<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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 -- 90TH AVENUE N.E.
REDMOND, WASHINGTON 98052
(425) 882-1602
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
NAVEEN JAIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INFOSPACE.COM, INC.
15375 -- 90TH AVENUE N.E.
REDMOND, WASHINGTON 98052
(425) 882-1602
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
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
</TABLE>
---------------
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. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED (1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.0001 par value per share...... $57,500,000 $16,963
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
---------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 27, 1998
PROSPECTUS
SHARES
[LOGO OF INFOSPACE.COM, INC.]
COMMON STOCK
All of the 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 $ and $ per share. See "Underwriting" for
a discussion of the factors to be considered in determining the initial public
offering price. The Company has applied to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol INSP.
--------
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>
================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share.............................. $ $ $
- ------------------------------------------------------------------------------------------------
Total (3).............................. $ $ $
================================================================================================
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $1,100,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 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]
Content Services for the Internet
InfoSpace.com has developed an extensive network of over 100 affiliates.
[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
emerging Internet access devices. The Company has agreements with more than
100 affiliates covering more than 800 Web sites.
GATEFOLD
PROVIDING CONTENT SERVICES FOR THE INTERNET
AGGREGATION
InfoSpace.com has acquired the rights to a wide range of content from more
than 75 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 Guide" 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 100 affiliates covering more than
800 Web site. InfoSpace.com content 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.
[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 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. 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
75 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............. shares
Common Stock to be outstanding after this
offering....................................... 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
(INCEPTION) SIX MONTHS
TO YEAR ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------
1996 1997 1997 1998
------------- ------------ ------ -------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues......................... $ 199 $1,685 $ 466 $ 2,855
Total operating expenses (2)..... 504 2,056 654 6,894
Loss from operations (2)......... (402) (718) (319) (4,582)
Net loss......................... $ (381) $ (697) $ (306) $(4,539)
Basic and diluted net loss per
share (3)....................... $(0.04) $(0.06) $(0.03) $ (0.39)
Shares used in computing basic
and diluted net loss per share
calculations (3)................ 9,280 10,998 10,986 11,572
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1998
-----------------------
ACTUAL AS ADJUSTED (4)
------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 5,775 $
Working capital....................................... 5,803
Total assets.......................................... 10,505
Total stockholders' equity............................ 9,540
</TABLE>
- --------------------
(1) Based on shares outstanding at August 15, 1998. Excludes (i) 1,745,124
shares of Common Stock issuable upon exercise of outstanding options at a
weighted average exercise price of $1.90 per share, (ii) 2,541,803 shares
of Common Stock issuable upon exercise of outstanding warrants at a
weighted average exercise price of $4.77 per share, (iii) 1,045,500 shares
of Common Stock reserved for future issuance under the Company's Restated
1996 Flexible Stock Incentive Plan (the "1996 Plan"), (iv) an additional
500,000 shares of Common Stock reserved for future issuance under the 1996
Plan pursuant to an amendment approved in August 1998 and (v) 450,000
shares of Common Stock reserved for issuance under the Company's 1998
Employee Stock Purchase Plan (the "ESPP"). Also excludes 989,916 shares of
Common Stock issuable upon exercise of warrants issued subsequent to
August 15, 1998 at an exercise price of $12.00 per share. 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 six months ended June 30, 1998, includes a write-off of in-process
research and development of $4.7 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 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $ 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, $697,000 and $4.5 million for the period
from March 1, 1996 (inception) to December 31, 1996, the year ended December
31, 1997 and the six months ended June 30, 1998, respectively. At June 30,
1998, the Company had an accumulated deficit of approximately $5.6 million.
Although the Company has experienced sequential quarterly growth in revenues
over the past four quarters and has achieved profitability in certain
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 Operating Results; Expected Fluctuations in
Quarterly Operating Results; 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 operating results 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 operating results
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 options 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. 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 operating results 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 operating results 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. 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. 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 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
7
<PAGE>
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") 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. 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."
Dependence on Sales by Third Parties. 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
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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 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
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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 operating
results. 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 12.3% of the Company's revenues for the
six months ended June 30, 1998, and the Company's top ten advertisers accounted
for an aggregate of 48.1% 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 75 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 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
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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 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 36 at July 31, 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
Chief Financial Officer, Vice President, Legal and Business Affairs, and Vice
President, Yellow Pages Group, 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 36 at July 31, 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
and financial systems, procedures and controls. To manage the expected growth
of its operations and personnel, the Company will be required to significantly
improve or replace existing management, operational and financial systems,
procedures and controls, and to expand, train and manage its growing employee
base. The Company also will be required to expand its finance, administrative
and 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 recently entered into a joint venture agreement with Thomson
Directories Limited ("Thomson") to expand the Company's content services to
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
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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.
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
upon 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
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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 services 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 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."
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 and a motion to transfer the litigation to the
Western District of Washington is pending. The
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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 June 30, 1998, the Company has
accrued a liability of $240,000 for estimated settlement and defense 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 at June 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. See Note 5 of the Company's Notes to Consolidated
Financial Statements.
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 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
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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
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
15
<PAGE>
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 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
16
<PAGE>
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 upon 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, acceptable content, taxation, copyrights, distribution and
characteristics and quality of products and services. Such regulation could
limit growth in 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, 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 Potential 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
17
<PAGE>
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 certain electronic commerce technology (the
"Outpost Technology") and approximately ten employees. 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 operations. The Company could 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 President, Chief Executive Officer and
Chairman of the Board, will beneficially own approximately % of the
outstanding Common Stock ( % if the Underwriters' over-allotment option is
exercised in full), and Mr. Jain, together with members of his family and
trusts controlled by members of his family, will beneficially own approximately
% of the Common Stock ( % 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
18
<PAGE>
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. Non-information 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 non-information technology systems. The Company utilizes
third-party equipment and software that may not be Year 2000 compliant. Failure
of such third-party equipment or 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 equipment or software or its advertisers
and 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 through negotiations between the Company and 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 operating results, 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 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 15,115,887
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 prior to 180 days after the date of this Prospectus, except
in certain limited exceptions, without the prior written consent of Hambrecht &
Quist LLC, (ii) 11,282,004 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 (iii) an additional 3,833,883 shares will become eligible for
sale thereafter at various times upon the expiration of their respective one-
year holding periods. As of August 15, 1998, there were outstanding options and
warrants to purchase 4,286,927 shares of Common Stock, of which holders of
options and warrants exercisable for 3,558,835 shares have also agreed,
pursuant to lock-up agreements with the Underwriters, not to sell shares of
Common Stock issuable upon exercise of such options and warrants for a period
of 180 days after the date of this Prospectus, without the prior written
consent of Hambrecht & Quist LLC. Hambrecht & Quist LLC may, in its sole
19
<PAGE>
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. 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 3,740,625 shares of Common Stock reserved for issuance under the
Company's 1996 Plan and the ESPP. See "Description of Capital Stock" 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 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 $ per share (based on an
assumed initial public offering price of $ 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."
20
<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 -- 90th Avenue N.E., 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 shares of Common
Stock offered by the Company hereby, at an assumed initial public offering
price of $ per share, after deducting the estimated underwriting discount
and offering expenses, are estimated to be approximately $ million
(approximately $ 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.
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.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998 (i) on an actual basis, (ii) on a pro forma basis, giving effect to
the issuance by the Company of 1,263,146 shares of Common Stock between July 1
and August 15, 1998, and (iii) on a pro forma basis as adjusted to give effect
to the sale and issuance by the Company of the shares of Common Stock
offered hereby at an assumed initial public offering price of $ 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>
JUNE 30, 1998
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Stockholders' equity:
Preferred Stock, $0.0001 par value
per share; 15,000,000 shares
authorized; no shares issued and
outstanding, actual, pro forma and
pro forma as adjusted............. $ -- $ -- $ --
Common Stock, $0.0001 par value per
share; 40,000,000 shares
authorized; 13,852,741 shares
issued and outstanding, actual;
15,115,887 shares issued and
outstanding, pro forma;
shares issued and outstanding, pro
forma as adjusted (1)............. 1 2
Additional paid-in capital......... 15,828 25,704
Accumulated deficit................ (5,617) (5,617)
Unearned compensation.............. (672) (672)
------------ ------------ ---------
Total stockholders' equity....... 9,540 19,417
------------ ------------ ---------
Total capitalization........... $ 9,540 $ 19,417 $
============ ============ =========
</TABLE>
- ---------------------
(1) Excludes (i) 1,687,124 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $1.64 per
share, (ii) 2,028,523 shares of Common Stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $5.87 per
share, (iii) 1,103,500 shares of Common Stock reserved for future issuance
under the Company's 1996 Plan as of June 30, 1998, (iv) an additional
500,000 shares of Common Stock reserved for future issuance under the 1996
Plan pursuant to an amendment approved in August 1998 and (v) 450,000
shares of Common Stock reserved for future issuance under the ESPP
approved in August 1998. Also excludes 88,000 shares of Common Stock
issuable upon exercise of options at a weighted average exercise price of
$7.68 per share and 513,280 shares of Common Stock issuable upon exercise
of warrants issued by the Company at a weighted average exercise price of
$0.42 per share between July 1 and August 15, 1998 and 989,916 shares of
Common Stock issuable upon exercise of warrants issued subsequent to
August 15, 1998 at an exercise price of $12.00 per share. See
"Management--Benefit Plans," "Description of Capital Stock" and Notes 3
and 9 of the Company's Notes to Consolidated Financial Statements.
22
<PAGE>
DILUTION
As of June 30, 1998, the Company had a pro forma net tangible book value of
approximately $15.9 million, or $1.05 per share of Common Stock. Pro forma 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, as adjusted to give effect to
the issuance of 1,263,146 shares of Common Stock by the Company between July 1
and August 15, 1998. Without taking into account any other changes in the pro
forma net tangible book value after June 30, 1998, other than to give effect
to the receipt by the Company of the estimated net proceeds from the sale of
the shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $ per share, the adjusted pro forma net
tangible book value of the Company as of June 30, 1998 would have been
approximately $ million or $ per share. This represents an immediate
increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Pro forma net tangible book value per share before this
offering..................................................... $ 1.05
Increase per share attributable to new investors..............
------
Adjusted pro forma net tangible book value per share after this
offering.......................................................
-----
Dilution per share to new investors............................. $
=====
</TABLE>
The following table sets forth on a pro forma basis as of June 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.. 15,115,887 % $16,395,594 % $1.08
New investors..........
---------- ----- ----------- -----
Total................ 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
Other than as noted above, the foregoing computations assume the exercise of
no stock options or warrants after June 30, 1998. As of August 15, 1998,
options to purchase 1,745,124 shares of Common Stock were outstanding, with a
weighted average exercise price of $1.90 per share, and warrants to purchase
2,541,803 shares of Common Stock were outstanding, with a weighted average
exercise price of $4.77 per share. Also excludes 989,916 shares of Common
Stock issuable upon exercise of warrants issued subsequent to August 15, 1998.
23
<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 six months ended June 30, 1998 and the selected
consolidated balance sheet data at December 31, 1996 and 1997 and June 30,
1998 are derived from the audited consolidated financial statements of the
Company, which have been audited by Deloitte & Touche LLP, independent
auditors, and are included elsewhere in this Prospectus. The selected
consolidated statements of operations data for the six months ended June 30,
1997 and the selected consolidated balance sheet data at June 30, 1997 are
derived from unaudited consolidated financial statements of the Company that
are included elsewhere in this Prospectus, 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
MARCH 1, 1996 SIX MONTHS
(INCEPTION) YEAR ENDED ENDED JUNE 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 $ 466 $ 2,855
Cost of revenues................ 97 347 131 543
------ ------ ------ --------
Gross profit.................... 102 1,338 335 2,312
Operating expenses:
Product development........... 109 213 110 149
Sales and marketing........... 231 830 359 904
General and administrative.... 164 631 185 1,141
Amortization of purchased
advertising agreements....... -- 382 -- --
Write-off of in-process
research and development..... -- -- -- 4,700
------ ------ ------ --------
Total operating expenses.... 504 2,056 654 6,894
------ ------ ------ --------
Loss from operations............ (402) (718) (319) (4,582)
Other income, net............... 21 21 13 43
------ ------ ------ --------
Net loss........................ $ (381) $ (697) $ (306) $ (4,539)
====== ====== ====== ========
Basic and diluted net loss per
share (1)...................... $(0.04) $(0.06) $(0.03) $ (0.39)
====== ====== ====== ========
Shares used in computing basic
and diluted net loss
per share calculations (1)..... 9,280 10,998 10,986 11,572
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1996 1997 1998
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................... $ 690 $ 324 $ 5,775
Working capital............................. 825 543 5,803
Total assets................................ 1,072 1,130 10,505
Total stockholders' equity.................. 1,020 759 9,540
</TABLE>
- ---------------------
(1) See Note 7 of the Company's Notes to Consolidated Financial Statements for
information concerning the determination of net loss per share.
24
<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
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 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 company 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 36 as of July 31, 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 non-banner 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
25
<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 will contribute its technology and
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 August 15, 1998, the Company has contributed
$496,000 to the joint venture.
In July 1998, the Company entered into an agreement with Netscape, pursuant
to which 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 directories.
In August 1998, the Company entered into two agreements with AOL to provide
white pages directory services and classifieds services to AOL. Under the
terms of the agreement related to the Company's white pages directory
services, 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, 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.
26
<PAGE>
The Company anticipates that carriage fees paid to certain affiliates to
include the Company's content services on their Web site 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 last half
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 June 30, 1998
had an accumulated deficit of approximately $5.6 million. Losses incurred in
1997 totaled $697,000, including $382,000 in amortization of purchased
advertising agreements acquired in connection with the Company's acquisition
of YPI. For the six months ended June 30, 1998, losses incurred totaled $4.5
million, including a $4.7 million write-off associated with the Company's
acquisition of Outpost.
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 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. 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 four quarters and has achieved profitability in certain
quarters, it does not believe that its historical growth rates or periodic
profitability are necessarily sustainable or indicative of future growth or
profitability.
27
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain consolidated statements of operations
data for the Company's six 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,
1997 1997 1997 1997 1998 1998
--------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 244 $ 222 $ 466 $ 753 $1,015 $ 1,840
Cost of revenues........ 59 72 76 140 202 341
----- ----- ----- ----- ------ -------
Gross profit.......... 185 150 390 613 813 1,499
Operating expenses:
Product development... 55 55 48 55 50 100
Sales and marketing... 167 191 232 239 434 469
General and
administrative....... 87 99 107 339 310 831
Amortization of
purchased advertising
agreements........... -- -- -- 382 -- --
Write-off of in-
process research and
development.......... -- -- -- -- -- 4,700
----- ----- ----- ----- ------ -------
Total operating
expenses........... 309 345 387 1,015 794 6,100
----- ----- ----- ----- ------ -------
Income (loss) from
operations............. (124) (195) 3 (402) 19 (4,601)
Other income, net....... 7 6 5 3 5 38
----- ----- ----- ----- ------ -------
Net income (loss)....... $(117) $(189) $ 8 $(399) $ 24 $(4,563)
===== ===== ===== ===== ====== =======
<CAPTION>
AS A PERCENTAGE OF REVENUES
----------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1998 1998
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 24.2 32.4 16.3 18.6 19.9 18.5
----- ----- ----- ----- ------ -------
Gross profit.......... 75.8 67.6 83.7 81.4 80.1 81.5
Operating expenses:
Product development... 22.5 24.8 10.3 7.3 4.9 5.4
Sales and marketing... 68.4 86.0 49.8 31.7 42.8 25.5
General and
administrative....... 35.7 44.6 23.0 45.0 30.5 45.2
Amortization of
purchased advertising
agreements........... -- -- -- 50.7 -- --
Write-off of in-
process research and
development.......... -- -- -- -- -- 255.4
----- ----- ----- ----- ------ -------
Total operating
expenses........... 126.6 155.4 83.1 134.7 78.2 331.5
----- ----- ----- ----- ------ -------
Income (loss) from
operations............. (50.8) (87.8) 0.6 (53.3) 1.9 (250.0)
Other income, net....... 2.9 2.7 1.1 0.4 0.5 2.2
----- ----- ----- ----- ------ -------
Net income (loss)....... (47.9)% (85.1)% 1.7% (52.9)% 2.4% (247.8)%
===== ===== ===== ===== ====== =======
</TABLE>
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 four quarters
28
<PAGE>
ended June 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 and $189,000 for the quarter ended June 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 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 webmasters and developers
working on customer projects, communication costs such as high-speed Internet
access with dedicated DS-3 communication lines, equipment depreciation,
license fees related to third-party content, costs of aggregation and
syndication of content and amounts paid to affiliates pursuant to revenue-
sharing arrangements. For the six quarters ended June 30, 1998, the largest
expenditures were for license fees related to third-party content, Internet
access and, to a lesser extent, 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 most recent three quarters.
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 substantially in the quarter ended June 30, 1998. These expenses
declined significantly as a percentage of revenues due to the Company's
revenue growth during the most recent six quarters. 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, 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 most recent six quarters to support the
continued expansion of the Company's business. 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. These expenses have fluctuated significantly as a
percentage of revenues over the most recent six quarters. The Company
anticipates substantial increases in sales and marketing expenses in the
future due to continued expansion of its sales and marketing efforts, a
substantial increase in 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 to increases in traditional forms of
advertising and public relations. The Company expects these expenses will be
significantly higher as a percentage of revenues for at least the next two
quarters.
29
<PAGE>
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. These expenses for the quarter
ended June 30, 1998, included an increase in the accrual of bad debt expenses
of $150,000 and a reserve for a pending lawsuit of $240,000. 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 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 $300,000 per quarter for the next twelve quarters for
the amortization of intangible assets associated with the acquisition of
Outpost in June 1998. However, these expenses may vary as a percentage of
revenues.
Amortization of Purchased Advertising Agreements. Amortization of purchased
advertising agreements consists of amortization of short-term advertising
agreements acquired in connection with the acquisition of YPI in May 1997.
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 $4.7 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. In the future, other income will include income or losses
attributable to the Company's 50% interest in TDL InfoSpace, the Company's
joint venture with Thomson.
Provision for Income Taxes. Net operating losses have been incurred to date
on a cumulative basis, and no tax benefit has been recorded.
Net Income (Loss). The Company has sustained losses in four of the six most
recent quarters ended June 30, 1998, and the cumulative losses through that
date were $5.6 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 operating results have varied on a quarterly basis during its
limited 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 operating results
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 site; (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
30
<PAGE>
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."
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 operating results.
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 should not be relied upon as indications of
future performance. As a result of the foregoing factors, it is likely that in
some future quarters or years the Company's operating results 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 $1.4 million in equity financing and, to a
lesser extent, from revenues generated for services performed. In May 1998,
the Company completed a $5.2 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 Right Plan also raised $1.6 million in July
1998. As of June 30, 1998, the Company had cash and cash equivalents of $5.7
million and subsequently raised $9.8 million of additional cash from these
private placements.
Net cash provided (used) by operating activities was $(462,000) from the
Company's inception in March 1996 through December 31, 1996, $(216,000) in the
year ended December 31, 1997 and $613,000 in the six months ended June 30,
1998. Cash used in operating activities from inception through June 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 in investing activities was $219,000 in the period from
inception through December 31, 1996, $150,000 in the year ended December 31,
1997 and $381,000 in the six months ended June 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 $2.5 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 $1.6 million and trademark licenses of $3.0 million during the
remainder of 1998 and for carriage fees of $9.8 million thereafter.
31
<PAGE>
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 at least through the end of 1999. 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.
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.
Non-information 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 non-
information technology systems. The Company utilizes third-party equipment and
software that may not be Year 2000 compliant. Failure of such third-party
equipment or 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 equipment or software or its advertisers and
has not made any contingency plans to address such risks.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standard ("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 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 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 six months ended June 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.
32
<PAGE>
BUSINESS
OVERVIEW
InfoSpace.com is a leading 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. 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 75 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.
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
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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. Jupiter Communications,
LLC also estimates that the value of goods and services purchased on the
Internet will increase from $2.6 billion in 1997 to $37.5 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 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 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
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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 AP, 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
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. 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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[DIAGRAM APPEARS HERE]
Aggregation
The Company currently aggregates content from more than 75 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
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.
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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 800 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
affiliate network (which includes AOL, for which the Company has not yet
launched its services) provides it with an unduplicated reach of 42 million
unique Internet users, representing approximately 79% of all Internet 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 1,500 sales
people 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 with the launch of its
smart-shopping service, which allows end users to obtain comparative price
information on a specific product. In addition, the Company is adapting this
technology to integrate electronic commerce features into its content services
and intends to develop an electronic shopping cart service that will allow end
users to purchase goods and services 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 sub-groups
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 75
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 non-exclusive 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 Regional Bell Operating Companies ("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.
The Company licenses yellow pages and white pages data for substantially all
of the listed persons and businesses in the United States through a five-year
agreement with infoUSA (formerly known as American
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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 revenue 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 data
provided by these publishers, represent more than 50% 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 100 affiliates covering more than 800
Web sites. Based on information received from RelevantKnowledge, Inc., the
Company estimates that its affiliate network (including AOL, for which the
Company has not yet launched its services) provides it with an unduplicated
reach of 42 million unique Internet users, representing approximately 79% of
all Internet 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 agreement with Netscape, 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
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 directories.
AOL. The Company recently entered into agreements with AOL to provide white
pages directory services and classifieds information services to AOL. These
services have not yet been launched. 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 December 1, 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 receipt 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 content 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 development 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 SkyTel; 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
Online Kiosks King kiosk platform; Lexitech kiosk software
platform
Personal Digital Assistants AT&T Wireless; InfoGear; NovaTel; 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."
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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 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
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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 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
12.3% of the Company's revenues for the six months ended June 30, 1998.
As of June 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 six months ended June
30, 1998:
800-U.S. Search IBM
Apartments for Rent iVillage
AT&T Leisure Planet
BarnesandNoble.com Locate-Me
BuyComp.com MasterCard International
Computel Securities Microsoft
Dell Computers Owners Network
Delta Air Lines QSpace
eBay Stoneage
E-loan Information Services Women.com
Excite
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<PAGE>
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 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
1,500 sales people 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."
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<PAGE>
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.
Web Server Technology
The Company's Web Server Technology was 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 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.
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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.
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 $149,176 for the period from March 1, 1996 (inception) to
December 31, 1996, the year ended December 31, 1997 and the six months ended
June 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."
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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, and content services were
launched in the third quarter of 1998. Thomson is the largest provider of
independent print directory information in the United Kingdom, with a local
sales force of 450 employees. 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 will contribute its technology and hosting services to TDL InfoSpace.
Each of the Company and Thomson purchased a 50% interest in 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 non-use 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 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
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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 upon 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 upon 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 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 services
offerings, such as
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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 a number of laws and
regulations may be adopted with respect to the Internet or other online
services covering issues such as user privacy, pricing, content, copyrights,
distribution and characteristics and quality of products and services. 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 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
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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 July 31, 1998, the Company had 36 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 a lease that expires on August 31, 2003. The Company also
maintains a sales office housed in an approximately 635-square-foot space in
Sausalito, California under a lease that expires on February 14, 1999. 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 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 and a motion to transfer the litigation to the
Western District of Washington is pending. 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,
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<PAGE>
litigation is inherently uncertain, and there can be no assurance that the
Company will prevail in the suit. As of June 30, 1998, the Company has accrued
a liability of $240,000 for estimated settlement and defense 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 at June 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. See Note 5 of the Company's Notes to
Consolidated Financial Statements.
53
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of August 15, 1998
with respect to the executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Naveen Jain............. 38 President, Chief Executive Officer and Chairman of the Board
Ellen B. Alben.......... 35 Vice President, Legal and Business Affairs and Secretary
Douglas A. Bevis........ 53 Vice President and Chief Financial Officer
John E. Richards........ 36 Vice President, Yellow Pages Group
John K. Arnold.......... 34 Vice President, e-Commerce Group and Director
John E. Cunningham, IV 40
(1).................... Director
Peter L. S. Currie (2).. 41 Director
Gary C. List (1)(2)..... 46 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 President and Chief Executive Officer since its inception 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.
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 firms in Los Angeles 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.
54
<PAGE>
John E. Richards joined the Company in January 1998 as Vice President,
Yellow Pages Group. From September 1995 to May 1997, Mr. Richards served as
President of Yellow Pages on the Internet, LLC, an Internet yellow pages sales
consortium business that was acquired by the Company in May 1997. From May
1985 to January 1998, Mr. Richards held various positions with NTD Publishing,
Inc. d/b/a Banana Pages ("NTD"), an independent print yellow pages publishing
company, serving as NTD's President from May 1993 to January 1998. He served
on the Board of Directors of the worldwide Association of Directory Publishers
from April 1995 to January 1998 and as Chairman of its New Technology
Committee from April 1996 to January 1998. Mr. Richards holds a B.A. from
Brigham Young University.
John K. Arnold has served as Vice President, e-Commerce Group and a director
of the Company since June 1998, having joined the Company when it acquired
Outpost Network, Inc., an Internet-based merchant and e-commerce technology
company for which Mr. Arnold served as President from July 1995 to June 1998.
From August 1993 to July 1995, Mr. Arnold served as Director of Information
Technology for Western Wireless Corporation, an independent provider of
wireless communications services. From 1984 to 1993, he held management,
networking and technical positions in the MIS division of Nordstrom, Inc., a
national specialty apparel retailer. Mr. Arnold holds an Associate of Arts
degree from Seattle Central Community College and studied at the University of
Washington from 1985 through 1986.
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.
Mr. Cunningham is on the Board of Directors of 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.
("US West"), including President of US West International Information Services
and Vice President and Chief Financial Officer of US West Marketing Resources
Group.
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, but intends to recruit
and add another nonemployee director to the Board after completion of this
offering.
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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<PAGE>
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.
Mr. Arnold was appointed to the Board of Directors pursuant to a voting
agreement by and among certain principal stockholders of the Company in effect
immediately prior to this offering. Such voting agreement will terminate upon
completion of this offering.
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 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 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
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<PAGE>
(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.
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 President and 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.
BENEFIT PLANS
Restated 1996 Flexible Stock Incentive Plan
The Company adopted the Restated Flexible 1996 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 pursuant to an amendment adopted in August 1998.
As of August 15, 1998, options to purchase 1,454,500 shares of Common Stock
were outstanding under the 1996 Plan, with exercise prices ranging from $.02
to $8.00 per share and options to purchase 1,045,500 shares were available for
future grant. In August 1998, the Company reserved an additional 500,000
shares of Common Stock for future issuance under the 1996 Plan, effective
September 15, 1998.
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 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
57
<PAGE>
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 1,250 shares of Common Stock to each nonemployee director on the date
the director is first appointed or elected to the Board of Directors, which
fully vests on the first anniversary of the date of grant. Commencing with the
Company's 1999 Annual Meeting of Stockholders, the Company will grant an
additional nonqualified stock option to purchase 1,250 shares of Common Stock
to each nonemployee director immediately following their reelection at each
annual meeting of stockholders, which option fully vests 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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<PAGE>
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 1998, 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.
John E. Richards, the Company's Vice President, Yellow Pages Group, was
President and a member of Yellow Pages on the Internet, LLC, which was
acquired by the Company in May 1997 (the "YPI Acquisition"). The Company
issued Mr. Richards 32,500 shares of Common Stock in connection with the YPI
Acquisition. Peter S. Richards, John E. Richards' brother and a member of YPI,
received 15,000 shares of Common Stock in connection with the YPI Acquisition.
Both John and Peter Richards are entitled to certain registration rights with
respect to their shares. On July 6, 1998, the Company sold 10,000 Shares of
Common Stock at $7.50 per share to John E. Richards pursuant to the Company's
1998 Stock Purchase Rights Plan.
John K. Arnold, a director of the Company, was a shareholder and President
of Outpost, which was acquired by the Company in June 1998 (the "Outpost
Merger"). In connection with the Outpost Merger, the Company issued 78,888
shares of Common Stock to Mr. Arnold.
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.
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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 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.
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 Directories Limited and a beneficial shareholder
and the Chief Executive Officer of TDL Group Limited, the holding company of
Thomson Directories Limited. 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 Cunningham, 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."
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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 August
15, 1998 and as adjusted to reflect the sale of the 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)................ 10,122,916 66.3% %
c/o InfoSpace.com, Inc.
15375 -- 90th Avenue N.E.
Redmond, WA 98052
Acorn Ventures-IS, LLC (3)..... 2,735,456 16.3
1309 114th Avenue S.E.
Suite 200
Bellevue, WA 98004
John E. Cunningham, IV (4)..... 658,466 4.3
John K. Arnold................. 78,888 *
Gary C. List................... 12,500 *
Peter L. S. Currie............. -- --
All directors and executive
officers as a group (8
persons) (5).................. 11,020,270 70.7
</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 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 156,250 shares of Common Stock subject to options held by
Anuradha Jain exercisable within 60 days of August 15, 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 299,302 shares
of Common Stock and 233,859 shares of Common Stock upon exercise of
warrants currently exercisable. 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 468,057 shares subject to options and warrants exercisable within
60 days of August 15, 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 Company's Restated Certificate of
Incorporation was amended on August 25, 1998 to, among other things, increase
the number of authorized shares of Common Stock from 40,000,000 to 50,000,000.
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 August 15, 1998, there were 15,115,887 shares of Common Stock
outstanding held of record by approximately 95 stockholders. There will be
shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options
after August 15, 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 August 15, 1998, there were outstanding warrants to purchase 2,541,803
shares of Common Stock. Five investors hold warrants to purchase an aggregate
of 2,063,836 shares of Common Stock at a weighted average exercise price of
$5.87 per share. These warrants expire on May 21, 2008. One investor holds a
warrant to purchase 477,967 shares at an exercise price of $0.02 per share.
This warrant expires on October 30, 2002. Subsequent to August 15, 1998, in
connection with the agreement relating to the Company's white pages directory
services, the Company issued to AOL warrants to purchase up
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to 989,916 shares of Common Stock, which warrants vest in 16 equal quarterly
installments over the 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 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
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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 3,020,499 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 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
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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 certain Stockholder Rights Agreements 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 Yellow Pages on the Internet, LLC, 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 Company has applied to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "INSP."
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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
shares of Common Stock. Of these shares, the 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 15,115,887 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 14,992,902 Restricted Shares/
stockholder and optionholders 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, including certain shares issuable upon exercise of options,
will be as follows: (i) no shares will be eligible for sale prior to 180 days
after the date of this Prospectus, (ii) 11,282,004 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 (iii) an additional 3,833,883 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 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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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 3,740,625 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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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............................................................
====
</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
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 the executive officers and
directors, who will own (or have the right to purchase) in the aggregate
shares of Common Stock (including shares issuable upon exercise of
options to purchase Common Stock) after the offering, have agreed that they
will not, without the
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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 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.
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.
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.
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EXPERTS
The consolidated financial statements of InfoSpace.com, Inc. as of December
31, 1996, December 31, 1997 and June 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 six-month period ended June 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. Information concerning the
Company is also available for inspection at the offices of the Nasdaq National
Market, Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
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.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFOSPACE.COM, INC.:
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Changes in Stockholders' Equity................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
OUTPOST NETWORKS, INC.:
Independent Auditors' Report............................................... F-19
Balance Sheets............................................................. F-20
Statements of Operations................................................... F-21
Statements of Changes in Shareholders' Equity (Deficiency)................. F-22
Statements of Cash Flows................................................... F-23
Notes to Financial Statements.............................................. F-24
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
InfoSpace.com, Inc.
Redmond, Washington
We have audited the accompanying consolidated balance sheets of
InfoSpace.com, Inc. (the Company) as of December 31, 1996 and 1997, and June
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
six months ended June 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. as of
December 31, 1996 and 1997, and June 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 six months ended June 30, 1998, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Seattle, Washington
August 25, 1998
F-2
<PAGE>
INFOSPACE.COM, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997, AND JUNE 30, 1998
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 690,174 $ 324,415 $ 5,774,724
Accounts receivable, net of allowance
for doubtful accounts of $-0-,
$47,000 and $235,000, respectively... 126,574 467,187 897,166
Inventory............................. 4,845
Prepaid expenses and other assets..... 59,334 121,573 91,502
---------- ----------- -----------
Total current assets................ 876,082 913,175 6,768,237
Property and equipment, net............. 195,862 216,439 280,687
Intangible assets:
Goodwill.............................. 2,343,223
Purchased technology.................. 1,100,000
Other................................. 100,000
Less: Accumulated amortization........ (86,729)
-----------
Intangible assets, net.............. 3,456,494
---------- ----------- -----------
Total................................... $1,071,944 $ 1,129,614 $10,505,418
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 39,553 $ 85,814 $ 126,414
Accrued expenses...................... 4,663 204,311 635,955
Deferred revenues..................... 7,239 50,000 202,887
Notes payable......................... 30,000
---------- ----------- -----------
Total current liabilities........... 51,455 370,125 965,256
Commitments and contingencies (Note 5)
Stockholders' 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 40,000,000 shares, respectively;
issued and outstanding, 10,945,253,
11,030,253 and 13,852,741 shares,
respectively......................... 1,095 1,103 1,385
Additional paid-in capital............ 1,471,355 1,998,255 15,827,800
Accumulated deficit................... (380,524) (1,077,634) (5,616,817)
Unearned compensation................. (71,437) (162,235) (672,206)
---------- ----------- -----------
Total stockholders' equity.......... 1,020,489 759,489 9,540,162
---------- ----------- -----------
Total................................... $1,071,944 $ 1,129,614 $10,505,418
========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<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 SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
MARCH 1 TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
Revenues................................ $ 199,372 $1,685,096 $ 2,855,010
Cost of revenues........................ 96,641 347,183 543,654
--------- ---------- -----------
Gross profit.......................... 102,731 1,337,913 2,311,356
Operating expenses:
Product development.................... 109,671 212,677 149,176
Sales and marketing.................... 230,774 830,054 903,299
General and administrative............. 163,896 631,400 1,141,270
Amortization of purchased advertising
agreements............................ 382,188
Write-off of in-process research and
development........................... 4,700,000
--------- ---------- -----------
Total operating expenses............ 504,341 2,056,319 6,893,745
--------- ---------- -----------
Loss from operations.................... (401,610) (718,406) (4,582,389)
Other income, net....................... 21,086 21,296 43,206
--------- ---------- -----------
Net loss................................ $(380,524) $ (697,110) $(4,539,183)
========= ========== ===========
Basic and diluted net loss per share.... $ (0.04) $ (0.06) $ (0.39)
========= ========== ===========
Shares used in computing basic and
diluted net loss per share
calculations........................... 9,280,163 10,998,157 11,572,406
========= ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<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 SIX MONTHS ENDED JUNE 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............... (697,110) (697,110)
---------- ------ ----------- ----------- --------- -----------
Balance, December 31,
1997................... 11,030,253 1,103 1,998,255 (1,077,634) (162,235) 759,489
Common stock and
warrants issued for
acquisition........... 1,499,988 150 7,902,159 7,902,309
Common stock issued.... 1,322,500 132 5,278,455 5,278,587
Warrants issued........ 40,161 40,161
Unearned compensation--
Stock options......... 608,770 (608,770)
Compensation expense--
Stock options......... 98,799 98,799
Net loss............... (4,539,183) (4,539,183)
---------- ------ ----------- ----------- --------- -----------
Balance, June 30, 1998.. 13,852,741 $1,385 $15,827,800 $(5,616,817) $(672,206) $ 9,540,162
========== ====== =========== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<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 SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
MARCH 1 TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
Operating Activities:
Net loss............................... $(380,524) $(697,110) $(4,539,183)
Adjustments to reconcile net loss to
net cash provided (used) by operating
activities:
Depreciation and amortization...... 23,513 96,502 151,527
Write-off of in-process research
and development................... 4,700,000
Amortization of purchased
advertising agreements............ 382,188
Compensation expense--stock
options........................... 29,813 143,922 98,799
Noncash services exchanged......... (60,000) 25,872
Bad debt expense................... 47,000 255,812
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) (685,791)
Inventory......................... 155
Prepaid expenses.................. (59,334) 30,071
Goodwill and other intangible
assets........................... (33,152) (60,000)
Accounts payable.................. 39,553 46,261 40,601
Accrued expenses.................. 4,663 199,648 445,771
Deferred revenues................. 7,239 42,761 152,887
--------- --------- -----------
Net cash provided (used) by
operating activities............ (461,651) (215,850) 612,750
Investing Activities:
Business acquisitions, net of cash
acquired.............................. (311,951)
Purchase of property and equipment..... (219,375) (120,822) (74,235)
Proceeds from sale of fixed assets..... 4,997
Other.................................. (29,087)
--------- --------- -----------
Net cash used by investing
activities...................... (219,375) (149,909) (381,189)
Financing Activities:
Proceeds from issuance of common stock. 1,371,200 5,178,587
Proceeds from sale of warrants......... 40,161
--------- --------- -----------
Net cash provided by financing
activities...................... 1,371,200 5,218,748
--------- --------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 690,174 (365,759) 5,450,309
Beginning of period.................... 690,174 324,415
--------- --------- -----------
End of period.......................... $ 690,174 $ 324,415 $ 5,774,724
========= ========= ===========
Supplemental Disclosure of Noncash
Financing and Investing Activities:
Acquisition of membership interest of
Yellow Pages on the Internet, LLC
(YPI) through issuance of common stock
and assumption of $90,000 payable..... $ -- $ 382,188 $ --
Acquisition of common stock of Outpost
Network, Inc. through issuance of
common stock and warrants and
assumption of liabilities of $264,000. 7,871,000
</TABLE>
See notes to consolidated financial statements.
F-6
<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 SIX MONTHS ENDED JUNE 30, 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business: InfoSpace.com, Inc. (the Company), 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 June 30, 1998, and for the period from June 2,
1998, to June 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 currently recorded is amortized over three years. Purchased
technology is amortized over five years, and 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 has been recognized as of June 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. Revenues from fixed fee
agreements are recognized ratably over the related contract term. Revenues
from contracts based on the number of impressions displayed or click throughs
provided are recognized as the services are rendered.
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
F-7
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
recorded as advertising revenues at the lower of the estimated fair value of
goods and services received or impressions given, and are recognized when both
the Company's advertisements and the reciprocal advertisements are run, or
goods or services are received. In cases where there is not sufficient
evidence of fair market value, no revenue is recognized.
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.
Cost of revenues: Cost of revenues consist primarily of direct personnel
expenses, content license fees, equipment depreciation, communications expense
and costs of aggregation and syndication of content and amounts paid pursuant
to revenue sharing arrangements.
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 $416,084 for the six months ended June 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 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 six months ended
June 30, 1998, one customer accounted for approximately 12% 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 June 30, 1998, two customers accounted for
approximately 22% and 10% 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.
F-8
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 six months ended June 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-9
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ ---------
<S> <C> <C> <C>
Property and equipment:
Computer equipment.................... $207,817 $ 308,741 $ 423,695
Office equipment...................... 3,044 7,105 17,494
Office furniture...................... 8,514 19,534 23,013
-------- --------- ---------
219,375 335,380 464,202
Accumulated depreciation.............. (23,513) (118,941) (183,515)
-------- --------- ---------
$195,862 $ 216,439 $ 280,687
======== ========= =========
Accrued expenses:
Salaries and related expenses......... $ 2,215 $ 33,777 $ 117,964
Accrued license fees.................. 16,736 72,609
Accrued legal fees.................... 1,400 12,717 65,000
Accrued commissions................... 42,398
Accrued taxes......................... 3,890 40,000
Accrued settlement costs.............. 695 137,000 240,000
Other................................. 353 191 57,984
-------- --------- ---------
$ 4,663 $ 204,311 $ 635,955
======== ========= =========
</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
F-10
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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 2,500,000 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 13, 1998, the Board of Directors approved the Option Exchange
Program, allowing employees of the Company to exchange their nonqualified
stock options for incentive stock options. Nonqualified stock options to
purchase a total of 376,876 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 June 30, 1998 are options to
purchase 290,624 shares that were issued outside of the Plan, 269,374 of which
were exercisable as of June 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................................................ 706,375 3.05
Cancelled.............................................. (376,876) 1.57
Forfeited.............................................. (5,375) 0.23
---------
Outstanding, June 30, 1998............................... 1,687,124 1.64
=========
Options exercisable, June 30, 1998....................... 834,076 1.35
=========
</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
six months ended June 30, 1998, is summarized as follows:
<TABLE>
<CAPTION>
MARCH 1 TO YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 JUNE 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 0.02 447,375 4.03 1.01
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-11
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has elected to follow the measurement provisions of Accounting
Principles Board (APB) 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. Compensation expense of $29,813, $143,922, and $98,799 was recognized
during the period from March 1, 1996 (inception) to December 31, 1996, the
year ended December 31, 1997, and the six months ended June 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 June 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>
SIX MONTHS
MARCH 1 TO YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
<S> <C> <C> <C>
Net loss as reported............... $(380,524) $(697,110) $(4,539,183)
Net loss--Pro forma................ (380,859) (698,600) (4,567,851)
Basic and diluted net loss per
share--Pro forma.................. (0.04) (0.06) (0.40)
</TABLE>
Additional information regarding options outstanding as of June 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 7.83 $0.02 554,785 $0.02
3.00............... 5,125 9.35 3.00 1.25 3.00
4.00-6.00.......... 678,875 6.11 4.02 279,166 4.00
--------- ---- -------
1,687,124 7.14 1.64 834,076 1.35
========= ==== =======
</TABLE>
At June 30, 1998, 1,103,500 shares were available for future grants under
the Plan.
In May 1998 the Company issued warrants to purchase 2,028,523 shares of
common stock to five unrelated participants in private placement offerings.
These warrants expire on May 21, 2008. The exercise prices are as follows:
<TABLE>
<CAPTION>
SHARES PRICE
------ ------
<S> <C>
1,081,879........................................................... $ 4.00
473,322........................................................... 6.00
473,322........................................................... 10.00
</TABLE>
Stock purchase right plan: On June 26, 1998, the Board of Directors approved
the InfoSpace, Inc. Stock Purchase Right Plan. The plan is offered to
employees of the Company and its subsidiaries. The purpose of
F-12
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
1,000,000 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.
NOTE 4: BUSINESS COMBINATIONS
YPI: On May 16, 1997, the Company acquired all outstanding Membership
Interest Units of YPI, a limited liability company. YPI is a yellow pages
sales consortium business. In conjunction with the acquisition, the Company
acquired certain advertising agreements, all of which expired by December 31,
1997, 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. On January 2, 1998, the number
of shares were finalized and a total of 85,000 escrow shares were issued to
the seller. 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. This transaction has been accounted for in the
accompanying financial statements as a purchase of advertising rights based on
the fair value of Company shares issued and liabilities assumed for $382,000.
Initial advertising agreements have expired and renewals are insignificant;
therefore the Company has expensed all related costs. 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 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 advertising contracts acquired................... 396,000
--------
$306,000
========
Purchase price:
Fair value of shares issued for membership interest units...... $292,000
Acquisition expenses............................................. 14,000
--------
$306,000
========
</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 transaction was accounted for as a purchase for
accounting purposes.
F-13
<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..................................... 5,800,000
Fair value of assembled workforce............................. 40,000
----------
Fair value of net assets acquired............................... 5,649,000
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 three years).......................... $2,343,000
==========
</TABLE>
The $5,800,000 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 to
be recorded and charged to expense in the period acquired. Accordingly, the
results of operations for the six months ended June 30, 1998, include the
write-off of $4,700,000 of purchased in-process research and development. The
remaining $1,100,000 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 six months ended June
30, 1998, as if the acquisition of Outpost Network, Inc. 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>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues........................................ $ 1,931,020 $ 2,786,299
Net loss........................................ (2,322,112) (5,034,703)
Basic and diluted net loss per share............ (0.19) (0.39)
</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 $41,000, for the period from March 1, 1996 (inception)
to December 31, 1996, the year ended December 31, 1997, and the six months
ended June 30, 1998, respectively.
