in the
short term. There can be no assurance that the Company will be able to predict
its future revenues accurately and the Company may be unable to reduce
spending commitments in a timely manner to compensate for any unexpected
revenue shortfall. Accordingly, any significant revenue shortfall in relation
to the Company's expectations could result in significant declines in the
Company's quarterly results of operations.
Due to the foregoing factors, the Company's revenues and operating results
are difficult to forecast. The Company believes that its quarterly revenues,
expenses and operating results will vary significantly in the future and that
period-to-period comparisons are not meaningful and are not indicative of
future performance. As a result of the foregoing factors, it is likely that in
some future quarters or years the Company's results of operations will fall
below the expectations of securities analysts or investors, which would have a
material adverse effect on the trading price of the Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
From its inception in March 1996 through May 1998, the Company funded
operations with approximately $1.5 million in equity financing and, to a
lesser extent, from revenues generated for services performed. In May 1998,
the Company completed a $5.1 million private placement of Common Stock, and in
July and August 1998, the Company completed an additional private placement of
Common Stock for $8.2 million. Sales of Common Stock to employees pursuant to
the Company's 1998 Stock Purchase Rights Plan also raised $1.6 million in July
1998. As of September 30, 1998, the Company had cash and cash equivalents of
$10.3 million.
Net cash provided (used) by operating activities was $(462,000) from the
Company's inception in March 1996 through December 31, 1996, $(202,000) in the
year ended December 31, 1997 and $640,000 in the nine months ended September
30, 1998. Cash used in operating activities from inception through September
30, 1998 consisted primarily of net operating losses and increases in accounts
receivable, which were partially offset by increases in accrued expenses and
accounts payable.
Net cash used by investing activities was $219,000 in the period from
inception through December 31, 1996, $164,000 in the year ended December 31,
1997 and $4.9 million in the nine months ended September 30, 1998. Cash used
in investing activities consists of business acquisitions, purchase of
property and equipment and proceeds from the sale of fixed assets.
The Company anticipates that it will spend up to $1.6 million for capital
equipment in the next twelve months. The Company has also entered into various
agreements that provide for the Company to make payments for carriage
agreements of $1.8 million during the remainder of 1998 and for carriage fees
of $10.3 million for the period from 1999 through 2002.
The Company believes that existing cash balances, cash equivalents and cash
generated from operations, together with the net proceeds from this offering,
will be sufficient to meet its anticipated cash needs for working capital and
capital expenditures in the short term (for the next 12 months) and at least
through the next 15 months. There can be no assurance that the underlying
assumed levels of revenues and expenses will prove to be accurate. The Company
may seek additional funding through public or private financings or other
arrangements prior to such time. Adequate funds may not be available when
needed or may not be available on terms favorable to the Company. If
additional funds are raised by issuing equity securities, dilution to existing
stockholders will result. If funding is insufficient at any time in the
future, the Company may be unable to develop or enhance its products or
services, take advantage of business opportunities or respond to competitive
pressures, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
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YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. These date code fields will need
to distinguish 21st century dates from 20th century dates and, as a result,
many companies' software and computer systems may need to be upgraded or
replaced in order to comply with such "Year 2000" requirements. The Company
has reviewed its internally developed information technology systems and
programs, and believes that its systems are Year 2000 compliant and that there
are no significant Year 2000 issues within the Company's systems or services.
Noninformation technology systems that utilize embedded technology, such as
microcontrollers, may also need to be replaced or upgraded to become Year 2000
compliant. The Company believes that it does not use any noninformation
technology systems. Because the Company believes that its systems are Year
2000 compliant, it has not engaged in any official process designed to assess
potential costs associated with Year 2000 risks. The Company utilizes third-
party prepackaged software that may not be Year 2000 compliant. The Company
believes that any defective software would be upgraded. However, failure of
such third-party prepackaged software to operate properly with regard to the
Year 2000 and thereafter could require the Company to incur unanticipated
expenses to remedy any problems, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Furthermore, the purchasing patterns of its advertisers may be affected by
Year 2000 issues as companies expend significant resources to correct their
current systems for Year 2000 compliance. These expenditures may result in
reduced funds available for Internet advertising, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company, to date, has not made any assessment of the Year 2000
risks associated with its third-party prepackaged software or its advertisers,
and therefore is unable to determine whether lost revenues or expenses
associated with such risks would be material. The Company has not made any
contingency plans to address such risks.
TECHNOLOGY FROM THE OUTPOST ACQUISITION
In June 1998, the Company acquired Outpost, which included the acquisition
of the Outpost Technology and the hiring of approximately ten employees. In
the second quarter of 1998, the Company wrote off approximately $2.8 million
in connection with the Outpost acquisition.
In connection with the acquisition, the Company conducted a valuation of the
assets acquired from Outpost, including core technology, assembled workforce
and in-process research and development, utilizing the following major
assumptions:
. The revenue and margin contribution of each technology (in-process and
future yet-to-be defined).
. The percentage of carryover of technology from products under development
and products scheduled for development in the future.
. The expected life of the technology.
. Anticipated module development and module introduction schedules.
. Revenue forecasts, including expected aggregate growth rates for the
business as a whole and expected growth rates for the Internet content
provider industry.
. Forecasted operating expenses, including selling, general and
administrative expenses, as a percentage of revenues.
. A rate of return of 30% utilized to discount to present value the cash
flows associated with the in-process technologies.
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Within the acquired Outpost Technology (smart-shopping services) there are
four main modules that the Company intends to integrate into the InfoSpace.com
Web site. These modules in their developed state as of the acquisition date of
Outpost had certain technological limitations. Subsequent to the acquisition
date, the Company revised its strategy with respect to the transaction proxy
module, with the result being that most of the in-process technology was
discarded. Accordingly, no value was assigned to this module in connection
with the Company's valuation of the assets acquired from Outpost. The four
modules are:
. Integrated content that will provide users with product pricing and
merchant information.
. Transaction proxy that will allow the Company to track sales transactions
from beginning to end and to receive confirmation reports from the
retailers.
. Branding that will allow users to travel to affiliate Web sites without
leaving the InfoSpace.com Web site.
. Universal shopping cart that will allow users to make multiple purchases
at different retailers in one execution.
As of the date of acquisition, the Company estimated that the integrated
content, branding and universal shopping cart modules were 89%, 77% and 56%
completed, respectively. The percentage completed pre-acquisition for each
module was based primarily on the evaluation of three major factors: time-
based data, cost-based data, and complexity-based data.
The expected life of the modules being developed was assumed to be five
years, after which substantial modification and enhancement would be required
for the modules to remain competitive. Gross margin was expected to
deteriorate after approximately two or three years due to increasing numbers
of competitors, new competing features and the potential market entry of
entirely new and competing technologies or service delivery models.
The Company's revenue assumptions for these modules were based on an
estimated number of page views and promotions revenues. For 1999, the average
number of page views was estimated to be 300 million per month, or 3.6 billion
per year. The number of page views was estimated to grow at an annual rate of
45% for the year 2000, then trending down to a growth rate of 20% after the
year 2000, and remaining constant thereafter. The Company anticipated that
barter transactions would be below 10% of total revenues for 1998 and 1999,
would decline to below 8% by the year 2000, and then would continue to decline
to below 5% by 2003. Promotions revenues for these modules were anticipated to
grow at a rate of 88% for 1999, and then growth was anticipated to decline to
20% per year thereafter.
The Company's expense assumptions for these modules included cost of
revenues, which was estimated to be 17% of revenues for the last seven months
of 1998 and thereafter to remain relatively constant as a percentage of
revenues. Cost of revenues consists primarily of revenue-sharing payments to
affiliates, server depreciation costs, the cost of communication lines, and
the cost of personnel directly involved in service delivery, including
customer service staff and webmasters. Sales and marketing expenses, combined
with general and administrative expenses, were estimated to be 54% of revenues
for these modules for the last seven months of 1998, and thereafter to remain
relatively constant as a percentage of revenues. However, cost of revenues,
sales and marketing expenses and general and administrative expenses are
likely to vary, both in absolute dollars and as a percentage of revenues.
The Company expects these modules to be fully integrated into the Company's
full suite of Internet service offerings. Further, the modules will not be
distinguishable market segments for financial reporting purposes or for
management purposes. Consequently, there will be no separate and
distinguishable allocations or utilizations of net working capital, and no
specific charges for use of contributory assets. None of the Company's
operating expenses is allocated to specific service offerings.
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While the Company believes that the assumptions discussed above were made in
good faith and were reasonable when made, such assumptions remain largely
untested, as three of the modules are not yet in service and the other module
has been in service for a limited period of time. Accordingly, the assumptions
made by the Company may prove to be inaccurate, and there can be no assurance
that the Company will realize the revenues, gross profit, growth rates,
expense levels or other variables set forth in such assumptions. See "Risk
Factors--Risks Associated With Acquisitions."
The integrated content module was completed and integrated into the
Company's Web site in the third quarter of 1998. The transaction proxy,
branding and universal shopping cart modules are scheduled for completion and
integration in the second or third quarter of 1999.
Significant technology development efforts are necessary before any one of
these modules can successfully be completed and integrated into the Company's
full suite of service offerings of on-line services available both on the
Company's Web site and on those of the Company's many affiliates. The
transaction proxy module must be developed in a manner compatible with the
changing protocols and standards that are emerging in the Internet industry,
and will be greatly influenced by emerging trends, protocols and standards for
on-line settlement of financial transactions among financial institutions,
related financial clearing houses and other services. The branding module
requires designs compatible with many affiliate sites. The universal shopping
cart module requires the capabilities for initiation, completion and
compilation of e-commerce transactions with multiple affiliate Web sites, and
with all such records accumulated in discrete accounts for individual
customers, followed by each merchant's acceptance of transactions,
confirmation of shipment of the goods or services to the customer, and receipt
and acknowledgement of payment. Further, each of these modules must be
upgradeable as the protocols and standards of e-commerce transactions and Web
sites evolve.
In July and August 1998, shortly after completion of the Outpost
acquisition, the Company estimated the cost to complete initial development
and integration of these modules to be approximately $238,000. The magnitude
of development efforts needed to complete these initial developments is
periodically reviewed by the Company. Accordingly, in October 1998, the
Company revised this estimate to $500,000 for this initial development and
integration. This reflects the Company's more recent experience concerning the
scope and complexity of tasks required. Reasons for increasing these estimated
costs include the Company's experience to date on the transaction proxy
module. Subsequent to the acquisition date, the Company revised its strategy
with respect to this module, resulting in discarding most of the work
completed on the transaction proxy module through the time of the Outpost
acquisition. The additional development phase work now underway has increased
total estimated development costs.
As a result of these continued uncertainties, the Company's revised estimate
of $500,000 is subject to change because technological feasibility has not
been achieved and unforeseen items could impact the estimate. Progress on the
modules and costs expended thus far on their development are consistent with
the Company's current projections for completion dates and estimated costs of
development. While the Company expects these modules to be successfully
developed, and to benefit the Company once they are completed and fully
integrated into the Company's full suite of service offerings, the development
of new technologies and enhancements to existing technologies involves a
number of risks, and there can be no assurance that such development efforts
will be successful. See "Risk Factors--Rapid Technological Change."
The direct impact of the smart-shopping service on current and future
results of operations, liquidity and capital resources is not known, as the
first module of the Outpost Technology has only recently been integrated into
the Company's Web site and other services and product offerings. However, the
Company believes that these services will allow its affiliates to broaden and
enhance their core programming at minimal cost and generate additional
advertising and transaction revenue opportunities for both the Company and its
affiliates. Further, the benefits to the Company and its affiliates can
potentially extend beyond electronic commerce transactions by (i) enabling the
Company to apply the Outpost Technology to other functions such as building
employment classifieds and databases of local events, (ii) allowing end users
to access consolidated bank statements or statements of airline frequent flyer
miles, and (iii) attracting additional Web users who are
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then exposed to the many other features in the Company's suite of products and
services. While the Company is positioning itself for, and is expending
considerable resources in anticipation of, electronic commerce transaction
revenues, there can be no assurance that the Company's modules under
development will be timely or successfully developed, and the failure to do so
could have a material adverse effect on the Company's business, financial
condition and results of operations.
As noted above, the Company expects that each module, when implemented, will
become part of the Company's full suite of integrated Internet services. The
Company does not expect to have the ability to calculate revenues specifically
and exclusively attributable to Outpost's integrated technology. Further, the
absence of such attribution will not be material to any module's success. The
amount that the Company can charge customers for access to and use of these
modules will be greatly influenced by market forces, competitors' pricing of
singular products or services, competitors' pricing of their own packaged and
integrated offerings, and the packaging and integration of services by
multiple competitors. Similarly, the Company's pricing of bundled services
will be influenced by the features and prices of competitors' bundled
services. Finally, the Company will only infrequently price, sell or deliver
singular modules or services in the Internet marketplace. For these reasons,
and in view of the fact that the Company and Outpost each had a limited
operating history prior to the acquisition, the Company did not utilize
historical results of operations in the valuation of Outpost and its various
cost components.
The Company anticipates receiving a number of synergies as a result of the
Outpost acquisition, including gaining knowledgeable electronic commerce
development staff and acquiring products and services at least partially
developed, which together may reduce time-to-market for subsequent electronic
commerce product development and implementation. The Company anticipates that
any successful electronic commerce products or services will, when generating
material revenues, yield economies of scale in Company-wide selling, general
and administrative expenses. However, there can be no assurance that the
Company will realize any of such benefits. See "Risk Factors--Risks Associated
With Acquisitions."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS 130, "Reporting Comprehensive Income." SFAS 130 establishes the standards
for reporting comprehensive income and its components in financial statements.
Comprehensive income as defined includes all changes in equity (net assets)
during a period from nonowner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include foreign
currency translation adjustments and unrealized gains/losses on available-for-
sale securities. The disclosure prescribed by SFAS 130 must be made for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required
upon adoption. The Company had no comprehensive income items to report for the
period from March 1, 1996 (inception) to December 31, 1996, the year ended
December 31, 1997 or the nine months ended September 30, 1998.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 establishes standards for the
way that companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas and major customers, as well as
reporting selected information about operating segments in interim financial
reports to stockholders. SFAS 131 is effective for financial statements for
periods beginning after December 15, 1997. The Company has adopted the
reporting requirements of SFAS 131 in its consolidated financial statements
for the year ending December 31, 1998.
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BUSINESS
OVERVIEW
InfoSpace.com is a leading aggregator and integrator of content services for
syndication to a broad network of affiliates, including existing and emerging
Internet portals, destination sites and suppliers of PCs and other Internet
access devices, such as cellular phones, pagers, screen phones, television
set-top boxes, online kiosks and personal digital assistants. The Company
focuses on content with broad appeal, such as yellow pages and white pages,
maps, classified advertisements, real-time stock quotes, information on local
businesses and events, weather forecasts and horoscopes. By aggregating
content from multiple sources and integrating it with related content to
increase its usefulness, the Company serves as a single source of value-added
content. The Company's affiliates include AOL, Netscape, Microsoft, Lycos,
MetaCrawler, Playboy, Dow Jones (The Wall Street Journal Interactive Edition),
ABC LocalNet and CBS's affiliated TV stations. The Company's services provide
affiliates with content that helps to increase the convenience, relevance and
enjoyment of their users' visits, thereby promoting increased traffic and
repeat usage. This, in turn, provides enhanced advertising and electronic
commerce revenue opportunities to affiliates with minimal additional
investment. By leveraging the Company's content relationships and technology,
affiliates are free to focus on their core competencies.
The Company has acquired the rights to a wide range of content from more
than 65 third-party content providers. The cornerstone of the Company's
content services is its nationwide yellow pages and white pages directory
information. Using its proprietary technology, the Company integrates this
directory information with other value-added content to create "The Ultimate
Guide" to find people, places and things in the real world. As an example of
the power of the Company's contextual integration, a salesperson using the
Company's content services can, from the results of a single query, find the
name and address of a new customer, obtain directions to his or her office,
check the weather forecast and, typically, make an online reservation at the
nearest hotel, browse the menu of a nearby restaurant and review a schedule of
entertainment events for the locale.
The Company's content services are designed to be highly flexible and
customizable, enabling affiliates to select from among the Company's broad
range of content services only those desired. One of the Company's principal
strengths is its internally developed technology, which enables it to easily
and rapidly add new affiliates by employing a distributed, scalable
architecture adapted specifically for its Internet-based content services. The
Company helps its affiliates build and maintain their brands by delivering
content with the look and feel and navigation features specific to each
affiliate, creating the impression to end users that they have not left the
affiliate's site. The Company's technology has been designed to support
affiliates across multiple platforms and formats, including the growing number
of emerging Internet access devices. The Company's affiliate relationships
typically provide for revenue sharing from advertising sold by the Company and
the affiliates whose sites incorporate the Company's content where
advertisements are placed.
InfoSpace.com derives substantially all of its revenues from national
advertising, promotions and local Internet yellow pages advertising. Through
its direct sales force, the Company offers a variety of national advertising
and promotions that enable advertisers to access both broad and targeted
audiences. The Company also sells local Internet yellow pages advertising
through cooperative sales relationships with established independent yellow
pages publishers, media companies and direct marketing companies. The Company
believes that these relationships provide the Company access to local sales
expertise and customer relationships that give it an advantage over
competitors while minimizing the Company's investment in its own sales
infrastructure.
Based on information received from RelevantKnowledge, Inc., the Company
estimates that its own sites, together with those of its affiliate network
(which includes AOL, for which the Company expects its services to be launched
in November 1998), provide it with an unduplicated reach of 42 million unique
Web users, representing approximately 79% of all Web users in the United
States. "Reach" is defined as unique Web visitors who visited the site over
the course of the reporting period expressed as a percentage of all Web users
in the United States.
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INDUSTRY BACKGROUND
The Internet has developed into an important mass medium to distribute and
collect information, communicate, interact and be entertained. International
Data Corporation ("IDC") estimates that the number of Internet users worldwide
will grow from approximately 69 million in 1997 to 320 million in 2002. As the
number of users has increased, the Internet has emerged as an effective means
to market products and services, helping to fuel its growth as a commercial
medium. Jupiter Communications, LLC estimates that total spending on Internet
advertising in the United States will grow from $1.9 billion in 1998 to $7.7
billion in 2002. Local advertising on the Internet is projected to grow at an
even faster pace, from 9% of Internet advertising in 1996 to 37% in 1998 and
54% in 2002. IDC also estimates that the value of goods and services purchased
on the Internet will increase from more than $12 billion in 1997 to over $400
billion in 2002.
The commercial potential of the Internet has resulted in a proliferation of
Web sites through which businesses, communities, media companies, news
services, affinity groups and individuals seek to inform, entertain,
communicate and conduct business with Internet users worldwide. New Internet
businesses, such as E-Loan Inc., InsWeb Corporation and Microsoft's Expedia,
have been established to offer goods and services in novel ways using the
Internet. Other popular Internet destination sites such as FindLaw, iVillage
and Xoom offer users the ability to engage and participate in a virtual
community with users of similar interests. At the same time, many traditional
media and publishing companies have transitioned their brand and content onto
the Internet, such as ABC's ABC LocalNet, Disney's Family.com, CBS's CBS Local
Guide, Playboy's Playboy.com and Dow Jones (The Wall Street Journal
Interactive Edition). Hundreds of thousands of corporations have established
Web sites and corporate intranets and extranets to communicate with employees,
customers and business partners over the Internet. IDC estimates that the
number of Web sites (URLs) will grow from 351 million in 1997 to 7.7 billion
in 2002.
This rapid growth in the number of Web sites and the wide array of content
associated with them has caused the emergence of the "portal," an integrated
online service through which users can access a wide range of information and
services without having to navigate through multiple sites. Leading Internet
service providers, such as AOL, Internet software and services companies, such
as Microsoft and Netscape, and Internet search engines and directories, such
as those offered by Yahoo!, Lycos, Excite and Infoseek, have sought to
capitalize on their positions as the most frequently visited sites on the
Internet by establishing themselves as primary portals. These companies have
regularly added to their service offerings, aggregating third-party content,
such as stock quotes, news and yellow pages, and incorporating links to and
from other related sites, in order to prolong their users' visits and promote
repeat usage. In this environment, popular destination and corporate sites
have found it increasingly difficult to compete for the attention of users and
to preserve user loyalty. Many of these sites have found it necessary to add
to the amount of information and services accessible through their sites,
supplementing their more targeted or thematic content with useful third-party
content and services and effectively becoming portals themselves.
The popularity of the Internet has also resulted in the emergence of new
Internet access devices and the adaptation of traditional communications
devices for Internet access, including cellular phones, pagers, screen phones,
television set-top boxes, online kiosks and personal digital assistants. IDC
predicts that, by 2002, shipments of non-PC Internet access devices will
almost equal those of PCs. In order to drive market acceptance of their
devices, these suppliers seek an integrated package of content and services
that is specifically designed to complement the display format and
navigational features of their devices.
In order to differentiate their services and attract the attention of users
on the increasingly crowded Web, existing and emerging Internet portals,
destination sites and suppliers of PCs and other Internet access devices all
need to continually expand and enrich their offerings with value-added content
and services. The objective of these companies is to effectively increase the
audience for their services in terms of both reach and frequency. The greater
the size of their audience, the greater the advertising and electronic
commerce opportunities afforded to them. Accordingly, these companies are
highly dependent upon continually
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increasing traffic usage, particularly repeat usage, and cultivating a
favorable demographic in order to attract advertisers and secure higher
advertising rates. These companies must invest heavily in advertising and
promotion in order to build their brand and drive users to their sites or
devices. To ensure their long-term viability and success, Internet companies
will need to effectively manage the revenue potential of each visit in order
to justify their customer acquisition costs.
As the Internet evolves into a mass medium, the Company believes there will
be a need for outsourced syndication services to enable existing and emerging
Internet portals, destination sites and suppliers of PCs and other Internet
access devices (collectively, "Internet points-of-entry") to broaden their
content offering and exploit the revenue potential of their audience. In more
traditional media such as television, radio and print, syndicated content
provided by the major television networks, programming syndicators and wire
services, such as Reuters and Associated Press, has been widely used by local
television stations, radio stations and newspapers in order to augment their
core programming with additional programming and, in so doing, extend their
audience reach and retention. The diverse Internet points-of-entry similarly
need a source of syndicated content that will increase the convenience,
relevancy and enjoyment of their users' experience, thereby generating repeat
usage and making it less likely that users will click to another service. Such
syndicated content must be delivered to these Internet points-of-entry through
a reliable, scalable infrastructure that can ensure high-quality service. As a
result, the Company believes there is an opportunity for a highly focused
company to provide outsourced content services to Internet companies.
THE INFOSPACE.COM SOLUTION
InfoSpace.com is a leading aggregator and integrator of content services for
syndication to a broad network of affiliates, including existing and emerging
Internet portals, destination sites and suppliers of PCs and other Internet
access devices, such as cellular phones, pagers, screen phones, television
set-top boxes, online kiosks and personal digital assistants. The Company
focuses on content with broad appeal, such as yellow pages and white pages,
maps, classified advertisements, real-time stock quotes, information on local
businesses and events, weather forecasts and horoscopes. By aggregating
content from multiple sources and integrating it with related content to
increase its usefulness, the Company serves as a single source of value- added
content. The Company's affiliates include AOL, Netscape, Microsoft, Lycos,
MetaCrawler, Playboy, Dow Jones (The Wall Street Journal Interactive Edition),
ABC LocalNet and CBS's affiliated TV stations. Affiliates use the Company's
services to expand their programming and increase traffic, thereby enhancing
advertising and electronic commerce revenue opportunities.
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InfoSpace.com is a leading aggregator and integrator of content servicesfor
syndication to a broad network of affiliates.
[GRAPHIC OF INFOSPACE.COM SOLUTION, CONSTITUENTS, AND CONSTITUENT BENEFITS]
Aggregation
The Company currently aggregates content from more than 65 third-party
content providers to create an array of value-added information and services.
The Company's proprietary technology enables the Company to rapidly aggregate
substantial volumes of data and content in multiple formats and from multiple
sources. In most cases, the Company receives regular data feeds from its
content providers and stores the content on the Company's Web servers in order
to maintain its reliability and increase its accessibility. In other cases,
the Company's proprietary technology allows Web users to transparently access
content that is stored directly on the content provider's system. In either
case, the Company's technology enables it to aggregate heterogeneous content
into an integrated service, which is then delivered to the Company's
affiliates.
Integration
The Company's proprietary technology integrates related content and enhances
its value through increased context. Using directory services as the
cornerstone of its content services, the Company integrates a broad range of
relevant and related localized information, such as maps, classified
advertisements, news, and local event, business and weather information, as
well as other content and services with everyday relevance, including real-
time stock quotes, government directory listings, television listings and
lottery results. The Company also integrates traditional yellow pages
categories with its natural word search feature, which enables users of its
directory services to more intuitively navigate within the services and to
achieve more accurate and relevant responses to their queries. For example, a
user employing general search engines to seek information about buying a
tuxedo might receive, in response to a query on the word "tuxedo," a list of
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Web sites containing articles about the history and usage of tuxedos. Through
the Company's services, that same query would be able to locate retailers of
tuxedos in the user's neighborhood, as well as identify retailers of related
goods and services such as dress shoes, limousine rentals and florists.
Syndication
The Company's solution is designed to efficiently and reliably syndicate
integrated content services over the Internet to a broad network of affiliates
serving millions of end users. The Company's technology has been designed with
built-in redundancies and a template-driven automated publishing engine to
allow affiliates to reliably and cost-effectively integrate the Company's
content into their Web site or Internet access device. The Company's
technology solution enables it to easily and rapidly add new affiliates by
employing a distributed, scalable architecture adapted specifically for the
Company's Internet-based content services, and has been designed to support
affiliates across multiple platforms and formats, including Web sites,
cellular phones, pagers, screen phones, television set-top boxes, online
kiosks and personal digital assistants.
The Company's solution is highly flexible and customizable, enabling
affiliates to select from among the Company's broad range of content services
only those desired and to specify the placement of the selected content
services within their existing Web sites and devices. In response to user
queries originating from an affiliated Web site or device, the Company's
automated publishing engine dynamically builds a page to conform to the
display format and look and feel and navigation features specific to that
affiliate. This feature helps its affiliates build and maintain their brands
by creating the impression to end users that they have not left the
affiliate's site. The Company manages access to the content and processes user
queries from its own Web server until ultimate delivery of its services to an
affiliate, serving as a cost-effective, single source supplier of content
services.
Constituent Benefits
Benefits to Affiliates. The Company's services provide affiliates with
content that helps to increase the convenience, relevance and enjoyment of
their users' visits, thereby promoting increased traffic and repeat usage. In
addition, the Company believes its yellow pages and white pages directory
services can attract a greater mix of consumers, as opposed to viewers or
browsers. These benefits, in turn, provide enhanced advertising and electronic
commerce revenue opportunities to affiliates with minimal additional
investment. By leveraging the Company's content relationships and technology,
affiliates are free to focus on their core competencies.
Benefits to Advertisers. The Company's network of more than 900 affiliate
Web sites and its access to various Internet access devices position the
Company as a one-stop vendor for advertisers. The Company's advertisers can
take advantage of the Company's access to a broad and diverse audience of
Internet users derived through its network of affiliates. Based on information
received from RelevantKnowledge, Inc., the Company estimates that its own
sites, together with those of its affiliate network (which includes AOL, for
which the Company has not yet launched its services), provide it with an
unduplicated reach of 42 million unique Web users, representing approximately
79% of all Web users in the United States. The Company's yellow pages and
white pages directory services provide advertisers with access to targeted
audiences and consumers. Further, the Company's local Internet yellow pages
advertising enables local advertisers to significantly expand their reach onto
the Internet. The Company's proprietary advertising server technology enables
it to offer differentiated, customized solutions to advertisers, and provides
real-time tracking and measurement capabilities to allow advertisers to
receive meaningful feedback on the effectiveness of their advertising
programs.
Benefits to Content Providers. The Company's solution provides expanded
distribution and branding opportunities for content providers. The Company
also enables them to distribute their content to emerging Internet access
devices with little or no additional investment. In addition, the Company
enhances the value of third-party content by integrating it with yellow pages
and white pages directory services and other content.
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STRATEGY
The Company's mission is to be a universal provider of technology-enhanced
content services for the Internet, while cultivating diverse advertising
revenue sources. Key elements of the Company's strategy include the following:
Expand Network of Affiliates. The Company intends to expand its affiliate
relationships to all forms of Internet points-of-entry. The Company's
proprietary technology enables the Company to provide content services to
virtually any Web site or Internet access device in a manner that is designed
to be optimal for each particular platform. The Company has affiliated with,
and seeks to continue to affiliate with, leading Internet and traditional
media companies, providing its services to a wide variety of existing and
emerging Internet portals, destination sites and suppliers of Internet access
devices. The Company believes that by expanding its network of affiliates it
provides greater economic value to advertisers and content providers by
increasing the breadth and depth of their audiences, as well as to the Company
through additional advertising and electronic commerce opportunities.
Develop Services for Leading Providers of Emerging Internet Access
Devices. As part of its strategy to expand its affiliate network, the Company
seeks to develop content services for leading suppliers of emerging Internet
access devices and related software. In addressing this opportunity, the
Company leverages its proprietary technology that enables the distribution of
its content services across a wide variety of formats and devices. The Company
maintains development relationships with leading providers of emerging
Internet access devices such as AT&T Wireless Data Division, a division of
AT&T, for cellular phones, Lucent Technologies Inc., InfoGear Technology
Corporation and Mitsui & Co., Ltd. for screen phones, Planetweb, Inc. for
television set-top boxes and Source Media, Inc.'s Interactive Channel and
@Home Corporation for Internet access via cable. The Company believes that it
can become a leading provider of Internet content services as these devices
penetrate the market of Internet users.
Continue to Add New Content Services. The Company seeks to identify content
and services with broad appeal to Internet users that will increase the value
and functionality of its services. The Company believes that users place a
premium on content that is relevant to their everyday lives and will therefore
increase the frequency and duration of their visits to Web sites or devices
that access such content. The Company focuses its efforts on content providers
that can provide comprehensive coverage on a national level and content that
has the potential for targeted advertising or commerce opportunities. By
regularly adding and integrating new and useful content, the Company believes
that it can drive increased traffic to its affiliates and generate additional
revenue opportunities.
Capture Local Advertising Revenues Through Leveraged Sales. The Company
believes that local advertising represents an attractive and underserved
Internet market opportunity. Currently, spending on Internet advertising by
local businesses is a very small percentage of their overall advertising
expenditures. The Company believes that its directory-based integrated content
services provide a platform for targeted and differentiated local advertising
solutions that will be of substantial appeal and generate tangible economic
benefits to local businesses. To pursue this opportunity, the Company has
formed cooperative sales relationships with leading independent yellow pages
publishers and media companies, providing access to more than 1,300
salespeople and their local business contacts. The Company has also
established relationships with direct marketing companies to sell local
Internet yellow pages advertising through mail and telephone solicitation.
Pursue Global Expansion Opportunities. The Company intends to capitalize on
what it perceives to be a significant opportunity for its content services in
international markets. The Company expects to reduce the costs and risks of
international expansion by entering into strategic alliances with partners
able to provide local directory information and local sales forces with
extensive local contacts. The Company has initiated its international
expansion by entering into a joint venture agreement with Thomson, the largest
independent provider of print directory information in the United Kingdom.
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Expand Electronic Commerce Capabilities. The Company believes that
electronic commerce will continue to grow as an increasing number of
businesses and consumers embrace the Internet as an attractive platform for
evaluating, selecting and purchasing goods and services. In February 1998, the
Company began providing electronic commerce services through the
implementation of a search engine that allowed end users to obtain limited
comparative price information on specific products. Subsequently, the Company
implemented its integrated content module in the third quarter of 1998. In
addition, the Company is developing its transaction proxy, branding and
universal shopping cart modules, which are scheduled for completion and
integration into the Company's suite of services in the second and third
quarters of 1999. The transaction proxy module will allow the Company to track
sales transactions from beginning to end and to receive confirmation reports
from the retailers. The branding module will allow users to travel to
affiliate Web sites without leaving the InfoSpace.com Web site. The universal
shopping cart module will allow end users to make multiple purchases at
different retailers in one execution and allow end users to make these
purchases from any Web site without leaving an affiliate's Web site. The
Company believes that these services will allow its affiliates to broaden and
enhance their core programming at minimal cost and generate additional
advertising and transaction revenue opportunities for both the Company and its
affiliates.
CONTENT SERVICES
The Company seeks to provide its affiliates with content of broad appeal to
end users, including local information, financial data and Web community
services. The Company believes that such content can provide advertisers with
opportunities to both reach a broad audience and target specific subgroups
within that audience. In most cases, the Company receives regular data feeds
from its content providers and stores the content on the Company's Web servers
in order to maintain its reliability and increase its accessibility. In other
cases, the Company's proprietary technology allows Web users to transparently
access content that is stored directly on the content provider's system. In
either case, the Company's technology enables it to aggregate heterogeneous
content into an integrated service, which is then delivered to the Company's
affiliates. The Company's technology pulls content dynamically into a Web page
or device output display that maintains the look and feel and navigation
features of each affiliate's Web site or access device.
The Company has acquired rights to third-party content pursuant to over 65
license agreements, typically having terms of one to five years. The license
agreements require the content provider to update content on a regular basis,
the frequency of which varies depending on the type of content. In certain
arrangements, the content provider pays a carriage fee to the Company for
syndication of its content to the Company's network of affiliates. In other
instances, the Company shares with the content provider advertising revenues
attributable to end-user access of the provider's content. For certain of the
Company's content, including its core directory and map content, the Company
pays a one-time or periodic fee or fee per content query to the content
provider. The Company typically enters into nonexclusive arrangements with its
content providers, but has, in certain instances, entered into exclusive
relationships, which may limit the Company's ability to enter into additional
content agreements.
Directory Services
The cornerstone of the Company's content services is its nationwide yellow
pages and white pages directories. Yellow pages and white pages are an
indispensable resource for locating information regarding individuals and
businesses. Today, printed yellow pages and white pages directories are
published by RBOCs as well as an estimated 200 independent yellow pages
publishers in the United States.
Yellow pages have traditionally provided an effective way for local
businesses to advertise and attract customers. As a result, yellow pages
advertising has become a large and lucrative industry in the United States,
growing, according to the Yellow Pages Publishers Association (the "YPPA"),
from $11.5 billion in revenues in 1997 to a projected $12.1 billion in 1998.
The yellow pages industry has begun to adapt to an electronic environment,
anticipating that users will increasingly access directory information through
the Internet. The YPPA estimates that by 2010, online yellow pages revenues
will surpass those of printed versions. According to a recent survey by the
NYPM/Kelsey Group of 80,000 Internet users, 89% of Internet users are aware of
Internet yellow pages directories and nearly 62% had visited a directory site
within the past month.
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The Company licenses what it believes to be the most comprehensive and
accurate database of businesses and households in the United States and Canada
through a five-year agreement with infoUSA (formerly known as American
Business Information, Inc.). infoUSA is a leading provider of online yellow
pages and white pages directory information. Pursuant to its agreement with
infoUSA, the Company pays infoUSA an annual fee and will build a co-branded
version of its directory services for infoUSA's Web site. The Company and
infoUSA will share revenues generated by this co-branded Web site. The Company
receives access to infoUSA's business and household data, and infoUSA is
required to update its information monthly. The Company enhances this content
with expanded yellow pages information obtained under agreements with
independent yellow pages publishers which the Company estimates, based on 1997
revenue data published by Simba Information Inc., represent approximately 30%
of the independent yellow pages market share in the United States. This
expanded information includes not only names, addresses and telephone numbers,
but also types of business, hours of operation and franchise affiliations.
The Company integrates its yellow pages and white pages information with
each other and utilizes yellow pages category headings in combination with a
natural word search feature to provide a user-friendly interface and
navigation vehicle for its directory services. The Company also typically
includes maps and directions for addresses included in its directory services.
The Company further enhances the relevance and accuracy of responses to user
queries by employing a radial search feature to its directory services, which
allows users to specify the geographic scope within a radial distance of a
specific address, rather than more conventional methods of searching by ZIP
code or city and county divisions. These features enable the Company to create
a powerful package of localized directory information.
Information Services
In addition to its directory services, the Company syndicates other valuable
information of broad appeal. The Company seeks to provide a comprehensive
offering of content with everyday significance in order to become "The
Ultimate Guide" for Internet users seeking to locate people, places and things
in the real world. Principal categories of content currently offered by the
Company include:
<TABLE>
<S> <C>
YELLOW PAGES WHITE PAGES
by name and category, fax numbers, phone numbers, email addresses,
maps and directions reverse lookup, celebrities
CLASSIFIEDS INVESTING
autos, homes, apartments, jobs, real-time stock quotes, market
personals information, research
NET COMMUNITY CITY GUIDE
home pages, email, chat room, city-related links, concerts,
auction weather, schools
E-SHOPPING PUBLIC RECORDS
product search, product departments, "Find Anyone!", background checks,
discount books, greeting cards social security numbers, adoption
reunions
NEWS BREAK FUN STUFF
top stories, world, business, daily horoscopes, minimart, lottery
technology, sports results
INTERNATIONAL GOVERNMENT
country slide shows, directory federal, state and local listings,
services for Canada, Spain, the public officials
United Kingdom and other countries
</TABLE>
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The Company's future success will depend in large part on its ability to
aggregate, integrate and syndicate content of broad appeal. The Company's
ability to maintain its relationships with content providers and to build new
relationships with additional content providers is critical to the success of
the Company's business. See "Risk Factors--Dependence on Third-Party Content."
In addition, the Company's business model is relatively new and unproven, and
there can be no assurance that this business model will be successful. See
"Risk Factors--Evolving and Unproven Business Model."
AFFILIATE NETWORK
InfoSpace.com provides its content services to a network of existing and
emerging Internet portals, destination sites and suppliers of PCs and other
Internet access devices, such as cellular phones, pagers, screen phones,
television set-top boxes, online kiosks and personal digital assistants. The
Company has agreements with more than 90 affiliates covering more than 900 Web
sites. Based on information received from RelevantKnowledge, Inc., the Company
estimates that its own sites, together with those of its affiliate network
(which includes AOL, for which the Company expects to launch its services in
November 1998), provide it with an unduplicated reach of 42 million unique Web
users, representing approximately 79% of all Web users in the United States.
Internet Portals and Destination Sites
The Company's affiliates include leading Internet portals and a wide variety
of destination sites, such as the following:
INTERNET PORTALS
<TABLE>
<S> <C>
AFFILIATE LOCATION OR WEB SITE ADDRESS
America Online AOL service, aol.com and digitalcities.com
AT&T WorldNet att.net
go2net metacrawler.com
Lycos lycos.com
Microsoft Network essentials.msn.com
Netscape netscape.com
DESTINATION SITES
AFFILIATE WEB SITE ADDRESS
ABC News/Starwave abcnews.com and individual ABC network
affiliate Web sites (e.g., WABC's
7online.com, KOMO's komotv.com)
CBS cbs.com and individual CBS network affiliate
Web sites (e.g., WBBM's cbs2chicago.com,
KCBS's kcbs.cbsnow.com)
Paxson Communications affiliate television station Web sites (e.g.,
pax.net/WCPX)
Ask Jeeves askjeeves.com
Deja News dejanews.com
Disney OnLine family.com
Dow Jones wsj.com
FindLaw findlaw.com
Market Guide marketguide.com
Microsoft Expedia expedia.com
Morris Online savannah.com
Playboy playboy.com
World Now worldnow.com
</TABLE>
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The Company's content services are designed to be highly flexible and
customizable, enabling affiliates to select from among the Company's broad
range of content services only those desired and to specify the placement of
the selected content within their own Web sites and devices. For example, one
of the Company's affiliates, local television station WABC's 7online.com, has
selected the Company's yellow pages directory information and classifieds
information and offers this content on its Web site. Lycos, another affiliate,
uses the Company's white pages directory services, branded as "People Find,"
throughout its service and uses the Company's smart-shopping feature service
on the Lycos home page.
In response to user queries originating from an affiliated Web site or
device, the Company's automated publishing engine dynamically builds a page to
conform to the display format and look and feel and navigation features
specific to that affiliate. This feature helps its affiliates build and
maintain their brands by creating the impression to end users that they have
not left the affiliate's site. The Company manages the access of content and
processes user queries from its own Web server until ultimate delivery of its
services to an affiliate, serving as a cost-effective single source supplier
of content.
The Company's agreements typically provide for sharing a portion of the
revenues generated by advertising on the Web pages that deliver the Company's
content services. Both the Company and the affiliate typically retain the
rights to sell such advertising. The Company's distribution arrangements with
its affiliates typically are for limited durations of between six months and
two years and are generally terminable after six months. There can be no
assurance that such arrangements will be renewed upon expiration of their
terms. The Company has also entered into strategic alliances with AOL and
Netscape, two of the largest Internet portals measured in terms of user
traffic.
Netscape. Under its July 1998 agreements with Netscape, each of which has a
one-year term with automatic renewal provisions, the Company is the exclusive
provider of co-branded yellow pages and white pages directory services on the
Netscape home page (Netcenter). In addition, Netscape will include a link for
these services in the bookmark section of future versions of the U.S. English-
language version of Netscape Communicator client software. The Company paid
trademark licensing fees to Netscape in connection with these agreements and
is obligated to make additional payments to Netscape based on the number of
click throughs to the Company's services. Netscape guarantees to the Company a
certain minimum level of use of the Company's yellow pages and white pages
directory services.
AOL. The Company recently entered into agreements with AOL to provide white
pages directory services and classifieds information services to AOL. Under
the terms of the agreement related to the Company's white pages directory
services, the Company has agreed to place its white pages directory services
on AOL's NetFind home page and throughout various other parts of AOL's
proprietary service, its Digital City service and AOL.com. The white pages
directory services are to be provided to AOL for a three-year term, beginning
on the date of first commercial launch (anticipated to be November 1998),
which term may be extended for an additional year and subsequently renewed for
up to three successive one-year terms at AOL's discretion. This agreement may
be terminated by AOL upon the acquisition by AOL of a competing white pages
directory services business or for any reason after 18 months, upon payment of
a termination fee, or at any time in the event of a change of control of the
Company. Under this agreement, the Company will pay to AOL a quarterly
carriage fee and share with AOL revenues generated by advertising on the
Company's white pages directory services delivered to AOL. Under the terms of
the agreement related to the Company's classifieds information services, the
Company has agreed to provide classified advertising development and
management services to AOL for two years, with up to three one-year extensions
at AOL's discretion. AOL will pay to the Company a quarterly fee and share
with the Company revenues generated by payments by individuals and commercial
listing services for listings on the AOL classifieds service. In connection
with these agreements, AOL received a warrant to purchase Common Stock and has
certain rights of first negotiation in the event of a proposed sale of the
Company. See "Description of Capital Stock--Warrants" and "--Antitakeover
Effects of Certain Provisions of Restated Certificate of Incorporation and
Washington and Delaware Law; Right of First Negotiation."
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Internet Access Devices
The Company is working with a number of leading PC manufacturers that are
incorporating Internet access as part of the start-up menu of the PC. In
addition, the Company believes that the growing number of non-PC Internet
access devices presents a significant potential distribution channel for the
Company's content services. Numerous suppliers of cellular telephones, pagers,
screen telephones, television set-top boxes, online kiosks and personal
digital assistants are adapting familiar appliances to provide user-friendly
access to the Internet.
The Company has entered into agreements with numerous providers of Internet
access devices, including the following:
SELECTED INTERNET ACCESS DEVICE AFFILIATES
<TABLE>
<CAPTION>
MEANS OF INTERNET ACCESS COMPANY
------------------------ -------
<C> <S>
PCs Acer America; Gateway 2000; Pixel (for Packard
Bell NEC)
Cellular Phones AT&T Wireless; Unwired Planet
Pagers WolfeTech (for Motorola PageWriter)
Screen Telephones InfoGear; Mitel; Mitsui; Lucent
Television Set-Top Boxes American Interactive Media; @Home; @World;
Lucent; On Command; Planetweb; Source Media
King kiosk platform; Lexitech kiosk software
Online Kiosks platform
Personal Digital Assistants AT&T Wireless; InfoGear; Unwired Planet
</TABLE>
The Company believes that users of Internet access devices, in particular,
seek useful information of everyday relevance and are more likely to access
the Internet for specific real-world information. Since providers of Internet
access devices generally do not generate their own content or have less
content available to them than Web sites, the Company believes there is an
opportunity for its content services to be an integral part of the information
services bundled with these access devices. The Company is working with these
affiliates to identify, acquire and integrate new information services that
bring additional value to their devices. The Company's technology allows it to
readily adapt the delivery of its services to the individual format and
display features of its Internet access device affiliates.
Typically, the Company's agreements with Internet access device affiliates
have terms of between one and three years and, in some cases, provide for the
sharing of revenues between the affiliate and the Company generated by
advertising included with the delivery of its content services. In other
cases, the Company receives license fees on a per query or per device basis or
through other arrangements for use of its content services.
The Company's ability to generate revenues from national advertising and
promotions depends on its ability to secure and maintain distribution for its
content services on acceptable commercial terms through a range of affiliates.
The Company's affiliate relationships are in an early stage of development,
and there can be no assurance that affiliates, especially major affiliates,
will not demand a greater portion of advertising revenues or require the
Company to pay carriage fees for access to their sites or devices. The loss of
any major affiliate or an adverse change in the Company's pricing model or
revenue-sharing arrangements could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Reliance on Affiliate Relationships."