F-14
<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>
July 1 to December 31, 1998.................................... $ 92,587
1999........................................................... 248,296
2000........................................................... 212,040
2001........................................................... 222,080
2002........................................................... 236,136
2003........................................................... 137,746
----------
$1,148,885
==========
</TABLE>
Future payments required under noncancellable affiliate carriage fee
agreements are as follows for the years ending December 31 (see Note 9--
Subsequent Events):
<TABLE>
<S> <C>
July 1 to December 31, 1998................................... $ 1,558,333
1999.......................................................... 4,516,667
2000.......................................................... 2,825,000
2001.......................................................... 1,750,000
2002.......................................................... 750,000
-----------
$11,400,000
===========
</TABLE>
On April 15, 1998, a former employee of the Company filed a complaint in the
Superior Court for Santa Clara County, California alleging that he has the
right to purchase in connection with his employment 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 and
a motion to transfer the litigation to the Western District of Washington is
pending. 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 June 30, 1998,
the Company has accrued a liability of $240,000 for estimated settlement and
defense 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 at June 30, 1998. This could have a
material adverse effect on the Company's results of operations and 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.
F-15
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6: INCOME TAXES
No provision for federal income tax has been recorded as the Company has
incurred net operating losses through June 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,
-------------------- JUNE 30,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward......... $ 111,000 $ 228,000 $ 99,000
Intangible amortization................. 10,000 10,000 1,542,000
Compensation expense--Stock options..... 10,000 59,000 88,000
Allowance for bad debt.................. 16,000 80,000
Litigation accrual...................... 47,000 84,000
Other, net.............................. 1,000 2,000 6,000
--------- --------- -----------
Gross deferred tax assets............. 132,000 362,000 1,899,000
Deferred tax liabilities:
Depreciation............................ 4,000 20,000 17,000
Other................................... 1,000
--------- --------- -----------
Gross deferred tax liabilities........ 5,000 20,000 17,000
--------- --------- -----------
Net deferred tax assets............... 127,000 342,000 1,882,000
Valuation allowance....................... (127,000) (342,000) (1,882,000)
--------- --------- -----------
Deferred tax balance...................... $ -- $ -- $ --
========= ========= ===========
</TABLE>
At December 31, 1996 and 1997, and June 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 six months ended June 30, 1998, was an increase of $127,000,
$215,000, and $1,456,000, respectively. At June 30, 1998, the Company has tax
basis federal net operating loss carryforwards of $290,000, which expire
beginning in 2012.
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.
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 six months ended June 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 $145,000,
respectively.
F-16
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: SUBSEQUENT EVENTS
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 Limited"),
with the purpose of carrying on the business of the aggregation and
syndication of content on the Internet initially in the United Kingdom. Under
the Joint Venture Agreement, the joint venture partner will provide its
directory information to the newly formed company and sell Internet yellow
pages advertising of the joint venture through its local sales forces. The
Company will contribute its technology and hosting services to the newly
formed company. InfoSpace Investments, Ltd. and the joint venture partner are
required to provide working capital to the newly formed company as is
reasonably required either in cash or borrowing facilities. 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 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.
Trademark license and directory services agreements: On July 1, 1998, the
Company entered into two trademark license agreements with an Internet portal
company to license two of its trademarks for a one-time, nonrefundable license
fee of $1,500,000 per agreement.
On July 2, 1998, the Company entered into two directory services agreements
with the same Internet portal company. Under the agreements, which provide for
a one-year term, the Company's yellow pages and white pages directory services
are provided on the portal company's homepage to their users. The portal
company guaranteed a minimum level of use of the Company's yellow pages and
white pages directories. The Company agreed to pay the portal company amounts
based on cost per click through which, based on the portal company guarantees,
would result in minimum payments of $500,000 per agreement.
Private equity placement: During July and August 1998, the Company sold
1,020,000 shares of common stock at $8.00 per share to existing stockholders,
officers of the Company and other private investors. Certain of these
investors are entitled to piggy-back registration rights on registrations by
the Company at anytime after an initial public offering of the Company's
common stock.
Also in August 1998, the Company, in exchange for the termination of certain
antidilution rights, issued to existing stockholders an aggregate of 19,895
shares of common stock and warrants to purchase 18,833 shares of common stock
at $4.00 per share, 8,240 shares of common stock at $6.00 per share, and 8,240
shares of common stock at $10.00 per share.
Additionally, in July 1998, the Company issued warrants to purchase 477,967
shares of common stock at an exercise price of $.02 to a former consultant in
conjunction with the acquisition of Outpost Network, Inc. (Note 4). These
warrants expire on October 30, 2002.
During August 1998, the Company settled a trademark infringement claim filed
against the Company by a company bearing the same name. Under the terms of the
settlement, the Company secured all right, title, and interest in and to the
"InfoSpace" name and trademark both domestically and internationally for
$290,000. In addition to the settlement, the Company also entered into a
software license and maintenance agreement with the same company.
White pages and classifieds agreements: On August 24, 1998, the Company
entered into agreements with a large portal company to provide white pages
directory services and classifieds information services to that company. Under
the white pages agreement, the white pages directory services are to be
provided for a three-
F-17
<PAGE>
INFOSPACE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
year term beginning on the date of first commercial launch (anticipated to be
November 1, 1998), which term may be extended for an additional year and
subsequently renewed for up to three successive one-year periods, at the
portal company's option. Under this agreement, the Company will pay quarterly
cash fees and issue warrants to purchase Common Stock of the Company for
$12.00 per share, representing 5% of the fully diluted equity of the Company
as of August 24, 1998. The parties share revenues generated by advertising on
the white pages directory services. Payment of cash and vesting of warrants
occurs quarterly, provided certain contracted search quotas are met. A
termination fee is due for non-performance.
Under the terms of the classifieds agreement, the Company will provide its
classified advertising content service for two years, with up to three one-
year extensions at the portal company's discretion. The Company receives
quarterly cash fees and shares revenues generated by payments from individuals
and commercial listing services for listings on the Company's classifieds
service.
Restated 1996 Flexible Stock Incentive Plan
Pursuant to an amendment to the 1996 Plan approved on August 24, 1998, an
additional 500,000 shares of common stock were reserved for future issuance.
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
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 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.
F-18
<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-19
<PAGE>
OUTPOST NETWORK, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 144,098 $ 18,385
Receivables from employees......................... 2,855 1,102
Other receivables.................................. 1,351
Inventory, net of reserve of $-0- and $28,437 ..... 31,771 16,000
Prepaid expenses................................... 14,576 668
----------- -----------
Total current assets............................. 193,300 37,506
Property and equipment, net.......................... 90,485 77,730
Other assets......................................... 4,765 4,566
----------- -----------
Total................................................ $ 288,550 $ 119,802
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable................................... $ 75,295 $ 268,915
Accrued expenses................................... 121,035
Notes payable...................................... 544,000
----------- -----------
Total current liabilities........................ 75,295 933,950
Commitments and contingencies (Note 6)
Shareholders' equity (deficiency):
Series A Convertible Preferred stock, $.01 par
value--
Authorized, 1,700,000 and -0- shares; issued and
outstanding, 1,327,750 and -0- shares; liquidation
preference of $213,255 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 and 20,000,000 shares;
issued and
outstanding, 2,155,000 and 3,482,750 shares....... 21,550 34,828
Paid-in capital.................................... 1,899,331 2,496,930
Accumulated deficit................................ (1,720,904) (3,345,906)
----------- -----------
Total shareholders' equity (deficiency).......... 213,255 (814,148)
----------- -----------
Total................................................ $ 288,550 $ 119,802
=========== ===========
</TABLE>
See notes to financial statements.
F-20
<PAGE>
OUTPOST NETWORK, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revenues............................................. $ 47,611 $ 293,963
Cost of revenues..................................... 220,092 412,964
----------- -----------
Gross loss....................................... (172,481) (119,001)
Operating expenses:
Product development................................ 273,467 356,218
Sales and marketing................................ 213,706 201,244
General and administrative......................... 430,705 921,391
----------- -----------
Total operating expenses......................... 917,878 1,478,853
----------- -----------
Loss from operations................................. (1,090,359) (1,597,854)
Other income (expense)............................... 18,947 (27,148)
----------- -----------
Net loss............................................. $(1,071,412) $(1,625,002)
=========== ===========
</TABLE>
See notes to financial statements.
F-21
<PAGE>
OUTPOST NETWORK, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1996 AND 1997
<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)
========= ========== ======== ========= ======= ========== =========== ===========
</TABLE>
See notes to financial statements.
F-22
<PAGE>
OUTPOST NETWORK, INC
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Operating Activities:
Net loss............................................ $(1,071,412) $(1,625,002)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization................... 29,681 49,753
Inventory obsolescence expense.................. -- 28,437
Compensation expense--Stock Warrant Grants...... -- 597,599
Loss on disposal of fixed assets................ 663
Cash provided(used) by changes in operating
assets and liabilities:
Employee and other receivables................. (2,855) 402
Inventory...................................... (27,940) (12,666)
Prepaid expenses and other current assets...... (14,576) 13,908
Other assets................................... (4,765) 199
Accounts payable............................... 47,217 193,620
Accrued expenses............................... (18,500) 121,035
----------- -----------
Net cash used by operating activities......... (1,062,487) (632,715)
Investing Activities:
Acquisition of property and equipment............... (97,036) (36,998)
----------- -----------
Financing Activities:
Proceeds from issuance of notes payable............. -- 544,000
Proceeds from issuance of preferred stock........... 1,302,885 --
----------- -----------
Net cash provided by financing activities..... 1,302,885 544,000
----------- -----------
Net increase (decrease) in cash and cash equivalents. 143,362 (125,713)
Cash and cash equivalents:
Beginning of period................................. 736 144,098
----------- -----------
End of period....................................... $ 144,098 $ 18,385
=========== ===========
</TABLE>
See notes to financial statements.
F-23
<PAGE>
OUTPOST NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997
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 an LLC and was
incorporated in Washington on January 2, 1996.
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 remaning 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 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.
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
F-24
<PAGE>
OUTPOST NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 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, as
discussed in Note 8, $540,000 of the convertible notes outstanding as of
December 31, 1997, were converted into shares of common stock subsequent to
year end in conjunction with the merger with InfoSpace.com. The remaining
$4,000 was repaid subsequent to year end.
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 an LLC 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 at a par value of
$.001. The preferred stock may be issued in one or more series.
F-25
<PAGE>
OUTPOST NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
Preferred stock: During January and February 1996, the Company sold
1,327,750 shares of $.01 par value per share Series A Convertible Preferred
Stock at a price of $1.00 per share. On October 30, 1997 all outstanding
shares of Series A Convertible 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 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>
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.
F-26
<PAGE>
OUTPOST NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6: COMMITMENTS AND CONTINGENCIES
In January 1998, the Company began sharing office space with InfoSpace, Inc.
who subsequently acquired the Company (Note 8). 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 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%.
NOTE 8: SUBSEQUENT EVENTS
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's common stock. The transaction was consummated June
2, 1998.
Capital transactions: The Company issued 31,490,018 shares of common stock
from the period January 13 through June 2, 1998, due to the exercise of
warrants, conversion of debt, stock purchases, and other transactions as
follows:
Exercise of warrants: The 9,056,000 stock warrants outstanding at December
31, 1997, were exercised at $.01 per share during May of 1998.
Conversion of debt: $540,000 of the convertible notes outstanding as of
December 31, 1997 were converted into 10,800,000 shares of common stock at
$.05 per share. Additional debt in the amount of $70,500 issued subsequent to
year end was converted into 1,410,000 shares of common stock at $.05 per share
during May and June of 1998.
Sale of common stock: 7,074,018 shares of common stock were sold at $.05 per
share to employees and outside investors during May and June of 1998.
Other: 3,000,000 shares of common stock were issued to outside consultants
in exchange for services rendered in May of 1998 valued at $386,100.
F-27
<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 sponsorships are sold by InfoSpace.com
direct advertising sales representatives. Sponsorships and featured listings
are sold to local advertisers by sales representatives at affiliated Yellow
Pages publishers.
[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 IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS 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 SOLICI-
TATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS NOT UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS COR-
RECT 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............................................................. 21
Use of Proceeds......................................................... 21
Dividend Policy......................................................... 21
Capitalization.......................................................... 22
Dilution................................................................ 23
Selected Consolidated Financial Data.................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 25
Business................................................................ 33
Management.............................................................. 54
Certain Transactions.................................................... 59
Principal Stockholders.................................................. 61
Description of Capital Stock............................................ 62
Shares Eligible for Future Sale......................................... 66
Underwriting............................................................ 68
Legal Matters........................................................... 69
Experts................................................................. 70
Additional Information.................................................. 70
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[LOGO OF INFOSPACE.COM, INC.(TM)]
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.............. $ 16,963
NASD filing fee.................................................. 6,250
Nasdaq National Market listing fee............................... 95,000
Blue Sky fees and expenses....................................... 10,000
Printing and engraving expenses.................................. 225,000
Legal fees and expenses.......................................... 300,000
Accounting fees and expenses..................................... 200,000
Directors and officers insurance................................. 150,000
Transfer Agent and Registrar fees................................ 10,000
Miscellaneous expenses........................................... 86,787
----------
Total.......................................................... $1,100,000
==========
</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 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 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 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 1,
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. On January 2, 1998, the
purchase price was finalized and 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. The
form of the transaction was a merger, whereby a
II-2
<PAGE>
wholly owned subsidiary of the registrant was merged with and into Outpost.
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) From April 1996 through August 15, 1998, the registrant granted
stock options to purchase an aggregate of 1,683,875 shares of Common Stock
to employees, consultants and directors with exercise prices ranging from
$0.02 to $8.00 per share pursuant to the registrant's Restated 1996
Flexible Stock Incentive Plan in consideration for services. From April 10,
1996 to August 15, 1998, the registrant also granted stock options outside
of the plan to purchase 484,624 shares of Common Stock, with exercise
prices of $0.02 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. 1996 Flexible Stock Incentive Plan.
10.3. 1998 Employee Stock Purchase Plan
10.4. Lease, dated May 14, 1998, between the registrant and TIAA Realty,
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.
21.1. Subsidiaries of the registrant.
23.1. Consent of Deloitte & Touche LLP, Independent Auditors.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
23.2.* Consent of Perkins Coie LLP (contained in the opinion filed as
Exhibit 5.1 hereto).
24.1. Power of Attorney (contained on the signature page hereto).
27.1. Financial Data Schedule.
</TABLE>
- ---------------------
* To be filed by amendment.
+ Confidential treatment requested.
(b) Financial Statement Schedules
All schedules are omitted because they are inapplicable or the requested
information is shown in the 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 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Redmond,
State of Washington, on the 26th day of August, 1998.
INFOSPACE.COM, INC.
/s/ Naveen Jain
By: _________________________________
Naveen Jain, President
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Naveen Jain and Ellen B. Alben, and each of them, with full power of
substitution and resubstitution and full power to act without the other, as
his true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of each person, individually
and in each capacity stated below, and to file, any and all amendments to this
Registration Statement, including any and all post-effective amendments and
amendments thereto and any registration statement relating to the same
offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing, ratifying and confirming all that
said attorneys-in-fact and agents or any of them or their and his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the 26th day of August, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Naveen Jain President, Chief Executive
____________________________________ Officer and Chairman of the
Naveen Jain Board (Principal Executive
Officer)
/s/ Douglas A. Bevis Vice President and Chief
____________________________________ Financial Officer
Douglas A. Bevis (Principal Financial and
Accounting Officer)
/s/ John K. Arnold Vice President, e-Commerce
____________________________________ Group and Director
John K. Arnold
/s/ John E. Cunningham, IV Director
____________________________________
John E. Cunningham, IV
/s/ Peter L. S. Currie Director
____________________________________
Peter L. S. Currie
/s/ Gary C. List Director
____________________________________
Gary C. List
</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. 1996 Flexible Stock Incentive Plan.
10.3. 1998 Employee Stock Purchase Plan
10.4. Lease, dated May 14, 1998, between the registrant and TIAA Realty,
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 Page 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.
21.1. Subsidiaries of the registrant.
23.1. Consent of Deloitte & Touche LLP, Independent Auditors.
</TABLE>
<PAGE>
INDEX TO EXHIBITS--(CONTINUED)
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
23.2.* Consent of Perkins Coie LLP (contained in the opinion filed as
Exhibit 5.1 hereto).
24.1. Power of Attorney (contained on the signature page hereto).
27.1. Financial Data Schedule.
</TABLE>
- ---------------------
* To be filed by amendment.
+ Confidential treatment requested.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 12, 1998
BY AND AMONG
INFOSPACE, INC.,
OUTPOST NETWORK, INC.,
CERTAIN SHAREHOLDERS OF
OUTPOST NETWORK, INC.,
AND OUTPOST ACQUISITION, INC.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - TERMS OF MERGER...............................................................................1
Section 1.1 The Merger..............................................................................1
Section 1.2 Effective Date of the Merger............................................................2
Section 1.3 Articles of Incorporation of the Surviving Corporation..................................2
Section 1.4 Bylaws of the Surviving Corporation.....................................................2
Section 1.5 Corporate Governance....................................................................2
Section 1.6 Conversion of Shares....................................................................3
Section 1.7 Acquisition Common Stock................................................................3
Section 1.8 No Fractional Shares....................................................................3
Section 1.9 Exchange of Shares; Stock Transfer Books................................................4
Section 1.10 Treasury and Other Stock...............................................................4
Section 1.11 Exercise of Stock Rights...............................................................4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF OUTPOST AND PRINCIPAL SHAREHOLDERS...........................4
Section 2.1 Corporate Organization..................................................................5
Section 2.2 Binding Agreement.......................................................................5
Section 2.3 OutPost Stock...........................................................................5
Section 2.4 Properties..............................................................................5
Section 2.5 Interest in Assets......................................................................6
Section 2.6 Effective Agreement.....................................................................6
Section 2.7 Defaults of Others......................................................................6
Section 2.8 Litigation..............................................................................6
Section 2.9 Insurance...............................................................................7
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 2.10 Employee Benefits, Retirement and Welfare Plans........................................7
Section 2.11 Employees..............................................................................7
Section 2.12 Labor Relations........................................................................8
Section 2.13 Absence of Certain Changes.............................................................8
Section 2.14 Compliance with Laws...................................................................8
Section 2.15 Environmental..........................................................................8
Section 2.16 Governmental Licenses, Etc.............................................................8
Section 2.17 Officers and Directors; Powers of Attorney.............................................9
Section 2.18 Statements True, Complete and Correct..................................................9
Section 2.19 Virtual Outlet.........................................................................9
Section 2.20 Contracts.............................................................................10
Section 2.21 Status of Contracts...................................................................11
Section 2.22 Commissions...........................................................................11
Section 2.23 Tax Returns...........................................................................11
Section 2.24 Financial Information.................................................................12
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF INFOSPACE...................................................12
Section 3.1 Corporate Organization.................................................................12
Section 3.2 Binding Agreement......................................................................12
Section 3.3 Effective Agreement....................................................................12
Section 3.4 Commissions............................................................................13
Section 3.5 Statements True, Complete and Correct..................................................13
Section 3.6 InfoSpace Stock........................................................................13
Section 3.7 Financial Information..................................................................13
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Section 3.8 No Agreements..........................................................................14
Section 3.9 Litigation.............................................................................14
Section 3.10 Tax Returns...........................................................................14
ARTICLE 4 COVENANTS......................................................................................14
Section 4.1 OutPost's and the Principal Shareholders' Negative Covenants...........................14
Section 4.2 OutPost's and Principal Shareholders' Affirmative Covenants............................15
Section 4.3 InfoSpace's Affirmative Covenant.......................................................16
Section 4.4 Post-Closing...........................................................................16
Section 4.5 Notifications as to Representations....................................................17
ARTICLE 5 CONDITIONS TO INFOSPACE'S OBLIGATION TO CLOSE..................................................17
Section 5.1 Representations and Warranties True at Closing.........................................17
Section 5.2 Compliance with Agreement..............................................................18
Section 5.3 No Material Change.....................................................................18
Section 5.4 No Injunction..........................................................................18
Section 5.5 Casualty...............................................................................18
Section 5.6 Shareholder Consents...................................................................19
Section 5.7 Certificate of Fulfillment of Conditions...............................................19
Section 5.8 Limitation on Liabilities..............................................................19
Section 5.9 Employment of Key Individuals..........................................................19
Section 5.10 Resignation of OutPost Officers and Directors.........................................19
Section 5.11 Appraisal Rights......................................................................19
Section 5.12 Investment Certificate................................................................20
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
ARTICLE 6 CONDITIONS TO OUTPOST'S AND PRINCIPAL
SHAREHOLDERS' OBLIGATIONS TO CLOSE..................................................................20
Section 6.1 Representations and Warranties True at Closing.........................................20
Section 6.2 Compliance with Agreement..............................................................20
Section 6.3 No Injunction..........................................................................20
Section 6.4 Certificate of Fulfillment of Conditions...............................................21
Section 6.5 Offering Memorandum....................................................................21
Section 6.6 Shareholder Consents...................................................................21
Section 6.7 Due Diligence..........................................................................21
ARTICLE 7 THE CLOSING....................................................................................21
Section 7.1 Closing................................................................................21
Section 7.2 OutPost's and Principal Shareholders' Performance......................................21
Section 7.4 InfoSpace's Performance................................................................22
Section 7.5 Failure to Close.......................................................................23
ARTICLE 8 ANNOUNCEMENTS..................................................................................23
ARTICLE 9 TERMINATION AND ABANDONMENT....................................................................23
Section 9.1 Reasons for Termination................................................................23
Section 9.2 Effect of Termination..................................................................23
ARTICLE 10 RESTRICTIONS ON TRANSFER......................................................................24
ARTICLE 11 INDEMNITIES...................................................................................24
Section 11.1 Principal Shareholder and Recent Investor Indemnities.................................24
Section 11.2 InfoSpace's Indemnity.................................................................26
Section 11.3 Procedure and Participation...........................................................26
Section 11.4 Survival of Indemnification; Exclusive Remedy.........................................27
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
ARTICLE 12 MISCELLANEOUS.................................................................................27
Section 12.1 Notices...............................................................................27
Section 12.2 Entire Agreement; Amendment...........................................................29
Section 12.3 Counterparts..........................................................................29
Section 12.4 Expenses..............................................................................29
Section 12.5 Further Assurances....................................................................29
Section 12.6 Construction..........................................................................29
Section 12.7 Joint and Several Obligations.........................................................29
Section 12.8 Governing Law.........................................................................30
Section 12.9 Cooperation...........................................................................30
Section 12.10 Severability.........................................................................30
Section 12.11 Survival.............................................................................30
Section 12.12 Headings.............................................................................30
</TABLE>
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<PAGE>
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered into
this 12th day of May, 1998, by and among InfoSpace, Inc., a Delaware corporation
("InfoSpace"); OutPost Network, Inc., a Washington corporation ("OutPost"), the
shareholders of OutPost listed on the signature page for this Agreement (which
shareholders are either designated therein as each a "Principal Shareholder" and
collectively, the "Principal Shareholders" or each as a "Recent Investor" and
collectively, the "Recent Investors"), and OutPost Acquisition, Inc., a
Washington corporation ("Acquisition"). The term "Shareholder" is used from
time to time herein and refers to any shareholder of OutPost. The term
"Principal Shareholder" or "Principal Shareholders" does not refer to or include
any Recent Investor.
RECITALS
WHEREAS, Acquisition is a recently formed Washington corporation and
InfoSpace is the owner of all of the issued and outstanding shares of the common
stock of Acquisition;
WHEREAS, the parties intend that, subject to the terms and conditions
hereinafter set forth, Acquisition be merged with and into OutPost pursuant to
this Agreement and the Articles of Merger (the "Articles of Merger")
substantially in the form of Exhibit 1A attached hereto (the "Merger");
WHEREAS, the Merger is intended to qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1996, as
amended (the "Code"); and
WHEREAS, the respective Boards of Directors of InfoSpace, OutPost and
Acquisition have approved the Merger pursuant to this Agreement and the Articles
of Merger;
NOW, THEREFORE, in order to consummate the Merger and in consideration of
the mutual representations, warranties and agreements contained herein, the
parties hereto agree as follows:
<PAGE>
ARTICLE 1 - TERMS OF MERGER
SECTION 1.1 THE MERGER
Subject to the terms and conditions of this Agreement and the laws of the
State of Washington, InfoSpace, Acquisition and OutPost shall execute and file,
among other things, the Articles of Merger in the Office of the Secretary of
State of the State of Washington (the "Washington Secretary of State") pursuant
to which the separate existence of Acquisition shall cease and Acquisition shall
be merged with and into OutPost on the Effective Date (as defined in Section
1.2). Acquisition and OutPost are sometimes collectively referred to as the
"Constituent Corporations" and OutPost is sometimes referred to as the
"Surviving Corporation."
SECTION 1.2 EFFECTIVE DATE OF THE MERGER
The Merger shall become effective on the date the Articles of Merger and
any other documents required by the Business Corporation Act of the State of
Washington (the "Corporation Law") shall be duly executed, acknowledged or
verified and filed with the Washington Secretary of State in accordance with the
Corporation Law (the "Effective Date"). If the Washington Secretary of State
requires any changes in the Articles of Merger as a condition to filing the
Articles of Merger, InfoSpace, Acquisition, OutPost and the Principal
Shareholders will execute necessary revisions incorporating such changes,
provided such changes are not materially inconsistent with or result in any
material changes in the terms of this Agreement or the Articles of Merger.
SECTION 1.3 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION
At the Effective Date and without any further action on the part of the
Constituent Corporations, the Articles of Incorporation of OutPost, shall be and
remain the Articles of Incorporation of the Surviving Corporation. Such
Articles of Incorporation may thereafter be altered, amended or repealed in
accordance with the provisions thereof or applicable law. As of the date this
Agreement is executed, the Restated Articles of Incorporation, as amended, are
in effect in the form of Exhibit 1.3A. As of the Effective Date, the Restated
Articles of Incorporation, as amended, shall have been further amended as set
forth in Exhibit 1.3B. Prior to or as of the Effective Date, no other
amendments or restatements shall have been made to the Restated Articles of
Incorporation as amended, or, except as specifically set forth herein.
SECTION 1.4 BYLAWS OF THE SURVIVING CORPORATION
At the Effective Date and without any further action on the part of the
Constituent Corporations, the Bylaws of OutPost, a copy of which is attached
hereto as Exhibit 1.4, shall be and remain the Bylaws of the Surviving
Corporation, until altered, repealed or amended in accordance with the
provisions thereof and applicable law. Prior to or as of the Effective Date, no
other amendments or restatements shall have been made to the Bylaws except as
specifically set forth herein.
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<PAGE>
SECTION 1.5 CORPORATE GOVERNANCE
1.5.1 As of the Effective Date, the directors and officers of OutPost
shall have resigned and at the Effective Date, the shareholder of the Surviving
Corporation shall elect replacement directors and the new directors shall elect
replacement officers of the Surviving Corporation, each of such persons to hold
office, subject to the applicable provisions of the Articles of Incorporation
and Bylaws of the Surviving Corporation, and applicable law.
1.5.2 As of the Effective Date, InfoSpace shall have amended its
certificate of incorporation to provide for a board consisting of five (5)
directors, and InfoSpace, Naveen Jain, John Stanton, Theresa E. Gillespie, the
Stanton Family Trust, Kurt Dahl, John Arnold, Douglas C. Lawrence, Donald
Guthrie, Mikal J. Thomsen, Kirlin Partners LLC, The Walter Group, Inc., and
David Wagner shall have entered into a Voting Agreement in the form of Exhibit
1.5.2.
SECTION 1.6 CONVERSION OF SHARES
Upon the effectiveness of the Merger, the manner of converting and
exchanging the shares of the Constituent Corporations shall be as follows:
InfoSpace shall issue a total of not more than 3,000,000 shares of its Common
Stock, par value $.0001/share. Each issued and outstanding share of the Common
Stock of OutPost (the "OutPost Stock") shall, by virtue of the Merger and
without any action on the part of the holder thereof, automatically be converted
into a fraction (the "Conversion Ratio") of one fully paid and nonassessable
share of Common Stock of InfoSpace ("InfoSpace Common"). The Conversion Ratio
shall be a fraction with a numerator equal to 3,000,000, and a denominator equal
to the total number of shares of OutPost Stock issued and outstanding
immediately prior to the Effective Date. On or after the Effective Date, all
certificates representing shares of OutPost Stock shall be surrendered to the
Secretary of the Surviving Corporation, whereupon there shall be issued to the
respective holder of each such certificate a certificate representing the number
of shares of InfoSpace Common into which such shares have been converted as
provided herein.
SECTION 1.7 ACQUISITION COMMON STOCK
Each share of common stock, no par value, of Acquisition ("Acquisition
Common Stock") issued and outstanding immediately prior to the Merger shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be automatically converted into and exchangeable for one share of the common
stock, no par value, of the Surviving Corporation.
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<PAGE>
SECTION 1.8 NO FRACTIONAL SHARES
No fractional share of InfoSpace Common will be issued in the Merger, but,
in lieu thereof, each holder of OutPost Stock who would otherwise be entitled to
a fraction of a share of InfoSpace Common (after aggregating all fractional
shares of InfoSpace Common to be received by such holder) will be entitled to
receive an amount of cash (rounded to the nearest whole cent) equal to the
product of (a) the fraction multiplied by (b) $2.00.
SECTION 1.9 EXCHANGE OF SHARES; STOCK TRANSFER BOOKS
On the Effective Date of the Merger, each holder of an outstanding
certificate or certificates theretofore representing shares of OutPost Stock
shall be entitled, upon surrender of such certificate or certificates to the
Surviving Corporation, to receive in respect of each share represented by such
certificate or certificates, InfoSpace Common in accordance with Section 1.6 and
if applicable, cash in accordance with Section 1.8. The cash payment, if any,
shall be made by corporate check of InfoSpace made payable to the holder of
record of OutPost Stock as shown on Schedule 2.3 in respect of which payment is
being made. At the Effective Date of the Merger there shall be no further
registry of transfers on the records in respect of OutPost Stock outstanding
immediately prior to the Effective Date of the Merger. If any payment is to be
made in the form of a check payable to a name other than that in which the
certificate for OutPost Stock surrendered is registered, or if InfoSpace Common
is to be issued in a name other than that in which the certificate for OutPost
Stock surrendered is registered, it shall be a condition of such distribution
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and that the person requesting such payment or
InfoSpace Common shall pay to the Surviving Corporation any transfer or other
taxes required, or shall establish to the satisfaction of the Surviving
Corporation that such taxes have been paid or are not applicable. If, after the
Effective Date of the Merger, certificates are presented to the Surviving
Corporation, they shall be cancelled and exchanged for such cash payment and
InfoSpace Common as provided herein.
SECTION 1.10 TREASURY AND OTHER STOCK
All shares of OutPost Stock which are held by OutPost as treasury shares
(if any) shall cease to exist as of the Effective Date, without any conversion
thereof or exchange with respect thereto.
SECTION 1.11 EXERCISE OF STOCK RIGHTS
On the Effective Date, any option, warrant or other right to purchase
shares of OutPost Stock ("OutPost Options"), which is outstanding on the
Effective Date, shall be cancelled unless exercised prior to the Effective Date.
-4-
<PAGE>
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF
OUTPOST AND PRINCIPAL SHAREHOLDERS
Each of the Principal Shareholders and OutPost jointly and severally
represent and warrant to InfoSpace, as follows; provided however that John
Stanton, Theresa E. Gillespie, the Stanton Family Trust, Kirlin Partners LLC,
Douglas C. Lawrence, Donald Guthrie, Mikal J. Thomsen, and The Walter Group,
Inc. (the "Recent Investors") make only those representations and warranties set
forth in the second sentence of Section 2.3, and in Sections 2.2 and 2.8.2
below, and such representations and warranties are made severally and not
jointly by each Recent Investor.
SECTION 2.1 CORPORATE ORGANIZATION
OutPost is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington; has the corporate power and
authority to own, operate and lease its properties as presently owned, operated
and leased and to carry on its business as it is now being conducted. OutPost
owns no interest in any corporation, partnership, joint venture or other entity
or association.
SECTION 2.2 BINDING AGREEMENT
This Agreement, upon due execution by InfoSpace and the other parties
hereto, will constitute the legal, valid and binding obligations of OutPost, the
Principal Shareholders, and the Recent Investors, enforceable in accordance with
its terms, except as same may be limited by bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally.
SECTION 2.3 OUTPOST STOCK
Schedule 2.3 sets forth a complete an accurate description of the number of
shares of OutPost Stock that will be issued and outstanding as of the Effective
Date. As of the Effective Date, the OutPost Stock described in Schedule 2.3
shall be duly authorized and issued, fully paid and non-assessable. Except for
the agreements described in Schedule 2.3, neither OutPost nor any Principal
Shareholder or Recent Investor is a party to any written or oral agreement,
understanding, arrangement or commitment with respect to the OutPost Stock or
which imposes any obligation on OutPost, or any Principal Shareholder or Recent
Investor or creates or may create any rights in any person regarding OutPost
Stock, or any rights to acquire any capital stock or other interest in OutPost.
No shares of preferred stock in OutPost will be issued and outstanding as of the
Effective Date, and no other shares of OutPost Stock shall be issued and
outstanding except as described in Schedule 2.3.
-5-
<PAGE>
SECTION 2.4 PROPERTIES
OutPost has good and marketable title to all of the assets used in its
business as conducted on the date hereof (the "Assets"). As of the Effective
Date, the Assets will be free and clear of all encumbrances, liens, security
interests and charges of every kind and character. None of the Assets is
subject to a contract, option or commitment for sale; and all the Assets are
owned by OutPost. All such Assets are in OutPost's possession or under its
control.
SECTION 2.5 INTEREST IN ASSETS
OutPost has not granted, and there is not outstanding, any option, right,
agreement or other obligation pursuant to which any party could claim a right to
acquire in any way all or any part of or interest in the Assets.
SECTION 2.6 EFFECTIVE AGREEMENT
The execution, delivery and performance of this Agreement by OutPost and
the Principal Shareholders and the consummation of the transactions contemplated
herein do not require the consent, waiver, approval, license or authorization of
any person or public authority; do not conflict with, result in a breach of or
constitute a default under any applicable law, judgment, order, injunction,
decree, rule or regulation, or ruling of any court or government instrumentality
or the Articles of Incorporation or Bylaws of OutPost, or with or without the
giving of notice and/or the passage of time, any mortgage, deed of trust,
license, lease, indenture or other agreement or any instrument or any order,
judgment or any other restriction of any kind or character, to which OutPost or
any Principal Shareholder is a party or by which OutPost or any Principal
Shareholder or any of their respective properties may be bound; do not give to
others any right to terminate, or result in termination of, any such
instruments; do not result in termination of any provisions of such instruments;
and do not result in the creation of any lien, charge or encumbrance on any of
the Assets.
SECTION 2.7 DEFAULTS OF OTHERS
Neither OutPost nor any Principal Shareholder has received any notice,
formal or otherwise, from any other party with whom OutPost has any material
contractual arrangement of a failure to comply with or default (without regard
to any requirement of notice or grace period or both) in the observance or
performance of any material term, condition, or provision of any such
contractual agreement which may affect the Assets.
SECTION 2.8 LITIGATION
2.8.1 Except with respect to a possible breach of contract suit threatened
by Patrick R. Adkisson, there is no suit, action, arbitration, legal,
administrative or other
-6-
<PAGE>
proceeding pending or threatened which may materially adversely affect the
Assets, OutPost's ability to conduct its business after the Closing, or
Principal Shareholders' ability to perform any of their obligations under this
Agreement. There is no governmental regulation, rule, law or investigation
pending or threatened which may materially adversely affect the business of
OutPost, or Principal Shareholders' ability to perform any of their obligations
under this Agreement.
2.8.2 The Principal Shareholders (and the Recent Investors) are not
subject to, or party to or otherwise bound by, any suit, action or other legal
proceeding, or any suit, action or other legal proceeding, or any order, writ,
injunction, decree or ruling of any federal, state or local court, governmental
agency or quasi-governmental authority which would prohibit or impair any such
Principal Shareholder's or Recent Investor's power to execute and deliver this
Agreement, or perform any of their respective obligations under this Agreement.
SECTION 2.9 INSURANCE
Schedule 2.9 sets forth a correct and complete list of all of the policies
of insurance and fidelity or surety bonds maintained by OutPost. OutPost has
received no notices of any outstanding requirements or recommendations from any
insurance company that issued a policy with respect to any of the properties and
assets of OutPost during the previous five years, from any board of fire
underwriters of other body exercising similar functions or from any governmental
authority requiring or recommending that (i) any repair or other material work
be done on or with respect to any of the properties and assets owned, used or
occupied by OutPost; or (ii) any material, equipment or facilities be installed
on, or in connection with, any of the properties or assets owned, used or
occupied by OutPost.
SECTION 2.10 EMPLOYEE BENEFITS, RETIREMENT AND WELFARE PLANS
Except as set forth on Schedule 2.10, there are no employee welfare or
benefit plans sponsored by OutPost or in which OutPost employees, as OutPost
employees, participate. The Principal Shareholders have delivered to InfoSpace
all documents that set forth the terms of or otherwise relating to each such
plan and all personnel, payroll, and employment manuals and policies. OutPost
has performed all of its obligations under all such plans.
SECTION 2.11 EMPLOYEES
Schedule 2.11 hereto contains a list of all persons employed by OutPost
(singly, an "Employee" and collectively, the "Employees"), together with (i) the
amount of the current annualized salary or hourly wage of such person, (ii)
whether such person is considered in due course for discretionary bonuses,
together with the amount of such bonus paid to such person by OutPost with
respect to the period ended December 31,
-7-
<PAGE>
1996, (iii) whether any such person is contractually or otherwise entitled to
any non-discretionary bonus with respect to all or part of the year ending
December 31, 1997 and, if so, the method of computation of such bonus, (iv)
whether any such person is contractually or otherwise entitled to any commission
with respect to all or part of the year ending December 31, 1997 and, if so, the
method of computation and the amount (or estimated amount) of commissions that
will be payable for the year ending December 31, 1997, and (v) whether such
person is involved in the development of the "Virtual Outlet" technology.
SECTION 2.12 LABOR RELATIONS
OutPost is in compliance with all federal, state and local laws and
regulations respecting employment and employment practices, terms and conditions
of employment and wages and hours. OutPost is not a party to any collective
bargaining agreement, and there is no strike, dispute, grievance, controversy or
other labor trouble existing or threatened against OutPost, and no grounds for
any such action.
SECTION 2.13 ABSENCE OF CERTAIN CHANGES
Since December 31, 1997, there has not been:
2.13.1 any material damage, destruction or loss (whether or not
covered by insurance) affecting the Assets or the results of operations of
OutPost; or
2.13.2 any sale, transfer, pledge, mortgage, abandonment or other
disposition of any of the Assets, or any agreement to do so, except in the
ordinary course of business.
SECTION 2.14 COMPLIANCE WITH LAWS
OutPost is in material compliance with all laws, regulations, or
governmental orders relating to the Assets or the business. OutPost has not
been charged with a violation of any law, regulation, or governmental order
relating to the Assets or the business. OutPost is not in default or violation
of or with respect to any judgment, order, injunction or decree of any court or
governmental instrumentality adversely affecting the Assets or the business.
SECTION 2.15 ENVIRONMENTAL
No Hazardous Substances have been released at, in or under OutPost's
premises, or have migrated into or under such premises. No Hazardous Substances
have migrated from the Facility, or been disposed of offsite. No toxic
substances, as regulated under the Toxic Substances Control Act ("TSCA"), 15
U.S.C. (S)(S) 2601 through 2671 and any
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regulations promulgated pursuant thereto, or otherwise, have ever been used by
OutPost at its premises or elsewhere.
SECTION 2.16 GOVERNMENTAL LICENSES, ETC.
OutPost has all governmental licenses (including Occupational Safety and
Health Administration or environmental agency licenses) required, if any, for
the conduct of its business and all such licenses, which are listed in Schedule
2.16 hereto, are currently in full force and effect. (i) There have been no
material violations of any of the terms and conditions of any such licenses,
(ii) there is no action pending or threatened by any governmental authority
seeking to cancel, revoke, rescind, limit, or terminate any such license, (iii)
consummation of the transactions contemplated by this Agreement will neither
result in a violation of any of the terms and conditions of any such license or
of any statute or regulation under which it was issued nor impair the validity
of any such license, and (iv) each such license shall remain in full force and
effect in accordance with its terms.
SECTION 2.17 OFFICERS AND DIRECTORS; POWERS OF ATTORNEY
Schedule 2.17 hereto contains a list of all officers and directors of
OutPost, and no person holds general or special powers of attorney from OutPost.
SECTION 2.18 STATEMENTS TRUE, COMPLETE AND CORRECT
The statements about OutPost contained herein, in the Exhibits, the
Schedules, or in any Offering Memorandum delivered to the Shareholders by
InfoSpace in connection with the Merger (the "Offering Memorandum") or in any
other written documents executed and delivered at the Closing which are required
under this Agreement by or on behalf of OutPost or the Principal Shareholders,
are true, complete and correct in all material respects, and such statements
contained herein, in the Exhibits, the Schedules, the Offering Memorandum and
such other documents do not omit any material fact which, if disclosed, might
reasonably have been expected to affect the decision of InfoSpace to enter into
this Agreement. The statements and information of the Principal Shareholders
contained in the Exhibits, the Schedules, the Offering Memorandum and such other
documents shall be deemed to constitute representations and warranties of
Principal Shareholders under this Agreement to the same extent as if herein set
forth in full.
SECTION 2.19 VIRTUAL OUTLET
OutPost owns the entire and exclusive right, title and interest in and to
the "Virtual Outlet" technology ("VO"), free and clear of any and all liens,
encumbrances, interests or other restrictions of any kind. OutPost has filed
and is vigorously prosecuting a U.S. patent relating to certain aspects of VO
and is the sole and exclusive owner of all rights in
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and to such patent application and any and all Letters Patent which may be
granted or issued in connection with VO. VO is an original work and no portion
of VO has been copied from any other person or infringes or otherwise violates
the copyright, trade secret, confidentiality, contract or license rights of any
third party. To the best of OutPost's knowledge, VO does not infringe the patent
or trademark rights of any third party. There are no patent infringement suits
or asserted patent infringement claims pertaining to VO pending or threatened as
of the date of this Agreement and OutPost is not aware of any potential patent
infringement claims. OutPost is not operating under or paying royalties under
any patent license or technical information agreement applicable to VO, nor is
it committed in any way to enter into any such agreement. No third party has any
license or other rights in or to VO. VO is not fully developed.
SECTION 2.20 CONTRACTS
Except as set forth on Schedule 2.21 or any other Schedule hereto, OutPost
is not a party to or bound by:
(a) any contract for the purchase, sale or lease of real property or
any option to purchase or sell real property;
(b) any indebtedness, obligation or liability for borrowed money, or
liability for the deferred purchase price of property in excess of $5,000, or
any instrument guaranteeing any indebtedness, obligation or liability, or any
obligation to incur any of the foregoing;
(c) any joint venture, partnership or other arrangement involving a
sharing of profits involving OutPost;
(d) any agreement that is material to the business of OutPost and
which includes provisions regarding minimum volumes or volume discounts,
excluding outstanding price quotations;
(e) any agreement that is material to the business of OutPost and
pursuant to which a rebate, discount, bonus, commission or other payment with
respect to the sale of any product or service of OutPost will be payable or
required after the Effective Date;
(f) any guarantee of the obligations of OutPost's customers,
suppliers, officers, directors, employees or Affiliates or others;
(g) any consignment, distributor, dealer, manufacturer's
representative, sales agency, advertising representative or advertising or
public relations contract that is material to OutPost;
(h) any agreement limiting OutPost's ability to engage in any business
anywhere in the world;
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(i) any contract which provides for, or relates to, any non-
competition or confidentiality arrangement with any Person, including any
current or former officer or employee of OutPost;
(j) any contract or group of related contracts for capital
expenditures in excess of $5,000 for any single project or related series of
projects;
(k) any contract which involves payments or receipts by the Company of
more than $5,000; or
(l) any contract not made in the ordinary course of business.
SECTION 2.21 STATUS OF CONTRACTS
Each of the leases, contracts and other agreements listed on Schedule 2.21
(collectively, the "Material Contracts"), constitutes a valid and binding
obligation of the Company and, to the knowledge of OutPost or any of the
Principal Shareholders, the other parties thereto, and is in full force and
effect and each of the Material Contract (except for those Material Contracts
which by their terms will expire prior to the Closing Date or will be otherwise
terminated prior to the Closing Date in accordance with the provisions hereof)
will continue in full force and effect after the Closing Date, in each case
without breaching the terms thereof or resulting in the forfeiture or impairment
of any rights thereunder and without the consent, approval or act of, or the
making of any filing with, any other party. OutPost has fulfilled and performed
its obligations under each of the Material Contracts and OutPost is not in, or,
to the knowledge of OutPost and the Principal Shareholders, alleged to be in,
breach or default under, nor is there or, to the knowledge of OutPost and the
Principal Shareholders, is there alleged to be any basis for termination of any
of the Material Contracts. To the knowledge of OutPost or any of the Principal
Shareholders, no other party to any of the Material Contracts has breached or
defaulted thereunder. No event has occurred and no condition or state of facts
exists which, with the passage of time or the giving of notice or both, would
constitute such a default or breach by OutPost or, to the knowledge of OutPost,
or any of the Principal Shareholders, by any other party. OutPost is not
currently renegotiating any of the Material Contracts or paying damages in lieu
of performance thereunder.
SECTION 2.22 COMMISSIONS
There is no agent, broker, investment banker, finder or other person or
firm who would have any valid claim against OutPost for a commission, finder's
fee or brokerage fee in connection with this Agreement or any of the
transitions, transfers or assignments contemplated hereby.
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SECTION 2.23 TAX RETURNS
OutPost has filed on or before their respective due dates or extensions
thereof all federal, state and local tax returns and reports as are required to
be filed; all such returns are true, correct and complete; and to the best of
its knowledge, OutPost has duly paid or accrued in full for any federal, state
and local taxes or other charges due or claimed to be due to any federal, state
or local taxing authorities, including, without limitation, employee withholding
amounts. There are no tax liens upon any property or assets of OutPost other
than liens for current taxes not yet paid or payable. No federal, state or local
tax returns of OutPost are currently under examination by any taxing authority,
and, to the best of its knowledge, if any such examination is hereafter made and
the results are determined adversely to OutPost, such results will not have a
material adverse effect on the operations of OutPost taken as a whole as if
determined prior to the Merger. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to assessment of any
federal, state or local income tax.
SECTION 2.24 FINANCIAL INFORMATION
Schedule 2.25 contains the unaudited financial statements of OutPost for
the periods ending December 31, 1997 and December 31, 1996, which accurately
present the matters set forth therein.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF INFOSPACE
InfoSpace represents and warrants to the OutPost Shareholders, as follows:
SECTION 3.1 CORPORATE ORGANIZATION
InfoSpace is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has the corporate power
and authority to own, operate and lease its properties as presently owned,
operated and leased and to carry on its business as it is now being conducted.
InfoSpace's only subsidiary is Acquisition.
SECTION 3.2 BINDING AGREEMENT
This Agreement, upon its execution by OutPost and the Principal
Shareholders, will constitute the legal, valid and binding obligation of
InfoSpace, enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally.
SECTION 3.3 EFFECTIVE AGREEMENT
The execution, delivery and performance of this Agreement by InfoSpace and
consummation by it of the transactions contemplated herein do not require the
consent,
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waiver, approval, license or authorization of any person or public authority; do
not conflict with, result in a breach of or constitute a default under any
applicable law, judgment, order, injunction, decree, rule or regulation, or
ruling of any court or governmental instrumentality or the charter and governing
documents of InfoSpace, or, with or without notice of and/or the passage of
time, any mortgage, deed of trust, license, indenture or other agreement or
other instrument, or any order, judgment or any other restriction of any kind or
character to which InfoSpace is a party or by which InfoSpace may be bound; do
not give to others any right to terminate, or result in termination of, any such
instruments; and do not result in termination of any provision of such
instruments.
SECTION 3.4 COMMISSIONS
There is no agent, broker, investment banker, finder or other person or
firm who would have any valid claim against OutPost or the Shareholders for a
commission, finder's fee or brokerage fee in connection with this Agreement or
any of the transactions, transfers or assignments contemplated hereby.
SECTION 3.5 STATEMENTS TRUE, COMPLETE AND CORRECT
The statements about InfoSpace contained herein, in the Exhibits, the
Schedules, and the Offering Memorandum or in any other written documents
executed and delivered at the Closing which are required under this Agreement by
or on behalf of InfoSpace are true, complete and correct in all material
respects, and such statements contained herein, the Exhibits, the Schedules, the
Offering Memorandum and such other documents do not omit any material fact
which, if disclosed, might reasonably have been expected to affect the decision
of the Principal Shareholders to enter into this Agreement. The statements and
information of InfoSpace contained in the Exhibits, the Schedules, the Offering
Memorandum and such other documents shall be deemed to constitute
representations and warranties of InfoSpace under this Agreement to the same
extent as if herein set forth in full.
SECTION 3.6 INFOSPACE STOCK
Subject to the terms of this Agreement, the shares of InfoSpace Stock to be
issued to OutPost Shareholders pursuant hereto, as of the Effective Date, will
be duly authorized and issued, fully paid, and non-assessable. As of the
Effective Date, InfoSpace will have authorized not more than a total of
55,000,000 shares of stock, consisting of not more than 40,000,000 shares of
Common Stock, $.0001 par value/share, and 15,000,000 shares of Preferred Stock,
$.0001 par value/share. As of the date of this Agreement, InfoSpace has issued
and outstanding 22,155,510 shares of Common Stock, and no shares of Preferred
Stock. As of the Effective Date, not more than 5,000,000 shares of InfoSpace
Stock will be reserved for issuance under the InfoSpace, Inc. 1996 Flexible
Stock Incentive Plan, as amended (the "InfoSpace Plan). As of the Effective
Date, options to acquire up to 2,451,000 shares of Common Stock have been
granted pursuant to the Plan.
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As of the date of this Agreement, warrants to acquire up to 3,500,000 shares of
the Common Stock will be outstanding. Between the date of this Agreement is
executed and the Effective Date, or soon thereafter, certain changes to
InfoSpace's capitalization, as described in Schedule 3.6, may occur.
SECTION 3.7 FINANCIAL INFORMATION
Schedule 3.7 contains the audited financial statements of InfoSpace, which
are to be delivered to the Shareholders in connection with the Offering
Memorandum (as defined below), and which have been prepared in accordance with
generally accepted accounting principles by an independent certified public
accounting firm, and fairly present the matters set forth therein.
SECTION 3.8 NO AGREEMENTS
As of the Effective Date, and except as disclosed in Section 3.6, InfoSpace
is not a party to any written or oral agreement, understanding, arrangement or
commitment with respect to the InfoSpace Stock that would be violated by the
Merger or which imposes any obligation on any InfoSpace Shareholder, or creates
or may create any rights in any person, regarding InfoSpace Stock, or any rights
to acquire any capital stock or other interest in InfoSpace. There are no
preemptive rights to the shares of InfoSpace Stock to be issued pursuant hereto.
SECTION 3.9 LITIGATION
Except as set forth in Schedule 3.9, there is no suit, action, arbitration,
legal, administrative or other proceeding pending or threatened which may
materially adversely affect InfoSpace or the Merger.
SECTION 3.10 TAX RETURNS
InfoSpace has filed on or before their respective due dates or extensions
thereof all federal, state and local tax returns and reports as are required to
be filed; all such returns are true, correct and complete; and to the best of
its knowledge, InfoSpace has duly paid or accrued in full for any federal, state
and local taxes or other charges due or claimed to be due to any federal, state
or local taxing authorities, including, without limitation, employee withholding
amounts. There are no tax liens upon any property or assets of InfoSpace other
than liens for current taxes not yet paid or payable. No federal state or local
tax returns of InfoSpace are currently under examination by any taxing
authority, and, to the best of its knowledge, if any such examination is
hereafter made and the results are determined adversely to InfoSpace, such
results will not have a material adverse effect on the operations of InfoSpace
taken as a whole as if determined prior to the Merger. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
assessment of any federal, state or local income tax.
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ARTICLE 4 COVENANTS
SECTION 4.1 OUTPOST'S AND THE PRINCIPAL SHAREHOLDERS' NEGATIVE COVENANTS
Between the date hereof and the Effective Date, Principal Shareholders and
OutPost covenant that they will not, except with InfoSpace's written consent:
4.1.1 Take any action or permit to exist any condition which would
cause any of the representations and warranties of the Principal Shareholders
and OutPost contained in this Agreement to be untrue in any material respect on
the Effective Date.
4.1.2 Enter into any agreement or undertaking affecting OutPost, the
business or the Assets, other than in the ordinary course of business.
SECTION 4.2 OUTPOST'S AND PRINCIPAL SHAREHOLDERS' AFFIRMATIVE COVENANTS
Between the date hereof and the Effective Date, and post-Effective Date as
applicable, Principal Shareholders and OutPost will:
4.2.1 Use their reasonable efforts to (A) complete the transactions
contemplated herein; and (B) continue to operate OutPost's business as a going
concern.
4.2.2 At all reasonable times give to InfoSpace and its
representatives full access during normal business hours to all of the
properties, books and records of OutPost relating to the business and furnish
InfoSpace with such information concerning the operation of the business as
InfoSpace may reasonably require.
4.2.3 Maintain in force the existing hazard and liability insurance
policies, or comparable coverage, for the Assets, and, whether or not covered by
such insurance, repair, replace, or restore any of the Assets which may be
damaged, destroyed or stolen.
4.2.4 Cause all liens, charges or encumbrances on any of the Assets
to be satisfied, terminated and removed.
4.2.5 Obtain all necessary consents of the Principal Shareholders to
consummate the transactions contemplated herein, including without limitation
the formal consent of the Board of Directors of OutPost and of the Principal
Shareholders of OutPost.
4.2.6 Cause all liabilities of OutPost as of March 4, 1998, for
products or services acquired from, or amounts (including without limitation
taxes, including employee payroll taxes, interest and penalties) or accounts
payable owed to, any governmental or private entity or person, including without
limitation any amounts owing to InfoSpace in connection with advertising
agreements between OutPost and InfoSpace, relating to or arising out of the
operation of OutPost prior to March 4, 1998 in excess of
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the sum of (i) $35,000, plus (ii) any amounts owing to InfoSpace accrued as of
February 1, 1998, and all subsequent months (collectively, the "Financial
Liabilities"), to be fully paid and discharged.
4.2.7 Even after Closing, not disclose or otherwise use the
proprietary or confidential business information of InfoSpace contained in the
Offering Memorandum, except that Principal Shareholders may use such information
for purposes of determining whether to approve the Merger.
4.2.8 Any termination costs, including without limitation, severance
pay, accrued vacation benefits, relating to those employees of OutPost who will
be terminated as of the Effective Date, shall be a liability of the Principal
Shareholders. From and after the Effective Date, InfoSpace shall have no
liability to any such person, except with those it negotiates terms of
employment as described in Section 5.9.
SECTION 4.3 INFOSPACE'S AFFIRMATIVE COVENANT
InfoSpace covenants that:
4.3.1 In advance of Closing and the special meeting of the OutPost
Shareholders called to obtain Shareholder approval of the Merger, it will
distribute to the OutPost Shareholders the Offering Memorandum, together with
certain financial information.
4.3.2 It will use its reasonable efforts to (A) complete the
transactions contemplated herein; and (B) continue to operate InfoSpace's
business.
4.3.3 It will negotiate the terms of employment of the persons listed
in Section 5.9 in good faith, but the final terms of such arrangements must be
deemed satisfactory to InfoSpace in its discretion.
SECTION 4.4 POST-CLOSING
After the Effective Date, InfoSpace and each of the Principal Shareholders
respectively agree that each will:
4.4.1 Promptly take such actions and properly execute and deliver
such further instruments as, in the reasonable opinion of InfoSpace, may be
necessary to assure, complete and evidence the transactions provided for in this
Agreement.
4.4.2 In the event any Principal Shareholder receives any payment of
monies relating to the Assets or the business which was or should have been
directed to OutPost directly, such Principal Shareholder will promptly forward
such payment to the Surviving Corporation.
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4.4.3 In no event will any Shareholder do business independent of the
Surviving Corporation using the name "OutPost" or any word confusingly similar
to "OutPost" after the Closing.
4.4.4 InfoSpace will grant options to acquire a total of 298,000
shares of InfoSpace Stock to the persons listed in Section 5.9. InfoSpace shall
determine how the pool of 298,000 shares shall be allocated among such persons,
the vesting period, and the other terms of such grants, except however, that the
exercise price per share shall be $.01.
SECTION 4.5 NOTIFICATIONS AS TO REPRESENTATIONS
In the event that any party shall at any time, either before or after the
Effective Date, determine that any representation or warranty of either party
contained in this Agreement is not true or correct in any material respect as of
the date made, or that any covenant has been breached, such party shall promptly
give the other party written notice thereof, including a description of such
inaccuracy or breach. Upon learning of such inaccuracy or breach, the party
whose representation or warranty was not true or which breached a covenant shall
have twenty (20) business days to cure such inaccuracy or breach, and if so
cured, such conditions shall be deemed timely satisfied, and the Effective Date
shall, to the extent needed, be extended to the date of such satisfaction. Any
postponement of the Effective Date pursuant to this provision shall not be a
waiver of any claim an aggrieved party may have as a result of any such breach.
ARTICLE 5 CONDITIONS TO INFOSPACE'S OBLIGATION TO CLOSE
The obligation of InfoSpace to consummate the transactions contemplated
herein shall be subject to the fulfillment on or prior to the Effective Date of
the following conditions, which conditions OutPost, the Principal Shareholders
and the Recent Investors agree to use their reasonable best efforts to fulfill,
and which InfoSpace may elect to waive in its sole discretion (InfoSpace agrees
to use reasonable efforts to cooperate with the Principal Shareholders and the
Recent Investors as Principal Shareholders or Recent Investors may reasonably
request in order to facilitate the Principal Shareholders' or the Recent
Investors', as the case may be, satisfying these conditions):
SECTION 5.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING
The representations and warranties made by OutPost, the Principal
Shareholders and the Recent Investors herein shall be true, complete and correct
in all material respects on and as of the Effective Date with the same effect as
though such representations and warranties had been made or given on and as of
the Effective Date. It is understood that in determining whether there has been
any material misrepresentation or material adverse
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event, all occurrences and adverse events shall be aggregated to determine the
applicability or breach of the provisions of this Agreement.
SECTION 5.2 COMPLIANCE WITH AGREEMENT
OutPost and the Principal Shareholders shall have performed and complied
with all of their material obligations under this Agreement which are to be
performed or complied with by them prior to or at the Closing.
SECTION 5.3 NO MATERIAL CHANGE
Since December 31, 1997, there shall not have been, nor to the knowledge of
OutPost or the Principal Shareholder shall there have been threatened to be, any
event, condition or circumstance which would materially and adversely affect the
Assets or InfoSpace's prospects for successfully operating the business, and
there shall be no material adverse factors relating to the business which have
not been disclosed in writing to InfoSpace.
SECTION 5.4 NO INJUNCTION
As of the Effective Date,
5.4.1 there shall be no injunction or restraining order of any nature
issued by any court of competent jurisdiction or by any administrative body or
agency which directs or which has the effect of directing that this Agreement or
any material transaction contemplated hereby shall not be consummated as herein
provided or which may materially affect the Assets or InfoSpace's ability to
conduct business;
5.4.2 there shall be no investigation, action or other proceeding
pending before any court or governmental authority or threatened against
OutPost, or any of the directors or officers of OutPost, or in connection with
this Agreement, or the consummation of the transactions contemplated by this
Agreement, which may in the opinion of InfoSpace (after consideration of any
defense) materially and adversely affect the Assets or InfoSpace's ability to
conduct the business; and
5.4.3 none of the parties hereto shall have received from any
governmental authority any notice (oral or written) of any potential litigation,
civil, criminal or administrative, against any Shareholder or InfoSpace for a
violation alleged to arise out of the consummation of the transactions
contemplated hereby.
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SECTION 5.5 CASUALTY
5.5.1 The Assets shall not have been adversely affected in any
material way by, or sustained any material loss, whether or not insured, as a
result of any fire, flood, accident, explosion, strike, labor disturbance, riot,
act of God or the public enemy or other calamity or casualty, unless all such
loss or damage resulting therefrom shall have been fully cured, repaired or
restored by Principal Shareholders prior to the Effective Date, as it may be
postponed pursuant to Section 4.5 hereof.
5.5.2 If any such casualty losses occur between the date hereof and
the Effective Date which do not materially and adversely affect the Assets or
InfoSpace's ability to conduct the business, OutPost shall repair the damage at
its cost and expense and all insurance proceeds and claims in connection
therewith shall belong to OutPost.
SECTION 5.6 SHAREHOLDER CONSENTS
The Merger shall have been approved by the OutPost Shareholders in
accordance with the Washington Business Corporation Act.
SECTION 5.7 CERTIFICATE OF FULFILLMENT OF CONDITIONS
The Principal Shareholders shall have delivered to InfoSpace a certificate
of the Principal Shareholders certifying in such detail as InfoSpace may
reasonably specify their respective fulfillment of the conditions set forth in
this Article 5.
SECTION 5.8 LIMITATION ON LIABILITIES
The total Financial Liabilities of OutPost as of March 4, 1998, including
those owed by OutPost to InfoSpace in connection with certain advertising
agreements, shall not exceed the sum of (i) $35,000 plus (ii) any amounts owing
to InfoSpace accrued as of February 1, 1998, and all subsequent months.
SECTION 5.9 EMPLOYMENT OF KEY INDIVIDUALS
InfoSpace shall have concluded employment negotiations satisfactory to it
in its sole discretion with John Arnold, Peter Claar, John Bennett, Gray
McGuire, Philip Johansen, Charles Fontaine, Mary Swanson, and Kelli Bradley.
With the exception of such persons, the employment by OutPost of all other
persons shall be terminated as of the Effective Date.
SECTION 5.10 RESIGNATION OF OUTPOST OFFICERS AND DIRECTORS
As of the Effective Date, all of the existing officers and directors of
OutPost shall have tendered their written resignations from their positions with
OutPost.
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SECTION 5.11 APPRAISAL RIGHTS
Following the completion of the OutPost shareholder meeting called to
obtain approval of the Merger, no OutPost Shareholder shall have satisfied the
requirements to qualify as a dissenting shareholder, as set forth in RCW
23B.13.210.
SECTION 5.12 INVESTMENT CERTIFICATE
InfoSpace shall have received an executed Investment Certificate in the
form of Exhibit 5.12 attached hereto from each OutPost Shareholder.
ARTICLE 6 CONDITIONS TO OUTPOST'S AND PRINCIPAL
SHAREHOLDERS' OBLIGATIONS TO CLOSE
The obligation of OutPost and the Principal Shareholders to consummate the
transactions contemplated herein shall be subject to the fulfillment on or prior
to the Effective Date of the following conditions, which conditions InfoSpace
agrees to use its reasonable best efforts to fulfill (OutPost and the Principal
Shareholders agree to use reasonable efforts to cooperate with InfoSpace as
InfoSpace may reasonably request in order to facilitate InfoSpace's satisfying
these conditions):
SECTION 6.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING
The representations and warranties made by InfoSpace herein shall be true,
complete and correct in all material respects on and as of the Effective Date
with the same effect as though such representations and warranties had been made
or given on and as of the Effective Date. It is understood that in determining
whether there has been any material misrepresentation or material adverse event,
all occurrences and adverse events shall be aggregated to determine the
applicability or breach of the provisions of this Agreement.
SECTION 6.2 COMPLIANCE WITH AGREEMENT
InfoSpace shall have performed and complied with all of its material
obligations under this Agreement which are to be performed or complied with by
it prior to or at the Closing.
SECTION 6.3 NO INJUNCTION
As of the Effective Date (unless otherwise specified),
6.3.1 there shall be no injunction or restraining order of any nature
issued by any court of competent jurisdiction or by any administrative body or
agency which directs or which has the effect of directing that this Agreement or
any material transaction contemplated hereby shall not be consummated as herein
provided; and
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6.3.2 none of the parties hereto shall have received from any
governmental authority any notice (oral or written) or any potential litigation,
civil, criminal or administrative, against the Principal Shareholders or
InfoSpace for a violation alleged to arise out of the consummation of the
transactions contemplated hereby.
SECTION 6.4 CERTIFICATE OF FULFILLMENT OF CONDITIONS
InfoSpace shall have delivered to the Principal Shareholders a certificate
of InfoSpace certifying in such detail as the Principal Shareholders may
reasonably specify the fulfillment of the conditions set forth in Sections 6.1,
6.2 and 6.3 of this Agreement.
SECTION 6.5 OFFERING MEMORANDUM
In advance of the special meeting of the OutPost Shareholders held for the
purpose of obtaining OutPost Shareholder approval of the Merger, InfoSpace shall
have delivered the Offering Memorandum in a form approved by its board of
directors to the OutPost Shareholders, and any information regarding OutPost
shall be in a form approved by the OutPost Board of Directors, together with
associated financial information about OutPost and InfoSpace that is consistent
with the covenants made herein and any financial information that has previously
been provided to the OutPost Shareholders.
SECTION 6.6 SHAREHOLDER CONSENTS
The OutPost Shareholders shall have authorized and consented to the
transactions contemplated herein.
SECTION 6.7 DUE DILIGENCE
The Board of Directors of OutPost shall have conducted a satisfactory due
diligence review of InfoSpace's books and records.
ARTICLE 7 THE CLOSING
SECTION 7.1 CLOSING
Subject to the terms and conditions of this Agreement, the execution of any
final documents, instruments, agreements or other items, or actions necessary to
effect the Merger, shall take place on or before the Effective Date, as defined
in Section 1.2, at the offices of Garvey, Schubert & Barer, 1191 Second Avenue,
18th Floor, Seattle, Washington.
SECTION 7.2 OUTPOST'S AND PRINCIPAL SHAREHOLDERS' PERFORMANCE
On the Effective Date, OutPost and the Principal Shareholders, as the case
may be, agree to deliver or cause to be delivered to InfoSpace the following:
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7.3.1 The minute books, stock record books, seals and certificates of
OutPost;
7.3.2 Copies of the Articles of Incorporation (and all amendments
thereto) of OutPost certified, as of a recent date, by the Secretary of State
of Washington, copies of the Bylaws (and all amendments thereto) of OutPost
certified, as of the Effective Date, by a duly authorized officer of OutPost and
copies of the resolutions of the Board of Directors and the OutPost Shareholders
approving the Merger, certified, as of the Effective Date, by a duly authorized
officer of OutPost;
7.3.3 Certificates of good standing and tax status letter of recent
date from appropriate officials in Washington showing OutPost to be a
corporation validly existing, in good standing, with all taxes, including sales
taxes, paid (to the extent the same are due and payable);
7.3.4 Evidence of official searches by the secretary of state or
other appropriate official of each state in which OutPost or any subsidiary of
OutPost is qualified to do business, dated not earlier than ten (10) business
days before Closing, showing no effective financing statements filed under the
Uniform Commercial Code against the assets of OutPost, and evidence of judgment
and federal tax lien searches with respect to OutPost and each of its
subsidiaries showing no such lien or judgment and dated not earlier than ten
business days before the Closing;
7.3.5 A certificate of Principal Shareholders in accordance with and
to the effect set forth in Section 5.7 hereof.
SECTION 7.4 INFOSPACE'S PERFORMANCE
On the Effective Date, InfoSpace agrees to deliver or cause to be delivered
to Principal Shareholders the following:
7.4.1 A copy of the resolutions adopted by the Board of Directors of
InfoSpace authorizing and approving the execution and delivery of this Agreement
and the consummation of the transactions contemplated by this Agreement,
certified by the Secretary of InfoSpace.
7.4.3 A certificate of good standing from appropriate officials in
Delaware, and of qualification to conduct business as a foreign corporation from
appropriate officials in Washington, both of recent date, and showing InfoSpace
to be a corporation validly existing, in good standing, and in the State of
Washington qualified as a foreign corporation. On the Effective Date, InfoSpace
further agrees to reimburse John W. Stanton for all unreimbursed amounts paid by
John W. Stanton to or on behalf of OutPost in order to cover OutPost's costs of
operation for the period from March 4, 1998, until the Effective Date.
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SECTION 7.5 FAILURE TO CLOSE
If for any reason the transactions contemplated by this Agreement are not
consummated on the Effective Date or any mutually agreed extension thereof, both
parties agree that any and all documents, instruments or other information
pertaining to the business and/or operations of either party, which was
exchanged in anticipation of consummation of the transactions contemplated by
this Agreement, shall be returned to the supplying party, without retaining
copies thereof.
ARTICLE 8 ANNOUNCEMENTS
InfoSpace, OutPost and Principal Shareholders agree that between the date
of this Agreement and the Effective Date, any communications, press releases,
public announcements or other publicity proposed to be released or permitted by
either party concerning this Agreement or the transactions hereby contemplated
shall be subject to prior review by and written approval of the other party.
ARTICLE 9 TERMINATION AND ABANDONMENT
SECTION 9.1 REASONS FOR TERMINATION
This Agreement and the transactions contemplated herein may be terminated
and abandoned prior to or at the Closing for the following reasons:
9.1.1 By the mutual written consent of InfoSpace and OutPost.
9.1.2 By InfoSpace, if (i) by the Effective Date, the conditions set
forth in Article 5 hereof have not been met, and have not been waived by
InfoSpace, or (ii) due to any material cause beyond the control of InfoSpace,
the parties are unable to consummate the transactions contemplated herein.
9.1.3 By the Principal Shareholders, if (i) by the Effective Date,
the conditions set forth in Article 6 hereof have not been met, and have not
been waived by the Principal Shareholders, or (ii) due to any material cause
beyond the control of OutPost, InfoSpace or the Principal Shareholders are
unable to consummate the transactions contemplated herein.
9.1.4 By either OutPost or InfoSpace, if the Effective Date is not by
or before June 30, 1998.
SECTION 9.2 EFFECT OF TERMINATION
A termination pursuant to Section 9.1.2 or Section 9.1.3 above shall be
without prejudice to any other remedy the terminating party may have as a result
of the failure of the other party to perform.
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ARTICLE 10 RESTRICTIONS ON TRANSFER
Each certificate evidencing shares of InfoSpace Common issued to any
OutPost Shareholder in connection with the Share Exchange shall bear a legend in
substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES ACTS AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND ANY SUCH APPLICABLE STATE SECURITIES ACTS
OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
ARTICLE 11 INDEMNITIES
SECTION 11.1 PRINCIPAL SHAREHOLDER AND RECENT INVESTOR INDEMNITIES
11.1.1 PRINCIPAL SHAREHOLDERS' INDEMNITY. To the extent provided
below in this Article 11, the Principal Shareholders (but not the Recent
Investors, except as expressly stated herein) jointly and severally agree to
indemnify and save InfoSpace, OutPost and their respective officers, directors,
employees and agents (the "InfoSpace Indemnified Parties") harmless from and
against all expenses, claims, charges, losses, damages, fines or penalties,
including without limitation reasonable attorneys' fees, incurred by any of the
InfoSpace Indemnified Parties in defending or resisting any claims, actions or
proceedings or in enforcing this indemnity (hereinafter "Damages"), arising out
of, based upon, resulting from or in connection with any breach, inaccuracy,
failure to perform or satisfy, or violation of any representations, warranties,
obligations or covenants of OutPost or the Principal Shareholders contained,
disclosed or set forth in this Agreement or in any document (including any
Schedule or Exhibit) furnished by OutPost or the Principal Shareholders to
InfoSpace pursuant to or in connection with this Agreement.
11.1.1(a) FINANCIAL LIABILITIES. In the event a party makes a claim
against an InfoSpace Indemnified Party for a Financial Liability that was not
satisfied as of the Effective Date, the Principal Shareholders (but not the
Recent Investors) agree to provide for the payment of the same up to a total of
$250,000. It is understood that in order to generate the cash necessary to pay
any such amounts the Recent Investors or any one or more of them will agree to
purchase from the Principal Shareholders, and the Principal Shareholders will
agree to sell, shares of InfoSpace Stock held by the Principal Shareholders at
the equivalent price of five cents per share of OutPost common stock determined
immediately before the closing. If the amount received by the Principal
Shareholders on the sale of all of their shares of such InfoSpace Stock to the
Recent
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Investors is less than the amount needed to reimburse InfoSpace for Financial
Liabilities it has paid (not to exceed $250,000), then the Recent Investors
agree to reimburse InfoSpace for any such deficiency. Such reimbursement may be
made by any or all the Recent Investors.
11.1.1(b) SETTLEMENT BY STOCK ISSUANCE. To address any possible
liability that may be settled by issuance of shares of InfoSpace Stock, at the
closing a portion of the shares of InfoSpace stock otherwise distributable to
the OutPost shareholders that is equal to 100,000 shares of OutPost stock on a
converted basis will be set aside and remain undistributed (the "escrowed
shares"). If any stock is to be issued in settlement of claims against OutPost
arising out of or relating to the conduct of its business prior to or as of the
Effective Date, the escrowed shares shall be used to satisfy that obligation.
If a Claim is to be resolved by the payment of cash or cash equivalents, such
payment obligation shall be deemed a Financial Liability subject to the
provisions of subparagraph 11.1.1(a) above. Upon expiration of the indemnity
period provided in Section 11.4, any remaining unissued escrowed shares shall be
issued to the former OutPost shareholders on a prorata basis, determined as of
the time immediately after the closing.
11.1.1(c) OTHER DAMAGES. In the event an InfoSpace Indemnified Party
incurs other Damages, the Principal Shareholders agree to indemnify such
InfoSpace Indemnified Party for such Damages in the manner provided in this
subparagraph. Payment of the indemnification responsibility shall be made
solely by the return to InfoSpace of shares of stock in InfoSpace held by such
Principal Shareholders that were acquired in the Merger. If the value of all
such stock held by those Principal Shareholders is not adequate to compensate
for such other Damages, then the Recent Investors agree to return to InfoSpace
up to 25% of the InfoSpace stock that was acquired by all Recent Investors in
the Merger (the "Reimbursement Stock Pool"). If any of the Recent Investors
acquired stock from the Principal Shareholders so that the Principal
Shareholders could satisfy any Financial Liabilities as provided in subparagraph
11.1.1(a) above, then the Recent Investors will also agree to include such
shares in calculating the number of shares in the Reimbursement Stock Pool. The
return of shares by the Recent Investors shall be made by such of the Recent
Investors as the Recent Investors shall agree. For purposes of satisfying this
obligation, the InfoSpace stock held by the Principal Shareholders and the
Recent Investors will be valued based on the last "valuing transaction" or, if
none, at $2.00 per share. A "valuing transaction" is one involving a sale or
transfer of InfoSpace stock as the result of a good faith arm's length
negotiation.
11.1.1(d) AGREEMENT NOT TO TRANSFER SHARES. The Principal
Shareholders and the Recent Investors agree that during the indemnification
period set forth in Section 11.4 below, they shall retain the shares of stock in
InfoSpace received by them in exchange for their shares of OutPost on the
Effective Date; provided, however, that during such period such shares may be
sold or transferred to any other Principal Shareholder or Recent Investor in
which case such shares shall remain subject to the
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indemnification responsibilities of the party transferring the same, (i.e., if
the shares are transferred by a Principal Shareholder to a Recent Investor, the
shares shall remain liable to satisfy the obligations of the Principal
Shareholder, without regard to the 25% limitation for shares held by Recent
Investors set forth in subparagraph 11.1.1(c)), and the party making such
transfer shall be released from any indemnification responsibility that is
subject to satisfaction solely by the transfer of such shares.
11.1.2 RECENT INVESTORS. Each Recent Investor, severally and not
jointly, agrees to indemnify and save the InfoSpace Indemnified Parties harmless
from and against all Damages arising out of, based upon, resulting from, or in
connection with any breach, inaccuracy, failure to perform or satisfy, or
violation of any representation, warranty, obligation or covenant expressly made
by him, her or it herein.
SECTION 11.2 INFOSPACE'S INDEMNITY
InfoSpace agrees to indemnify and save the Principal Shareholders and the
Recent Investors harmless from and against all Damages that the Principal
Shareholders or the Recent Investors may suffer, sustain, incur or become
subject to whether directly or indirectly, arising out of, based upon, resulting
from or in connection with (a) any breach, inaccuracy, failure to perform or
satisfy, or violation of any representations, warranties, obligations or
covenants of InfoSpace contained, disclosed or set forth in this Agreement or in
any document (including any Schedule or Exhibit) furnished by InfoSpace pursuant
to or in connection with this Agreement, or (b) the operation of the business or
ownership of the Assets after the Effective Date.
SECTION 11.3 PROCEDURE AND PARTICIPATION
11.3.1 If any matter shall arise which a party seeking
indemnification believes to be covered by the indemnification provisions
hereunder, the party seeking indemnification shall give written notice thereof
to the other party promptly (in no event more than forty-five (45) days) after
it learns of the existence of such matter (the "Indemnification Claim"). The
party from whom indemnification is sought shall have the following options (i)
deny liability for the Indemnification Claim, or (ii) if the Indemnification
Claim does not involve a third party, to acknowledge liability for such claim,
or (iii) if the Indemnification Claim does involve a third party, to undertake
at its cost and expense (including legal fees, court costs and interest charges
but excluding legal fees which indemnities may incur in monitoring the
proceedings after the assumption of the indemnification obligation by
indemnitor) action appropriate to the matter, including, but not limited to, the
right to assume the defense of any claims, demands, or actions or protest of any
tax. The parties shall cooperate fully in any such action, making available to
each books or records necessary thereto.
11.3.2 If the party from whom indemnification is sought does not
exercise either option (ii) or option (iii) above within twenty (20) days of
such notice (or such
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shorter time specified in such notice as the circumstances of the matter may
dictate) the party seeking indemnification shall be free to dispose of the
matter in such manner as it may determine in good faith to be in its best
interest. If the party from whom indemnification is sought exercises option (i)
above, and if the parties do not amicably dispose of the claim for
indemnification within thirty (30) days, the party seeking indemnification may
bring action on the claim. If the party from whom indemnification is sought does
not exercise any of the options outlined above within twenty (20) days after the
date of the original notice seeking indemnification, the party from whom
indemnification is sought shall be conclusively presumed to have agreed to the
claim for indemnification. Either party may offset any amounts owed by such
party to the other party hereto against amounts claimed as Damages pursuant to
this Article 11.
SECTION 11.4 SURVIVAL OF INDEMNIFICATION; EXCLUSIVE REMEDY
After the Effective Date the indemnification provided for in this Article
11 shall be the exclusive remedy provided to the parties for any breach of this
Agreement or any of its terms. Such indemnification obligations shall survive
the Effective Date for a period of twelve months; provided, however, that any
claim for indemnification for any Damages arising from a failure to withhold or
pay taxes (including without limitation, employee payroll taxes) to any federal,
state or local governmental authority shall survive for a period of twenty-four
months after the Effective Date. Notwithstanding the foregoing, any
indemnification obligation created herein shall terminate and be of no further
force or effect on the closing of any initial public offering of stock in
InfoSpace pursuant to an effective registration statement filed under the U.S.
Securities Act of 1933, as amended.
Any claim for indemnification that is not made within the time periods set
forth in this subparagraph shall be forever barred as against all potential
indemnifying parties.
ARTICLE 12 MISCELLANEOUS
SECTION 12.1 NOTICES
Any notices or communications required or permitted hereunder shall be
sufficiently given if sent by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
To InfoSpace: 8424 - 154th Avenue N.E.
Redmond, Washington 98052
Attn: Naveen Jain
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With a copy to: Bruce A. Robertson
Garvey Schubert & Barer
Second & Seneca Bldg.
1191 Second Avenue, 18th Floor
Seattle, Washington 98101
To Principal Shareholders: John Arnold
____________________________
____________________________
Kurt Dahl
____________________________
____________________________
David Wagner
____________________________
____________________________
With a copy to: Philip M. Roberts
Ryan Swanson & Cleveland
1201 Third Avenue, Suite 3400
Seattle, WA 98101-3034
To Recent Investors: John W. Stanton
Western Wireless Corporation
2001 NW Sammamish Road, Suite 100
Issaquah, WA 98027
With a copy to: Douglas C. Lawrence
Stokes Lawrence, P.S.
800 Fifth Avenue, Suite 4000
Seattle, WA 98104
or such other address as shall be furnished by like notice by such party.
Notices shall be deemed to have been duly given at the time delivered by hand,
if personally delivered; five business days after being deposited in the mail,
first class postage prepaid, return receipt requested, if mailed; when receipt
confirmed, if sent by an overnight air courier service guaranteeing next day
delivery.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto, and their respective successors. Nothing herein expressed or
implied is intended to confer upon any person, other than the parties executing
this Agreement and their permitted assignees, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
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SECTION 12.2 ENTIRE AGREEMENT; AMENDMENT
This Agreement and the Schedules, Exhibits and appendices attached hereto
and to be attached hereto, and the documents delivered pursuant hereto,
constitute the entire Agreement and understanding between the parties hereto and
supersede and revoke any prior agreement or understanding relating to the
subject matter of this Agreement. No change, amendment, termination or
attempted waiver of any of the provisions hereof shall be binding upon any
party, unless said act is in writing and signed by the President or other senior
officer of the party to be bound.
SECTION 12.3 COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute but one and the same instrument.
SECTION 12.4 EXPENSES
Whether or not the transactions herein contemplated shall be consummated,
the parties hereto will each pay their own fees, expenses and disbursements and
those of their professional advisors in connection with the subject matter of
this Agreement and all other costs and expenses incurred in performing and
complying with all conditions to be performed under this Agreement. Any such
fees, expenses or disbursements incurred by OutPost shall be subject to the
covenant of OutPost and the Principal Shareholders set forth in Section 4.2.6.
SECTION 12.5 FURTHER ASSURANCES
Upon reasonable request from time to time, the parties hereto will deliver
and/or execute such further instruments which are necessary to or appropriate
with respect to the consummation of the transactions contemplated by this
Agreement. None of the documents or instruments requested hereunder shall
contain an undertaking or representation not contained in this Agreement or
inconsistent with the understanding and representations contained in this
Agreement.
SECTION 12.6 CONSTRUCTION
Within this Agreement, the singular shall include the plural and the plural
shall include the singular, and any gender shall include all other genders, all
as the meaning and the context of this Agreement shall require.
SECTION 12.7 JOINT AND SEVERAL OBLIGATIONS
All obligations of the Principal Shareholders hereunder shall be the joint
and several obligations of all Principal Shareholders.
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SECTION 12.8 GOVERNING LAW
This Agreement shall be governed and enforced and the rights and
liabilities of all parties hereto shall be construed in accordance with the
internal laws of the State of Washington, without giving effect to any conflict
of laws provisions.
SECTION 12.9 COOPERATION
The parties hereto will cooperate fully with each other and their
respective counsel and accountants in connection with all steps to be taken as
part of their obligations under this Agreement.
SECTION 12.10 SEVERABILITY
The unenforceability or invalidity of any part or parts of this Agreement
shall not affect the enforceability or validity of the balance of the Agreement,
which shall remain in full force and effect.
SECTION 12.11 SURVIVAL
The covenants, agreements, representations and warranties of the parties
contained herein or in any certificate or other writing or Exhibits delivered
pursuant hereto or in connection herewith shall survive the Closing of the
transactions contemplated herein.
SECTION 12.12 HEADINGS
The headings of the sections of this Agreement are inserted for convenience
only and shall not constitute a part hereof.
[The remainder of this pageintentionally left blank.]
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IN WITNESS WHEREOF, the undersigned parties, acting through their duly
authorized agents, have caused this Agreement to be duly executed as of the day
and year first written above.
Principal Shareholders:
PRINCIPAL SHAREHOLDERS:
/s/ John Arnold /s/ Kurt Dahl /s/ David Wagner
- ---------------------- ---------------------- --------------------------
John Arnold Kurt Dahl David Wagner
RECENT INVESTORS:
/s/ John W. Stanton /s/ Theresa E. Gillespie /s/ Donald Guthrie
- ---------------------- ------------------------ --------------------------
John W. Stanton Theresa E. Gillespie Stanton Family Trust,
by Donald Guthrie, Trustee
/s/ Douglas C. Lawrence /s/ Donald Guthrie /s/ Mikal J. Thomsen
- ---------------------- ---------------------- --------------------------
Douglas C. Lawrence Donald Guthrie Mikal J. Thomsen
The Walter Group, Inc.: Kirlin Partners LLC:
By [illegible] By [illegible]
--------------------------- ----------------------------
Its: Chairman Its: Manager
------------------------ -------------------------
InfoSpace, Inc.: OutPost Acquisition, Inc.:
By Naveen Jain By Naveen Jain
--------------------------- ----------------------------
Its: Its:
----------------------- --------------------------
OutPost Network, Inc.:
By [illegible]
---------------------------
Its: President/CEO
------------------------
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EXHIBIT 1A
TO THE AGREEMENT AND PLAN OF MERGER
ARTICLES OF MERGER OF
OUTPOST NETWORK, INC.
AND
OUTPOST ACQUISITION, INC.
Pursuant to the provisions of RCW 23B.11.050, the following Articles of
Merger are executed for the purpose of merging OUTPOST ACQUISITION, INC., a
Washington corporation (the "Merging Corporation") into OUTPOST NETWORK, INC., a
Washington corporation (the "Surviving Corporation").
1. The Plan of Merger is attached hereto as Exhibit A.
---------
2. The merger was duly approved by the shareholders of the Merging
Corporation and the Surviving Corporation pursuant to the provisions of RCW
23B.11.030.
DATED this ___ day of ______________, 1998.
OUTPOST NETWORK, INC.
By:
----------------------------------------------
Signature
----------------------------------------------
Print/Type Name
----------------------------------------------
Title
<PAGE>
OUTPOST ACQUISITION, INC.
By:
----------------------------------------------
Signature
----------------------------------------------
Print/Type Name
----------------------------------------------
Title
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EXHIBIT 1A
TO THE AGREEMENT AND PLAN OF MERGER
PLAN OF MERGER
OF
OUTPOST NETWORK, INC.
AND
OUTPOST ACQUISITION, INC.
WHEREAS, this is a Plan of Merger dated May ____ 1998, between OutPost
Network, Inc., a Washington corporation (hereinafter referred to as the
"Surviving Corporation" or sometimes as "OutPost"), and OutPost Acquisition,
Inc., a Washington corporation (hereinafter referred to as the "Merging
Corporation" or sometimes as "Acquisition") (the Surviving Corporation and
Merging Corporation are sometimes collectively referred to as the "Constituent
Corporations"); and
WHEREAS, the Board of Directors of both corporations hereto deem it
desirable and in the best interests of the corporations and their shareholders
that Acquisition be merged into OutPost;
NOW, THEREFORE, in consideration of the mutual promises and covenants, and
subject to the conditions herein set forth, the merging corporations agree as
follows:
1. THE MERGER. The corporations shall be merged into a single corporation
by Acquisition merging into and with OutPost, the Surviving Corporation, which
corporation shall survive the merger pursuant to the provisions of RCW
23B.11.010, et. seq. Upon such merger, the separate corporate existence of
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Acquisition shall cease and the Surviving Corporation shall become the owner,
without other transfer, of all of the rights, obligations and property of the
Merging Corporation.
2. Effective Date of Merger. The merger shall become effective on the
date the Articles of Merger and any other documents required by the Business
Corporation Act of the State of Washington (the "Corporation Law") shall be duly
executed, acknowledged or verified and filed with the Washington Secretary of
State in accordance with the Corporation Law (the "Effective Date"). If the
Washington Secretary of State requires any changes in the Articles of Merger as
a condition to filing the Articles of Merger, both the Surviving Corporation and
the Merging Corporation will execute
<PAGE>
necessary revisions incorporating such changes, provided such changes are not
materially inconsistent with or result in any material changes in the terms of
the Agreement and Plan of Merger dated as of May __, 1998, by and among
InfoSpace, Inc., OutPost Network, Inc., Certain Principal Shareholders of
OutPost Network, Inc. and OutPost Acquisition, Inc. (hereinafter referred to as
the "Agreement and Plan").
3. ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. At the
Effective Date and without any further action on the part of the Constituent
Corporations, the restated Articles of Incorporation of OutPost, as amended, a
copy of which is attached hereto as Exhibit 1, shall be and remain the Articles
---------
of Incorporation of the Surviving Corporation. Such Articles of Incorporation
may thereafter be altered, amended or repealed in accordance with the provisions
thereof or applicable law.