ADVERTISING AND PROMOTIONS
The Company derives substantially all of its revenues from national
advertising, with pricing based on CPMs, non-CPM-based promotions and local
Internet yellow pages advertising. The Company's clients
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include a broad range of businesses that advertise on the Internet, including
certain of the Company's content providers and affiliates.
National Advertising
Banner Advertisements. A banner advertisement is prominently displayed at
the top and, in some cases, at the bottom of each Web page generated for
delivery of the Company's content services. From each banner advertisement,
users can hyperlink directly to an advertiser's Web site, thus enabling the
advertiser to
directly interact with an interested consumer. Mass market placements deliver
general rotation banner advertisements throughout the Company's content
services. Targeted placements deliver banner advertisements to specified
audiences. For example, advertisers can reach consumers in general by placing
banner advertisements that rotate throughout the Company's directory services,
classifieds and electronic commerce services. Alternatively, advertisers can
narrow their target audience by category of information or service requested
by users or by geographic location. For example, advertisers can target
investors by advertising only on pages containing the Company's real-time
stock quotes or potential used car buyers by advertising only on pages
containing the Company's automobile classifieds.
Other National Advertising. The Company also sells CPM-based national
advertising other than banner advertisements. The most common of these
advertisements are known as "button advertisements" and "textlinks," but can
also include customized advertising solutions developed for specific
advertisers. Button advertisements are smaller than banner advertisements and
can be placed anywhere on a Web page. Textlinks appear on a Web page as
highlighted text, usually containing the advertiser's name. Multiple button
advertisements and textlinks can appear on the same Web page along with banner
advertisements. Both button advertisements and textlinks typically feature
click-through hyperlinks to the advertiser's own Web site.
The Company's national advertising agreements generally have terms of less
than six months and guarantee a minimum number of impressions or click
throughs. The Company charges fees for banner advertising based on the
specificity of the target audience, generally ranging from $10 to $20 CPM for
general rotation across undifferentiated users to $50 or greater CPM for
targeted category or geographic advertisements. The Company's rates for button
advertisements and textlinks are lower than those for banner advertisements.
Actual CPMs depend on a variety of factors, including, without limitation, the
degree of targeting, the duration of the advertising contract and the number
of impressions purchased, and are often negotiated on a case-by-case basis.
Because of these factors, actual CPMs experienced by the Company may
fluctuate. The guarantee of minimum levels of impressions or click throughs
exposes the Company to potentially significant financial risks, including the
risk that the Company may fail to deliver required minimum levels of user
impressions or click throughs, in which case the Company typically continues
to provide advertising without compensation until such levels are met. See
"Risk Factors--Reliance on Advertising and Promotion Revenues."
Promotions
In addition to its CPM-based national advertising, the Company also sells
promotions, which are integrated packages of advertising that bundle such
features as button and textlink advertisements, sponsorships of specific
categories of content or content services and electronic commerce features.
Promotions also include distribution and co-branding services that the Company
provides to content providers, for which the Company receives a carriage fee.
These arrangements are individually negotiated by the Company with each
advertiser and have a range of specially adapted features involving various
compensation structures (such as guaranteed fee payments), none of which are
based on CPMs. One of the most common forms of the Company's promotions are
"sponsorships," which allow advertisers to sponsor a specific category of
content on the Company's content services. These sponsorships consist of a
button advertisement or textlink which appears prominently on the page each
time that content category is queried by a user. In some cases, the Company
has entered into exclusive sponsorship arrangements for certain
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categories of content. Promotions may also include an electronic commerce
feature, in which a button advertisement offers the end user an opportunity to
make an immediate online purchase.
The Company's promotions are specifically designed to allow advertisers to
integrate various forms of online advertising, such as button advertisements
and textlinks, content sponsorship and electronic commerce links and also
include innovative specially-designed advertising campaigns to fully exploit
the reach of the Company's content services. For example, the Company has
entered into an agreement with BarnesandNoble.com, Inc. ("BarnesandNoble.com")
under which BarnesandNoble.com is the exclusive bookseller on a majority of
the Company's content services. Pursuant to this agreement, a button
advertisement appears on Web pages for certain categories of content, which
offers the end user the opportunity to purchase a book related to that
category. For example, a search for local restaurants in New York City results
in a BarnesandNoble.com button advertisement that, when clicked, lists
restaurant guides and cookbooks for New York City restaurants.
Promotion arrangements vary in terms and duration, but generally have longer
terms than arrangements for the Company's CPM-based advertising. The fee
arrangements are individually negotiated with advertisers and are based on the
range and the extent of customization. These arrangements typically include
minimum monthly payments. To the extent that the advertiser offers an
electronic commerce opportunity in its promotion, the Company may derive
transaction revenues based on the level of transactions made through its
promotion for the advertiser.
In addition, the Company works with advertisers to develop customized
advertising solutions that may include both CPM-based national advertising and
non-CPM-based promotions. For example, the Company's campaign for 800-U.S.
Search involves a variety of targeted banner advertisements, button
advertisements and textlinks, as well as co-branding of 800-U.S. Search
services with the Company's content services, such as the "Find Anyone!"
service. The Company's advertising agreement with 800-U.S. Search has a four-
year term. Revenues generated from 800-U.S. Search accounted for approximately
20.1% of the Company's revenues for the nine months ended September 30, 1998.
As of September 30, 1998, the Company had agreements with over 35
advertisers for national advertising or promotions. The following is a
representative list of brands or companies for which advertisers purchased
national advertising or promotions on the Company's content services during
the nine months ended September 30, 1998:
800-U.S. Search IBM
Apartments for Rent InsWeb
AT&T iVillage
BarnesandNoble.com Leisure Planet
CareerPath Locate-Me
Dell Computers MasterCard International
Delta Air Lines Microsoft
E-loan Information Services Net-Temps
Excite NextCard
goodcompany.com QSpace
Goto.com Women.com
Local Internet Yellow Pages Advertising
The Company believes that local Internet advertising represents an
attractive and largely unexploited market opportunity. Spending on Internet
advertising by local businesses is currently a very small percentage
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of their overall advertising expenditures. The Company believes that its
affiliate network provides an attractive Internet platform for local
advertisers to reach a broader audience and extend the reach of their
advertising beyond their geographic area, as well as to achieve targeted
advertising within their geographic area.
The Company generates an Internet yellow pages listing free of charge for
all U.S. local business listings provided by infoUSA. This listing includes
name, address and telephone number information, as well as maps and door-to-
door directions. Similar to traditional yellow pages industry practices, the
Company generates revenues by selling enhancements to this basic listing.
Enhancement options include boldface type, enlarged type size, multi-category
listings, preferred placement, email listings and Web site links, display
advertisements and category sponsorships.
Internet yellow pages advertising agreements provide for terms of one year,
with pricing comparable to print yellow pages advertising, typically paid in
monthly installments. Costs to the local advertiser generally range from $50
to $300 or greater per year, depending on the types of enhancements selected.
For convenience, these payments usually accompany the local advertiser's
monthly payment for its print advertising.
The Company has formed cooperative sales relationships with leading
independent yellow pages publishers, including TransWestern Publishing
Company, Ltd. and McLeodUSA Publishing Company, and media companies, including
Guy Gannett Communications and E.W. Scripps, which provide access to over
1,300 salespeople and their local sales contacts. Further, the Company has
started to build relationships with direct marketing companies, whose mail and
telephone solicitations complement the sales forces of the independent yellow
pages publishers and media companies. The Company's agreements with these
companies typically have terms of one to five years and provide for revenue
sharing, which varies from relationship to relationship. In addition, the
Company typically agrees that the yellow pages publisher will be the Company's
exclusive provider of Internet yellow pages advertising within a particular
geographic region. The local sales forces of these companies are empowered to
sell Internet yellow pages advertising on the Company's directory services,
which are generally bundled with the traditional print advertising they sell.
As such, the Company believes its Internet yellow pages advertising offers
these sales forces attractive incremental revenue opportunities from their
existing client bases. These companies maintain, as part of their existing
print advertising infrastructure, the systems necessary for generating online
display advertisements, processing invoices and collecting payments from
advertisers. To assist in their efforts, the Company provides the technology
to streamline the transmission of data necessary to generate the enhanced
Internet yellow pages listings. This technology allows advertising data files
to be rapidly posted and integrated directly into the Company's directory
services. The Company believes that these relationships provide local
expertise and access to local advertisers, as well as established advertising
production capabilities, that give it an advantage over competitors while
minimizing its investment in its own sales force and operations.
The Company currently derives substantially all of its revenues from the
sale of advertisements and promotions on the Web pages that deliver the
Company's content, and expects that advertising and promotion revenues will
continue to account for substantially all of its revenues in the foreseeable
future. The Company's dependence on advertising and promotion revenues
involves a number of risks. See "Risk Factors--Reliance on Advertising and
Promotion Revenues," "--Dependence on Sales by Third Parties," "--Uncertain
Adoption of the Internet as an Advertising Medium" and "--Risks Associated
With Short-Term National Advertising Contracts."
TECHNOLOGY AND INFRASTRUCTURE
One of the Company's principal strengths is its internally developed
technology, which has been designed specifically for the Company's Internet-
based content services. The Company's technology architecture features
specially adapted capabilities to enhance performance, reliability and
scalability, consisting of multiple proprietary software modules that support
the core functions of the Company's operations. These modules include Web
Server Technology, Database Technology and a Remote Data Aggregation Engine.
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Web Server Technology
The Company's Web Server Technology is designed to enable rapid development
and deployment of information over multiple platforms and formats. It
incorporates an automated publishing engine that dynamically builds a page to
conform to the look and feel and navigation features of each affiliate. As
such, the Company's technology enables it to deliver content in a manner
optimized to the unique display formats of existing and emerging Internet
access devices, such as cellular phones, pagers, screen phones, television
set-top boxes, online kiosks and personal digital assistants.
The Company's Web Server Technology includes other features that are
designed to optimize the performance of the Company's content services,
including: (i) an HTML compressor that enables modifications of file content
to reduce size, thereby reducing download time for users; (ii) an "Adaptive
Keep-Alive" feature that maximizes the time during which client server
connections are kept open, based on current server load, thereby increasing
user navigation and Web site traversal speed; and (iii) a Proxy Server that
provides the capability for real-time integration and branding of content that
resides remotely with third-party content providers.
Database Technology
The Company has developed proprietary database technology to address the
specific requirements of the Company's business strategy and content services.
The Company's Co-operative Database Architecture is designed to function with
a high degree of efficiency within the unique operating parameters of the
Internet, whereas commonly used database systems were developed prior to the
widespread acceptance of the Internet. The architecture is tightly integrated
with the Company's Web Server Technology and incorporates the following
features:
Heterogeneous Database Clustering. The Company's Heterogeneous Database
Clustering allows disparate data sources to be combined and accessed through a
single uniform interface, regardless of data structure or content. These
clusters facilitate database bridging, which allows a single database query to
produce a single result set containing data extracted from multiple databases,
a vital component of the Company's ability to aggregate content from multiple
sources. Database clustering in this manner reduces dependence on single data
sources, facilitates easy data updates and reduces integration efforts. In
addition, the Company's pre-search and post-search processing capabilities
enable search parameters to be modified in real time before and after querying
a database.
Dynamic Parallel Index Traversal. The Company's Dynamic Parallel Index
Traversal mechanism utilizes the search parameters supplied by the user to
determine the appropriate database index (from among multiple indices) to
efficiently locate the data requested. Further, an index compression mechanism
allows the Company to achieve an efficient balance between disk space and
compression/decompression when storing or accessing data.
Automatic Query State Recovery. In a response to a database query,
conventional databases access previously displayed results in order to display
successive results to a given query, thus increasing response time by
performing redundant operations. The Company's Automatic Query State Recovery
mechanism decreases response time by maintaining the state of a query to allow
the prompt access of successive results. This feature is particularly
important, for example, when an end-user query retrieves a large number of
results.
Natural Language Interface. The Company incorporates a natural word search
interpreter, which successfully utilizes familiar category and topic headings
traditional to print directory media to generate relevant and related results
to information queries. By incorporating a familiar navigation feature into
its services, the Company believes it provides end users with a more intuitive
mechanism to search for and locate information.
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Remote Data Aggregation Engine
The Company has developed its Remote Data Aggregation Engine to allow data
from a variety of sources on the Internet to be retrieved, parsed and
presented as a single virtual database result, either in real-time or at
predetermined intervals. The Company's Template-Driven Profiling system
catalogs the data on each source site, which is later accessed by the
Company's Remote Data Aggregation Engine for real-time retrieval. Data results
can be internally cached to reduce network traffic and deliver the fastest
possible results to the end user.
The Remote Data Aggregation Engine has numerous applications, one of which
is collecting real-time information from multiple sources in a manner that
eliminates the need for a data provider to perform any local modifications.
This technology is currently being applied in the Company's price comparison
service. Various other potential uses of the technology have been identified,
including the collection and real-time updating of event data such as concert
information, performing arts schedules and sporting events, and the
aggregation of classified listings, such as employment listings from corporate
Web sites.
Data Network Infrastructure
The Company maintains a carrier-class data network center designed to ensure
high-level performance and reliability of its content services. The Company
connects directly to the Internet from its facilities in Redmond, Washington
through redundant, dedicated DS-3 communication lines provided by multiple
telecommunication service providers. The Company's hardware resides in a
secure climate-controlled room, with local directors providing load balancing
and failover. In addition to the facilities located at the Company
headquarters, the Company contracts for co-location facilities with Exodus
Communications and Savvis Communications at two locations in Seattle,
Washington. As the Company expands its operations, it expects to locate server
facilities at various strategic geographic locations.
Product Development
The Company believes that strong product development capabilities are
essential to developing the technology necessary to successfully implement its
strategy of expanding its affiliate network, acquiring value-added content to
add to its content services, expanding internationally and into other services
and maintaining the attractiveness and competitiveness of its content
services. The Company has invested significant time and resources in creating
its proprietary technology. Product development expenses were $109,671,
$212,677 and $307,262 for the period from March 1, 1996 (inception) to
December 31, 1996, the year ended December 31, 1997 and the nine months ended
September 30, 1998, respectively.
The market for Internet products and services and the online commerce
industry are characterized by rapidly changing technology, evolving industry
standards and customer demands and frequent new product and service
introductions and enhancements. The Company's future success will depend in
significant part on its ability to improve the performance, content and
reliability of the Company's content services in response to both the evolving
demands of the market and competitive product offerings, and there can be no
assurance that the Company will be successful in such efforts. See "Risk
Factors--Rapid Technological Change."
INTERNATIONAL EXPANSION
The Company intends to capitalize on what it perceives to be a significant
opportunity for its content services in international markets. The Company
expects to reduce the costs and risks of international expansion by entering
into strategic alliances with partners able to provide local directory
information, as well as local sales forces and contacts.
The Company has entered into a joint venture with Thomson to form TDL
InfoSpace to replicate the Company's content services in Europe. TDL InfoSpace
has targeted the United Kingdom as its first market,
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and content services were launched in the third quarter of 1998. Pursuant to
the terms of the joint venture agreement, both the Company and Thomson entered
into license agreements with TDL InfoSpace for offsetting payments to each of
the Company and Thomson of (Pounds)50,000. These amounts were not intended to
represent the fair market value of the license agreements to an unrelated
third party. Under the license agreement between Thomson and TDL InfoSpace,
Thomson licenses its U.K. directory information database to TDL InfoSpace.
Under the joint venture agreement, Thomson also sells Internet yellow pages
advertising of the joint venture through its local sales force. Under the
license agreement between the Company and TDL InfoSpace, the Company licenses
its technology and provides hosting services to TDL InfoSpace. In addition,
under the Company's license agreement, TDL InfoSpace is obligated to reimburse
the Company for any incremental costs incurred by the Company for its efforts
with respect to the hosting services. In the event that TDL InfoSpace expands
into other countries, it is required to pay to the Company an additional
technology license fee of $50,000 per additional country. The Company's
license agreement also provides that, in the event that the Company no longer
holds any ownership interest in the joint venture, TDL InfoSpace and the
Company will negotiate an arm's-length license fee for the Company's
technology, not to exceed $1 million. Each of the Company and Thomson
purchased a 50% interest in TDL InfoSpace and are required to provide
reasonable working capital to TDL InfoSpace.
The Company expects that TDL InfoSpace will expand its content services to
other European countries in 1999. Under the joint venture agreement, each of
the Company and Thomson is obligated to negotiate with TDL InfoSpace and the
other party to jointly offer content services in other European countries
prior to offering such services independently or with other parties. In
addition, the Company is currently investigating additional international
opportunities. The expansion into international markets involves a number of
risks. See "Risk Factors--Risks Associated With International Expansion."
INTELLECTUAL PROPERTY
The Company's success depends significantly upon its proprietary technology.
The Company currently relies on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. All Company employees have executed
confidentiality and nonuse agreements which provide that any rights they may
have in copyrightable works or patentable technologies to the Company. In
addition, prior to entering into discussions with potential content providers
and affiliates regarding the Company's business and technologies, the Company
generally requires that such parties enter into a nondisclosure agreement. If
these discussions result in a license or other business relationship, the
Company also generally requires that the agreement setting forth the parties'
respective rights and obligations include provisions for the protection of the
Company's intellectual property rights. For example, the Company's standard
affiliate agreement provides that the Company retains ownership of all patents
and copyrights in the Company's technology and requires its customers to
display the Company's copyright and trademark notices.
The Company has applied for registration of certain service marks and
trademarks, including "InfoSpace," "InfoSpace.com" and its logo in the United
States and in other countries, and will seek to register additional service
marks and trademarks, as appropriate. There can be no assurance that the
Company will be successful in obtaining the service marks and trademarks for
which it has applied. In addition, a patent is pending in the United States
relating to the Company's electronic commerce technology and the Company is
filing patent applications relating to other aspects of its technology,
including the methods by which information is obtained and provided to end
users of its content services. There can be no assurance that any patent with
respect to the Company's technology will be granted or that if granted such
patent will not be challenged or invalidated. There also can be no assurance
that the Company will develop proprietary products or technologies that are
patentable, that any issued patent will provide the Company with any
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have a material adverse effect on the Company's
ability to conduct business. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may copy aspects of the Company's
products or services or obtain and
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use information that the Company regards as proprietary. The laws of some
foreign countries do not protect proprietary rights to as great an extent as
do the laws of the United States, and the Company does not currently have any
patents or patent applications pending in any foreign country. There can be no
assurance that the Company's means of protecting its proprietary rights will
be adequate or that the Company's competitors will not independently develop
similar technology or duplicate the Company's products or design around
patents issued to the Company or other intellectual property rights of the
Company. The failure of the Company to adequately protect its proprietary
rights or its competitors' successful duplication of its technology could have
a material adverse effect on the Company's business, financial condition and
results of operations.
There has been frequent litigation in the computer industry regarding
intellectual property rights. The Company has in the past been subject to
claims regarding its intellectual property rights. While all such claims have
been resolved, there can be no assurance that third parties will not in the
future claim infringement by the Company with respect to current or future
products, trademarks or other proprietary rights. Any such claims could be
time-consuming, result in costly litigation, diversion of management's
attention, cause product or service release delays, require the Company to
redesign its products or services or require the Company to enter into royalty
or licensing agreements. These royalty or licensing agreements, if required,
may not be available on terms acceptable to the Company, or at all, any of
which occurrences could have a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION
The market for Internet products and services is highly competitive, with no
substantial barriers to entry, and the Company expects that competition will
continue to intensify. The market for the Company's content services has only
recently begun to develop, is rapidly evolving and is likely to be
characterized by an increasing number of market entrants with competing
products and services. Although the Company believes that the diversity of the
Internet market may provide opportunities for more than one provider of
content services similar to those of the Company, it is possible that one or a
few suppliers may dominate one or more market sectors. The Company believes
that the primary competitive factors in the market for Internet content
services are (i) the ability to provide content of broad appeal, which is
likely to result in increased user traffic and increase the brand name value
of the Internet point-of-entry to which the services are provided; (ii) the
ability to meet the specific content demands of a particular Internet point-
of-entry; (iii) the cost-effectiveness and reliability of the content
services; (iv) the ability to provide content that is attractive to
advertisers; (v) the ability to achieve comprehensive coverage of a particular
category of content; and (vi) the ability to integrate related content to
increase the utility of the content services offered. There can be no
assurance that the Company's competitors will not develop content services
that are superior to those of the Company or achieve greater market acceptance
than the Company's services. Any failure of the Company to provide services
that achieve success in the short term could result in an insurmountable loss
in market share and brand acceptance and could, therefore, have a material
adverse effect on the Company's business, financial condition and results of
operations.
While the Company is unaware of any companies that compete with all of the
Company's content services, there are companies that offer services addressing
certain of the Company's target markets. In addition, some of these
competitors are currently members of the Company's affiliate network or
currently provide content included in the Company's content services. The
Company's directory services compete with other Internet yellow pages and
white pages directory services, including AnyWho?, a division of AT&T, GTE
SuperPages, Switchboard, ZIP2, directory services offered by the RBOCs,
including Big Yellow by Bell Atlantic/NYNEX, infoUSA's Lookup USA, Microsoft
Sidewalk and Yahoo! Yellow Pages and White Pages. In addition, specific
services provided by the Company compete with specialized content providers.
TDL InfoSpace's directory services will compete with British Telecom's YELL
service and Scoot (UK) Limited in the United Kingdom and, as the Company
expands internationally into other markets, it expects to face competition
from other established providers of directory services. In the future, the
Company may encounter
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competition from providers of Web browser software, including Netscape and
Microsoft, online services and other providers of Internet services that elect
to syndicate their own product and service offerings, such as AOL, Yahoo!,
Excite, Infoseek, Lycos, HotBot, MetaCrawler, Snap! and traditional media
companies expanding onto the Internet, such as Time/Warner, ABC, CBS, NBC, Dow
Jones, Disney and Fox.
A number of the Company's current advertising customers have established
relationships with certain of the Company's competitors and future advertising
customers may establish similar relationships. In addition, the Company
competes with online services and other Web site operators, as well as
traditional offline media such as print (including print yellow pages
directories) and television for a share of advertisers' total advertising
budgets. Competition among current and future suppliers of Internet content
services, as well as competition with other media for advertising placements,
could result in significant price competition and reductions in advertising
revenues.
Many of the Company's current competitors, as well as a number of potential
new competitors, have significantly greater financial, technical, marketing,
sales and other resources than the Company. There can be no assurance that the
Company will be able to compete successfully against its current and future
competitors. The Company's failure to compete with its competitors' product
and service offerings or for advertising revenues would have a material
adverse effect on the Company's business, financial condition and results of
operations.
GOVERNMENTAL REGULATION
The Company is not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to access to online
commerce. However, due to the increasing popularity and use of the Internet
and other online services, it is possible that laws and regulations may be
adopted with respect to the Internet or other online services covering issues
such as user privacy, pricing, content, taxation, copyrights, distribution and
characteristics and quality of products and services. Such regulation could
limit growth in the use of the Internet generally and decrease the acceptance
of the Internet as a communications and commercial medium, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company may be subject to Sections 5 and 12 of the
FTC Act, which regulate advertising in all media, including the Internet, and
require advertisers to have substantiation for advertising claims before
disseminating advertisements. The FTC Act prohibits the dissemination of
false, deceptive, misleading and unfair advertising, and grants the FTC
enforcement powers to impose and seek civil and criminal penalties, consumer
redress, injunctive relief and other remedies upon persons who disseminate
prohibited advertisements. The Company could be subject to liability under the
FTC Act if it were found to have participated in creating and/or disseminating
a prohibited advertisement with knowledge, or reason to know that the
advertising was false or deceptive. The FTC recently brought several actions
charging deceptive advertising via the Internet, and is actively seeking new
cases involving advertising via the Internet.
The Company may also be subject to the provisions of the recently enacted
the CDA, which, among other things, imposes substantial monetary fines and/or
criminal penalties on anyone who distributes or displays certain prohibited
material over the Internet or knowingly permits a telecommunications device
under its control to be used for such purpose. Although the manner in which
the CDA will be interpreted and enforced and its effect on the Company's
operations cannot yet be fully determined, the CDA could subject the Company
to substantial liability. The CDA could also limit the growth of the Internet
generally and decrease the acceptance of the Internet as an advertising
medium.
Other federal, state, local or foreign laws, regulations and policies,
either now existing or that may be adopted in the future, may apply to the
business of the Company and may subject the Company to significant liability,
significantly limit growth in Internet usage, prevent the Company from
offering certain Internet products or services, or otherwise have a material
adverse effect on the Company's business, financial
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condition and results of operations. These laws, regulations and policies may
apply to matters such as, but not limited to, copyright, trademark, unfair
competition, antitrust, property ownership, negligence, defamation, indecency,
obscenity, personal privacy, trade secrecy, encryption, taxation and patents.
Moreover, the applicability to the Internet and other online services of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. Any such new legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to the Company's business, or the application of existing laws
and regulations to the Internet and other online services could have a
material adverse effect on the Company's business, financial condition and
results of operations.
EMPLOYEES
As of September 30, 1998, the Company had 48 employees. None of the
Company's employees is represented by a labor union, and the Company considers
its employee relations to be good. Competition for qualified personnel in the
Company's industry is intense, particularly among software development and
other technical staff. The Company believes that its future success will
depend in part on its continued ability to attract, hire and retain qualified
personnel. See "Risk Factors--Management of Growth; New Management Team;
Limited Senior Management Resources" and "--Dependence on Key Personnel; Need
for Additional Personnel."
FACILITIES
The Company's principal administrative, engineering, marketing and sales
facilities total approximately 14,850 square feet and are located in Redmond,
Washington. Under the current lease, which commenced on July 13, 1998, and
expires on August 31, 2003, the Company pays a monthly base rent of $17,670
during the first three years of the lease and $19,678 during the final two
years of the lease. The Company has both the right to extend the term of this
lease for an additional 60 months and the right of first opportunity on
adjacent expansion space. The Company also maintains a sales office housed in
an approximately 630-square-foot space in Sausalito, California under a lease
that expires on February 14, 1999 with a monthly base rent of $1,489. Under
the lease at its former location in Redmond, the Company paid an aggregate
rent of $28,840 for the first seven months of 1998 and an aggregate rent of
$49,440 during 1997. The Company does not own any real estate.
Substantially all of the Company's computer and communications hardware is
located at the Company's facilities in Redmond, Washington and the Company
also leases redundant network facilities at two locations in Seattle,
Washington under agreements that expire in June 1999 and July 2001. The
Company intends to install additional hardware and high-speed Internet
connections at a location outside the West Coast and in the United Kingdom to
support the Company's joint venture, TDL InfoSpace. The Company's systems and
operations at these locations are vulnerable to damage or interruption from
fire, flood, power loss, telecommunications failure, break-ins, earthquake and
similar events. While the Company maintains redundant systems, it does not
maintain a formal disaster recovery plan and does not carry sufficient
business interruption insurance to compensate it for losses that may occur.
Despite the implementation of network security measures by the Company, its
servers are vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions, which could lead to interruptions, delays, loss of
data or the inability to accept and fulfill customer queries of the Company's
database, although the proprietary, customized nature of its software helps to
reduce the risks posed by computer viruses and electronic break-ins. The
occurrence of any of the foregoing risks could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Risk Factors--Risk of System Failures, Delays and Inadequacies."
LEGAL PROCEEDINGS
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its
business, including claims of alleged infringement of third-party
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trademarks and other intellectual property rights by the Company. Such claims,
even if not meritorious, could require the expenditure of significant
financial and managerial resources.
On April 15, 1998, a former employee of the Company filed a complaint in the
Superior Court for Santa Clara County, California alleging, among other
things, that he has the right in connection with his employment to purchase
shares of Common Stock representing up to 5% of the equity of the Company as
of an unspecified date. In addition, the former employee is also seeking
compensatory damages, plus interest, punitive damages, emotional distress
damages and injunctive relief preventing any capital reorganization or sale
that would cause the plaintiff not to be a 5% owner of the equity of the
Company. The Company removed the suit to the Federal District Court for the
District of Northern California. The Company has answered the complaint and
denied the claims. Nevertheless, while the Company believes its defenses to
the former employee's claims are meritorious, litigation is inherently
uncertain, and there can be no assurance that the Company will prevail in the
suit. The Company has accrued a liability of $240,000 for estimated settlement
costs. To the extent the Company is required to issue shares of Common Stock
or options to purchase Common Stock as a result of the suit, the Company would
recognize an expense equal to the number of shares issued multiplied by the
fair value of the Common Stock on the date of issuance, less the exercise
price of any options required to be issued, to the extent that this amount
exceeds the expense already accrued. This could have a material adverse effect
on the Company's results of operations, and any such issuance would be
dilutive to existing stockholders. The exercise price of any options which the
Company may be required to issue as a result of the suit is unknown, but could
be as low as $0.01 per share. See Note 5 of the Company's Notes to
Consolidated Financial Statements.
On December 2, 1998, the Company received a letter on behalf of an alleged
former employee of the Company claiming that he was terminated without cause
and is entitled to an option to purchase up to 2,000,000 shares of Common
Stock at an exercise price of $0.01 per share. The alleged former employee has
offered to settle the claims for a cash payment of $50,000 and 250,000 shares
of Common Stock. Should the Company not accept the offer, the alleged former
employee has threatened to file suit against the Company on December 11, 1998
seeking 2,000,000 shares of Common Stock plus attorneys' fees and treble
damages (consisting of an additional 4,000,000 shares of Common Stock) under
the Massachusetts Consumer Protection Act (Chapter 93A), and membership on the
Company's Board of Directors. (The Company believes the alleged former
employee's claims do not reflect the one-for-two reverse stock split of the
Common Stock consummated in August 1998.) The Company is currently
investigating the claims and believes they have no merit. Nevertheless,
litigation is inherently uncertain and, should litigation ensue, there can be
no assurance that the Company would prevail in such a suit. To the extent the
Company is required to issue shares of Common Stock or options to purchase
Common Stock as a result of the claims, the Company would recognize an expense
equal to the number of shares issued multiplied by the fair value of the
Common Stock on the date of issuance, less the exercise price of any options
required to be issued. This could have a material adverse effect on the
Company's results of operations, and any such issuances would be dilutive to
existing stockholders.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of September 30, 1998
with respect to the executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Naveen Jain................................ 39 Chief Executive Officer and Chairman of the Board
Bernee D. L. Strom......................... 51 President and Chief Operating Officer
Ellen B. Alben............................. 36 Vice President, Legal and Business Affairs and Secretary
Douglas A. Bevis........................... 53 Vice President and Chief Financial Officer
John E. Cunningham, IV (1)................. 41 Director
Peter L. S. Currie (2)..................... 41 Director
Gary C. List (1)(2)........................ 46 Director
Carl Stork................................. 38 Director
</TABLE>
- ---------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Naveen Jain founded the Company in March 1996. Mr. Jain has served as the
Company's Chief Executive Officer since its inception, as its President since
its inception to November 1998 and as its sole director from its inception to
June 1998, when he was appointed Chairman of the Board upon the Board's
expansion to five directors. From June 1989 to March 1996, Mr. Jain held
various positions at Microsoft Corporation, including Group Manager for MSN,
Microsoft's online service. From 1987 to 1989, Mr. Jain served as Software
Development Manager for Tandon Computer Corporation, a PC manufacturing
company. From 1985 to 1987, Mr. Jain served as Software Manager for UniLogic,
Inc., a PC manufacturing company and from 1982 to 1985, he served as Product
Manager and Software Engineer at Unisys Corporation/Convergent Technologies, a
computer manufacturing company. Mr. Jain holds a B.S. from the University of
Roorkee and an M.B.A. from St. Xavier's School of Management.
Bernee D. L. Strom joined the Company in November 1998 as President and
Chief Operating Officer. Since 1990, Ms. Strom served as President and Chief
Executive Officer of the Strom Group, a venture investment and business
advisory firm specializing in high technology. From April 1995 through June
1997, Ms. Strom served as President and Chief Executive Officer of USA Digital
Radio, LP, a partnership of Westinghouse Electric Corporation and Gannett Co.,
Inc. that develops technology for AM and FM digital radio broadcasting. From
1990 through 1994, she was President and Chief Executive Officer of MBS
Technologies, Inc., a software company. Ms. Strom was a founder of Gemstar
Development Corporation, which developed the VCRPlus+(R) Instant Programmer,
and served as its Vice President from its founding in 1989 to 1993. Ms. Strom
serves as a member of the Board of Directors of the Polaroid Corporation, Krug
International Corporation, MilleCom, an Internet-based communications company,
Walker Digital, an intellectual property studio, and Quantum Development, a
software and services company. She is a trustee of the National Public Radio
Foundation and a member of CIGNA's Telecommunications Board of Advisors. She
also serves as a member of the Board of Advisors of the J. L. Kellogg Graduate
School of Management at Northwestern University. Ms. Strom holds a B.S., M.A.
and Ph.D. from New York University and an M.B.A. from the Anderson Graduate
School of Management at UCLA.
Ellen B. Alben joined the Company in May 1998 as Vice President, Legal and
Business Affairs and Secretary. From April 1997 to May 1998, she was a senior
attorney with Perkins Coie LLP. From September 1996 to April 1997, Ms. Alben
served as a consultant to Paragon Trade Brands, Inc. ("Paragon Trade Brands"),
a private-label diaper manufacturer, and as special securities counsel to
companies raising private financing. From September 1995 through June 1996,
she served as Vice President, General Counsel and Secretary of Paragon Trade
Brands. Paragon Trade Brands filed for bankruptcy protection under Chapter 11
of the Bankruptcy Code in January 1997. From July 1994 to September 1995, she
served as Senior Associate Counsel of The Hillhaven Corporation ("Hillhaven"),
a nursing home provider, and from June 1993 to July 1994 she served as
Associate Counsel of Hillhaven. Prior to joining Hillhaven, Ms. Alben
practiced law with private law
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firms for seven years, specializing in corporate securities, finance, and
mergers and acquisitions. She holds a B.A. from Duke University and a J.D.
from Stanford Law School.
Douglas A. Bevis joined the Company in August 1998 as Vice President and
Chief Financial Officer. From September 1996 until July 1998, he served as
Vice President and Chief Financial Officer of Apex PC Solutions, Inc.
("Apex"), a manufacturer of stand-alone switching systems and integrated
server cabinet solutions for the client/server computing market, and served as
Secretary of Apex from December 1996 to March 1998. From September 1990 to
February 1996, Mr. Bevis was employed at CH2M HILL, Inc., a national
environmental engineering consulting firm, where he served as Vice President
and Treasurer from September 1990 to April 1993 and as Senior Vice President
and Chief Financial Officer from April 1993 to February 1996. Mr. Bevis holds
a B.A. from Beloit College, a Master of Architecture degree from the
University of Minnesota and an M.B.A. from Harvard Business School.
John E. Cunningham, IV has served as a director of the Company since July
1998. Since April 1995 he has served as President of Kellett Investment
Corporation, an investment fund for later-stage, high-growth private
companies. He is on the Board of Directors of Petra Capital, LLC. and Real
Time Data ("Real Time Data"), a consolidator of the vending services industry
utilizing proprietary wireless information systems. During 1997, Mr.
Cunningham was interim Chief Executive Officer of Real Time Data. From
December 1994 to August 1996, he was President of Pulson Communications, Inc.
From February 1991 to November 1994, he served as Chairman and Chief Executive
Officer of RealCom Office Communications, a privately held telecommunications
company that merged with MFS Communications Company, Inc., and was
subsequently acquired by WorldCom, Inc. Mr. Cunningham holds a B.A. from Santa
Clara University and an M.B.A. from the University of Virginia.
Peter L. S. Currie has served as a director of the Company since July 1998.
Mr. Currie is Executive Vice President and Chief Administrative Officer of
Netscape Communications Corporation, where he has held various management
positions since April 1995. From April 1989 to April 1995, Mr. Currie held
various management positions at McCaw Cellular Communications, Inc. ("McCaw
Cellular"), including Executive Vice President and Chief Financial Officer and
Executive Vice President of Corporate Development. Before joining McCaw
Cellular, he was a Principal at Morgan Stanley & Co. Incorporated. Mr. Currie
holds a B.A. from Williams College and an M.B.A. from Stanford University.
Gary C. List has served as a director of the Company since July 1998. Since
June 1997, Mr. List has served as Chief Executive of TDL Group Limited and
Chief Executive Officer and Chairman of its primary subsidiary, Thomson
Directories Limited, a print directory publishing company. From October 1987
to June 1997, Mr. List held various executive positions with US West, Inc.,
including President of US West International Information Services and Vice
President and Chief Financial Officer of US West Marketing Resources Group.
Carl Stork has served as a director of the Company since September 1998.
Since May 1997, Mr. Stork has been General Manager, Hardware Strategy and
Business Development, at Microsoft Corporation. Mr. Stork has held various
other management positions at Microsoft since 1981. Mr. Stork holds a B.S.
from Harvard University and an M.B.A. from the University of Washington.
BOARD OF DIRECTORS
The Company's Restated Certificate of Incorporation and Restated Bylaws
provide that the Board of Directors shall be composed of not less than five or
more than nine directors, with the specific number to be set by resolution of
the Board. The Company currently has five directors.
At the first election of directors following this offering, the Board of
Directors will be divided into three classes, with each class to be as equal
in number as possible. Each Class 1 director will be elected to serve until
the next ensuing annual meeting of stockholders, each Class 2 director will be
elected to serve until the second ensuing annual meeting of stockholders and
each Class 3 director will be elected to serve until the
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third ensuing annual meeting of stockholders. Thereafter, each newly elected
director will serve for a term ending at the third annual meeting of
stockholders following such election. All directors hold office until the
annual meeting of stockholders at which their terms expire and their
successors are elected and qualified. Directors may be removed by stockholders
only for cause.
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee consists of Messrs. List and Cunningham. The
Compensation Committee reviews and approves the compensation and benefits for
the Company's executive officers, administers the Company's 1996 Plan and
makes recommendations to the Board of Directors regarding such matters.
The Audit Committee consists of Messrs. Currie and List. Among other
functions, the Audit Committee makes recommendations to the Board of Directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by the Company's independent
auditors, reviews the Company's balance sheet, statement of operations and
cash flows and reviews and evaluates the Company's internal control functions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. List and
Cunningham. No member of the Board of Directors or of the Compensation
Committee serves as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving as a
member of the Company's Board of Directors or Compensation Committee.
DIRECTOR COMPENSATION
Directors of the Company are paid $750 for each Board of Directors meeting
attended in person, $500 for each Board of Directors meeting attended by
telephone and $500 for each committee meeting attended. The Company also
reimburses directors for travel expenses incurred to attend meetings of the
Board of Directors or committee meetings. Directors of the Company are
eligible to participate in the 1996 Plan and the ESPP. See "--Benefit Plans--
Stock Option Program for Nonemployee Directors."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation limits the liability of
directors to the full extent permitted by Delaware law. Delaware law provides
that a corporation's certificate of incorporation may contain a provision
eliminating or limiting the personal liability of directors for monetary
damages for breach of their fiduciary duties as directors, except for
liability (i) for any breach of their duty of loyalty to the corporation or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law (the "DGCL"),
or (iv) for any transaction from which the director derived an improper
personal benefit. The Company's Restated Bylaws provide that the Company shall
indemnify its directors and officers and may indemnify its employees and
agents to the full extent permitted by law. The Company believes that
indemnification under its Restated Bylaws covers at least negligence and gross
negligence on the part of indemnified parties.
The Company has entered into agreements to indemnify its directors and
executive officers. These agreements, among other things, indemnify the
Company's directors and officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by such persons in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or officer of the Company,
any subsidiary of the Company or any other company or enterprise to which the
person provides services at the request of the Company. The Company believes
that these agreements are necessary to attract and retain qualified directors
and officers.
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EXECUTIVE COMPENSATION
No executive officer of the Company earned more than $100,000 in salary and
bonus from the Company in the fiscal year ended December 31, 1997. Naveen
Jain, the Company's Chief Executive Officer, received no salary or
compensation from the Company for his services from the time of the Company's
inception to July 1998. Beginning July 1998, Mr. Jain will receive an annual
salary of $125,000. Mr. Jain does not currently hold options to purchase
capital stock of the Company.
EMPLOYMENT AGREEMENT
Pursuant to an employment agreement with Bernee D. L. Strom, the Company's
President and Chief Operating Officer, the Company has agreed to provide Ms.
Strom with (i) an annual salary of $250,000, (ii) insurance and other employee
benefits, (iii) options to purchase 500,000 shares of Common Stock which vest
over a period of four years and (iv) options to purchase an additional 250,000
shares of Common Stock which vest on the sixth anniversary of Ms. Strom's
start date or earlier if specified revenue and net income criteria are met. In
addition, the agreement contains a severance arrangement whereby Ms. Strom is
entitled to receive a payment equal to one year of her base salary and
benefits in the event the Company terminates her employment for any reason
other than for cause.
BENEFIT PLANS
Restated 1996 Flexible Stock Incentive Plan
The Company adopted the Restated 1996 Flexible Stock Incentive Plan in 1996.
The purpose of the 1996 Plan is to provide an opportunity for employees,
officers, directors, independent contractors and consultants of the Company to
acquire Common Stock of the Company. The 1996 Plan provides for grants of
stock options, stock appreciation rights ("SARs") and stock awards. An
aggregate of 3,000,000 shares of Common Stock have been authorized for
issuance under the 1996 Plan. As of September 30, 1998, options to purchase
1,494,425 shares of Common Stock were outstanding under the 1996 Plan, with
exercise prices ranging from $.02 to $12.00 per share and options to purchase
1,505,450 shares were available for future grant.
Stock Option Grants. The Board or the Compensation Committee (the "Plan
Administrator") has the authority to select individuals who are to receive
options under the 1996 Plan and the terms and conditions of each option so
granted, including the type of option granted (incentive or nonqualified), the
exercise price (which must be at least equal to the fair market value of the
Common Stock on the date of grant with respect to incentive stock options),
vesting provisions and the option term.
Stock Appreciation Rights. The Plan Administrator may grant SARs to selected
individuals separately or in tandem with a stock option award. An SAR is an
incentive award that permits the holder to receive, for each share covered by
the SAR, an amount equal to the amount by which the fair market value of a
share of Common Stock on the date of exercise exceeds the exercise price of
such share. The SAR may contain such terms, provisions and conditions not
inconsistent with the 1996 Plan as may be established by the Plan
Administrator.
Stock Awards. The Plan Administrator is authorized under the 1996 Plan to
issue shares of Common Stock to eligible individuals on such terms and
conditions and subject to such restrictions, if any, as the Plan Administrator
may determine.
Adjustments. Proportional adjustments to the aggregate number of shares
issuable under the 1996 Plan and to outstanding awards are made for stock
splits and other capital adjustments.
Corporate Transactions. In the event of certain Corporate Transactions (as
defined below), each outstanding option, SAR or stock award that would
otherwise vest within twelve months from the effective date of the Corporate
Transaction will vest and become exercisable, or nonforfeitable, as
applicable, immediately prior to the effective date of the Corporate
Transaction. The remainder of each outstanding
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option, SAR or stock award will terminate and any restricted stock will be
reconveyed to or repurchased by the Company prior to the effective date of the
Corporate Transaction. However, acceleration, termination or
repurchase of any option, SAR or stock award will not occur if such award is,
in connection with the Corporate Transaction, to be assumed by the successor
corporation or parent thereof.
"Corporate Transaction," as defined in the 1996 Plan, includes (i) a merger
or consolidation in which the Company is not the surviving entity (other than
a transaction to change the state of the Company's incorporation or a
transaction in which holders of the Company's outstanding securities
immediately before such transaction own more than 50% of the voting power of
the entity following such transaction); (ii) the disposition of all or
substantially all of the assets of the Company (other than a disposition in
which stockholders immediately before such transaction own more than 50% of
the total voting power of the purchaser or other transferee following such
transaction); and (iii) certain reverse mergers in which the Company is the
surviving entity but the Company's stockholders immediately prior to such
merger do not hold more than 50% of the total voting power of the Company
immediately following such merger.
Stock Option Program for Nonemployee Directors
Under the 1996 Plan, the Company grants a nonqualified stock option to
purchase 10,000 shares of Common Stock to each nonemployee director on the
date the director is first appointed or elected to the Board of Directors.
Nonemployee directors serving at the time of the adoption of the program each
received an option to purchase 1,250 shares of Common Stock. On November 19,
1998, each nonemployee director received a supplemental option to purchase
10,000 shares of Common Stock. Commencing with the Company's 1999 Annual
Meeting of Stockholders, the Company will grant to each nonemployee director
an additional nonqualified stock option to purchase 2,500 shares of Common
Stock immediately following such Annual Meeting of Stockholders, except for
those nonemployee directors who were elected to the Board of Directors at such
Annual Meeting of Stockholders or within the three-month period prior to such
Annual Meeting of Stockholders. All options granted under the program for
nonemployee directors fully vest on the first anniversary of the date of such
grant.
1998 Employee Stock Purchase Plan
The Company adopted the 1998 Employee Stock Purchase Plan in August 1998.
The ESPP will be implemented upon the effectiveness of this offering. The ESPP
is intended to qualify under Section 423 of the Internal Revenue Code of 1986,
as amended, and permits eligible employees of the Company and its subsidiaries
to purchase Common Stock through payroll deductions of up to 15% of their
compensation. Under the ESPP, no employee may purchase Common Stock worth more
than $25,000 in any calendar year, valued as of the first day of each offering
period. In addition, owners of 5% or more of the Company's or a subsidiary's
Common Stock may not participate in the ESPP. An aggregate of 450,000 shares
of Common Stock are authorized for issuance under the ESPP.
The ESPP will be implemented with six-month offering periods, the first such
period to commence upon the effectiveness of this offering. Thereafter,
offering periods will begin on each January 1 and July 1. The price of Common
Stock purchased under the ESPP will be the lesser of 85% of the fair market
value on the first day of an offering period and 85% of the fair market value
on the last day of an offering period, except that the purchase price for the
first offering period will be equal to the lesser of 100% of the initial
public offering price of the Common Stock offered hereby and 85% of the fair
market value on December 31, 1998. The ESPP does not have a fixed expiration
date, but may be terminated by the Company's Board of Directors at any time.
No shares of Common Stock have been issued under the ESPP.
In the event of a merger, consolidation, or acquisition by another
corporation of all or substantially all of the Company's assets, or the
liquidation or dissolution of the Company, the last day of an offering period
on which a participant may purchase stock will be the business day immediately
preceding the effective date of such event, unless the plan administrator
provides for the assumption or substitution of the outstanding purchase
rights.
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CERTAIN TRANSACTIONS
On April 10, 1996, Naveen Jain purchased 10,000,000 shares of Common Stock
for an aggregate price of $2,000. In April 1996, Mr. Jain made an interest-
free loan to the Company in the amount of $150,000, which has been fully
repaid by the Company. On April 10, 1996, the Company granted an option to
purchase 250,000 shares of Common Stock at an exercise price of $0.02 per
share to Anuradha Jain, Mr. Jain's wife, in connection with her employment as
the Company's Director of Human Resources, and granted an option to purchase
150,000 shares of Common Stock at an exercise price of $0.02 per share to
Punam Agrawal, Mr. Jain's sister-in-law, in connection with her employment as
the Company's Director of Marketing. In a private placement with other
investors on May 21, 1998, the Company sold 25,000 shares of Common Stock at
$4.00 per share to Siddarth Agrawal, Mr. Jain's brother-in-law, and 100,000
shares of Common Stock to TEOCO Corporation at $4.00 per share. Atul Jain, Mr.
Jain's brother, is President of TEOCO Corporation.
On May 21, 1998, the Company sold shares of Common Stock in a private
placement transaction as follows (the "May 1998 Stock Purchase"): 937,500
shares of Common Stock at $4.00 per share and warrants to purchase up to
1,688,729 shares of Common Stock at a weighted average exercise price of $5.87
per share to Acorn Ventures-IS, LLC ("Acorn Ventures"); 156,250 shares of
Common Stock at $4.00 per share and warrants to purchase up to 230,281 shares
of Common Stock at a weighted average exercise price of $5.87 per share to
Kellett Partners, LLP ("Kellett Partners"); and 31,250 shares of Common Stock
at $4.00 per share and warrants to purchase up to 76,762 shares of Common
Stock at a weighted average exercise price of $5.87 per share to John and
Carolyn Cunningham. John E. Cunningham, IV, a director of the Company, is
President of Kellett Investment Corporation, an affiliate of Kellett Partners.
Mr. Cunningham disclaims beneficial ownership of such shares held by Kellett
Partners. Carolyn Cunningham is John Cunningham's spouse.
Pursuant to the terms of the May 1998 Stock Purchase, on August 6, 1998, the
Company issued Common Stock and warrants to purchase Common Stock in exchange
for the termination of certain anti-dilution rights as follows: 16,680 shares
of Common Stock and warrants to purchase up to 30,047 shares of Common Stock
at a weighted average exercise price of $5.87 to Acorn Ventures; 2,427 shares
of Common Stock and warrants to purchase up to 3,578 shares of Common Stock at
a weighted average exercise price of $5.87 to Kellett Partners; and 482 shares
of Common Stock and warrants to purchase up to 1,186 shares of Common Stock at
a weighted average exercise price of $5.87 to John and Carolyn Cunningham.
Acorn Ventures, Kellett Partners and John and Carolyn Cunningham are entitled
to certain registration rights with respect to the shares of Common Stock and
the Common Stock issuable upon exercise of the warrants purchased in the
private placement. See "Description of Capital Stock--Registration Rights."
On May 21, 1998, the Company entered into Consulting Agreements with Acorn
Ventures, John E. Cunningham, IV and Kellett Partners, pursuant to which the
Company is required to pay reasonable out-of-pocket expenses incurred by such
persons in connection with such persons' services as consultants. In addition,
the Company has entered into agreements to indemnify Acorn Ventures, John E.
Cunningham, IV and Kellett Partners against expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by such persons in any
action or proceeding in which such persons are parties or participants arising
out of such persons' services as consultants. These consulting services
include assistance in defining the Company's business strategy, identifying
and meeting with sources of financing and assisting the Company in structuring
and negotiating such financings. The Consulting Agreements have terms of five
years and are terminable by either party upon breach of the Consulting
Agreement by the other party or on 30 days' notice. Other than the
reimbursement of out-of-pocket expenses, there is no other cash compensation
under the Consulting Agreements.
In July 1998, the Company sold 25,000 shares of Common Stock at $8.00 per
share in a private placement transaction to the Bevis Family Trust. Douglas A.
Bevis, the Company's Vice President and Chief Financial Officer, is Trustee of
the Bevis Family Trust and is a beneficiary of the Bevis Family Trust, along
with his four siblings. Mr. Bevis disclaims beneficial ownership of such
shares except as to the extent of his
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proportionate interest in the trust. In addition, in July 1998, the Company
sold 80,000 shares of Common Stock at $7.50 per share to Mr. Bevis pursuant to
the Company's 1998 Stock Purchase Rights Plan.
In July 1998, the Company sold 12,500 shares of Common Stock at $8.00 per
share to Steven Brady in a private placement with other investors. Mr. Brady
is the brother of Ellen B. Alben, the Company's Vice President, Legal and
Business Affairs and Secretary.
Thomson Directories Limited entered into a joint venture agreement with the
Company in July 1998. Gary C. List, a director of the Company, is Chief
Executive Officer of Thomson and a beneficial shareholder and the Chief
Executive Officer of TDL Group Limited, the holding company of Thomson. The
Company sold Mr. List 12,500 shares of Common Stock at $8.00 per share in a
private placement with other investors in July 1998.
On August 6, 1998, the Company sold shares of Common Stock in a private
placement as follows: 62,500 shares at $8.00 per share to Acorn Ventures;
140,625 shares at $8.00 per share to Kellett Partners; and 15,625 shares at
$8.00 per share to John and Carolyn Cunningham. John E. Cunningham, IV, a
director of the Company, is President of Kellett Investment Corporation, an
affiliate of Kellett Partners. Mr. Cunningham disclaims beneficial ownership
of such shares held by Kellett Partners. Acorn Ventures, Kellett Partners and
John and Carolyn Cunningham are entitled to certain registration rights with
respect to the shares purchased in the private placement. See "Description of
Capital Stock--Registration Rights."
The Company believes that all the transactions set forth above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. Any future transactions, including loans, between
the Company and its officers, directors and principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested directors, and will be on
terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
The Company has entered into indemnification agreements with each of its
executive officers and directors. See "Management--Limitation of Liability and
Indemnification Matters."
The Company has entered into an employment agreement with Bernee D. L.
Strom, the Company's President and Chief Operating Officer. See "Management--
Employment Agreement."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's outstanding Common Stock as of September
30, 1998 and as adjusted to reflect the sale of the 4,000,000 shares of Common
Stock offered hereby for (i) each person or entity known by the Company to
beneficially own more than 5% of the Common Stock, (ii) each director of the
Company, (iii) the Company's Chief Executive Officer, and (iv) all of the
Company's directors and executive officers as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole voting
and investment power with respect to such shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OUTSTANDING
----------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) OFFERING OFFERING
- ------------------------ ---------------------- --------- ---------
<S> <C> <C> <C>
Naveen Jain (2).............. 10,128,124 66.3% 52.5%
c/o InfoSpace.com, Inc.
15375 N.E. 90th Street
Redmond, WA 98052
Acorn Ventures-IS, LLC (3)... 2,735,456 16.2 13.1
1309 114th Avenue S.E.
Suite 200
Bellevue, WA 98004
John E. Cunningham, IV (4)... 658,466 4.3 3.4
Gary C. List................. 12,500 * *
Peter L. S. Currie........... -- -- --
Carl Stork................... -- -- --
All directors and executive
officers as a group (8
persons) (5)................ 10,954,090 70.0 55.8
</TABLE>
- ---------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by that
person that are currently exercisable or will become exercisable within 60
days are deemed outstanding, while such shares are not deemed outstanding
for purposes of computing the percentage ownership of any other person.
Unless otherwise indicated in the footnotes below, the persons and
entities named in the table have sole voting and investment power with
respect to all shares beneficially owned, subject to community property
laws where applicable.
(2) Represents 7,466,666 shares of Common Stock held in the name of Naveen and
Anuradha Jain, 500,000 shares of Common Stock held by the Jain Family
Irrevocable Trust, 1,000,000 shares of Common Stock held by Naveen Jain
GRAT No. 1, 1,000,000 shares of Common Stock held by Anuradha Jain GRAT
No. 1 and 161,458 shares subject to options exercisable by Anuradha Jain
within 60 days of September 30, 1998. Anuradha Jain is Mr. Jain's spouse.
(3) Includes 1,718,776 shares of Common Stock issuable upon exercise of
warrants currently exercisable.
(4) Includes 77,948 shares of Common Stock issuable upon exercise of warrants
currently exercisable. Also includes 533,161 shares of Common Stock
beneficially owned by Kellett Partners, LLP (consisting of 283,677 shares
of Common Stock and 233,859 shares of Common Stock upon exercise of
warrants currently exercisable held by Kellett Partners, LLP and 15,625
shares of Common Stock held by Clear Fir Partners, LP, an affiliate of
Kellett Partners, LLP). Mr. Cunningham is President of Kellett Investment
Corporation, an affiliate of Kellett Partners, LLP. Mr. Cunningham
disclaims beneficial ownership of such shares beneficially held by Kellett
Partners, LLP.
(5) Includes 523,265 shares subject to options and warrants exercisable within
60 days of September 30, 1998.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $0.0001 par value per share, and 15,000,000 shares of Preferred
Stock, $0.0001 par value per share. The following summary of certain
provisions of the Common Stock and Preferred Stock does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
provisions of the Company's Restated Certificate of Incorporation, which is
included as an exhibit to the Registration Statement of which this Prospectus
is a part, and by the provisions of applicable law.
COMMON STOCK
As of September 30, 1998, there were 15,116,012 shares of Common Stock
outstanding held of record by approximately 96 stockholders. There will be
19,116,012 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options
after September 30, 1998) after giving effect to the sale of Common Stock
offered to the public hereby.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. There are no
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding shares of Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available for the payment of
dividends. In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and liquidation preferences of
any outstanding shares of Preferred Stock. Holders of Common Stock have no
preemptive rights or rights to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to
the Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock to be issued upon completion of
this offering will be fully paid and nonassessable. See "Risk Factors--Control
by Principal Stockholder and His Family" and "Dividend Policy."
PREFERRED STOCK
There are no shares of Preferred Stock outstanding. Pursuant to the
Company's Restated Certificate of Incorporation, the Board of Directors has
the authority, without further action by the stockholders, to issue up to
15,000,000 shares of Preferred Stock in one or more series and to fix the
designations, powers, preferences, privileges and relative, participating,
optional or special rights and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater
than the rights of the Common Stock. The Board of Directors, without
stockholder approval, can issue Preferred Stock with voting, conversion or
other rights that could adversely affect the voting power and other rights of
the holders of Common Stock. Preferred Stock could thus be issued quickly with
terms calculated to delay or prevent a change of control of the Company or
make removal of management more difficult. Additionally, the issuance of
Preferred Stock may have the effect of decreasing the market price of the
Common Stock, and may adversely affect the voting and other rights of the
holders of Common Stock. The Company has no plans to issue any Preferred
Stock. See "Risk Factors--Antitakeover Effect of Certain Charter Provisions
and Applicable Law; Right of First Negotiation."
WARRANTS
As of September 30, 1998, there were outstanding warrants to purchase
3,531,719 shares of Common Stock. Five investors hold warrants to purchase an
aggregate of 2,028,523 and 35,313 shares of Common Stock, which expire on May
21, 2008 and August 6, 2008, respectively, at a weighted average exercise
price of $5.87 per share. One investor holds a warrant to purchase 477,967
shares at an exercise price of $0.02 per
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<PAGE>
share. This warrant expires on October 30, 2002. On August 24, 1998, in
connection with the agreement relating to the Company's white pages directory
services, the Company issued to AOL warrants to purchase up to 989,916 shares
of Common Stock, which warrants vest in 16 equal quarterly installments over
four years, based on the delivery by AOL of a minimum number of searches on
the Company's white pages directory service, and have an exercise price of
$12.00 per share.
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF RESTATED CERTIFICATE OF
INCORPORATION AND WASHINGTON AND DELAWARE LAW; RIGHT OF FIRST NEGOTIATION
As noted above, the Company's Board of Directors, without stockholder
approval, has the authority under the Company's Restated Certificate of
Incorporation to issue Preferred Stock with rights superior to the rights of
the holders of Common Stock. As a result, Preferred Stock could be issued
quickly and easily, could adversely affect the rights of holders of Common
Stock and could be issued with terms calculated to delay or prevent a change
of control of the Company or make removal of management more difficult.
Election and Removal of Directors. Effective with the first annual meeting
of stockholders following this offering, the Company's Restated Bylaws provide
for the division of the Company's Board of Directors into three classes, as
nearly equal in number as possible, with the directors in each class serving
for a three-year term, and one class being elected each year by the Company's
stockholders. See "Management--Board of Directors." Directors may be removed
only for cause. 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 the Company and may maintain the incumbency of the Board of
Directors, as it generally makes it more difficult for stockholders to replace
a majority of directors.
Approval for Certain Business Combinations. The Company's Restated
Certificate of Incorporation requires that certain business combinations
(including a merger, share exchange and the sale, lease, exchange, mortgage,
pledge, transfer or other disposition or encumbrance of a substantial part of
the Company's assets other than in the usual and regular course of business)
be approved by the holders of not less than two-thirds of the outstanding
shares, unless such business combination has been approved by a majority of
the Board of Directors, in which case the affirmative vote required shall be a
majority of the outstanding shares.
Stockholder Meetings. Under the Company's Restated Certificate of
Incorporation and Restated Bylaws, the stockholders may call a special meeting
only upon the request of holders of at least 30% of the outstanding shares.
Additionally, 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. The Company's Restated 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 thereof.
The laws of the Washington, where the Company's principal executive offices
are located, impose restrictions on certain transactions between certain
foreign corporations and significant stockholders. Chapter 23B.19 of the
Washington Business Corporation Act (the "WBCA") prohibits a "Target
Corporation," with certain exceptions, from engaging in certain "Significant
Business Transactions" with a person or group of persons which beneficially
owns 10% or more of the voting securities of the Target Corporation (an
"Acquiring Person") for a period of five years after such acquisition, unless
the transaction or acquisition of shares is approved by a majority of the
members of the Target Corporation's board of directors prior to the time of
acquisition. Such prohibited transactions include, among other things, a
merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the Acquiring Person, termination of 5% or
more of the employees of the Target Corporation as a result of the Acquiring
Person's acquisition of 10% or more of the shares or allowing the Acquiring
Person to receive any disproportionate benefit as a stockholder. After the
five-year period, a Significant Business Transaction may take place as long as
it complies
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<PAGE>
with certain fair price provisions of the statute or is approved at an annual
or special meeting of stockholders. A Target Corporation includes a foreign
corporation if (i) the corporation has a class of voting stock registered
pursuant to Section 12 or 15 of the Securities Exchange Act of 1934, as
amended, (ii) the corporation's principal executive office is located in
Washington, (iii) any of (a) more than 10% of the corporation's stockholders
of record are Washington residents, (b) more than 10% of its shares of record
are owned by Washington residents or (c) 1,000 or more of its stockholders of
record are Washington residents, (iv) a majority of the corporation's
employees are Washington residents or more than 1,000 Washington residents are
employees of the corporation and (v) a majority of the corporation's tangible
assets are located in Washington or the corporation has more than $50 million
of tangible assets located in Washington. A corporation may not "opt out" of
this statute. If the Company meets the definition of a Target Corporation,
Chapter 23B.19 of the WBCA may have the effect of delaying, deferring or
preventing a change of control of the Company.
The Company is subject to Section 203 of the DGCL ("Section 203"), which
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless (i) prior to such date, the board of directors of the
corporation approves either the business combination or the transaction that
resulted in the stockholder's becoming an interested stockholder, (ii) upon
consummation of the transaction that resulted in the stockholder's becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock, excluding shares held by directors, officers and
certain employee stock plans, or (iii) on or after the consummation date the
business combination is approved by the board of directors and by the
affirmative vote at an annual or special meeting of stockholders of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder. For purposes of Section 203, a "business combination" includes,
among other things, a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder, and an "interested
stockholder" is generally a person who, together with affiliates and
associates of such person, (i) owns 15% or more of the corporation's voting
stock or (ii) is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the prior three years.
Pursuant to certain agreements with AOL, if the Company receives an
unsolicited proposal, or the Company determines to solicit proposals or
otherwise enter into discussions that would result in a sale of a controlling
interest in the Company or other merger, asset sale or other disposition that
effectively results in a change of control of the Company (a "Disposition"),
then the Company is required to give written notice to AOL, and AOL has seven
days to provide notice to the Company of its desire to negotiate in good faith
with the Company regarding a Disposition involving AOL. In the event that AOL
timely delivers such a notice, then the Company will negotiate exclusively and
in good faith with AOL regarding a Disposition for a period of 30 days from
the date of delivery of the Company's initial notice to AOL, after which the
Company will be free to negotiate a Disposition with other third parties if
the Company and AOL cannot in good faith come to terms. If such a Disposition
is not consummated within five months from the date of delivery of the
Company's initial notice to AOL, the process described above will again apply.
AOL's right of first negotiation could have the effect of delaying, deterring
or preventing a change of control of the Company.
These charter provisions, provisions of Washington and Delaware law and
AOL's right of first negotiation may have the effect of delaying, deterring or
preventing a change of control of the Company.
REGISTRATION RIGHTS
Pursuant to certain Investor Rights Agreements with the Company, dated as of
May 21, 1998, three investors holding an aggregate of 1,144,589 shares of
Common Stock and warrants to purchase 2,030,583 shares of Common Stock (the
"Holders") are entitled to certain rights with respect to the registration of
such shares under the Securities Act. If the Company proposes to register any
of its securities under the Securities Act, either for its own account or for
the account of other security holders, the Holders are entitled to notice of
such registration and to include shares of Common Stock in such registration
at the
70
<PAGE>
Company's expense. Additionally, the Holders are entitled to certain demand
registration rights pursuant to which they may require the Company to file a
registration statement under the Securities Act at the Company's expense with
respect to their shares of Common Stock, and the Company is required to use
its commercially reasonable efforts to effect such registration. Further, the
Holders may require the Company to file up to three additional registration
statements on Form S-3 (and no more than two in any calendar year), with the
Company bearing the expense for up to one such registration in any calendar
year. All of these registration rights are subject to certain conditions and
limitations, among them the right of the underwriters of an offering to limit
the number of shares included in such registration.
Pursuant to a Stockholder Rights Agreement with the Company, dated as of
August 6, 1998, six investors holding an aggregate of 492,500 shares of Common
Stock are entitled to notice of registration if the Company proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other security holders, and are entitled to
include shares of Common Stock in such registration at the Company's expense.
These registration rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering to limit the number of
shares included in such registration.
In connection with the acquisition of all the outstanding membership units
of YPI, the former members of YPI holding an aggregate of 85,000 shares of
Common Stock may require the Company to file additional registration
statements on Form S-3 at the expense of those stockholders requesting such
registration.
AOL, which holds a warrant to purchase 989,916 shares of Common Stock, is
entitled to notice of registration if the Company proposes to register any of
its securities under the Securities Act, either for its own account or for the
account of other security holders, and is entitled to include shares of Common
Stock issuable upon the exercise of such warrant in such registration at the
Company's expense. Further, AOL may require the Company to file up to four
additional registration statements on Form S-3, with the Company bearing the
expense for such registrations. These registration rights are subject to
certain conditions and limitations, among them the right of the underwriters
of an offering to limit the number of shares included in such registration.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, Seattle, Washington.
NASDAQ NATIONAL MARKET LISTING
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "INSP," subject to official notice of issuance.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company and there can be no assurance that a significant public market
for the Common Stock will be developed or be sustained after this offering.
Sales of substantial amounts of Common Stock in the public market after this
offering, or the possibility of such sales occurring, could adversely affect
prevailing market prices for the Common Stock or the future ability of the
Company to raise capital through an offering of equity securities.
After this offering, the Company will have outstanding an aggregate of
19,116,012 shares of Common Stock. Of these shares, the 4,000,000 shares
offered hereby will be freely tradable in the public market without
restriction under the Securities Act, unless such shares are held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 15,116,012 shares of Common Stock outstanding
upon completion of this offering will be "restricted securities," as that term
is defined in Rule 144 under the Securities Act (the "Restricted Shares"). The
Restricted Shares were issued and sold by the Company in private transactions
in reliance upon exemptions from registration under the Securities Act.
Restricted Shares may be sold in the public market only if they are registered
or if they qualify for an exemption from registration, such as Rule 144 or 701
under the Securities Act, which are summarized below.
Pursuant to certain "lock-up" agreements, all the executive officers,
directors and certain stockholders and employees of the Company, who
collectively hold an aggregate of approximately 15,057,288 Restricted Shares
of the Company, have agreed not to offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of any such shares for a period of 180
days from the date of this Prospectus. Hambrecht & Quist LLC may, in its sole
discretion and at any time without prior notice, release all or any portion of
the Common Stock subject to these lock-up agreements. Hambrecht & Quist LLC
currently has no plans to release any portion of the securities subject to
these lock-up agreements. When determining whether or not to release shares
from the lock-up agreements, Hambrecht & Quist LLC will consider, among other
factors, market conditions at the time, the number of shares proposed to be
released or for which the release is being requested and a stockholder's
reasons for requesting the release. The Company has also entered into an
agreement with Hambrecht & Quist LLC that the Company will not offer, sell or
otherwise dispose of Common Stock for a period of 180 days from the date of
this Prospectus.
Taking into account the lock-up agreements, the number of shares that will
be available for sale in the public market under the provisions of Rules 144,
144(k) and 701 will be as follows: (i) no shares will be eligible for sale as
of the date of this Prospectus, (ii) approximately 308,724 shares may be
saleable at various times between 90 and 180 days after the date of this
Prospectus, (iii) approximately 14,012,918 shares will be eligible for sale
180 days after the date of this Prospectus upon the expiration of lock-up
agreements with the Underwriters and (iv) approximately 1,044,370 shares will
become eligible for sale thereafter at various times upon the expiration of
their respective one-year holding periods.
Following the expiration of such lock-up periods, certain shares issued upon
exercise of options granted by the Company prior to the date of this
Prospectus will also be available for sale in the public market pursuant to
Rule 701 under the Securities Act. Rule 701 permits resales of such shares in
reliance upon Rule 144 but without compliance with certain restrictions,
including the holding period requirement, imposed under Rule 144. In general,
under Rule 144 as in effect at the closing of this offering, beginning 90 days
after the date of this Prospectus, a person (or persons whose shares of the
Company are aggregated) who has beneficially owned Restricted Shares for at
least one year (including the holding period of any prior owner who is not an
affiliate of the Company) would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of (i) one percent
of the then outstanding shares of Common Stock (approximately 191,160 shares
immediately after this offering) or (ii) 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
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<PAGE>
sale. Sales under Rule 144 are also subject to certain manner of sale and
notice requirements and to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been
an affiliate of the Company at any time during the 90 days 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 who is not an affiliate
of the Company) is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
The Company intends to file after the effective date of this offering a
Registration Statement on Form S-8 to register approximately 3,490,499 shares
of Common Stock issuable upon the exercise of outstanding stock options or
reserved for issuance under the 1996 Plan and the ESPP. Such Registration
Statement will become effective automatically upon filing. Shares issued under
the foregoing plans, after the filing of a Registration Statement on Form S-8,
may be sold in the open market, subject, in the case of certain holders, to
the Rule 144 limitations applicable to affiliates, the above-referenced lock-
up agreements and vesting restrictions imposed by the Company.
Following this offering, the holders of an aggregate of 1,722,089 shares of
outstanding Common Stock and up to 3,020,499 shares of Common Stock issuable
upon exercise of warrants will, under certain circumstances, have rights to
require the Company to register their shares for future sale. See "Description
of Capital Stock--Registration Rights."
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist
LLC, NationsBanc Montgomery Securities LLC and Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, have severally agreed to purchase from
the Company the following respective number of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC............................................
NationsBanc Montgomery Securities LLC............................
Dain Rauscher Wessels............................................
---------
Total............................................................ 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the shares, the offering price
and other selling terms may be changed by the Representatives of the
Underwriters. The Representatives have advised the Company that the
Underwriters do not intend to confirm discretionary sales in excess of five
percent of the shares of Common Stock offered hereby.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 600,000
additional shares of Common Stock at the initial public offering price, less
the underwriting discount, set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise this option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased
by it shown in the above table bears to the total number of shares of Common
Stock offered hereby. The Company will be obligated, pursuant to the option,
to sell shares to the Underwriters to the extent the option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
Certain stockholders of the Company, including all executive officers and
directors, who own in the aggregate 15,057,288 shares of Common Stock have
agreed that they will not, without the prior written consent of Hambrecht &
Quist LLC, offer, sell, or otherwise dispose of any shares of Common Stock,
options
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<PAGE>
or warrants to acquire shares of Common Stock or securities exchangeable for
or convertible into shares of Common Stock owned by them during the 180-day
period following the date of this Prospectus. The Company has agreed that it
will not, without the prior written consent of Hambrecht & Quist LLC, offer,
sell or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock during the 180-day period following
the date of this Prospectus, except that the Company may issue shares upon the
exercise of options granted prior to the date hereof, and may grant additional
options under its stock option plans, provided that, without the prior written
consent of Hambrecht & Quist LLC, such additional options shall not be
exercisable during such period.
Prior to the offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiation among the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price are prevailing
market and economic conditions, revenues and results of operations of the
Company, market valuations of other companies engaged in activities similar to
the Company, estimates of the business potential and prospects of the Company,
the present state of the Company's business operations, the Company's
management and other factors deemed relevant. The estimated initial public
offering price range set forth on the cover of this preliminary prospectus is
subject to change as a result of market conditions and other factors.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with this offering. A penalty bid means an arrangement that
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with this offering when shares of Common Stock sold by
the syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-
counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, not more than ten percent of the shares of
Common Stock offered hereby (not including shares subject to the Underwriters'
over-allotment option) for certain parties, including certain officers and
directors of the Company, who have expressed an interest in purchasing such
shares in this offering. The number of shares of Common Stock available for
sale to the general public will be reduced to the extent that such persons
purchase such reserved shares. Any reserved shares which are not so purchased
will be offered by the Underwriters to the general public on the same basis as
other shares offered hereby.
In August 1998, H & Q InfoSpace Investors, LP and Hambrecht & Quist
California purchased 175,000 and 75,000 shares of Common Stock, respectively,
at $8.00 per share as part of an equity financing on the same terms pursuant
to which all other participants in the financing purchased their shares.
Certain of the interests of H & Q InfoSpace Investors, LP and Hambrecht &
Quist California are beneficially owned by persons affiliated with Hambrecht &
Quist LLC.
In August 1998, InfoSpace Investors General Partners purchased 23,750 shares
of Common Stock at $8.00 per share as part of an equity financing on the same
terms pursuant to which all other participants in the financing purchased
their shares. All of such shares are beneficially owned by persons affiliated
with NationsBanc Montgomery Securities LLC.
In August 1998, Acorn Ventures purchased 62,500 shares of Common Stock at
$8.00 per share as part of an equity financing on the same terms pursuant to
which all other participants in the financing purchased their shares. See
"Certain Transactions."
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<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the issuance of the securities
being offered hereby will be passed on for the Company by Perkins Coie LLP,
Seattle, Washington. Certain legal matters in connection with this offering
will be passed on for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements of InfoSpace.com, Inc. as of December
31, 1996, December 31, 1997 and September 30, 1998 and for the period from
March 1, 1996 (date of inception) through December 31, 1996, the year ended
December 31, 1997, and the nine-month period ended September 30, 1998,
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing elsewhere herein,
and have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of Outpost Network, Inc. as of December 31, 1996
and December 31, 1997, and for the years then ended, included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report appearing elsewhere herein, and have been so
included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1, of which this Prospectus
is a part, under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus omits certain information contained in the
Registration Statement, and reference is made to the Registration Statement
and the exhibits thereto for further information with respect to the Company
and the Common Stock offered hereby. Statements contained herein concerning
the provisions of any documents are not necessarily complete, and in each
instance reference is made to the copy of such document filed as an exhibit to
the Registration Statement. Each such statement is qualified in its entirety
by such reference. The Registration Statement, including exhibits filed
therewith, may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, such as the Company,
that file electronically with the Commission.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract, agreement or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by independent auditors and may furnish its stockholders with
quarterly reports for the first three quarters of each fiscal year containing
unaudited summary consolidated financial information.
76
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS:
Pro Forma Combined Consolidated Statements of Operations for the Nine
Months Ended September 30, 1998.......................................... F-2
Pro Forma Combined Consolidated Statements of Operations for the Year
Ended December 31, 1997.................................................. F-3
Notes to Unaudited Pro Forma Combined Consolidated Financial Statements... F-4
INFOSPACE.COM, INC.:
Independent Auditors' Report.............................................. F-6
Consolidated Balance Sheets............................................... F-7
Consolidated Statements of Operations..................................... F-8
Consolidated Statements of Changes in Stockholders' Equity................ F-9
Consolidated Statements of Cash Flows..................................... F-10
Notes to Consolidated Financial Statements................................ F-11
OUTPOST NETWORK, INC.:
Independent Auditors' Report.............................................. F-25
Balance Sheets............................................................ F-26
Statements of Operations.................................................. F-27
Statements of Changes in Shareholders' Equity (Deficiency)................ F-28
Statements of Cash Flows.................................................. F-29
Notes to Financial Statements............................................. F-30
</TABLE>
F-1
<PAGE>
INFOSPACE.COM, INC. AND OUTPOST NETWORK, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
INFOSPACE.COM
JANUARY 1, 1998- OUTPOST NETWORK
SEPTEMBER 30, JANUARY 1, 1998- PRO FORMA PRO FORMA
1998 JUNE 2, 1998 ADJUSTMENTS COMBINED
---------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................ $ 5,373,860 $ 61,610 $(142,601)(1) $ 5,292,869
Cost of revenues........ 1,108,438 152,778 66,665 (2) 1,327,881
----------- ----------- --------- -----------
Gross profit (loss)... 4,265,422 (91,168) (209,266) 3,964,988
Operating expenses:
Product development.... 307,262 69,822 3,335 (3) 380,419
Sales and marketing.... 2,438,842 128,069 (107,601)(1) 2,459,310
General and
administrative........ 2,383,713 733,383 343,600 (1),(4) 3,460,696
Write-off of in-process
research and
development........... 2,800,000 2,800,000
----------- ----------- --------- -----------
Total operating
expenses........... 7,929,817 931,274 239,334 9,100,425
Loss from operations.... (3,664,395) (1,022,442) (448,600) (5,135,437)
Other income (expense),
net.................... 76,633 (24,355) 52,278
----------- ----------- --------- -----------
Net loss................ $(3,587,762) $(1,046,797) $(448,600) $(5,083,159)
=========== =========== ========= ===========
Basic and diluted net
loss per share......... $ (0.28) $ (0.38)
=========== ===========
Shares used in computing
basic and diluted net
loss per share
calculations........... 12,638,507 840,653 (5) 13,479,160
=========== ========= ===========
</TABLE>
(1),(2),(3),(4),(5)refers to relevant notes in Note 4 to the Unaudited Pro
Forma Combined Consolidated Financial Statements.
See accompanying notes to the Unaudited Pro Forma Combined Consolidated
Financial Statements.
F-2
<PAGE>
INFOSPACE.COM, INC. AND OUTPOST NETWORK, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
OUTPOST PRO FORMA PRO FORMA
INFOSPACE.COM NETWORK ADJUSTMENTS COMBINED
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues................ $1,685,096 $ 293,963 $ (63,069)(1) $ 1,915,990
Cost of revenues........ 410,895 412,964 159,996 (2) 983,855
---------- ------------ ------------ ------------
Gross profit (loss). 1,274,201 (119,001) (223,065) 932,135
Operating expenses:
Product development... 212,677 356,218 8,004 (3) 576,899
Sales and marketing... 830,054 201,244 (63,069)(1) 968,229
General and
administrative....... 681,456 921,391 908,640 (4) 2,511,487
---------- ------------ ------------ ------------
Total operating
expenses........... 1,724,187 1,478,853 853,575 4,056,615
Loss from operations.... (449,986) (1,597,854) (1,076,640) (3,124,480)
Other income (expense),
net.................... 21,296 (27,148) (5,852)
---------- ------------ ------------ ------------
Net loss................ $ (428,690) $ (1,625,002) $ (1,076,640) $ (3,130,332)
========== ============ ============ ============
Basic and diluted net
loss per share......... $ (0.04) $ (0.25)
========== ============
Shares used in computing
basic net loss per
share calculations .... 10,941,490 1,499,988 (5) 12,441,478
========== ============ ============
Shares used in computing
diluted net loss per
share calculations..... 10,998,157 1,499,988 12,498,145
========== ============ ============
</TABLE>
(1),(2),(3),(4),(5)refers to relevant notes in Note 4 to the Unaudited Pro
Forma Combined Consolidated Financial Statements.
See accompanying notes to the Unaudited Pro Forma Combined Consolidated
Financial Statements.
F-3
<PAGE>
INFOSPACE.COM, INC. AND OUTPOST NETWORK, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
1. THE PERIODS COMBINED
The InfoSpace.com, Inc. consolidated statements of operations for the nine
months ended September 30, 1998 and the year ended December 31, 1997 have been
combined with the Outpost Networks, Inc. statements of operations for the
period from January 1, 1998 to June 2, 1998, and the year ended December 31,
1997, respectively, as if the Merger had occurred as of the beginning of each
period presented under the purchase method of accounting. The results of
Outpost Networks, Inc. for the period June 3, 1998 to September 30, 1998 have
already been consolidated into the InfoSpace.com, Inc. consolidated statement
of operations for the nine months ended September 30, 1998 as the Merger was
effected on June 2, 1998.
2. PRO FORMA BASIS OF PRESENTATION
These Unaudited Pro Forma Combined Consolidated Financial Statements are
based on estimates and assumptions. The pro forma adjustments made in
connection with the development of the pro forma information are preliminary
and have been made solely for purposes of developing such pro forma
information as necessary to comply with the disclosure requirements of the
Securities Exchange Commission. The Unaudited Pro Forma Combined Consolidated
Financial Statements do not purport to be indicative of the combined financial
position or results of operations of future periods or indicative of the
results of operations of future periods or indicative of the results that
actually would have been realized had the entities been a single entity during
these periods.
The Unaudited Pro Forma Combined Consolidated Financial Statements as of
December 31, 1997 reflect the issuance of 1,499,988 shares of InfoSpace.com,
Inc. Common Stock in exchange for 34,972,768 shares of Outpost Networks, Inc.
Common Stock outstanding as of June 2, 1998. These shares are already included
as outstanding for the period June 3, 1998 to September 30, 1998 in the
historical Consolidated Financial Statements of InfoSpace.com, Inc., as of
September 30, 1998 as the Merger was effected on June 2, 1998. The pro forma
adjustments reflect the additional shares that would be used in computing
basic and diluted earnings per share as if the Merger had occurred at the
beginning of the period.
3. PRO FORMA EARNINGS PER SHARE
The Pro Forma Combined Consolidated Financial Statements for InfoSpace.com,
Inc. have been prepared as if the Merger was completed at the beginning of the
periods presented. The pro forma basic net loss per share is based on the
combined weighted average number of shares of InfoSpace.com, Inc. Common Stock
outstanding during the period and the number of InfoSpace.com, Inc. Common
Stock to be issued in exchange as discussed in Note 2.
The Pro Forma diluted loss per share is computed using the weighted average
number of InfoSpace.com, Inc. Common Stock and dilutive common equivalent
shares outstanding during the period and the number of shares of
InfoSpace.com, Inc. Common Stock to be issued in exchange. Common equivalent
shares consist of the incremental common shares issuable upon conversion of
the exercise of stock options and warrants using the treasury stock method.
Common equivalent shares are excluded from the computation if their effect is
antidilutive. The combined Company had a pro forma net loss for all periods
presented herein; therefore, none of the options and warrants outstanding
during each of the periods presented were included in the computation of pro
forma dilutive earnings per share as they were antidilutive.
4. PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS
The objective of the pro forma information is to show what the significant
effects on the historical financial information might have been had the
Companies been merged for the periods presented.
F-4
<PAGE>
INFOSPACE.COM, INC. AND OUTPOST NETWORK, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accordingly, all intercompany transactions between the two entities have been
included as eliminations in the pro forma adjustments column.
Additionally, under the purchase method of accounting, the purchase price is
allocated to the net assets acquired based upon their estimated fair value.
The following represents the purchase price allocation for Outpost Networks,
Inc.:
<TABLE>
<S> <C>
Book value of net liabilities acquired...................... $ (191,000)
Core technology............................................. 800,000
In-process research and development......................... 2,800,000
Assembled workforce......................................... 40,000
----------
Fair value of net assets acquired........................... 3,449,000
==========
Cash paid................................................... 35,000
Fair value of shares issued................................. 6,000,000
Acquisition costs........................................... 1,957,000
----------
Purchase price.............................................. 7,992,000
==========
Excess of purchase price over net assets acquired........... $4,543,000
==========
</TABLE>
Goodwill represents the excess of the purchase price over the fair value of
the assets acquired. The goodwill will be capitalized and amortized over a
period of five years.
The core technology and assembled workforce will be capitalized and
amortized over a period of five years. The Unaudited Pro Forma Combined
Consolidated Statements of Operations reflect adjustments for such
amortization. Amortization of the core technology is recorded as cost of
revenues, the workforce is recorded as product development, and goodwill is
recorded as general and administrative expense.
Detail of the specific pro forma adjustments are as follows:
(1) Pro Forma Adjustment represents the elimination of intercompany
revenue and expense for the respective period. For the period from January
1, 1998 to June 2, 1998 intercompany revenue and expense was $142,601. For
the year ended December 31, 1997, intercompany revenue and expense was
$63,069.
(2) Pro Forma Adjustment represents the amortization of core technology.
For the period from January 1, 1998 to June 2, 1998, the expense would have
been $66,665. For the year ended December 31, 1997, the expense would have
been $159,996.
(3) Pro Forma Adjustment represents the amortization of assembled
workforce. For the period from January 1, 1998 to June 2, 1998, the expense
would have been $3,335. For the year ended December 31, 1997, the expense
would have been $8,004.
(4) Pro Forma Adjustment represents the amortization of goodwill. For the
period from January 1, 1998 to June 2, 1998, the expense would have been
$378,600. For the year ended December 31, 1997, the expense would have been
$908,640.
(5) Pro Forma Adjustment represents the issuance of 1,499,988 shares of
InfoSpace.com, Inc. Common Stock in exchange for 34,972,768 shares of
Outpost Networks, Inc. Common Stock outstanding as of June 2, 1998. The pro
forma adjustments reflect the additional shares that would be used in
computing basic and diluted earnings per share as if the Merger had
occurred at the beginning of each period. A portion of these shares are
already included as outstanding for the period June 3, 1998 to June 30,
1998 in the historical Consolidated Financial Statements of InfoSpace.com,
Inc., as of June 30, 1998 as the Merger was effected on June 2, 1998.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
InfoSpace.com., Inc.
Redmond, Washington
We have audited the accompanying consolidated balance sheets of
InfoSpace.com, Inc. and subsidiary (the Company) as of December 31, 1996 and
1997, and September 30, 1998, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the period
from March 1, 1996 (inception) to December 31, 1996, the year ended December
31, 1997, and the nine months ended September 30, 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, such consolidated financial statements present fairly, in
all material respects, the financial position of InfoSpace.com, Inc. and
subsidiary as of December 31, 1996 and 1997, and September 30, 1998, and
results of their operations and their cash flow for the period from March 1,
1996 (inception) to December 31, 1996, the year ended December 31, 1997, and
the nine months ended September 30, 1998, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Seattle, Washington
November 17, 1998
(December 2, 1998 as to Note 10)
F-6
<PAGE>
INFOSPACE.COM, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997, AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 690,174 $ 324,415 $10,288,969
Accounts receivable, net of allowance
for doubtful accounts of $-0-,
$47,000 and $478,000, respectively.. 126,574 467,187 1,564,683
Receivable from joint venture........ 54,487
Inventory............................ 4,509
Prepaid trademark license............ 2,250,000
Prepaid expenses and other assets.... 59,334 121,573 1,203,785
---------- ---------- -----------
Total current assets............... 876,082 913,175 15,366,433
Property and equipment, net............ 195,862 216,439 897,975
Prepaid carriage fees--long term
portion............................... 234,727
Other assets--long term portion........ 36,346
Deferred offering costs................ 868,621
Intangible assets:
Goodwill............................. 310,583 4,860,671
Purchased technology................. 800,000
Advertising contracts................ 85,417 85,417
Trademark............................ 290,000
Other................................ 100,000
Less: Accumulated amortization....... (127,580) (562,707)
---------- ---------- -----------
Intangible assets, net............. -- 268,420 5,573,381
Investment in Joint Venture............ 419,632
---------- ---------- -----------
Total.................................. $1,071,944 $1,398,034 $23,397,115
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................... $ 39,553 $ 85,814 $ 1,603,169
Accrued expenses..................... 4,663 204,311 885,827
Deferred revenues.................... 7,239 50,000 247,314
Notes payable........................ 30,000
---------- ---------- -----------
Total current liabilities.......... 51,455 370,125 2,736,310
Commitments and contingencies (Note 5)
Shareholders' equity:
Preferred stock, par value $.0001
Authorized, 15,000,000 shares; no
shares issued or outstanding........