4. BYLAWS OF THE SURVIVING CORPORATION. At the Effective Date and without
any further action on the part of the Constituent Corporations, the Bylaws of
the OutPost, a copy of which is attached hereto as Exhibit 2, shall be and
---------
remain the Bylaws of the Surviving Corporation, until altered, repealed or
amended in accordance with the provisions thereof and applicable law.
5. CORPORATE GOVERNANCE. As of the Effective Date, the directors and
officers of OutPost shall have resigned and at the Effective Date, the
shareholder of the Surviving Corporation shall elect replacement directors, and
the new directors shall elect replacement officers of the Surviving Corporation,
each of such persons to hold office, subject to the applicable provisions of the
Articles of Incorporation and Bylaws of the Surviving Corporation, and
applicable law.
6. CONVERSION OF SHARES. Upon the effectiveness of the merger, the manner
of converting and exchanging the shares of the Constituent Corporations shall be
as follows: InfoSpace, Inc., a Delaware corporation (hereinafter referred to as
"InfoSpace"), shall issue a total of not more than 3,000,000 shares of its
common stock, par value $.0001/share. Each issued and outstanding share of the
common stock of OutPost (collectively "OutPost Stock") shall, by virtue of the
merger and without any action on the part of the holder thereof, automatically
be converted into a fraction (the "Conversion Ratio") of one fully paid and
nonassessable share of common stock of InfoSpace ("InfoSpace Common"). The
Conversion Ratio shall be a fraction with a numerator equal to 3,000,000, and a
denominator equal to the total number of shares of OutPost Stock issued and
outstanding immediately prior to the Effective Date. On or after the Effective
Date, all certificates representing shares of OutPost Stock shall be surrendered
to the Secretary of the Surviving Corporation, whereupon there shall be issued
to the respective holder of each such certificate a certificate representing the
number of shares of InfoSpace Common into which such shares have been converted
as provided herein.
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7. ACQUISITION COMMON STOCK. Each share of common stock, no par value, of
Acquisition ("Acquisition Common Stock") issued and outstanding immediately
prior to the merger shall, by virtue of the merger and without any action on the
part of the holder thereof, be automatically converted into and exchangeable for
one share of the common stock, no par value, of the Surviving Corporation.
8. NO FRACTIONAL SHARES. No fractional share of InfoSpace Common will be
issued in the merger, but, in lieu thereof, each holder of OutPost Stock who
would otherwise be entitled to a fraction of a share of InfoSpace Common (after
aggregating all fractional shares of InfoSpace Common to be received by such
holder) will be entitled to receive an amount of cash (rounded to the nearest
whole cent) equal to the product of (a) the fraction multiplied by (b) $2.00.
9. EXCHANGE OF SHARES; STOCK TRANSFER BOOKS. On the Effective Date of the
merger, each holder of an outstanding certificate or certificates theretofore
representing shares of OutPost Stock shall be entitled, upon surrender of such
certificate or certificates to the Surviving Corporation, to receive in respect
of each share represented by such certificate or certificates, InfoSpace Common
in accordance with Section 1.6 of the Agreement and Plan, and if applicable,
cash in accordance with Section 1.8 of the Agreement and Plan. The cash
payment, if any, shall be made by corporate check of InfoSpace made payable to
the holder of record of OutPost Stock as shown on Schedule 2.3 of the Agreement
and Plan in respect of which payment is being made. At the Effective Date of
the merger there shall be no further registry of transfers on the records in
respect of OutPost Stock outstanding immediately prior to the Effective Date of
the merger. If any payment is to be made in the form of a check payable to a
name other than that in which the certificate for OutPost Stock surrendered is
registered, or if InfoSpace Common is to be issued in a name other than that in
which the certificate for OutPost Stock surrendered is registered, it shall be a
condition of such distribution that the certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such payment or InfoSpace Common shall pay to the Surviving
Corporation any transfer or other taxes required, or shall establish to the
satisfaction of the Surviving Corporation that such taxes have been paid or are
not applicable. If, after the Effective Date of the merger, certificates are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for such cash payment and InfoSpace Common as provided herein.
10. TREASURY AND OTHER STOCK. All shares of OutPost Stock which are held
by OutPost as treasury shares (if any) shall cease to exist as of the Effective
Date, without any conversion thereof or exchange with respect thereto.
11. EXERCISE OF STOCK RIGHTS. On the Effective Date, any option, warrant
or other right to purchase shares of OutPost Stock ("OutPost Options"), which is
outstanding on the Effective Date, shall be cancelled unless exercised prior to
the Effective Date.
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12. SHAREHOLDER APPROVAL. This Plan of Merger shall be submitted to the
shareholders of each corporation for their approval in the manner provided by
applicable laws of the State of Washington at meetings to be held on or before
May 20, 1998, or at such other time as the Board of Directors of each
corporation shall agree. After approval by a vote of the holders of not less
than two-thirds (2/3rds) of the issued and outstanding shares of each
corporation entitled to vote thereon, the Articles of Merger shall be filed as
required by the laws of the State of Washington.
13. ABANDONMENT OF MERGER. In accordance with the terms of the Agreement
and Plan, the Board of Directors of either corporation may, in its discretion,
abandon this merger, subject to the rights of third parties under any contracts
relating thereto, without further action or approval by the shareholders of the
corporation, at any time prior to the filing date of the Articles of Merger with
the Secretary of State.
14. EXECUTION IN COUNTERPARTS. This Plan of Merger may be executed in any
number of counterparts and all such counterparts and copies shall be and
constitute an original instrument.
I CERTIFY, under penalty of perjury under the laws of the State of
Washington, that the foregoing is true and correct to the best of my knowledge.
DATED May ___, 1998.
SURVIVING CORPORATION:
OUTPOST NETWORK, INC., a Washington corporation
By
-----------------------------------------------
Its
-------------------------------------------
-4-
<PAGE>
I CERTIFY, under penalty of perjury under the laws of the State of
Washington, that the foregoing is true and correct to the best of my knowledge.
DATED May ___, 1998.
MERGING CORPORATION:
OUTPOST ACQUISITION, INC., a Washington
corporation
By
-----------------------------------------------
Its
-------------------------------------------
-5-
<PAGE>
EXHIBIT 1.5.2
VOTING AGREEMENT
----------------
THIS VOTING AGREEMENT (the "Agreement") is made as of this _____ day of
May, 1998 among Naveen Jain, John W. Stanton, Theresa E. Gillespie, the Stanton
Family Trust, John Arnold, Kurt Dahl, Douglas C. Lawrence, Donald Guthrie, Mikal
J. Thomsen, Kirlin Partners LLC, The Walter Group, Inc. and David Wagner
(collectively, the "Shareholders"), and shall be effective as of the Effective
Date as defined in the Agreement and Plan of Merger by and among InfoSpace,
Inc., OutPost Network, Inc., certain shareholders of OutPost Network, Inc. and
OutPost Acquisition, Inc. dated as of May ___, 1998. From time to time, John
W. Stanton, Theresa E. Gillespie, the Stanton Family Trust, John Arnold, Kurt
Dahl, Douglas C. Lawrence, Donald Guthrie, Mikal J. Thomsen, Kirlin Partners
LLC, The Walter Group, Inc., and David Wagner shall be collectively referred to
herein as the "Former OutPost Shareholders."
RECITALS:
The Shareholders desire to provide for the election of nominees of
particular persons as directors of InfoSpace, Inc., a Delaware corporation (the
"Company") during the term of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Term. This Agreement shall terminate on the earlier to occur of
----
(i) 6:00 P.M. Pacific Time on the second anniversary of this Agreement; or (ii)
the closing of an underwritten registered public offering of the Company's
common stock at a public offering price per share equal to or greater than $5.00
per share and from which the gross proceeds of sale exceed $10,000,000.
2. Election of Directors.
---------------------
(a) At any meeting of the shareholders of the Company (or in
connection with any action taken by written consent of the shareholders of the
Company) for the purpose of electing directors, Mr. Naveen Jain shall vote the
shares of InfoSpace common and/or preferred stock entitled to vote and held by
him so as to elect the following nominees as directors of the Company: first,
for four persons who are nominated by Mr. Jain; and second, for Mr. John Arnold,
or another nominee of the Former OutPost Shareholders who then hold stock in the
Company.
(b) At any meeting of the shareholders of the Company (or in
connection with any action taken by written consent of the shareholders of the
Company)
<PAGE>
for the purpose of electing directors, the Former OutPost Shareholders who then
held stock in the Company shall each vote the shares of InfoSpace common and/or
preferred stock entitled to vote and held by such Former OutPost Shareholders so
as to elect the following nominees as directors of the Company: first, for four
persons who are nominated by Mr. Jain; and second, for Mr. John Arnold, or
another nominee of the Former OutPost Shareholders.
3. Resignation or Termination of John Arnold. During the term
-----------------------------------------
hereof, in the event Mr. Arnold resigns from employment by OutPost Network, Inc.
("OutPost"), a wholly-owned subsidiary of the Company, he shall concurrently
resign from his positions as a director of the Company and of OutPost, and the
Former OutPost Shareholders who then hold shares in the Company shall nominate a
replacement director to serve until the next annual meeting of shareholders for
the Company. In the event Mr. Arnold's employment is terminated by OutPost, and
Mr. Arnold does not immediately resign from his positions as a director of the
Company and of OutPost, then the Shareholders (with the exception of Mr. Arnold)
shall call a special meeting of the shareholders of the Company for the purpose
of voting whether to remove Mr. Arnold as a director for the Company. The
Shareholders (with the exception of Mr. Arnold) agree to vote their shares in
favor of removal, and upon such event, the Former OutPost Shareholders (except
Mr. Arnold) who then hold stock in the Company shall nominate a replacement
director to serve until the next annual meeting of shareholders for the Company.
4. Modification. This Agreement may only be amended by a written
------------
instrument signed by each of the Shareholders.
5. Binding Effect. This Agreement may not be assigned by any
--------------
Shareholder without the consent of the other Shareholders, which may be withheld
in each such Shareholder's sole discretion. Except as expressly provided to the
contrary herein, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their permitted successors and each such successor
shall be expressly obligated to be bound by all of the terms and conditions of
this Agreement. Shares sold by the Shareholders shall not be bound by the terms
of this Agreement and the legend set forth in Section 8 shall not remain on such
shares. This Agreement runs personally to the signatories hereof (and permitted
successors) and is not an incident of ownership of the Company's stock.
6. Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the State of Washington as applied to contracts
entered into by Washington residents and wholly to be performed within
Washington.
-2-
<PAGE>
7. 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.
8. Notices. Communications to the parties hereunder shall be given
-------
in writing and shall be deemed effectively given upon personal delivery or upon
dispatch via registered or certified mail to a party at its address hereinafter
shown below its signature or at such other address as such party may designate
by 10 days advance written notice to the other party.
9. Legend. Each certificate for the InfoSpace Shares owned by the
------
Shareholders shall bear the following legend:
The securities represented hereby are subject to restrictions upon voting
which are set forth in that certain "Voting Agreement" dated May ___, 1998. A
copy of such Voting Agreement may be obtained from the Company or its legal
counsel.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
--------------------------------------------------
Naveen Jain
8424 - 154th Avenue N. E.
Redmond, Washington 98052
--------------------------------------------------
John W. Stanton
2001 N.W. Sammamish Road, Suite 100
Issaquah, Washington 98027
--------------------------------------------------
Theresa E. Gillespie
2001 N.W. Sammamish Road, Suite 100
Issaquah, Washington 98027
THE STANTON FAMILY TRUST
-3-
<PAGE>
By:
----------------------------------------------
Donald Guthrie, Trustee
2001 N.W. Sammamish Road, Suite 100
Issaquah, Washington 98027
-------------------------------------------------
John Arnold
(Street Address)
(City/State) (Zip)
--------------------------------------------------
Kurt Dahl
(Street Address)
(City/State) (Zip)
--------------------------------------------------
David Wagner
(Street Address)
(City/State) (Zip)
--------------------------------------------------
Douglas C. Lawrence
(Street Address)
(City/State) (Zip)
--------------------------------------------------
Donald Guthrie
(Street Address)
(City/State) (Zip)
-4-
<PAGE>
--------------------------------------------------
Mikal J. Thomsen
(Street Address)
(City/State) (Zip)
KIRLIN PARTNERS LLC
By:
----------------------------------------------
Its:
-----------------------------------------
(Street Address)
(City/State) (Zip)
THE WALTER GROUP, INC.
By:
----------------------------------------------
Its:
-----------------------------------------
(Street Address)
(City/State) (Zip)
-5-
<PAGE>
SCHEDULE 2.3
On April 8, 1998, the Board of Directors for OutPost unanimously adopted
the proposed Plan of Merger of OutPost with Acquisition and recommended its
approval to the OutPost shareholders. On April 9, 1998 (the "Record Date"),
notice of a special shareholders' meeting to be held April 30, 1998 for
consideration of the proposed merger was given to shareholders of record holding
the three million five hundred eighty two thousand seven hundred fifty
(3,582,750) outstanding common shares of OutPost Stock. The shareholders of
record on the Record Date are set forth on Schedule 2.3A.
On the Record Date, OutPost was in default with respect to convertible
debentures held by various individuals ("Convertible Debenture Holders")
totaling approximately Five Hundred Forty Thousand Dollars ($540,000). OutPost
and the Convertible Debenture Holders have agreed in principle, subject to
execution of definitive agreements, that the debentures will be surrendered in
exchange for the issuance of ten million eight hundred thousand (10,800,000)
shares of OutPost common stock. Thereafter, the Convertible Debenture Holders
shall have right as shareholders in OutPost, and shall have waived any and all
other rights previously existing under the convertible debentures.
OutPost's Board of Directors has previously authorized the issuance of
warrants permitting the holders thereof to purchase up to Eight Million Nine
Hundred Thirty Six Thousand (8,936,000) shares of OutPost Stock upon providing
OutPost with notice of exercise and the tender of the exercise price of one cent
($0.01) per share of OutPost Stock. These rights are held by the individuals
and entities identified on Schedule 2.3B.
OutPost's Board of Directors will recommend to its shareholders that
OutPost's Articles of Incorporation be amended prior to the Effective Date to
eliminate the Series B preferred shares and increase authorized common stock to
Thirty Five Million (35,000,000) shares.
OutPost and a former employee have settled, subject to execution of
definitive documents, the former employee's claim that he was entitled to an
equity interest in OutPost. Prior to Effective Date, Fifty Thousand (50,000)
shares of OutPost Common Stock will be issued to Patrick Adkisson for no
additional consideration.
OutPost has agreed to issue two million (2,000,000) shares of its common
stock to Daniel Kranzler and one million (1,000,000) shares of its common stock
to The Walter Group in connection with financial consulting services rendered by
each of them to OutPost during 1997 and continuing to the Effective Date. These
additional three million (3,000,000) shares shall be issued prior to the
Effective Date.
<PAGE>
Prior to the Effective Date, OutPost may issue up to five million six
hundred thirty one thousand two hundred fifty (5,631,250) shares for payment of
Five Cents ($0.05) per share to creditors and/or existing shareholders. Such
consideration will be paid in cash or as a reduction of amounts payable by
OutPost to such prospective shareholders. The names of all shareholders or
creditors who may acquire shares as described in this paragraph are set forth on
Schedule 2.3C. As of the Effective Date no more than thirty two million
(32,000,000) shares of OutPost Stock shall be outstanding.
-2-
<PAGE>
SCHEDULE 3.6
InfoSpace is currently negotiating a financing transaction that would
involve the issuance of shares of InfoSpace Common. Definitive agreements have
not yet been finalized. As of the date of this Agreement, the parties to that
negotiation contemplate an investment of $3,000,000 to acquire 1,500,000 shares
of InfoSpace Common at a price of $2/share. The contemplated investment also
includes the issuance of warrants to acquire up to 3,750,000 shares of InfoSpace
Common, which warrants would have a term of ten years and staggered exercise
prices. The warrants are subject to a right of repurchase by InfoSpace, which
right is reduced based on the investor's performance in assisting InfoSpace
obtain additional financing over the course of approximately the next four
years.
InfoSpace is also considering entering into a significant distribution
agreement with a third party. Such a distribution agreement would be in
furtherance of InfoSpace's overall aim of increasing its viewership over the
Internet. Concluding such a distribution agreement would involve a substantial
financial commitment by InfoSpace, and InfoSpace may make another offering of
shares of InfoSpace Common and warrants to acquire InfoSpace Common in order to
raise additional capital so as to meet this financial commitment. OutPost and
its shareholders should be aware that in pursuing its business plan, InfoSpace
(1) may assume significant financial obligations, and (2) contemplates issuing
shares of InfoSpace Common in order to raise sufficient funds to meet such
obligations. The issuance of the shares and warrants discussed in the first
paragraph of this Schedule 3.6, and the potential issuance of additional shares
of InfoSpace Common Stock and warrants to acquire InfoSpace Common discussed in
this second paragraph of Schedule 3.6, would result in dilution of the former
OutPost Shareholders' interest in InfoSpace.
<PAGE>
SCHEDULE 3.9
LITIGATION
1. InfoSpace is involved in a dispute with a former consultant who claims
the right to purchase shares of InfoSpace stock in connection with consulting
services. The dispute is being mediated and the maximum number of InfoSpace
shares that could be subject to purchase in connection therewith is 3,500,000.
2. A complaint for federal trademark infringement and unfair competition,
statutory unfair practices, and common law trademark infringement and unfair
competition was filed in U.S. District Court for the Northern District of
California on February 18, 1998 by Infospace, Inc., a California corporation,
against InfoSpace.
3. A complaint for specific performance, tortious termination of
employment, fraud, breach of fiduciary duty, intentional infliction of emotional
distress, and for injunctive relief was filed in Superior Court of California,
County of Santa Clara on May 15, 1998 by Mohammed Kaleemuddin, also known as
Mark Kaleem, a former employee of InfoSpace, against InfoSpace, Naveen Jain,
and certain unnamed defendants.
<PAGE>
EXHIBIT 5.12
INVESTMENT CERTIFICATE
The undersigned shareholder (the "Shareholder") of OutPost Network, Inc., a
Washington corporation ("OutPost"), will be receiving shares (the "Shares") of
the common stock, par value $.0001/share, of InfoSpace, Inc., a Delaware
corporation ("InfoSpace"), in connection with a transaction in which InfoSpace's
wholly-owned subsidiary, OutPost Acquisition, Inc., a Washington corporation
("Acquisition"), will be merged with and into OutPost (the "Merger"). The
Merger is to be accomplished in accordance with the terms of an Agreement and
Plan of Merger dated as of May ___, 1998 among InfoSpace, Acquisition, OutPost
and the OutPost shareholders named therein (the "Merger Agreement"). As a
condition to the Merger, the Shareholder hereby represents as follows:
1. The Shareholder has received and reviewed the Offering Memorandum
prepared in connection with the Merger, which includes copies of the following:
(a) The Merger Agreement;
(b) Certain financial statements of InfoSpace; and
(c) Certain financial statements of OutPost.
2. The Shareholder is acquiring all of the Shares for the Shareholder's
own account and not with a view to or for sale in connection with any
distribution of the Shares. The Shareholder specifically represents that the
entire legal and beneficial interest in the Shares is being acquired for, and
will be held for, the Shareholder's account only and not for the account of, or
otherwise on behalf of, any other person.
3. The Shareholder understands that the Shares to be issued in the Merger
will not be registered under the Securities Act of 1933, as amended (the "Act"),
in reliance upon an exemption from the registration requirements of the Act.
4. The Shareholder hereby agrees that he/she will not sell, transfer,
assign, pledge, hypothecate or otherwise dispose of the Shares absent an
effective Registration Statement under the Act covering such disposition, or
without InfoSpace first receiving an opinion of counsel, which may be counsel
for InfoSpace, reasonably acceptable to InfoSpace, and shall be to the effect
that such sale, transfer, assignment, pledge, hypothecation or other disposition
is or will be exempt from the registration and prospectus delivery requirements
of the Act and the registration or qualification requirements of any applicable
state securities laws.
<PAGE>
5. The Shareholder understands and agrees that all certificates evidencing
the Shares to be issued to the Shareholder will bear substantially the following
legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES ACTS AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND ANY SUCH APPLICABLE STATE SECURITIES ACTS
OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
6. Check one: [ ] the Shareholder is an accredited investor as defined in
Rule 501(a) of Regulation D as adopted by the U.S. Securities and Exchange
Commission, or [ ] the Shareholder is not an accredited investor, but
acknowledges that John W. Stanton has acted as the Shareholder's purchaser
representative (as defined in Rule 501(h) of Regulation D as adopted by the U.S.
Securities and Exchange Commission) in connection with evaluating the merits and
risks of the Merger, and the Shareholder, acting together with Mr. Stanton, has
such knowledge and experience in financial and business matters, that the
Shareholder is capable of evaluating the merits and risks of the prospective
investment.
Dated: __________, 1998
------------------------------------------
Signature of Shareholder
-------------------------------------------------
Print/Type Name
CONFIRMED AND ACCEPTED:
INFOSPACE, INC.
By:
---------------------------------
Naveen Jain, Its President
-2-
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
INFOSPACE.COM, INC.
InfoSpace.com, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware, does hereby certify:
1. The original Certificate of Incorporation was filed with the Secretary
of State on April 9, 1996, under the name of InfoSpace, Inc.
2. The following Restated Certificate of Incorporation was duly proposed
by the corporation's Board of Directors and duly adopted pursuant to the
applicable provisions of Section 242 and Section 245 of the General Corporation
Law of the State of Delaware. In lieu of a meeting of the stockholders, written
consent has been given for the adoption of said Restated Certificate of
Incorporation and the amendments to be made thereby pursuant to the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware, and written notice of the taking of such corporate action has
been given as provided in said Section 228.
ARTICLE 1. NAME
The name of the corporation is InfoSpace.com, Inc.
ARTICLE 2. REGISTERED OFFICE AND AGENT
The address of the registered office of the corporation is 1209 Orange
Street, Wilmington, County of New Castle, State of Delaware 19805, and the name
of its registered agent at such address is The Corporation Trust Company.
ARTICLE 3. PURPOSES
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE 4. SHARES
The total authorized stock of the corporation shall consist of 50,000,000
million shares of Common Stock having a par value of $.0001 per share and
15,000,000 million shares of Preferred Stock having a par value of $.0001 per
share. Authority is hereby expressly granted to the Board of Directors to fix
by resolution or resolutions any of the designations and the powers, preferences
and rights, and the
Page 1
<PAGE>
qualifications, limitations or restrictions which are permitted by Delaware
General Corporation Law in respect of any class or classes of stock or any
series of any class of stock of the corporation. The corporation shall from time
to time in accordance with the laws of the State of Delaware increase the
authorized amount of its Common Stock if at any time the number of shares of
Common Stock remaining unissued and available for issuance shall not be
sufficient to permit the conversion of the Preferred Stock.
Effective upon the filing of this Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware, every two shares of issued
and outstanding Common Stock, par value $.0001 per share, of the corporation,
shall be changed and reclassified into one share of Common Stock, par value
$.0001 per share, of the corporation, thereby giving effect to a 1-for-2 reverse
stock split. The total authorized stock of the corporation set forth in the
first sentence of this Article 4 sets forth the total authorized stock of the
corporation after giving effect to this 1-for-2 reverse stock split.
ARTICLE 5. ELECTION OF DIRECTORS
The Board shall be composed of not less than 5 nor more than 9 Directors,
the specific number to be set by resolution of the Board, provided that the
Board may be less than 5 until vacancies are filled. No decrease in the number
of Directors shall have the effect of shortening the term of any incumbent
Director.
Prior to the 1999 annual election of Directors, unless a Director earlier
dies, resigns or is removed, his or her term of office shall expire at the next
annual meeting of stockholders. At the 1999 annual election of Directors, the
Board of Directors shall be divided into three classes, with said classes to be
as equal in number as may be possible. At the first election of Directors to
such classified Board of Directors, each Class 1 Director shall be elected to
serve until the next ensuing annual meeting of stockholders, each Class 2
Director shall be elected to serve until the second ensuing annual meeting of
stockholders and each Class 3 Director shall be elected to serve until the third
ensuing annual meeting of stockholders. At each annual meeting of stockholders
following the meeting at which the Board of Directors is initially classified,
the number of Directors equal to the number of Directors in the class whose term
expires at the time of such meeting shall be elected to serve until the third
ensuing annual meeting of stockholders. Notwithstanding any of the foregoing
provisions of this subsection 3.2, Directors shall serve until their successors
are elected and qualified or until their earlier death, resignation or removal
from office or until there is a decrease in the number of Directors. Directors
need not be stockholders of the corporation or residents of the State of
Delaware and need not meet any other qualifications.
Page 2
<PAGE>
ARTICLE 6. BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws of the corporation; provided, however, the Board of Directors may not
repeal or amend any bylaw that the stockholders have expressly provided may not
be amended or repealed by the Board of Directors. The stockholders shall also
have the power to adopt, amend or repeal the Bylaws of the corporation.
ARTICLE 7. PREEMPTIVE RIGHTS
Preemptive rights shall not exist with respect to shares of stock or
securities convertible into shares of stock of the corporation.
ARTICLE 8. CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall not exist
with respect to shares of stock of the corporation.
ARTICLE 9. AMENDMENTS TO CERTIFICATE OF INCORPORATION
The corporation reserves the right to amend or repeal, by the affirmative
vote of the holders of a majority of the outstanding shares entitled to vote,
any of the provisions contained in this Certificate of Incorporation. The
rights of the stockholders of the corporation are granted subject to this
reservation.
ARTICLE 10. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the Delaware General Corporation Law, as it exists
on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of directors, a director of the corporation shall
not be liable to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director. Any amendment to or repeal of this
Article 10 shall not adversely affect any right or protection of a director of
the corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
ARTICLE 11. ACTION BY STOCKHOLDERS WITHOUT A MEETING
Only action properly brought before the stockholders by or at the direction
of the Board of Directors may be taken without a meeting, without prior notice
and without a vote, if a written consent setting forth the action so taken is
signed by the holders of outstanding shares of capital stock entitled to be
voted with respect to the subject matter thereof having not less than the
minimum number of votes that would
Page 3
<PAGE>
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
ARTICLE 12. SPECIAL VOTING REQUIREMENTS
In addition to any affirmative vote required by law, this Certificate of
Incorporation or otherwise, any "Business Combination" (as hereinafter defined)
involving this corporation shall be subject to approval in the manner set forth
in this Article 12.
12.1 DEFINITIONS.
For the purposes of this Article 12:
(a) "Business Combination" means (i) a merger, share exchange or
consolidation of this corporation or any of its Subsidiaries with any other
corporation; (ii) the sale, lease, exchange, mortgage, pledge, transfer or other
disposition or encumbrance, whether in one transaction or a series of
transactions, by this corporation or any of its Subsidiaries of all or a
substantial part of the corporation's assets otherwise than in the usual and
regular course of business, or (iii) any agreement, contract or other
arrangement providing for any of the foregoing transactions.
(b) "Subsidiary" means a domestic or foreign corporation that has a
majority of its outstanding voting shares owned, directly or indirectly, by this
corporation.
12.2 VOTE REQUIRED FOR BUSINESS COMBINATIONS.
12.2.1 Except as provided in subsection 12.2.2 of this Article 12, the
affirmative vote of not less than two-thirds of the outstanding shares and, to
the extent, if any, provided by resolution or resolutions of the Board of
Directors providing for the issuance of a series of Common or Preferred Stock,
not less than two-thirds of the outstanding shares entitled to vote thereon,
voting as a class, shall be required for the adoption or authorization of a
Business Combination.
12.2.2 Notwithstanding subsection 12.2.1 of this Article 12, if a Business
Combination shall have been approved by at least two-thirds of the Board of
Directors, and is otherwise required by law to be approved by this corporation's
stockholders, such Business Combination shall require the affirmative vote of
not less than fifty-one percent (51%) of the outstanding shares entitled to vote
thereon and, to the extent, if any, provided by resolution or resolutions of the
Board of
Page 4
<PAGE>
Directors providing for the issuance of a series of Common or Preferred Stock,
not less than fifty-one percent (51%) of the outstanding shares of such series,
voting as a class; provided, however, that if a Business Combination approved by
at least two-thirds of the Board of Directors is not otherwise required by law
to be approved by this corporation's stockholders, then no vote of the
stockholders of this corporation shall be required.
ARTICLE 13. SPECIAL MEETINGS OF STOCKHOLDERS
The Chairman of the Board of Directors, the Chief Executive Officer, the
President or the Board of Directors may call special meetings of the
stockholders for any purpose. A special meeting of the stockholders shall be
held if the holders of not less than thirty percent (30%) of all the votes
entitled to be cast on any issue proposed to be considered at such special
meeting have dated, signed and delivered to the Secretary one or more written
demands for such meeting, describing the purpose or purposes for which it is to
be held.
IN WITNESS WHEREOF, the corporation has caused this Restated Certificate of
Incorporation to be signed by its duly authorized officer this 24th day of
August, 1998.
INFOSPACE.COM, INC.
By /s/ Ellen Alben
--------------------------------------
Ellen Alben, Vice President, Legal and
Business Affairs
Page 5
<PAGE>
EXHIBIT 3.2
RESTATED
BYLAWS
OF
INFOSPACE.COM, INC.
Originally adopted on April 10, 1996 and amended August 24, 1998.
Amendments are listed on p. i
<PAGE>
INFOSPACE.COM, INC.
AMENDMENTS
Date of
Section Effect of Amendment Amendment
- ------- ------------------- ---------
All Restated in its entirety August 24, 1998
-i-
<PAGE>
CONTENTS
<TABLE>
<C> <S> <C>
SECTION 1. OFFICES.......................................................... 1
SECTION 2. STOCKHOLDERS..................................................... 1
2.1 Annual Meeting................................................... 1
2.2 Special Meetings................................................. 1
2.3 Place of Meeting................................................. 1
2.4 Notice of Meeting................................................ 2
2.5 Business for Stockholders' Meetings.............................. 2
2.5.1 Business at Annual Meetings............................ 2
2.5.2 Business at Special Meetings........................... 3
2.5.3 Notice to Corporation.................................. 3
2.6 Waiver of Notice................................................. 3
2.6.1 Waiver in Writing...................................... 3
2.6.2 Waiver by Attendance................................... 3
2.7 Fixing of Record Date for Determining Stockholders............... 4
2.7.1 Meetings............................................... 4
2.7.2 Consent to Corporate Action Without a Meeting.......... 4
2.7.3 Dividends, Distributions and Other Rights.............. 4
2.8 Voting List...................................................... 5
2.9 Quorum........................................................... 5
2.10 Manner of Acting................................................. 5
2.11 Proxies.......................................................... 6
2.11.1 Appointment............................................ 6
2.11.2 Delivery to Corporation; Duration...................... 6
2.12 Voting of Shares................................................. 6
2.13 Voting for Directors............................................. 6
2.14 Action by Stockholders Without a Meeting......................... 7
2.15 Inspectors of Election........................................... 7
2.15.1 Appointment............................................ 7
2.15.2 Duties................................................. 8
SECTION 3. BOARD OF DIRECTORS............................................... 8
3.1 General Powers................................................... 8
3.2 Number and Tenure................................................ 8
3.3 Nomination and Election.......................................... 9
3.3.1 Nomination............................................. 9
3.3.2 Election............................................... 10
3.4 Annual and Regular Meetings...................................... 10
3.5 Special Meetings................................................. 10
3.6 Meetings by Telephone............................................ 10
3.7 Notice of Special Meetings....................................... 10
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
3.7.1 Personal Delivery...................................... 10
3.7.2 Delivery by Mail....................................... 11
3.7.3 Delivery by Private Carrier............................ 11
3.7.4 Facsimile Notice....................................... 11
3.7.5 Delivery by Telegraph.................................. 11
3.7.6 Oral Notice............................................ 11
3.8 Waiver of Notice................................................. 11
3.8.1 In Writing............................................. 11
3.8.2 By Attendance.......................................... 12
3.9 Quorum........................................................... 12
3.10 Manner of Acting................................................. 12
3.11 Presumption of Assent............................................ 12
3.12 Action by Board or Committees Without a Meeting.................. 12
3.13 Resignation...................................................... 12
3.14 Removal.......................................................... 13
3.15 Vacancies........................................................ 13
3.16 Committees....................................................... 13
3.16.1 Creation and Authority of Committees................... 13
3.16.2 Audit Committee........................................ 14
3.16.3 Compensation Committee................................. 14
3.16.4 Nominating and Organization Committee.................. 14
3.16.5 Minutes of Meetings.................................... 15
3.16.6 Quorum and Manner of Acting............................ 15
3.16.7 Resignation............................................ 15
3.16.8 Removal................................................ 15
3.17 Compensation..................................................... 15
SECTION 4. OFFICERS......................................................... 16
4.1 Number........................................................... 16
4.2 Election and Term of Office...................................... 16
4.3 Resignation...................................................... 16
4.4 Removal.......................................................... 16
4.5 Vacancies........................................................ 16
4.6 Chairman of the Board............................................ 17
4.7 Chief Executive Officer.......................................... 17
4.8 President........................................................ 17
4.9 Vice President................................................... 17
4.10 Secretary........................................................ 18
4.11 Treasurer........................................................ 18
4.12 Salaries......................................................... 18
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS............................ 18
5.1 Contracts........................................................ 18
5.2 Loans to the Corporation......................................... 18
5.3 Checks, Drafts, Etc.............................................. 18
</TABLE>
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<TABLE>
<C> <S> <C>
5.4 Deposits......................................................... 19
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER....................... 19
6.1 Issuance of Shares............................................... 19
6.2 Certificates for Shares.......................................... 19
6.3 Stock Records.................................................... 19
6.4 Restriction on Transfer.......................................... 20
6.5 Transfer of Shares............................................... 20
6.6 Lost or Destroyed Certificates................................... 20
6.7 Shares of Another Corporation.................................... 21
SECTION 7. BOOKS AND RECORDS................................................ 21
SECTION 8. ACCOUNTING YEAR.................................................. 21
SECTION 9. SEAL............................................................. 21
SECTION 10. INDEMNIFICATION.................................................. 21
10.1 Right to Indemnification......................................... 21
10.2 Right of Indemnitee to Bring Suit................................ 22
10.3 Nonexclusivity of Rights......................................... 23
10.4 Insurance, Contracts and Funding................................. 23
10.5 Indemnification of Employees and Agents of the Corporation....... 23
10.6 Persons Serving Other Entities................................... 23
10.7 Procedures for the Submission of Claims.......................... 24
SECTION 11. AMENDMENTS OR REPEAL............................................. 24
</TABLE>
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RESTATED BYLAWS
OF
INFOSPACE.COM, INC.
SECTION 1. OFFICES
The principal office of the corporation shall be located at its principal
place of business or such other place as the Board of Directors (the "Board")
may designate. The corporation may have such other offices, either within or
without the state of Delaware, as the Board may designate or as the business of
the corporation may require from time to time.
SECTION 2. STOCKHOLDERS
2.1 ANNUAL MEETING
The annual meeting of the stockholders shall be held on such date and at
such time as may be designated from time to time by the Board of Directors, or,
if not so designated, then at 10:00 a.m. on the 30th day of April in each year
at the principal office of the corporation or such other place designated by the
Board for the purpose of electing Directors and transacting such other business
as may properly come before the meeting. If the day fixed for the annual meeting
is a legal holiday at the place of the meeting, the meeting shall be held on the
next succeeding business day. If the annual meeting is not held on the date
designated therefor, the Board shall cause the meeting to be held as soon
thereafter as may be convenient. At any time prior to the commencement of the
annual meeting, the Board may postpone the annual meeting for a period of up to
120 days from the date fixed for such meeting in accordance with this subsection
2.1.
2.2 SPECIAL MEETINGS
The Chairman of the Board, the President, the Board or the holders of not
less than 30 percent of all the outstanding shares of the corporation entitled
to vote on any issue proposed to be considered at the meeting may call special
meetings of the stockholders for any purpose.
2.3 PLACE OF MEETING
All meetings shall be held at the principal office of the corporation or at
such other place within or without the State of Delaware designated by the
Board, by any persons entitled to call a meeting hereunder or in a waiver of
notice signed by all of the stockholders entitled to notice of the meeting.
<PAGE>
2.4 NOTICE OF MEETING
The Chairman of the Board, the President, the Secretary, the Board, or
stockholders calling an annual or special meeting of stockholders as provided
for herein, shall cause to be delivered to each stockholder entitled to notice
of or to vote at the meeting either personally or by mail, not less than 10 nor
more than 60 days before the meeting, written notice stating the place, day and
hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called; except that where the matter to be
acted on is a merger or consolidation of the corporation or the sale, lease,
exchange or other disposition of all or substantially all of the corporation's
assets other than in the ordinary course of business, such notice shall be given
not less than 20 nor more than 60 days prior to such meeting. Upon written
request by the holders of not less than the number of outstanding shares of the
corporation specified in subsection 2.2 hereof and entitled to vote at the
meeting, it shall be the duty of the Secretary to give notice of a special
meeting of stockholders to be held on such date and at such place and hour as
the Secretary may fix, not less than 10 nor more than 60 days after receipt of
said request, and if the Secretary shall neglect or refuse to issue such notice,
the person making the request may do so and may fix the date for such meeting.
If such notice is mailed, it shall be deemed delivered when deposited in the
official government mail properly addressed to the stockholder at such
stockholder's address as it appears on the stock transfer books of the
corporation with postage prepaid. If the notice is telegraphed, it shall be
deemed delivered when the content of the telegram is delivered to the telegraph
company. Notice given in any other manner shall be deemed delivered when
dispatched to the stockholder's address, telephone number or other number
appearing on the stock transfer records of the corporation.
2.5 BUSINESS FOR STOCKHOLDERS' MEETINGS
2.5.1 BUSINESS AT ANNUAL MEETINGS
In addition to the election of directors, other proper business may be
transacted at an annual meeting of stockholders, provided that such business
must be properly brought before such meeting. To be properly brought before an
annual meeting, business must be (a) brought by or at the direction of the Board
or (b) brought before the meeting by a stockholder pursuant to written notice
thereof, in accordance with subsection 2.5.3 hereof, and received by the
Secretary not fewer than 60 nor more than 90 days prior to the date specified in
subsection 2.1 hereof for such annual meeting (or if less than 60 days' notice
or prior public disclosure of the date of the annual meeting is given or made to
the stockholders, not later than the tenth day following the day on which the
notice of the date of the annual meeting was mailed or such public disclosure
was made). No business shall be conducted at any annual meeting of stockholders
except in accordance with this subsection 2.5.1, unless the application of this
subsection 2.5.1 to a particular matter is waived in writing by the Board of
Directors. If the facts warrant, the Board, or the chairman of an annual meeting
of stockholders, may determine and declare that (a) a
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proposal does not constitute proper business to be transacted at the meeting or
(b) business was not properly brought before the meeting in accordance with the
provisions of this subsection 2.5.1 and, if, it is so determined in either case,
any such business shall not be transacted. The procedures set forth in this
subsection 2.5.1 for business to be properly brought before an annual meeting by
a stockholder are in addition to, and not in lieu of, the requirements set forth
in Rule 14a-8 under Section 14 of the Securities Exchange Act of 1934, as
amended, or any successor provision.
2.5.2 BUSINESS AT SPECIAL MEETINGS
At any special meeting of the stockholders, only such business as is
specified in the notice of such special meeting given by or at the direction of
the person or persons calling such meeting, in accordance with subsection 2.4
hereof, shall come before such meeting.
2.5.3 NOTICE TO CORPORATION
Any written notice required to be delivered by a stockholder to the
corporation pursuant to subsection 2.2, subsection 2.4, subsection 2.5.1 or
subsection 2.5.2 hereof must be given, either by personal delivery or by
registered or certified mail, postage prepaid, to the Secretary at the
corporation's executive offices. Any such stockholder notice shall set forth (i)
the name and address of the stockholder proposing such business; (ii) a
representation that the stockholder is entitled to vote at such meeting and a
statement of the number of shares of the corporation that are beneficially owned
by the stockholder; (iii) a representation that the stockholder intends to
appear in person or by proxy at the meeting to propose such business; and (iv)
as to each matter the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting, the language of the
proposal (if appropriate), and any material interest of the stockholder in such
business.
2.6 WAIVER OF NOTICE
2.6.1 WAIVER IN WRITING
Whenever any notice is required to be given to any stockholder under the
provisions of these Bylaws, the Certificate of Incorporation or the General
Corporation Law of the State of Delaware, as now or hereafter amended (the
"DGCL"), a waiver thereof in writing, signed by the person or persons entitled
to such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
2.6.2 WAIVER BY ATTENDANCE
The attendance of a stockholder at a meeting shall constitute a waiver of
notice of such meeting, except when a stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
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2.7 FIXING OF RECORD DATE FOR DETERMINING STOCKHOLDERS
2.7.1 MEETINGS
For the purpose of determining stockholders entitled to notice of and to
vote at any meeting of stockholders or any adjournment thereof, the Board may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall not be more than 60 (or the maximum number permitted by applicable law)
nor less than 10 days before the date of such meeting. If no record date is
fixed by the Board, the record date for determining stockholders entitled to
notice of and to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of and to vote at the meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board may fix a new
record date for the adjourned meeting.
2.7.2 CONSENT TO CORPORATE ACTION WITHOUT A MEETING
For the purpose of determining stockholders entitled to consent to
corporate action in writing without a meeting, the Board may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board, and which date shall not be more than
10 (or the maximum number permitted by applicable law) days after the date upon
which the resolution fixing the record date is adopted by the Board. If no
record date has been fixed by the Board, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board is required by Chapter 1 of the DGCL,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board and prior action by the Board is required by Chapter 1 of the DGCL,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the day
on which the Board adopts the resolution taking such prior action.
2.7.3 DIVIDENDS, DISTRIBUTIONS AND OTHER RIGHTS
For the purpose of determining stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted, and which record
date shall be not more than 60 (or the maximum number permitted by
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applicable law) days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the Board adopts the resolution relating
thereto.
2.8 VOTING LIST
At least 10 days before each meeting of stockholders, a complete list of
the stockholders entitled to vote at such meeting, or any adjournment thereof,
shall be made, arranged in alphabetical order, with the address of and number of
shares held by each stockholder. This list shall be open to examination by any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of 10 days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. This list shall also be produced and kept at such meeting for
inspection by any stockholder who is present.
2.9 QUORUM
A majority of the outstanding shares of the corporation entitled to vote,
present in person or represented by proxy at the meeting, shall constitute a
quorum at a meeting of the stockholders; provided, that where a separate vote by
a class or classes is required, a majority of the outstanding shares of such
class or classes, present in person or represented by proxy at the meeting,
shall constitute a quorum entitled to take action with respect to that vote on
that matter. If less than a majority of the outstanding shares entitled to vote
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. If a quorum is
present or represented at a reconvened meeting following such an adjournment,
any business may be transacted that might have been transacted at the meeting as
originally called. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
2.10 MANNER OF ACTING
In all matters other than the election of Directors, if a quorum is
present, the affirmative vote of the majority of the outstanding shares present
in person or represented by proxy at the meeting and entitled to vote on the
subject matter shall be the act of the stockholders, unless the vote of a
greater number is required by these Bylaws, the Certificate of Incorporation or
the DGCL. Where a separate vote by a class or classes is required, if a quorum
of such class or classes is present, the affirmative vote of the majority of
outstanding shares of such class or classes present in person or represented by
proxy at the meeting shall be the act of such class or classes, unless the vote
of a greater number is required by these Bylaws, the Certificate of
Incorporation or the DGCL. Directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of Directors.
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<PAGE>
2.11 PROXIES
2.11.1 APPOINTMENT
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy. Such
authorization may be accomplished by (a) the stockholder or such stockholder's
authorized officer, director, employee or agent executing a writing or causing
his or her signature to be affixed to such writing by any reasonable means,
including facsimile signature or (b) by transmitting or authorizing the
transmission of a telegram, cablegram or other means of electronic transmission
to the intended holder of the proxy or to a proxy solicitation firm, proxy
support service or similar agent duly authorized by the intended proxy holder to
receive such transmission; provided, that any such telegram, cablegram or other
electronic transmission must either set forth or be accompanied by information
from which it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
by which a stockholder has authorized another person to act as proxy for such
stockholder may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
2.11.2 DELIVERY TO CORPORATION; DURATION
A proxy shall be filed with the Secretary before or at the time of the
meeting or the delivery to the corporation of the consent to corporate action in
writing. A proxy shall become invalid three years after the date of its
execution unless otherwise provided in the proxy. A proxy with respect to a
specified meeting shall entitle the holder thereof to vote at any reconvened
meeting following adjournment of such meeting but shall not be valid after the
final adjournment thereof.