Common stock, par value $.0001
Authorized, 30,000,000, 30,000,000
and 50,000,000 shares, respectively;
issued and outstanding, 10,945,253,
11,030,253 and 15,116,012 shares,
respectively........................ 1,095 1,103 1,511
Additional paid-in capital........... 1,471,355 1,998,255 25,440,098
Accumulated deficit.................. (380,524) (809,214) (4,396,976)
Unearned compensation................ (71,437) (162,235) (383,828)
---------- ---------- -----------
Total stockholders' equity......... 1,020,489 1,027,909 20,660,805
---------- ---------- -----------
Total.................................. $1,071,944 $1,398,034 $23,397,115
========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
INFOSPACE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM MARCH 1, 1996 (INCEPTION) TO DECEMBER 31, 1996,
YEAR ENDED DECEMBER 31, 1997, AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS NINE MONTHS
MARCH 1 TO YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997 1998
------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................. $ 199,372 $1,685,096 $ 931,727 $ 5,373,860
Cost of revenues......... 96,641 410,895 247,956 1,108,438
--------- ---------- ---------- -----------
Gross profit........... 102,731 1,274,201 683,771 4,265,422
Operating expenses:
Product development..... 109,671 212,677 157,954 307,262
Sales and marketing..... 230,774 830,054 590,878 2,438,842
General and
administrative......... 163,896 681,456 318,783 2,383,713
Write-off of in-process
research and
development............ -- -- -- 2,800,000
--------- ---------- ---------- -----------
Total operating
expense............. 504,341 1,724,187 1,067,615 7,929,817
Income (loss) from
operations.............. (401,610) (449,986) (383,844) (3,664,395)
Other income, net........ 21,086 21,296 18,233 76,633
--------- ---------- ---------- -----------
Net income (loss)........ $(380,524) $ (428,690) $ (356,611) $(3,587,762)
========= ========== ========== ===========
Basic and diluted net
loss per share.......... $ (0.04) $ (0.04) $ (0.03) $ (0.28)
========= ========== ========== ===========
Shares used in computing
basic net loss per share
........................ 9,280,163 10,941,490 10,939,704 12,638,507
========= ========== ========== ===========
Shares used in computing
diluted net loss per
share .................. 9,280,163 10,998,157 10,987,341 12,638,507
========= ========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
INFOSPACE.COM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PERIOD FROM MARCH 1, 1996 (INCEPTION) TO DECEMBER 31, 1996,
YEAR ENDED DECEMBER 31, 1997, AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK
----------------- PAID-IN ACCUMULATED UNEARNED
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
---------- ------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1996
(inception)............ -- $ -- $ -- $ -- $ -- $ --
Common stock issued.... 10,945,253 1,095 1,370,105 1,371,200
Unearned compensation--
Stock options......... 101,250 (101,250)
Compensation expense--
Stock options......... 29,813 29,813
Net loss............... (380,524) (380,524)
---------- ------ ----------- ----------- --------- -----------
Balance, December 31,
1996................... 10,945,253 1,095 1,471,355 (380,524) (71,437) 1,020,489
Common stock issued for
acquisition........... 85,000 8 292,180 292,188
Unearned compensation--
Stock options......... 234,720 (234,720)
Compensation expense--
Stock options......... 143,922 143,922
Net loss............... (428,690) (428,690)
---------- ------ ----------- ----------- --------- -----------
Balance, December 31,
1997................... 11,030,253 1,103 1,998,255 (809,214) (162,235) 1,027,909
Common stock and
warrants issued for
acquisition........... 1,499,988 150 7,902,159 7,902,309
Common stock issued to
investors............. 2,362,395 236 13,438,322 13,438,558
Common stock issued to
employees............. 223,251 22 1,674,372 1,674,394
Warrants issued........ 40,161 40,161
Exercise of stock
options............... 125 -- 375 375
Unearned compensation--
Stock options......... 386,454 (386,454)
Compensation expense--
Stock options......... 164,861 164,861
Net loss............... (3,587,762) (3,587,762)
---------- ------ ----------- ----------- --------- -----------
Balance, September 30,
1998................... 15,116,012 $1,511 $25,440,098 $(4,396,976) $(383,828) $20,660,805
========== ====== =========== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
INFOSPACE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM MARCH 1, 1996 (INCEPTION) TO DECEMBER 31, 1996,
YEAR ENDED DECEMBER 31, 1997, AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS NINE MONTHS
MARCH 1 TO YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997 1998
------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating Activities:
Net loss............... $(380,524) $(428,690) $(365,611) $(3,587,762)
Adjustments to
reconcile net loss to
net cash provided
(used) by operating
activities:
Depreciation and
amortization....... 23,513 224,270 144,325 575,515
Write-off of in-
process research
and development.... 2,800,000
Trademark
amortization....... 750,000
Compensation
expense--stock
options............ 29,813 143,922 102,643 164,861
Noncash issuance of
common stock....... 70,000
Noncash services
exchanged.......... (60,000) (37,500) (5,785)
Bad debt expense.... 47,000 18,000 500,602
Equity in loss in
joint venture...... 76,134
Loss (gain) on
disposal of fixed
assets............. 3,743 (3,771)
Cash provided (used)
by changes in
operating assets
and liabilities;
net of assets
acquired:
Accounts
receivable........ (126,574) (387,613) (150,538) (1,598,098)
Receivable from
joint venture .... (54,487)
Inventory.......... 491
Prepaid expense.... (59,334) (33,152) (65,200) (1,082,212)
Other Assets....... (271,072)
Other intangibles.. (66,865)
Accounts payable... 39,553 46,261 (9,268) 1,517,355
Accrued expenses... 4,663 199,648 (1,747) 657,300
Deferred revenue... 7,239 42,761 126,094 197,314
--------- --------- --------- -----------
Net cash provided
(used) by
operating
activities........ (461,651) (201,850) (238,802) 639,520
Investing Activities:
Business acquisitions,
net of cash acquired.. (14,000) (14,000) (311,951)
Purchase of Netscape
trademark............. (3,000,000)
Purchase of trademark.. (290,000)
Purchase of property
and equipment......... (219,375) (120,822) (98,371) (767,112)
Investment in joint
venture............... (495,767)
Proceeds from sale of
fixed assets.......... 4,997
Other.................. (29,087) (9,770)
--------- --------- --------- -----------
Net cash used by
investing
activities........ (219,375) (163,909) (122,141) (4,859,833)
Financing Activities:
Proceeds from issuance
of common stock to
investors............. 1,371,200 13,338,586
Proceeds from issuance
of common stock to
employees............. 1,674,394
Payment to shareholders
for fractional shares. (28)
Deferred offering
costs................. (868,621)
Proceeds from sale of
warrants.............. 40,161
Proceeds from exercise
of stock options...... 375
--------- --------- --------- -----------
Net cash provided
by financing
activities........ 1,371,200 -- -- 14,184,867
Net increase (decrease)
in cash and cash
equivalents............ 690,174 (365,759) (360,943) 9,964,554
Beginning of period.... -- 690,174 690,174 324,415
--------- --------- --------- -----------
End of period.......... $ 690,174 $ 324,415 329,231 $10,288,969
========= ========= ========= ===========
Supplemental Disclosure
of Noncash Financing
and Investing
Activities:
Acquisition of
membership interest of
Yellow Pages on the
Internet, LLC (YPI)
through the issuance
of common stock and
assumption of $90,000
payable............... $ -- $ 382,188 $ 638,677 $ --
Acquisition of common
stock of Outpost
Network, Inc. through
the issuance of common
stock and warrants and
assumption of
liabilities of
$191,000.............. 7,932,000
Stock issued for legal
and consulting
services.............. 50,000
Stock issued for
settlement of legal
claim................. 50,000
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM MARCH 1, 1996 (INCEPTION) TO DECEMBER 31, 1996, YEAR ENDED
DECEMBER 31, 1997, AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business: InfoSpace.com, Inc. (the Company or InfoSpace),
previously known as InfoSpace, Inc., a Delaware corporation, was founded in
1996. The Company is an aggregator and integrator of content services that it
syndicates to a broad network of affiliates, including existing and emerging
Internet portals, destination sites and suppliers of PCs and other Internet
access devices, such as cellular phones, pagers, screen phones, television
set-top boxes, online kiosks and personal digital assistants. The Company
focuses on content with broad appeal, such as yellow pages and white pages,
maps, classified advertisements, real-time stock quotes, information on local
businesses and events, weather forecasts and horoscopes.
The Company derives revenues from the sale of national advertising,
promotions and local Internet yellow pages advertising.
Principles of consolidation: The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated. The consolidated
financial information contained herein includes the accounts of Outpost
Network, Inc. (Outpost), as of September 30, 1998, and for the period from
June 2, 1998, to September 30, 1998 (see Note 4).
Cash and cash equivalents: The Company considers all highly liquid debt
instruments with an original maturity of 90 days or less when purchased to be
cash equivalents.
Inventory: Inventory consists primarily of cards and stamps and is stated at
the lower of cost or market, on a first-in, first-out basis.
Property and equipment: Property and equipment are stated at cost.
Depreciation is computed under the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Computer equipment................................................ 3 years
Office furniture and equipment.................................... 7 years
</TABLE>
Intangible assets: Goodwill, purchased technology and other intangibles are
amortized on a straight-line basis over their estimated useful life. All
goodwill and purchased technology currently recorded are amortized over five
years. Other intangibles, primarily consisting of purchased domain name
licenses, are amortized over an estimated useful life of three years.
Other assets: Management periodically reevaluates long-lived assets,
consisting primarily of purchased technology, goodwill, property and
equipment, to determine whether there has been any impairment of the value of
these assets and the appropriateness of their estimated remaining life. No
impairment loss has been recognized through September 30, 1998.
Revenue recognition: The Company's revenues are derived from short-term
advertising agreements in which the Company receives a fixed fee or a fee
based on a per impression or click through basis.
Local advertising: Guaranteed minimum payments are recognized over the term
of cooperative sales agreements between the Company and independent yellow
pages publishers. Revenue earned above the guaranteed minimum payments are
recognized over the term of local advertising agreements between yellow pages
advertisers and independent yellow pages publishers.
National advertising: Revenues from contracts based on the number of
impressions displayed or click throughs provided are recognized as the
services are rendered.
F-11
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Promotions: Revenues from fixed fee or carriage fee agreements are
recognized ratably over the related contract term. Commissions and transaction
fees in excess of the guaranteed minimums are recognized in the period the
transaction occurred and was reported by the content providers. For carriage
fee contracts that are performance based with an established maximum, the
Company recognizes revenues as the services are rendered, not to exceed the
maximum amount over the fixed term.
Also included in revenues are barter revenues from the exchange by the
Company with another company of advertising space for reciprocal advertising
space or applicable goods and services. Barter revenues are recorded as
advertising revenues at the lower of the estimated fair value of goods and
services received or impressions given, and are recognized when the Company's
advertisements are run. In cases where there is not sufficient evidence of
fair market value, no revenue is recognized. For barter agreements, the
Company records a receivable or liability at the end of a reporting period for
the difference in the fair value of the services provided or received.
Deferred revenues are primarily comprised of billings in excess of
recognized revenues relating to advertising agreements and payments received
pursuant to advertising agreements in advance of revenue recognition. The
Company records a liability at month-end for any shortfalls of minimum
impressions or click throughs that were not attained during the period of the
agreement.
Cost of revenues: Cost of revenues consist primarily of direct personnel
expenses, content license fees, amortization of purchased advertising
agreements, equipment depreciation, communications expense and costs of
aggregation and syndication of content, which is the amounts paid pursuant to
revenue-sharing arrangements. Costs associated with revenue-sharing
arrangements are accrued monthly. Fees paid for content licenses are
capitalized and amortized under the straight-line method over the license
period.
Product development: Product development costs are generally charged to
operations as incurred. Costs in this classification include the development
of new products and enhancements of existing products. Statement of Financial
Accounting Standards (SFAS) No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed, requires capitalization of
certain software development costs subsequent to the establishment of
technological feasibility. Based upon the Company's product development
process, technological feasibility is established upon completion of a working
model. Costs incurred by the Company between completion of a working model and
the point at which the product is ready for general release have been
insignificant.
Advertising costs: Costs for print advertising are recorded as expense the
first time an advertisement appears. Advertising costs related to electronic
impressions are recorded as expense as impressions are provided. Advertising
expense totaled $8,908 and $217,798 for the years ended December 31, 1996 and
1997, and $597,959 for the nine months ended September 30, 1998, respectively.
Unearned compensation: Unearned compensation represents the unamortized
difference between the option exercise price and the fair market value of the
Company's common stock for shares subject to grant at the grant date, for
options issued under the Company's stock incentive plan (see Note 3). The
amortization of deferred compensation is being charged to operations and is
being amortized over the vesting period of the options.
Concentration of credit risk: Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash
equivalents and trade receivables. The Company places its cash equivalents
with major financial institutions. The Company operates in one business
segment and sells advertising to various companies across several industries.
Accounts receivable are typically unsecured and are
F-12
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
derived from revenues earned from customers primarily located in the United
States operating in a wide variety of industries and geographic areas. The
Company performs ongoing credit evaluations of its customers and maintains
reserves for potential credit losses. For the periods ended December 31, 1996
and 1997, no one customer accounted for more than 10% of revenues. For the
nine months ended September 30, 1998, one customer accounted for approximately
20% of revenues. At December 31, 1996, one customer accounted for
approximately 20% of accounts receivable and three customers accounted for
approximately 42% of accounts receivable. At December 31, 1997, one customer
accounted for approximately 14% of accounts receivable. At September 30, 1998,
one customer accounted for approximately 38% of accounts receivable.
Income taxes: The Company has adopted SFAS No. 109, Accounting for Income
Taxes. Under SFAS No. 109, deferred tax assets, including net operating
losses, and liabilities are determined based on temporary differences between
the book and tax bases of assets and liabilities. A valuation allowance is
established for deferred tax assets that are unlikely to be realized.
Reclassifications: Certain reclassifications have been made to the 1996 and
1997 financial statements to conform with the 1998 presentation.
Reverse stock split: A one-for-two reverse stock split of the Company's
common stock was effected on August 25, 1998. All references in the financial
statements to shares, share prices, per share amounts and stock plans have
been adjusted retroactively for the one-for-two reverse stock split.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts may differ from estimates.
Recent accounting pronouncements: In June 1997 the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes the standards for reporting comprehensive income and
its components in financial statements. Comprehensive income as defined
includes all changes in equity (net assets) during a period from non-owner
sources. Examples of items to be included in comprehensive income, which are
excluded from net income, include foreign currency translation adjustments and
unrealized gains/losses on available-for-sale securities. The disclosure
prescribed by SFAS No. 130 must be made for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required upon adoption. The
Company had no comprehensive income items to report for the period from March
1, 1996 (inception) to December 31, 1996, the year ended December 31, 1997,
and the nine months ended September 30, 1998.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
way that companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers as well as
the reporting of selected information about operating segments in interim
financial reports to stockholders. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. The Company will
adopt the reporting requirements of SFAS No. 131 in its financial statements
for the year ending December 31, 1998.
F-13
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
Property and equipment:
Computer equipment................. $207,817 $ 308,741 $1,029,698
Office equipment................... 3,044 7,105 51,108
Office furniture................... 8,514 19,534 76,273
-------- --------- ----------
219,375 335,380 1,157,079
Accumulated depreciation........... (23,513) (118,941) (259,104)
-------- --------- ----------
$195,862 $ 216,439 $ 897,975
======== ========= ==========
Accrued expenses:
Salaries and related expenses...... $ 2,215 $ 33,777 $ 37,689
Accrued license fees............... 16,736 40,952
Accrued legal fees................. 1,400 12,717 115,000
Accrued commissions................ 77,392
Accrued taxes...................... 3,890 60,776
Accrued settlement costs........... 695 137,000 240,000
Accrued rent....................... 40,726
Accrued offering costs............. 85,000
Other.............................. 353 191 188,292
-------- --------- ----------
$ 4,663 $ 204,311 $ 885,827
======== ========= ==========
</TABLE>
NOTE 3: STOCKHOLDERS' EQUITY
Authorized shares: At incorporation, the Company was authorized to issue
25,000,000 shares, consisting of 20,000,000 shares of common stock with a par
value of $.0001 per share and 5,000,000 shares of preferred stock with a par
value of $.0001 per share. The preferred stock may be issued in one or more
series.
On June 17, 1996, the Certificate of Incorporation was amended to increase
the authorized number of shares of all classes of Company stock to 45,000,000
shares, consisting of 30,000,000 shares of common stock with a par value of
$.0001 per share and 15,000,000 shares of preferred stock with par value of
$.0001 per share.
On May 1, 1998, the Certificate of Incorporation was amended to increase the
authorized number of shares of all classes of Company stock to 55,000,000
shares, consisting of 40,000,000 shares of common stock with a par value of
$.0001 per share and 15,000,000 shares of preferred stock with a par value of
$.0001 per share.
On August 25, 1998, the Board of Directors approved and the Company effected
a one-for-two reverse stock split of the Company's common stock. All
references in the financial statements to shares, share prices, per share
amounts and stock plans have been adjusted retroactively for the one-for-two
reverse stock split.
On August 25, 1998, the Company filed a Restated Certificate of
Incorporation. The effect was to change the authorized number of all classes
of Company Stock to 65,000,000 shares, consisting of 50,000,000 shares of
common stock with a par value of $.0001 per share and 15,000,000 shares of
preferred stock with a par value of $.0001 per share after giving effect to
the one-for-two reverse stock split.
Restated 1996 Flexible Stock Incentive Plan: On June 3, 1998, the Board of
Directors approved the Restated 1996 Flexible Stock Incentive Plan (the Plan).
The Plan provides employees (including officers and directors who are
employees) of the Company an opportunity to purchase shares of stock pursuant
to options which may qualify as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as amended (the Code), and employees,
officers, directors, independent contractors and consultants of the
F-14
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company an opportunity to purchase shares of stock pursuant to options which
are not described in Section 422 of the Code (nonqualified stock options). The
Plan also provides for the sale or bonus of stock to eligible individuals in
connection with the performance of service for the Company. Finally, the Plan
authorizes the grant of stock appreciation rights, either separately or in
tandem with stock options, which entitle holders to cash compensation measured
by appreciation in the value of the stock. Not more than 3,000,000 shares of
stock shall be available for the grant of options or the issuance of stock
under the Plan. If an option is surrendered or for any other reason ceases to
be exercisable in whole or in part, the shares which were subject to option
but on which the option has not been exercised shall continue to be available
under the Plan. The Plan is administered by the Board of Directors. Options
granted under the Plan typically vest over four years, 25% one year from the
date of grant and ratably thereafter on a monthly basis.
On June 3, 1998, the Board of Directors approved the Option Exchange Program
and the Option Replacement Program, allowing employees of the Company to
exchange their nonqualified stock options for incentive stock options.
Nonqualified stock options to purchase a total of 362,553 shares were
exchanged for incentive stock options to purchase the equivalent number of
shares with an exercise price equal to the fair market value at the date of
exchange.
Included in the table below as outstanding at September 30, 1998 are options
to purchase 290,624 shares that were issued outside of the Plan, 270,311 of
which were exercisable as of September 30, 1998.
Activity and price information regarding the options are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding, March 1, 1996 (inception).................... -- $ --
Granted................................................. 1,012,500 0.12
---------
Outstanding, December 31, 1996............................ 1,012,500 0.12
Granted................................................. 350,500 3.08
---------
Outstanding, December 31, 1997............................ 1,363,000 0.88
Granted................................................. 855,102 4.14
Cancelled............................................... (362,553) 1.53
Exercised............................................... (125) 3.00
Forfeited............................................... (70,375) 4.00
---------
Outstanding, September 30, 1998........................... 1,785,049 2.19
=========
Options exercisable, September 30, 1998................... 876,350 1.27
=========
</TABLE>
Information regarding stock option grants during the period from March 1
(inception) to December 31, 1996, the year ended December 31, 1997, and the
nine months ended September 30, 1998, is summarized as follows:
<TABLE>
<CAPTION>
MARCH 1 TO YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE FAIR EXERCISE FAIR EXERCISE FAIR
SHARES PRICE VALUE SHARES PRICE VALUE SHARES PRICE VALUE
------- -------- -------- ------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exercise price exceeds
market price........... 50,000 $2.00 $0.02 250,000 $4.00 $ -- -- $ -- $ --
Exercise price equals
market price........... 900,000 0.02 596,102 5.35 0.80
Exercise price is
less than market price. 62,500 0.02 1.63 100,500 0.78 2.65 259,000 1.37 2.75
</TABLE>
F-15
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has elected to follow the measurement provisions of Accounting
Principles Board Opinion No. 25, under which no recognition of expense is
required in accounting for stock options granted to employees for which the
exercise price equals or exceeds the fair value of the stock at the grant
date. The Company recognizes compensation expense over the vesting period
using the aggregated percentage of compensation accrued method as prescribed
by Financial Standards Accounting Board Interpretation No. 28. Compensation
expense of $29,813, $143,922, and $164,861 was recognized during the period
from March 1, 1996 (inception) to December 31, 1996, the year ended December
31, 1997, and the nine months ended September 30, 1998, respectively, for
options granted with exercise prices less than grant date fair value.
To estimate compensation expense which would be recognized under SFAS No.
123, Accounting for Stock-based Compensation, the Company uses the modified
Black-Scholes option-pricing model with the following weighted-average
assumptions for options granted through September 30, 1998: risk-free interest
rate ranging from 5.39% to 6%, expected dividend yield of -0-%; no volatility;
and expected life of six years.
Had compensation expense for the Plan been determined based on fair value at
the grant dates for awards under the Plan consistent with SFAS No. 123,
Accounting for Stock-Based Compensation, the Company's net losses for the
periods presented would have been adjusted to the following pro forma amounts:
<TABLE>
<CAPTION>
NINE MONTHS
MARCH 1 TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
Net loss as reported.............. $(380,524) $(428,690) $(3,587,762)
Net loss--Pro forma............... (380,859) (430,180) (3,675,955)
Basic net loss per share--Pro
forma............................ (0.04) (0.04) (0.29)
</TABLE>
Additional information regarding options outstanding as of September 30,
1998, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.02.............. 1,003,124 7.58 $ 0.02 595,830 $0.02
2.00-3.00......... 19,323 8.62 2.51 9,375 2.00
4.00-6.00......... 604,552 5.42 4.02 271,145 4.00
7.50-8.00......... 116,500 9.81 7.76
12.00............. 41,550 9.97 12.00
--------- -------
1,785,049 7.06 2.19 876,350 1.27
========= =======
</TABLE>
At September 30, 1998, 1,505,450 shares were available for future grants
under the Plan.
In connection with the May and August 1998 private placement offering, the
Company issued warrants to purchase 2,063,836 shares of common stock to five
third-party participants for consulting services performed in identifying,
structuring and negotiating future financings. These warrants expire between
May 21, 2008 and August 6, 2008. The exercise prices are as follows:
<TABLE>
<CAPTION>
SHARES PRICE
------ ------
<S> <C>
1,100,712........................................................... $ 4.00
481,562........................................................... 6.00
481,562........................................................... 10.00
</TABLE>
F-16
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In July 1998, the Company issued warrants to purchase 477,967 shares of
common stock at an exercise price of $0.02 to a former consultant in
conjunction with the acquisition of Outpost (see Note 4). These warrants
expire on October 30, 2002.
On August 24, 1998, the Company issued to AOL warrants to purchase up to
989,916 shares of common stock, which warrants vest in 16 equal quarterly
installments over four years, conditioned on the delivery by AOL of a minimum
number of searches each quarter on the Company's white pages directory
service. The warrants have an exercise price of $12.00 per share.
Stock purchase rights plan: On June 26, 1998, the Board of Directors
approved the InfoSpace, Inc. Stock Purchase Rights Plan. The plan is offered
to employees of the Company and its subsidiaries. The purpose of the plan is
to provide an opportunity for employees to invest in the Company and increase
their incentive to remain with the Company. A maximum of 500,000 shares of
common stock are available for issuance under the plan. During July 1998 the
Company offered shares to employees under the plan, resulting in the sale of
223,251 shares at $7.50 per share. The plan was terminated on August 24, 1998.
1998 Employee Stock Purchase Plan: The Company adopted the 1998 Employee
Stock Purchase Plan (the ESPP) in August 1998. The ESPP will be implemented
upon the effectiveness of an initial public offering. The ESPP is intended to
qualify under Section 423 of the Code, and permits eligible employees of the
Company and its subsidiaries to purchase common stock through payroll
deductions of up to 15% of their compensation. Under the ESPP, no employee may
purchase common stock worth more than $25,000 in any calendar year, valued as
of the first day of each offering period. In addition, owners of 5% or more of
the Company's or subsidiary's common stock may not participate in the ESPP. An
aggregate of 450,000 shares of common stock are authorized for issuance under
the ESPP.
The ESPP will be implemented with six-month offering periods, the first such
period to commence upon the effectiveness of an initial public offering.
Thereafter, offering periods will begin on each January 1 and July 1. The
price of common stock purchased under the ESPP will be the lesser of 85% of
the fair market value on the first day of an offering period and 85% of the
fair market value on the last day of an offering period, except that the
purchase price for the first offering period will be equal to the lesser of
100% of the initial public offering price of the common stock offered hereby
and 85% of the fair market value on December 31, 1998. The ESPP does not have
a fixed expiration date, but may be terminated by the Company's Board of
Directors at any time. No shares have been issued under the ESPP.
NOTE 4: BUSINESS COMBINATIONS
YPI: On May 16, 1997, the Company acquired all outstanding Membership
Interest Units of YPI, a limited liability company. YPI operations began to be
included in the Company's financial statements on the effective date of the
acquisition, May 1, 1997. The YPI advertising agreements provided yellow pages
directory publishers with an Internet distribution channel and had terms of
one month to one year. YPI is a yellow pages sales consortium business. In
conjunction with the acquisition, the Company acquired certain advertising
agreements and assumed a note payable for $90,000.
In connection with the acquisition of YPI during May 1997, 1,000,000 shares
of common stock were placed into an escrow account. The aggregate number of
shares of the escrow stock to be delivered was derived from revenues generated
by the business during the measurement period. Before December 31, 1997, the
number of shares to be released from escrow was finalized and a total of
85,000 escrow shares were issued
F-17
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to the sellers on January 2, 1998. These shares were included in the
calculation of basic earnings per share as of January 1, 1998, and in the
calculation of diluted earnings per share as of the effective date of
acquisition, May 1, 1997. The remaining 915,000 common shares were returned to
the Company for cancellation. The Company acquired YPI primarily to obtain
rights to its advertising agreements and the services of its founder to
further develop the Company's business. YPI's shareholders have represented
that YPI had no significant operations and that detailed YPI financial
information is not available.
The allocation of purchase price, as determined after the release of shares
from escrow was finalized, is summarized as follows:
<TABLE>
<CAPTION>
BOOK AND
FAIR
VALUE
--------
<S> <C>
Book value of net liabilities acquired at cost.................. $(90,000)
Fair value adjustments:
Fair value of purchased advertising contracts................. 85,417
--------
Fair value of net assets acquired............................... (4,583)
Purchase price:
Acquisition costs............................................. 14,000
Fair value of 85,000 shares issued............................ 292,000
--------
Excess of purchase price over net assets acquired, allocated to
goodwill (amortized over five years)........................... $310,583
========
</TABLE>
Outpost Network, Inc.: On June 2, 1998, the Company acquired all of the
common stock of Outpost, a privately held company, for a purchase
consideration of 1,499,988 shares of the Company's common stock, cash of
$35,000, assumed liabilities of $264,000, and acquisition expenses of
$1,957,000. In conjunction with the acquisition, the Company was required to
issue warrants valued at $1,902,000 to a former consultant, which are included
in acquisition costs. The exercise price of the warrants was specified in the
consulting agreement between the Company and the former consultant dated
October 30, 1997. Pursuant to this agreement, the former consultant rendered
advice to the Company regarding the structure and terms of the Outpost merger
and the warrants were earned based on the completion of the merger. Therefore,
the warrant value was determined on June 2, 1998, the effective date of the
merger. The transaction was accounted for as a purchase for accounting
purposes.
F-18
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The allocation of purchase price is summarized as follows:
<TABLE>
<CAPTION>
BOOK AND
FAIR VALUE
----------
<S> <C>
Book value of net liabilities acquired at cost.................. $ (191,000)
Fair value adjustments:
Fair value of purchased technology, including in-process
research and development..................................... 3,600,000
Fair value of assembled workforce............................. 40,000
----------
Fair value of net assets acquired............................... 3,449,000
Purchase price:
Cash paid..................................................... 35,000
Fair value of shares issued................................... 6,000,000
Acquisition costs (including the warrants issued with a fair
value of $1,902,000)......................................... 1,957,000
----------
Excess of purchase price over net assets acquired, allocated to
goodwill
(amortized over five years).................................... $4,543,000
==========
</TABLE>
The $3,600,000 value of purchased technology includes purchased in-process
research and development for future InfoSpace products. Generally accepted
accounting principles require purchased in-process research and development
with no alternative future use to be recorded and charged to expense in the
period acquired. Accordingly, the results of operations for the nine months
ended September 30, 1998, include the write-off of $2,800,000 of purchased in-
process research and development. The remaining $800,000 represents the
purchase of core technology and existing products which are being amortized
over an estimated useful life of five years.
The following unaudited pro forma information shows the results of the
Company for the year ended December 31, 1997, and the nine months ended
September 30, 1998, as if the acquisition of Outpost occurred on January 1,
1997. The pro forma information includes adjustments relating to the financing
of the acquisition, the effect of amortizing goodwill and other intangible
assets acquired, as well as the related tax effects, and assumes that Company
shares issued in conjunction with the acquisition were outstanding as of
January 1, 1997. The pro forma results of operations are unaudited, have been
prepared for comparative purposes only, and do not purport to indicate the
results of operations which would actually have occurred had the combination
been in effect on the date indicated or which may occur in the future:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenue........................................ $ 1,915,990 $ 5,292,869
Net loss....................................... (3,130,332) (5,083,159)
Basic and diluted net loss per share........... (0.25) (0.38)
</TABLE>
NOTE 5: COMMITMENTS AND CONTINGENCIES
The Company has noncancellable operating leases for corporate facilities.
The leases expire through 2003. Rent expense under operating leases totalled
$36,000, $83,000, and $113,000, for the period from March 1, 1996 (inception)
to December 31, 1996, the year ended December 31, 1997, and the nine months
ended September 30, 1998, respectively.
F-19
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum rental payments required under noncancellable operating
leases are as follows for the years ending December 31:
<TABLE>
<S> <C>
October 1 to December 31, 1998................................. $ 57,480
1999........................................................... 213,530
2000........................................................... 212,040
2001........................................................... 224,088
2002........................................................... 236,136
2003........................................................... 137,746
----------
$1,081,020
==========
</TABLE>
Future payments required under noncancellable affiliate carriage fee
agreements are as follows for the years ending December 31:
<TABLE>
<S> <C>
October 1 to December 31, 1998................................ $ 1,842,333
1999.......................................................... 5,005,651
2000.......................................................... 2,807,143
2001.......................................................... 1,750,000
2002.......................................................... 750,000
-----------
$12,155,127
===========
</TABLE>
Trademark license agreements: Effective as of July 1, 1998, the Company
entered into two trademark license agreements with Netscape Communications
Corporation (Netscape) to license two of Netscape's trademarks for one-time
nonrefundable license fees totalling $3.0 million. The trademark license fees
will be capitalized and amortized over one year, the expected useful life of
the trademarks.
Directory services agreements: The Company entered into two directory
services agreements with Netscape effective as of July 1, 1998. Under these
agreements, which provide for a one-year term, with automatic renewal, the
Company serves as the exclusive provider of co-branded yellow pages and white
pages directory services on the Netscape home page (Netcenter). Netscape has
guaranteed the Company a minimum level of use of the Company's yellow pages
and white pages directories, and the Company has agreed to pay Netscape a
carriage fee each quarter equal to the product of (x) the cost per click
through as specified in the applicable directory services agreement and (y)
the number of click throughs delivered by Netscape, up to a specified maximum.
The Company accrues monthly a liability for the estimated click throughs
delivered. Netscape reports the number of click throughs by month on a
quarterly basis and invoices the Company on a quarterly basis. Payments to
Netscape will be recorded as sales and marketing expenses during the quarter
in which the click throughs occur. This minimum payment is included in the
noncancellable affiliate carriage fee payments disclosed in Note 5. The
Company expects Netscape to meet the minimum guaranteed click throughs during
the period of the directory services agreements. In the event that Netscape
fails to deliver the guaranteed minimum number of click throughs, Netscape has
agreed to either continue the link to the Company's content services beyond
the term of the agreement until the guaranteed minimum click throughs have
been achieved or deliver to the Company a program of equivalent value as a
remedy for the shortfall in click throughs. Netscape and the Company will
share advertising revenue generated from a search of the Company's directory
services initiated on Netscape's home page.
White pages and classifieds agreements: On August 24, 1998, the Company
entered into agreements with America Online, Inc. (AOL) to provide white pages
directory and classifieds information services to AOL. Pursuant to the white
pages directory services agreement, the Company has agreed to provide to AOL
white pages listings and directory service. The Company is required to pay to
AOL a quarterly carriage fee, the retention of which is conditioned on the
quarterly achievement of a minimum number of searches on the
F-20
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AOL white pages site. The quarterly carriage fee is paid in advance at the
beginning of the quarter in which the searches are expected to occur and is
recorded as a prepaid expense in the quarter it is paid. The fee is refundable
if the minimum number of searches on the AOL white pages site for such quarter
is not achieved. In addition, AOL has guaranteed to the Company a minimum
number of searches over the term of the agreement. In the event that AOL does
not deliver the guaranteed minimum number of searches over the term of the
agreement, AOL has agreed to pay to the Company a cash penalty payment. The
Company will share with AOL revenues generated by advertising on the Company's
white pages directory services delivered to AOL. The Company is entitled to a
greater percentage of advertising revenues than is AOL if the amount of such
revenues received by the Company is less than the carriage fees paid to AOL.
The Company has agreed to provide white pages directory services to AOL for
a three-year term beginning on the date of first commercial launch
(anticipated to be November 1998), which term may be extended for four
additional one-year terms at AOL's discretion. The agreement may be terminated
by AOL for any reason after 18 months or at any time upon the acquisition by
AOL of a competing white pages directory services business. In the event of
any such termination, AOL is required to pay a termination fee to the Company.
In addition, without the payment of a termination fee, AOL has the right to
terminate the agreement in the event of a change of control of the Company.
The Company has agreed to provide classifieds information services to AOL
for a two-year term, with up to three one-year extensions at AOL's discretion.
AOL has agreed to pay to the Company a quarterly fee and will share with the
Company revenues generated from payments by individuals and commercial listing
services for listings on the AOL classifieds service.
Pursuant to the terms of these agreements, the Company has granted AOL the
right to negotiate with the Company exclusively and in good faith for a period
of 30 days with respect to proposals or discussions that would result in a
sale of a controlling interest of the Company or other merger, asset sale or
other disposition that effectively results in a change of control of the
Company.
In connection with the agreements, on August 24, 1998, the Company issued to
AOL warrants to purchase up to 989,916 shares of Common Stock, which warrants
vest in 16 equal quarterly installments over four years, conditioned on the
delivery by AOL of a minimum number of searches each quarter on the Company's
white pages directory service. The warrants have an exercise price of $12.00
per share.
The revenue and revenue sharing under the agreements with AOL will be
accounted for under the Company's existing revenue recognition policies
described in these Notes. The Company expects AOL to meet the minimum number
of searches each quarter. Accordingly, the total carriage fee payments to be
made under the white pages directory services agreement will be recognized
ratably over the term of the agreement as sales and marketing expense.
However, if AOL does not deliver the minimum searches on the AOL white pages
during that quarter, then AOL is obligated to refund the quarterly carriage
fee paid for that specific quarter, in which case the Company would credit
prepaid expense and reduce the total cost of the white pages directory
services agreement by the amount of the refund. The adjusted total cost of the
agreement would be recognized ratably over the remaining term of the agreement
as sales and marketing expense, which term would include the quarter in which
AOL did not deliver the minimum number of searches. For at least the first two
years of the white pages agreement, the Company expects that actual carriage
fee payments will exceed the sales and marketing expense recorded for the
quarter in which the payment is made. As such, the Company expects to
experience increases in its prepaid expense account during this time. These
fees are included in the noncancellable affiliate carriage fee payments
disclosed in Note 5. Any termination fee paid to the Company by AOL will be
recognized as revenue when paid. The warrants will be valued under the fair
value method, as required under SFAS No. 123, and amortized ratably over the
four-year vesting period. The
F-21
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
fair value of the warrants is approximately $3.3 million. The underlying
assumptions used to determine the value of the warrants are an expected life
of six years and a 5.5% risk-free interest rate.
Litigation: On April 15, 1998, a former employee of the Company filed a
complaint in the Superior Court for Santa Clara County, California alleging,
among other things, that he has the right in connection with his employment to
purchase shares of common stock representing up to 5% of the equity of the
Company as of an unspecified date. In addition, the former employee is also
seeking compensatory damages, plus interest, punitive damages, emotional
distress damages and injunctive relief preventing any capital reorganization
or sale that would cause the plaintiff not to be a 5% owner of the equity of
the Company. The Company removed the suit to the Federal District Court for
the District of Northern California. The Company has answered the complaint
and denied the claims. Nevertheless, while the Company believes its defenses
to the former employee's claims are meritorious, litigation is inherently
uncertain, and there can be no assurance that the Company will prevail in the
suit. As of September 30, 1998, the Company has accrued a liability of
$240,000 for estimated settlement costs. To the extent the Company is required
to issue shares of common stock or options to purchase common stock as a
result of the suit, the Company would recognize an expense equal to the number
of shares issued multiplied by the fair value of the common stock on the date
of issuance, less the exercise price of any options required to be issued, to
the extent that this amount exceeds the expense already accrued as of
September 30, 1998. This could have a material adverse effect on the Company's
results of operations, and any such issuance would be dilutive to existing
stockholders. The exercise price of any shares which the Company may be
required to issue as a result of the suit is unknown, but could be as low as
$0.01 per share. No estimate of the possible range of loss can be made at this
time.
NOTE 6: INCOME TAXES
No provision for federal income tax has been recorded as the Company has
incurred net operating losses through September 30, 1998. The tax effects of
temporary differences and net operating loss carryforwards that give rise to
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1996 1997 1998
--------- --------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward........ $ 111,000 $ 106,000 $ --
Intangible amortization................ 10,000 37,000 51,000
Compensation expense--Stock options.... 10,000 59,000 115,000
Allowance for bad debt................. 16,000 163,000
Litigation accrual..................... 47,000 82,000
Depreciation........................... 12,000
Other, net............................. 1,000 10,000 28,000
--------- --------- ---------
Gross deferred tax assets............ 132,000 275,000 451,000
Deferred tax liabilities:
Depreciation........................... 4,000 2,000
Other.................................. 1,000 2,000
Purchased technology................... 267,000
--------- --------- ---------
Gross deferred tax liabilities....... 5,000 4,000 267,000
--------- --------- ---------
Net deferred tax assets.............. 127,000 271,000 184,000
Valuation allowance...................... (127,000) (271,000) (184,000)
--------- --------- ---------
Deferred tax balance..................... $ -- $ -- $ --
========= ========= =========
</TABLE>
F-22
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996 and 1997, and September 30, 1998, the Company fully
reserved its deferred tax assets. The Company believes sufficient uncertainty
exists regarding the realizability of the deferred tax assets such that a full
valuation allowance is required. The net change in the valuation allowance
during the period from March 1 to December 31, 1996, the year ended December
31, 1997, and the nine months ended September 30, 1998, was $127,000,
$144,000, and $(87,000), respectively.
NOTE 7: NET LOSS PER SHARE
The Company has adopted SFAS No. 128, Earnings per Share. Basic earnings per
share is computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed using
the weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares consist of the incremental common
shares issuable upon conversion of the exercise of stock options and warrants
(using the treasury stock method). Common equivalent shares are excluded from
the computation if their effect is antidilutive. The Company had a net loss
for all periods presented herein; therefore, none of the options and warrants
outstanding during each of the periods presented, as discussed in Note 3, were
included in the computation of diluted earnings per share as they were
antidilutive. Options and warrants to purchase a total of 1,012,500,
1,363,000, and 5,316,768 shares of common stock were excluded from the
calculations of diluted earnings per share for the period from March 1 to
December 31, 1996, the year ended December 31, 1997, and the nine months ended
September 30, 1998, respectively. 85,000 contingently issuable shares of
common stock have been excluded from the calculation of basic earnings per
share for the year ended December 31, 1997 (see Note 4).
NOTE 8: RELATED-PARTY TRANSACTIONS
During the period from March 1, 1996 (inception) to December 31, 1996, the
year ended December 31, 1997, and the nine months ended September 30, 1998,
the Company sold advertising to other entities in which the Company's
president has equity interests resulting in revenues of $10,000, $200,000, and
$140,000, respectively.
NOTE 9: INVESTMENT IN JOINT VENTURE
Joint venture agreement: On July 16, 1998, the Company established InfoSpace
Investments, Ltd., a wholly owned subsidiary incorporated in England and
Wales. On July 16, 1998, the Company and InfoSpace Investments, Ltd. entered
into a joint venture agreement (the Joint Venture Agreement) with another
party forming a new company, TDL InfoSpace (Europe) Limited (TDL InfoSpace),
with the purpose of carrying on the business of the aggregation and
syndication of content on the Internet initially in the United Kingdom.
Pursuant to the terms of the Joint Venture Agreement, both the Company and its
joint venture partner entered into license agreements with TDL InfoSpace for
offsetting payments to each of the Company and its joint venture partner of
(Pounds)50,000. These amounts were not intended to represent the fair market
value of the license agreements to an unrelated third party. Under the license
agreement between the joint venture partner and TDL InfoSpace, the joint
venture partner licenses its U.K. directory information database to TDL
InfoSpace. Under the Joint Venture Agreement, the joint venture partner also
sells Internet yellow pages advertising of the joint venture through its local
sales force. Under the license agreement between the Company and TDL
InfoSpace, the Company licenses its technology and provides hosting services
to TDL InfoSpace. In addition, under the Company's license agreement, TDL
InfoSpace is obligated to reimburse the Company for any incremental costs
incurred by the Company for its efforts with respect to the hosting services.
In the event that TDL InfoSpace expands into other countries, it is required
to pay to the Company an additional technology license fee of $50,000 per
additional country. The Company's license agreement also provides that, in the
event that the Company no longer holds any ownership interest in the joint
venture, TDL InfoSpace and the Company will negotiate an arm's-length license
fee for the Company's technology, not to exceed $1 million. On July 17, 1998,
the Company transferred $496,000 to InfoSpace Investments, Ltd. InfoSpace
Investments, Ltd. utilized these funds to acquire 475,000 shares of TDL
InfoSpace, which
F-23
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
represents a noncontrolling 50% interest. Under the terms of the Joint Venture
Agreement, the Company has certain obligations as guarantor, principally to
guarantee the performance by InfoSpace Investments, Ltd. of its obligations
under the Joint Venture Agreement. The Company will account for its investment
in the joint venture under the equity method.
NOTE 10: SUBSEQUENT EVENTS
White pages distribution agreement: On October 19, 1998, the Company entered
into a White Pages Distribution Agreement with an internet portal company.
Under the agreement, which provides for a one-year term, the Company serves as
the exclusive provider of co-branded white pages directory services on the
internet portal company's home page. The internet portal company has committed
to deliver a minimum number of impressions to the Company, which minimum
number increases each quarter of the agreement. The Company has agreed to pay
a carriage fee equal to the product of (x) the cost per impressions as
specified in the White Pages Distribution Agreement and (y) the number of
impressions delivered by the internet portal company, up to a specified
maximum. The Company is obligated to pay the carriage fees under the White
Pages Distribution Agreement as scheduled prepayments over the term of the
agreement, based on the minimum committed impressions under the agreement. The
carriage fee prepayments will be recorded as prepaid expense and are included
in the noncancellable affiliate carriage fee payments disclosed in Note 5. The
Company expects the internet portal company to deliver the minimum number of
impressions during the period of the agreement. To the extent that internet
portal company delivers more impressions than has been committed, the Company
makes additional carriage fee payments for such impressions. Carriage fees are
recorded as a sales and marketing expense in the period in which the
impressions are delivered.
Option exercise: On October 28, 1998, a former consultant of the Company
exercised an option to purchase 250,000 shares of common stock at an exercise
price of $4.00 per share.
Employment Agreement. Bernee D. L. Strom joined the Company as President and
Chief Operating Officer in November 1998. The Company has agreed to provide
Ms. Strom with (i) an annual salary of $250,000, (ii) insurance and other
employee benefits, (iii) options to purchase 500,000 shares of Common Stock
which vest over a period of four years and (iv) options to purchase an
additional 250,000 shares of Common Stock which vest on the sixth anniversary
of Ms. Strom's start date or earlier if specified revenue and net income
criteria are met. In addition, the agreement contains a severance arrangement
whereby Ms. Strom is entitled to receive a payment equal to one year of her
base salary and benefits in the event the Company terminates her employment
for any reason other than for cause.
Employment Claim: On December 2, 1998, the Company received a letter on
behalf of an alleged former employee of the Company claiming that he was
terminated without cause and is entitled to an option to purchase up to
2,000,000 shares of Common Stock at an exercise price of $0.01 per share. The
alleged former employee has offered to settle the claims for a cash payment of
$50,000 and 250,000 shares of Common Stock. Should the Company not accept the
offer, the alleged former employee has threatened to file suit against the
Company on December 11, 1998 seeking 2,000,000 shares of Common Stock plus
attorneys' fees and treble damages (consisting of an additional 4,000,000
shares of Common Stock) under the Massachusetts Consumer Protection Act
(Chapter 93A), and membership on the Company's Board of Directors. (The
Company believes the alleged former employee's claims do not reflect the one-
for-two reverse stock split of the Common Stock consummated in August 1998.)
The Company is currently investigating the claims and believes they have no
merit. Nevertheless, litigation is inherently uncertain and, should litigation
ensue, there can be no assurance that the Company would prevail in such a
suit. To the extent the Company is required to issue shares of Common Stock or
options to purchase Common Stock as a result of the claims, the Company would
recognize an expense equal to the number of shares issued multiplied by the
fair value of the Common Stock on the date of issuance, less the exercise
price of any options required to be issued. This could have a material adverse
effect on the Company's results of operations, and any such issuances would be
dilutive to existing stockholders.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
Outpost Network, Inc.
Redmond, Washington
We have audited the accompanying balance sheets of Outpost Network, Inc. (the
Company) as of December 31, 1996 and 1997, and the related statements of
operations, changes in shareholders' equity (deficiency), and cash flows for
the years ended December 31, 1996 and 1997. 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, such financial statements present fairly, in all material
respects, the financial position of Outpost Network, Inc. as of December 31,
1996 and 1997, and the results of its operations and cash flows for the years
then ended, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Seattle, Washington
July 27, 1998
F-25
<PAGE>
OUTPOST NETWORK, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997, AND JUNE 2, 1998
<TABLE>
<CAPTION>
JUNE 2,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 144,098 $ 18,385 $ 11,967
Receivables from employees............ 2,855 1,102 --
Other receivables..................... 1,351 2,499
Inventory, net of reserve of $-0-,
$28,437 and $58,826.................. 31,771 16,000 5,000
Prepaid expenses...................... 14,576 668 --
----------- ----------- -----------
Total current assets................ 193,300 37,506 19,466
Property and equipment, net............. 90,485 77,730 56,037
Other assets............................ 4,765 4,566 --
----------- ----------- -----------
Total................................... $ 288,550 $ 119,802 $ 75,503
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable...................... $ 75,295 $ 268,915 $ --
Accrued expenses...................... 121,035 29,472
Notes payable......................... 544,000 263,918
----------- ----------- -----------
Total current liabilities........... 75,295 933,950 293,390
Commitments and contingencies (Note 6)
Shareholders' equity (deficiency):
Series A Convertible Preferred stock,
$.01 par value--
Authorized, 1,700,000, -0- and -0-
shares; issued and outstanding,
1,327,750, -0- and -0- shares;
liquidation preference of $213,255,
$-0- and $-0-........................ 13,278
Series B Convertible Preferred stock,
$.01 par value--
Authorized, 11,000,000 shares; no
shares issued and outstanding........