2.12 VOTING OF SHARES
Each outstanding share entitled to vote with respect to the subject matter
of an issue submitted to a meeting of stockholders shall be entitled to one vote
upon each such issue.
2.13 VOTING FOR DIRECTORS
Each stockholder entitled to vote at an election of Directors may vote, in
person or by proxy, the number of shares owned by such stockholder for as many
persons as there are Directors to be elected and for whose election such
stockholder has a right to vote; provided, however, that no cumulative voting
shall be permitted in the election of Directors.
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2.14 ACTION BY STOCKHOLDERS WITHOUT A MEETING
Subject to the following paragraph, any action that is properly brought
before the stockholders by or at the direction of the Board of Directors and
that could be taken at an annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall (a) be signed by
the holders of outstanding shares of capital stock entitled to be voted with
respect to the subject matter thereof having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted (as determined
in accordance with subsection 2.6.2 hereof) and (b) be delivered to the
corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the corporation having
custody of the records of proceedings of meetings of stockholders. Delivery made
to the corporation's registered office shall be by hand or by certified mail or
registered mail, return receipt requested. Every written consent shall bear the
date of signature of each stockholder who signs the consent, and no written
consent shall be effective to take the corporate action referred to therein
unless written consents signed by the requisite number of stockholders entitled
to vote with respect to the subject matter thereof are delivered to the
corporation, in the manner required by this Section 2, within 60 (or the maximum
number permitted by applicable law) days of the earliest dated consent delivered
to the corporation in the manner required by this Section 2. The validity of any
consent executed by a proxy for a stockholder pursuant to a telegram, cablegram
or other means of electronic transmission transmitted to such proxy holder by or
upon the authorization of the stockholder shall be determined by or at the
direction of the Secretary. A written record of the information upon which the
person making such determination relied shall be made and kept in the records of
the proceedings of the stockholders. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing. Any such
consent shall be inserted in the minute book as if it were the minutes of a
meeting of the stockholders.
2.15 INSPECTORS OF ELECTION
2.15.1 APPOINTMENT
In advance of any meeting of stockholders after this corporation has become
a Public Company (as defined below), the Board shall appoint one or more persons
to act as inspectors of election at such meeting and to make a written report
thereof. The Board may designate one or more persons to serve as alternate
inspectors to serve in place of any inspector who is unable or fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
chairman of such meeting shall appoint one or more persons to act as inspector
of elections at such meeting. This corporation shall be a "Public Company" upon
the earliest of (a) a vote by the Board of Directors of the corporation
designating the corporation a Public Company, (b) when a registration statement
filed by the
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corporation under the Securities Act of 1933, as amended, in connection with an
offering of the corporation's securities to the public first becomes effective
or (c) upon the effective date of the registration of the corporation's
securities pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended.
2.15.2 DUTIES
The inspectors of election shall:
(a) ascertain the number of shares of the corporation outstanding and
the voting power of each such share;
(b) determine the shares represented at the meeting and the validity
of proxies and ballots;
(c) count all votes and ballots;
(d) determine and retain for a reasonable period of time a record of
the disposition of any challenges made to any determination by them; and
(e) certify their determination of the number of shares represented
at the meeting and their count of the votes and ballots.
The validity of any proxy or ballot shall be determined by the inspectors
of election in accordance with the applicable provisions of these Bylaws and the
DGCL as then in effect. In determining the validity of any proxy transmitted by
telegram, cablegram or other electronic transmission, the inspectors shall
record in writing the information upon which they relied in making such
determination. Each inspector of elections shall, before entering upon the
discharge of his or her duties, take and sign an oath to faithfully execute the
duties of inspector with strict impartiality and according to the best of his or
her ability. The inspectors of election may appoint or retain other persons or
entities to assist them in the performance of their duties.
SECTION 3. BOARD OF DIRECTORS
3.1 GENERAL POWERS
The business and affairs of the corporation shall be managed by the Board.
3.2 NUMBER AND TENURE
The number and tenure of the Directors shall be governed by Article 5 of
the Restated Certificate of Incorporation.
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3.3 NOMINATION AND ELECTION.
3.3.1 NOMINATION
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as Directors. Nominations for the election of
Directors may be made (a) by or at the direction of the Board or (b) by any
stockholder of record entitled to vote for the election of Directors at such
meeting; provided, however, that a stockholder may nominate persons for election
as Directors only if written notice (in accordance with subsection 2.5.3 hereof)
of such stockholder's intention to make such nominations is received by the
Secretary not later than (i) with respect to an election to be held at an annual
meeting of stockholders, not fewer than 60 nor more than 90 days prior to the
date specified in subsection 2.1 hereof for such annual meeting (or if less than
60 days' notice or prior public disclosure of the date of the annual meeting is
given or made to the stockholders, not later than the tenth day following the
day on which such notice of the date of the annual meeting was mailed or such
public disclosure was made) and (ii) with respect to an election to be held at a
special meeting of stockholders for the election of Directors, the close of
business on the seventh business day following the date on which notice of such
meeting is first given to stockholders. Any such stockholder's notice shall set
forth (a) the name and address of the stockholder who intends to make a
nomination; (b) a representation that the stockholder is entitled to vote at
such meeting and a statement of the number of shares of the corporation that are
beneficially owned by the stockholder; (c) a representation that the stockholder
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (d) as to each person the stockholder proposes
to nominate for election or re-election as a Director, the name and address of
such person and, if the corporation is then a Public Company, such other
information regarding such nominee as would be required in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
such nominee been nominated by the Board, and a description of any arrangements
or understandings, between the stockholder and such nominee and any other
persons (including their names), pursuant to which the nomination is to be made;
and (e) the consent of each such nominee to serve as a Director if elected. If
the facts warrant, the Board, or the chairman of a stockholders' meeting at
which Directors are to be elected, may determine and declare that a nomination
was not made in accordance with the foregoing procedure and, if it is so
determined, the defective nomination shall be disregarded. The procedures set
forth in this subsection 3.3 for nomination for the election of Directors by
stockholders are in addition to, and not in limitation of, any procedures now in
effect or hereafter adopted by or at the direction of the Board or any committee
thereof.
3.3.2 ELECTION
At each election of Directors, the persons receiving the greatest number of
votes shall be the Directors.
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3.4 ANNUAL AND REGULAR MEETINGS
An annual Board meeting shall be held without notice immediately after and
at the same place as the annual meeting of stockholders. By resolution, the
Board or any committee designated by the Board may specify the time and place
either within or without the State of Delaware for holding regular meetings
thereof without other notice than such resolution.
3.5 SPECIAL MEETINGS
Special meetings of the Board or any committee appointed by the Board may
be called by or at the request of the Chairman of the Board, the Chief Executive
Officer, the President, the Secretary or, in the case of special Board meetings,
any Director, and, in the case of any special meeting of any committee appointed
by the Board, by the Chairman thereof. The person or persons authorized to call
special meetings may fix any place either within or without the State of
Delaware as the place for holding any special meeting called by them.
3.6 MEETINGS BY TELEPHONE
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation by such means
shall constitute presence in person at a meeting.
3.7 NOTICE OF SPECIAL MEETINGS
Notice of a special Board or committee meeting stating the place, day and
hour of the meeting shall be given to a Director in writing or orally by
telephone or in person. Neither the business to be transacted at, nor the
purpose of, any special meeting need be specified in the notice of such meeting.
3.7.1 PERSONAL DELIVERY
If notice is given by personal delivery, the notice shall be effective if
delivered to a Director at least two days before the meeting.
3.7.2 DELIVERY BY MAIL
If notice is delivered by mail, the notice shall be deemed effective if
deposited in the official government mail properly addressed to a Director at
his or her address shown on the records of the corporation with postage prepaid
at least five days before the meeting.
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3.7.3 DELIVERY BY PRIVATE CARRIER
If notice is given by private carrier, the notice shall be deemed effective
when dispatched to a Director at his or her address shown on the records of the
corporation at least three days before the meeting.
3.7.4 FACSIMILE NOTICE
If notice is delivered by wire or wireless equipment that transmits a
facsimile of the notice, the notice shall be deemed effective when dispatched at
least two days before the meeting to a Director at his or her telephone number
or other number appearing on the records of the corporation.
3.7.5 DELIVERY BY TELEGRAPH
If notice is delivered by telegraph, the notice shall be deemed effective
if the content thereof is delivered to the telegraph company at least two days
before the meeting for delivery to a Director at his or her address shown on the
records of the corporation.
3.7.6 ORAL NOTICE
If notice is delivered orally, by telephone or in person, the notice shall
be deemed effective if personally given to the Director at least two days before
the meeting.
3.8 WAIVER OF NOTICE
3.8.1 IN WRITING
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Certificate of Incorporation or the DGCL, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board or any
committee appointed by the Board need be specified in the waiver of notice of
such meeting.
3.8.2 BY ATTENDANCE
The attendance of a Director at a Board or committee meeting shall
constitute a waiver of notice of such meeting, except when a Director attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
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3.9 QUORUM
A majority of the total number of Directors fixed by or in the manner
provided in these Bylaws or, if vacancies exist on the Board, a majority of the
total number of Directors then serving on the Board, provided, however, that
such number may be not less than one-third of the total number of Directors
fixed by or in the manner provided in these Bylaws, shall constitute a quorum
for the transaction of business at any Board meeting. If less than a majority
are present at a meeting, a majority of the Directors present may adjourn the
meeting from time to time without further notice.
3.10 MANNER OF ACTING
The act of the majority of the Directors present at a Board or committee
meeting at which there is a quorum shall be the act of the Board or committee,
unless the vote of a greater number is required by these Bylaws, the Certificate
of Incorporation or the DGCL.
3.11 PRESUMPTION OF ASSENT
A Director of the corporation present at a Board or committee meeting at
which action on any corporate matter is taken shall be presumed to have assented
to the action taken unless his or her dissent is entered in the minutes of the
meeting, or unless such Director files a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof, or
forwards such dissent by registered mail to the Secretary of the corporation
immediately after the adjournment of the meeting. A Director who voted in favor
of such action may not dissent.
3.12 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING
Any action that could be taken at a meeting of the Board or of any
committee appointed by the Board may be taken without a meeting if a written
consent setting forth the action so taken is signed by each of the Directors or
by each committee member. Any such written consent shall be inserted in the
minute book as if it were the minutes of a Board or a committee meeting.
3.13 RESIGNATION
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the Chief Executive Officer, the President, the Secretary
or the Board, or to the registered office of the corporation. Any such
resignation shall take effect at the time specified therein, or if the time is
not specified, upon delivery thereof and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
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3.14 REMOVAL
One or more members of the Board (including the entire Board) may be
removed, but only for cause, at a meeting of stockholders called expressly for
that purpose, or without a meeting pursuant to Section 2.14 of these Bylaws, by
the holders of not less than a majority of the shares entitled to elect the
Director or Directors whose removal is sought in the manner provided by these
Bylaws.
3.15 VACANCIES
Any vacancy occurring on the Board may be filled only by the affirmative
vote of a majority of the remaining Directors, whether or not they constitute a
quorum of the Board. A Director elected to fill a vacancy shall be elected for
the unexpired term of his or her predecessor in office, if any. Any
directorship to be filled by reason of an increase in the number of Directors
may be filled by the Board for a term of office continuing only until the next
election of Directors, and until his or her successor shall be elected and
qualify.
3.16 COMMITTEES
3.16.1 CREATION AND AUTHORITY OF COMMITTEES
The Board may, by resolution passed by a majority of the number of
Directors fixed by or in the manner provided in these Bylaws, appoint standing
or temporary committees, each committee to consist of one or more Directors of
the corporation. The Board may designate one or more Directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board establishing
such committee or as otherwise provided in these Bylaws, shall have and may
exercise all the powers and authority of the Board in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers that require it; but no such committee
shall have the power or authority in reference to (a) amending the Certificate
of Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board as provided in Section 151(a) of the DGCL, fix the designations,
preferences or rights of such shares to the extent permitted under Section 141
of the DGCL), (b) adopting an agreement of merger or consolidation under
Sections 251 or 252 of the DGCL, (c) recommending to the stockholders the sale,
lease or exchange or other disposition of all or substantially all of the
property and assets of the corporation, (d) recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or (e) amending
these Bylaws; and, unless expressly provided by resolution of the Board, no such
committee shall have the power or authority to declare a dividend, to
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authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the DGCL.
3.16.2 AUDIT COMMITTEE
In addition to any committees appointed pursuant to this subsection 3.16,
no later than such time as this corporation may become a Public Company there
shall be an Audit Committee, appointed annually by the Board, consisting of at
least two Directors who are not members of management. It shall be the
responsibility of the Audit Committee, if and when appointed, to review the
scope and results of the annual independent audit of books and records of the
corporation, to review compliance with all corporate policies which have been
approved by the Board and to discharge such other responsibilities as may from
time to time be assigned to it by the Board. The Audit Committee shall meet at
such times and places as the members deem advisable, and shall make such
recommendations to the Board as they consider appropriate.
3.16.3 COMPENSATION COMMITTEE
The Board may, in its discretion, designate a Compensation Committee
consisting of one or more Directors as it may from time to time determine. The
duties of the Compensation Committee shall consist of the following: (a) to
establish and review periodically, but not less than annually, the compensation
of the officers of the corporation and to make recommendations concerning such
compensation to the Board; (b) to consider incentive compensation plans for the
employees of the corporation; (c) to carry out the duties assigned to the
Compensation Committee under any stock option plan or other plan approved by the
corporation; (d) to consult with the Chief Executive Officer or the President
concerning any compensation matters deemed appropriate by the Chief Executive
Officer or the President or the Compensation Committee; and (e) to perform such
other duties as shall be assigned to the Compensation Committee by the Board.
3.16.4 NOMINATING AND ORGANIZATION COMMITTEE
The Board may, in its discretion, designate a Nominating and Organization
Committee consisting of one or more Directors as it may from time to time
determine. The duties of the Nominating and Organization Committee shall consist
of the following: (a) to report and make recommendations to the Board on the
size and composition of the Board and nominees for Directors; (b) to evaluate
the performance of the officers of the corporation and together with management,
select and recommend to the Board appropriate individuals for election,
appointment and promotion as officers of the corporation and ensure the
continuity of capable management; (c) to report and make recommendations to the
Board on the organization of the corporation; and (d) to perform such other
duties as shall be assigned to the Nominating and Organization Committee by the
Board.
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3.16.5 MINUTES OF MEETINGS
All committees so appointed shall keep regular minutes of their meetings
and shall cause them to be recorded in books kept for that purpose.
3.16.6 QUORUM AND MANNER OF ACTING
A majority of the number of Directors composing any committee of the Board,
as established and fixed by resolution of the Board, shall constitute a quorum
for the transaction of business at any meeting of such committee but, if less
than a majority are present at a meeting, a majority of such Directors present
may adjourn the meeting from time to time without further notice. The act of a
majority of the members of a committee present at a meeting at which a quorum is
present shall be the act of such committee.
3.16.7 RESIGNATION
Any member of any committee may resign at any time by delivering written
notice to the Chairman of the Board, the Chief Executive Officer, the President,
the Secretary, the Board or the Chairman of such committee. Any such resignation
shall take effect at the time specified therein or, if the time is not
specified, upon delivery thereof and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
3.16.8 REMOVAL
The Board may remove from office any member of any committee elected or
appointed by it, but only by the affirmative vote of not less than a majority of
the number of Directors fixed by or in the manner provided in these Bylaws.
3.17 COMPENSATION
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, a fixed sum
for attendance at each Board or committee meeting, or a stated salary as
Director or a committee member, or a combination of the foregoing. No such
payment shall preclude any Director or committee member from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 4. OFFICERS
4.1 NUMBER
The officers of the corporation shall be a Chief Executive Officer, a
President, a Secretary and a Treasurer, each of whom shall be elected by the
Board. One or more Vice Presidents and such other officers and assistant
officers, including a Chairman of the Board, may be elected or appointed by the
Board, such officers and assistant officers to
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hold office for such period, have such authority and perform such duties as are
provided in these Bylaws or as may be provided by resolution of the Board. Any
officer may be assigned by the Board any additional title that the Board deems
appropriate. The Board may delegate to any officer or agent the power to appoint
any such subordinate officers or agents and to prescribe their respective terms
of office, authority and duties. Any two or more offices may be held by the same
person.
4.2 ELECTION AND TERM OF OFFICE
The officers of the corporation shall be elected annually by the Board at
the Board meeting held after the annual meeting of the stockholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as a Board meeting conveniently may be held. Unless an officer
dies, resigns or is removed from office, he or she shall hold office until the
next annual meeting of the Board or until his or her successor is elected.
4.3 RESIGNATION
Any officer may resign at any time by delivering written notice to the
Chairman of the Board, the Chief Executive Officer, the President, a Vice
President, the Secretary or the Board. Any such resignation shall take effect
at the time specified therein or, if the time is not specified, upon delivery
thereof and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
4.4 REMOVAL
Any officer or agent elected or appointed by the Board may be removed by
the Board whenever in its judgment the best interests of the corporation would
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
4.5 VACANCIES
A vacancy in any office because of death, resignation, removal,
disqualification, creation of a new office or any other cause may be filled by
the Board for the unexpired portion of the term, or for a new term established
by the Board.
4.6 CHAIRMAN OF THE BOARD
If elected, the Chairman of the Board shall perform such duties as shall be
assigned to him or her by the Board from time to time and shall preside over
meetings of the Board and stockholders unless another officer is appointed or
designated by the Board as chairman of such meeting.
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4.7 CHIEF EXECUTIVE OFFICER
The Chief Executive Officer shall be the chief executive officer of the
corporation, shall preside over meetings of the Board and stockholders in the
absence of a Chairman of the Board and, subject to the Board's control, shall
supervise and control all of the assets, business and affairs of the
corporation. The Chief Executive Officer may sign certificates for shares of the
corporation, deeds, mortgages, bonds, contracts or other instruments, except
when the signing and execution thereof have been expressly delegated by the
Board or by these Bylaws to some other officer or agent of the corporation or
are required by law to be otherwise signed or executed by some other officer or
in some other manner. In general, the Chief Executive Officer shall perform all
duties incident to the office of Chief Executive Officer and such other duties
as are prescribed by the Board from time to time.
4.8 PRESIDENT
In the event of the death of the Chief Executive Officer or his inability
to act, the President shall perform the duties of the Chief Executive Officer,
except as may be limited by resolution of the Board, with all the powers of and
subject to all the restrictions upon the Chief Executive Officer. The President
may sign with the Secretary or any Assistant Secretary certificates for shares
of the corporation. The President shall have, to the extent authorized by the
Chief Executive Officer or the Board, the same powers as the Chief Executive
Officer to sign deeds, mortgages, bonds, contracts or other instruments. The
President shall perform such other duties as from time to time may be assigned
to him or her by the Chief Executive Officer or the Board.
4.9 VICE PRESIDENT
In the event of the death of the President or his or her inability to act,
the Vice President (or if there is more than one Vice President, the Vice
President who was designated by the Board as the successor to the President, or
if no Vice President is so designated, the Vice President first elected to such
office) shall perform the duties of the President, except as may be limited by
resolution of the Board, with all the powers of and subject to all the
restrictions upon the President. Any Vice President may sign with the Secretary
or any Assistant Secretary certificates for shares of the corporation. Vice
Presidents shall have, to the extent authorized by the President or the Board,
the same powers as the President to sign deeds, mortgages, bonds, contracts or
other instruments. Vice Presidents shall perform such other duties as from time
to time may be assigned to them by the President or the Board.
4.10 SECRETARY
The Secretary shall be responsible for preparation of minutes of meetings
of the Board and stockholders, maintenance of the corporation's records and
stock registers, signing certificates for shares of the corporationand
authentication of the corporation's records and shall in general perform all
duties incident to the office of Secretary and such
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other duties as from time to time may be assigned to him or her by the President
or the Board. In the absence of the Secretary, an Assistant Secretary may
perform the duties of the Secretary.
4.11 TREASURER
The Treasurer shall have charge and custody of and be responsible for all
funds and securities of the corporation; receive and give receipts for moneys
due and payable to the corporation from any source whatsoever, and deposit all
such moneys in the name of the corporation in banks, trust companies or other
depositories selected in accordance with the provisions of these Bylaws; sign
certificates for shares of the corporation; and in general perform all of the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him or her by the President or by the Board. In the
absence of the Treasurer, an Assistant Treasurer may perform the duties of the
Treasurer.
4.12 SALARIES
The salaries of the officers shall be fixed from time to time by the Board
or by any person or persons to whom the Board has delegated such authority. No
officer shall be prevented from receiving such salary by reason of the fact that
he or she is also a Director of the corporation.
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 CONTRACTS
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation. Such authority may be general or confined to
specific instances.
5.2 LOANS TO THE CORPORATION
No loans for borrowed money shall be contracted on behalf of the
corporation and no evidences of indebtedness for borrowed money shall be issued
in its name unless authorized by a resolution of the Board. Such authority may
be general or confined to specific instances.
5.3 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, or agent or agents, of the corporation and in such
manner as is from time to time determined by resolution of the Board.
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5.4 DEPOSITS
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 ISSUANCE OF SHARES
No shares of the corporation shall be issued unless authorized by the
Board, which authorization shall include the maximum number of shares to be
issued and the consideration to be received for each share.
6.2 CERTIFICATES FOR SHARES
Certificates representing shares of the corporation shall be signed by the
Chairman of the Board or Vice-Chairman of the Board, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, any of whose signatures may be a facsimile. The Board may
in its discretion appoint responsible banks, trust companies or other
professionals from time to time to act as transfer agents and registrars of the
stock of the corporation; and, when such appointments shall have been made, no
stock certificate shall be valid until countersigned by one of such transfer
agents and registered by one of such registrars. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person was such officer, transfer agent or
registrar at the date of issue. All certificates shall include on their face
written notice of any restrictions that may be imposed on the transferability of
such shares and shall be consecutively numbered or otherwise identified.
6.3 STOCK RECORDS
The stock transfer books shall be kept at the registered office or
principal place of business of the corporation or at the office of the
corporation's transfer agent or registrar. The name and address of each person
to whom certificates for shares are issued, together with the class and number
of shares represented by each such certificate and the date of issue thereof,
shall be entered on the stock transfer books of the corporation. The person in
whose name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
6.4 RESTRICTION ON TRANSFER
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are not
required under applicable
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securities laws, or has otherwise satisfied itself that such transfer
restrictions are not required, all certificates representing shares of the
corporation shall bear a legend on the face of the certificate, or on the
reverse of the certificate if a reference to the legend is contained on the
face, that reads substantially as follows:
"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933 or any applicable state law, and no
interest therein may be sold, distributed, assigned, offered, pledged or
otherwise transferred unless (a) there is an effective registration
statement under such Act and applicable state securities laws covering any
such transaction involving said securities or (b) this corporation receives
an opinion of legal counsel for the holder of these securities (concurred
in by legal counsel for this corporation) stating that such transaction is
exempt from registration or this corporation otherwise satisfies itself
that such transaction is exempt from registration. Neither the offering of
the securities nor any offering materials have been reviewed by any
administrator under the Securities Act of 1933 or any applicable state
law."
6.5 TRANSFER OF SHARES
The transfer of shares of the corporation shall be made only on the stock
transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to
the corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and canceled.
6.6 LOST OR DESTROYED CERTIFICATES
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board may prescribe.
6.7 SHARES OF ANOTHER CORPORATION
Shares owned by the corporation in another corporation, domestic or
foreign, may be voted by such officer, agent or proxy as the Board may determine
or, in the absence of such determination, by the Chief Executive Officer, the
President or any Vice President of the corporation.
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SECTION 7. BOOKS AND RECORDS
The corporation shall keep correct and complete books and records of
account, stock transfer books, minutes of the proceedings of its stockholders
and Board and such other records as may be necessary or advisable.
SECTION 8. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar year, provided
that if a different accounting year is at any time selected for purposes of
federal income taxes, the accounting year shall be the year so selected.
SECTION 9. SEAL
The seal of the corporation, if any, shall consist of the name of the
corporation, the state of its incorporation and the year of its incorporation.
SECTION 10. INDEMNIFICATION
10.1 RIGHT TO INDEMNIFICATION
Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved (including, without limitation, as a witness) in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a Director or officer of the corporation or that,
being or having been such a Director or officer of the corporation, he or she is
or was serving at the request of the corporation 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 (hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as such a Director or officer or in any
other capacity while serving as such a Director or officer, shall be indemnified
and held harmless by the corporation to the full extent permitted by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights than
permitted prior thereto), or by other applicable law as then in effect, against
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 such indemnitee in connection therewith and
such indemnification shall continue as to an indemnitee who has ceased to be a
Director or officer and shall inure to the benefit of the indemnitee's heirs,
executors and administrators; provided, however, that except as provided in
subsection 10.2 hereof with respect to proceedings seeking to enforce rights to
indemnification, the corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized or ratified by the Board.
The right to indemnification conferred in
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this subsection 10.1 shall be a contract right and shall include the right to be
paid by the corporation the expenses incurred in defending any such proceeding
in advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that if the DGCL requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a Director or officer (and
not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal that such indemnitee is
not entitled to be indemnified for such expenses under this subsection 10.1 or
otherwise.
10.2 RIGHT OF INDEMNITEE TO BRING SUIT
If a claim under subsection 10.1 hereof is not paid in full by the
corporation within 60 days after a written claim has been received by the
corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days, the indemnitee may at any
time thereafter bring suit against the corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. The indemnitee shall be presumed
to be entitled to indemnification under this Section 10 upon submission of a
written claim (and, in an action brought to enforce a claim for an advancement
of expenses, where the required undertaking, if any is required, has been
tendered to the corporation), and thereafter the corporation shall have the
burden of proof to overcome the presumption that the indemnitee is not so
entitled. Neither the failure of the corporation (including its Board,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances nor an actual determination by the corporation
(including its Board, independent legal counsel or its stockholders) that the
indemnitee is not entitled to indemnification shall be a defense to the suit or
create a presumption that the indemnitee is not so entitled.
10.3 NONEXCLUSIVITY OF RIGHTS
The rights to indemnification and to the advancement of expenses conferred
in this Section 10 shall not be exclusive of any other right that any person may
have or hereafter acquire under any statute, agreement, vote of stockholders or
disinterested Directors, provisions of the Certificate of Incorporation or
Bylaws of the corporation or otherwise. Notwithstanding any amendment to or
repeal of this Section 10, any indemnitee shall be entitled to indemnification
in accordance with the provisions hereof with respect to any acts or omissions
of such indemnitee occurring prior to such amendment or repeal.
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10.4 INSURANCE, CONTRACTS AND FUNDING
The corporation may maintain insurance, at its expense, to protect itself
and any Director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the corporation would have the power
to indemnify such person against such expense, liability or loss under the DGCL.
The corporation, without further stockholder approval, may enter into contracts
with any Director, officer, employee or agent in furtherance of the provisions
of this Section 10 and may create a trust fund, grant a security interest or use
other means (including, without limitation, a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification as
provided in this Section 10.
10.5 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION
The corporation may, by action of the Board, grant rights to
indemnification and advancement of expenses to employees or agents or groups of
employees or agents of the corporation with the same scope and effect as the
provisions of this Section 10 with respect to the indemnification and
advancement of expenses of Directors and officers of the corporation; provided,
however, that an undertaking shall be made by an employee or agent only if
required by the Board.
10.6 PERSONS SERVING OTHER ENTITIES
Any person who is or was a Director or officer of the corporation who is or
was serving (a) as a Director or officer of another corporation of which a
majority of the shares entitled to vote in the election of its Directors is held
by the corporation or (b) in an executive or management capacity in a
partnership, joint venture, trust or other enterprise of which the corporation
or a wholly owned subsidiary of the corporation is a general partner or has a
majority ownership shall be deemed to be so serving at the request of the
corporation and entitled to indemnification and advancement of expenses under
subsection 10.1 hereof.
10.7 PROCEDURES FOR THE SUBMISSION OF CLAIMS
The Board may establish reasonable procedures for the submission of claims
for indemnification pursuant to this Section 10, determination of the
entitlement of any person thereto and review of any such determination. Such
procedures shall be set forth in an appendix to these Bylaws and shall be deemed
for all purposes to be a part hereof.
SECTION 11. AMENDMENTS OR REPEAL
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws of this corporation; provided, however, the Board of Directors may not
repeal or amend any bylaw that the stockholders have expressly provided may not
be amended or repealed
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by the Board of Directors. The stockholders shall also have the power to adopt,
amend or repeal the Bylaws of this corporation.
Notwithstanding any amendment to Section 10 hereof or repeal of these
Bylaws, or of any amendment or repeal of any of the procedures that may be
established by the Board pursuant to Section 10 hereof, any indemnitee shall be
entitled to indemnification in accordance with the provisions hereof and thereof
with respect to any acts or omissions of such indemnitee occurring prior to such
amendment or repeal.
The foregoing Bylaws were adopted by the Board of Directors on April 10,
1996 and amended by the Board on August 24, 1998.
/s/ Ellen Alben
-----------------------------------
Secretary
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EXHIBIT 10.1
FORM OF
INFOSPACE, INC.
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT, dated as of ___________, is between
INFOSPACE, INC., a Delaware corporation (the "Company"), and ________________
("Indemnitee").
RECITALS
A. Indemnitee is a director or an officer of the Company and in such
capacity is performing valuable services for the Company.
B. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance and the significant cost of such
insurance.
C. The Company and Indemnitee further recognize the substantial increase
in litigation subjecting directors and officers to expensive litigation risks at
the same time such liability insurance is being severely limited.
D. The Company has adopted and its stockholders have approved bylaws (the
"Bylaws") providing for the indemnification of the Company's directors to the
full extent permitted by Section 145 of the General Corporation Law of Delaware
(the "Statute").
E. The Bylaws and the Statute specifically provide that they are not
exclusive, and they thereby contemplate that contracts may be entered into
between the Company and its directors and officers with respect to
indemnification of such directors and officers.
F. To induce Indemnitee to serve or continue to serve the Company, the
Company desires to confirm the contract indemnification rights provided in the
Bylaws and agrees to provide Indemnitee with the benefits contemplated by this
Agreement.
AGREEMENTS
1. INDEMNIFICATION OF INDEMNITEE
1.1. SCOPE
The Company agrees to hold harmless and indemnify Indemnitee to the full
extent permitted by law, notwithstanding that the basis for such indemnification
is not specifically enumerated in this Agreement, the Company's Restated
Certificate of Incorporation, the Bylaws, any other statute or otherwise. In the
event of any change, after the date of this Agreement, in any applicable law,
statute or rule regarding the right of a Delaware
<PAGE>
corporation to indemnify a member of its Board of Directors or an officer, such
change, to the extent it would expand Indemnitee's rights hereunder, shall be
included within Indemnitee's rights and the Company's obligations hereunder,
and, to the extent it would narrow Indemnitee's rights or the Company's
obligations hereunder, shall not affect or limit the scope of this Agreement;
provided, however, that any change required by applicable laws, statutes or
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rules to be applied to this Agreement shall be so applied regardless of whether
the effect of such change is to narrow Indemnitee's rights or the Company's
obligations hereunder.
1.2. NONEXCLUSIVITY
The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Company's
Restated Certificate of Incorporation, the Bylaws, any agreement, any vote of
stockholders or disinterested directors, the Statute or otherwise, whether as to
action in Indemnitee's official capacity or otherwise.
1.3. INCLUDED COVERAGE
If Indemnitee was or is made a party, or is threatened to be made a party,
to or is otherwise involved (including, without limitation, as a witness) in any
Proceeding (as defined below), the Company shall hold harmless and indemnify
Indemnitee from and against any and all losses, claims, damages (compensatory,
exemplary, punitive or otherwise), liabilities or expenses, including, without
limitation, attorneys' fees, costs, judgments, fines, ERISA excise taxes or
penalties, witness fees, amounts paid in settlement and other expenses incurred
in connection with such Proceeding (collectively, "Damages").
1.4. DEFINITION OF PROCEEDING
For purposes of this Agreement, "Proceeding" shall mean any completed,
actual, pending or threatened action, suit, claim or proceeding, whether civil,
criminal, administrative or investigative (including an action by or in the
right of the Company) and whether formal or informal, in which Indemnitee is,
was or becomes involved by reason of the fact that Indemnitee is or was a
director, officer, employee, trustee or agent of the Company or that, being or
having been such a director, officer, employee, trustee or agent, Indemnitee is
or was serving at the request of the Company as a director, officer, employee,
trustee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise (collectively, a "Related Company"), including service
with respect to an employee benefit plan, whether the basis of such proceeding
is alleged action (or inaction) by Indemnitee in an official capacity as a
director, officer, employee, trustee or agent or in any other capacity while
serving as a director, officer, employee, trustee or agent; provided, however,
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that, except with respect to an action to enforce the provisions of this
Agreement, "Proceeding" shall not include any action, suit, claim or proceeding
instituted by or at the direction of Indemnitee, unless such action, suit, claim
or proceeding is or was authorized by the Company's Board of Directors.
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1.5. DETERMINATION OF ENTITLEMENT
In the event that a determination of Indemnitee's entitlement to
indemnification is required pursuant to Section 145(d) of the Statute or a
successor statute or pursuant to other applicable law, the appropriate decision
maker shall make such determination; provided, however, that Indemnitee shall
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initially be presumed in all cases to be entitled to indemnification, that
Indemnitee may establish a conclusive presumption of any fact necessary to such
a determination by delivering to the Company a declaration made under penalty of
perjury that such fact is true and that, unless the Company shall deliver to
Indemnitee a written notice that Indemnitee is not entitled to indemnification
within 20 days after the Company's receipt of Indemnitee's initial written
request for indemnification, such determination shall conclusively be deemed to
have been made in favor of the Company's provision of indemnification, and that
the Company hereby agrees not to assert otherwise.
1.6. CONTRIBUTION
If the indemnification provided under Section 1.1 is unavailable by reason
of a court decision, based on grounds other than any of those set forth in
paragraphs (b) through (d) of Section 4.1, then, in respect of any Proceeding in
which the Company is jointly liable with Indemnitee (or would be if joined in
such Proceeding), the Company shall contribute to the amount of Damages
(including attorneys' fees) actually and reasonably incurred and paid or payable
by Indemnitee in such proportion as is appropriate to reflect (i) the relative
benefits received by the Company on the one hand and Indemnitee on the other
from the transaction from which such Proceeding arose and (ii) the relative
fault of the Company on the one hand and of Indemnitee on the other in
connection with the events that resulted in such Damages as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of Indemnitee on the other shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such Damages.
The Company agrees that it would not be just and equitable if contribution
pursuant to this Section 1.6 were determined by pro rata allocation or any other
method of allocation that does not take account of the foregoing equitable
considerations.
1.7. SURVIVAL
The indemnification and contribution provided under this Agreement shall
apply to any and all Proceedings, notwithstanding that Indemnitee has ceased to
serve the Company or a Related Company, and shall continue so long as Indemnitee
shall be subject to any possible Proceeding, whether civil, criminal or
investigative, by reason of the fact that Indemnitee was a director or officer
of the Company or serving in any other capacity referred to in Section 1.4 of
this Agreement.
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2. EXPENSE ADVANCES
2.1. GENERALLY
The right to indemnification of Damages conferred by Section 1 shall
include the right to have the Company pay Indemnitee's expenses in any
Proceeding as such expenses are incurred and in advance of such Proceeding's
final disposition (such right, an "Expense Advance").
2.2. CONDITIONS TO EXPENSE ADVANCE
The Company's obligation to provide an Expense Advance is subject to the
following conditions:
2.2.1. UNDERTAKING
If the Proceeding arose in connection with Indemnitee's service as a
director or officer of the Company (and not in any other capacity in which
Indemnitee rendered service, including service to any Related Company), then
Indemnitee or Indemnitee's representative shall have executed and delivered to
the Company an undertaking, which need not be secured and shall be accepted
without reference to Indemnitee's financial ability to make repayment, by or on
behalf of Indemnitee, to repay all Expense Advances if it shall ultimately be
determined by a final, unappealable decision rendered by a court having
jurisdiction over the parties that Indemnitee is not entitled to be indemnified
under this Agreement or otherwise.
2.2.2. COOPERATION
Indemnitee shall give the Company such information and cooperation as
it may reasonably request and as shall be within Indemnitee's power.
3. PROCEDURES FOR ENFORCEMENT
3.1. ENFORCEMENT
In the event that any claim for indemnity, whether an Expense Advance or
otherwise, is made hereunder and is not paid in full within 60 days after
written notice of such claim is delivered to the Company, Indemnitee may, but
need not, at any time thereafter bring suit against the Company to recover the
unpaid amount of the claim (an "Enforcement Action").
3.2. PRESUMPTIONS IN ENFORCEMENT ACTION
In any Enforcement Action, the following presumptions (and limitation on
presumptions) shall apply:
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(a) The Company expressly affirms and agrees that it has entered into this
Agreement and assumed the obligations imposed on it hereunder to induce
Indemnitee to continue as a director or officer of the Company;
(b) Neither (i) the failure of the Company (including the Company's Board
of Directors, independent or special legal counsel or the Company's
stockholders) to have made a determination prior to the commencement of the
Enforcement Action that indemnification of Indemnitee is proper in the
circumstances nor (ii) an actual determination by the Company, its Board of
Directors, independent or special legal counsel or stockholders that Indemnitee
is not entitled to indemnification shall be a defense to the Enforcement Action
or create a presumption that Indemnitee is not entitled to indemnification
hereunder; and
(c) If Indemnitee is or was serving as a director or officer of a
corporation of which a majority of the shares entitled to vote in the election
of its directors is held by the Company or as a partner, trustee or otherwise in
an executive or management capacity in a partnership, joint venture, trust or
other enterprise of which the Company or a wholly owned subsidiary of the
Company is a general partner or has a majority ownership, then such corporation,
partnership, joint venture, trust or other enterprise shall conclusively be
deemed a Related Company and Indemnitee shall conclusively be deemed to be
serving such Related Company at the Company's request.
3.3. ATTORNEYS' FEES AND EXPENSES FOR ENFORCEMENT ACTION
In the event Indemnitee is required to bring an Enforcement Action, the
Company shall pay all of Indemnitee's fees and expenses in bringing and pursuing
the Enforcement Action (including attorneys' fees at any stage, including on
appeal); provided, however, that the Company shall not be required to provide
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such payment for such attorneys' fees or expenses if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such Enforcement Action was not made in good faith.
4. LIMITATIONS ON INDEMNITY; MUTUAL ACKNOWLEDGMENT
4.1. LIMITATIONS ON INDEMNITY
No indemnity pursuant to this Agreement shall be provided by the Company:
(a) On account of any suit in which a final, unappealable judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Company in violation of the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended;
(b) For Damages that have been paid directly to Indemnitee by an insurance
carrier under a policy of insurance maintained by the Company;
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<PAGE>
(c) With respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(d) On account of Indemnitee's conduct which is finally adjudged to have
been intentional misconduct, a knowing violation of law, a violation of Section
174 of the Statute or a transaction from which Indemnitee derived an improper
personal benefit; or
(e) If a final decision by a court having jurisdiction in the matter with
no further right of appeal shall determine that such indemnification is not
lawful.
4.2 PARTIAL INDEMNIFICATION
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of any Damages in
connection with a Proceeding, but not, however, for the total amount thereof,
the Company shall nevertheless indemnify Indemnitee for the portion of such
Damages to which Indemnitee is entitled.
4.3 MUTUAL ACKNOWLEDGMENT
The Company and Indemnitee acknowledge that, in certain instances, federal
law or public policy may override applicable state law and prohibit the Company
from indemnifying Indemnitee under this Agreement or otherwise. For example,
the Company and Indemnitee acknowledge that the Securities and Exchange
Commission (the "SEC") has taken the position that indemnification is not
permissible for liabilities arising under certain federal securities laws, and
federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
5. NOTIFICATION AND DEFENSE OF CLAIM
5.1. NOTIFICATION
Promptly after receipt by Indemnitee of notice of the commencement of any
Proceeding, Indemnitee shall, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the commencement
thereof; but the omission so to notify the Company will not, however, relieve
the Company from any liability which it may have to Indemnitee under this
Agreement unless and only to the extent that such omission can be shown to have
prejudiced the Company's ability to defend the Proceeding.
If, at the time of the receipt of a notice of a claim pursuant to Section
5.1, the Company has director and officer liability insurance in effect, the
Company shall give prompt notice of the commencement of such proceeding to the
insurers in accordance with the procedures set forth in the respective policies.
The Company shall take all necessary or
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<PAGE>
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such Proceeding in accordance with the terms of
such policies.
5.2. DEFENSE OF CLAIM
With respect to any such Proceeding as to which Indemnitee notifies the
Company of the commencement thereof:
(a) The Company may participate therein at its own expense;
(b) The Company, jointly with any other indemnifying party similarly
notified, may assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof, the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses (other than reasonable costs of
investigation) subsequently incurred by Indemnitee in connection with the
defense thereof unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company (or any other person or
persons included in the joint defense) and Indemnitee in the conduct of the
defense of such action, (iii) the Company shall not, in fact, have employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of counsel shall be at the Company's expense or (iv) the Company is
not financially or legally able to perform its indemnification obligations. The
Company shall not be entitled to assume the defense of any Proceeding brought by
or on behalf of the Company or as to which Indemnitee shall have reasonably made
the conclusion provided for in (ii) or (iv) above; and
(c) The Company shall not settle any action or claim in any manner that
would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent.
6. SEVERABILITY
Nothing in this Agreement is intended to require or shall be construed as
requiring the Company to do or to fail to do any act in violation of applicable
law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable, as provided in
this Section 6, and if this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, the Company shall
nevertheless indemnify or make contribution to Indemnitee to the full extent
permitted by any applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.
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<PAGE>
7. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION
(a) This Agreement shall be interpreted and enforced in accordance with the
laws of Delaware.
(b) This Agreement shall be binding on Indemnitee and on the Company and
its successors and assigns (including any transferee of all or substantially all
of its assets and any successor by merger or otherwise by operation of law), and
shall inure to the benefit of Indemnitee and Indemnitee's heirs, personal
representatives and assigns and to the benefit of the Company and its successors
and assigns. The Company shall not effect any sale of substantially all of its
assets, merger, consolidation or other reorganization in which it is not the
surviving entity, unless the surviving entity agrees in writing to assume all
such obligations of the Company under this Agreement.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
8. ENTIRE AGREEMENT
This Agreement is the entire agreement of the parties regarding its subject
matter and supersedes all prior written or oral communications or agreements.
9. 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
instrument.
10. AMENDMENTS; WAIVERS
Neither this Agreement nor any provision may be amended except by written
agreement signed by the parties. No waiver of any breach or default shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default.
11. SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon the Company and its successors and
assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal
representatives and assigns.
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<PAGE>
12. NOTICES
All notices, claims and other communications hereunder shall be in writing
and made by hand delivery, registered or certified mail (postage prepaid, return
receipt requested), facsimile or overnight air courier guaranteeing next-day
delivery:
(a) If to the Company, to: with a copy to:
InfoSpace, Inc. Perkins Coie
8424 154th Avenue N.E. 1201 Third Avenue, 40th Floor
Redmond, WA 98052 Seattle, WA 98101
ATTN: Ellen Alben, Esq. ATTN: Charles Katz, Esq.
(b) If to Indemnitee, to the address specified on the last page of this
Agreement
or to such other address as either party may from time to time furnish to the
other party by a notice given in accordance with the provisions of this Section
12. All such notices, claims and communications shall be deemed to have been
duly given if (i) personally delivered, at the time delivered, (ii) mailed, five
days after dispatched, (iii) sent by facsimile transmission, upon confirmation
of receipt, and (iv) sent by any other means, upon receipt.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
INFOSPACE, INC.,
a Delaware corporation
By:
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Title:
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INDEMNITEE:
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By:
Address:
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with a copy to:
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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.
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<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
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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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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.
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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.
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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.
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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;
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(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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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.
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EXHIBIT 10.3
INFOSPACE.COM, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE
The purposes of the InfoSpace.com, Inc. 1998 Employee Stock Purchase Plan
(the "Plan") are (a) to assist employees of InfoSpace.com, Inc., a Delaware
corporation (the "Company"), and its designated subsidiary corporations in
acquiring a stock ownership interest in the Company pursuant to a plan that is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended, and (b) to encourage employees to
remain in the employ of the Company and its subsidiary corporations.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Company's Compensation Committee.
"COMPANY" means InfoSpace.com, Inc., a Delaware corporation.
"DESIGNATED SUBSIDIARY" has the meaning set forth under the definition of
"Eligible Employee" in this Section 2.
"ELIGIBLE COMPENSATION" means all regular cash compensation including
overtime, cash bonuses and commissions. Regular cash compensation does not
include severance pay, hiring and relocation bonuses, pay in lieu of vacations,
sick leave or any other special payments.
"ELIGIBLE EMPLOYEE" means any employee of the Company or any domestic
Subsidiary Corporation or any other Subsidiary Corporation designated by the
Board or the Committee (a "Designated Subsidiary"), who is in the employ of the
Company (or any Designated Subsidiary) on one or more Offering Dates and who
meets the following criteria:
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(a) the employee does not, immediately after the option is granted,
own stock (as defined by the Code) possessing 5% or more of the
total combined voting power or value of all classes of stock of
the Company or of a Parent Corporation or Subsidiary Corporation
of the Company; and
(b) the employee's customary employment is for more than 20 hours per
week; provided, however, that the Plan Administrator may decrease
this minimum requirement for future Offering Periods.
If the Company permits any employee of a Designated Subsidiary to participate in
the Plan, then all employees of that Designated Subsidiary who meet the
requirements of this paragraph shall also be considered Eligible Employees.
"ENROLLMENT PERIOD" has the meaning set forth in Section 7.1.
"ESPP BROKER" has the meaning set forth in Section 10.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"OFFERING" has the meaning set forth in Section 5.1.
"OFFERING DATE" means the first day of an Offering.
"OFFERING PERIOD" has the meaning set forth in Section 5.1.
"OPTION" means an option granted under the Plan to an Eligible Employee to
purchase shares of Stock.
"PARENT CORPORATION" means any corporation, other than the Company, in an
unbroken chain of corporations ending with the Company, if, at the time of the
granting of the Option, each of the corporations, other than the Company, owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
"PARTICIPANT" means any Eligible Employee who has elected to participate in
an Offering in accordance with the procedures set forth in Section 7.1 and who
has not withdrawn from the Plan or whose participation in the Plan is not
terminated.
"PLAN" means the InfoSpace.com, Inc. 1998 Employee Stock Purchase Plan.
"PURCHASE DATE" means the last day of each Purchase Period.
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"PURCHASE PERIOD" has the meaning set forth in Section 5.2.
"PURCHASE PRICE" has the meaning set forth in Section 6.
"STOCK" means the common stock of the Company.
"SUBSCRIPTION" has the meaning set forth in Section 7.1.
"SUBSIDIARY CORPORATION" means any corporation, other than the Company, in
an unbroken chain of corporations beginning with the Company, if, at the time of
the granting of the Option, each of the corporations, other than the last
corporation in the unbroken chain, owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
SECTION 3. ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by the Board or the Committee or, if and to
the extent the Board or the Committee designates an executive officer of the
Company to administer the Plan, by such executive officer (each, the "Plan
Administrator"). Any decisions made by the Plan Administrator shall be
applicable equally to all Eligible Employees.
3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR
Subject to the provisions of the Plan, the Plan Administrator shall have
the authority, in its sole discretion, to determine all matters relating to
Options granted under the Plan, including all terms, conditions, restrictions
and limitations of Options; provided, however, that all Participants granted
Options pursuant to the Plan shall have the same rights and privileges within
the meaning of Code Section 423. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt, and
change, rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and its
rules and regulations, and all actions taken and determinations made by the Plan
Administrator pursuant to the Plan, unless revised by the Board or the
Committee, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's other officers or employees as the Plan Administrator so determines.
SECTION 4. STOCK SUBJECT TO PLAN
Subject to adjustment from time to time as provided in Section 19, a
maximum of 450,000 shares of Stock shall be available for issuance under the
Plan. Shares
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issued under the Plan shall be drawn from authorized and unissued shares or
shares now held or subsequently acquired by the Company as treasury shares.
SECTION 5. OFFERING DATES
5.1 OFFERING PERIODS
(a) Except as otherwise set forth below, the Plan shall be implemented by
a series of Offerings (each, an "Offering"). Offerings shall commence on January
1 and July 1 of each year and end on the next June 30 and December 31,
respectively, occurring thereafter (each, an "Offering Period"); provided,
however, that the first Offering Period shall begin on the day (the "IPO Date")
on which shares of the Company's Stock are first offered to the public in an
underwritten initial public offering of such Stock pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission (such day being the first trading day for the Stock on the Nasdaq
National Market, the New York Stock Exchange or other applicable trading
market), and shall end on December 31, 1998.
(b) Notwithstanding the foregoing, the Board may establish (i) a different
term for one or more Offerings and (ii) different commencing and ending dates
for such Offerings; provided, however, that an Offering Period may not exceed
five years; and provided, further, that if the Purchase Price may be less than
85% of the fair market value of the Stock on the Purchase Date, the Offering
Period may not exceed 27 months.
(c) In the event the first or the last day of an Offering Period is not a
regular business day, then the first day of the Offering Period shall be deemed
to be the next regular business day and the last day of the Offering Period
shall be deemed to be the last preceding regular business day. An employee who
becomes eligible to participate in the Plan after an Offering Period has
commenced shall not be eligible to participate in such Offering but may
participate in any subsequent Offering, provided that such employee is still an
Eligible Employee as of the commencement of any such subsequent Offering.
Eligible Employees may not participate in more than one Offering at a time.
5.2 PURCHASE PERIODS
Each Offering Period shall consist of one or more consecutive purchase
periods (each, a "Purchase Period"). The last day of each Purchase Period shall
be the Purchase Date for such Purchase Period. Except as otherwise set forth
below, each Purchase Period shall commence on January 1 and July 1 of each year
and end on the next June 30 and December 31, respectively, occurring thereafter;
provided, however,
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that the Purchase Period for the first Offering shall commence on the IPO Date
and end on December 31, 1998. Notwithstanding the foregoing, the Board may
establish (a) a different term for one or more Purchase Periods and (b)
different commencing and ending dates for any such Purchase Period. In the event
the first or last day of a Purchase Period is not a regular business day, then
the first day of the Purchase Period shall be deemed to be the next regular
business day and the last day of the Purchase Period shall be deemed to be the
last preceding regular business day.
5.3 GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL
Notwithstanding any other provision of the Plan to the contrary, an Option
granted pursuant to the Plan shall be subject to (a) obtaining all necessary
governmental approvals and qualifications of the Plan and the issuance of
Options and sale of Stock pursuant to the Plan and (b) obtaining stockholder
approval of the Plan.
SECTION 6. PURCHASE PRICE
The purchase price (the "Purchase Price") at which Stock may be acquired in
an Offering pursuant to the exercise of all or any portion of an Option granted
under the Plan (the "Offering Exercise Price") shall be 85% of the lesser of (a)
the fair market value of the Stock on the Offering Date of such Offering and (b)
the fair market value of the Stock on the Purchase Date; provided, however, that
the Purchase Price for the first Offering Period shall be the lesser of (a) 100%
of the initial public offering price per share of Stock, before underwriters'
discounts or concessions, set forth in that certain Underwriting Agreement
between the Company and the representatives of the underwriters when executed in
connection with the Company's initial public offering of the Stock and (b) 85%
of the fair market value of the Stock on the Purchase Date. The fair market
value of the Stock on the Offering Date or on the Purchase Date shall be the
closing price for the Stock as reported for such day by the Nasdaq National
Market, the New York Stock Exchange or other trading market on which the
Company's Stock may then be traded (the "Exchange"). If no sales of the Stock
were made on the Exchange on such day, fair market value shall mean the closing
price for the Stock as reported for the next preceding day on which sales of the
Stock were made on the Exchange. If the Stock is not listed on an Exchange, the
Board shall designate an alternative method of determining the fair market value
of the Stock.
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SECTION 7. PARTICIPATION IN THE PLAN
7.1 INITIAL PARTICIPATION
An Eligible Employee shall become a Participant on the first Offering Date
after satisfying the eligibility requirements and delivering to the Plan
Administrator during the enrollment period established by the Plan Administrator
(the "Enrollment Period") a subscription (the "Subscription"):
(a) indicating the Eligible Employee's election to participate in the
Plan;
(b) authorizing payroll deductions and stating the amount to be deducted
regularly from the Participant's pay; and
(c) authorizing the purchase of Stock for the Participant in each Purchase
Period.
An Eligible Employee who does not deliver a Subscription as provided above
during the Enrollment Period shall not participate in the Plan for that Offering
Period or for any subsequent Offering Period unless such Eligible Employee
subsequently enrolls in the Plan by filing a Subscription with the Company
during the Enrollment Period for such subsequent Offering Period. The Company
may, from time to time, change the Enrollment Period for any future Offering as
deemed advisable by the Plan Administrator, in its sole discretion, for the
proper administration of the Plan.
7.2 CONTINUED PARTICIPATION
A Participant shall automatically participate in the next Offering Period
until such time as such Participant withdraws from the Plan pursuant to Section
11.1 or 11.2 or terminates employment as provided in Section 12.
SECTION 8. LIMITATIONS ON RIGHT TO PURCHASE SHARES
8.1 NUMBER OF SHARES PURCHASED
On each Offering Date, a Participant shall be deemed to have been granted
an Option to purchase a maximum number of shares of the Stock of the Company
equal to an amount determined as follows: an amount equal to $25,000 divided by
the fair market value of the Stock of the Company on the applicable Offering
Date; provided, however, no Participant shall be entitled to purchase Stock
under the Plan (or any other employee stock purchase plan that is intended to
meet the requirements of Code Section 423 sponsored by the Company, a Parent
Corporation or a Subsidiary
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Corporation) at a rate that exceeds $25,000 in fair market value, determined as
of the Offering Date for each Offering Period (or such other limit as may be
imposed by the Code), for each calendar year in which a Participant participates
in the Plan (or any other employee stock purchase plan described in this Section
8.1).
8.2 PRO RATA ALLOCATION
In the event the number of shares of Stock that might be purchased by all
Participants in the Plan exceeds the number of shares of Stock available in the
Plan, the Plan Administrator shall make a pro rata allocation of the remaining
shares of Stock in as uniform a manner as shall be practicable and as the Plan
Administrator shall determine to be equitable. Fractional shares may be issued
under the Plan unless the Plan Administrator determines otherwise for future
Offering Periods.
SECTION 9. PAYMENT OF PURCHASE PRICE
9.1 GENERAL RULES
Subject to Section 9.12, Stock that is acquired pursuant to the exercise of
all or any portion of an Option may be paid for only by means of payroll
deductions from the Participant's Eligible Compensation. Except as set forth in
this Section 9, the amount of compensation to be withheld from a Participant's
Eligible Compensation during each pay period shall be determined by the
Participant's Subscription.
9.2 CHANGE NOTICES
During an Offering Period, a Participant may elect to decrease, but not
increase, the amount withheld from his or her compensation by filing an amended
Subscription with the Company on or before the change notice date. The change
notice date shall initially be the seventh day prior to the end of the first pay
period for which such election is to be effective; provided, however, that the
Plan Administrator may change such change notice date from time to time. Unless
otherwise determined by the Plan Administrator for a future Offering, a
Participant may elect to increase or decrease the amount to be withheld from his
or her compensation for future Offerings; provided, however, that notice of such
election must be delivered to the Plan Administrator in such form and in
accordance with such terms as the Plan Administrator may establish for an
Offering.
9.3 PERCENT WITHHELD
The amount of payroll withholding with respect to the Plan for any
Participant during any pay period shall be at least 1% but shall not exceed 15%
of the
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Participant's Eligible Compensation for such pay period. Amounts shall
be withheld in whole percentages only.
9.4 PAYROLL DEDUCTIONS
Payroll deductions shall commence on the first payday following the
Offering Date and shall continue through the last payday of the Offering Period
unless sooner altered or terminated as provided in the Plan.
9.5 MEMORANDUM ACCOUNTS
Individual accounts shall be maintained for each Participant for memorandum
purposes only. All payroll deductions from a Participant's compensation shall
be credited to such account but shall be deposited with the general funds of the
Company. All payroll deductions received or held by the Company may be used by
the Company for any corporate purpose.
9.6 NO INTEREST
No interest shall be paid on payroll deductions received or held by the
Company.
9.7 ACQUISITION OF STOCK
On each Purchase Date of an Offering Period, each Participant shall
automatically acquire, pursuant to the exercise of the Participant's Option, the
number of shares of Stock arrived at by dividing the total amount of the
Participant's accumulated payroll deductions for the Purchase Period by the
Purchase Price; provided, however, that the number of shares of Stock purchased
by the Participant shall not exceed the number of whole shares of Stock so
determined, if the Plan Administrator has determined for any future Offering
that fractional shares may not be issued under the Plan; and provided, further,
that the number of shares of Stock purchased by the Participant shall not exceed
the number of shares for which Options have been granted to the Participant
pursuant to Section 8.1.
9.8 REFUND OF EXCESS AMOUNTS
Any cash balance remaining in the Participant's account at the termination
of each Purchase Period shall be refunded to the Participant as soon as
practical after the Purchase Date without the payment of any interest; provided,
however, that if the Participant participates in the next Purchase Period, any
cash balance remaining in the Participant's account shall be applied to the
purchase of Stock in the new Purchase Period, provided such purchase complies
with Section 8.1.
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9.9 WITHHOLDING OBLIGATIONS
At the time the Option is exercised, in whole or in part, or at the time
some or all of the Stock is disposed of, the Participant shall make adequate
provision for federal and state withholding obligations of the Company, if any,
that arise upon exercise of the Option or upon disposition of the Stock. The
Company may withhold from the Participant's compensation the amount necessary to
meet such withholding obligations.
9.10 TERMINATION OF PARTICIPATION
No Stock shall be purchased on behalf of a Participant on a Purchase Date
if his or her participation in the Offering or the Plan has terminated on or
before such Purchase Date.
9.11 PROCEDURAL MATTERS
The Company may, from time to time, establish (a) limitations on the
frequency and/or number of any permitted changes in the amount withheld during
an Offering, as set forth in Section 9.2, (b) an exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, (c) payroll withholding
in excess of the amount designated by a Participant in order to adjust for
delays or mistakes in the Company's processing of properly completed withholding
elections, and (d) such other limitations or procedures as deemed advisable by
the Company in the Company's sole discretion that are consistent with the Plan
and in accordance with the requirements of Code Section 423.
9.12 LEAVES OF ABSENCES
During leaves of absence approved by the Company and meeting the
requirements of the applicable Treasury Regulations promulgated under the Code,
a Participant may elect to continue participation in the Plan by delivering cash
payments to the Plan Administrator on the Participant's normal paydays equal to
the amount of his or her payroll deduction under the Plan had the Participant
not taken a leave of absence. Currently, the Treasury Regulations provide that
a Participant may continue participation in the Plan only during the first 90
days of a leave of absence unless the Participant's reemployment rights are
guaranteed by statute or contract.
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SECTION 10. STOCK PURCHASED UNDER THE PLAN
10.1 ESPP BROKER
If the Plan Administrator designates or approves a stock brokerage or other
financial services firm (the "ESPP Broker") to hold shares purchased under the
Plan for the accounts of Participants, the following procedures shall apply.
Promptly following each Purchase Date, the number of shares of Stock purchased
by each Participant shall be deposited into an account established in the
Participant's name with the ESPP Broker. A Participant shall be free to
undertake a disposition of the shares of Stock in his or her account at any
time, but, in the absence of such a disposition, the shares of Stock must remain
in the Participant's account at the ESPP Broker until the holding period set
forth in Code Section 423 has been satisfied. With respect to shares of Stock
for which the Code Section 423 holding periods have been satisfied, the
Participant may move those shares of Stock to another brokerage account of the
Participant's choosing or request that a stock certificate be issued and
delivered to him or her. A Participant who is not subject to payment of U.S.
income taxes may move his or her shares of Stock to another brokerage account of
his or her choosing or request that a stock certificate be delivered to him or
her at any time, without regard to the Code Section 423 holding period.
10.2 NOTICE OF DISPOSITION
By entering the Plan, each Participant agrees to promptly give the Company
notice of any Stock disposed of within the later of one year from the Purchase
Date and two years from the Offering Date for such Stock, showing the number of
such shares disposed of and the Purchase Date and Offering Date for such Stock.
This notice shall not be required if and so long as the Company has a designated
ESPP Broker.
SECTION 11. VOLUNTARY WITHDRAWAL
11.1 WITHDRAWAL FROM AN OFFERING
A Participant may withdraw from an Offering by signing and delivering to
the Company's Plan Administrator a written notice of withdrawal on a form
provided by the Company for such purpose. Such withdrawal must be elected at
least ten days prior to the end of the Purchase Period for which such withdrawal
is to be effective or by any other date specified by the Plan Administrator for
any future Offering. If a Participant withdraws after the Purchase Date for a
Purchase Period of an Offering, the withdrawal shall not affect Stock acquired
by the Participant in any earlier Purchase Periods. Unless otherwise indicated,
withdrawal from an Offering shall not result in a withdrawal from the Plan or
any succeeding Offering therein. A Participant
-10-
<PAGE>
is prohibited from again participating in the same Offering at any time upon
withdrawal from such Offering. The Company may, from time to time, impose a
requirement that the notice of withdrawal be on file with the Plan Administrator
for a reasonable period prior to the effectiveness of the Participant's
withdrawal.
11.2 WITHDRAWAL FROM THE PLAN
A Participant may withdraw from the Plan by signing a written notice of
withdrawal on a form provided by the Company for such purpose and delivering
such notice to the Plan Administrator. Such notice must be delivered at least
ten days prior to the end of the Purchase Period for which such withdrawal is to
be effective or by any other date specified by the Plan Administrator for any
future Offering. In the event a Participant voluntarily elects to withdraw from
the Plan, the Participant may not resume participation in the Plan during the
same Offering Period, but may participate in any subsequent Offering under the
Plan by again satisfying the definition of Eligible Employee. The Company may
impose, from time to time, a requirement that the notice of withdrawal be on
file with the Plan Administrator for a reasonable period prior to the
effectiveness of the Participant's withdrawal.
11.3 RETURN OF PAYROLL DEDUCTIONS
Upon withdrawal from an Offering pursuant to Section 11.1 or from the Plan
pursuant to Section 11.2, the withdrawing Participant's accumulated payroll
deductions that have not been applied to the purchase of Stock shall be returned
as soon as practical after the withdrawal, without the payment of any interest,
to the Participant and the Participant's interest in the Offering shall
terminate. Such accumulated payroll deductions may not be applied to any other
Offering under the Plan.
SECTION 12. TERMINATION OF EMPLOYMENT
Termination of a Participant's employment with the Company for any reason,
including retirement, death or the failure of a Participant to remain an
Eligible Employee, shall immediately terminate the Participant's participation
in the Plan. The payroll deductions credited to the Participant's account since
the last Purchase Date shall, as soon as practical, be returned to the
Participant or, in the case of a Participant's death, to the Participant's legal
representative or designated beneficiary as provided in Section 13.2, and all of
the Participant's rights under the Plan shall terminate. Interest shall not be
paid on sums returned to a Participant pursuant to this Section 12.
-11-
<PAGE>
SECTION 13. RESTRICTIONS UPON ASSIGNMENT
13.1 TRANSFERABILITY
An Option granted under the Plan shall not be transferable other than by
will, by the applicable laws of descent and distribution or as provided in
Section 13.2, and such Option shall be exercisable during the Participant's
lifetime only by the Participant. The Company will not recognize, and shall be
under no duty to recognize, any assignment or purported assignment by a
Participant, other than by will, by the applicable laws of descent and
distribution or as provided in Section 13.2, of the Participant's interest in
the Plan, of his or her Option or of any rights under his or her Option.
13.2 BENEFICIARY DESIGNATION
The Plan Administrator may permit a Participant to designate a beneficiary
who is to receive any shares and cash, if any, from the Participant's account
under the Plan in the event the Participant dies after the Purchase Date for an
Offering but prior to delivery to such Participant of such shares and cash. In
addition, the Plan Administrator may permit a Participant to designate a
beneficiary who is to receive any cash from the Participant's account under the
Plan in the event that the Participant dies before the Purchase Date for an
Offering. Such designation may be changed by the Participant at any time by
written notice to the Plan Administrator.
SECTION 14. NO RIGHTS OF STOCKHOLDER UNTIL SHARES ISSUED
With respect to shares of Stock subject to an Option, a Participant shall
not be deemed to be a stockholder of the Company, and he or she shall not have
any of the rights or privileges of a stockholder. A Participant shall have the
rights and privileges of a stockholder of the Company when, but not until a
certificate, or its equivalent, for shares have been issued to the Participant
following exercise of the Participant's Option.
SECTION 15. LIMITATIONS ON SALE OF STOCK PURCHASED UNDER THE PLAN
The Plan is intended to provide Stock for investment and not for resale.
The Company does not, however, intend to restrict or influence any Participant
in the conduct of his or her own affairs. A Participant, therefore, may sell
Stock purchased under the Plan at any time he or she chooses, subject to
compliance with any
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<PAGE>
applicable federal and state securities laws. A Participant assumes the risk of
any market fluctuations in the price of the Stock.
SECTION 16. AMENDMENT OF THE PLAN
The Board may amend the Plan in such respects as it shall deem advisable;
provided, however, that, to the extent required for compliance with Code Section
423 or any applicable law or regulation, stockholder approval will be required
for any amendment that will (a) increase the total number of shares as to which
Options may be granted under the Plan, (b) modify the class of employees
eligible to receive Options, or (c) otherwise require stockholder approval under
any applicable law or regulation.
SECTION 17. TERMINATION OF THE PLAN
The Plan shall have no fixed termination date. Notwithstanding the
foregoing, the Board may suspend or terminate the Plan at any time. During any
period of suspension or upon termination of the Plan, no Options shall be
granted; provided, however, that suspension or termination of the Plan shall
have no effect on Options granted prior thereto.
SECTION 18. NO RIGHTS AS AN EMPLOYEE
Nothing in the Plan shall be construed to give any person (including any
Eligible Employee or Participant) the right to remain in the employ of the
Company or a Parent or Subsidiary Corporation or to affect the right of the
Company or a Parent or Subsidiary Corporation to terminate the employment of any
person (including any Eligible Employee or Participant) at any time with or
without cause.
SECTION 19. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Parent or Subsidiary
Corporation. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or Subsidiary Corporation to (a) establish any
other forms of incentives or compensation for employees of the Company, a Parent
Corporation or Subsidiary Corporation or (b) grant or assume options otherwise
than under this Plan in connection with any proper corporate purpose, including,
but not by way of limitation, the grant or assumption of options in connection
with the acquisition, by purchase, lease, merger, consolidation or otherwise, of
the business, stock or assets of any corporation, firm or association.
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<PAGE>
SECTION 20. ADJUSTMENTS
20.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to stockholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or kind of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Stock, then (subject to any required action by the
Company's stockholders), the Board or the Committee, in its sole discretion,
shall make such equitable adjustments as it shall deem appropriate in the
circumstances in (i) the maximum number and kind of shares of Stock subject to
the Plan as set forth in Section 4 and (ii) the number and kind of securities
that are subject to any outstanding Option and the per share price of such
securities. The determination by the Board or the Committee as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
20.2 MERGER, ACQUISITION OR LIQUIDATION OF THE COMPANY
In the event of the merger or consolidation of the Company into another
corporation, the acquisition by another corporation of all or substantially all
of the Company's assets, or the liquidation or dissolution of the Company, the
Purchase Date with respect to outstanding Options shall be the business day
immediately preceding the effective date of such merger, consolidation,
acquisition, liquidation or dissolution unless the Board or the Committee shall,
in its sole discretion, provide for the assumption or substitution of such
Options in a manner complying with Code Section 424(a).
20.3 LIMITATIONS
The grant of Options will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 21. REGISTRATION; CERTIFICATES FOR SHARES
The Company shall be under no obligation to any Participant to register for
offering or resale under the Securities Act of 1933, as amended, or register or
qualify
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<PAGE>
under state securities laws, any shares of Stock. The Company may issue
certificates for shares with such legends and subject to such restrictions on
transfer and stop-transfer instructions as counsel for the Company deems
necessary or desirable for compliance by the Company with federal and state
securities laws.
SECTION 22. EFFECTIVE DATE
The Plan's effective date is the date on which it is approved by the
Company's stockholders.
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<PAGE>
EXHIBIT 10.4
<TABLE>
<S> <C>
1. LEASE TERMS
a. DATE OF LEASE: May 14, 1998
------------------------------------------------------
b. TENANT: InfoSpace, Inc., a Delaware corporation
-------------------------------------------------------
Trade Name: InfoSpace
-------------------------------------------------------
Address (Leased Premises): 15375 & 15379 NE 90th Street, Redmond WA 98052
--------------------------------------------------
Building/Unit: 1/2 - 15375 & 15379
-------------------------------------------------------
Address (For Notices): 15375 NE 90th Street Redmond WA 98052
-------------------------------------------------------
Facsimile:
-------------------------------------------------------
c. LANDLORD: TIAA Realty Inc., a Delaware corporation
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Address (For Notices): 730 Third Avenue, 7th Floor, New York, NY 10017
-------------------------------------------------------
Facsimile: (212) 599-2468 with a copy to CB Richard Ellis, 8449 154th Avenue NE., Redmond,
--------------
Washington or to such other place as Landlord may from time to time designate by notice to Tenant.
d. TENANT'S USE OF PREMISES: General Office for Internet directory service
---------------------------------------------
e. PREMISES AREA: Approximately 14,852 Rentable Square Feet
----------
f. PROJECT AREA: Approximately 32,517 Rentable Square Feet
-----------
g. TERM OF LEASE: This Lease shall commence on July 13, 1998 or such earlier or later date
-------------
as is provided in Section 3 (the "Commencement Date"), and shall terminate on the last
day of the sixty-first (61st) full calendar month after the Commencement Date (the "Expiration
Date").
h. BASE MONTHLY RENT: $ $4,085.00
-----------------------------------------
i. RENT ADJUSTMENT (Initial):
</TABLE>
- -------------------
{PRIVATE
}LANDLORD _____
TENANT
- -------------------
Step Increase: If this provision is initialed, the step adjustment provisions
of Section 4.b apply as follows:
EFFECTIVE DATES
(AFTER FIRST ENTRY, ALL MONTHS
REFER TO FULL CALENDAR MONTHS) BASE MONTHLY RENT
- -------------------------------------- ----------------------------
Commencement Date through
1 full calendar month As stated in Section 1(h)
- ------------------- $1,447.00
2 full calendar month ----------------------
- --------------------
<PAGE>
<TABLE>
<S> <C>
3 through 36 $17,670.00
- ----------- ------------ -------------------
37 through 61 $19,678.00
- ----------- ------------ -------------------
j. PREPAID RENT: $ 0.00
----------------------------------------------
k. CASH SECURITY DEPOSIT: $ 19,678.00
------------------------------------
l. BROKER(S): Craig Levine, Leibsohn
------------------------------------------------
m. GUARANTORS: N/A
-----------------------------------------------
n. ADDITIONAL SECTIONS:
Additional sections of this lease numbered 29 through 32 are attached
-------
hereto and made a part hereof. If none, so state in the following space --
--------.
o. ADDITIONAL EXHIBITS:
Additional exhibits lettered D through F are attached hereto made a part
-------------
hereof. If none, so state in the following space --
---------.
</TABLE>
2. PREMISES/COMMON AREAS/PROJECT.
A. PREMISES. Landlord leases to Tenant the premises described in Section
1 and in Exhibit A (the "Premises"), located in this project described
on Exhibit B (the "Project"). By entry on the Premises, Tenant
acknowledges that it has examined the Premises and accepts the
Premises in their present condition, subject to any additional work
Landlord has agreed to do. Tenant represents and warrants that it
agrees with the square footage specified for the Premises and the
Project in Section 1 and will not hereafter challenge such
determination and agreement.
B. COMMON AREAS. As used in this Lease, "Common Areas" shall mean all
portions of the Project not leased or demised for lease to specific
tenants. During the Lease Term, Tenant and its licensees, invitees,
customers and employees shall have the non-exclusive right to use the
public portions of the Common Areas, including all parking areas,
landscaped areas, entrances, lobbies, elevators, stairs, corridors,
and public restrooms in common with Landlord, other Project tenants
and their respective licensees, invitees, customers and employees.
Landlord shall at all times have exclusive control and management of
the Common Areas and no diminution thereof shall be deemed a
constructive or actual eviction or entitle Tenant to compensation or a
reduction or abatement of rent. Landlord in its discretion may
increase, decrease or change the number, locations and dimensions of
any Common Areas and other improvements shown on Exhibit A which are
not within the Premises, provided that no such changes shall
materially adversely affect Tenant's use of or access to the Premises.
C. PROJECT. Landlord reserves the right in its sole discretion to modify
or alter the configuration or number of buildings in the Project,
provided only that upon such
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modification or alteration, the Project Area as set forth in Section
1(f) shall be adjusted to reflect such modification or alteration.
3. TERM.
The Commencement Date listed in Section 1 of this Lease represents an
estimate of the Commencement Date. This Lease shall commence on the
estimated Commencement Date if painting of the portion of the Premises to
be occupied by Tenant is complete by such date, but otherwise the
Commencement Date shall be that date following the date on which the
painting is actually complete. The parties acknowledge that as of the
Commencement Date, Tenant shall be occupying only a portion of the
Premises, and that after the Commencement Date Landlord shall be
constructing tenant improvement work ("Landlord's Work") in accordance with
the provisions of the Work Letter Agreement of even date herewith which is
attached hereto as Exhibit F. Tenant acknowledges and agrees that it may
experience some inconvenience during construction of Landlord's Work, and
that Landlord shall not be in breach of any of its obligations under this
Lease provided Landlord's Work is constructed in a manner generally
consistent with construction industry standards. Tenant shall not be
entitled to any damages for inconvenience, extra cleaning, temporary
interruption of phone or electrical power or other matters which would
typically arise during the operation of a business in proximity to a
construction project. Landlord estimates that Landlord's Work shall be
substantially completed (as that term is used in the construction industry)
by September 1, 1998 (the "Completion Date"), but otherwise the Completion
Date shall be first to occur of the following events (i) the date on which
Landlord notifies Tenant that Landlord's Work is substantially complete
(provided that Landlord shall give Tenant at least two weeks prior notice
of the date of substantial completion), (ii) the date on which Tenant takes
possession or commences beneficial occupancy of all of the Premises, or
(iii) if substantial completion of Landlord's Work is delayed due to
Tenant's failure to perform its obligations under this Lease, or to
Tenant's occupancy of a portion of the Premises during construction of
Landlord's Work, then the date determined by Landlord as the date upon
which Landlord's Work would have been substantially completed, but for
Tenant's failure to perform or occupancy during construction. Except as
Landlord's Work is delayed due to Tenant's failure to perform its
obligations under this Lease, or is delayed due to Tenant's occupancy of a
portion of the Premises during construction of Landlord's Work, or delay in
the Completion Date is due to causes beyond Landlord's reasonable control,
which are more particularly set forth in Section 28(f) ("Force Majeure"),
if the actual Completion Date is later than November 1, 1998 (more than 60
days after the estimated Completion Date), Tenant may, at its discretion,
terminate this Lease by providing Landlord with written notice of
termination no later than five (5) business days following November 1,
1998. If Tenant fails to provide Landlord notice of termination within the
time period provided, Tenant shall be deemed to have waived its right to
terminate the Lease as provided in this Section 3. Landlord shall confirm
the Completion Date by written notice to Tenant. This Lease shall be for a
term ("Lease Term") beginning on the Commencement Date and ending on the
Expiration Date, unless extended or sooner terminated in accordance with
the terms of this Lease. All provisions of this Lease, other than those
relating to payment of Base Monthly Rent and Additional Rent, shall become
effective upon the first to occur of (a) the date that Tenant or its
officers, agents, employees or contractors is first present on the
Premises, whether for inspection, construction, installation or other
purposes, or (b) such other date, if any, as may be specified in an Exhibit
hereto.
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<PAGE>
4. RENT.
A. BASE MONTHLY RENT. Tenant shall pay Landlord monthly base rent in the
initial amount in Section 1 which shall be payable monthly in advance
on the first day of each and every calendar month ("Base Monthly
Rent") provided, however, the first month's Base Monthly Rent and
Tenant's Share of Expenses is due and payable upon execution of this
Lease. If the term of this Lease contains any rental abatement
period, Tenant hereby agrees that if Tenant breaches the Lease and
fails to cure such breach within the applicable cure period, if any,
and/or abandons the Premises before the end of the Lease term, or if
Tenant's right to possession is terminated by Landlord because of
Tenant's breach of the Lease, the rental abatement period shall be
deemed extinguished, and there shall be immediately due from Tenant to
Landlord, in addition to any damages otherwise due Landlord under the
terms and conditions of the Lease, Base Monthly Rent prorated for the
entirety of the rental abatement period at the average Base Monthly
Rent for the Lease, plus any and all other charges (such as Expenses)
that were abated during such rental abatement period.
For purposes of Section 467 of the Internal Revenue Code, the parties
to this Lease hereby agree to allocate the stated Rents, provided
herein, to the periods which correspond to the actual Rent payments as
provided under the terms and conditions of this agreement.
B. RENT ADJUSTMENT. STEP INCREASE. If Section 1.I. is initialed, Base
Monthly Rent shall be increased periodically to the amounts and at the
times set forth in Section 1.i.
C. EXPENSES. The purpose of this Section 4.c is to ensure that Tenant
bears a share of all Expenses related to the use, maintenance,
ownership, repair or replacement, and insurance of the Project.
Accordingly, beginning on the date Tenant takes possession of the
Premises, Tenant shall each month pay to Landlord one-twelfth (1/12)
of Tenant's Share of Expenses related to the Project. As used in this
Lease, "Tenant's Share" shall mean the Premises Area, as defined in
Section 1.e, divided by the Project Area, as defined in Section 1.f,
and "Tenant's Share of Expenses" shall mean total Expenses for the
Project, multiplied by Tenant's Share, provided that Landlord may
specially allocate individual expenses where and in the manner
necessary, in Landlord's discretion, to appropriately reflect the
consumption of the expense or service. For example where some but not
all premises in the Project have HVAC, Landlord may reallocate Project
Expenses for HVAC to all premises utilizing HVAC to be apportioned on
a per square foot basis, or could allocate to each premises utilizing
HVAC the cost of maintaining that space's individual unit. In the
event the average occupancy level of the Project for any year is less
than ninety five percent (95%), the actual Expenses for such year
shall be proportionately adjusted to reflect those costs which
Landlord estimates would have been incurred, had the Project been
ninety five percent (95%) occupied during such year.
1) EXPENSES DEFINED. The term "Expenses" shall mean all costs and
expenses of the ownership, operation, maintenance, repair or
replacement, and insurance of the Project, including without
limitation, the following costs:
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<PAGE>
(a) All supplies, materials, labor, equipment, and utilities
used in or related to the operation and maintenance of the
Project,
(b) All maintenance, management, janitorial, legal,
accounting, insurance, and service agreement costs related to the
Project;
(c) All maintenance, replacement and repair costs relating to
the areas within or around the Project, including, without
limitation, air conditioning systems, sidewalks, landscaping,
service areas, driveways, parking Areas (including resurfacing
and restriping parking areas), walkways, building exteriors
(including painting), signs and directories, repairing and
replacing roofs, walls, etc. These costs may be included either
based on actual expenditures or the use of an accounting reserve
based on past cost experience for the Project.
(d) Amortization (along with reasonable financing charges) of
capital improvements made to the Project which may be required by
any government authority or which will improve the operating
efficiency of the Project (provided, however, that the amount of
such amortization for improvements not mandated by government
authority shall not exceed in any year the amount of costs
reasonably determined by Landlord in its sole discretion to have
been saved by the expenditure either through the reduction or
minimization of increases which would have otherwise occurred).
(e) Real Property Taxes including all taxes, assessments
(general and special) and other impositions or charges which may
be taxed, charged, levied, assessed or imposed upon all or any
portion of or in relation to the Project or any portion thereof,
any leasehold estate in the Premises or measured by Rent from the
Premises, including any increase caused by the transfer, sale or
encumbrance of the Project or any portion thereof. "Real Property
Taxes" shall also include any form of assessment, levy, penalty,
charge or tax (other than estate, inheritance, net income, or
franchise taxes) imposed by any authority having a direct or
indirect power to tax or charge, including, without limitation,
any city, county, state federal or any improvement or other
district, whether such tax is (1) determined by the value of the
Project or the Rent or other sums payable under this Lease; (2)
upon or with respect to any legal or equitable interest of
Landlord in the Project or any part thereof; (3) upon this
transaction or any document to which Tenant is a party creating a
transfer in any interest in the Project, (4) in lieu of or as a
direct substitute in whole or in part of or in addition to any
real property taxes on the Project, (5) based on any parking
spaces or parking facilities provided in the Project, or (6) in
consideration for services, such as police protection, fire
protection, street, sidewalk and roadway maintenance, refuse
removal or other services that may be provided by any
governmental or quasi-governmental agency from time to time which
were formerly provided without charge or with less charge to
property owners or occupants.
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<PAGE>
(f) Landlord agrees that Expenses as defined in Section 4(c)
shall not include leasing commissions; tenant improvement costs
expended for Tenant or any other tenant in the Project; payments
of principal and interest on any mortgages, deeds of trust or
other encumbrances upon the Project; depreciation of the capital
cost of capital improvements except as provided at 4(c)(1)(d);
Landlord's executive salaries, management fees in excess of
market rates; costs resulting from defective design or
construction of the Project; costs incurred in connection with
entering into new leases; or costs of disputes under existing
leases. In no event shall Expenses include any charge for which
Landlord receives reimbursement from insurance or from another
Tenant, nor shall any item of Expense be counted more than once,
nor shall Landlord collect more than one hundred percent (100%)
of Expenses.
2) ANNUAL ESTIMATE OF EXPENSES, TENANT'S SHARE. When Tenant takes
possession of the Premises, Landlord shall estimate Tenant's share of
Expenses for the remainder of the calendar year, and at the
commencement of each calendar year thereafter, Landlord shall estimate
Tenant's Share of Expenses for the coming year by multiplying the
estimated annual Project Expenses by Tenant's Share.
3) MONTHLY PAYMENT OF EXPENSES. Tenant shall pay to Landlord,
monthly in advance, as Additional Rent, one-twelfth (1/12) of the
Annual Estimate of Tenant's Share of Expenses beginning on the date
Tenant takes possession of the Premises. As soon as practical
following each calendar year, Landlord shall prepare an accounting of
actual Expenses incurred during the prior calendar year and such
accounting shall reflect Tenant's Share of Expenses. If the
Additional Rent paid by Tenant under this Section 4.c.3 during the
preceding calendar year was less than the actual amount of Tenant's
Share of Expenses, Landlord shall so notify Tenant and Tenant shall
pay such amount to Landlord within 30 days of receipt of such notice.
Such amount shall be deemed to have accrued during the prior calendar
year and shall be due and payable from Tenant even though the term of
this Lease has expired or this Lease has been terminated prior to
Tenant's receipt of this notice. Tenant shall have thirty (30) days
from receipt of such notice to contest the amount due, failure to so
notify Landlord shall represent final determination of Tenant's Share
of Expenses. If Tenant's payments were greater than the actual
amount, then such overpayment shall be credited by Landlord to
Tenant's Share of Expenses due under this Section 4.c.3.
4) RENT WITHOUT OFFSET AND LATE CHARGE. As used herein, "Rent" shall
mean all monetary sums due from Tenant to Landlord. All Base Monthly
Rent shall be paid by Tenant to Landlord without prior notice or
demand in advance on the first day of every calendar month, at the
address shown in Section 1, or such other place as landlord may
designate in writing from time to time. Whether or not so designated,
all other sums due from Tenant under this Lease shall constitute
Additional Rent, payable without prior notice or demand when specified
in this Lease, but if not specified, then within ten (10) days of
demand. All Rent shall be paid without any deduction or offset
whatsoever. All Rent shall be paid in lawful currency of the United
States of America. Proration of Rent due for any partial month shall
be calculated by dividing the number of days in the month for which
Rent is due by the actual number of days in that month
-6-
<PAGE>
and multiplying by the applicable monthly rate. Tenant acknowledges
that late payment by Tenant to Landlord of any Rent or other sums due
under this Lease will cause Landlord to incur costs not contemplated
by this Lease, the exact amount of such cost being extremely difficult
and impracticable to ascertain. Such costs include, without
limitation, processing and accounting charges and late charges that
may be imposed on Landlord by the terms of any encumbrance or note
secured by the Premises. Therefore, if any Rent or other sum due from
Tenant is not received within ten (10) days of due date, Tenant shall
pay to Landlord an additional sum equal to 10% of such overdue
payment. Landlord and Tenant hereby agree that such late charge
represents a fair and reasonable estimate of the costs that Landlord
will incur by reason of any such late payment and that the late charge
is in addition to any and all remedies available to the Landlord and
that the assessment and/or collection of the late charge shall not be
deemed a waiver of any other default. Additionally, all such
delinquent Rent or other sums, plus this late charge, shall bear
interest at the rate of 18 percent per annum. If the interest rate
specified in this Lease is higher than the rate permitted by law, the
interest rate is hereby decreased to the maximum legal interest rate
permitted by law. Any payments of any kind returned for insufficient
funds will be subject to an additional handling charge of $25.00, and
thereafter, Landlord may require Tenant to pay all future payments of
Rent or other sums due by money order or cashier's check.
5. PREPAID RENT.
Upon the execution of this Lease, Tenant shall, in addition to the payment
of the first month's Rent as set forth in Section 4.a, pay to Landlord the
prepaid Rent set forth in Section 1.j, and if Tenant is not in default of
any provisions of this Lease, such prepaid Rent shall be applied toward
Base Monthly Rent for the months set forth in Section 1.j. Landlord's
obligations with respect to the prepaid Rent are those of a debtor and not
of a trustee, and Landlord can commingle the prepaid Rent with Landlord's
general funds. Landlord shall not be required to pay Tenant interest on the
prepaid Rent. Landlord shall be entitled to immediately endorse and cash
Tenant's prepaid Rent; however, such endorsement and cashing shall not
constitute Landlord's acceptance of this Lease. In the event Landlord does
not accept this Lease, Landlord shall return said prepaid Rent.
6. DEPOSIT.
Upon execution of this Lease, Tenant shall deposit with Landlord a cash
security deposit. as forth in Section 1.k (the "Cash Security Deposit). In
addition, Tenant shall, simultaneous with full execution of this Lease,
execute a Security Agreement in, and deliver to Landlord a certificate of
deposit (the "Certificate of Deposit") in the amount of One Hundred Eighty
Thousand Dollars ($180,000) with a national bank having banking offices in
New York City. Tenant shall be entitled to draw down the Certificate of
Deposit (or provide a replacement Certificate of Deposit) at the end of
each twelve (12) months of the Lease Term so as to reduce the Certificate
of Deposit held by Landlord by the amount of Thirty-Six Thousand Dollars
($36,000) reduction per (12) month period.with Landlord. As used herein ,
the "Security Deposit" shall mean the Cash Security Deposit and the
Certificate of Deposit, which may be utilized singly or in combination as
Landlord may elect in its sole discretion. If Tenant is in default,
Landlord can use the Security Deposit or any portion of it to cure the
default or to compensate
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Landlord for any damages sustained by Landlord resulting from Tenant's
default. Upon demand, Tenant shall immediately pay to Landlord in cash a
sum equal to the portion of the Security Deposit expended or applied by
Landlord to restore the security deposit to its full amount. In no event
will Tenant have the right to apply any part of the Security Deposit to any
Rent or other sums due under this Lease. If Tenant is not in default at the
expiration of the initial Term of this Lease, Landlord shall return the
Certificate of Deposit to Tenant. If Tenant is not in default at the
expiration or termination of this Lease (whether or not extended), Landlord
shall return the Cash Security Deposit to Tenant. Landlord's obligations
with respect to the deposit are those of a debtor and not of a trustee, and
Landlord can commingle the Cash Security Deposit with Landlord's general
funds. Landlord shall not be required to pay Tenant interest on the Cash
Security Deposit.