Common stock, $.01 par value--
Authorized, 10,000,000, 20,000,000
and 35,000,000 shares; issued and
outstanding, 2,155,000, 3,482,750 and
34,972,768 shares.................... 21,550 34,828 349,728
Paid-in capital....................... 1,899,331 2,496,930 3,825,088
Accumulated deficit................... (1,720,904) (3,345,906) (4,392,703)
----------- ----------- -----------
Total shareholders' equity
(deficiency)....................... 213,255 (814,148) (217,887)
----------- ----------- -----------
Total................................... $ 288,550 $ 119,802 $ 75,503
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-26
<PAGE>
OUTPOST NETWORK, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997, AND THE PERIOD FROM JANUARY 1, 1998 TO
JUNE 2, 1998
<TABLE>
<CAPTION>
PERIOD FROM
JAN. 1 TO
JUNE 2,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues................................. $ 47,611 $ 293,963 $ 61,610
Cost of revenues......................... 220,092 412,964 152,778
----------- ----------- -----------
Gross loss........................... (172,481) (119,001) (91,168)
Operating expenses:
Product development.................... 273,467 356,218 69,822
Sales and marketing.................... 213,706 201,244 128,069
General and administrative............. 430,705 921,391 733,383
----------- ----------- -----------
Total operating expenses............. 917,878 1,478,853 931,274
----------- ----------- -----------
Loss from operations..................... (1,090,359) (1,597,854) (1,022,442)
Other income (expense)................... 18,947 (27,148) (24,355)
----------- ----------- -----------
Net loss................................. $(1,071,412) $(1,625,002) $(1,046,797)
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-27
<PAGE>
OUTPOST NETWORK, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND THE PERIOD FROM JANUARY 1, 1998 TO
JUNE 2, 1998
<TABLE>
<CAPTION>
PARTNERS'
CAPITAL PREFERRED STOCK COMMON STOCK
--------- -------------------- ------------------- PAID-IN ACCUMULATED
AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ---------- -------- ---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996................... $ 631,274 -- $ -- -- $ -- $ -- $ (649,492) $ (18,218)
Issuance of common
stock in exchange for
member interests...... (631,274) 2,155,000 21,550 609,724
Issuance of Series A
Preferred stock, net
of issuance costs..... 1,327,750 13,278 1,289,607 1,302,885
Net loss............... (1,071,412) (1,071,412)
--------- ---------- -------- ---------- -------- ---------- ----------- -----------
Balance, December 31,
1996................... 1,327,750 13,278 2,155,000 21,550 1,899,331 (1,720,904) 213,255
Conversion of Series A
Preferred stock to
common stock.......... (1,327,750) (13,278) 1,327,750 13,278
Compensation expense--
Stock warrants........ 597,599 597,599
Net loss............... (1,625,002) (1,625,002)
--------- ---------- -------- ---------- -------- ---------- ----------- -----------
Balance, December 31,
1997................... 3,482,750 34,828 2,496,930 (3,345,906) (814,148)
Exercise of common
stock warrants........ 9,056,000 90,560 90,560
Conversion of debt for
stock................. 13,196,480 131,965 575,735 707,700
Issuance of common
stock................. 6,087,538 60,875 243,502 304,377
Noncash issuance of
common stock.......... 3,150,000 31,500 508,921 540,421
Net loss............... (1,046,797) (1,046,797)
--------- ---------- -------- ---------- -------- ---------- ----------- -----------
Balance, June 2, 1998
(unaudited)............ $ -- $ -- $ -- 34,972,768 $349,728 $3,825,088 $(4,392,703) $ (217,887)
========= ========== ======== ========== ======== ========== =========== ===========
</TABLE>
See notes to financial statements.
F-28
<PAGE>
OUTPOST NETWORK, INC
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
AND THE PERIOD FROM JANUARY 1, 1998 TO JUNE 2, 1998
<TABLE>
<CAPTION>
PERIOD FROM
JAN. 1 TO
1996 1997 JUNE 2, 1998
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Operating Activities:
Net loss............................... $(1,071,412) $(1,625,002) $(1,046,797)
Adjustments to reconcile net loss to
net cash
used by operating activities:
Depreciation and amortization...... 29,681 49,753 21,693
Inventory obsolescence expense..... -- 28,437 30,389
Compensation expense--Stock Warrant
Grants............................ -- 597,599 --
Compensation expense--Stock Grants. -- -- 540,421
Loss on disposal of fixed assets... 663 -- --
Cash provided (used) by changes in
operating assets and liabilities:
Employee and other receivables.... (2,855) 402 (46)
Inventory......................... (27,940) (12,666) (19,389)
Prepaid expenses and other current
assets........................... (14,576) 13,908 668
Other assets...................... (4,765) 199 4,566
Accounts payable.................. 47,217 193,620 (129,915)
Accrued expenses.................. (18,500) 121,035 (43,687)
----------- ----------- -----------
Net cash used by operating
activities...................... (1,062,487) (632,715) (642,097)
Investing Activities:
Acquisition of property and equipment.. (97,036) (36,998) --
----------- ----------- -----------
Net cash used by investing
activities...................... (97,036) (36,998) --
Financing Activities:
Proceeds from issuance of notes
payable............................... -- 544,000 250,242
Proceeds from issuance of common stock. -- -- 304,377
Proceeds from issuance of preferred
stock................................. 1,302,885 -- --
Proceeds from exercise of warrants..... -- -- 81,060
----------- ----------- -----------
Net cash provided by financing
activities...................... 1,302,885 544,000 635,679
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 143,362 (125,713) (6,418)
Cash and cash equivalents:
Beginning of period.................... 736 144,098 18,385
----------- ----------- -----------
End of period.......................... $ 144,098 $ 18,385 $ 11,967
=========== =========== ===========
Supplemental Disclosure of Noncash
Financing and Investing Activities:
Conversion of debt to common stock.... 707,700
Issuance of common stock for services. 540,421
Noncash exercise of warrants.......... 9,500
</TABLE>
See notes to financial statements.
F-29
<PAGE>
OUTPOST NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
AND THE PERIOD FROM JANUARY 1, 1998 TO JUNE 2, 1998
NOTE 1: THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
The Company: Outpost Network, Inc. (the Company) provides greeting card and
related retail sale items to its Internet-using customers solely through its
worldwide websites. The Company develops software needed to support its
business and holds patents, trademarks, Uniform Resource Locators (URLS) and
copyrights in connection with its business. The Company's first website opened
on September 18, 1995. Since that time, the Company has developed a number of
additional websites. The Company's basic business is to provide the Internet
user the ability to order and send greeting cards through the Company's
websites. The Company was founded on April 19, 1995, as a limited liability
company and was incorporated in Washington on January 2, 1996.
Business combination: During May 1998, the Company entered into a stock
purchase agreement to exchange all outstanding capital stock for 1,499,988
shares of InfoSpace.com, Inc.'s common stock. The transaction was consummated
on June 2, 1998.
Revenue recognition: Revenues consist of sales of cards and related retail
items and is recognized at the time of shipment.
Product development: Costs incurred in the development of new products and
enhancements of existing products are classified as product development and
are charged to expense as incurred.
Cash and cash equivalents: The Company considers all highly liquid debt
instruments with an original maturity of 90 days or less to be cash
equivalents.
Inventory: Inventory consists primarily of cards and stamps and is stated at
the lower of cost or market, determined on a first-in, first-out basis.
Property and equipment: Property and equipment are stated at cost.
Depreciation is computed under the straight-line method over the following
estimated useful lives of the assets:
<TABLE>
<S> <C>
Computers and equipment.......................................... 3 years
Software......................................................... 3 years
Furniture and fixtures........................................... 5 years
</TABLE>
Other assets: Management periodically reevaluates long-lived assets,
consisting primarily of property and equipment, to determine whether there has
been any impairment of the value of these assets and the appropriateness of
their estimated remaining life. No impairment has been recognized as of
December 31, 1997.
Income taxes: The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS No. 109,
deferred tax assets, including net operating losses, and liabilities are
determined based on temporary differences between the book and tax bases of
assets and liabilities. A valuation allowance is established for deferred tax
assets that are unlikely to be realized.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported
F-30
<PAGE>
OUTPOST NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual amounts may
differ from those estimates.
Interim financial information: The interim financial information as of June
2, 1998, and for the period from January 1, 1998 to June 2, 1998, was prepared
by the Company in a manner consistent with audited financial statements and
pursuant to the rules and requirements of the Securities and Exchange
Commission. The unaudited information, in management's opinion, reflects all
adjustments that are of a normal recurring nature and that are necessary to
present fairly the results for the periods presented. The results of
operations for the period from January 1, 1998 to June 2, 1998, are not
necessarily indicative of the results to be expected for the entire year.
Recent accounting pronouncements: In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustments and
unrealized gains/losses on available-for-sale securities. The disclosure
prescribed by SFAS No. 130 must be made for fiscal years beginning after
December 15, 1997. Reclassifications of financial statements for earlier
periods provided for comparative purposes is required upon adoption. The
Company will adopt the reporting requirements of SFAS No. 130 in its financial
statements for the year ending December 31, 1998. Additionally, in June 1997,
the FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information. This statement establishes standards for the way
companies report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers, as well as the
reporting of selected information about operating segments in interim
financial reports to stockholders. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. The Company will adopt the reporting
requirements of SFAS No. 131 in its financial statements for the year ending
December 31, 1998.
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Computers and equipment................................ $116,050 $152,539
Software............................................... 5,088 5,088
Furniture and fixtures................................. 5,066 5,574
-------- --------
126,204 163,201
Accumulated depreciation............................... (35,719) (85,471)
-------- --------
$ 90,485 $ 77,730
======== ========
</TABLE>
NOTE 3: NOTES PAYABLE
The Company had $544,000 of unsecured convertible notes outstanding at
December 31, 1997. This consists of the following:
. $344,000 issued to related and unrelated parties at various dates during
1997 bearing interest at 10%. These notes were convertible into senior
convertible debentures upon the event of a
F-31
<PAGE>
OUTPOST NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
convertible debt financing closing between the Company, the holder, and
an outside investor, within 90 days of issuance of the notes.
. $200,000 convertible note issued to a related party during 1997 bearing
interest at 9%. Upon closing of an equity financing in the amount of
$1,500,000 or more, this note is convertible into shares or other equity
of the Company issued in the financing.
The debt and equity financings specified above did not occur; however,
$540,000 of the convertible notes outstanding as of December 31, 1997 and
$119,824 of notes payable issued subsequent to December 31, 1997, were
converted into shares of common stock subsequent to year end in conjunction
with the merger with InfoSpace.com, Inc.
The weighted average interest rate for the year ended December 31, 1997 is
9.06%. No interest was paid during 1997.
NOTE 4: SHAREHOLDERS' EQUITY
Authorized shares: The Company was originally founded as a limited liability
company on April 19, 1995, and equity at December 31, 1995, consisted of
members' interest. The Company was incorporated on January 2, 1996, at which
time it was authorized to issue 5,000,000 shares, consisting of 3,000,000
shares of common stock with a par value of $.001 and 2,000,000 shares of
preferred stock with a par value of $.001. The preferred stock may be issued
in one or more series.
On January 24, 1996, the articles of incorporation were amended to increase
the authorized number of shares of all classes of Company stock to 11,700,000
shares, consisting of 10,000,000 shares of common stock with a par value of
$.01 and 1,700,000 shares of preferred stock at a par value of $.01. A series
of preferred stock was designated as Series A Preferred stock, consisting of
1,700,000 shares.
On October 30, 1997, the articles of incorporation were amended to increase
the authorized number of shares of all classes of Company stock to 31,000,000
shares, consisting of 20,000,000 shares of common stock with a par value of
$.01 and 11,000,000 shares preferred stock at a par value of $.01. All shares
of Series A Preferred stock were converted into common stock at a ratio of
1:1. The Company also designated 11,000,000 shares as Series B Preferred
stock.
On May 7, 1998, the articles of incorporation were amended to increase the
authorized number of shares of common stock to 35,000,000 shares with a par
value of $.01 per share.
Preferred stock: During January and February 1996, the Company sold
1,327,750 shares of $.01 par value Series A Preferred stock at a price of
$1.00 per share. On October 30, 1997 all outstanding shares of Series A
Preferred stock were converted to common stock at a ratio of 1:1.
Stock warrants: On November 18, 1997, the Company granted warrants to
purchase 9,056,000 shares of common stock at an exercise price of $.01 per
share to employees, outside consultants, and certain shareholders. These
warrants vested immediately and expire if not exercised on or before May 20,
1998. All warrants outstanding at December 31, 1997, were exercised in May
1998. The Company recorded
F-32
<PAGE>
OUTPOST NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
compensation expense totalling $597,599 related to these warrants. The
following table summarizes information about stock warrants outstanding as of
December 31, 1997:
<TABLE>
<CAPTION>
WARRANTS OUTSTANDING WARRANTS EXERCISABLE
-------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.01............. 9,056,000 0.4 $0.01 9,056,000 $0.01
</TABLE>
The 9,056,000 stock warrants were exercised at $.01 per share during May
1998.
Other: 3,150,000 shares of common stock were issued to outside consultants
and employees for services rendered during May 1998 valued at $540,421.
NOTE 5: INCOME TAXES
No provision for federal and state income taxes has been recorded as the
Company has incurred net operating losses through December 31, 1997. The
following table sets forth the primary components of deferred tax assets:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Net operating loss carryforwards..................... $ 360,090 $ 699,636
Nondeductible reserves and expenses.................. 3,482 9,680
--------- ---------
Gross deferred tax assets............................ 363,572 709,316
Valuation allowance.................................. (363,572) (709,316)
--------- ---------
$ -- $ --
========= =========
</TABLE>
At December 31, 1996 and 1997, the Company believes it more likely than not
that the full benefit of the deferred tax assets will not be realized. As
such, a full valuation allowance has been recorded. At December 31, 1997, the
Company has tax basis federal net operating loss carryforwards of $2,057,753
which expire beginning in 2011.
NOTE 6: COMMITMENTS AND CONTINGENCIES
In January 1998, the Company began sharing office space with InfoSpace,
Inc., which subsequently acquired the Company (Note 1). As a result, the
Company had no significant lease obligations as of December 31, 1997. Rent
expense under operating leases totalled $27,000 and $56,000 for the years
ended December 31, 1996 and 1997, respectively.
NOTE 7: RELATED PARTY TRANSACTIONS
Notes payable at December 31, 1997 include $400,000 payable to a
shareholder, $4,000 payable to an employee and $65,000 payable to an
individual who holds warrants to purchase stock in the Company. Accrued but
unpaid interest and interest expense on these notes as of and for the year
ended December 31, 1997, is $17,919, $-0-, and $2,753, respectively. Interest
rates range from 9% to 10%.
F-33
<PAGE>
INSIDE BACK COVER
[ARTWORK]
ADVERTISING AND PROMOTIONS
[InfoSpace.com web screen displaying banner ads, and sponsorships and featured
listings]
Text: Banner ads and national promotion are sold by InfoSpace direct advertising
sales representatives.
[InfoSpace.com web screen displaying yellow pages ad for attorney]
Text: Promotions and preferred listings are sold to local advertisers by sales
representatives at affiliated yellow pages publishers.
[Ultimate Product Search web page]
Text: InfoSpace.com's Ultimate Product Search enables shoppers to quickly
compare availability and prices online.
[Web page showing search results from Ultimate Product Search]
Text: When shoppers click through to buy, the merchant generally shares
transaction revenue with the Company.
[InfoSpace.com web screen displaying apartment rental information.]
Text: Information suppliers like these apartment guides pay promotional fees to
InfoSpace.com to merchandise their content--similar to the way they pay
traditional retailers for "rack space."
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
The Company............................................................. 22
Use of Proceeds......................................................... 22
Dividend Policy......................................................... 22
Capitalization.......................................................... 23
Dilution................................................................ 24
Selected Consolidated Financial Data.................................... 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 26
Business................................................................ 39
Management.............................................................. 60
Certain Transactions.................................................... 65
Principal Stockholders.................................................. 67
Description of Capital Stock............................................ 68
Shares Eligible for Future Sale......................................... 72
Underwriting............................................................ 74
Legal Matters........................................................... 76
Experts................................................................. 76
Additional Information.................................................. 76
Index to Consolidated Financial Statements.............................. F-1
</TABLE>
-----------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
[LOGO OF INFO SPACE.COM APPEARS HERE]
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
NATIONSBANC MONTGOMERY
SECURITIES LLC
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the registrant in connection with the sale
of the Common Stock being registered hereby. All amounts shown are estimates,
except the Securities and Exchange Commission registration fee, the NASD
filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 14,927
NASD filing fee.................................................. 6,250
Nasdaq National Market listing fee............................... 95,000
Blue Sky fees and expenses....................................... 10,000
Printing and engraving expenses.................................. 300,000
Legal fees and expenses.......................................... 500,000
Accounting fees and expenses..................................... 525,000
Directors and officers insurance................................. 200,000
Transfer Agent and Registrar fees................................ 10,000
Miscellaneous expenses........................................... 138,823
----------
Total.......................................................... $1,800,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers, as well as other
employees and individuals, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation--a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with
the defense or settlement of such actions, and the statute requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. The statute provides
that it is not exclusive of other indemnification that may be granted by a
corporation's charter, bylaws, disinterested director vote, stockholder vote,
agreement or otherwise.
Section 10 of the registrant's Restated Bylaws (Exhibit 3.2 hereto) requires
indemnification to the full extent permitted under the DGCL as it now exists
or may hereafter be amended. Subject to any restrictions imposed by the DGCL,
the Restated Bylaws provide an unconditional right to indemnification for all
expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) actually and
reasonably incurred or suffered by any person in connection with any actual or
threatened action, suit or proceeding, whether civil, criminal, administrative
or investigative by reason of the fact that such person is or was serving as a
director or officer of the registrant or that, being or having been a director
or officer of the registrant, such person is or was serving at the request of
the registrant as a director, officer, employee or agent of another
corporation, or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan. The Restated
Bylaws also provide that the registrant may, by action of its Board of
Directors, provide indemnification to its employees and agents with the same
scope and effect as the foregoing indemnification of directors and officers;
provided, however, that an undertaking shall be made by an employee or agent
only if required by the Board of Directors.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary
II-1
<PAGE>
damages for breach of fiduciary duty as a director, except for liability for
(i) any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) payments of
unlawful dividends or unlawful stock repurchases or redemptions, or (iv) any
transaction from which the director derived an improper personal benefit.
Article 10 of the registrant's Restated Certificate of Incorporation
(Exhibit 3.1 hereto) provides that to the full extent that the DGCL, as it now
exists or may hereafter be amended, permits the limitation or elimination of
the liability of directors, a director of the registrant shall not be liable
to the registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director. Any amendment to or repeal of such Article 10
shall not adversely affect any right or protection of a director of the
registrant for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
The registrant has entered into certain indemnification agreements with its
officers and directors, the form of which is attached as Exhibit 10.1 to this
Registration Statement and incorporated herein by reference. The
indemnification agreements provide the registrant's officers and directors
with indemnification to the maximum extent permitted by the DGCL. Reference is
made to the Underwriting Agreement (Exhibit 1.1 hereto), in which the
Underwriters have agreed to indemnify the officers and directors of the
registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its incorporation in April 1996, the registrant has issued and sold
unregistered securities as follows:
(1) An aggregate of 10,000,000 shares of Common Stock was issued in a
private placement in April 1996 to Naveen Jain. The aggregate consideration
received for such shares was $2,000.
(2) An aggregate of 267,316 shares of Common Stock was issued in a
private placement on June 10, 1996, to three investors. The aggregate
consideration received for such shares was $219,199.94 or $0.82 per share.
(3) An aggregate of 609,756 shares of Common Stock was issued in a
private placement on June 17, 1996, to two investors. The aggregate
consideration received for such shares was $999,999.84 or $1.64 per share.
(4) An aggregate of 68,182 shares of Common Stock was issued in a private
placement on October 7, 1996, to one investor. The aggregate consideration
received for such shares was $150,000.40 or $2.20 per share.
(5) An aggregate of 1,000,000 shares of Common Stock was issued on May 6,
1997, in connection with the registrant's acquisition of all the issued and
outstanding membership interests in Yellow Pages on the Internet, LLC
("YPI"). Such shares were placed in an escrow account upon issuance pending
finalization of the purchase price for YPI. Prior to December 31, 1997, the
purchase price was finalized and on January 2, 1998 an aggregate of 85,000
shares of Common Stock was issued to the former members of YPI. The
remaining 915,000 shares held in the escrow account were released to the
registrant and canceled.
(6) An aggregate of 27,500 shares of Common Stock was issued in a private
placement on February 4, 1998 to one investor. The aggregate consideration
received for such shares was $110,000 or $4.00 per share.
(7) An aggregate of 12,500 shares of Common Stock was issued on April 20,
1998 to a former employee of the Company in connection with the settlement
of a dispute involving compensation.
(8) An aggregate of 7,500 shares of Common Stock was issued in a private
placement on May 4, 1998 to the law firm of Garvey Schubert & Barer in
consideration for legal services rendered.
(9) An aggregate of 1,499,988 shares of Common Stock was issued on June
2, 1998, in exchange for the entire issued share capital of Outpost
Network, Inc. ("Outpost"). The form of the transaction was a
II-2
<PAGE>
merger, whereby a wholly owned subsidiary of the registrant was merged with
and into Outpost (the "Outpost Merger"). The recipients of the Common Stock
were the former shareholders of Outpost.
(10) An aggregate of 125,000 shares of Common Stock was issued in a
private placement on May 21, 1998 to two investors. The aggregate
consideration was $500,000 or $4.00 per share
(11) An aggregate of 1,145,000 shares of Common Stock and warrants for
the purchase of 2,028,523 shares of Common Stock at a weighted average
exercise price of $5.87 per share were issued in a private placement on May
21, 1998 to five investors pursuant to Common Stock and Common Stock
Warrant Purchase Agreements (the "May 1998 Stock Purchase"). The aggregate
consideration received for such shares was $4,580,000 and the aggregate
consideration received for such warrants was $40,570.38.
(12) An aggregate of 5,000 shares of Common Stock was issued on June 30,
1998 to a consultant in exchange for services.
(13) An aggregate of 223,251 shares of Common Stock was issued on July 6,
1998 to nineteen investors pursuant to the registrant's 1998 Stock Purchase
Rights Plan, adopted June 26, 1998. The aggregate consideration received
for such shares was $1,674,393.75 or $7.50 per share.
(14) A warrant for the purchase of 477,967 shares of Common Stock with an
exercise price of $0.02 per share was issued on July 14, 1998, to a former
consultant to the registrant in connection with the Outpost Merger.
(15) An aggregate of 1,020,000 shares of Common Stock was issued in a
private placement completed in July and August 1998 to 26 investors. The
aggregate consideration received for such shares was $8,160,000 or $8.00
per share.
(16) An aggregate of 19,895 shares of Common Stock and warrants to
purchase 35,313 shares of Common Stock with a weighted average exercise
price of $5.87 per share were issued on August 6, 1998 to five investors in
connection with the May 1998 Stock Purchase.
(17) Warrants to purchase up to 989,916 shares of Common Stock at an
exercise price of $12.00 per share were issued on August 24, 1998 to a
strategic partner.
(18) From April 1996 through September 30, 1998, the registrant granted
stock options to purchase an aggregate of 1,756,925 shares of Common Stock
to employees, consultants and directors with exercise prices ranging from
$0.02 to $12.00 per share pursuant to the registrant's Restated 1996
Flexible Stock Incentive Plan in consideration for services. From April 10,
1996 to September 30, 1998, the registrant also granted stock options
outside of the plan to purchase 484,624 shares of Common Stock, with a
weighted average exercise price of $2.07 per share, to employees,
consultants and directors.
No underwriters were used in connection with these sales and issuances. The
sales and issuances of these securities were exempt from registration under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
Rule 701 promulgated thereunder on the basis that these options were offered
and sold either pursuant to a written compensatory benefit plan or pursuant to
written contracts relating to consideration, as provided by Rule 701, or
pursuant to Section 4(2) thereof on the basis that the transactions did not
involve a public offering.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1.* Form of Underwriting Agreement.
2.1.* Agreement and Plan of Merger, dated as of May 12, 1998, among the
registrant, OutPost Network, Inc., certain shareholders of OutPost
Network, Inc. and OutPost Acquisition, Inc.
3.1.* Restated Certificate of Incorporation of the registrant.
3.2.* Restated Bylaws of the registrant.
5.1.* Opinion of Perkins Coie LLP as to the legality of the shares.
10.1.* Form of Indemnification Agreement between the registrant and each of
its Directors and Executive Officers.
10.2. Restated 1996 Flexible Stock Incentive Plan and Terms of Stock Option
Grant Program for Nonemployee Directors under the Restated 1996
Flexible Stock Incentive Plan.
10.3.* 1998 Employee Stock Purchase Plan
Lease, dated May 14, 1998, between the registrant and TIAA Realty,
10.4.* Inc.
10.5.* Registration Rights Agreement, dated May 1, 1997, among the
registrant, John E. Richards, Peter S. Richards, John Enger and
Alexander Hutton Capital L.L.C., as subsequently amended by
Agreement dated as of January 2, 1998, among the registrant, John E.
Richards, Peter S. Richards, John Enger and Alexander Hutton Capital
L.L.C.
10.6.* Agreement, dated January 2, 1998, among the registrant, John E.
Richards, Peter S. Richards, John Enger and Alexander Hutton
Capital, L.L.C.
10.7.* Form of Common Stock and Common Stock Warrant Purchase Agreements,
dated May 21, 1998, between the registrant and each of Acorn
Ventures-IS, LLC, Kellett Partners, LLP and John and Carolyn
Cunningham.
10.8.* Form of Investor Rights Agreements, dated as of May 21, 1998, between
the registrant and each of Acorn Ventures-IS, LLC, Kellett Partners,
LLP and John and Carolyn Cunningham.
10.9.* Form of Co-Sale Agreements, dated as of May 21, 1998, among the
registrant, Naveen Jain and each of Acorn Ventures-IS, LLC, Kellett
Partners, LLP and John and Carolyn Cunningham.
10.10.* Form of Common Stock Warrant, dated May 21, 1998, between the
registrant and each of Acorn Ventures-IS, LLC, Kellett Partners, LLP
and John and Carolyn Cunningham.
10.11.* Common Stock Purchase Agreement, dated as of August 6, 1998, by and
among the registrant and the investors named therein.
10.12.* Stockholder Rights Agreement, dated as of August 6, 1998, by and
among the registrant and the investors named therein.
10.13.* Form of Amendment to Common Stock and Common Stock Warrant Purchase
Agreements, dated August 6, 1998, between the Registrant and each of
Acorn Ventures-IS, LLC, Kellett Partners, LLP and John and Carolyn
Cunningham.
10.14.*+ License Agreement, dated July 28, 1998, between the registrant and
American Business Information, Inc. (now known as infoUSA, Inc.).
10.15.*+ Amended and Restated Content Provider Agreement, made as of August
24, 1998, effective as of April 25, 1998, between the registrant and
800-U.S. Search.
10.16.*+ Interactive White Pages Marketing Agreement, dated as of August 24,
1998, between the registrant and America Online, Inc.
10.17.*+ Development and Management Agreement, dated as of August 24, 1998,
between the registrant and America Online, Inc.
10.18.+ U.S. English Language White Pages Directory Services Agreement,
effective July 1, 1998, between the registrant and Netscape
Communications Corporation.
10.19.+ Trademark License Agreement, dated July 1, 1998, between the
registrant and Netscape Communications Corporation.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.20.+ U.S. English Language Yellow Pages Directory Services Agreement, dated
July 2, 1998, between the registrant and Netscape Communications
Corporation.
10.21.+ Trademark License Agreement, dated July 1, 1998, between the
registrant and Netscape Communications Corporation.
10.22.* Amendment No. 1 to Netcenter Services Agreement--Yellow Pages,
effective August 7, 1998, between the registrant and Netscape
Communications Corporation.
10.23.* Amendment No. 1 to Netcenter Services Agreement--White Pages,
effective August 7, 1998, between the registrant and Netscape
Communications Corporation.
10.24.+ Amendment No. 2 to Netcenter Services Agreement--White Pages between
the registrant and Netscape Communications Corporation.
10.25. Letter Agreement with Bernee D. L. Strom, dated November 22, 1998.
21.1.* Subsidiaries of the registrant.
23.1. Consent of Deloitte & Touche LLP, Independent Auditors.
23.2.* Consent of Perkins Coie LLP (contained in the opinion filed as
Exhibit 5.1 hereto).
24.1.* Power of Attorney
24.2.* Power of Attorney for Carl Stork.
27.1. Financial Data Schedule.
</TABLE>
- ---------------------
* Previously filed.
+ Confidential treatment requested; the omitted material has been separately
filed with the Commission.
(b) Financial Statement Schedules
All schedules are omitted because they are inapplicable or the requested
information is shown in the consolidated financial statements of the
registrant or related notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 5 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Redmond, State of Washington, on the 3rd day of December, 1998.
INFOSPACE.COM, INC.
/s/ Ellen B. Alben
By: _________________________________
Ellen B. Alben, Vice
President,Legal and Business
Affairs and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 5 to Registration Statement has been signed by the following
persons in the capacities indicated below on the 3rd day of December, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Naveen Jain Chief Executive Officer and
____________________________________ Chairman of the Board
Naveen Jain (Principal Executive
Officer)
* Douglas A. Bevis Vice President and Chief
____________________________________ Financial Officer
Douglas A. Bevis (Principal Financial and
Accounting Officer)
* John E. Cunningham, IV Director
____________________________________
John E. Cunningham, IV
* Peter L. S. Currie Director
____________________________________
Peter L. S. Currie
* Gary C. List Director
____________________________________
Gary C. List
* Carl Stork Director
____________________________________
Carl Stork
/s/ Ellen B. Alben
*By: ________________________________
Ellen B. Alben
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1.* Form of Underwriting Agreement.
2.1.* Agreement and Plan of Merger, dated as of May 12, 1998, among the
registrant, OutPost Network, Inc., certain shareholders of OutPost
Network, Inc. and OutPost Acquisition, Inc.
3.1.* Restated Certificate of Incorporation of the registrant.
3.2.* Restated Bylaws of the registrant.
5.1.* Opinion of Perkins Coie LLP as to the legality of the shares.
10.1.* Form of Indemnification Agreement between the registrant and each of
its Directors and Executive Officers.
10.2. Restated 1996 Flexible Stock Incentive Plan and Terms of Stock Option
Grant Program for Nonemployee Directors under the Restated 1996
Flexible Stock Incentive Plan.
10.3.* 1998 Employee Stock Purchase Plan
Lease, dated May 14, 1998, between the registrant and TIAA Realty,
10.4.* Inc.
10.5.* Registration Rights Agreement, dated May 1, 1997, among the
registrant, John E. Richards, Peter S. Richards, John Enger and
Alexander Hutton Capital L.L.C., as subsequently amended by
Agreement dated as of January 2, 1998, among the registrant, John E.
Richards, Peter S. Richards, John Enger and Alexander Hutton Capital
L.L.C.
10.6.* Agreement, dated January 2, 1998, among the registrant, John E.
Richards, Peter S. Richards, John Enger and Alexander Hutton
Capital, L.L.C.
10.7.* Form of Common Stock and Common Stock Warrant Purchase Agreements,
dated May 21, 1998, between the registrant and each of Acorn
Ventures-IS, LLC, Kellett Partners, LLP and John and Carolyn
Cunningham.
10.8.* Form of Investor Rights Agreements, dated as of May 21, 1998, between
the registrant and each of Acorn Ventures-IS, LLC, Kellett Partners,
LLP and John and Carolyn Cunningham.
10.9.* Form of Co-Sale Agreements, dated as of May 21, 1998, among the
registrant, Naveen Jain and each of Acorn Ventures-IS, LLC, Kellett
Partners, LLP and John and Carolyn Cunningham.
10.10.* Form of Common Stock Warrant, dated May 21, 1998, between the
registrant and each of Acorn Ventures-IS, LLC, Kellett Partners, LLP
and John and Carolyn Cunningham.
10.11.* Common Stock Purchase Agreement, dated as of August 6, 1998, by and
among the registrant and the investors named therein.
10.12.* Stockholder Rights Agreement, dated as of August 6, 1998, by and
among the registrant and the investors named therein.
10.13.* Form of Amendment to Common Stock and Common Stock Warrant Purchase
Agreements, dated August 6, 1998, between the Registrant and each of
Acorn Ventures-IS, LLC, Kellett Partners, LLP and John and Carolyn
Cunningham.
10.14.*+ License Agreement, dated July 28, 1998, between the registrant and
American Business Information, Inc. (now known as infoUSA, Inc.).
10.15.*+ Amended and Restated Content Provider Agreement, made as of August
24, 1998, effective as of April 25, 1998, between the registrant and
800-U.S. Search.
10.16.*+ Interactive White Pages Marketing Agreement, dated as of August 24,
1998, between the registrant and America Online, Inc.
10.17.*+ Development and Management Agreement, dated as of August 24, 1998,
between the registrant and America Online, Inc.
10.18.+ U.S. English Language White Pages Directory Services Agreement,
effective July 1, 1998, between the registrant and Netscape
Communications Corporation.
</TABLE>
<PAGE>
INDEX TO EXHIBITS--(CONTINUED)
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.19.+ Trademark License Agreement, dated July 1, 1998, between the
registrant and Netscape Communications Corporation.
10.20.+ U.S. English Language Yellow Pages Directory Services Agreement, dated
July 2, 1998, between the registrant and Netscape Communications
Corporation.
10.21.+ Trademark License Agreement, dated July 1, 1998, between the
registrant and Netscape Communications Corporation.
10.22.* Amendment No. 1 to Netcenter Services Agreement--Yellow Pages,
effective August 7, 1998, between the registrant and Netscape
Communications Corporation.
10.23.* Amendment No. 1 to Netcenter Services Agreement--White Pages,
effective August 7, 1998, between the registrant and Netscape
Communications Corporation.
10.24.+ Amendment No. 2 to Netcenter Services Agreement--White Pages between
the registrant and Netscape Communications Corporation.
10.25. Letter Agreement with Bernee D.L. Strom, dated November 22, 1998.
21.1.* Subsidiaries of the registrant.
23.1. Consent of Deloitte & Touche LLP, Independent Auditors.
23.2.* Consent of Perkins Coie LLP (contained in the opinion filed as
Exhibit 5.1 hereto).
24.1.* Power of Attorney
24.2.* Power of Attorney for Carl Stork.
27.1. Financial Data Schedule.
</TABLE>
- ---------------------
* Previously filed.
+ Confidential treatment requested; the omitted material has been separately
filed with the Commission.
<PAGE>
EXHIBIT 10.2
INFOSPACE.COM, INC.
RESTATED 1996 FLEXIBLE STOCK INCENTIVE PLAN
1. Establishment, Purpose, and Definitions.
(a) There is hereby adopted the Restated 1996 Flexible Stock Incentive
Plan (the "PLAN") of InfoSpace.com, Inc., a Delaware corporation (the
"COMPANY").
(b) The purpose of the Plan is to provide a means whereby eligible
individuals (as defined in paragraph 4, below) can acquire Common
Stock of the Company (the "STOCK"). The Plan provides employees
(including officers and directors who are employees) of the Company
and of its Affiliates an opportunity to purchase shares of Stock
pursuant to options which may qualify as incentive stock options
(referred to as "INCENTIVE STOCK OPTIONS") under Section 422 of the
Internal Revenue Code of 1986, as amended (the "CODE"), and employees,
officers, directors, independent contractors, and consultants of the
Company and of its Affiliates an opportunity to purchase shares of
Stock pursuant to options which are not described in Section 422 or
423 of the Code (referred to as "NONQUALIFIED STOCK OPTIONS"). The
Plan also provides for the sale or bonus of Stock to eligible
individuals in connection with the performance of services for the
Company or its Affiliates. Finally, the Plan authorizes the grant of
stock appreciation rights ("SARS"), either separately or in tandem
with stock options, entitling holders to cash compensation measured by
appreciation in the value of the Stock.
(c) The term "AFFILIATES" as used in the Plan means parent or subsidiary
corporations, as defined in Sections 424(e) and (f) of the Code (but
substituting "the Company" for "employer corporation"), including
parents or subsidiaries which become such after adoption of the Plan.
2. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "BOARD") or a committee or committees (which term
includes subcommittees) appointed by, and consisting of one or more
members of, the Board (the "PLAN ADMINISTRATOR"). If and so long as
the Common Stock is registered under Section 12(b) or 12(g) of the
Exchange Act, the Board shall consider in selecting the Plan
Administrator and the membership of any committee acting as Plan
Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding
(i) "outside directors" as contemplated by Section 162(m) of the Code
and
<PAGE>
(ii) "nonemployee directors" as contemplated by Rule 16b-3 under the
Exchange Act. The Board may delegate the responsibility for
administering the Plan with respect to designated classes of eligible
Participants to different committees consisting of one or more members
of the Board, subject to such limitations as the Board or the Plan
Administrator deems appropriate. Committee members shall serve for
such term as the Board may determine, subject to removal by the Board
at any time.
(b) The Plan Administrator shall determine which eligible individuals (as
defined in paragraph 4, below) shall be granted options under the
Plan, the timing of such grants, the terms thereof (including any
restrictions on the Stock), and the number of shares subject to such
options.
(c) The Plan Administrator may amend the terms of any outstanding option
granted under this Plan, but any amendment which would adversely
affect the Optionee's rights under an outstanding option shall not be
made without the Optionee's written consent. The Plan Administrator
may, with the Optionee's written consent, cancel any outstanding stock
option or accept any outstanding stock option in exchange for a new
option. Notwithstanding the foregoing, any change or adjustment to an
incentive stock option shall not, without the Optionee's written
consent, be made in a manner so as to constitute a "modification" that
would cause such incentive stock option to fail to continue to qualify
as an incentive stock option.
(d) The Plan Administrator shall also determine which eligible individuals
(as defined in paragraph 4, below) shall be issued Stock or SARs under
the Plan, the timing of such grants, the terms thereof (including any
restrictions), and the number of shares or SARs to be granted. The
Stock shall be issued for such consideration (if any) as the Plan
Administrator deems appropriate. Stock issued subject to restrictions
shall be evidenced by a written agreement (the "RESTRICTED STOCK
PURCHASE AGREEMENT" or the "RESTRICTED STOCK BONUS AGREEMENT"). The
Plan Administrator may amend any Restricted Stock Purchase Agreement
or Restricted Stock Bonus Agreement, but any amendment which would
adversely affect the stockholder's rights to the Stock shall not be
made without his or her written consent.
(e) The Plan Administrator shall have the sole authority, in its absolute
discretion to adopt, amend, and rescind such rules and regulations as,
in its opinion, may be advisable for the administration of the Plan,
to construe and interpret the Plan, the rules and the regulations, and
the instruments evidencing options or Stock granted under the Plan and
to make all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determinations, and
interpretations of the Plan Administrator shall be binding on all
participants.
-2-
<PAGE>
3. STOCK SUBJECT TO THE PLAN.
(a) An aggregate of not more than Three Million (3,000,000) shares of
Stock shall be available for the grant of stock options or the
issuance of Stock under the Plan. If an option is surrendered (except
surrender for shares of Stock) or for any other reason ceases to be
exercisable in whole or in part, the shares which were subject to such
option but as to which the option had not been exercised shall
continue to be available under the Plan. Any Stock which is retained
by the Company upon exercise of an option in order to satisfy the
exercise price for such option or any withholding taxes due with
respect to such option exercise shall be treated as issued to the
Optionee and will thereafter not be available under the Plan.
(b) If there is any change in the Stock subject to the Plan, an Option
Agreement, a Restricted Stock Purchase Agreement, a Restricted Stock
Bonus Agreement, or a SAR Agreement through merger, consolidation,
reorganization, recapitalization, reincorporation, stock split, stock
dividend, or other change in the capital structure of the Company,
appropriate adjustments shall be made by the Plan Administrator in
order to preserve but not to increase the benefits to the individual,
including adjustments to the aggregate number, kind and price per
share of shares subject to the Plan, an Option Agreement, a Restricted
Stock Purchase Agreement, a Restricted Stock Bonus Agreement, or a SAR
Agreement.
4. ELIGIBLE INDIVIDUALS. Individuals who shall be eligible to have granted to
them the options, Stock or SARs provided for by the Plan shall be such
employees, officers, directors, independent contractors and consultants of
the Company or an Affiliate as the Plan Administrator, in its discretion,
shall designate from time to time. Notwithstanding the foregoing, only
employees of the Company or an Affiliate (including officers and directors
who are bona fide employees) shall be eligible to receive incentive stock
options.
5. THE OPTION PRICE.
(a) The exercise price of the Stock covered by each incentive stock option
shall be not less than the per share fair market value of such Stock
on the date the option is granted. The exercise price of the Stock
covered by each nonqualified stock option shall be as determined by
the Plan Administrator and shall be not less than 85% of the per share
fair market value of such Stock on the date the option is granted.
Notwithstanding the foregoing, in the case of an incentive stock
option granted to a person possessing more than ten percent of the
combined voting power of the Company or an Affiliate, the exercise
price shall be not less than 110 percent of the fair market value of
the Stock on the
-3-
<PAGE>
date the option is granted. The exercise price of an option shall be
subject to adjustment to the extent provided in paragraph 3(b), above.
(b) The fair market value shall be as established in good faith by the
Plan Administrator or (i) if the Stock is listed on the Nasdaq
National Market, the fair market value shall be the closing selling
price for the stock as reported by the Nasdaq National Market for a
single day or (ii) if the Stock is listed on the New York Stock
Exchange or the American Stock Exchange, the fair market value shall
be the closing selling price for the Stock as such price is officially
quoted in the composite tape of transactions on such exchange for a
single trading day. If there is no such reported price for the Stock
for the date in question, then such price on the last preceding date
for which such price exists shall be determinative of the fair market
value.
6. TERMS AND CONDITIONS OF OPTIONS.
(a) Each option granted pursuant to the Plan will be evidenced by a
written Stock Option Agreement executed by the Company and the person
to whom such option is granted.
(b) The Plan Administrator shall determine the term of each option granted
under the Plan; provided, however, that the term of an incentive stock
option shall not be for more than 10 years and that, in the case of an
incentive stock option granted to a person possessing more than ten
percent of the combined voting power of the Company or an Affiliate,
the term shall be for no more than five years.
(c) In the case of incentive stock options, the aggregate fair market
value (determined as of the time such option is granted) of the Stock
with respect to which incentive stock options are exercisable for the
first time by an eligible employee in any calendar year (under this
Plan and any other plans of the Company or its Affiliates) shall not
exceed $100,000. In the event the optionee holds two or more such
options that become exercisable for the first time in the same
calendar year, such limitation shall be applied on the basis of the
order in which such options are granted.
(d) The Stock Option Agreement may contain such other terms, provisions
and conditions not inconsistent with this Plan as may be determined by
the Plan Administrator. If an option, or any part thereof is intended
to qualify as an incentive stock option, the Stock Option Agreement
shall contain those terms and conditions which are necessary to so
qualify it. To the extent required by applicable law, options granted
under the Plan must provide for the right of the optionee to exercise
the option at the rate of at least 20% per year over 5 years from the
date the option is granted.
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<PAGE>
7. TERMS AND CONDITIONS OF STOCK PURCHASES AND BONUSES.
(a) Each sale or grant of stock pursuant to the Plan will be evidenced by
a written Restricted Stock Purchase Agreement or Restricted Stock
Bonus Agreement executed by the Company and the person to whom such
stock is sold or granted.
(b) The Restricted Stock Purchase Agreement or Restricted Stock Bonus
Agreement may contain such other terms, provisions and conditions
consistent with this Plan as may be determined by the Plan
Administrator, including not by way of limitation, restrictions on
transfer, forfeiture provisions, repurchase provisions and vesting
provisions. To the extent required by applicable law, any right of the
Company to repurchase stock granted pursuant to a restricted stock
purchase or restricted stock bonus at the original purchase price (i)
must lapse at the rate of at least 20% per year over 5 years from the
date the stock was purchased, which right must be exercised within 90
days of termination of employment for cash or cancellation of purchase
money indebtedness for the shares, and (ii) if the right is
assignable, the assignee must pay the Company upon assignment of the
right cash equal to the difference between the original price and fair
value if the original purchase price is less than fair value.
(c) The purchase price of Stock sold hereunder pursuant to a Restricted
Stock Purchase Agreement shall be the price determined by the Plan
Administrator on the date the right to purchase Stock is granted;
provided, however that (i) such price shall not be less than 85% of
the per share fair market value of such Stock on the date the right to
purchase Stock is granted and (ii) to the extent required by
applicable law, in the case of any person who owns Company stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Company, such price shall be 100% of the per
share fair market value of such Stock at the time the right to
purchase Stock is granted, or at the time the purchase is consummated.
8. TERMS AND CONDITIONS OF SARS. The Plan Administrator may, under such terms
and conditions as it deems appropriate, authorize the issuance of SARs
evidenced by a written SAR agreement (which, in the case of tandem options,
may be part of the option agreement to which the SAR relates) executed by
the Company and the person to whom such SAR is granted. The SAR agreement
may contain such terms, provisions and conditions consistent with this Plan
as may be determined by the Plan Administrator.
9. USE OF PROCEEDS. Cash proceeds realized from the sale of Stock under the
Plan shall constitute general funds of the Company.
-5-
<PAGE>
10. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend or terminate the Plan as it
deems advisable; provided that such amendment, suspension or
termination complies with all applicable requirements of state and
federal law, including any applicable requirement that the Plan or an
amendment to the Plan be approved by the Company's stockholders, and
provided further that, except as provided in paragraph 3(b), above,
the Board shall in no event amend the Plan in the following respects
without the consent of stockholders then sufficient to approve the
Plan in the first instance:
(i) To increase the maximum number of shares subject to incentive
stock options issued under the Plan; or
(ii) To change the designation or class of persons eligible to receive
incentive stock options under the Plan.