7. USE OF PREMISES AND PROJECT FACILITIES.
Tenant shall use the Premises solely for the purposes set forth in Section
1 and for no other purpose without obtaining the prior written consent of
Landlord. Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty with respect to the
Premises or with respect to the suitability of the Premises or the Project
for the conduct of Tenant's business, nor has Landlord agreed to undertake
any modification, alteration or improvement to the Premises or the Project,
except as provided in writing in this Lease. Tenant acknowledges that
Landlord may from time to time, at its sole discretion, make such
modifications, alterations, deletions or improvements to the Project as
Landlord may deem necessary or desirable, without compensation or notice to
Tenant. Tenant shall promptly comply with all laws, ordinances, orders and
regulations affecting the Premises and the Project, including, without
limitation, any rules and regulations that may be attached to this Lease
and to any reasonable modifications to these rules and regulations as
Landlord may adopt from time to time. Tenant acknowledges that, except for
Landlord's obligations pursuant to Section 13, Tenant is solely responsible
for ensuring that the Premises comply with any and all governmental
regulations applicable to Tenant's conduct of business on the Premises, and
that Tenant is solely responsible for any alterations or improvements that
may be required by such regulations, now existing or hereafter adopted.
Tenant shall not do or permit anything to be done in or about the Premises
or bring or keep anything in the Premises that will in any way increase the
premiums paid by Landlord on its insurance related to the Project or which
will in any way increase the premiums for fire or casualty insurance
carried by other tenants in the Project. Tenant will not perform any act or
carry on any practices that may injure the Premises or the Project; that
may be a nuisance or menace to other tenants in the Project; or that shall
in any way interfere with the quiet enjoyment of such other tenants. Tenant
shall not use the Premises for sleeping, washing clothes, cooking or the
preparation, manufacture or mixing of anything that might emit any
objectionable odor, noises, vibrations or lights onto such other tenants.
If sound insulation is required to muffle noise produced by Tenant on the
Premises, Tenant at its own cost shall provide all necessary insulation.
Tenant shall not do anything on the premises which will overload any
existing parking or service to the Premises. Pets and/or animals of any
type shall not be kept on the Premises.
8. HAZARDOUS SUBSTANCES; DISRUPTIVE ACTIVITIES.
a. Hazardous Substances.
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(1) Presence and Use of Hazardous Substances. Tenant shall not,
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without Landlord's prior written consent, keep on or around the Premises,
Common Areas or Building, for
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use, disposal, treatment, generation, storage or sale, any substances designed
as, or containing components designated as hazardous, dangerous, toxic or
harmful (collectively referred to as "Hazardous Substances"), and/or is subject
to regulation, statute or ordinance. With respect to any such Hazardous
Substance, Tenant shall:
(i) Comply promptly, timely, and completely with all
governmental requirements for reporting, keeping, and submitting manifests, and
obtaining and keeping current identification numbers ;
(ii) Submit to Landlord true and correct copies of all
reports, manifests, and identification numbers at the same time as they are
required to be and/or are submitted to the appropriate governmental
authorities;
(iii) Within five (5) days of Landlord's request, submit
written reports to Landlord regarding Tenant'suse, storage, treatment,
transportation, generation, disposal or sale of Hazardous Substances and
provide evidence satisfactory to Landlord of Tenant's compliance with the
applicable government regulations;
(iv) Allow Landlord or Landlord's agent or representative
to come on the premises at all times to check Tenant's compliance with all
applicable governmental regulations regarding Hazardous Substances;
(v) Comply with minimum levels, standards or other
performance standards or requirements which may be set forth or established for
certain Hazardous Substances (if minimum standards or levels are applicable to
Hazardous Substances present on the Premises, such levels or standards shall be
established by an on-site inspection by the appropriate governmental
authorities and shall be set forth in an addendum to this Lease); and
(vi) Comply with all applicable governmental rules,
regulations and requirements regarding the proper and lawful use, sale,
transportation, generation, treatment, and disposal of Hazardous Substances.
(2) Any and all costs incurred by Landlord and associated with
Landlord's monitoring of Tenant's compliance with this Section 8, including
Landlord's attorneys' fees and costs, shall be Additional Rent and shall be due
and payable to Landlord immediately upon demand by Landlord.
b. Cleanup Costs, Default and Indemnification.
------------------------------------------
(1) Tenant shall be fully and completely liable to Landlord for any
and all cleanup costs, and any and all other charges, fees, penalties (civil
and criminal) imposed by any governmental authority with respect to Tenant's
use, disposal, transportation, generation and/or sale of Hazardous Substances,
in or about the Premises, Common Areas, or Building.
(2) Tenant shall indemnify, defend and save Landlord and Landlord's
lender, if any, harmless from any and all of the costs, fees, penalties and
charges assessed against or imposed upon Landlord (as well as Landlord's and
Landlord's lender's attorneys' fees and costs) as a result of Tenant's use,
disposal, transportation, generation and/or sale of Hazardous Substances.
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(3) Upon Tenant's default under this Section 8, in addition to the
rights and remedies set forth elsewhere in this Lease, Landlord shall be
entitled to the following rights and remedies:
(i) At Landlord's option, to terminate this Lease
immediately; and/or
(ii) To recover any and all damages associated with the
default, including, but not limited to cleanup costs and charges, civil and
criminal penalties and fees, loss of business and sales by Landlord and other
tenants of the Building, any and all damages and claims asserted by third
parties and Landlord's attorneys' fees and costs.
c. Disposal of Waste.
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(1) Refuse Disposal. Tenant shall not keep any trash, garbage, waste
or other refuse on the Premises except in sanitary containers and shall
regularly and frequently remove same from the Premises. Tenant shall keep all
incinerators, containers or other equipment used for storage or disposal of such
materials in a clean and sanitary condition.
(2) Sewage Disposal. Tenant shall properly dispose of all sanitary
sewage and shall not use the sewage disposal system (a) for the disposal of
anything except sanitary sewage or (b) in excess of the lesser amount (i)
reasonably contemplated by the uses permitted under this Lease or (ii) permitted
by any governmental entity. Tenant shall keep the sewage disposal system free of
all obstructions and in good operating condition.
(3) Disposal of Other Waste. Tenant shall properly dispose of all
other waste or other matter delivered to, stored upon, located upon or within,
used on, or removed from, the Premises in such a manner that it does not, and
will not, adversely affect the (a) health or safety of persons, wherever
located, whether on the Premises or elsewhere (b) condition, use or enjoyment of
the Premises or any other real or personal property, wherever located, whether
on the Premises or anywhere else, or (c) Premises or any of the improvements
thereto or thereon including buildings, foundations, pipes, utility lines,
landscaping or parking areas.
d. Disruptive Activities. Tenant shall not:
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(1) Produce, or permit to be produced, any intense glare, light or
heat except within an enclosed or screened area and then only in such manner
that the glare, light or heat shall not, outside the Premises, be materially
different that the light or heat from other sources outside the Premises;
(2) Create, or permit to be created, any sound pressure level which
will interfere with the quiet enjoyment of any real property outside the
Premises, or which will create a nuisance or violate any governmental law, rule,
regulation or requirement;
(3) Create, or permit to be created, any ground vibration that is
materially discernible outside the Premises;
(4) Transmit, receive or permit to be transmitted or received, any
electromagnetic, microwave or other radiation which is harmful or hazardous to
any person or property in, or about the Project; or
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(5) Create, or permit to be created, any noxious odor that is
disruptive to the business operations of any other tenant in the Project.
9. SIGNAGE.
All signing shall comply with rules and regulations set forth by Landlord
as may be modified from time to time. Current rules and regulations
relating to signs are described on Exhibit C. Tenant shall place no window
covering (e.g., shades, blinds, curtains, drapes, screens, or tinting
materials), stickers, signs, lettering, banners or advertising or display
material on or near exterior windows or doors if such materials are visible
from the exterior of the Premises, without Landlord's prior written
consent. Similarly, Tenant may not install any alarm boxes, foil protection
tape or other security equipment on the Premises without Landlord's prior
written consent. Any material violating this provision may be destroyed by
Landlord without compensation to Tenant.
10. PERSONAL PROPERTY TAXES.
Tenant shall pay before delinquency all taxes, assessments, license fees
and public charges levied, assessed or imposed upon its business operations
as well as upon all trade fixtures, leasehold improvements, merchandise and
other personal property in or about the Premises.
11. PARKING.
Landlord grants to Tenant and Tenant's customers, suppliers, employees and
invitees, a non-exclusive license to use the designated parking areas in
the Project for the use of motor vehicles during the term of this Lease.
Landlord reserves the right at any time to grant similar non-exclusive use
to other tenants, to promulgate rules and regulations relating to the use
of such parking areas, including reasonable restrictions on parking by
tenants and employees, to designate specific spaces for the use of any
tenant, to make changes in the parking layout from time to time, and to
establish reasonable time limits on parking. Overnight parking is
prohibited and any vehicle violating this or any other vehicle regulation
adopted by Landlord is subject to removal at the owner's expense. The
Project's current parking ratio is three (3) stalls per 1,000 square feet
of rentable area, which shall not be reduced below three stalls per 1,000
square feet of rentable area except as may be needed to accomplish
compliance with changes in governmental regulations.
12. UTILITIES.
Tenant shall pay for all water, gas, heat, light, power, sewer,
electricity, telephone or other service metered, chargeable or provided to
the Premises and not otherwise charged as part of Tenant's Share of
Expenses and shall be responsible for procuring and paying for janitorial
and waste disposal services. Landlord reserves the right to install
separate meters for any such utility and to charge Tenant for the cost of
such installation.
13. MAINTENANCE.
Landlord shall maintain, in good condition, the structural parts of the
Premises, which shall include only the foundations, bearing and exterior
walls (excluding glass), subflooring and roof (excluding skylights), the
unexposed electrical, plumbing and sewerage systems, including those
portions of the systems lying outside the Premises, gutters and downspouts
on the Building, the heating, ventilating
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and air conditioning system servicing the Premises, and the Common Areas,
including but not limited to the bathrooms on the second floor; provided,
however, the cost of all such maintenance shall be considered "Expenses"
for purposes of Section 4.c. Except as provided above, Tenant shall
maintain and repair the Premises in good condition, including, without
limitation, maintaining and repairing all walls, storefronts, floors,
ceilings, interior and exterior doors, exterior and interior windows and
fixtures and interior plumbing as well as damage caused by Tenant, its
agents, employees or invitees. Upon expiration or termination of this
Lease, Tenant shall surrender the Premises to Landlord in the same
condition as existed at the commencement of the term, except for reasonable
wear and tear or damage caused by fire or other casualty for which Landlord
has received all funds necessary for restoration of the Premises from
insurance proceeds.
14. ALTERATIONS.
Tenant shall not make any alterations to the Premises, or to the Project,
including any changes to the existing landscaping, without Landlord's prior
written consent. If Landlord gives its consent to such alterations,
Landlord may post notices in accordance with the laws of the state in which
the premises are located. Any alterations made shall remain on and be
surrendered with the Premises upon expiration or termination of this Lease,
except that Landlord may, within 30 days before or 30 days after expiration
of the term, elect to require Tenant to remove any alterations which Tenant
may have made to the Premises; provided, that Tenant may, at the time of
requesting Landlord's consent, also request Landlord to make an election
whether to require Tenant to remove the requested alterations and Landlord
shall make such election if Landlord approves the alterations. If Landlord
so elects, at its own cost Tenant shall restore the Premises to the
condition designated by Landlord in its election, before the last day of
the term or within 30 days after notice of its election is given, whichever
is later.
Should Landlord consent in writing to Tenant's alteration of the Premises,
Tenant shall contract with a contractor approved by Landlord for the
construction of such alterations, shall secure all appropriate governmental
approvals and permits, and shall complete such alterations with due
diligence in compliance with plans and specifications approved by Landlord.
All such construction shall be performed in a manner which will not
interfere with the quiet enjoyment of other tenants of the Project. Tenant
shall pay all costs for such construction and shall keep the Premises and
the Project free and clear of all mechanics' liens which may result from
construction by Tenant.
15. RELEASE AND INDEMNITY.
A. TENANT INDEMNITY. Except as otherwise provided in this section,
Tenant shall indemnify, defend (using legal counsel reasonably
acceptable to Landlord) and save Landlord harmless from all claims,
suits, losses, damages, fines, penalties, liabilities and expenses
(including Landlord's personnel and overhead costs and attorneys fees
and other costs incurred in connection with claims, regardless of
whether such claims involve litigation but excluding consequential
damages such as lost profits) resulting from any actual or alleged
injury (including death) of any person or from any actual or alleged
loss of or damage to, any property arising out of or in connection
with (i) Tenant's occupation, use or improvement of the Premises, or
that of its employees, agents or contractors, (ii) Tenant's breach of
its obligations hereunder, or (iii) any act or omission of Tenant or
any subtenant, licensee, assignee or concessionaire of Tenant, or of
any officer, agent, employee, guest or invitee of
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Tenant, or of any such entity in the Premises. Tenant agrees that the
foregoing indemnity specifically covers actions brought by its own
employees. This indemnity with respect to acts or omissions during the
term of this Lease shall survive termination or expiration of this
Lease. The foregoing indemnity is specifically and expressly intended
to, constitute a waiver of Tenant's immunity under Washington's
Industrial Insurance Act, RCW Title 51, to the extent necessary to
provide Landlord with a full and complete indemnity from claims made
by Tenant and its employees, to the extent provided herein. Tenant
shall promptly notify Landlord of casualties or accidents occurring in
or about the Premises. LANDLORD AND TENANT ACKNOWLEDGE THAT THE
INDEMNIFICATION PROVISIONS OF SECTION 8.b AND THIS SECTION 15 WERE
SPECIFICALLY NEGOTIATED AND AGREED UPON BY THEM.
B. LANDLORD INDEMNITY. Except as otherwise provided in this Section 15,
Landlord shall indemnify, defend (using legal counsel reasonably
acceptable to Tenant) and save Tenant harmless from all claims, suits,
losses, fines, penalties, liabilities and expenses (including Tenant's
personnel and overhead costs and attorney's fees and other costs
incurred in connection with claims, regardless of whether such claims
involve litigation, but excluding consequential damages such as lost
profits) resulting from any actual or alleged injury (including death)
of any person or from any actual or alleged loss or damage to, any
property proximately caused by the intentional misconduct or sole
negligence of Landlord or of any employee, agent, servant or
contractor of Landlord in the Common Areas. Landlord agrees that the
foregoing indemnity specifically covers actions brought by its own
employees. This indemnity with respect to actions or omissions during
the term of this Lease shall survive termination or expiration of this
Lease. The foregoing indemnity is specifically and expressly intended
to constitute a waiver of Landlord's immunity under Washington's
Industrial Insurance Act, RCW Title 51, to the extent necessary to
provide Tenant with a full and complete indemnity from claims made by
Landlord and its employees to the extent of their negligence.
LANDLORD AND TENANT ACKNOWLEDGE THAT THE INDEMNIFICATION PROVISIONS OF
SECTION 15 WERE SPECIFICALLY NEGOTIATED AND AGREED UPON BY THEM..
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C. RELEASE. Notwithstanding any other provision of this Lease, Tenant
hereby fully and completely waives and releases all claims against
Landlord for any losses or other damages sustained by Tenant or any
person claiming through Tenant resulting from any accident or
occurrence in or upon the Premises, including but not limited to: any
defect in or failure of Project equipment; any failure to make
repairs; any defect, failure, surge in, or interruption of Project
facilities or services; any defect in or failure of Common Areas;
broken glass; water leakage; the collapse of any Building component;
or any act, omission or negligence of co-tenants, licensees or any
other persons or occupants of the Building, provided only that the
release contained in this Section 15.c shall not apply to claims for
actual damage to persons or property (excluding consequential damages
such as lost profits) resulting directly from Landlord's breach of its
express obligations under this Lease, unless Tenant had actual
knowledge of the breach prior to the occurrence of the actual damage
and failed to notify Landlord.
D. LIMITATION ON INDEMNITY. In compliance with RCW 4.24.115 as in effect
on the date of this Lease, all provisions of this Lease pursuant to
which Landlord or Tenant (the
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"Indemnitor") agrees to indemnify the other (the "Indemnitee") against
liability for damages arising out of bodily injury to Persons or
damage to property relative to the construction, alteration, repair,
addition to, subtraction from, improvement to, or maintenance of, any
building, road, or other structure, project, development, or
improvement attached to real estate, including the Premises, (i) shall
not apply to damages caused by or resulting from the sole negligence
of the Indemnitee, its agents or employees, and (ii) to the extent
caused by or resulting from the concurrent negligence of (a) the
Indemnitee or the Indemnitee's agents or employees, and (b) the
Indemnitor or the Indemnitor's agents or employees, shall apply only
to the extent of the Indemnitor's negligence; PROVIDED, HOWEVER, the
limitations on indemnity set forth in this Section shall automatically
and without further act by either Landlord or Tenant be deemed amended
so as to remove any of the restrictions contained in this Section no
longer required by then applicable law.
E. DEFINITIONS. As used in any Section establishing indemnity or release
of Landlord, "Landlord" shall include Landlord, its partners,
officers, agents, employees and contractors, and "Tenant" shall
include Tenant and any person or entity claiming through Tenant.
16. INSURANCE.
Tenant, at its cost, shall maintain public liability and property damage
insurance and products liability insurance with a single combined liability
limit of $1,000,000, insuring against all liability of Tenant and its
representatives, employees, invitees, and agents arising out of or in
connection with Tenant's use or occupancy of the Premises. Public
liability insurance, products liability insurance and property damage
insurance shall insure performance by Tenant of the indemnity provisions of
Section 15. Landlord and its management contractor shall be named as
additional insured and the policy shall contain cross-liability
endorsements. On all its personal property, at its cost, Tenant shall
maintain a policy of standard fire and extended coverage insurance with
vandalism and malicious mischief endorsements and "all risk" coverage on
all Tenant's improvements and alterations, including without limitation,
all items of Tenant responsibility described in Section 13 in or about the
Premises, to the extent of at least 90% of their full replacement value.
The proceeds from any such policy shall be used by Tenant for the
replacement of personal property and the restoration of Tenant's
improvements or alterations. All insurance required to be provided by
Tenant under this Lease shall release Landlord from any claims for damage
to business or to any person or the Premises and the Project, and to
Tenant's fixtures, personal property, improvements and alterations in or on
the Premises or the Project, caused by or resulting from risks insured
against under any insurance policy carried by Tenant in force at the time
of such damage. In addition, Tenant hereby independently releases Landlord
from any and all claims for damage to business or to any person or the
Premises and the Project, and to Tenant's fixtures, personal property,
improvements and alterations in or on the Premises or the Project, caused
by or resulting from risks that would have been insured against under any
insurance policy required by this Lease to be carried by Tenant, even if
Tenant failed to so carry the required insurance. All insurance required
to be provided by Tenant under this Lease: (a) shall be issued by Insurance
companies authorized to do business in the state in which the premises are
located with a financial rating of at least an A+XII status as rated in the
most recent edition of Best's Insurance Reports; (b) shall be issued as a
primary policy; shall be on an occurrence basis; and (d) shall contain an
endorsement requiring at least 30 days prior written notice of cancellation
to Landlord and Landlord's lender, before cancellation or change in
coverage, scope or amount of any policy. Tenant shall deliver a
certificate or copy of
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such policy together with evidence of payment of all current premiums to
Landlord within 30 days of execution of this Lease. If Tenant fails at any
time to maintain the insurance required by this Lease, and fails to cure
such default within five (5) business days of written notice from Landlord
then, in addition to all other remedies available under this Lease and
applicable law, Landlord may purchase such insurance on Tenant's behalf and
the cost of such insurance shall be Additional Rent due within ten (10)
days of written invoice from Landlord to Tenant.
17. DESTRUCTION.
If during the term, more than 40% of the Premises or more than 20% of the
Project (or, during the last year of the term, more than 20% of the
Premises or the Project) are destroyed from any cause, the Premises are
rendered inaccessible or unusable from any cause, Landlord may, in its sole
discretion, terminate this Lease by delivery of notice to Tenant within 30
days of such event without compensation to Tenant. If in Landlord's
estimation, the Premises cannot be restored within 90 days following such
destruction, the Landlord shall notify Tenant and Tenant may terminate this
Lease by delivery of notice to Landlord within 30 days of receipt of
Landlord's notice. If neither Landlord nor Tenant terminates this Lease as
provided above, then Landlord shall commence to restore the Premises in
compliance with then existing laws and shall complete such restoration with
due diligence. In such event, this Lease shall remain in full force and
effect, but there shall be an abatement of Base Monthly Rent and Tenant's
Share of Expenses between the date of destruction and the date of
completion of restoration, based on the extent to which destruction
interferes with Tenant's use of the Premises.
18. CONDEMNATION.
A. TAKING. If all of the Premises are taken by Eminent Domain, this
Lease shall terminate as of the date Tenant is required to vacate the
Premises and all Base and Additional Rent shall be paid to that date.
The term "Eminent Domain" shall include the taking or damaging of
property by, through or under any governmental or statutory authority,
and any purchase or acquisition in lieu thereof, whether the damaging
or taking is by government or any other person. If, in the reasonable
judgment of Landlord, a taking of any part of the Premises by Eminent
Domain renders the remainder thereof unusable for the business of
Tenant (or the cost of restoration of the Premises is not commercially
reasonable), the Lease may, at the option of either party, be
terminated by written notice given to the other party not more than
thirty (30) days after Landlord gives Tenant written notice of the
taking, and such termination shall be effective as of the date when
Tenant is required to vacate the portion of the Premises so taken. If
this Lease is so terminated, all Base and Additional Rent shall be
paid to the date of termination. Whenever any portion of the Premises
is taken by Eminent Domain and this Lease is not terminated, Landlord
shall at its expense proceed with all reasonable dispatch to restore,
to the extent of available proceeds and to the extent it is reasonably
prudent to do so, the remainder of the Premises to the condition they
were in immediately prior to such taking, and Tenant shall at its
expense proceed with all reasonable dispatch to restore its personal
property and all improvements made by it to the Premises to the same
condition they were in immediately prior to such taking. The Base and
Additional Rent payable hereunder shall be reduced from the date
Tenant is required to partially vacate the Premises in the same
proportion that the Rentable Area taken bears to the total Rentable
Area of the Premises prior to taking.
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B. AWARD. Landlord reserves all right to the entire damage award or
payment for any taking by Eminent Domain, and Tenant waives all claim
whatsoever against Landlord for damages for termination of its
leasehold interest in the Premises or for interference with its
business. Tenant hereby grants and assigns to Landlord any right
Tenant may now have or hereafter acquire to such damages and agrees to
execute and deliver such further instruments of assignment as Landlord
may from time to time request. Tenant shall, however, have the right
to claim from the condemning authority all compensation that may be
recoverable by Tenant on account of any loss incurred by Tenant in
moving Tenant's merchandise, furniture, trade fixtures and equipment,
provided, however, that Tenant may claim such damages only if they are
awarded separately in the eminent domain proceeding and not out of or
as part of Landlord's damages.
19. ASSIGNMENT OR SUBLEASE.
Tenant shall not assign or encumber its interest in this Lease or the
Premises or sublease all or any part of the Premises or allow any other
person or entity (except Tenant's authorized representatives, employees,
invitees, or guests) to occupy or use all or any part of the Premises
without first obtaining Landlord's consent which Landlord will not
unreasonably withhold for tenants meeting Landlord's then existing
standards of creditworthiness and use. No assignment or sublease shall
release Tenant from the obligation to perform all obligations under this
Lease. Any assignment, encumbrance or sublease without Landlord's written
consent shall be voidable and at Landlord's election, shall constitute a
default. If Tenant is a partnership, a withdrawal or change, voluntary,
involuntary or by operation of law of any partner, or the dissolution of
the partnership, shall be deemed a voluntary assignment. If Tenant consists
of more than one person, a purported assignment, voluntary or involuntary
or by operation of law from one person to the other shall be deemed a
voluntary assignment. If Tenant is a corporation, any dissolution, merger,
consolidation or other reorganization of Tenant, or sale or other transfer
of a controlling percentage of the capital stock of Tenant, or the sale of
at least 25% of the value of the assets of Tenant shall be deemed a
voluntary assignment. The phrase "controlling percentage" means ownership
of and right to vote stock possessing at least 35% of the total combined
voting power of all classes of Tenant's capital stock issued, outstanding
and entitled to vote for election of directors. This Section 19 shall not
apply to public issuance or trades of stock traded or issued through an
exchange or over the counter. All rent received by Tenant from its
subtenants in excess of the Rent payable by Tenant to Landlord under this
Lease shall be paid to Landlord, or any sums to be paid by an assignee to
Tenant in consideration of the assignment of this Lease shall be paid to
Landlord. If Tenant requests Landlord to consent to a proposed assignment
or subletting, Tenant shall pay to Landlord, whether or not consent is
ultimately given, $100 or Landlord's reasonable attorney's fees incurred in
connection with such request, whichever is greater.
No interest of Tenant in this Lease shall be assignable by involuntary
assignment through operation of law (including without limitation the
transfer of this Lease by testacy or intestacy). Each of the following
acts shall be considered an involuntary assignment: (a) if Tenant is or
becomes bankrupt or insolvent, makes an assignment for the benefit of
creditors, or institutes proceedings under the Bankruptcy Act in which
Tenant is the bankrupt; or if Tenant is a partnership or consists of more
than one person or entity, if any partner of the partnership or other
person or entity is or becomes bankrupt or insolvent, or makes an
assignment for the benefit of creditors; or (b) if a writ of attachment or
execution is levied on this Lease; or (c) if in any proceeding or action to
which Tenant
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is a party, a receiver is appointed with authority to take possession of
the Premises. An involuntary assignment shall constitute a default by
Tenant and Landlord shall have the right to elect to terminate this Lease,
in which case this Lease shall not be treated as an asset of Tenant.
20. DEFAULT.
The occurrence of any of the following shall constitute a default by
Tenant: (a) a failure to pay Rent or other charge when due; provided that
Landlord shall not exercise any of its rights under this Section 20(a)
until Landlord has given Tenant notice of such default and a cure period of
three (3) days from receipt of such notice, and Tenant has failed to pay
such rent or other charge within such cure period; (b) abandonment and
vacation of the Premises (failure to occupy and operate the Premises for
ten consecutive days while in monetary default under this Lease shall be
conclusively deemed an abandonment and vacation) or (c) failure to perform
any other provision of this Lease, provided that Landlord shall not
exercise any of its rights under this Section 20(c) until Landlord has
given Tenant notice of such default and a cure period of thirty (30) days
from receipt of such notice, and Tenant has failed to cure such default
within such cure period, provided further that if more than thirty (30)
days are required to complete such performance, the cure period shall not
be deemed to have run so long as Tenant commences to cure such default
within the thirty (30) day period and thereafter diligently pursues its
completion. The notice required by this Section is intended to satisfy any
and all notice requirements imposed by law on Landlord and is not in
addition to any such requirement.
21. LANDLORD'S REMEDIES.
Landlord shall have the following remedies if Tenant is in default. (These
remedies are not exclusive; they are cumulative and in addition to any
remedies now or later allowed by law): Landlord may terminate Tenant's
right to possession of the Premises at any time. No act by Landlord other
than giving notice to Tenant shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises, or the appointment of a
receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession.
Upon termination of Tenant's right to possession, Landlord has the right to
recover from Tenant: (1) the worth of the unpaid Rent that had been earned
at the time of termination of Tenant's right to possession; (2) the net
present value of the amount of the unpaid Rent that would have been earned
after the date of termination of Tenant's right to possession; (3) any
other amount, including but not limited to, expenses incurred to relet the
Premises, court, attorney and collection costs, necessary to compensate
Landlord for all detriment caused by Tenant's default, provided that in no
event shall Landlord recover more damages than the actual monetary losses
incurred by Landlord as a result of Tenant's default.
23. ENTRY ON PREMISES.
Landlord and its authorized representatives shall have the right to enter
the Premises at all reasonable times with reasonable notice except in cases
of emergency for any of the following purposes: (a) to determine whether
the Premises are in good condition and whether Tenant is complying with its
obligations under this Lease; (b) to do any necessary maintenance and to
make any restoration to the Premises or the Project that Landlord has the
right or obligation to perform; (c) to post "for sale" signs at any time
during the term, to post "for rent" or "for lease" signs during
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<PAGE>
the last 90 days of the term, or during any period while Tenant is in
default; (d) to show the Premises to prospective brokers, agents, buyers,
tenants or persons interested in leasing or purchasing the Premises, at any
time during the term; or (e) to repair, maintain or improve the Project and
to erect scaffolding and protective barricades around and about the
Premises but not so as to prevent entry to the Premises and to do any other
act or thing necessary for the safety or preservation of the Premises or
the Project. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance or other damage
arising out of Landlord's entry onto the Premises as provided in this
Section 22, provided only that this release shall not apply to physical
damage to persons or property to the extent caused by Landlord's gross
negligence or willful misconduct. Tenant shall not be entitled to an
abatement or reduction of Rent if Landlord exercises any rights reserved in
this Section 22. Landlord shall conduct his activities on the Premises as
provided herein in a commercially reasonable manner so as to limit
inconvenience, annoyance or disturbance to Tenant to the maximum extent
practicable. For each of these purposes, Landlord shall at all times have
and retain a key with which to unlock all the doors in, upon and about the
Premises, excluding Tenant's vaults and safes. Tenant shall not alter any
lock or install a new or additional lock or bolt on any door of the
Premises without prior written consent of Landlord. If Landlord gives its
consent, Tenant shall furnish Landlord with a key for any such lock.
23. SUBORDINATION.
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, and at the election of
Landlord or any mortgagee or any beneficiary of a Deed of Trust with a lien
on the Project or any ground lessor with respect to the Project, this Lease
shall be subject and subordinate at all times to (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting
the Project, and (b) the lien of any mortgage or deed of trust which may
now exist or hereafter be executed in any amount for which the Project,
ground leases or underlying leases, or Landlord's interest or estate in any
of said items is specified as security. In the event that any ground lease
or underlying lease terminates for any reason or any mortgage or Deed of
Trust is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any subordination, attorn to and
become the Tenant of the successor in interest to Landlord, at the option
of such successor in interest. Tenant covenants and agrees to execute and
deliver, upon demand by Landlord and in the form requested by Landlord any
additional documents evidencing the priority or subordination of this Lease
with respect to any such ground lease or underlying leases or the lien of
any such mortgage or Deed of Trust. Tenant hereby irrevocably appoints
Landlord as attorney-in-fact of Tenant to execute, deliver and record any
such document in the name and on behalf of Tenant.
Tenant, within ten days from notice from Landlord, shall execute and
deliver to Landlord, in recordable form, certificates stating that this
Lease is not in default, is unmodified and in full force and effect, or in
full force and effect as modified, and stating the modifications. This
certificate should also state the amount of current monthly Rent, the dates
to which Rent has been paid in advance, and the amount of any security
deposit and prepaid Rent. Failure to deliver this certificate to Landlord
within ten days shall be conclusive upon Tenant that this Lease is in full
force and effect and has not been modified except as may be represented by
Landlord.
-18-
<PAGE>
24. NOTICE.
Any notice, demand or request required hereunder shall be given in writing
to the party's facsimile number or address set forth in Section 1 hereof by
any of the following means: (a) personal service; (b) electronic
communication, whether by telex, telegram or facsimile; (c) overnight
courier; or (d) registered or certified, first class mail, return receipt
requested. Such addresses may be changed by notice to the other parties
given in the same manner as above provided. Any notice, demand or request
sent pursuant to either subsection (a) or (b) hereof shall be deemed
received upon such personal service or upon dispatch by electronic means
with electronic confirmation of receipt. Any notice, demand or request sent
pursuant to subsection (c) hereof shall be deemed received on the business
day immediately following deposit with the overnight courier and, if sent
pursuant to subsection (d), shall be deemed received forty-eight (48) hours
following deposit in the U.S. mail.
25. WAIVER.
No delay or omission in the exercise of any right or remedy by Landlord
shall impair such right or remedy or be construed as a waiver. No act or
conduct of Landlord, including without limitation, acceptance of the keys
to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the term. Only written notice
from Landlord to Tenant shall constitute acceptance of the surrender of the
Premises and accomplish termination of the Lease. Landlord's consent to or
approval of any act by Tenant requiring Landlord's consent or approval
shall not be deemed to waive or render unnecessary Landlord's consent to or
approval of any subsequent act by Tenant. Any waiver by Landlord of any
default must be in writing and shall not be a waiver of any other default
concerning the same or any other provision of the Lease. TENANT
SPECIFICALLY ACKNOWLEDGES AND AGREES THAT, WHERE TENANT HAS RECEIVED A
NOTICE TO CURE DEFAULT (WHETHER RENT OR NON-RENT), NO ACCEPTANCE BY
LANDLORD OF RENT SHALL BE DEEMED A WAIVER OF SUCH NOTICE, AND, INCLUDING
BUT WITHOUT LIMITATION, NO ACCEPTANCE BY LANDLORD OF PARTIAL RENT SHALL BE
DEEMED TO WAIVE OR CURE ANY RENT DEFAULT. LANDLORD MAY, IN ITS DISCRETION,
AFTER RECEIPT OF PARTIAL PAYMENT OF RENT, REFUND SAME AND CONTINUE ANY
PENDING ACTION TO COLLECT THE FULL AMOUNT DUE, OR MAY MODIFY ITS DEMAND TO
THE UNPAID PORTION. IN EITHER EVENT THE DEFAULT SHALL BE DEEMED UNCURED
UNTIL THE FULL AMOUNT IS PAID IN GOOD FUNDS.
26. SURRENDER OF PREMISES; HOLDING OVER.
Upon expiration of the term, Tenant shall surrender to Landlord the
Premises and all Tenant improvements and alterations in good condition,
except for ordinary wear and tear and alterations Tenant has the right or
is obligated to remove under the provisions of Section 14 herein. Tenant
shall remove all personal property including, without limitation, all data
and phone wires, wallpaper, paneling and other decorative improvements or
fixtures and shall perform all restoration made necessary by the removal of
any alterations or Tenant's personal property before the expiration of the
term, including for example, restoring all wall surfaces to their condition
prior to the commencement of this Lease. Landlord can elect to retain or
dispose of in any manner Tenant's personal property not removed from the
Premises by Tenant prior to the expiration of the term. Tenant waives all
claims against Landlord for any damage to Tenant resulting from Landlord's
-19-
<PAGE>
retention or disposition of Tenant's personal property. Tenant shall be
liable to Landlord for Landlord's cost for storage, removal or disposal of
Tenant's personal property.
If Tenant, with Landlord's consent, remains in possession of the Premises
after expiration or termination of the term, or after the date in any
notice given by Landlord to Tenant terminating this Lease, such possession
by Tenant shall be deemed to be a month-to-month tenancy terminable as
provided under Washington law, by either party. All provisions of this
Lease, except those pertaining to term and Rent, shall apply to the month-
to-month tenancy. During any holdover term, Tenant shall pay Base Monthly
Rent in an amount equal to 125% of Base Monthly Rent for the last full
calendar month during the regular term plus 100% of Tenant's share of
Expenses pursuant to Section 4.c.3.
27. LIMITATION OF LANDLORD'S LIABILITY.
In consideration of the benefits accruing hereunder, Tenant agrees that, in
the event of any actual or alleged failure, breach or default of this Lease
by Landlord, Landlord's liability under this Lease shall be limited to, and
Tenant shall look only to Landlord interest in the Project and the rents
and proceeds thereof.
28. MISCELLANEOUS PROVISIONS.
a. TIME OF ESSENCE. Time is of the essence of each provision of this
Lease.
b. SUCCESSOR. This Lease shall be binding on and inure to the benefit of
the parties and their successors, except as provided in Section 19
herein.
c. LANDLORD'S CONSENT. Any consent required by Landlord under this
Lease must be granted in writing and may be withheld or conditioned by
Landlord in its sole and absolute discretion except as otherwise
expressly provided in this lease.
d. COMMISSIONS. Each party represents that it has not had dealings with
any real estate broker, finder or other person with respect to this
Lease in any manner, except for the broker identified in Section 1,
who shall be compensated by Tenant. Landlord and Tenant recognize
that it is possible that they may hereafter make additional agreements
regarding further extension or renewal of this Lease or a new lease or
leases for all or one or more parts of the Premises or other space in
the Project for a term or terms commencing after the Commencement Date
of this Lease. Landlord and Tenant recognize that it is also possible
that they may hereafter modify this Lease to add additional space or
to substitute space as part of the Premises. If any such additional
agreements, new leases or modifications to this Lease are made,
Landlord shall not have any obligation to pay any compensation to any
real estate broker or to any other third person engaged by Tenant to
render services to Tenant in connection with negotiating such matters,
regardless of whether under the circumstances such person is or is not
regarded by the law as an agent of Landlord.
e. OTHER CHARGES. If either party commences any litigation against the
other party or files an appeal of a decision arising out of or in
connection with the Lease, the prevailing party shall be entitled to
recover from the other party reasonable attorney's fees and costs of
suit. If
-20-
<PAGE>
Landlord employs a collection agency to recover delinquent charges,
Tenant agrees to pay all collection agency and attorneys' fees charged
to Landlord in addition to Rent, late charges, interest and other sums
payable under this Lease. Tenant shall pay a charge of $75 to Landlord
for preparation of a demand for delinquent Rent.
f. FORCE MAJEURE. Landlord shall not be deemed in default hereof nor
liable for damages arising from its failure to perform its duties or
obligations hereunder if such is due to causes beyond its reasonable
control, including, but not limited to, acts of God, acts of civil or
military authorities, fires, floods, windstorms, earthquakes, strikes
or labor disturbances, civil commotion, delays in transportation,
governmental delays or war.
g. RULES AND REGULATIONS. Tenant shall faithfully observe and comply
with the "Rules and Regulations", a copy of which is attached hereto,
and all reasonable and nondiscriminatory modifications thereof and
additions thereto from time to time put into effect by Landlord.
Landlord shall not be responsible to Tenant for the violation or non-
performance by any other tenant or occupant of the building or Project
of said tenant or occupant's lease or of any of said Rules and
Regulations.
h. LANDLORD'S SUCCESSORS. In the event of a sale or conveyance by
Landlord of the Project, the same shall operate to release Landlord
from any liability under this Lease, and in such event Landlord's
successor in interest shall be solely responsible for all obligations
of Landlord under this Lease.
i. INTERPRETATION. This Lease shall be construed and interpreted in
accordance with the laws of the state in which the premises are
located. This Lease constitutes the entire agreement between the
parties with respect to the Premises and the Project, except for such
guarantees or modifications as may be executed in writing by the
parties from time to time. When required by the context of this
Lease, the singular shall include the plural, and the masculine shall
include the feminine and/or neuter. "Party" shall mean Landlord or
Tenant. If more than one person or entity constitutes Landlord or
Tenant, the obligations imposed upon that party shall be joint and
several. The enforceability, invalidity or illegality of any
provision shall not render the other provisions unenforceable, invalid
or illegal.
j. CLEAN AIR ACT. Tenant acknowledges that Landlord has not made any
portion of the Premises or the Building accessible for smoking in
compliance with WAC 296-62-12000. If Tenant wishes to make any
portion of the Premises accessible for smoking, Tenant shall make all
improvements necessary to comply with all applicable governmental
rules and regulations. Tenant acknowledges that the indemnity
contained in Section 15 of the Lease includes, but is not limited to
claims based on the presence of tobacco smoke as a result of the
activities of Tenant, its employees, agents, or guests.
29. TERMINATION OF EXISTING LEASE.
Tenant currently leases space from Landlord located at 8424 154th Avenue
N.E, Redmond, Washington, pursuant to a Lease dated August 28, 1996 (the
"Existing Lease"). On the Completion Date of this Lease, the Existing Lease
shall terminate as by expiration of its term and subject to all
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<PAGE>
of the restoration obligations (including removal of telephone and computer
wiring), security deposit accounting, and the like attendant on expiration
of the term of the Existing Lease.
30. OPTION TO RENEW.
Tenant is granted the right to extend the term of this Lease beyond the
expiration date of the initial Lease Term for one (1) successive period of
sixty (60) months (the "Extended Term") with six (6) months prior written
notice to Landlord. If Tenant has defaulted in its obligations under this
Lease, and failed to cure such defaults within any applicable cure period,
then Tenant's right to extend the Lease for the Extended Term shall
automatically terminate. Tenant's right to extend the Lease for the
Extended Term is personal to Tenant and may not be exercised by any
subtenant or assignee of Tenant. Tenant's extension rights apply to all of
the Property under lease to Tenant a the time. From and after the
commencement of the Extended Term, all of the terms, covenants and
conditions of the Lease shall continue in full force and effect as written,
except that Base Rent for the Extended Term shall be at the then-prevailing
market rate for new leases for similarly improved and situated premises in
the Project, but not less than the last month of the then current term.
31. RIGHT OF FIRST OPPORTUNITY.
This Right of First Opportunity shall apply to the area shown in double
crosshatching on Exhibit A hereto and labeled "Expansion Space." At such
time as Landlord intends to offer all or part of the Expansion Space for
lease, Landlord shall so notify Tenant, which notice shall include the
terms (rate, term, etc.) on which Landlord intends to offer the Expansion
Space or part thereof (the "Offered Space"). If Landlord is offering a
portion of the Expansion Space in conjunction with other, adjacent space,
Landlord may designate the entirety of such offered space as the Offered
Space. Tenant shall have three (3) business days from receipt of such
notice to notify Landlord that Tenant agrees to enter into a lease for the
Offered Space on the terms stated in Landlord's notice or to enter into a
lease for the Offered Space on such other terms as may be mutually
agreeable to Landlord and Tenant in their sole discretion. If Tenant does
not enter into a lease for the Offered Space as provided in the proceeding
sentence, this Right of First Opportunity shall immediately and without
further action by Landlord terminate in its entirety. This Right of First
Opportunity shall be exercisable by Tenant only if Tenant is in possession
of the Premises under this Lease and is not then nor has ever been in
default under this Lease. Notwithstanding any other provision of this
Section, this Right of First Opportunity shall expire at the expiration of
the initial term of this Lease.
32. LETTER OF CREDIT.
As security for Tenant's performance of its obligations under this Lease,
and in consideration for Landlord's agreement to pay the Tenant Allowance
as provided in the Work Letter Agreement and to enter into this Lease,
Tenant shall, upon full execution of this Lease, provide Landlord an
irrevocable letter of credit in the amount of One Hundred Eighty Two
Thousand Dollars ($182,000) in form and content attached hereto as Exhibit
G. The Letter of Credit shall be reduced by Thirty-Six Thousand Dollars
($36,000) at the end of each year of the Term of the Lease, and shall
expire at the end of the Lease Term. Tenant shall pay all of the costs
associated with the Letter of Credit, including without limitation the
costs of renewal. The Letter of Credit shall be a separate contract between
Landlord and the issuing bank, provided
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<PAGE>
that Landlord shall not draw upon the Letter of Credit unless Tenant is in
default under this Lease beyond the applicable Section 20 cure period.
Landlord: TIAA REALTY INC., a Delaware corporation
----------------------------------------
By: Teachers Insurance and Annuity Association
of America, a New York Corporation, its
authorized representative.
By: /s/ James Garofalo
-------------------
James Garofalo
Its: Assistant Secretary
-------------------
Tenant: Infospace, Inc., a Delaware corporation
---------------------------------------
By: /s/ Naveen Jain
---------------
Naveen Jain
Its: President
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<PAGE>
STATE OF New York )
)ss.