(b) No option may be granted nor any Stock issued under the Plan during
any suspension or after the termination of the Plan, and no amendment,
suspension or termination of the Plan shall, without the affected
individual's consent, alter or impair any rights or obligations under
any option previously granted under the Plan. The Plan shall
terminate with respect to the grant of incentive stock options on
April 10, 2006, unless previously terminated by the Board pursuant to
this paragraph 10.
11. The Plan Administrator shall establish and set forth in each instrument
that evidences an option whether the option will continue to be
exercisable, and the terms and conditions of such exercise, if an optionee
ceases to be employed by, or to provide services to, the Company or an
Affiliate, which provisions may be waived or modified by the Plan
Administrator at any time.
12. ASSIGNABILITY. Each option granted pursuant to this Plan shall, during
optionee's lifetime, be exercisable only by him, and the option shall not
be transferable by optionee by operation of law or otherwise other than by
will or the laws of descent and distribution. Notwithstanding the
foregoing, and to the extent permitted by Section 422 of the Code, the Plan
Administrator, in its sole discretion, may permit such transfer, assignment
and exercisability and may permit an optionee to designate a beneficiary
who may exercise the option after the optionee's death; provided, however,
that any option so transferred or assigned shall be subject to all the same
terms and conditions contained in the instrument evidencing the option.
Stock subject to a Restricted Stock Purchase Agreement or a Restricted
Stock Bonus Agreement shall be transferable only as provided in such
Agreement.
-6-
<PAGE>
13. PAYMENT UPON EXERCISE OF OPTIONS.
(a) Payment of the purchase price upon exercise of any option granted
under this Plan shall be made in cash, a certified check, bank draft,
postal or express money order payable to the order of the Company,
provided, however, that the Plan Administrator, in its sole
discretion, may permit an optionee to pay the option price in whole or
in part (i) tendering (either actually or, if and so long as the Stock
is registered under Section 12(b) or 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), shares of Stock owned by
the optionee for at least six months (or any shorter period necessary
to avoid a charge to the Company's earnings for financial reporting
purposes) on the day prior to the exercise date equal to the aggregate
option exercise price; (ii) if and so long as the stock is registered
under Section 12(b) or 12(g) of the Exchange Act, by delivery on a
form prescribed by the Plan Administrator of an irrevocable direction
to a securities broker approved by the Plan Administrator to sell
shares and deliver all or a portion of the proceeds to the Company in
payment for the Stock; (ii) by delivery of the optionee's promissory
note with such full recourse, interest, security, and redemption
provisions as the Plan Administrator in its discretion determines
appropriate; or (iii) in any combination of the foregoing. The amount
of any promissory note delivered in connection with an incentive stock
option shall bear interest at a rate specified by the Plan
Administrator but in no case less than the rate required to avoid
imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.. In addition,
the Plan Administrator, in its sole discretion, may authorize the
surrender by an optionee of all or part of an unexercised option and
authorize a payment in consideration thereof of an amount equal to the
difference between the aggregate fair market value of the Stock
subject to such option and the aggregate option price of such Stock.
In the Plan Administrator's discretion, such payment may be made in
cash, shares of Stock with a fair market value on the date of
surrender equal to the payment amount, or some combination thereof.
The purchase price for shares purchased under an option may also be
paid by such other consideration as the Plan Administrator may permit.
(b) In the event that the exercise price is satisfied by the Plan
Administrator retaining from the shares of Stock otherwise to be
issued to Optionee shares of Stock having a value equal to the
exercise price, the Plan Administrator may issue Optionee an
additional option, with terms identical to this option agreement,
entitling Optionee to purchase additional Stock in an amount equal to
the number of shares so retained.
-7-
<PAGE>
14. WITHHOLDING TAXES.
(a) No Stock shall be granted or sold under the Plan to any participant,
and no SAR may be exercised, until the participant has made
arrangements acceptable to the Plan Administrator for the satisfaction
of federal, state, and local income and social security tax
withholding obligations, including without limitation obligations
incident to the receipt of Stock under the Plan, the lapsing of
restrictions applicable to such Stock, the failure to satisfy the
conditions for treatment as incentive stock options under applicable
tax law, or the receipt of cash payments. Upon exercise of a stock
option or lapsing or restriction on stock issued under the Plan, the
Company may satisfy its withholding obligations by withholding from
the Optionee or requiring the stockholder to surrender shares of the
Company's Stock sufficient to satisfy federal, state, and local income
and social security tax withholding obligations.
(b) In the event that such withholding is satisfied by the Company or the
Optionee's employer retaining from the shares of Stock otherwise to be
issued to Optionee shares of Stock having a value equal to such
withholding tax, the Plan Administrator may issue Optionee an
additional option, with terms identical to the option agreement under
which the option was received, entitling Optionee to purchase
additional Stock in an amount equal to the number of shares so
retained.
15. RESTRICTIONS ON TRANSFER OF SHARES. At the discretion of the Plan
Administrator, the Stock acquired pursuant to the Plan shall be subject to
such restrictions and agreements regarding sale, assignment, encumbrances
or other transfer as are in effect among the stockholders of the Company at
the time such Stock is acquired, as well as to such other restrictions as
the Plan Administrator shall deem advisable.
16. CORPORATE TRANSACTION.
(a) For purposes of this Section 16, a "CORPORATE TRANSACTION" shall
include any of the following stockholder-approved transactions to
which the Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for (1) a transaction the principal
purpose of which is to change the state of the Company's
incorporation, or (2) a transaction in which the Company's
stockholders immediately prior to such merger or consolidation
hold (by virtue of securities received in exchange for their
shares in the Company) securities of the surviving entity
representing more than fifty percent (50%) of the total voting
power of such entity immediately after such transaction;
-8-
<PAGE>
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company unless the Company's
stockholders immediately prior to such sale, transfer or other
disposition hold (by virtue of securities received in exchange
for their shares in the Company) securities of the purchaser or
other transferee representing more than fifty percent (50%) of
the total voting power of such entity immediately after such
transaction; or
(iii) any reverse merger in which the Company is the surviving entity
but in which the Company's stockholders immediately prior to
such merger do not hold (by virtue of their shares in the
Company held immediately prior to such transaction) securities
of the Company representing more than fifty percent (50%) of the
total voting power of the Company immediately after such
transaction.
(b) In the event of any Corporate Transaction, any option or outstanding
SAR shall terminate and any restricted stock shall be reconveyed to or
repurchased by the Company immediately prior to the specified
effective date of the Corporate Transaction; provided, however, that
to the extent permitted by applicable law, including Section
260.140.41 of the California Code of Regulations, any unvested option,
SAR or any restricted stock that would otherwise vest within twelve
months from the specified effective date of the Corporate Transaction
shall vest and become exercisable, or become nonforfeitable, as
applicable, immediately prior to the specified effective date of the
Corporate Transaction. Notwithstanding the foregoing, options, SARs
or restricted stock shall not terminate, accelerate or become
nonforfeitable if, in connection with the Corporate Transaction, they
are to be assumed by the successor corporation or its parent company,
pursuant to options, SARs or restricted stock agreements providing
substantially equal value and having substantially equivalent
provisions as the options, SARs or restricted stock granted pursuant
to this Plan.
17. STOCKHOLDER APPROVAL. This Plan shall only become effective with regard to
incentive stock options upon its approval by a majority of the stockholders
voting (in person or by proxy) at a stockholders' meeting held within 12
months of the Board's adoption of the Plan. The Plan Administrator may
grant incentive stock options under the Plan prior to the stockholders'
meeting, but until stockholder approval of the Plan is obtained, no
incentive stock option shall be exercisable.
18. INFORMATION TO PLAN PARTICIPANTS. The Company shall provide to each Plan
participant, during any period for which said participant has one or more
options or SARs or shares acquired pursuant to the Plan outstanding, copies
of annual reports of the Company issued during said period.
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<PAGE>
19. NO RIGHTS AS A STOCKHOLDER. No option shall entitle the optionee to any
dividend, voting or other right of a stockholder unless and until the date
of issuance under the Plan of the shares that are the subject of such
option, free of all applicable restrictions.
20. NO TRUST OR FUND. The Plan is intended to constitute an "unfunded" plan.
Nothing contained herein shall require the Company to segregate any monies
or other property, or shares of Stock, or to create any trusts, or to make
any special deposits for any immediate or deferred amounts payable to any
optionee, and no optionee shall have any rights that are greater than those
of a general unsecured creditor of the Company.
21. SEVERABILITY. If any provision of the Plan or any option is determined to
be invalid, illegal or unenforceable in any jurisdiction, or as to any
person, or would disqualify the Plan or any option under any law deemed
applicable by the Plan Administrator, such provision shall be construed or
deemed amended to conform to applicable laws, or, if it cannot be so
construed or deemed amended without, in the Plan Administrator's
determination, materially altering the intent of the Plan or the option,
such provision shall be stricken as to such jurisdiction, person or option,
and the remainder of the Plan and any such option shall remain in full
force and effect.
-10-
<PAGE>
TERMS OF STOCK OPTION GRANT PROGRAM FOR
NONEMPLOYEE DIRECTORS UNDER THE
INFOSPACE.COM, INC. RESTATED 1996 FLEXIBLE STOCK
INCENTIVE PLAN
The following provisions set forth the terms of the stock option grant
program (the "Program") for nonemployee directors of InfoSpace.com, Inc. (the
"Company") under the InfoSpace.com, Inc. Restated 1996 Flexible Stock Incentive
Plan (the "Plan"). The following terms are intended to supplement, not alter or
change, the provisions of the Plan, and in the event of any inconsistency
between the terms contained herein and in the Plan, the Plan shall govern. All
capitalized terms that are not defined herein shall be as defined in the Plan.
1. ELIGIBILITY
Each elected or appointed director of the Company who is not otherwise an
employee of the Company or an Affiliate (an "Eligible Director") shall be
eligible to receive Initial Grants and Annual Grants under the Plan, as
described below.
2. INITIAL GRANTS
(a) Each Eligible Director who is in office on the day the Program is
adopted by the Board shall automatically receive a grant of a nonqualified stock
option to purchase 1,250 shares of the Company's Stock on the day this Program
is adopted by the Board.
(b) A nonqualified stock option to purchase 10,000 shares of the Company's
Stock shall be granted to each Eligible Director upon such Eligible Director's
initial election or appointment to the Board.
(c) Initial grants ("Initial Grants") shall become fully vested and
exercisable one year after the date of grant, assuming continued service on the
Board for such period.
3. SUPPLEMENTAL INITIAL GRANTS
Each Eligible Director who is in office on November 19, 1998 shall
automatically receive a grant of an option to purchase 10,000 shares of the
Company's Stock on that date, which grant shall become fully vested and
exercisable one year after the date of grant, assuming continued service on the
Board for such period.
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<PAGE>
4. ANNUAL GRANTS
Commencing with the 1999 Annual Shareholders' Meeting, each Eligible
Director shall automatically receive a nonqualified stock option to purchase
2,500 shares of Stock immediately following each year's Annual Meeting (each, an
"Annual Grant"); provided that any Eligible Director who received an Initial
Grant within three months prior to an Annual Meeting shall not receive an Annual
Grant until immediately following the second Annual Meeting after the date of
such Initial Grant. Annual Grants shall become fully vested and exercisable one
year after the date of grant, assuming continued service on the Board for such
period.
5. OPTION EXERCISE PRICE
The exercise price of an option shall be the "fair market value" of the
Stock on the date of grant, as that term is defined in the Plan.
6. MANNER OF OPTION EXERCISE
An option shall be exercised by giving the required notice to the Company,
stating the number of shares of Stock with respect to which the option is being
exercised, accompanied by payment in full for such Stock, which payment may be
in whole or in part (a) in cash or check, (b) in shares of Stock owned by the
Eligible Director for at least six months (or such shorter period necessary to
avoid a charge to the Company's earnings for financial reporting purposes)
having a fair market value on the day prior to the exercise date equal to the
aggregate option exercise price, or (c) by delivery of a properly executed
exercise notice, together with irrevocable instructions to a broker, to promptly
deliver to the Company the amount of sale or loan proceeds to pay the exercise
price, all in accordance with the regulations of the Federal Reserve Board.
7. TERM OF OPTIONS
Each option shall expire ten years from the date of grant thereof, but
shall be subject to earlier termination as follows:
(a) In the event that an Eligible Director ceases to be a director of the
Company for any reason other than the death of the Eligible Director, the
unvested portion of any option granted to such Eligible Director shall terminate
immediately and the vested portion of the option may be exercised by the
Eligible Director only within three months after the date he or she ceases to be
a director of the Company or prior to the date on which the option expires by
its terms, whichever is earlier.
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<PAGE>
(b) In the event of the death of an Eligible Director, the unvested
portion of any option granted to such Eligible Director shall terminate
immediately and the vested portion of the option may be exercised only within
one year after the date of death of the Eligible Director or prior to the date
on which the option expires by its terms, whichever is earlier, by the personal
representative of the Eligible Director's estate, the person(s) to whom the
Eligible Director's rights under the option have passed by will or the
applicable laws of descent and distribution, or the beneficiary designated
pursuant to Section 12 of the Plan.
8. CORPORATE TRANSACTIONS
In the event of any Corporate Transaction, each option that is at the time
outstanding shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date of the Corporate Transaction,
become fully vested and exercisable.
9. AMENDMENT
The Board may amend the provisions contained herein in such respects as it
deems advisable. Any such amendment shall not, without the consent of the
Eligible Director, impair or diminish any rights of an Eligible Director or any
rights of the Company under an option.
Provisions of the Plan (including any amendments) that were not discussed
above, to the extent applicable to Eligible Directors, shall continue to govern
the terms and conditions of options granted to Eligible Directors.
-3-
<PAGE>
EXHIBIT 10.18
[LOGO OF NETSCAPE APPEARS HERE]
NETSCAPE COMMUNICATIONS CORPORATION
U.S. ENGLISH LANGUAGE WHITE PAGES DIRECTORY SERVICES AGREEMENT
NETSCAPE/INFOSPACE, INC.
SUMMARY COVER SHEET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EFFECTIVE DATE: Date of last signature of the Agreement.
- --------------------------------------------------------------------------------
PARTIES:
- --------------------------------------------------------------------------------
InfoSpace: Netscape:
- --------------------------------------------------------------------------------
InfoSpace, Inc. Netscape Communications Corporation
- --------------------------------------------------------------------------------
8424 154th Avenue NE 501 East Middlefield Road, MV-002
- --------------------------------------------------------------------------------
Redmond, WA 98052 Mountain View, CA 94043
- --------------------------------------------------------------------------------
Fax: (425) 882-0988 Fax: (650) 528-4123
- --------------------------------------------------------------------------------
Attn: Naveen Jain Attn: General Counsel
- --------------------------------------------------------------------------------
MINIMUM CLICKS: [*]
- --------------------------------------------------------------------------------
PREPAYMENT: White Pages Service Fee (See Table Below)
- --------------------------------------------------------------------------------
LOCAL LANGUAGE: U.S. English
- --------------------------------------------------------------------------------
BASIC SERVICE (PHASE 1): Commences July 1, 1998
- --------------------------------------------------------------------------------
ADVANCED SERVICES (PHASE 2): Integrated September through November, 1998.
- --------------------------------------------------------------------------------
SERVICE PERIOD: From July 1, 1998 though June 30, 1999
- --------------------------------------------------------------------------------
TERM: From Effective Date through June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SERVICE SERVICE TRAFFIC COST PER CLICK
- --------------------------------------------------------------------------------
White Pages 0 up to 21.15 million Clicks [*]
Over 21.15 million up to 42.3 million Clicks [*]
Over 42.3 million up to 73.68 million Clicks [*]
Over 73.68 million Clicks [*]
- --------------------------------------------------------------------------------
_________________________________
* Confidential Treatment Requsted.
"[*]" = omitted, confidential, material, which has been separately filed with
the Securities and Exchange Commission pursuant to a request for confidential
treatment.
<PAGE>
[LOGO OF NETSCAPE APPEARS HERE]
NETSCAPE COMMUNICATIONS CORPORATION
U.S. ENGLISH LANGUAGE WHITE PAGES DIRECTORY SERVICES AGREEMENT
OBJECTIVE: To create a co-branded, competitive White Pages Internet directory
service (the "SERVICE") that provides Internet browser users with up-to-date
general navigational directory listings.
TERMS AND CONDITIONS:
1. COMPANY. InfoSpace, Inc. ("COMPANY"), named on the signature page to this
agreement ("AGREEMENT"), will provide the Results Pages for any of the U.S.
English-language HTML pages accessible by the public via the Internet at the
Universal Resource Locator ("URL")
http://home.netscape.com/netcenter/whitepages.html and/or such other URLs as
Netscape may designate from time to time in writing. Netscape will provide the
Service front pages which are accessed when the White Pages hyper-link is
clicked. These Service front pages are where the search parameters are defined
and where a user starts a new search with no predefined variables and are
hereinafter referred to as the "JUMP PAGES". The Jump Pages and the Results
Pages are together referred to as the "Service". The Jump Pages are part of the
collection of U.S. English-language HTML documents accessible by the public via
the Internet at the URL http://home.netscape.com and/or at such other URL(s) as
Netscape may designate ("NETSCAPE'S WEB SITE"). The Jump Pages may also be
accessed by Internet users of the Netscape-distributed U.S. English-language
version browser by pressing or "clicking" on a button or link for the Service in
the toolbar, by way of a bookmark pre-loaded in certain versions of the
applicable browser as described herein, home page, Netscape's Net Search pages,
selected channel pages, the Service pages, or such other methods as Netscape may
specify from time to time. Notwithstanding the foregoing, Netscape reserves the
right to determine other means whereby users may access the Jump Pages, which
provides the Service on Netscape's Web Site, including, but not limited to, the
use of mirror sites and pointers based on a user's IP address, and which mirror
sites and pointers are separate and distinct from the Jump Pages described in
this Agreement.
2. SERVICE PERIOD. Netscape will provide access to the Service, as described
herein, for the service period identified on the Cover Page ("SERVICE PERIOD").
3. THE SERVICE.
3.1. General.
-------
(a) The Service. The Service, including Phases I and II, and the
-----------
Jump Pages and Results Pages (together, the "SERVICE PAGES"), are more fully
described in Exhibit A.
---------
(b) The Jump Pages. Netscape will serve, maintain and promote the
--------------
Jump Pages. The Jump Pages will have such functionality and appearance as
Netscape shall determine[*]. Netscape will produce the Jump Pages so that when
an end user performs a search for people or business information, and clicks on
the search button on the Jump Pages, then the end user's browser will access
"Results Pages" defined below.
__________________________________
* Confidential Treatment Requested.
2
<PAGE>
(c) The Results Pages. The Results Pages will be accessible from the
-----------------
Jump Page. Company shall serve, maintain and promote the front results page and
all results pages accessible thereby (together, the "RESULTS PAGE(S)").
Netscape must approve the look and feel of the templates of the Results Pages
before they are used in the Service. [*] So that Netscape may evaluate and
approve Results Pages, Company will supply Netscape with HTML and/or GIF files,
or files of such other format as may be designated from time to time in writing
by Netscape, which conform to the specifications in Exhibit B. Company shall
---------
retain all right, title and interest in and to the Results Pages (including the
copyright ownership thereof), and Company hereby grants Netscape a royalty-free
worldwide license, without payment or other charge therefor, to use, display,
perform, reproduce and distribute the Results Pages, and such other licenses
with respect to the Results Pages necessary to fulfill the intention of this
Agreement. The specifications of the Results Pages and the placement on the
Jump Pages of the Results Page links are set forth on Exhibit B hereto. Netscape
---------
shall notify Company of any changes to the specifications set forth in Exhibit
B. Company's compliance with the content as well as the language, technical,
visual and functional specifications of the Results Pages as set forth in
Exhibit B (including, without limitation, the type of information provided on or
- ---------
from the Results Pages) are a material obligation of Company under this
Agreement.
3.2 Location. The Results Pages will reside solely on Company's
--------
servers but will have a "Netscape.com" domain name and will be directly linked,
within one click away, to Netscape's Web Site. [*] Company shall not promote
any Service from another Web site without Netscape's prior written consent.
Company expressly agrees that Company shall be solely responsible for the
purchase, implementation, maintenance and support of all software and hardware
required to fulfill its obligations under this Agreement.
3.3 Name of the Service. The name of the Service ("SERVICE NAME")
-------------------
shall be mutually determined by the parties. Company shall not independently
use the Service Name without Netscape's prior written consent, unless such use
occurs in connection with Company's advertising sales and promotional efforts on
behalf of the Service. Each Service Name shall be displayed on every page of
the corresponding Service and no other locations without Netscape's prior
written consent except in connection with such advertising sales and promotional
efforts on behalf of such Service. Company may not use the corresponding Service
Name with Netscape's name expunged. Company may not use a Service Name
independent of the corresponding Service except as provided for above in this
Section 3.3.
3.4. Design and Specifications of the Service. The design of the Jump
----------------------------------------
Pages and the Results Pages will be determined by Netscape. The Results Pages
shall be co-branded by Netscape and Company in accordance with Exhibit B.
---------
Netscape shall be responsible for creating the design and graphic user interface
specifications including navigation, architecture, look and feel of each Results
Page. In addition, Netscape will specify the functionality and fields of the
Service Pages, including the Results Pages[*]. Netscape may from time to time
alter the design and specifications of the Service Pages[*]. Such
specifications shall include, but not be limited to, those set forth on Exhibit
-------
B. The specifications of each of the Results Pages, including, without
- -
limitation, the Results front Page, are set forth on Exhibit B hereto; provided
---------
however, that Netscape may, upon notice to Company, (i) redesign or reconfigure
the Jump Pages, Netscape's Web Site, and/or the manner in which an end user
interacts with any of the pages of Netscape's Web Site, or (ii) revise Exhibit
-------
B; and Company shall promptly, and in any event, within no more than [*]
- -
following receipt of such notice, supply Netscape with a revised Results Page
that conforms to the specifications of the revised Exhibit B
---------
___________________________________
* Confidential Treatment Requested.
3
<PAGE>
4. ADDITIONAL BENEFITS.
4.1. Exclusivity. During the Term, and in order to insure that its
-----------
resources, priorities and attention are adequately focused on developing and
maintaining the Service, Netscape will not enter into any similar agreement for
the development and/or operation of any similar cobranded White pages directory
service.
4.2. Pre-loaded Bookmark. During the Service Period, Netscape shall
-------------------
include a graphic HTML link for the Service to the Jump Pages ("BOOKMARK") in
the bookmark section of future 4.x versions of the U.S. English-language version
of Netscape Communicator client software. The Bookmark may be reconfigured,
customized or deleted by an end user.
5. CLICK GUARANTEES
5.1. Click. A click ("CLICK") to a Results Page occurs when an end user
------
requests information and clicks on a link or button from the Jump Pages directed
to the Results Pages.
5.2. Minimum Guaranteed Clicks. During the Service Period, Netscape
-------------------------
Guarantees that Company shall receive no fewer than a combined total of [*]
Clicks for White Pages.
5.3. Make-Good. If, at the end of the Service Period, Company's content
---------
has not, in the aggregate, received total Clicks equal to or greater than the
Minimum Guaranteed Clicks, and provided that Company has complied with its
obligations hereunder, Netscape will, at its discretion: (i) continue to link
the Results Page to the Jump Pages as specified in Section 3 beyond the end of
the Service Period until such time as the Minimum Guaranteed Clicks have been
achieved, or (ii) deliver to Company a program of equivalent value as a remedy
for the shortfall in Clicks. The remedy set forth in this Section 5.3 shall be
Company's sole and exclusive remedy, and Netscape's sole and exclusive
obligation, regarding Netscape's obligation set forth in Section 5.2 in the
event, by the end of the Service Period, the Minimum Guaranteed Clicks have not
been achieved.
6. COMPANY OBLIGATIONS. In addition to the other obligations set forth herein,
Company agrees to the following provisions.
6.1. Netscape Now. If or when Company displays a button or link to
------------
Microsoft's Internet Explorer, or any derivative or successor browser, then
Company shall, with equal prominence, include the then-current version of the
"Netscape Now" (or equivalent promotional) button in the appropriate place on
the collection of English- language HTML documents Company maintains as its
primary web site ("COMPANY'S WEB SITE"), or on any page linked thereto, and [*]
include the following statement (or a statement designated by Netscape and
generally used by Netscape as a successor to the following statement or in
connection with any successor promotional program to Netscape's Netscape Now
program) next to the Netscape Now button: "This site is best viewed with
Netscape Communicator. Download Netscape Now!" Company's use of the Netscape
Now button shall be in accordance with Netscape's reasonable policies regarding
advertising and trademark usage as established from time to time by Netscape,
including the guidelines of the Netscape Now Program published on Netscape's
U.S. English-language Web Site. Company acknowledges that the Netscape Now
button is a proprietary logo of Netscape and contains Netscape's trademarks. In
the event that Netscape determines that Company's use of the Netscape Now button
is inconsistent with Netscape's quality standards, then Netscape shall have the
right to suspend immediately such use of the Netscape Now button. Company
understands and agrees that the use of the Netscape Now button in connection
with this Agreement shall not create any right, title or interest in or to the
use of the Netscape Now button or associated trademarks and that all such use
and goodwill associated with the Netscape Now button and associated trademarks
will inure to the benefit of Netscape. Company agrees not to register or use any
trademark that is similar to the
__________________________________
* Confidential Treatment Requested.
4
<PAGE>
Netscape Now button. Company further agrees that it will not use the Netscape
Now button in a misleading manner or otherwise in a manner that may reflect
adversely on Netscape or its products.
6.2. Server Software. To showcase the close relationship between Company
---------------
and Netscape and highlight Company's endorsement of Netscape's products, Company
shall consider using at least [*] version of Netscape core Web server software
product (currently comprised of Netscape Enterprise Server and Netscape
FastTrack Server) to maintain a portion of Company's Web Site or operation and,
if requested, provide Netscape with evidence of such use.
6.3. No Disabling. Company shall not provide or implement any means or
------------
functionality that would (i) disable any functionality of the browser or any
other Internet browser software, (ii) result in a redirection of any traffic
away from Netscape's Netcenter web site, or (iii) modify the functioning of
pages served from Netscape's Web Site. If Company fails to honor the commitment
set forth in this Section 6.3, Netscape will be relieved of its obligations
described in Section 5.3.
6.4. Preference for Netscape Products and Services. Company shall use
---------------------------------------------
commercially reasonable efforts to accord, in light of the intent of the parties
to highlight their strategic relationship as evidenced by the terms and
conditions of this Agreement, in Company's Web sites as well as Company's
overall marketing efforts, Netscape's products and services a position of
prominence, overall as well as on an element by element basis, at least as great
as the positioning accorded any third-party Internet client software, software
provider, online service or other service provider. Company may use, and is
granted during the term hereof a nontransferable, nonexclusive and restricted
license to use the Netscape name ("Mark") in advertising, marketing,
technical, packaging and other materials related to the Service. Use of the Mark
shall comply with Netscape's then-current trademark usage guidelines and
corporate signature kit. Company shall clearly indicate Netscape's ownership of
the Mark and that the Mark is registered. All use of the Mark shall inure to
Netscape's benefit. Company shall not register any Netscape trademarks, or
trademarks, trade names or domain names confusingly similar to Netscape
trademarks, trade names or domain names without Netscape's express prior written
consent. Upon Netscape's request from time to time, Company shall provide
Netscape with copies of the promotional materials bearing the Mark, and Customer
shall suspend use of the Mark if Netscape determines within its sole reasonable
discretion that the use of the Mark is improper or damaging to Netscape'
reputation and goodwill. Company further agrees not to use the Mark on or in
connection with any products or services that are or could be deemed by
Netscape, in its reasonable judgment, to be obscene, pornographic, disparaging
of Netscape or of its products, or otherwise in poor taste, or that are
themselves unlawful or whose purpose is to encourage unlawful activities by
others; or in connection with products or services or advertisements that are
competitive with Netscape.
7. PAYMENT TO NETSCAPE.
7.1. Payment. Company shall pay Netscape an amount based on cost per
-------
Click times the number of Clicks. The cost per Click is a variable based on a
designed range of Clicks, as set forth on the table provided in the Cover Sheet.
7.2 Payment Terms. [*]. All amounts payable by Company hereunder are
-------------
payable within thirty (30) days after receipt by Company of the corresponding
invoice submitted by Netscape. Any amount payable hereunder that has not been
paid to Netscape within the applicable time set forth above shall bear interest
at the lesser of (i) one percent (1%) per month, or (ii) the maximum amount
allowed by law. All amounts payable to Netscape hereunder shall be paid in U.S.
Dollars.
7.3. Taxes.
-----
___________________________________
* Confidential Treatment Requested.
5
<PAGE>
(a). Exclusive of Tax. All payments hereunder are exclusive of any
----------------
tax. Company shall pay or reimburse Netscape for all value-added, sales, use,
consumption, property, ad valorem and similar taxes, all customs duties, import
fees or similar charges, stamp duties, license fees and similar costs, and all
other mandatory payments to any government agencies of whatever kind imposed
with respect to products or services provided by Netscape under this Agreement
or with respect to this Agreement except taxes imposed on the net income of
Netscape [*]. If the transaction is exempt from tax, Company shall provide
Netscape with a valid exemption certificate or other evidence of such exemption
in a form acceptable to Netscape. Company shall, at its own expense, use
reasonable efforts to recover refundable or recoverable taxes. Each party shall
cooperate with the other in minimizing applicable tax.
(b). No Withholding. All payments by Company to Netscape pursuant to
--------------
this Agreement shall be made without any withholding or deduction of any
withholding tax or other tax or mandatory payment to government agencies. If
Company is legally required to make any such withholding or deduction from any
payment due to Netscape under this Agreement, the sum payable by Company upon
which such withholding or deduction is based shall be increased to the extent
necessary to ensure that, after such withholding or deduction, Netscape receives
and retains, free from liability for such withholding or deduction, a net amount
equal to the amount Netscape would have received and retained in the absence of
such required withholding or deduction.
(c). Survival of Obligations. Company's obligations under this
-----------------------
Section shall survive any termination of this Agreement.
7.4. Advertising Revenue. During the Service Period, Netscape will serve
-------------------
and will receive [*], and Company will serve and receive [*].
8. USAGE REPORTS.
8.1. Provide Usage Reports. Netscape and Company will each provide the
---------------------
other, via email to the email address set forth below, with usage reports
("USAGE REPORTS") containing the information and in the format set forth in
Exhibit C hereto. The Usage Reports shall cover each one-month time period of
- ---------
the Service Period, and the parties shall use reasonable commercial efforts to
deliver the Usage Reports within fifteen (15) days following the end of each
month. If, due to technical problems, a party is unable to provide any portion
of a Usage Report in any given month, the following data shall be used for each
day for which data is missing: ninety percent (90%) of the usage figures
reported for the same day of the week most recently reported (e.g. if data for
the day seven (7) days prior is available, ninety percent (90%) of the usage
figures for such day; if not available, the data for the day fourteen (14) days
prior, and so on).
8.2. No Liability. NETSCAPE AND COMPANY WILL USE REASONABLE COMMERCIAL
------------
EFFORTS TO ENSURE THE ACCURACY AND COMPLETENESS OF THE USAGE REPORTS, BUT
NEITHER PARTY WARRANTS THAT THE USAGE REPORTS WILL CONFORM TO ANY PUBLISHED
NUMBERS AT ANY GIVEN TIME. NEITHER PARTY SHALL BE HELD LIABLE FOR ANY CLAIMS AS
THEY RELATE TO SUCH USAGE REPORTS.
9. TERMINATION.
9.1. Methods of Termination.
----------------------
(a). Term and Termination. This Agreement shall commence as of the
--------------------
Effective Date and shall continue through June 30, 1999, unless sooner
terminated as provided in this section.
(b). Termination on Breach. Either party may terminate this Agreement
---------------------
if the other party materially breaches its obligations hereunder and such breach
remains uncured for thirty (30) days following notice to the breaching party of
the breach or as otherwise provided in Section 10.
__________________________________
* Confidential Treatment Requested.
6
<PAGE>
9.2. Effect of Termination. Except as specifically provided otherwise in
---------------------
this Agreement, upon the expiration or termination of the Agreement, all rights
and obligations hereunder shall cease (other than Company's payment obligations
hereunder to the extent accrued on or prior to the termination date or as
otherwise provided in this Section 9.2) and each party will promptly and at the
direction of the other party, either return or destroy, and will not take or
use, any items of any nature that belong to the other party and all items
containing or related to Confidential Information (as defined in Exhibit D) of
---------
the other party. Notwithstanding the foregoing, if this Agreement expires or is
terminated for any reason, other than by Company as a result of Netscape's
material breach of the terms of this Agreement or by Netscape for its
convenience pursuant to Section 9.1(c), Company shall remain liable for the
value of the payments which are due, or, but for such expiration or termination,
would otherwise become due and payable under the terms of this Agreement. The
following provisions shall survive the expiration or termination of this
Agreement for any reason: Section 7.3 (Excess Quarterly Clicks), Section 7.5
(Taxes), Section 8.2 (No Liability), Section 9.2 (Effect of Termination),
Section 9.3 (No Compensation), Section 11 (Responsibility), Section 12
(Limitation of Liability), Section 14 (Alternative Dispute Resolution), and
Section 16 (General).
10. RIGHT TO REFUSE.
10.1 Netscape will have the right to review the contents and format of the
Results Pages. If Netscape, in its reasonable discretion, at any time
determines that a Results Page contains any material, or presents any material,
in a manner that Netscape deems inappropriate for any reason [*]. Netscape will
inform Company of the reason Netscape has made such determination and may (i)
refuse to link the Results Page to the Jump Pages on Netscape's Web Sites,
and/or (ii) immediately terminate this Agreement if Company has not revised to
Netscape's reasonable satisfaction a Results Page [*]. If Netscape, in its
reasonable discretion, at any time determines that the Company's Web Site
contains any material, or presents any material, in a manner that Netscape deems
to be obscene, pornographic, disparaging of Netscape or it's products or
services, or is unlawful, or is to encourage unlawful activities by others,
Netscape may immediately terminate this Agreement if Company has not revised to
Netscape's reasonable satisfaction the Company's Web site [*].
10.2 Services and products of any [*] defined below, or services or
companies [*] with any of Netscape's Netcenter "Core Services" (as defined
below), may [*]. For purposes of this Agreement, "Core Services" means services
and applications offered by Netscape limited to services and applications
containing discussion group, chat, personalization, personal home page, member
directory, email, instant messaging, white and yellow pages and search features
of functions, except as set forth below. Any exceptions to this need prior
written consent from Netscape. No [*] defined below, or any company that [*]
Netscape's Netcenter "Core Services" will have [*] without Netscape's prior
written consent. Any branding by the Company must comply with the terms of this
Agreement, including specifications set forth in Exhibit B. [*]. Netscape may
[*] list of Core Services once per quarter upon prior written notice to Company
delivered at the quarterly review pursuant to this section, provided that if
Netscape [*] at a quarterly review (i.e., one that was not previously listed
[*]) who is, at the time [*], Company shall be allowed to complete the term [*].
10.3 Netscape agrees [*] of any of the entities listed on Exhibit E
("Company's Named Entities") attached hereto [*].
__________________________________
* Confidential Treatment Requested.
7
<PAGE>
11. RESPONSIBILITY. (a) Company is solely responsible for any liability arising
out of or relating to: (i) the [*]; (ii) any material to which users can link
through any of the foregoing; or (iii) any use of the [*] pursuant to this
Agreement, (collectively, the "Services"). Company represents and warrants that
it holds the necessary rights to permit the use of the Services by Netscape for
the purpose of this Agreement; and that the permitted use, reproduction,
distribution, or transmission of the Services, and any material to which users
can link through the Services will not violate any criminal laws or any rights
of any third parties, including, but not limited to, infringement or
misappropriation of any copyright, patent, trademark, trade secret, music,
image, or other proprietary or property right, false advertising, unfair
competition, defamation, invasion of privacy or rights of celebrity, violation
of any antidiscrimination law or regulation, or any other right of any person or
entity, or otherwise violate any applicable local, state, national or
international law. Company agrees to indemnify Netscape and to hold Netscape
harmless from any and all liability, loss, damages, claims, or causes of action,
including reasonable legal fees and expenses that may be incurred by Netscape,
arising out of or related to Company's breach of any of the foregoing
responsibilities.
(b) Netscape shall indemnify, hold harmless and defend Company from and against
any and all claims, liabilities, losses, damages, expenses and costs (including
attorneys' fees and costs) arising out of or relating to any content on the Jump
Pages created by and under the control of Netscape for use by Company in
accordance with this Agreement, except to the extent that Company is responsible
under Section 11 (a). Netscape will pay resulting costs, damages and legal fees
finally awarded in such action in a court or in a settlement which are
attributable to such claim provided that: (i) Company promptly notifies
Netscape in writing of any such claim; (ii) Netscape has sole control of the
defense and all related settlement negotiations, and (iii) Company cooperates
with Netscape, at Netscape's expense, in defending or settling such claim.
12. LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE
OTHER FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON
BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, AND WHETHER OR
NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THE
LIABILITY OF EITHER PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER WHETHER IN
CONTRACT OR TORT OR ANY OTHER LEGAL THEORY IS LIMITED TO AND SHALL NOT EXCEED
THE PAYMENT DUE FROM COMPANY HEREUNDER. THE LIMITATIONS IN THIS SECTION DO NOT
APPLY TO SECTION 11 (RESPONSIBILITY) OR SECTION 16.5 (CONFIDENTIALITY).
13. COURSE OF DEALING. In consideration of Company's participation in the
Service Program, until such time as Microsoft fully publicly documents and makes
available its operating systems' programming interfaces sufficiently to enable
Netscape to make use of all of the facilities and resources of those operating
systems on a basis equal to that of Microsoft, Company shall, using commercially
reasonable efforts: (1) Within Company's publicly accessible Web Sites, other
services (including co-branded and OEM services) and marketing materials, accord
Netscape's products and services a position of preference and prominence,
overall as well as on an element by element basis, at least as great as that
accorded any third-party Internet client or server software, software provider
or online service; and (2) Not make content available solely to users of client
software or services other than Netscape's, or disfavor or disadvantage users of
Netscape client software or services in any way relative to users of other
Internet client software or services [*].
14. ALTERNATIVE DISPUTE RESOLUTION. Any dispute hereunder will be negotiated
between the parties commencing upon written notice from one party to the other.
Settlement discussions and materials will be confidential and inadmissible in
any subsequent proceeding without both parties' consent. If the
__________________________________
* Confidential Treatment Requested.
8
<PAGE>
dispute is not resolved by negotiation within 45 days following such notice, the
parties will refer the dispute to non-binding mediation conducted by
JAMS/EndDispute in Santa Clara County, California (the "Venue"). The parties
will share the costs of mediation. If the dispute is not resolved after 45 days
of mediation, the parties will refer the dispute to binding arbitration by
JAMS/EndDispute in the Venue. The results of any arbitration will be final and
non-appeallable, except that either party may petition any court of competent
jurisdiction specified in Section 16 to review any decision relating to Netscape
intellectual property matters (including the scope of license rights), vacating
or modifying erroneous conclusions of law or findings of fact not supported by
substantial evidence. The arbitrator may fashion any legal or equitable remedy
except punitive or exemplary damages, which both parties waive. The arbitrator
will render a written decision, which may be entered in and enforced by any
court of competent jurisdiction, but which will have no preclusive effect in
other matters involving third parties. The losing party will pay the costs of
the arbitration and the reasonable legal fees and expenses of the prevailing
party, as determined by the arbitrator. The parties will jointly pay arbitration
costs pending a final allocation by the arbitrator. At any point in the dispute
resolution process, either party may seek injunctive relief preserving the
status quo pending the outcome of that process. Except as noted, the parties
waive any right to judicial process. California law, without regard to its
conflict-of-law provisions, will govern any dispute under this Section 14. The
U.S. Arbitration Act and JAMS/EndDispute rules will govern the arbitration
process. Absent fraudulent concealment, neither party may raise a claim more
than 3 years after it arises or any shorter period provided by applicable
statutes of limitations.
15. INSURANCE. Company, at its sole cost and expense, shall secure and
maintain adequate insurance coverage as is necessary, as a reasonable prudent
businessperson, for Company to bear all of its obligations under this Agreement.
Maintenance of the foregoing insurance shall in no way be interpreted as
relieving Company of any responsibility or obligation whatsoever and Company may
acquire, at its own expense, such additional insurance as Company deems
necessary. Company assumes full and complete liability for all injuries to, or
death of, any person, or for any damages to property arising from the acts or
omissions of Company. Company shall at Netscape's request provide Netscape with
a certificate of insurance demonstrating compliance with this Section 15. Before
any cancellation or material change in any coverage, Company shall provide
Netscape with 30 days' advance written notice. Company's insurance shall be
primary to any other insurance Netscape may have.
16. GENERAL.
16.1. Governing Law. This Agreement shall be subject to and governed in
-------------
all respects by the statutes and laws of the State of California without regard
to the conflicts of laws principles thereof. Except as provided in Section 14,
Netscape reserves the right to invoke the exclusive jurisdiction of the
applicable court in the County of Santa Clara in the State of California, and
each party submits to the jurisdiction of any such court.
16.2. Entire Agreement. This Agreement, including the exhibits and
----------------
attachments referenced on the signature page hereto, constitutes the entire
Agreement and understanding between the parties and integrates all prior
discussions between them related to its subject matter. No modification of any
of the terms of this Agreement shall be valid unless in writing and signed by an
authorized representative of each party.
16.3. Assignment. Company may not assign any of its rights or delegate
----------
any of its duties under this Agreement, or otherwise transfer this Agreement (by
merger, operation of law or otherwise) without the prior written consent of
Netscape. Any attempted assignment, delegation or transfer in derogation hereof
shall be null and void.
16.4. Notices. All notices required or permitted hereunder shall be given
-------
in writing addressed to the respective parties as first set forth above on the
cover sheet and shall either be (i) personally delivered or (ii) transmitted by
internationally-recognized private express courier, and shall be deemed to have
been given on the date of receipt if delivered personally, or the day on which
such
9
<PAGE>
notice is delivered to the recipient as evidenced by the delivery records of
such courier, but in no case later than five (5) days after deposit with such
courier. Either party may change its address for purposes hereof by written
notice to the other in accordance with the provisions of this Subsection.
16.5. Confidentiality. All disclosures of proprietary and/or confidential
---------------
information in connection with this Agreement as well as the contents of this
Agreement shall be governed by the terms of the Mutual Confidential Disclosure
Agreement either entered into previously by the parties or entered into
concurrently with this Agreement, a copy of which is attached hereto as Exhibit
-------
D. The information contained in the Usage Reports provided by each party
- -
hereunder shall be deemed the Confidential Information of the disclosing party..
16.6. Force Majeure. Neither party will be responsible for any failure to
-------------
perform its obligations under this Agreement due to causes beyond its reasonable
control, including but not limited to, acts of God, war, riot, embargoes, acts
of civil or military authorities, fire, floods or accidents.
16.7. Waiver. The waiver, express or implied, by either party of any
------
breach of this Agreement by the other party will not waive any subsequent breach
by such party of the same or a different kind.
16.8. Headings. The headings to the Sections and Subsections of this
--------
Agreement are included merely for convenience of reference and shall not affect
the meaning of the language included therein.
16.9. Independent Contractors. The parties acknowledge and agree that
-----------------------
they are dealing with each other hereunder as independent contractors. Nothing
contained in this Agreement shall be interpreted as constituting either party
the joint venturer, employee or partner of the other party or as conferring upon
either party the power of authority to bind the other party in any transaction
with third parties.
16.10. Severability. In the event any provision of this Agreement is held
------------
by a court or other tribunal of competent jurisdiction to be unenforceable, such
provision shall be reformed only to the extent necessary to make it enforceable,
and the other provisions of this Agreement will remain in full force and effect.
16.11 Press Release. Company and Netscape agree to participate in a joint
-------------
press release regarding the Service which will take place on a mutually agreed
upon date. The parties shall agree to the form and content of the joint press
release. Either party may issue its own press release , subject to the other
party's prior approval of the content within such press release
16.12. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. For purposes hereof, a
facsimile copy of this Agreement, including the signature pages hereto, shall be
deemed to be an original.
10
<PAGE>
IN WITNESS WHEREOF, the parties have caused duly authorized representatives to
execute this Agreement as of the Effective Date.
INFOSPACE, INC. NETSCAPE COMMUNICATIONS
CORPORATION
By: /s/ Naveen Jain By: /s/ Noreen Bergin
______________________________ ______________________
Print Name: Naveen Jain Print Name: Noreen G. Bergin
______________________ _________________________
Title: President & CEO Title: Senior Vice President
___________________________ Finance & Corporate Controller
________________________________
Date: 7/1/98 Date: 7/1/98
___________________________ ____________________
Attached Exhibits:
Exhibit A: Description of the Services: Phases I and II
---------
Exhibit B: Specifications of the Service Pages
---------
Exhibit C: Usage Reports
---------
Exhibit D: Mutual Confidential Disclosure Agreement
---------
Exhibit E: Company's Named Entities
----------
REVIEWED BY
NETSCAPE LEGAL
Initial [illegible}
-------------------
11
<PAGE>
EXHIBIT A
DESCRIPTION OF THE SERVICES
[*]
__________________________________
* Confidential Treatment Requested.
12
<PAGE>
EXHIBIT B
SPECIFICATIONS OF THE SERVICE PAGES
[*]
__________________________________
* Confidential Treatment Requested.
13
<PAGE>
EXHIBIT C
USAGE REPORTS
Sample report provided by Netscape to Company each month.
[*]
__________________________________
* Confidential Treatment Requested.
14
<PAGE>
Sample report provided by Netscape to Company each month.
[*]
__________________________________
* Confidential Treatment Requested.
15
<PAGE>
EXHIBIT D
MUTUAL CONFIDENTIAL DISCLOSURE AGREEMENT
Attach previously executed document
16
<PAGE>
[LOGO OF NETSCAPE APPEARS HERE]
MUTUAL CONFIDENTIAL DISCLOSURE AGREEMENT
This Mutual Confidential Disclosure Agreement ("Agreement") is entered into
between Netscape Communications Corporation ("Netscape") and InfoSpace, Inc.
("Company"), and is effective as of the date of execution by Netscape
("Effective Date"). Each party (the "Receiving Party") understands that the
other party (the "Disclosing Party") may disclose certain Confidential
Information (as defined in Section 1 below) under this Agreement. Netscape and
Company agree as follows:
1. DEFINITION. "Confidential Information" shall mean (i) all information
disclosed in tangible form by the Disclosing Party and marked
"confidential" or "proprietary", (ii) all information on disclosed orally
or otherwise in intangible form by the Disclosing Party and designated as
confidential or proprietary at the time of disclosure, and (iii) the terms
of the U.S. English Language White Pages Directory Services Agreement
entered into between Netscape and Company dated as of July 1st, 1998.
Confidential Information may include, without limitation, computer
programs, codes, algorithms, names and expertise of employees and
consultants, know-how, formulas, processes, ideas, inventions (whether
patentable or not), schematics and other technical, business, financial and
product development plans, forecasts, strategies and information.
2. PURPOSE. The Receiving Party shall use the Confidential Information only
for the following purposes:
a) to evaluate whether to enter into a contemplated business transaction;
and
b) if Netscape and Company enter into such contemplated business
transaction, to fulfill each party's commitments under the agreement for
such business transaction.
3. CONFIDENTIALITY OBLIGATION. The Receiving Party agrees to protect the
Confidential Information by using the same degree of care, but not less
than a reasonable degree of care, to prevent the unauthorized use,
dissemination or publication of the Confidential Information as the
Receiving Party uses to protect its own confidential or proprietary
information of a like nature. The Receiving Party shall limit the use of
and access to the Disclosing Party's Confidential Information to the
Receiving Party's employees, attorneys, financial advisors or independent
contractors who need to know such Confidential Information for the purpose
set forth in Section 2 above and who have entered into binding obligations
of confidentiality substantially similar to the obligations set forth
herein.
4. TERM. The Receiving Party's obligations to protect Confidential Information
hereunder shall expire 3 years from the date of each such disclosure of
Confidential Information, except when such Confidential Information
disclosed by the Disclosing Party is source code, in which case the
Receiving Party's obligations to protect such Confidential Information
shall be perpetual.
5. EXCLUSIONS. Confidential Information as defined in Section 1 above shall
not include Confidential Information that: (i) is or becomes a matter of
public knowledge through no fault of the Receiving Party; or (ii) was in
the Receiving Party's possession or known by it prior to receipt from he
Disclosing Party; or (iii) was rightfully disclosed to the Receiving Party
by another person without restriction; or (iv) is independently developed
by the Receiving Party without access to such Confidential Information. The
Receiving Party may disclose Confidential Information pursuant to any
statutory or regulatory authority or court order, provided the Disclosing
Party is given prompt written notice of such requirement and the scope of
such disclosure is limited to the extent possible.
6. RETURN OF CONFIDENTIAL INFORMATION. Upon written request by the Disclosing
Party at any time, the Receiving Party shall: (i) turn over to the
Disclosing Party all Confidential Information of the Disclosing Party, all
documents or media containing the Confidential Information, and any and all
copies or extracts thereof, or (ii) destroy the Confidential Information,
and any and all copies or extracts thereof, and provide the Disclosing
Party with written certification of such destruction signed by an
authorized representative of the Receiving Party.
7. EQUITABLE RELIEF. The Receiving Party acknowledges and agrees that due to
the unique nature of the Disclosing Party's Confidential Information, there
may be no adequate remedy at law for any breach of its obligations. The
Receiving Party further acknowledges that any such breach may allow the
Receiving Party or third parties to unfairly compete with the Disclosing
Party resulting in irreparable harm to the Disclosing Party and, therefore,
that upon any such breach or any
1
<PAGE>
threat thereof, the Disclosing Party shall be entitled to seek appropriate
equitable relief in addition to whatever remedies it may have at law. The
Receiving Party will notify the Disclosing Party in writing immediately
upon the occurrence of any such unauthorized release or other breach.
8. INTELLECTUAL PROPERTY RIGHTS. Neither party acquires any intellectual
property rights under this Agreement or through any disclosure hereunder,
except the limited right to use such Confidential Information in accordance
with this Agreement.
9. WARRANTY. The Confidential Information disclosed under this Agreement is
delivered "AS IS," and all representations or warranties, whether express
or implied, including warranties or conditions for fitness for a particular
purpose, merchantability, title and noninfringement are hereby disclaimed.
10. NETSCAPE SUBSIDIARIES. Netscape's wholly owned subsidiaries, by signing
this Agreement on behalf of Netscape and returning a fully executed
original or copy to the Netscape Legal Department, shall be entitled to
disclose Netscape's Confidential Information and receive Company's
Confidential Information on behalf of Netscape under this Agreement,
provided such subsidiaries comply with the terms and conditions of this
Agreement and further provided such disclosures or receipt of Confidential
Information are governed by the terms and conditions of this Agreement.
11. EXPORT. Each party agrees that the export of encryption related information
and encryption-enabled software from the United States may be regulated by
US law, and agree to comply with such laws and regulations.
12. GENERAL. This Agreement supersedes all prior discussions and writings with
respect to the subject matter hereof, and constitutes the entire agreement
between the parties with respect to the subject matter hereof. No waiver or
modification of this Agreement will be binding upon either party unless
made in writing and signed by a duly authorized representative of each
party and no failure or delay in enforcing any right will be deemed a
waiver. The parties understand that nothing herein requires either party to
proceed with any proposed transaction or relationship in connection with
which Confidential Information may be disclosed. In the event that any of
the provisions of this Agreement shall be held by a court or other tribunal
of competent jurisdiction to be unenforceable, the remaining portions
hereof shall remain in full force and effect. This Agreement shall be
governed by the laws of the State of California without regard to conflicts
of laws provisions thereof and each party submits to the jurisdiction and
venue of any California State or federal court generally serving the Santa
Clara county area with respect to the subject matter of this Agreement. The
headings to the Sections of this Agreement are included merely for
reference and shall not affect the meaning of the language included
therein. This Agreement is written in the English language only, which
language shall be controlling in all respects. Les parties aux presentes
confirment leur volonte que cette convention de meme que tous les documents
y compris tout avis qui s'y rattache, soient rediges en langue anglaise
(translation: "The parties confirm that this Agreement and all related
documentation is and will be in the English language.")
NETSCAPE COMMUNICATIONS INFOSPACE INC.
CORPORATION
By: /s/ Noreen Bergin By: /s/ Naveen Jain
--------------------------------- -----------------------
Signature Signature
Name: NOREEN G. BERGIN Name: NAVEEN JAIN
------------------------------- ---------------------
Print or Type Print or Type
Title: Senior Vice President Title: President & CEO
Finance & Corporate Controller --------------------
------------------------------
Date: 07/01/98 Date: 7/1/98
------------------------------ --------------------
Address: Address:
501 East Middlefield Road ----------------------
Mountain View, CA 94043 ----------------------
----------------------
REVIEWED BY
NETSCAPE LEGAL
Initial [ILLEGIBLE]
---------------------
2
<PAGE>
EXHIBIT E
LIST OF COMPANY'S NAMED ENTITIES
[*]
__________________________________
* Confidential Treatment Requested.
17
<PAGE>
EXHIBIT 10.19
[LOGO OF NETSCAPE APPEARS HERE]
TRADEMARK LICENSE AGREEMENT
This Trademark License Agreement ("Agreement") is effective as of the 1st day
of July, 1998 ("Effective Date") and is entered into by and between Netscape
Communications Corporation ("Netscape"), a Delaware corporation located at 501
East Middlefield Road, Mountain View, California 94043, and InfoSpace, Inc.
("Licensee"), a Delaware corporation located at 8424 154/th/ Avenue NE, Redmond,
WA 98052.
RECITALS
A. Netscape owns and uses the name(s) and/or trademark(s) and/or registered
trademark(s) set forth in Exhibit A (collectively referred to as the
---------
"Marks"), in connection with its Internet-related software products,
services and technology;
B. Licensee offers directory services on the Internet and performs other
Internet-related services;
C. Licensee desires to use the Marks solely in the titles set forth in Exhibit
-------
A in connection with its Internet directory services in the languages and
-
geographic territories set forth opposite such titles in Exhibit A; and
---------
D. Netscape is willing to permit such use of the Marks under the terms and
conditions set forth in this Agreement.
NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. GRANT OF LICENSE.
1.1 GRANT OF LICENSE. Netscape hereby grants to Licensee a non-
exclusive, nontransferable, license to use the Marks only in the titles set
forth in Exhibit A solely in conjunction with Internet directory services in the
---------
languages and geographic territories set forth in Exhibit A opposite such titles
---------
(the "Directory Services") which shall, in part, promote Netscape's products and
services, may be jointly developed by Netscape and Licensee, and which services
shall reside on Licensee's web site deploying Licensee's servers. Licensee may
only use the Marks as a collective whole and shall not separately use any
element or elements of the Marks.
1.2 RESERVATION OF RIGHTS. Netscape hereby reserves any and all rights
not expressly and explicitly granted in this Agreement, including Netscape's
right to authorize or license use of the Marks or any other trademarks or names
containing the Marks, to any third party for use in connection with any goods
and services. No right is provided to use the Netscape logo under this
Agreement. Without limiting the rights reserved in the first sentence, Netscape
hereby reserves any and all rights to use, authorize use or license use of the
Marks or any other trademarks or names containing the Marks in any geographic
territory and in any language.
2. LICENSE FEE. For the rights granted to Licensee herein, Licensee shall pay
Netscape, by cashier's check or wire transfer, a one-time non-refundable license
fee of U.S $1.5 Million Dollars at the time of the execution of this Agreement.
The license fee due hereunder is exclusive of any applicable taxes. Licensee
shall be responsible for all applicable national, state and local taxes, value
added or sales taxes, exchange, interest, banking, collection and other charges
and levies and assessments pertaining to payments other than U.S. taxes
"[*]"= omitted, confidential material, which has been separately filed with the
Securities and Exchange commision pursuant to a request for confidential
treatment.
1
<PAGE>
based on Netscape's net income [*]. If Licensee is required by law to make any
deduction or to withhold from any sum payable to Netscape by Licensee hereunder,
(i) Licensee shall effect such deduction or withholding, remit such amounts to
the appropriate taxing authorities and promptly furnish Netscape with tax
receipts evidencing the payments of such amounts, and (ii) the sum payable by
Licensee upon which the deduction or withholding is based shall be increased to
the extent necessary to ensure that, after such deduction or withholding,
Netscape receives and retains, free from liability for such deduction or
withholding, a net amount equal to the amount Netscape would have received and
retained in the absence of such required deduction or withholding.
3. OWNERSHIP OF MARKS.
3.1 Netscape hereby warrants that Netscape is the owner of the Marks
described herein and that Netscape has the full authority to grant Licensee the
rights described herein.
3.2 Licensee hereby acknowledges that Netscape is the owner of the
Marks, and any trademark applications and/or registrations thereto, agrees that
it will do nothing inconsistent with such ownership and agrees that all use of
the Marks by Licensee shall inure to the benefit of Netscape. Licensee agrees
that nothing in this Agreement shall give Licensee any right, title or interest
in the Marks other than the right to use the Marks in accordance with this
Agreement. Licensee agrees not to register or attempt to register the Marks or
the Title as a trademark, service mark, Internet domain name, trade name, or any
similar trademarks or name, with any domestic or foreign governmental or quasi-
governmental authority which would be likely to cause confusion with the Marks.
Licensee may not register or use the Marks or the Title or an abbreviation of
the Marks or the Title as part of an Internet domain name. The provisions of
this paragraph shall survive the expiration or termination of this Agreement.
4. USE OF THE MARKS; PROTECTION OF THE MARKS.
4.1 PROPER USE. Licensee agrees that all use of the Marks shall only
occur in connection with the Directory Services and shall be in strict
compliance with the terms of this Agreement. Licensee may use the Marks as set
forth in Section 1.1 as well as in connection with the promotion of the
Directory Services . Licensee shall use the Marks in conformance with
Netscape's trademark guidelines ("Trademark Guidelines"), set forth in Exhibit
-------
B, which Trademark Guidelines may be revised by Netscape from time to time.
- -
Licensee agrees not to use any other trademark or service mark in combination
with the Marks other than as described in Section 1.1. Licensee has no right to
sublicense, transfer or assign the use of the Marks or use the Marks for any
other purpose other than the purpose described herein. Licensee may not use the
Mark in connection with, or for the benefit of, any third party's products or
services. Licensee further agrees not to use the Marks on or in connection with
any products or services that are or could be deemed by Netscape, in its
reasonable judgment, to be obscene, pornographic, disparaging of Netscape or its
products or services, or otherwise in poor taste, or that are themselves
unlawful or whose purpose is to encourage unlawful activities by others.
4.2 QUALITY STANDARDS. Licensee agrees to maintain a [*] level of
quality of the Directory Services performed in connection with the Marks [*] to
that found in Licensee's existing Web site services. Licensee further agrees to
maintain a level of quality in connection with its use of the Marks [*].
4.3 MONITORING BY NETSCAPE. Licensee acknowledges that Netscape has
no further obligations under this Agreement but that Netscape does have the
right to periodically monitor Licensee's use of the Marks in conjunction with
the Directory Services. Upon request by Netscape, Licensee shall provide
Netscape with representative samples of each such use prior to the time the
Marks are published on the Internet or in press materials or marketing or
advertising materials. If Netscape determines that Licensee is using the Marks
improperly, and/or in connection with Directory Services which do not meet the
standards set forth in Section 4.1 or Section 4.2, Netscape shall notify
Licensee, and Licensee shall remedy the improper use within 2 business days
following receipt of such notice from Netscape. Use of the Marks on goods or
services other than the Directory Services or the promotion of the Navigational
Services, in a manner inconsistent with the Trademark Guidelines,
__________________________________
* Confidential Treatment Requested.
2
<PAGE>
or in connection with an infringement of Netscape's or a third party's rights,
including but not limited to rights under trademark, patent, trade secret or
copyright, laws shall constitute material breach of this Agreement. If such
material breach has not been cured within 2 business days following receipt of
notice from Netscape, this Agreement shall be terminated.
4.4 LEGEND; DISCLAIMER. Licensee shall include with any online
publication or publication in print of the Marks a trademark legend indicating
that the Marks are those of Netscape, used under license, and a disclaimer that
Licensee and not Netscape has produced the Directory Services and is responsible
for the content thereof.
4.5 DIRECTORY SERVICES. If Netscape reasonably determines that the
Directory Services contain or present any material that constitutes an
infringement of Netscape's trademark, patents, copyrights or trade secrets,
Licensee's right to use the Marks pursuant to the grant described in Section 1.1
shall, upon written notice from Netscape of such determination, be suspended
until Licensee has revised, removed or removed links to such material to
Netscape's reasonable satisfaction. If such revision or removal of, or removal
of links to, such material to Netscape's reasonable satisfaction has not
occurred within 30 days of the notice from Netscape described in the preceding
sentence, Netscape may immediately terminate the license grant described in
Section 1.1. If Netscape reasonably determines that the Directory Services
contains or presents any material that could reasonably constitute an
infringement of a third party's copyright, trademark, patents or trade secrets,
Licensee's rights to use the Marks pursuant to the grant described in Section
1.1 shall, upon written notice from Netscape of such determination, be suspended
until Licensee has revised or removed that material to Netscape's reasonable
satisfaction. If Licensee has not revised to Netscape's reasonable satisfaction
that material or presentation within 7 business days of the notice from Netscape
described in the preceding sentence, Netscape may immediately terminate this
Agreement.
5. CONFIDENTIAL INFORMATION AND DISCLOSURE. Unless required by law, and
except to assert its rights hereunder or for disclosures to its own employees,
attorney's, financial advisors on a "need to know" basis, both parties agrees
not to disclose the terms of this Agreement or matters relating thereto without
the prior written consent of the other party which consent shall not be
unreasonably withheld.
6. INDEMNIFICATION
6.1 INDEMNIFICATION BY LICENSEE. Licensee agrees to indemnify
Netscape and to hold Netscape harmless from any and all liability, loss,
damages, claims or causes of action, including reasonable legal fees and
expenses that may be incurred by Netscape, arising out of Licensee's use of the
Marks and content on Licensee's web sites linked to or presented in conjunction
with the Marks, except for liability, loss, damages, claims or causes of action
arising out of third party claims that Licensee's use of the Marks infringe that
third party's valid and subsisting U.S. trademark registration in the Marks.
Netscape shall provide Licensee with prompt written notice of any claim for
which indemnification is sought and cooperate fully with and allow Licensee to
control the defense and settlement of such claim. Netscape may not settle any
such claim without Licensee's prior written consent, which consent shall not be
unreasonably withheld. Netscape shall have the right, at its own expense, to
participate in the defense of any such claim.
6.2. Netscape shall defend or settle, at its option, any action
brought against Licensee only to the extent that it is based on a claim that the
Marks Licensee is licensed to use hereunder directly infringes any United States
trademark, provided that the Markes are used in accordance with the terms of
this Agreement. Netscape will pay resulting costs, damages and legal fees
finally awarded against Licensee in such action which are attributable to such
claim provided that Licensee (a) promptly (within twenty (20) days) notifies
Netscape in writing of any such claim and Netscape has sole control of the
defense and all related settlement negotiations, and (b) cooperates with
Netscape, at Netscape's expense, in defending or settling such claim.
3
<PAGE>
7. TERMINATION
7.1 TERM AND TERMINATION. This Agreement and the term of the license
granted herein shall be perpetual unless terminated as provided in Section 4.3,
Section 4.5 or this Section 7.1. Netscape shall have the right to terminate
this Agreement upon the occurrence of one or more of the following: (a) any
material breach by Licensee of its obligations under this Agreement which
remains uncured for 30 days or more following written notice of such breach from
Netscape, (b) use of the Marks by Licensee in a manner which is disparaging of
Netscape or its products and services and which remains uncured for 2 business
days following notice from Netscape, (c) Licensee decides not to develop and
launch the Directory Services, or (d) the Directory Services are discontinued.
7.2 EFFECT OF TERMINATION. Upon termination of the Agreement,
Licensee agrees it shall immediately cease any and all use of the Marks.
8. GENERAL
8.1 GOVERNING LAW. This Agreement shall be subject to and governed
in all respects by the statutes and laws of the State of California without
regard to the conflicts of laws principles thereof. The Superior Court of Santa
Clara County and/or the United States District Court for the Northern District
of California shall have exclusive jurisdiction and venue over all controversies
in connection herewith, and each party hereby consents to such exclusive and
personal jurisdiction and venue.
8.2 ENTIRE AGREEMENT. This Agreement, including Exhibit A and
---------
Exhibit B attached hereto, constitutes the entire Agreement and understanding
- ---------
between the parties and integrates all prior discussions between them related to
its subject matter. No modification of any of the terms of this Agreement shall
be valid unless in writing and signed by an authorized representative of each
party.
8.3 ASSIGNMENT. Licensee may not assign any of its rights or
delegate any of its duties under this Agreement, or otherwise transfer this
Agreement (by merger, operation of law or otherwise) without the prior written
consent of Netscape. Any attempted assignment, delegation or transfer in
derogation hereof shall be null and void.
8.4 NOTICES. All notices required or permitted hereunder shall be
given in writing addressed to the respective parties as set forth below and
shall either be (a) personally delivered or (b) transmitted by nationally-
recognized private express courier, and shall be deemed to have been given on
the date of receipt if delivered personally, or 2 days after deposit with such
express courier. Either party may change its address for purposes hereof by
written notice to the other in accordance with the provisions of this
Subsection. The addresses for the parties are as follows:
LICENSEE: NETSCAPE:
InfoSpace, Inc. Netscape Communications Corporation
---------------
8424 154/th/ Avenue NE 501 East Middlefield Road, MV-002
----------------------
Redmond, WA 98052 Mountain View, CA 94043
----------------------
Fax: (415) 528-4123
______________________
Attn: Naveen Jain Attn: General Counsel
----------------
8.5 FORCE MAJEURE. Neither party will be responsible for any failure
to perform its obligations under this Agreement due to causes beyond its
reasonable control, including but not limited to acts of God, war, riot,
embargoes, acts of civil or military authorities, fire, floods or accidents.
8.6 WAIVER. Any waiver, either expressed or implied, by either
party of any default by the other in the observance and performance of any of
the conditions, covenants of duties set forth herein shall not constitute or
be construed as a waiver of any subsequent or other default.
8.7 HEADINGS. The headings to the Sections and Subsections of this
Agreement are included merely for convenience of reference and shall not affect
the meaning of the language included therein.
4
<PAGE>
8.8 INDEPENDENT CONTRACTORS. The parties acknowledge and agree that
they are dealing with each other hereunder as independent contractors. Nothing
contained in the Agreement shall be interpreted as constituting either party the
joint venture or partner of the other party or as conferring upon either party
the power of authority to bind the other party in any transaction with third
parties.
8.9 SURVIVAL. The provisions of Section 1.2 (Reservation of Rights),
3 (Ownership of Marks), 4.4 (Legend; Disclaimer), 5 (Confidential Information
and Disclosure), 6 (Indemnification by Licensee), 7.2 (Effect of Termination)
and 8 (General) will survive any termination of this Agreement.
8.10 EQUITABLE RELIEF. Licensee recognizes and acknowledges that a
breach by Licensee of this Agreement will cause Netscape irreparable damage
which cannot be readily remedied in monetary damages in an action at law, and
may, in addition thereto, constitute an infringement of the Marks. In the event
of any default or breach by Licensee that could result in irreparable harm to
Netscape or cause some loss or dilution of Netscape's goodwill, reputation, or
rights in the Marks, Netscape shall be entitled to immediate injunctive relief
to prevent such irreparable harm, loss, or dilution in addition to any other
remedies available.
8.11 SEVERABILITY. Except as otherwise set forth in this Agreement,
the provisions of this Agreement are severable, and if any one or more such
provisions shall be determined to be invalid, illegal or unenforceable, in whole
or in part, the validity, legality and enforceability of any of the remaining
provisions or portions thereof shall not in any way be affected thereby and
shall nevertheless be binding between the parties hereto. Any such invalid,
illegal or unenforceable provision or portion thereof shall be changed and
interpreted so as to best accomplish the objectives of such provision or portion
thereof within the limits of applicable law.
8.12 ATTORNEY'S FEES. In the event of any action, suit, or proceeding
brought by either party to enforce the terms of this Agreement, the prevailing
party shall be entitled to receive its costs, expert witness fees, and
reasonable attorneys fees and expenses, including costs and fees on appeal.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
INFOSPACE, INC. NETSCAPE COMMUNICATIONS
CORPORATION
By: /s/ Naveen Jain By: /s/ Noreen Bergin
Name: Naveen Jain Name: Noreen G. Bergin
----------------------------- -------------------------
Title: President & CEO Title: Senior Vice President
---------------------------- Finance & Corporate Controller
-------------------------------
Date: 7/1/98 Date: 7/1/98
----------------------------- --------------------------
Exhibit A: Marks; Titles; Target Language and Geographic Combinations
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Exhibit B: Trademark Guidelines
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REVIEWED BY
NETSCAPE LEGAL
Initial [illegible]
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5
<PAGE>
EXHIBIT A
MARKS; TITLES; TARGET LANGUAGE AND GEOGRAPHIC COMBINATIONS
Marks: Netscape
Title Target Language Geographic Territory
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NETSCAPE WHITE PAGES BY U.S. ENGLISH U.S.A.
INFOSPACE
1
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EXHIBIT B
TRADEMARK USE GUIDELINES
(The Trademark Usage Guidelines attached hereto are as of June 30, 1998 and may
be revised from time to time) The current Netscape's Trademark Guidelines are
published at the following URL:
http://home.netscape.com/misc/trademarks.html#trademarks
1
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EXHIBIT 10.20
[LOGO OF NETSCAPE APPEARS HERE]
NETSCAPE COMMUNICATIONS CORPORATION
U.S. ENGLISH LANGUAGE YELLOW PAGES DIRECTORY SERVICES AGREEMENT
NETSCAPE/INFOSPACE, INC.
SUMMARY COVER SHEET
<TABLE>
<CAPTION>
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EFFECTIVE DATE: Date of last signature of the Agreement.
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<S> <C>
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PARTIES:
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InfoSpace: Netscape:
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InfoSpace, Inc. Netscape Communications Corporation
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8424 154th Avenue NE 501 East Middlefield Road, MV-002
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Redmond, WA 98052 Mountain View, CA 94043
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Fax: (425) 882-0988 Fax: (650) 528-4123
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Attn: Naveen Jain Attn: General Counsel
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MINIMUM CLICKS: [*]
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PREPAYMENT: Yellow Pages Service Fee (See Table Below)
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LOCAL LANGUAGE: U.S. English
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BASIC SERVICE (PHASE 1): Commences July 1, 1998
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ADVANCED SERVICES (PHASE 2): Integrated September through November, 1998.
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SERVICE PERIOD: From July 1, 1998 though June 30, 1999
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TERM: From Effective Date through June 30, 1999
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</TABLE>
<TABLE>
<CAPTION>
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SERVICE SERVICE TRAFFIC COST PER CLICK
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<S> <C> <C>
Yellow Pages 0 up to 7.4 million Clicks [*]
Over 7.4 million up to 14.8 million Clicks [*]
Over 14.8 million up to 22.2 million Clicks [*]
Over 22.2 million up to 27.2 million Clicks [*]
Over 27.2 million Clicks [*]
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</TABLE>
__________________________________
* Confidential Treatment Requested
"[*]" = omitted, confidential material has been separately filed with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
1
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[LOGO OF NETSCAPE APPEARS HERE]
NETSCAPE COMMUNICATIONS CORPORATION
U.S. ENGLISH LANGUAGE YELLOW PAGES DIRECTORY SERVICES AGREEMENT
OBJECTIVE: To create a co-branded, competitive Yellow Pages Internet directory
service (the "SERVICE") that provides Internet browser users with up-to-date
general navigational directory listings.
TERMS AND CONDITIONS:
1. COMPANY. InfoSpace, Inc. ("COMPANY"), named on the signature page to this
agreement ("AGREEMENT"), will provide the Results Pages for any of the U.S.
English-language HTML pages accessible by the public via the Internet at the
Universal Resource Locator ("URL")
http://home.netscape.com/netcenter/yellowpages.html and/or such other URLs as
Netscape may designate from time to time in writing. Netscape will provide the
Service front pages which are accessed when the Yellow Pages hyper-link is
clicked. These Service front pages are where the search parameters are defined
and where a user starts a new search with no predefined variables and are
hereinafter referred to as the "JUMP PAGES". The Jump Pages and the Results
Pages are together referred to as the "Service". The Jump Pages are part of the
collection of U.S. English-language HTML documents accessible by the public via
the Internet at the URL http://home.netscape.com and/or at such other URL(s) as
Netscape may designate ("NETSCAPE'S WEB SITE"). The Jump Pages may also be
accessed by Internet users of the Netscape-distributed U.S. English-language
version browser by pressing or "clicking" on a button or link for the Service in
the toolbar, by way of a bookmark pre-loaded in certain versions of the
applicable browser as described herein, home page, Netscape's Net Search pages,
selected channel pages, the Service pages, or such other methods as Netscape may
specify from time to time. Notwithstanding the foregoing, Netscape reserves the
right to determine other means whereby users may access the Jump Pages, which
provides the Service on Netscape's Web Site, including, but not limited to, the
use of mirror sites and pointers based on a user's IP address, and which mirror
sites and pointers are separate and distinct from the Jump Pages described in
this Agreement.
2. SERVICE PERIOD. Netscape will provide access to the Service, as described
herein, for the service period identified on the Cover Page ("SERVICE PERIOD").
3. THE SERVICE.
3.1. General.
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(a). The Service. The Service, including Phases I and II, and
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the Jump Pages and Results Pages (together, the "SERVICE PAGES"), are more fully
described in Exhibit A.
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(b) The Jump Pages. Netscape will serve, maintain and promote
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the Jump Pages. The Jump Pages will have such functionality and appearance as
Netscape shall determine [*]. Netscape will produce the Jump Pages so that when
an end user performs a search for people or business information, and clicks on
the search button on the Jump Pages, then the end user's browser will access
"Results Pages" defined below.
__________________________________
* Confidential Treatment Requested.
2
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(c) The Results Pages. The Results Pages will be accessible from the
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Jump Page. Company shall serve, maintain and promote the front results page and
all results pages accessible thereby (together, the "RESULTS PAGE(S)").
Netscape must approve the look and feel of the templates of the Results Pages
before they are used in the Service. So that Netscape may evaluate and approve
Results Pages, Company will supply Netscape with HTML and/or GIF files, or files
of such other format as may be designated from time to time in writing by
Netscape, which conform to the specifications in Exhibit B. Company shall retain
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all right, title and interest in and to the Results Pages (including the
copyright ownership thereof), and Company hereby grants Netscape a royalty-free
worldwide license, without payment or other charge therefor, to use, display,
perform, reproduce and distribute the Results Pages, and such other licenses
with respect to the Results Pages necessary to fulfill the intention of this
Agreement. The specifications of the Results Pages and the placement on the Jump
Pages of the Results Page links are set forth on Exhibit B hereto. Netscape
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shall notify Company of any changes to the specifications set forth in Exhibit
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B. Company's compliance with the content as well as the language, technical,
- -
visual and functional specifications of the Results Pages as set forth in
Exhibit B (including, without limitation, the type of information provided on or
from the Results Pages) are a material obligation of Company under this
Agreement.
3.2 Location. The Results Pages will reside solely on Company's
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servers but will have a "Netscape.com" domain name and will be directly linked,
within one click away, to Netscape's Web Site. [*] Company shall not promote any
Service from another Web site without Netscape's prior written consent. Company
expressly agrees that Company shall be solely responsible for the purchase,
implementation, maintenance and support of all software and hardware required to
fulfill its obligations under this Agreement.
3.3 Name of the Service. The name of the Service ("SERVICE NAME")
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shall be mutually determined by the parties. Company shall not independently use
the Service Name without Netscape's prior written consent, unless such use
occurs in connection with Company's advertising sales and promotional efforts on
behalf of the Service. Each Service Name shall be displayed on every page of the
corresponding Service and no other locations without Netscape's prior written
consent except in connection with such advertising sales and promotional efforts
on behalf of such Service. Company may not use the corresponding Service Name
with Netscape's name expunged. Company may not use a Service Name independent of
the corresponding Service except as provided for above in this Section 3.3.
3.4. Design and Specifications of the Service. The design of the Jump
----------------------------------------
Pages and the Results Pages will be determined by Netscape. The Results Pages
shall be co-branded by Netscape and Company in accordance with Exhibit B.
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Netscape shall be responsible for creating the design and graphic user interface
specifications including navigation, architecture, look and feel of each Results
Page. In addition, Netscape will specify the functionality and fields of the
Service Pages, including the Results Pages, [*]. Netscape may from time to time
alter the design and specifications of the Service Pages [*]. Such
specifications shall include, but not be limited to, those set forth on Exhibit
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B. The specifications of each of the Results Pages, including, without
- -
limitation, the Results front Page, are set forth on Exhibit B hereto; provided
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however, that Netscape may, upon notice to Company, (i) redesign or reconfigure
the Jump Pages, Netscape's Web Site, and/or the manner in which an end user
interacts with any of the pages of Netscape's Web Site, or (ii) revise Exhibit
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B; and Company shall promptly, and in any event, within no more than [*]
- -
following receipt of such notice, supply Netscape with a revised Results Page
that conforms to the specifications of the revised Exhibit B.
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__________________________________
* Confidential Treatment Requested.
3
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4. ADDITIONAL BENEFITS.
4.1. Exclusivity. During the Term, and in order to insure that its
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resources, priorities and attention are adequately focused on developing and
maintaining the Service, Netscape will not enter into any similar agreement for
the development and/or operation of any similar cobranded Yellow pages directory
service.
4.2. Pre-loaded Bookmark. During the Service Period, Netscape shall
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include a graphic HTML link for the Service to the Jump Pages ("BOOKMARK") in
the bookmark section of future 4.x versions of the U.S. English-language version
of Netscape Communicator client software. The Bookmark may be reconfigured,
customized or deleted by an end user.
5. CLICK GUARANTEES
5.1. Click. A click ("CLICK") to a Results Page occurs when an end
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user requests information and clicks on a link or button from the Jump Pages
directed to the Results Pages.
5.2. Minimum Guaranteed Clicks. During the Service Period, Netscape
-------------------------
guarantees that Company shall receive no fewer than a combined total of [*]
Clicks for Yellow Pages.
5.3. Make-Good. If, at the end of the Service Period, Company's
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content has not, in the aggregate, received total Clicks equal to or greater
than the Minimum Guaranteed Clicks, and provided that Company has complied with
its obligations hereunder, Netscape will, at its discretion: (i) continue to
link the Results Page to the Jump Pages as specified in Section 3 beyond the end
of the Service Period until such time as the Minimum Guaranteed Clicks have been
achieved, or (ii) deliver to Company a program of equivalent value as a remedy
for the shortfall in Clicks. The remedy set forth in this Section 5.3 shall be
Company's sole and exclusive remedy, and Netscape's sole and exclusive
obligation, regarding Netscape's obligation set forth in Section 5.2 in the
event, by the end of the Service Period, the Minimum Guaranteed Clicks have not
been achieved.
6. COMPANY OBLIGATIONS. In addition to the other obligations set forth herein,
Company agrees to the following provisions.
6.1. Netscape Now. If or when Company displays a button or link to
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Microsoft's Internet Explorer, or any derivative or successor browser, then
Company shall, with equal prominence, include the then-current version of the
"Netscape Now" (or equivalent promotional) button in the appropriate place on
the collection of English- language HTML documents Company maintains as its
primary web site ("COMPANY'S WEB SITE"), or on any page linked thereto, and [*]
include the following statement (or a statement designated by Netscape and
generally used by Netscape as a successor to the following statement or in
connection with any successor promotional program to Netscape's Netscape Now
program) next to the Netscape Now button: "This site is best viewed with
Netscape Communicator. Download Netscape Now!" Company's use of the Netscape Now
button shall be in accordance with Netscape's reasonable policies regarding
advertising and trademark usage as established from time to time by Netscape,
including the guidelines of the Netscape Now Program published on Netscape's
U.S. English-language Web Site. Company acknowledges that the Netscape Now
button is a proprietary logo of Netscape and contains Netscape's trademarks. In
the event that Netscape determines that Company's use of the Netscape Now button
is inconsistent with Netscape's quality standards, then Netscape shall have the
right to suspend immediately such use of the Netscape Now button. Company
understands and agrees that the use of the Netscape Now button in connection
with this Agreement shall not create any right, title or interest in or to the
use of the Netscape Now button or associated trademarks and that all such use
and goodwill associated with the Netscape Now button and associated trademarks
will inure to the benefit of Netscape. Company agrees not to register or use any
trademark that is similar to the
_________________________________
*Confidential Treatment Requested.
4
<PAGE>
Netscape Now button. Company further agrees that it will not use the Netscape
Now button in a misleading manner or otherwise in a manner that may reflect
adversely on Netscape or its products.
6.2. Server Software. To showcase the close relationship between
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Company and Netscape and highlight Company's endorsement of Netscape's products,
Company shall consider using at least [*] version of Netscape core Web server
software product (currently comprised of Netscape Enterprise Server and Netscape
FastTrack Server) to maintain a portion of Company's Web Site or operation and,
if requested, provide Netscape with evidence of such use.
6.3. No Disabling. Company shall not provide or implement any means
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or functionality that would (i) disable any functionality of the browser or any
other Internet browser software, (ii) result in a redirection of any traffic
away from Netscape's Netcenter web site, or (iii) modify the functioning of
pages served from Netscape's Web Site. If Company fails to honor the commitment
set forth in this Section 6.3, Netscape will be relieved of its obligations
described in Section 5.3.
6.4. Preference for Netscape Products and Services. Company shall use
---------------------------------------------
commercially reasonable efforts to accord, in light of the intent of the parties
to highlight their strategic relationship as evidenced by the terms and
conditions of this Agreement, in Company's Web sites as well as Company's
overall marketing efforts, Netscape's products and services a position of
prominence, overall as well as on an element by element basis, at least as great
as the positioning accorded any third-party Internet client software, software
provider, online service or other service provider. Company may use, and is
granted during the term hereof a nontransferable, nonexclusive and restricted
license to use the Netscape name ("Mark") in advertising, marketing, technical,
packaging and other materials related to the Service. Use of the Mark shall
comply with Netscape's then-current trademark usage guidelines and corporate
signature kit. Company shall clearly indicate Netscape's ownership of the Mark
and that the Mark is registered. All use of the Mark shall inure to Netscape's
benefit. Company shall not register any Netscape trademarks, or trademarks,
trade names or domain names confusingly similar to Netscape trademarks, trade
names or domain names without Netscape's express prior written consent. Upon
Netscape's request from time to time, Company shall provide Netscape with copies
of the promotional materials bearing the Mark, and Customer shall suspend use of
the Mark if Netscape determines within its sole reasonable discretion that the
use of the Mark is improper or damaging to Netscape' reputation and goodwill.
Company further agrees not to use the Mark on or in connection with any products
or services that are or could be deemed by Netscape, in its reasonable judgment,
to be obscene, pornographic, disparaging of Netscape or of its products, or
otherwise in poor taste, or that are themselves unlawful or whose purpose is to
encourage unlawful activities by others; or in connection with products or
services or advertisements that are competitive with Netscape.
7. PAYMENT TO NETSCAPE.
7.1 Payment. Company shall pay Netscape an amount based on cost per
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Click times the number of Clicks. The cost per Click is a variable based on a
designed range of Clicks, as set forth on the table provided in the Cover Sheet.
7.2 Payment Terms. [*] All amounts payable by Company hereunder are
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payable within thirty (30) days after receipt by Company of the corresponding
invoice submitted by Netscape. Any amount payable hereunder that has not been
paid to Netscape within the applicable time set forth above shall bear interest
at the lesser of (i) one percent (1%) per month, or (ii) the maximum amount
allowed by law. All amounts payable to Netscape hereunder shall be paid in U.S.
Dollars.
7.3. Taxes.
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__________________________________
* Confidential Treatment Requested.
5
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(a). Exclusive of Tax. All payments hereunder are exclusive of any
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tax. Company shall pay or reimburse Netscape for all value-added, sales, use,
consumption, property, ad valorem and similar taxes, all customs duties, import
fees or similar charges, stamp duties, license fees and similar costs, and all
other mandatory payments to any government agencies of whatever kind imposed
with respect to products or services provided by Netscape under this Agreement
or with respect to this Agreement except taxes imposed on the net income of
Netscape [*]. If the transaction is exempt from tax, Company shall provide
Netscape with a valid exemption certificate or other evidence of such exemption
in a form acceptable to Netscape. Company shall, at its own expense, use
reasonable efforts to recover refundable or recoverable taxes. Each party shall
cooperate with the other in minimizing applicable tax.
(b). No Withholding. All payments by Company to Netscape pursuant to
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this Agreement shall be made without any withholding or deduction of any
withholding tax or other tax or mandatory payment to government agencies. If
Company is legally required to make any such withholding or deduction from any
payment due to Netscape under this Agreement, the sum payable by Company upon
which such withholding or deduction is based shall be increased to the extent
necessary to ensure that, after such withholding or deduction, Netscape receives
and retains, free from liability for such withholding or deduction, a net amount
equal to the amount Netscape would have received and retained in the absence of
such required withholding or deduction.
(c). Survival of Obligations. Company's obligations under this Section
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shall survive any termination of this Agreement.
7.4. Advertising Revenue. During the Service Period, Netscape will serve
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and will receive [*], and Company will serve and receive [*].
8. USAGE REPORTS.
8.1. Provide Usage Reports. Netscape and Company will each provide
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the other, via email to the email address set forth below, with usage reports
("USAGE REPORTS") containing the information and in the format set forth in
Exhibit C hereto. The Usage Reports shall cover each one-month time period of
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the Service Period, and the parties shall use reasonable commercial efforts to
deliver the Usage Reports within fifteen (15) days following the end of each
month. If, due to technical problems, a party is unable to provide any portion
of a Usage Report in any given month, the following data shall be used for each
day for which data is missing: ninety percent (90%) of the usage figures
reported for the same day of the week most recently reported (e.g. if data for
the day seven (7) days prior is available, ninety percent (90%) of the usage
figures for such day; if not available, the data for the day fourteen (14) days
prior, and so on).
8.2. No Liability. NETSCAPE AND COMPANY WILL USE REASONABLE
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COMMERCIAL EFFORTS TO ENSURE THE ACCURACY AND COMPLETENESS OF THE USAGE REPORTS,
BUT NEITHER PARTY WARRANTS THAT THE USAGE REPORTS WILL CONFORM TO ANY PUBLISHED
NUMBERS AT ANY GIVEN TIME. NEITHER PARTY SHALL BE HELD LIABLE FOR ANY CLAIMS AS
THEY RELATE TO SUCH USAGE REPORTS.
9. TERMINATION.
9.1. Methods of Termination.
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(a). Term and Termination. This Agreement shall commence as of
--------------------
the Effective Date and shall continue through June 30, 1999, unless sooner
terminated as provided in this section.
(b). Termination on Breach. Either party may terminate this
---------------------
Agreement if the other party materially breaches its obligations hereunder and
such breach remains uncured for thirty (30) days following notice to the
breaching party of the breach or as otherwise provided in Section 10.
__________________________________
* Confidential Treatment Requested
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9.2. Effect of Termination. Except as specifically provided otherwise
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in this Agreement, upon the expiration or termination of the Agreement, all
rights and obligations hereunder shall cease (other than Company's payment
obligations hereunder to the extent accrued on or prior to the termination date
or as otherwise provided in this Section 9.2) and each party will promptly and
at the direction of the other party, either return or destroy, and will not take
or use, any items of any nature that belong to the other party and all items
containing or related to Confidential Information (as defined in Exhibit D) of
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the other party. Notwithstanding the foregoing, if this Agreement expires or is
terminated for any reason, other than by Company as a result of Netscape's
material breach of the terms of this Agreement or by Netscape for its
convenience pursuant to Section 9.1(c), Company shall remain liable for the
value of the payments which are due, or, but for such expiration or termination,
would otherwise become due and payable under the terms of this Agreement. The
following provisions shall survive the expiration or termination of this
Agreement for any reason: Section 7.3 (Excess Quarterly Clicks), Section 7.5
(Taxes), Section 8.2 (No Liability), Section 9.2 (Effect of Termination),
Section 9.3 (No Compensation), Section 11 (Responsibility), Section 12
(Limitation of Liability), Section 14 (Alternative Dispute Resolution), and
Section 16 (General).
10. RIGHT TO REFUSE.
10.1 Netscape will have the right to review the contents and format
of the Results Pages. If Netscape, in its reasonable discretion, at any time
determines that a Results Page contains any material, or presents any material,
in a manner that Netscape deems inappropriate for any reason [*] Netscape will
inform Company of the reason Netscape has made such determination and may (i)
refuse to link the Results Page to the Jump Pages on Netscape's Web Sites,
and/or (ii) immediately terminate this Agreement if Company has not revised to
Netscape's reasonable satisfaction a Results Page [*]. If Netscape, in its
reasonable discretion, at any time determines that the Company's Web Site
contains any material, or presents any material, in a manner that Netscape deems
to be obscene, pornographic, disparaging of Netscape or it's products or
services, or is unlawful, or is to encourage unlawful activities by others,
Netscape may immediately terminate this Agreement if Company has not revised to
Netscape's reasonable satisfaction the Company's Web site [*].
10.2 Services and products of any [*] defined below, or services or
companies [*] with any of Netscape's Netcenter "Core Services" (as defined
below), may [*]. For purposes of this Agreement, "Core Services" means services
and applications offered by Netscape limited to services and applications
containing discussion group, chat, personalization, personal home page, member
directory, email, instant messaging, white and yellow pages and search features
of functions, except as set forth below. Any exceptions to this need prior
written consent from Netscape. No [*] defined below, or any company that [*]
Netscape's Netcenter "Core Services" will have [*] without Netscape's prior
written consent. Any branding by the Company must comply with the terms of this
Agreement, including specifications set forth in Exhibit B. [*]. Netscape may
[*] list of Core Services once per quarter upon prior written notice to Company
delivered at the quarterly review pursuant to this section, provided that if
Netscape [*] at a quarterly review (i.e., one that was not previously listed
[*]) who is, at the time [*], Company shall be allowed to complete the term [*].
10.3 Netscape agrees [*] of any of the entities listed on Exhibit E
("Company's Named Entities") attached hereto [*].
11. RESPONSIBILITY. (a) Company is solely responsible for any liability arising
out of or relating to: (i) the [*]; (ii) any material to which users can link
through any of the foregoing; or (iii) any use of the [*] pursuant to this
Agreement, (collectively, the "Services"). Company represents and warrants that
it
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* Confidential Treatment Requested.
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holds the necessary rights to permit the use of the Services by Netscape for
the purpose of this Agreement; and that the permitted use, reproduction,
distribution, or transmission of the Services, and any material to which users
can link through the Services will not violate any criminal laws or any rights
of any third parties, including, but not limited to, infringement or
misappropriation of any copyright, patent, trademark, trade secret, music,
image, or other proprietary or property right, false advertising, unfair
competition, defamation, invasion of privacy or rights of celebrity, violation
of any antidiscrimination law or regulation, or any other right of any person or
entity, or otherwise violate any applicable local, state, national or
international law. Company agrees to indemnify Netscape and to hold Netscape
harmless from any and all liability, loss, damages, claims, or causes of action,
including reasonable legal fees and expenses that may be incurred by Netscape,
arising out of or related to Company's breach of any of the foregoing
responsibilities.
(b) Netscape shall indemnify, hold harmless and defend Company from and against
any and all claims, liabilities, losses, damages, expenses and costs (including
attorneys' fees and costs) arising out of or relating to any content on the Jump
Pages created by and under the control of Netscape for use by Company in
accordance with this Agreement, except to the extent that Company is responsible
under Section 11 (a). Netscape will pay resulting costs, damages and legal fees
finally awarded in such action in a court or in a settlement which are
attributable to such claim provided that: (i) Company promptly notifies
Netscape in writing of any such claim; (ii) Netscape has sole control of the
defense and all related settlement negotiations, and (iii) Company cooperates
with Netscape, at Netscape's expense, in defending or settling such claim.
12. LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE
OTHER FOR ANY SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON
BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, AND WHETHER OR
NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THE
LIABILITY OF EITHER PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER WHETHER IN
CONTRACT OR TORT OR ANY OTHER LEGAL THEORY IS LIMITED TO AND SHALL NOT EXCEED
THE PAYMENT DUE FROM COMPANY HEREUNDER. THE LIMITATIONS IN THIS SECTION DO NOT
APPLY TO SECTION 11 (RESPONSIBILITY) OR SECTION 16.5 (CONFIDENTIALITY).
13. COURSE OF DEALING. In consideration of Company's participation in the
Service Program, until such time as Microsoft fully publicly documents and makes
available its operating systems' programming interfaces sufficiently to enable
Netscape to make use of all of the facilities and resources of those operating
systems on a basis equal to that of Microsoft, Company shall, using commercially
reasonable efforts: (1) Within Company's publicly accessible Web Sites, other
services (including co-branded and OEM services) and marketing materials, accord
Netscape's products and services a position of preference and prominence,
overall as well as on an element by element basis, at least as great as that
accorded any third-party Internet client or server software, software provider
or online service; and (2) Not make content available solely to users of client
software or services other than Netscape's, or disfavor or disadvantage users of
Netscape client software or services in any way relative to users of other
Internet client software or services [*].
14. ALTERNATIVE DISPUTE RESOLUTION. Any dispute hereunder will be negotiated
between the parties commencing upon written notice from one party to the other.
Settlement discussions and materials will be confidential and inadmissible in
any subsequent proceeding without both parties' consent. If the dispute is not
resolved by negotiation within 45 days following such notice, the parties will
refer the dispute to non-binding mediation conducted by JAMS/EndDispute in Santa
Clara County, California (the "Venue"). The parties will share the costs of
mediation. If the dispute is not resolved after 45 days of
__________________________________
* Confidential Treatment Requested.
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mediation, the parties will refer the dispute to binding arbitration by
JAMS/EndDispute in the Venue. The results of any arbitration will be final and
non-appeallable, except that either party may petition any court of competent
jurisdiction specified in Section 16 to review any decision relating to Netscape
intellectual property matters (including the scope of license rights), vacating
or modifying erroneous conclusions of law or findings of fact not supported by
substantial evidence. The arbitrator may fashion any legal or equitable remedy
except punitive or exemplary damages, which both parties waive. The arbitrator
will render a written decision, which may be entered in and enforced by any
court of competent jurisdiction, but which will have no preclusive effect in
other matters involving third parties. The losing party will pay the costs of
the arbitration and the reasonable legal fees and expenses of the prevailing
party, as determined by the arbitrator. The parties will jointly pay arbitration
costs pending a final allocation by the arbitrator. At any point in the dispute
resolution process, either party may seek injunctive relief preserving the
status quo pending the outcome of that process. Except as noted, the parties
waive any right to judicial process. California law, without regard to its
conflict-of-law provisions, will govern any dispute under this Section 14. The
U.S. Arbitration Act and JAMS/EndDispute rules will govern the arbitration
process. Absent fraudulent concealment, neither party may raise a claim more
than 3 years after it arises or any shorter period provided by applicable
statutes of limitations.
15. INSURANCE. Company, at its sole cost and expense, shall secure and
maintain adequate insurance coverage as is necessary, as a reasonable prudent
businessperson, for Company to bear all of its obligations under this Agreement.
Maintenance of the foregoing insurance shall in no way be interpreted as
relieving Company of any responsibility or obligation whatsoever and Company may
acquire, at its own expense, such additional insurance as Company deems
necessary. Company assumes full and complete liability for all injuries to, or
death of, any person, or for any damages to property arising from the acts or
omissions of Company. Company shall at Netscape's request provide Netscape with
a certificate of insurance demonstrating compliance with this Section 15.
Before any cancellation or material change in any coverage, Company shall
provide Netscape with 30 days' advance written notice. Company's insurance
shall be primary to any other insurance Netscape may have.
16. GENERAL.
16.1. Governing Law. This Agreement shall be subject to and governed
-------------
in all respects by the statutes and laws of the State of California without
regard to the conflicts of laws principles thereof. Except as provided in
Section 14, Netscape reserves the right to invoke the exclusive jurisdiction of
the applicable court in the County of Santa Clara in the State of California,
and each party submits to the jurisdiction of any such court.
16.2. Entire Agreement. This Agreement, including the exhibits and
----------------
attachments referenced on the signature page hereto, constitutes the entire
Agreement and understanding between the parties and integrates all prior
discussions between them related to its subject matter. No modification of any
of the terms of this Agreement shall be valid unless in writing and signed by an
authorized representative of each party.
16.3. Assignment. Company may not assign any of its rights or
----------
delegate any of its duties under this Agreement, or otherwise transfer this
Agreement (by merger, operation of law or otherwise) without the prior written
consent of Netscape. Any attempted assignment, delegation or transfer in
derogation hereof shall be null and void.
16.4. Notices. All notices required or permitted hereunder shall be
-------
given in writing addressed to the respective parties as first set forth above on
the cover sheet and shall either be (i) personally delivered or (ii) transmitted
by internationally-recognized private express courier, and shall be deemed to
have been given on the date of receipt if delivered personally, or the day on
which such notice is delivered to the recipient as evidenced by the delivery
records of such courier, but in no case later than five (5) days after deposit
with such courier. Either party may change its address for purposes hereof by
written notice to the other in accordance with the provisions of this
Subsection.
9
<PAGE>
16.5. Confidentiality. All disclosures of proprietary and/or
---------------
confidential information in connection with this Agreement as well as the
contents of this Agreement shall be governed by the terms of the Mutual
Confidential Disclosure Agreement either entered into previously by the parties
or entered into concurrently with this Agreement, a copy of which is attached
hereto as Exhibit D. The information contained in the Usage Reports provided by
---------
each party hereunder shall be deemed the Confidential Information of the
disclosing party..
16.6. Force Majeure. Neither party will be responsible for any
-------------
failure to perform its obligations under this Agreement due to causes beyond its
reasonable control, including but not limited to, acts of God, war, riot,
embargoes, acts of civil or military authorities, fire, floods or accidents.
16.7. Waiver. The waiver, express or implied, by either party of any
------
breach of this Agreement by the other party will not waive any subsequent breach
by such party of the same or a different kind.
16.8. Headings. The headings to the Sections and Subsections of this
--------
Agreement are included merely for convenience of reference and shall not affect
the meaning of the language included therein.
16.9. Independent Contractors. The parties acknowledge and agree
-----------------------
that they are dealing with each other hereunder as independent contractors.
Nothing contained in this Agreement shall be interpreted as constituting either
party the joint venturer, employee or partner of the other party or as
conferring upon either party the power of authority to bind the other party in
any transaction with third parties.
16.10. Severability. In the event any provision of this Agreement is
------------
held by a court or other tribunal of competent jurisdiction to be unenforceable,
such provision shall be reformed only to the extent necessary to make it
enforceable, and the other provisions of this Agreement will remain in full
force and effect.
16.11 Press Release. Company and Netscape agree to participate in a
-------------
joint press release regarding the Service which will take place on a mutually
agreed upon date. The parties shall agree to the form and content of the joint
press release. Either party may issue its own press release , subject to the
other party's prior approval of the content within such press release
16.12. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. For purposes hereof, a
facsimile copy of this Agreement, including the signature pages hereto, shall be
deemed to be an original.
10
<PAGE>
IN WITNESS WHEREOF, the parties have caused duly authorized representatives to
execute this Agreement as of the Effective Date.
INFOSPACE, INC. NETSCAPE COMMUNICATIONS
CORPORATION
By: /s/ Naveen Jain By: Noreen Bergin
--------------------- ------------------------------------
Print Name: Naveen Jain Print Name: Noreen G. Bergin
------------- ----------------------------
Title: President & CEO Title: Senior Vice President, Finance &
------------------ Corporate Controller
---------------------------------
Date: 7/2/98 Date: 7/1/98
------------------- ---------------------------------
Attached Exhibits:
Exhibit A: Description of the Services: Phases I and II
---------
Exhibit B: Specifications of the Service Pages
---------
Exhibit C: Usage Reports
---------
Exhibit D: Mutual Confidential Disclosure Agreement
---------
Exhibit E: Company's Named Entities
----------
REVIEWED BY
NETSCAPE LEGAL
Initial
----------------
11
<PAGE>
EXHIBIT A
DESCRIPTION OF THE SERVICES
[*]
__________________________________
* Confidential Treatment Requested.
12
<PAGE>
EXHIBIT B
SPECIFICATIONS OF THE SERVICE PAGES
[*]
__________________________________
* Confidential Treatment Requested.
13
<PAGE>
EXHIBIT C
USAGE REPORTS
Sample report provided by Company to Netscape each month:
[*]
__________________________________
* Confidential Treatment Requested.
14
<PAGE>
Sample report provided by Netscape to Company each month.
[*]
__________________________________
* Confidential Treatment Requested.
15
<PAGE>
EXHIBIT D
MUTUAL CONFIDENTIAL DISCLOSURE AGREEMENT
Attach previously executed document
16
<PAGE>
[LOGO OF NETSCAPE APPEARS HERE]
MUTUAL CONFIDENTIAL DISCLOSURE AGREEMENT
This Mutual Confidential Disclosure Agreement ("Agreement") is entered into
between Netscape Communications Corporation ("Netscape") and InfoSpace, Inc.
("Company"), and is effective as of the date of execution by Netscape
("Effective Date"). Each party (the "Receiving Party") understands that the
other party (the "Disclosing Party") may disclose certain Confidential
Information (as defined in Section 1 below) under this Agreement. Netscape and
Company agree as follows:
1. DEFINITION. "Confidential Information" shall mean (i) all information
disclosed in tangible form by the Disclosing Party and marked
"confidential" or "proprietary", (ii) all information disclosed orally or
otherwise in intangible form by the Disclosing Party and designated as
confidential or proprietary at the time of disclosure, and (iii) the terms
of the U.S. English Language Yellow Pages Directory Services Agreement
entered into between Netscape and Company dated as of July 1/st/, 1998.
Confidential Information may include, without limitation, computer
programs, code, algorithms, names and expertise of employees and
consultants, know-how, formulas, processes, ideas, inventions (whether
patentable or not), schematics and other technical, business, financial and
product development plans, forecasts, strategies and information.
2. PURPOSE. The Receiving Party shall use the Confidential Information only
for the following purposes:
a) to evaluate whether to enter into a contemplated business transaction;
and
b) if Netscape and Company enter into such contemplated business
transaction, to fulfill each party's commitments under the agreement for
such business transaction.
3. CONFIDENTIALITY OBLIGATION. The Receiving Party agrees to protect the
Confidential Information by using the same degree of care, but not less
than a reasonable degree of care, to prevent the unauthorized use,
dissemination or publication of the Confidential Information as the
Receiving Party uses to protect its own confidential or proprietary
information of a like nature. The Receiving Party shall limit the use of
and access to the Disclosing Party's Confidential Information to the
Receiving Party's employees, attorneys, financial advisors or independent
contractors who need to know such Confidential Information for the purpose
set forth in Section 2 above and who have entered into binding obligations
of confidentiality substantially similar to the obligations set forth
herein.
4. TERM. The Receiving Party's obligations to protect Confidential Information
hereunder shall expire 3 years from the date of each such disclosure of
Confidential Information, except when such Confidential Information
disclosed by the Disclosing Party is source code, in which case the
Receiving Party's obligations to protect such Confidential Information
shall be perpetual.
5. EXCLUSIONS. Confidential Information as defined in Section 1 above shall
not include Confidential Information that: (i) is or becomes a matter of
public knowledge through no fault of the Receiving Party; or (ii) was in
the Receiving Party's possession or known by it prior to receipt from the
Disclosing Party; or (iii) was rightfully disclosed to the Receiving Party
by another person without restriction; or (iv) is independently developed
by the Receiving Party without access to such Confidential Information.
The Receiving Party may disclose Confidential Information pursuant to any
statutory or regulatory authority or court order, provided the Disclosing
Party is given prompt written notice of such requirement and the scope of
such disclosure is limited to the extent possible.
6. RETURN OF CONFIDENTIAL INFORMATION. Upon written request by the
Disclosing Party at any time, the Receiving Party shall: (i) run over to
the Disclosing Party all Confidential Information of the Disclosing Party,
all documents or media containing the Confidential Information, and any and
all copies or extracts thereof, or (ii) destroy the Confidential
Information, and any and all copies or extracts thereof, and provide the
Disclosing Party with written certification of such destruction signed by
an authorized representative of the Receiving Party.
7. EQUITABLE RELIEF. The Receiving Party acknowledges and agrees that due to
the unique nature of the Disclosing Party's Confidential Information, there
may be no adequate remedy at law for any breach of its obligations. The
Receiving Party further acknowledges that any such breach may allow the
Receiving Party or third parties to unfairly compete with the Disclosing
Party resulting in irreparable harm to the Disclosing Party and, therefore,
that upon any such breach or any
1
<PAGE>
threat thereof, the Disclosing Party shall be entitled to seek appropriate
equitable relief in addition to whatever remedies it may have at law. The
Receiving Party will notify the Disclosing Party in writing immediately
upon the occurrence of any such unauthorized release or other breach.
8. INTELLECTUAL PROPERTY RIGHTS. Neither party acquires any intellectual
property rights under this Agreement or through any disclosure hereunder,
except the limited right to use such Confidential Information in accordance
with this Agreement.
9. WARRANTY. The Confidential Information disclosed under this Agreement is
delivered "AS IS," and all representations or warranties, whether express
or implied, including warranties or conditions for fitness for a particular
purpose, merchantability, title and noninfringement are hereby disclaimed.
10. NETSCAPE SUBSIDIARIES. Netscape's wholly owned subsidiaries, by signing
this Agreement on behalf of Netscape and returning a fully executed
original or copy to the Netscape Legal Department, shall be entitled to
disclose Netscape's Confidential Information and receive Company's
Confidential Information on behalf of Netscape under this Agreement,
provided such subsidiaries comply with the terms and conditions of this
Agreement and further provided such disclosures or receipt of Confidential
Information are governed by the terms and conditions of this Agreement.
11. EXPORT. Each party agrees that the export of encryption related information
and encryption-enabled software from the United States may be regulated by
US law, and agree to comply with such laws and regulations.
12. GENERAL. This Agreement supersedes all prior discussions and writings with
respect to the subject matter hereof, and constitutes the entire agreement
between the parties with respect to the subject matter hereof. No waiver or
modification of this Agreement will be binding upon either party unless
made in writing and signed by a duly authorized representative of each
party and no failure or delay in enforcing any right will be deemed a
waiver. The parties understand that nothing herein requires either party to
proceed with any proposed transaction or relationship in connection with
which Confidential Information may be disclosed. In the event that any of
the provisions of this Agreement shall be held by a court or other tribunal
of competent jurisdiction to be unenforceable, the remaining portions
hereof shall remain in full force and effect. This Agreement shall be
governed by the laws of the State of California without regard to conflicts
of laws provisions thereof and each party submits to the jurisdiction and
venue of any California State or federal court generally serving the Santa
Clara county area with respect to the subject matter of this Agreement. The
headings to the Sections of this Agreement are included merely for
reference and shall not affect the meaning of the language included
therein. This Agreement is written in the English language only, which
language shall be controlling in all respects. Les parties aux presentes
confirment leur volonte que cette convention de meme que tous les documents
y compris tout avis qui s'y rattache, soient rediges en langue anglaise
(translation: "The parties confirm that this Agreement and all related
documentation is and will be in the English language").
NETSCAPE COMMUNICATIONS CORPORATION INFOSPACE, INC.
By: /s/ Noreen Bergin By: /s/ Naveen Jain
--------------------------------- --------------------------
Signature Signature
Name: NOREEN G. BERGIN Name: NAVEEN JAIN
------------------------------- --------------------------
Print or Type Print or Type
Senior Vice President
Title: Finance & Corporate Controller Title: President & C.E.O
------------------------------ -------------------------
Date: 07/01/98 Date: 07/02/98
------------------------------- --------------------------
Address: Address:
501 East Middlefield Road ________________________________
Mountain View, CA 94043 ________________________________
________________________________
REVIEWED BY
NETSCAPE LEGAL
Inital [ILLEGIBLE]
-----------
2
<PAGE>
EXHIBIT E
LIST OF COMPANY'S NAMED ENTITIES
[*]
__________________________________
* Confidential Treatment Requested.
17
<PAGE>
EXHIBIT 10.21
[LOGO OF NETSCAPE APPEARS HERE]
TRADEMARK LICENSE AGREEMENT
This Trademark License Agreement ("Agreement") is effective as of the 1st day of
July, 1998 ("Effective Date") and is entered into by and between Netscape
Communications Corporation ("Netscape"), a Delaware corporation located at 501
East Middlefield Road, Mountain View, California 94043, and InfoSpace, Inc.
("Licensee"), a Delaware corporation located at 8424 154th Avenue NE, Redmond,
WA 98052.
RECITALS
A. Netscape owns and uses the name(s) and/or trademark(s) and/or
registered trademark(s) set forth in Exhibit A (collectively referred
---------
to as the "Marks"), in connection with its Internet-related software
products, services and technology;
B. Licensee offers directory services on the Internet and performs other
Internet-related services;
C. Licensee desires to use the Marks solely in the titles set forth in
Exhibit A in connection with its Internet directory services in the
---------
languages and geographic territories set forth opposite such titles in
Exhibit A; and
---------
D. Netscape is willing to permit such use of the Marks under the terms and
conditions set forth in this Agreement.
NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. GRANT OF LICENSE.
1.1 GRANT OF LICENSE. Netscape hereby grants to Licensee a
non-exclusive, nontransferable, license to use the Marks only in the titles set
forth in Exhibit A solely in conjunction with Internet directory services in the
---------
languages and geographic territories set forth in Exhibit A opposite such titles
---------
(the "Directory Services") which shall, in part, promote Netscape's products and
services, may be jointly developed by Netscape and Licensee, and which services
shall reside on Licensee's web site deploying Licensee's servers. Licensee may
only use the Marks as a collective whole and shall not separately use any
element or elements of the Marks.
1.2 RESERVATION OF RIGHTS. Netscape hereby reserves any and all rights
not expressly and explicitly granted in this Agreement, including Netscape's
right to authorize or license use of the Marks or any other trademarks or names
containing the Marks, to any third party for use in connection with any goods
and services. No right is provided to use the Netscape logo under this
Agreement. Without limiting the rights reserved in the first sentence, Netscape
hereby reserves any and all rights to use, authorize use or license use of the
Marks or any other trademarks or names containing the Marks in any geographic
territory and in any language.
2. LICENSE FEE. For the rights granted to Licensee herein, Licensee shall
pay Netscape, by cashier's check or wire transfer, a one-time non-refundable
license fee of U.S $1.5 Million Dollars at the time of the execution of this
Agreement. The license fee due hereunder is exclusive of any applicable taxes.
Licensee shall be responsible for all applicable national, state and local
taxes, value added or sales taxes, exchange, interest, banking, collection and
other charges and levies and assessments pertaining to payments other than U.S.
taxes
"[*]" = omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
1
<PAGE>
based on Netscape's net income [*] . If Licensee is required by law to make any
deduction or to withhold from any sum payable to Netscape by Licensee hereunder,
(i) Licensee shall effect such deduction or withholding, remit such amounts to
the appropriate taxing authorities and promptly furnish Netscape with tax
receipts evidencing the payments of such amounts, and (ii) the sum payable by
Licensee upon which the deduction or withholding is based shall be increased to
the extent necessary to ensure that, after such deduction or withholding,
Netscape receives and retains, free from liability for such deduction or
withholding, a net amount equal to the amount Netscape would have received and
retained in the absence of such required deduction or withholding.
3. OWNERSHIP OF MARKS.
3.1 Netscape hereby warrants that Netscape is the owner of the Marks
described herein and that Netscape has the full authority to grant Licensee the
rights described herein.
3.2 Licensee hereby acknowledges that Netscape is the owner of the
Marks, and any trademark applications and/or registrations thereto, agrees that
it will do nothing inconsistent with such ownership and agrees that all use of
the Marks by Licensee shall inure to the benefit of Netscape. Licensee agrees
that nothing in this Agreement shall give Licensee any right, title or interest
in the Marks other than the right to use the Marks in accordance with this
Agreement. Licensee agrees not to register or attempt to register the Marks or
the Title as a trademark, service mark, Internet domain name, trade name, or any
similar trademarks or name, with any domestic or foreign governmental or
quasi-governmental authority which would be likely to cause confusion with the
Marks. Licensee may not register or use the Marks or the Title or an
abbreviation of the Marks or the Title as part of an Internet domain name. The
provisions of this paragraph shall survive the expiration or termination of this
Agreement.
4. USE OF THE MARKS; PROTECTION OF THE MARKS.
4.1 PROPER USE. Licensee agrees that all use of the Marks shall only
occur in connection with the Directory Services and shall be in strict
compliance with the terms of this Agreement. Licensee may use the Marks as set
forth in Section 1.1 as well as in connection with the promotion of the
Directory Services . Licensee shall use the Marks in conformance with Netscape's
trademark guidelines ("Trademark Guidelines"), set forth in Exhibit B, which
---------
Trademark Guidelines may be revised by Netscape from time to time. Licensee
agrees not to use any other trademark or service mark in combination with the
Marks other than as described in Section 1.1. Licensee has no right to
sublicense, transfer or assign the use of the Marks or use the Marks for any
other purpose other than the purpose described herein. Licensee may not use the
Mark in connection with, or for the benefit of, any third party's products or
services. Licensee further agrees not to use the Marks on or in connection with
any products or services that are or could be deemed by Netscape, in its
reasonable judgment, to be obscene, pornographic, disparaging of Netscape or its
products or services, or otherwise in poor taste, or that are themselves
unlawful or whose purpose is to encourage unlawful activities by others.
4.2 QUALITY STANDARDS. Licensee agrees to maintain a [*] level of
quality of the Directory Services performed in connection with the Marks [*] to
that found in Licensee's existing Web site services. Licensee further agrees to
maintain a level of quality in connection with its use of the Marks [*].
4.3 MONITORING BY NETSCAPE. Licensee acknowledges that Netscape has no
further obligations under this Agreement but that Netscape does have the right
to periodically monitor Licensee's use of the Marks in conjunction with the
Directory Services. Upon request by Netscape, Licensee shall provide Netscape
with representative samples of each such use prior to the time the Marks are
published on the Internet or in press materials or marketing or advertising
materials. If Netscape determines that Licensee is using the Marks improperly,
and/or in connection with Directory Services which do not meet the standards set
forth in Section 4.1 or Section 4.2, Netscape shall notify Licensee, and
Licensee shall remedy the improper use within 2 business days following receipt
of such notice from Netscape. Use of the Marks on goods or services other than
the Directory Services or the promotion of the Navigational Services, in a
manner inconsistent with the Trademark Guidelines,
__________________________________
* Confidential Treatment Requested.
2
<PAGE>
or in connection with an infringement of Netscape's or a third party's rights,
including but not limited to rights under trademark, patent, trade secret or
copyright, laws shall constitute material breach of this Agreement. If such
material breach has not been cured within 2 business days following receipt of
notice from Netscape, this Agreement shall be terminated.
4.4 LEGEND; DISCLAIMER. Licensee shall include with any online
publication or publication in print of the Marks a trademark legend indicating
that the Marks are those of Netscape, used under license, and a disclaimer that
Licensee and not Netscape has produced the Directory Services and is responsible
for the content thereof.
4.5 DIRECTORY SERVICES. If Netscape reasonably determines that the
Directory Services contain or present any material that constitutes an
infringement of Netscape's trademark, patents, copyrights or trade secrets,
Licensee's right to use the Marks pursuant to the grant described in Section 1.1
shall, upon written notice from Netscape of such determination, be suspended
until Licensee has revised, removed or removed links to such material to
Netscape's reasonable satisfaction. If such revision or removal of, or removal
of links to, such material to Netscape's reasonable satisfaction has not
occurred within 30 days of the notice from Netscape described in the preceding
sentence, Netscape may immediately terminate the license grant described in
Section 1.1. If Netscape reasonably determines that the Directory Services
contains or presents any material that could reasonably constitute an
infringement of a third party's copyright, trademark, patents or trade secrets,
Licensee's rights to use the Marks pursuant to the grant described in Section
1.1 shall, upon written notice from Netscape of such determination, be suspended
until Licensee has revised or removed that material to Netscape's reasonable
satisfaction. If Licensee has not revised to Netscape's reasonable satisfaction
that material or presentation within 7 business days of the notice from Netscape
described in the preceding sentence, Netscape may immediately terminate this
Agreement.
5. CONFIDENTIAL INFORMATION AND DISCLOSURE. Unless required by law, and
except to assert its rights hereunder or for disclosures to its own employees,
attorney's, financial advisors on a "need to know" basis, both parties agrees
not to disclose the terms of this Agreement or matters relating thereto without
the prior written consent of the other party which consent shall not be
unreasonably withheld.
6. INDEMNIFICATION
6.1 INDEMNIFICATION BY LICENSEE. Licensee agrees to indemnify Netscape
and to hold Netscape harmless from any and all liability, loss, damages, claims
or causes of action, including reasonable legal fees and expenses that may be
incurred by Netscape, arising out of Licensee's use of the Marks and content on
Licensee's web sites linked to or presented in conjunction with the Marks,
except for liability, loss, damages, claims or causes of action arising out of
third party claims that Licensee's use of the Marks infringe that third party's
valid and subsisting U.S. trademark registration in the Marks. Netscape shall
provide Licensee with prompt written notice of any claim for which
indemnification is sought and cooperate fully with and allow Licensee to control
the defense and settlement of such claim. Netscape may not settle any such claim
without Licensee's prior written consent, which consent shall not be
unreasonably withheld. Netscape shall have the right, at its own expense, to
participate in the defense of any such claim.
6.2. Netscape shall defend or settle, at its option, any action brought
against Licensee only to the extent that it is based on a claim that the Marks
Licensee is licensed to use hereunder directly infringes any United States
trademark, provided that the Markes are used in accordance with the terms of
this Agreement. Netscape will pay resulting costs, damages and legal fees
finally awarded against Licensee in such action which are attributable to such
claim provided that Licensee (a) promptly (within twenty (20) days) notifies
Netscape in writing of any such claim and Netscape has sole control of the
defense and all related settlement negotiations, and (b) cooperates with
Netscape, at Netscape's expense, in defending or settling such claim.
3
<PAGE>
7. TERMINATION
7.1 TERM AND TERMINATION. This Agreement and the term of the license
granted herein shall be perpetual unless terminated as provided in Section 4.3,
Section 4.5 or this Section 7.1. Netscape shall have the right to terminate this
Agreement upon the occurrence of one or more of the following: (a) any material
breach by Licensee of its obligations under this Agreement which remains uncured
for 30 days or more following written notice of such breach from Netscape, (b)
use of the Marks by Licensee in a manner which is disparaging of Netscape or its
products and services and which remains uncured for 2 business days following
notice from Netscape, (c) Licensee decides not to develop and launch the
Directory Services, or (d) the Directory Services are discontinued.
7.2 EFFECT OF TERMINATION. Upon termination of the Agreement, Licensee
agrees it shall immediately cease any and all use of the Marks.
8. GENERAL
8.1 GOVERNING LAW. This Agreement shall be subject to and governed in
all respects by the statutes and laws of the State of California without regard
to the conflicts of laws principles thereof. The Superior Court of Santa Clara
County and/or the United States District Court for the Northern District of
California shall have exclusive jurisdiction and venue over all controversies in
connection herewith, and each party hereby consents to such exclusive and
personal jurisdiction and venue.
8.2 ENTIRE AGREEMENT. This Agreement, including Exhibit A and Exhibit B
--------- ---------
attached hereto, constitutes the entire Agreement and understanding between the
parties and integrates all prior discussions between them related to its subject
matter. No modification of any of the terms of this Agreement shall be valid
unless in writing and signed by an authorized representative of each party.
8.3 ASSIGNMENT. Licensee may not assign any of its rights or delegate
any of its duties under this Agreement, or otherwise transfer this Agreement (by
merger, operation of law or otherwise) without the prior written consent of
Netscape. Any attempted assignment, delegation or transfer in derogation hereof
shall be null and void.
8.4 NOTICES. All notices required or permitted hereunder shall be given
in writing addressed to the respective parties as set forth below and shall
either be (a) personally delivered or (b) transmitted by nationally-recognized
private express courier, and shall be deemed to have been given on the date of
receipt if delivered personally, or 2 days after deposit with such express
courier. Either party may change its address for purposes hereof by written
notice to the other in accordance with the provisions of this Subsection. The
addresses for the parties are as follows:
LICENSEE: NETSCAPE:
Infospace, Inc. Netscape Communications Corporation
-------------------------------
8424 154/th/ Avenue NE 501 East Middlefield Road, MV-002
-------------------------------
Redmond, WA 98052 Mountain View, CA 94043
-------------------------------
Fax: (415) 528-4123
-------------------------------
Attn: Naveen Jain Attn: General Counsel
-------------------------
8.5 FORCE MAJEURE. Neither party will be responsible for any failure to
perform its obligations under this Agreement due to causes beyond its reasonable
control, including but not limited to acts of God, war, riot, embargoes, acts of
civil or military authorities, fire, floods or accidents.
8.6 WAIVER. Any waiver, either expressed or implied, by either party of
any default by the other in the observance and performance of any of the
conditions, covenants of duties set forth herein shall not constitute or be
construed as a waiver of any subsequent or other default.
8.7 HEADINGS. The headings to the Sections and Subsections of this
Agreement are included merely for convenience of reference and shall not affect
the meaning of the language included therein.
4
<PAGE>
8.8 INDEPENDENT CONTRACTORS. The parties acknowledge and agree that
they are dealing with each other hereunder as independent contractors. Nothing
contained in the Agreement shall be interpreted as constituting either party the
joint venture or partner of the other party or as conferring upon either party
the power of authority to bind the other party in any transaction with third
parties.
8.9 SURVIVAL. The provisions of Section 1.2 (Reservation of Rights), 3
(Ownership of Marks), 4.4 (Legend; Disclaimer), 5 (Confidential Information and
Disclosure), 6 (Indemnification by Licensee), 7.2 (Effect of Termination) and 8
(General) will survive any termination of this Agreement.
8.10 EQUITABLE RELIEF. Licensee recognizes and acknowledges that a
breach by Licensee of this Agreement will cause Netscape irreparable damage
which cannot be readily remedied in monetary damages in an action at law, and
may, in addition thereto, constitute an infringement of the Marks. In the event
of any default or breach by Licensee that could result in irreparable harm to
Netscape or cause some loss or dilution of Netscape's goodwill, reputation, or
rights in the Marks, Netscape shall be entitled to immediate injunctive relief
to prevent such irreparable harm, loss, or dilution in addition to any other
remedies available.
8.11 SEVERABILITY. Except as otherwise set forth in this Agreement, the
provisions of this Agreement are severable, and if any one or more such
provisions shall be determined to be invalid, illegal or unenforceable, in whole
or in part, the validity, legality and enforceability of any of the remaining
provisions or portions thereof shall not in any way be affected thereby and
shall nevertheless be binding between the parties hereto. Any such invalid,
illegal or unenforceable provision or portion thereof shall be changed and
interpreted so as to best accomplish the objectives of such provision or portion
thereof within the limits of applicable law.
8.12 ATTORNEY'S FEES. In the event of any action, suit, or proceeding
brought by either party to enforce the terms of this Agreement, the prevailing
party shall be entitled to receive its costs, expert witness fees, and
reasonable attorneys fees and expenses, including costs and fees on appeal.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
INFOSPACE, INC. NETSCAPE COMMUNICATIONS CORPORATION
By: /s/ Naveen Jain By: /s/ Noreen Bergin
----------------- -----------------------------------
Name: Naveen Jain Name: Noreen G. Bergin
----------------- ---------------------------------
Title: President & CEO Title: Senior Vice President, Finance &
--------------- Corporate Controller
--------------------------------
Date: 07/02/98 Date: 07/01/98
---------------- ---------------------------------
Exhibit A: Marks; Titles; Target Language and Geographic Combinations
- ---------
Exhibit B: Trademark Guidelines
- ---------
REVIEWED BY
NETSCAPE LEGAL
Initial [illegible]
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5
<PAGE>
EXHIBIT A
MARKS; TITLES; TARGET LANGUAGE AND GEOGRAPHIC COMBINATIONS
Marks: Netscape
Title Target Language Geographic Territory
- ----- --------------- --------------------
NETSCAPE YELLOW PAGES BY U.S. ENGLISH U.S.A.
INFOSPACE
1
<PAGE>
EXHIBIT B
TRADEMARK USE GUIDELINES
(The Trademark Usage Guidelines attached hereto are as of June 30, 1998 and may
be revised from time to time) The current Netscape's Trademark Guidelines are
published at the following URL:
http://home.netscape.com/misc/trademarks.html#trademarks
1
<PAGE>
EXHIBIT 10.24
[LOGO OF NETSCAPE APPEARS HERE]
AMENDMENT NO. 2 TO
NETCENTER SERVICES AGREEMENT-WHITE PAGES
----------------------------------------
NO: 004551-2
This Amendment No. 2 (the "Amendment") is entered into by and between
Netscape Communications Corporation, a Delaware corporation, with principal
offices at 501 E. Middlefield Road, Mountain View, California 94043
("Netscape"), and InfoSpace.com, Inc., (formerly known as InfoSpace, Inc.) a
Delaware corporation, with principal offices at 15375 North East 90/th/ Street,
Redmond, WA 98052 ("Company") and effective as of the date of execution by
Netscape ("Amendment Effective Date").
WHEREAS, the parties have entered into a White Pages Directory
Services Agreement effective July 1, 1998, as amended by Amendment No. 1
effective August 7, 1998 (the "Agreement");
WHEREAS, Company has notified Netscape that it has changed its name to
InfoSpace.com, Inc., effective August 25, 1998; and
WHEREAS, the parties wish to modify and supplement the provisions of
such Agreement to reflect Company's change in name and address and to reduce the
number of Minimum Clicks;
NOW, THEREFORE, the parties, in consideration of the terms and
conditions herein, agree as follows:
1. Company's name in the Agreement shall be changed from InfoSpace,
Inc. to InfoSpace.com, Inc, a Delaware corporation, with principal
offices at 15375 North East 90/th/ Street, Redmond, WA 98052
2. The number of "Minimum Clicks: [*] set forth in the tenth line
on the Summary Cover Sheet (first page) of the Agreement shall be
deleted and replaced as follows:
_______________________
* Confidential Treatment Requested.
"[*]" = omitted, confidential material, which material has been separately
filed with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
<PAGE>
"MINIMUM CLICKS: [*]"
3. Section 5.2 of the Agreement shall be deleted in its entirety and
replaced as follows:
"5.2 Minimum Guaranteed Clicks. During the Service Period, Netscape
-------------------------
guarantees that Company shall receive no fewer than a combined total
of [*] Clicks for White Pages"
4. Capitalized terms defined in the Agreement shall have the same meaning
in this Amendment as in the Agreement.
5. Except as explicitly modified, all terms, conditions and provisions of
the Agreement shall continue in full force and effect.
6. In the event of any inconsistency or conflict between the Agreement
and this Amendment, the terms, conditions and provisions of this
Amendment shall govern and control.
7. This Amendment and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject
matter are superseded by the Agreement and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives, effective as of the Amendment
Effective Date.
NETSCAPE COMMUNICATIONS CORPORATION INFOSPACE.COM, INC.
By: /s/ Noreen Bergin By: /s/ Naveen Jain
-------------------------------- ----------------------------
Signature Signature
Name: Noreen G. Bergin Name: Naveen Jain
------------------------------ --------------------------
Print or Type Print or Type
Title: Senior Vice President, Title: President & CEO
Finance & Corporate Controller --------------------------
------------------------------
Date: 10/02/98 Date: 10/08/98
------------------------------ --------------------------
____________________________
* Confidential Treatment Requested.
REVIEWED BY
NETSCAPE LEGAL
Initial [illegible]
-----------
-2-
<PAGE>
[INFOSPACE LOGO APPEARS HERE]
EXHIBIT 10.25
November 22, 1998
Dear Bernee:
InfoSpace.com, Inc. (the "Company") is pleased to extend an offer to you for
the position of President and Chief Operating Officer in our Redmond office. We
believe that your services can provide an important asset to the Company, and
that the Company can offer you an opportunity for personal and professional
growth.
Your start date will be on or about November 23, 1998, and this position
reports directly to me. The position has been classified as exempt position.
If you have any questions about the position responsibilities that I have not
answered in our discussions, I'd be glad to talk with you about them. Please be
aware that the Company may change the responsibilities of the position at its
discretion to meet the Company's evolving needs.
Your initial compensation will be an annual salary of $250,000, less social
security contributions, income tax withholding and any other applicable
deductions.
In addition to the above compensation, I will recommend to the Company's
Board of Directors that you should receive options for 500,000 shares of Common
Stock. If the Board approves this recommendation, then the options would be
subject to the terms of the Company's standard form Employee Stock Option
Agreement. The exercise price will be determined at the time of the Board's
approval. Under that agreement, ten percent (10%) of the total options would
vest upon your start date, ten percent (10%) would vest upon the six month
anniversary of your start date, five percent (5%) would vest upon the first
anniversary of your start date, and the remaining seventy five percent (75%)
would vest in equal monthly increments over the next three years, as long as you
are still employed by the Company. However, if you leave voluntarily or are
terminated for Cause prior to the six month anniversary of your start date, you
will forfeit the options that vested upon your start date, and if you exercised
those options prior to the termination date of your employment, then the Company
will have the right to repurchase the shares acquired by you upon such exercise
at the exercise price stated in your option agreement.
For purposes of this Letter Agreement, "Cause" for your termination will
exist at any time after the happening of one or more of the following events:
(a) a repeated, willful failure or a repeated refusal to comply in any material
respect with the reasonable policies, standards or regulations of the Company;
(b) a repeated willful failure or a repeated refusal in any material respect,
faithfully or diligently, to perform your duties determined by the Company in
accordance with this Letter Agreement or the customary duties of your employment
(except due to ill health or disability); (c) unethical or fraudulent conduct or
conduct that materially discredits the Company or is materially detrimental of
the reputation, character or standing of the Company; (d) dishonest
<PAGE>
conduct or a deliberate attempt to do an injury to the Company; (e) your
material breach of a term of this Letter Agreement or the Nondisclosure,
Invention Release and Noncompetition Agreement (Employee), including, without
limitation, your theft of any of the Company's proprietary information; (f) a
criminal act; or (g) your death.
In addition to the foregoing options, I will recommend to the Company's
Board of Directors that you receive options to purchase an additional 250,000
shares of Common Stock. If the Board approves this recommendation, then the
options would be subject to the terms of the Company's standard form Employee
Stock Option Agreement. The exercise price will be determined at the time of
the Board's approval. Under that agreement, these options would vest upon the
6th anniversary of your start date, as long as you are still employed by the
Company on that date. However, in the event that both the gross revenue and net
income performance criteria (Target Revenue and Income) specified in Exhibit A
attached hereto are met in each of the next four fiscal years, then 62,500 of
these 250,000 options would vest upon the last day of the fiscal year
immediately following the one year anniversary of your start date, 62,500
options would vest upon the last day of the fiscal year immediately following
the second anniversary of your start date, 62,500 options would vest upon the
last day of the fiscal year immediately following the third anniversary of your
start date, 62,500 options would vest upon the last day of the fiscal year
immediately following the fourth anniversary of your start date, provided in
each case that you are still employed by the Company at that time. If both
Target Revenue and Income are not met in any of those years, then the options
that would have had accelerated vesting at such time will not vest until the
6/th/ anniversary of your start date, provided that you are still employed by
the Company at that time.
Furthermore, I will ask the Company's Board of Directors to consider
appointing you as a member of the Board.
In consideration of your immediate need to move to the Redmond, Washington
area, the Company will pay you a housing allowance of $3,000 per month for the
six months beginning on your start date, and will pay for relocation expenses
not to exceed $75,000.
The foregoing is a brief description of some of your principal benefits as a
Company employee. A full description of the benefits not covered in this letter
is contained in the
-2-
<PAGE>
enclosed benefits summary, which also provides important information about the
Company's general policies and procedures.
The Company's corporate policy requires all employees to sign, prior to and
as a condition of employment, the attached Nondisclosure, Invention Release and
Noncompetition Agreement (Employee). Federal law requires that each individual
provide proof of employment eligibility by completing a Form I-9 (enclosed) and
with any necessary supporting documentation.
We are very pleased to add you to our team of professionals and are looking
forward to a mutually rewarding association. Although we have every hope that
our relationship will be a long lasting one, situations may arise that affect
this expectation. For this reason, you or the Company may terminate your
employment at any time, with or without cause. However, in the event that the
Company terminates your employment for any reason other than Cause, you will be
entitled to a payment equal to one year of your base salary and benefits (not to
include any additional stock vesting for such period) at the time of such
termination. In the event that the Company terminates your employment for Cause
you will be entitled to receive only accrued and unpaid salary and incurred but
unreimbursed expenses and your options will be governed by the terms of your
Employee Stock Option Agreements.
Upon your acceptance of this letter, the terms stated herein represent the
entire agreement concerning your employment with the Company, and supersede and
replace all prior discussions and correspondence between us on this subject.
Should you have any questions about the information in this letter or other
documents to which it refers, please let me know. Please indicate your
acceptance of this offer by signing below and returning this letter to our
office at your earliest convenience, together with the signed Nondisclosure
Agreement.
I would like to extend a warm welcome on behalf of everyone at the Company.
We are looking forward to your beginning work soon.
Sincerely,
/s/ Naveen Jain
Naveen Jain
Enclosures
ACCEPTED:
/s/ Bernee Dl Strom 22 November 1998
____________________________ _______________________
Signature Date
-3-
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
InfoSpace.com, Inc.
Redmond, Washington
We consent to the use in this Amendment No. 5 to the Registration Statement
(No. 333-62323) of InfoSpace.com, Inc. on Form S-1 of our report dated
November 17, 1998 (and December 2, 1998 as to Note 10) on the consolidated
financial statements of InfoSpace.com, Inc., and subsidiary and of our report
dated July 27, 1998 on the financial statements of Outpost Network, Inc.,
appearing in the Prospectus, which is a part of the Registration Statement,
and to the references to us under the headings "Selected Consolidated
Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
December 3, 1998
<TABLE> <S> <C>
<PAGE>
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<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 SEP-30-1997 SEP-30-1998
<CASH> 324,415 0 10,288,969
<SECURITIES> 0 0 0
<RECEIVABLES> 514,187 0 2,042,683
<ALLOWANCES> (47,000) 0 (478,000)
<INVENTORY> 0 0 4,509
<CURRENT-ASSETS> 913,175 0 15,366,433
<PP&E> 335,380 0 1,157,079
<DEPRECIATION> 118,941 0 259,105
<TOTAL-ASSETS> 1,398,034 0 23,397,115
<CURRENT-LIABILITIES> 370,125 0 2,736,310
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 1,999,358 0 25,441,609
<OTHER-SE> (971,449) 0 (4,780,804)
<TOTAL-LIABILITY-AND-EQUITY> 1,398,034 0 23,397,115
<SALES> 1,685,096 931,727 5,373,860
<TOTAL-REVENUES> 1,685,096 931,727 4,265,422
<CGS> 410,895 247,956 560,358
<TOTAL-COSTS> 1,724,187 1,067,615 7,929,817
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 47,000 18,000 431,000
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> (428,690) (365,611) (3,587,762)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (428,690) (365,611) (3,587,762)
<EPS-PRIMARY> (.04) (.03) (.28)
<EPS-DILUTED> (.04) (.03) (.28)
</TABLE>