COUNTY OF New York )
I certify that I know or have satisfactory evidence that James Garofalo
--------------
is the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledge it as the Assistant Secretary of Teachers Insurance &
-------------------- --------------------
Annuity Association to be the free and voluntary act of such party for the uses
- -------------------
and purposes mentioned in the instrument.
Dated: 7-17-98 . /s/ Deborah A. Reese
---------------- --------------------------------------------------
(Signature)
Deborah A. Reese
--------------------------------------------------
(Print Name)
Notary Public, in and for the State
of New York , residing at Queens
-------- ---------------------
My Commission Expires 1-20-00
----------------------------
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<PAGE>
STATE OF Washington )
)ss.
COUNTY OF King )
I certify that I know or have satisfactory evidence that Naveen Jain is the
-----------
person who appeared before me, and said person acknowledged that he/she signed
this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledge it as the President of
------------------------------
Infospace, Inc. to be the free and voluntary act of such party for the
- -----------------------
uses and purposes mentioned in the instrument.
Dated: 7-18-98 . /s/ Linda L. Brandt
------------- ------------------------------------------------
(Signature)
Linda L. Brandt
------------------------------------------------
(Print Name)
Notary Public, in and for the State of Washington,
residing at Redmond
-------------------------------------
My Commission Expires 9/25/99
--------------------------
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<PAGE>
EXHIBIT A
(THE PREMISES)
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<PAGE>
EXHIBIT B
(THE PROJECT)
Cross hatched area denotes Project.
LEGAL DESCRIPTION: (Building 1/2)
Lot 1 of Pacific Business and Technical Center, a Binding Site Plan, as
recorded in Volume 134 of Plats, Pages 17 through 22, records of King County,
Washington, under Recording No.
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<PAGE>
EXHIBIT C
TENANT SIGN CRITERIA
The following signage criteria have been established for the purpose of
allowing sufficient business identification for businesses locating within
WestPark and Pacific Business & Technical Center. The criteria have also been
established for the purpose of maintaining the overall appearance by providing
maximum continuity with the environment and an architectural integration with
the project. The signage guidelines are in accordance with the Redmond
Community Development Code, Section 20c.20.230. No deviation from these
criteria will be permitted without Landlord's and City of Redmond's prior
written approval. Conformity will be strictly enforced. Any sign installed
without approval of the Landlord will be brought into conformance at the expense
of the Tenant.
REQUIREMENTS
------------
I. EXTERIOR SIGNAGE, BUILDINGS 1 - 10 AND A - P
--------------------------------------------
1. Landlord shall provide the following signage at no cost to Tenant:
a) Tenant's name and suite number on all exterior project directories
and one (1) mailbox.
b) Tenant's suite number on front entry transom glass.
c) Tenant's name and suite number on rear transom glass where
applicable.
2. Method of attachment, location, color and size shall be in standard
conformance as determined by Landlord and shall be approved by
Landlord and City of Redmond prior to installation.
3. Tenant shall have one (1) exterior sign per leased premises. No
additional exterior signage shall be allowed on the face of the
structure.
4. Tenant shall be responsible for coordinating the construction,
installation and payment of building mounted company signs through
Landlord's approved vendor.
5. With the submittal of each set of construction drawings for tenant
improvements, a request for approval to add the tenant's name to the
building shall be made.
6. If no tenant improvements are required, tenant shall submit copy of
exterior signage layout to Landlord for final approval prior to
submitting to City for permit process.
7. No signage is allowed except for Tenant's company name who Leases
premises.
A. PACIFIC BUSINESS & TECHNICAL CENTER, BUILDING 1-2
-------------------------------------------------
1. The signage shall be located on the facade as designated by the
Landlord. The designated facade will encompass the Tenant's
space per attached approved drawings.
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<PAGE>
2. The letters for each tenant shall be 12" maximum, dimensional
foam letters. All signs shall be painted a uniform color, either
black or a color to match the building trim color. The letters
will be mounted with adhesive directly to the building surface.
Maximum sign coverage will not exceed 25 square feet. Maximum
overall length not to exceed 12.5 feet. Maximum overall height
not to exceed 24 inches. Tenant signage may contain no more than
two rows of information provided that the total sign area of 25
square feet is not exceeded and the number of rows of information
presents a professional appearance. All signage must be
submitted to Landlord for Landlord's approval.
3. Logos separate from lettering may be allowed and if so allowed
shall not exceed 24 inches by 24 inches, to be included within
------
the 25 square feet allowed in item Two (2) of this Section. All
logos must be submitted to Landlord for Landlord's approval..
5. All wall signage to be installed between panel joints. All signs
installed at first floor level shall be at same height. All
signs installed at second floor level shall be at same height.
6. Compliance with above criteria shall be effective immediately for
all new Tenants. Current Tenants shall comply no later than
September 30, 1994.
B. PACIFIC BUSINESS & TECHNICAL CENTER, BUILDINGS 3 - 10
-----------------------------------------------------
1. Building mounted company signage shall consist of individual 9"
or less high dimensional styrofoam letters in a type style of
Helvetica Medium upper and/or lower case, painted to match
building trim as may be changed from time to time by Landlord.
Maximum line length shall not exceed 10 feet. Maximum of two (2)
lines or 20 square feet over tenant's entrance door.
C. WESTPARK, BUILDINGS A - P
-------------------------
In accordance with the previously established and adopted sign program
for WestPark, the following specifications outline more specifically the
nature of the intended signage.
1. Tenants' names will be limited to the upper facade of the
individual tenant space. First-floor-only tenants may locate
signage over main entry doors where possible and with Landlord's
written approval. Tenants on the second floor and 2-story
tenants shall locate signage on the panel designated by Landlord.
2. The letters for each tenant shall be 12" maximum, dimensional
foam letters painted of a color approved by the Landlord. The
letters will be mounted with adhesive directly to the building
surface. Maximum sign coverage will not exceed 25 square feet.
Maximum overall length not to exceed 12.5 feet. Maximum overall
height not to exceed 24 inches. Tenant signage may contain no
more than two rows of information provided that the total sign
area of 25 square feet is not exceeded and the number of rows of
information presents a
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<PAGE>
professional appearance. All signage must be submitted to
Landlord for Landlord's approval.
3. Logos separate from lettering may be allowed and shall not exceed
24 inches by 24 inches, to be included within the 25 square feet
------
allowed in item Two (2) of this Section. All logos must be
submitted to Landlord for Landlord's approval.
II. OTHER SPECIFICATIONS, BUILDINGS 1 - 10 AND A - P
------------------------------------------------
A. DIRECTORY
---------
1. Each Tenant shall be allowed a space on the building directory
sign, if applicable.
2. Method of attachment, location, color and size shall be in
standard conformance and shall be solely up to the Landlord's
approval.
B. MEZZANINE TENANTS
-----------------
1. Each mezzanine Tenant shall be allowed a space on the entry sign
located at the building lobby, if applicable, and signage on
their individual entrance door.
C. WINDOW GRAPHICS
---------------
1. The Tenant sign order attached provides the window sign
guidelines. The signs will be located on the window closest to
the front door. The copy color shall be white. Logo style and
color to be approved by Landlord and City of Redmond.
2. The style, color and size of the individual company's name shall
be standard and in conformance with the Landlord's approval.
Landlord reserves the right to modify window signage design based
on Tenant's corporate type style and/or format. (See attached
sign order).
3. No electrical or audible signs will be permitted except those
which presently exist in project or which may be required by the
Americans With Disabilities Act.
4. Except as provided herein, no advertising placards, banners,
pennants, names, insignia trademarks, "sandwich boards" or other
descriptive material shall be affixed or maintained upon the
glass, exterior walls, landscaped areas, street, or parking
areas.
The following is an example of a standard layout for window
identification graphics for WestPark and Pacific Business & Technical
Center and WestPark. NOTE: the
----
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<PAGE>
example is a flush-left layout. Your layout may not be flush left
depending on the position of your window .
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------
36"
------------------------
[CB/KOLL] --------- 8"
[__] LOGO
[_______] TENANT NAME
SUB COMPANY
[_______]
CB/KOLL MANAGEMENT SERVICES
LEASING OFFICE
ALL COPY IN WHITE ALL COPY IN WHITE
- --------------------------------------------------------------------------------------
</TABLE>
(LOGO SYMBOL IN COLOR, ALL OTHER COPY MUST BE IN WHITE:)
(IF NO ARTWORK PROVIDED, HELVETICA MEDIUM TYPE WILL BE USED:)
REGARDING THE 11" X 36" TENANT I.D. ZONE:
IF THE TENANT'S NAME OR LOGOTYPE WILL FIT ON:
1 LINE, THEN MAXIMUM LETTER HEIGHT ALLOWED IS 8"
2 LINES, THEN MAXIMUM LETTER HEIGHT ALLOWED IS 5"
3 LINES, THEN MAXIMUM LETTER HEIGHT ALLOWED IS 3"
-31-
<PAGE>
EXHIBIT D
PREMISES CONDITION
BLDG/UNIT: 1/2 - 15375
-----------
QUANTITY AND/OR SIZE
HEIGHT, LENGTH, ETC.
ITEM:
XX STANDARD IMPROVEMENTS ONLY
----
STANDARD IMPROVEMENTS PLUS THOSE SHOWN BELOW
----
PARTITIONS: NA
CEILINGS: NA
DOORS: NA
FLOOR COVERING: NA
PLUMBING: NA
LIGHTS: NA
SWITCHES: NA
WALL ELECTRICAL OUTLETS: NA
TELEPHONE OUTLETS: NA
AIR CONDITIONING OR VENT FAN: NA
AIR CONDITIONING HOOK UP: NA
WATER HEATER: NA
PAINTING: NA
SIGNAGE: Landlord to provide allowance of $500.00 for building standard
signage.
OTHER: All remaining improvements shall be as approved and required by
Landlord and referenced on Exhibit F.
INITIAL
Lessor:__________
Lessee:__________
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EXHIBIT E
(RULES AND REGULATIONS)
1. Except as specifically provided in the Lease to which these Rules and
Regulations are attached, no sign, placard, picture, advertisement, name or
notice shall be installed or displayed on any part of the outside or inside
of the building or Project without the prior written consent of Landlord.
Landlord shall have the right to remove, at Tenant's expense and without
notice, any sign installed or displayed in violation of this rule. All
approved signs or lettering on doors and walls shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved by
Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens or
hanging plants or other similar objects attached to or used in connection
with any window or door of the Premises, or placed on any windowsill, which
is visible from the exterior of the Premises, Tenant shall immediately
discontinue such use. Tenant shall not place anything against or near
glass partitions or doors or windows which may appear unsightly from
outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances,
elevators, escalators or stairways of the Project. The halls, passages,
exits, entrances, shopping malls, elevators, escalators and stairways are
not open to the general public, but are open, subject to reasonable
regulations, to Tenant's business invitees. Landlord shall in all cases
retain the right to control and prevent access thereto of all persons whose
presence in the judgment of Landlord would be prejudicial to the safety,
character, reputation and interest of the Project and its tenants; provided
that nothing herein contained shall be construed to prevent such access to
persons with whom any tenant normally deals in the ordinary course of its
business, unless such persons are engaged in illegal or unlawful
activities. No tenant and no employee or invitee of any tenant shall go
upon the roof(s) of the Project.
4. The directory of the building or Project will be provided exclusively for
the display of the name and location of tenants only and Landlord reserves
the right to exclude any other names therefrom.
5. Landlord will furnish Tenant, free of charge, with three keys to each
entrance and exit door to the Premises. Landlord may make a reasonable
charge for any additional keys. Tenant shall not make or have made
additional keys, and Tenant shall not alter any lock or install a new
additional lock or bolt on any door of its Premises. Tenant, upon the
termination of its tenancy, shall deliver to Landlord the keys of all doors
which have been furnished to Tenant, and in the event of loss of any keys
so furnished, shall pay Landlord therefor.
6. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions
in their installation.
7. Tenant shall not place a load upon any floor of the Premises which exceeds
the load per square foot which such floor was designed to carry and which
is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or
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other property brought into the building. Heavy objects shall, if
considered necessary by Landlord, stand on such platforms as determined by
Landlord to be necessary to properly distribute the weight, which platforms
shall be provided at Tenant's expense. Business machines and mechanical
equipment belonging to Tenant, which cause noise or vibration that may be
transmitted to the structure of the building or to any space therein to
such a degree as to be objectionable to Landlord or to any tenants in the
building, shall be placed and maintained by Tenant, at Tenant's expense, on
vibration eliminators or other devices sufficient to eliminate noise or
vibration. The persons employed to move such equipment in or out of the
building must be acceptable to Landlord. Landlord will not be responsible
for loss of, or damage to, any such equipment or other property from any
cause, and all damage done to the building by maintaining or moving such
equipment or other property shall be repaired at the expense of Tenant.
8. Tenant shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Premises any foul or
noxious gas or substance, or permit or allow the Premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants
of the building by reason of noise, odors or vibrations, nor shall Tenant
bring into or keep in or about the Premises any birds or animals.
9. Tenant shall not use any method of heating or air conditioning other than
that supplied by Landlord.
10. Tenant shall not waste electricity, water or air conditioning and agrees to
cooperate fully with Landlord to assure the most effective operation of the
building's heating and air conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Tenant has actual notice,
and shall refrain from attempting to adjust controls. Tenant shall keep
corridor doors closed, and shall close window coverings at the end of each
business day.
11. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the building.
12. Landlord reserves the right to exclude from the building between the hours
of 6 p.m. and 7 a.m. the following day, or such other hours as may be
established from time to time by landlord, and on Sundays and legal
holidays, any person unless that person is known to the person or employee
in charge of the building and has a pass or is property identified. Tenant
shall be responsible for all persons for whom it requests passes and shall
be liable to Landlord for all acts of such persons. Landlord shall not be
liable for damages for any error with regard to the admission to or
exclusion from the building of any person. Landlord reserves the right to
prevent access to the building in case of invasion, mob, riot, public
excitement or other commotion by closing the doors or by other appropriate
action.
13. Tenant shall close and lock the doors of its Premises and entirely shut off
all water faucets or other water apparatus, and electricity, gas or air
outlets before tenant and its employees leave the Premises. Tenant shall
be responsible for any damage or injuries sustained by other tenants or
occupants of the building or by Landlord for noncompliance with this rule.
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14. Overnight parking is prohibited and any vehicle violating this or any other
vehicle regulation adopted by Landlord is subject to removal at the owner's
expense.
15. Tenant shall not obtain for use on the Premises ices, drinking water, food,
beverage, towel or other similar services or accept barbering or
bootblacking service upon the Premises, except at such hours and under such
regulations as may be fixed by Landlord.
16. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed
and no foreign substance of any kind whatsoever shall be thrown therein.
The expense of any breakage stoppage or damage resulting from the violation
of this rule shall be borne by the tenant who, or whose employees or
invitees, shall have caused it.
17. Tenant shall not sell, or permit the sale at retail of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise
to the general public in or on the Premises. Tenant shall not make any
room-to-room solicitation of business from other tenants in the Project.
Tenant shall not use the Premises for any business or activity other than
that specifically provided for in Tenant's Lease.
18. Tenant shall not install any radio or television antenna, loudspeaker or
other devices on the roof(s) or exterior walls of the building or Project.
Tenant shall not interfere with radio or television broadcasting or
reception from or in the Project or elsewhere.
19. Tenant shall not mark, drive nails, screw or drill into the partitions,
woodwork or plaster or in any way deface the Premises or any part thereof,
except in accordance with the provisions of the Lease pertaining to
alterations. Landlord reserves the right to direct electricians as to
where and how telephone and telegraph wires are to be introduced to the
Premises. Tenant shall not cut or bore holes for wires. Tenant shall not
affix any floor covering to the floor of the Premises in any manner except
as approved by Landlord. Tenant shall repair any damage resulting from
noncompliance with this rule.
20. Tenant shall not install, maintain or operate upon the Premises any vending
machines without the written consent of Landlord.
21. Canvassing, soliciting and distribution of handbills or any other written
material, and peddling in the Project are prohibited, and Tenant shall
cooperate to prevent such activities.
22. Landlord reserves the right to exclude or expel from the Project any person
who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the Rules and Regulations
of the Building.
23. Tenant shall store all its trash and garbage within its premises or in
other facilities provided by Landlord. Tenant shall not place in any trash
box or receptacle any material which cannot be disposed of in the ordinary
and customary manner of trash and garbage disposal. All garbage and refuse
disposal shall be made in accordance with directions issued from time to
time by Landlord.
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24. The Premises shall not be used for the storage of merchandise held for sale
to the general public, or for lodging or for manufacturing of any kind, nor
shall the Premises be used for any improper, immoral or objectionable
purpose. No cooking shall be done or permitted on the Premises without
landlord's consent, except that use by Tenant of Underwriters' Laboratory
approved equipment for brewing coffee, tea, hot chocolate and similar
beverages or use of microwave ovens for employees use shall be permitted,
provided that such equipment and use is in accordance with all applicable,
federal, state county and city laws, codes, ordinances, rules and
regulations.
25. Tenant shall not use in any space or in the public halls of the Project any
hand truck except those equipped with rubber tires and side guards or such
other material-handling equipment as Landlord may approve. Tenant shall
not bring any other vehicles of any kind into the building or Project.
26. Without the written consent of Landlord, Tenant shall not use the name of
the building or Project in connection with or in promoting or advertising
the business of Tenant except as Tenant's address.
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
28. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
29. Tenant's requirements will be attended to only upon appropriate application
to the Project management office by an authorized individual. Employees of
Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord, and no employee of
Landlord will admit any person (Tenant or otherwise) to any office without
specific instructions from Landlord.
30. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant
or any other tenant, nor prevent Landlord from thereafter enforcing any
such Rules and Regulations against any or all of the tenants of the
Project.
31. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of the Lease.
32. Landlord reserves the right to make such other and reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for safety
and security, for care and cleanliness of the Project and for the
preservation of good order therein. Tenant agrees to abide by all such
Rules and Regulations hereinabove stated and any additional rules and
regulations which are adopted.
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33. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and
guests.
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EXHIBIT F
WORK LETTER AGREEMENT
This Work Letter Agreement, is entered into as of the 14th day of July,
1998 by and between TIAA Realty, a Delaware corporation ("Landlord") and
InfoSpace, Inc., a Delaware corporation ("Tenant").
RECITALS:
A. Concurrently with the execution of this Work Letter Agreement,
Landlord and Tenant have entered into a lease (the "Lease") covering certain
premises (the "Premises") more particularly described in Exhibit "A" attached to
the Lease.
B. In order to induce Tenant to enter into the Lease (which is hereby
incorporated by reference to the extent that the provisions of this Work Letter
Agreement may apply thereto) and in consideration of the mutual covenants
hereinafter contained, Landlord and Tenant hereby agree as follows:
1. COMPLETION SCHEDULE
Within five (5) days after the execution of the Lease, Landlord shall
deliver to Tenant, for Tenant's review and approval, a schedule (the "Work
Schedule") setting forth a timetable for the planning and completion of the
installation of the Tenant Improvements to be constructed in the Premises, and
the Commencement Date for the term of the Lease. The Work Schedule shall set
forth each of the various items of work to be done by or approval to be given by
Landlord and Tenant in connection with the completion of the Tenant
Improvements. Such Schedule shall be submitted to Tenant for its approval and,
upon approval by both Landlord and Tenant, such Schedule shall become the basis
for completing the Tenant Improvement work.
2. TENANT IMPROVEMENTS
Reference herein to "Tenant Improvements" shall include all work to be done
in the Premises pursuant to the Tenant Improvement Plans described in Paragraph
3 below, including, but not limited to, partitioning, doors, ceilings, floor
coverings, wall finishes (including paint and wallcovering), electrical
(including lighting, switching, telephones, outlets, etc.), plumbing, heating,
ventilating and air conditioning, fire protection, cabinets and other millwork.
<PAGE>
3. TENANT IMPROVEMENT PLANS
Landlord and Tenant have agreed on a space plan and initial construction
drawings by Robert S. Miller, Landlord's architect, dated May 15, 1998. Based
upon such space plan and initial construction drawings, Robert S. Miller shall
prepare final working drawings and specifications for the Tenant Improvements.
Such final working drawings and specifications may be referred to herein as the
"Tenant Improvement Plans." The Tenant Improvement Plans must be consistent with
Landlord's standard specifications (the "Standards") for tenant improvements for
the Building, as the same may be changed from time to time by Landlord.
4. NON-STANDARD TENANT IMPROVEMENTS
Landlord shall permit Tenant to deviate from the Standards for the Tenant
Improvements; provided that (a) the deviations shall not be of a lesser quality
than the Standards; (b) the total lighting for the Premises shall not exceed
1.65 watts per rentable square foot; (c) the deviations conform to applicable
governmental regulations and necessary governmental permits and approvals have
been secured; (d) the deviations do not require building service beyond the
level normally provided to other tenants in the Building and do not overload the
floors; and (e) Landlord has reasonably determined that the deviations are of a
nature and quality that are consistent with the overall objectives of the
Landlord for the Building.
5. FINAL PRICING AND DRAWING SCHEDULE
Landlord shall cause its architect to prepare and submit to Tenant the
final working drawings and specifications referred to in Paragraph 3 hereof.
Such working drawings shall be approved by Landlord and Tenant in accordance
with the Work Schedule and shall thereafter be submitted to the appropriate
governmental body by Landlord's architect for plan checking and the issuance of
a building permit. Landlord, with Tenant's cooperation, shall cause to be made
any changes in the plans and specifications necessary to obtain the building
permit. Concurrent with the plan checking, Landlord shall have prepared a final
pricing for Tenant's approval, in accordance with the Work Schedule, taking into
account any modifications which may be required to reflect changes in the plans
and specifications required by the City or County in which the Premises are
located. After final approval of the working drawings, no further changes to the
Tenant Improvement Plans may be made without the prior written approval from
both Landlord and Tenant, and then only after agreement by Tenant to pay any
excess costs resulting from the design and/or construction of such changes.
Tenant hereby acknowledges that any such changes shall be subject to the terms
of Paragraph 8 hereof.
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<PAGE>
6. CONSTRUCTION OF TENANT IMPROVEMENTS
After the Tenant Improvement Plans have been prepared and approved, the
final pricing has been approved and a building permit for the Tenant
Improvements has been issued, Landlord shall enter into a construction contract
with its contractor for the installation of the Tenant Improvements in
accordance with the Tenant Improvement Plans. Landlord shall supervise the
completion of such work and shall use its best efforts to secure substantial
completion of the work in accordance with the Work Schedule. The cost of such
work shall be paid as provided in Paragraph 7 hereof. Landlord shall not be
liable for any direct or indirect damages as a result of delays in construction
beyond Landlord's reasonable control, including, but not limited to, acts of
God, inability to secure governmental approvals or permits, governmental
restrictions, strikes, availability of materials or labor or delays by Tenant
(or its architect or anyone performing services on behalf of Tenant).
7. PAYMENT OF COST OF THE TENANT IMPROVEMENTS
a. Landlord hereby grants to Tenant a "Tenant Allowance" of One Hundred
Eight-Two Thousand and no/100s Dollars ($182,000). Such Tenant Allowance shall
be used only for:
(1) Payment of the cost of preparing the space plan, the initial
construction drawings and the final working drawings and specifications,
including mechanical, electrical, plumbing and structural drawings and of all
other aspects of the Tenant Improvement Plans. The Tenant Allowance will not be
used for the payment of extraordinary design work not included within the scope
of Landlord's building standard improvements or for payments to any other
consultants, designers or architects other than Landlord's architect and/or
space planner.
(2) The payment of plan check, permit and license fees relating to
construction of the Tenant Improvements.
(3) Construction of the Tenant Improvements, including, without
limitation, the following:
(a) Installation within the Premises of all partitioning, doors,
floor coverings, ceilings, wall coverings and painting, millwork and similar
items.
(b) All electrical wiring, lighting fixtures, outlets and
switches, and other electrical work to be installed within the Premises.
(c) The furnishing and installation of all duct work, terminal
boxes, diffusers and accessories required for the completion of the heating,
ventilation
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and air conditioning systems within the Premises, including the cost of meter
and key control for after-hour air conditioning.
(d) Any additional Tenant requirements including, but not
limited to, odor control, special heating, ventilation and air conditioning,
noise or vibration control or other special systems.
(e) All fire and life safely control systems such as fire walls,
sprinklers, halon, fire alarms, including piping, wiring and accessories
installed within the Premises.
(f) All plumbing, fixtures, pipes and accessories to be
installed within the Premises.
(g) Testing and inspection costs.
(h) Contractor's fees, including but not limited to any fees
based on general conditions.
(4) All other costs to be expended by Landlord in the construction of
the Tenant Improvements, including those costs incurred by Landlord for
construction of elements of the Tenant Improvements in the Premises.
b. The cost of each item shall be charged against the Tenant Allowance.
In the event that the cost of installing the Tenant Improvements, as established
by Landlord's final pricing schedule, shall exceed the Tenant Allowance, or if
any of the Tenant Improvements are not to be paid out of the Tenant Allowance as
provided in Paragraph 7a above, the excess shall be paid or bonded by Tenant to
Landlord prior to the commencement of construction of the Tenant Improvements.
c. In the event that, after the Tenant Improvement Plans have been
prepared and a price therefore established by Landlord, Tenant shall require any
changes or substitutions to the Tenant Improvement Plans, any additional costs
in excess of the Tenant Allowance shall be paid by Tenant to Landlord prior to
the commencement of such work. Landlord shall have the right to decline Tenant's
request for a change to the Tenant Improvement Plans it such changes are
inconsistent with Paragraphs 3 and 4 above, or if the change would, in
Landlord's opinion, unreasonably delay construction of the Tenant Improvements.
d. In the event that the cost of the Tenant Improvements increases as set
forth in Landlord's final pricing due to the requirements of any governmental
agency, Tenant shall pay Landlord the amount of such increase within five (5)
days of
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Landlord's written notice; provided, however, that Landlord shall first
apply toward such increase any remaining balance in the Tenant Allowance.
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IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the date
first above written.
LANDLORD:
TIAA REALTY, INC., a Delaware corporation
By: Teachers Insurance and Annuity
Association of America, a New York
corporation, its authorized
representative
By: /s/ James Garofalo
---------------------------------------
James Garofalo
Assistant Secretary
TENANT:
INFOSPACE, INC., a Delaware corporation
By: /s/ Naveen Jain
---------------------------------------
Naveen Jain
Its: President
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EXHIBIT 10.5
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and effective
as of May 1, 1997, by and among InfoSpace, Inc., a Delaware corporation
("Purchaser"), John E. Richards, Peter S. Richards, John Enger and Alexander
Hutton Capital, L.L.C. (each, a "Seller" and together, the "Sellers").
WHEREAS, Purchaser and the Sellers have entered into a Membership Interest
Purchase Agreement, dated as of the date hereof (the "Membership Interest
Purchase Agreement"), providing for the purchase by Purchaser and the sale by
the Sellers of all of the issued and outstanding Membership Interest Units of
Yellow Pages on the Internet L.L.C., a Washington limited liability company (the
"Company");
WHEREAS, Purchaser and Sellers have entered into an Escrow Agreement, dated
as of the date hereof (the "Escrow Agreement"), providing for, among other
things, the disbursement of the Escrow Stock (as defined in the Membership
Interest Purchase Agreement);
WHEREAS, the closing pursuant to the Membership Interest Purchase Agreement
(the "Closing") is taking place concurrently with the execution and delivery of
this Registration Rights Agreement;
WHEREAS, upon the terms and subject to the conditions set forth in the
Membership Interest Purchase Agreement and the Escrow Agreement, the Sellers
hold shares of the Common Stock of Purchaser, and Purchaser and the Sellers have
agreed that this Agreement shall govern the rights of the Sellers to cause
Purchaser to register shares of Common Stock issuable to the Sellers and certain
other matters as set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants contained herein and for other valuable consideration receipt of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. Registration Rights.
2. Definitions. For purposes of this Agreement:
"Act" means the Securities Act of 1933, as amended.
The term "Form S-3" means such form under the Act as in effect on the date
hereof or any registration for under the Act subsequently adopted by the SEC
which
<PAGE>
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Register," "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the Act, and the declaration or ordering of effectiveness of the
registration statement or document.
"Registrable Securities" means (1) the Common Stock issued to the Sellers
in connection with the Membership Interest Purchase Agreement and (2) any Common
Stock of Purchaser issued as (or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as) a dividend or other
distribution with respect to, in exchange for or in replacement of, such Common
Stock, excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which such person's rights under this Agreement are
not assigned; provided, however, that shares of Common Stock or other securities
shall only be treated as Registrable Securities if and so long as they have not
been sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction.
The number of shares of "Registrable Securities then outstanding" shall be
determined by the number of shares of Common Stock outstanding that are, and the
number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities that are, Registrable Securities.
"Holder" means, with respect to Registrable Securities, or any person
owning or having the right to acquire Registrable Securities or any assignee
thereof in accordance with Section 1.9. Except as otherwise specified, the term
"Holder" means a Holder of Registrable Securities.
"SEC" means the United States Securities and Exchange Commission.
3. Purchaser Registration. If (but without any obligation to do so)
Purchaser proposes to register any of its Common Stock under the Act in
connection with the initial public offering of its Common Stock solely for cash,
Purchaser shall, at such time, promptly give the Holders written notice of such
registration. Upon the request of each Holder of Registrable Securities made
within 30 days after mailing of such notice by Purchaser in accordance with
Section 3.5, Purchaser shall, subject to the provisions of Section 1.6, cause to
be registered under the Act all of the Registrable Securities that such Holder
has requested to be registered.
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4. Obligations of Purchaser. When required under this Agreement to
effect the registration of any Registrable Securities, Purchaser shall, as
expeditiously as reasonably possible:
prepare and file with the SEC a registration statement with respect to the
Registrable Securities and use its best efforts to cause such registration
statement to become effective;
prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement;
furnish to the Holders such numbers of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them;
use its best efforts to register and qualify the securities covered by such
registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that
Purchaser shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions;
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such offering; and
each Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement;
notify each Holder of Registrable Securities covered by such registration
statement at any time when a prospectus relating thereto is required to be
delivered under the Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Agreement, (i) an opinion, dated such date,
of the counsel representing Purchaser for
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the purposes of such registration, in form and substance as is customarily given
to underwriters in an underwritten initial public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities and (ii) a letter dated such date, from the independent certified
public accountants of Purchaser, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
initial public offering, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities.
5. Obligations of Holders to Furnish Information. It shall be a
condition precedent to the obligations of Purchaser to take any action pursuant
to Article I of this Agreement with respect to the Registrable Securities of any
selling Holder that such Holder shall furnish to Purchaser such information
regarding itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be required under the Act to effect
the registration of such Holder's Registrable Securities.
6. Expenses of IPO Registration. Purchaser shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registration pursuant to Article I
of this Agreement for each Holder of Registrable Securities (which right may be
assigned as provided in Section 1.10), including (without limitation) all
registration, filing and qualification fees, printers and accounting fees
relating or apportionable thereto and the fees and disbursements of one counsel
for all holders of stock in Purchaser selling in such initial public offering,
including the selling Holders of Registrable Securities, selected by such
selling Holders, but excluding underwriting discounts and commissions relating
to Registrable Securities.
7. Underwriting Requirements. In connection with the initial public
offering of its Common Stock, Purchaser shall not be required under Article I of
this Agreement to include any of the Holders' securities in the underwriting
unless they accept the terms of the underwriting as agreed upon between
Purchaser and the underwriters selected by it, and then only in such quantity as
the underwriters determine in their sole discretion will not jeopardize the
success of the offering by Purchaser. If the total amount of securities,
including Registrable Securities, requested by stockholders to be included in
the offering exceeds the amount of securities sold other than by Purchaser that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then Purchaser shall be required to include in the
offering only that number of the securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering (the securities so included to be apportioned
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pro rata among the selling stockholders according to the total amount of
Registrable Securities by each selling stockholder or in the other proportions
as shall mutually be agreed to by the selling stockholders). For purposes of the
parenthetical clause concerning apportionment in the immediately preceding
sentence, for any selling stockholder that is a Holder of Registrable Securities
and that is a partnership or corporation, the partners, retired partners and
stockholders of such Holder (including spouses and ancestors, lineal descendants
and siblings of such partners, retired partners, stockholders or spouses who
have acquired Registrable Securities by gift, will or intestate succession) and
any trusts for the exclusive benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder," and any pro-rata reduction with
respect to such "selling stockholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.
8. Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying the registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of Article I of this Agreement.
9. Indemnification. In the event any Registrable Securities are included
in a registration statement under this Agreement:
To the extent permitted by law, Purchaser will indemnify and hold harmless
each Holder, any underwriter (as defined in the Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Act or the 1934 Act, against any losses, claims, damages or liabilities
(joint or several) to which they may become subject under the Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in the registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendment or supplement
thereto, (ii) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made, or
(iii) any violation or alleged violation by Purchaser of the Act, the 1934 Act,
any state securities law or any rule or regulation promulgated under the Act,
the 1934 Act or any state securities law; and Purchaser will pay to each such
Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by such Holder, underwriter or controlling person
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement
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<PAGE>
contained in this subsection 1.8(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of Purchaser (which consent shall not
be unreasonably withheld), nor shall Purchaser be liable in any such case for
any such loss, claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
To the extent permitted by law, each selling Holder will indemnify and hold
harmless Purchaser, each of its directors, each of its officers who has signed
the registration statement, each person, if any, who controls Purchaser within
the meaning of the Act, any underwriter, any other Holder selling securities in
the registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, the 1934 Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and such Holder will pay any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to this subsection
1.8(b) in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection 1.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such Holder, which consent shall
not be unreasonably withheld; and provided further, that in no event shall any
indemnity under this subsection 1.8(b) exceed the gross proceeds from such
offering received by such Holder.
Promptly after receipt by an indemnified party under this Section 1.8 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 1.8, give to the indemnifying party
notice of the commencement thereof, and such indemnifying party shall have the
right to participate in, and, to the extent such indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified
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<PAGE>
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by the counsel in the proceeding; and further
provided that Purchaser shall in no event be required to pay the fees and
expenses of more than one counsel for the Holders of Registrable Securities. The
failure to give notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to such indemnifying party's
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 1.8, but the omission so
to give notice to the indemnifying party will not relieve such indemnifying
party of any liability that it may have to any indemnified party otherwise than
under this Section 1.8.
The obligations of Purchaser and Holders of Registrable Securities under
this Section 1.8 shall survive the completion of the initial public offering of
Registrable Securities in a registration statement under Article I of this
Agreement or otherwise.
10. Form S-3 Registration.
In case Purchaser shall receive from any Holder or Holders a written
request or requests that Purchaser effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, Purchaser will:
promptly give written notice of the proposed registration, and any related
qualification or compliance, to all other Holders; and
as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from Purchaser; provided, however,
that Purchaser shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this section 1.9: (1) if Form S-3 is
not available for such offering by the Holders; (2) if the Holders, together
with the holders of any other securities of Purchaser entitled to inclusion in
such registration, propose to sell Registrable securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $250,000; (3) if Purchaser
shall furnish to the Holders a certificate signed by the President of Purchaser
stating that in the good faith judgment of the Board of Directors of Purchaser,
it would be seriously detrimental to Purchaser and its stockholders for such
Form S-3 Registration to be effected at such time, in which
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<PAGE>
event Purchaser shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 60 days after receipt of
the request of the Holder or Holders under this Section 1.9; provided, however,
that Purchaser shall not utilize this right more than once in any twelve month
period; (4) if Purchaser has, within the twelve (12) month period preceding the
dated of such request, already effected two registrations on Form S-3 for the
Holders pursuant to this Section 1.9; or (5) in any particular jurisdiction in
which Purchaser would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
Subject to the foregoing, Purchaser shall file a registration statement
covering the Registrable Securities and other securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Holders. All expenses incurred in connection with a registration requested
pursuant to Section 1.9, including (without limitation) all registration,
filing, qualification, printer's and accounting fees and the reasonable fees and
disbursements of counsel for the selling Holder or Holders and counsel for
Purchaser, shall be borne pro rata by the Holder or Holders participating in the
Form S-3 Registration.
11. Assignment of Registration Rights. The rights to cause Purchaser to
register Registrable Securities pursuant to this Agreement may be assigned (but
only with all related obligations) by a Holder of such Registrable Securities to
a transferee or assignee of not fewer than one hundred thousand (100,000) shares
of such Registrable Securities (as appropriately adjusted from time to time for
stock splits and the like), provided that Purchaser is, within a reasonable time
after such transfer, furnished with written notice of the name and address of
the transferee or assignee and the securities with respect to which such
registration rights are being assigned, and provided, further, that such
assignment shall be effective only if immediately following the transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, the holdings of
transferees and assignees of a partnership or corporation who are partners,
retired partners or stockholders of such partnership or corporation (including
spouses and ancestors, lineal descendants and siblings of such partners, retired
partners, stockholders or spouses who have acquired Registrable Securities by
gift, will or intestate succession) or trusts for the exclusive benefit of any
of the foregoing shall be aggregated together and with such partnership;
provided, however, that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single attorney-
in-fact for the purpose of exercising any rights, receiving notices or taking
any action under this Agreement.
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<PAGE>
12. "Market Stand-Off" Agreement. Each Holder hereby agrees that, during
such period, not to exceed 180 days, following the effective date of a
registration statement of Purchaser filed under the Act as may be specified by
Purchaser and an underwriter of common stock or other securities of Purchaser,
such Holder shall not, to the extent requested by Purchaser and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of Purchaser held by it at any time during such period
except Common Stock included in the registration; provided, however, that the
officers and directors of Purchaser holding securities of Purchaser and any
other holders of securities with registration rights shall enter into similar
market stand-off agreements. In order to enforce the foregoing covenant,
Purchaser may impose stop-transfer instructions with respect to the Registrable
Securities (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
13. Termination of Registration Rights. No Holder shall be entitled to
exercise any registration right provided for in this Article I (other than
rights provided for in Section 1.8) after 3 years following the consummation of
the sale of securities pursuant to a registration statement filed by Purchaser
under the Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
14. Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, Purchaser shall not, without the prior written consent
of the Holders of a majority of the Registrable Securities, enter into any
agreement with any holder or prospective holder of the securities of Purchaser
which would allow such holder or prospective holder to (i) require Purchaser to
effect a registration or (ii) include any securities in any registration filed
under Section 1.2, unless, under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of such securities will not diminish the amount of
Registrable Securities which are included in such registration.
15. Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, Purchaser
agrees to use its best efforts to:
make and keep public information available, as those terms are understood
and defined in Rule 144 promulgated by the SEC under the Act or any similar
analogous
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<PAGE>
rule promulgated under the Act, at all times after the effective date of the
first registration filed by Purchaser for an offering of its securities to the
general public;
file with the SEC, in a timely manner, all reports and other documents
required of Purchaser under the Act and the 1934 Act; and
so long as a Holder owns any Registrable Securities, furnish to such Holder
upon request: (i) a written statement by Purchaser as to its compliance with
the reporting requirements of Rule 144, of the Act and of the 1934 Act (at any
time after it has become subject to such reporting requirements); (ii) a copy of
the most recent annual or quarterly report of Purchaser (at any time after it
has become subject to the reporting requirements of the 1934 Act); and (iii)
such other reports and documents as a Holder may reasonably request in availing
itself of any rule or regulation of the SEC allowing it to sell such securities
without registration.
16. RIGHT OF FIRST REFUSAL
2.1. Restrictions on Transfer. No Holder may sell or engage in any
transaction which has resulted in or will result in a change in the beneficial
or record ownership of any Common Stock held by the Holder, including without
limitation a voluntary or involuntary sale, assignment, transfer, pledge,
hypothecation, encumbrance, disposal, loan, gift, attachment or levy (a
"Transfer"), except as provided in this Agreement, and any such Transfer of
Common Stock or attempted Transfer of Common Stock in contravention of this
Agreement shall be void and ineffective for any purpose and shall not confer on
any transferee or purported transferee any rights whatsoever.
Section 2.2. Right of First Refusal.
(a) Each time a Holder proposes to Transfer (or is required by
operation of law or other involuntary transfer) any or all of the Common Stock
standing in such Holder's name or owned by him or her during the term of this
Agreement, such Holder shall first offer such Common Stock to Purchaser in
accordance with the following provisions:
(i) Such Holder shall deliver a written notice (a "Notice")
to Purchaser stating (A) such Holder's bona fide intention to Transfer such
Common Stock, (B) the name address of the proposed transferee, (C) the number of
shares of Common Stock to be transferred, and (D) the purchase price per share
of Common Stock and terms of payment for which the Holder proposes to Transfer
such Common Stock.
(ii) Within 90 days after receipt of the Notice, Purchaser
or its designee shall have the first right to purchase or obtain such Common
Stock, upon the price and terms of payment designated in the Notice. If the
Notice provides for the payment
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<PAGE>
of non-cash consideration, Purchaser at its option may pay the consideration in
cash equal to Purchaser's good faith estimate of the present fair market value
of the non-cash consideration offered.
(iii) If Purchaser or its designee elects not to purchase or obtain all of
the Common Stock designated in the selling Holder's Notice, then the Holder may
Transfer the Common Stock referred to in the Notice to the proposed transferee,
providing such Transfer (A) is completed within 30 days after the expiration of
Purchaser's right to purchase or obtain such Common Stock, (B) is made at the
price and terms designated in the Notice, and (C) the proposed transferee agrees
to be bound by the terms and provisions of this Agreement and to become a party
to this Agreement immediately upon receipt of such Common Stock. If such Common
Stock is not so transferred, the selling Holder must give notice in accordance
with this paragraph prior to any other or subsequent Transfer of such Common
Stock.
(b) Notwithstanding Section 2(a), a Holder may Transfer Common Stock: (i)
to the Holder's spouse, child, grandchild, parent, brother, or sister
("Immediate Family"), or to a trust established for the benefit of a member or
members of the Holder's Immediate Family, (ii) to an Affiliate (as hereinafter
defined) or equity holder of the Holder , (iii) to a person who is a constituent
partner of the Holder on the date hereof, or (iv) to the estate of any of the
foregoing by gift, will or intestate succession; provided that the Holder or his
representative notifies Purchaser of such Transfer not less than 10 nor more
than 90 days prior to the Transfer and that the proposed transferee agrees to be
bound by the terms and provisions of this Agreement and to become a party to
this Agreement immediately upon the receipt of such Common Stock. "Affiliate"
means, with respect to any person or entity, any person or entity which
controls, is controlled by, or is under common control with, such person or
entity, or any stockholder or other equity owner in a control relationship with
any of the foregoing. For this purpose the term "control" shall mean the direct
or indirect beneficial ownership of at least fifty percent (50%) of the voting
stock or interest in the income of such person or entity, or such other
relationship as, in fact, constitutes actual control.
Section 2.3. No Transfer to Competitors. A Holder may not Transfer any
Common Stock to a competitor of Purchaser, or to any stockholder, partner or
other beneficial holder of an equity ownership interest in a competitor, other
than pursuant to a merger, combination, or other transaction approved by the
Board of Directors of Purchaser.
Section 2.4. Legend on Stock Certificates. Each certificate representing
shares owned of record or beneficially by a party to this Agreement shall be
endorsed with the following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO A REGISTRATION
RIGHTS AGREEMENT BETWEEN INFOSPACE, INC. (THE "COMPANY") AND THE HOLDERS THAT
ARE SIGNATORIES THERETO, PROVIDING FOR, AMONG OTHER MATTERS, THE COMPANY'S RIGHT
OF FIRST
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REFUSAL TO PURCHASE THE SECURITIES REPRESENTED BY THIS CERTIFICATE. A COPY OF
SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL BUSINESS OFFICE OF THE COMPANY.
Under no circumstances shall any Transfer of any Common Stock subject
hereto be valid until the proposed transferee thereof shall have executed and
become a party to this Agreement and thereby shall have become subject to all of
the provisions hereof; and notwithstanding any other provisions of this
Agreement, no such Transfer of any kind shall in any event result in the non-
applicability of the provisions hereof at any time to any of the Common Stock
subject hereto.
Section 2.5. Term of Agreement. The restrictions on Transfer of Common
Stock set forth in this Agreement shall terminate upon the consummation of a
public offering for any of the Common Stock of Purchaser registered under the
Securities Act of 1933, as amended, in SEC Form S-1 or any successor form.
Section 2.6. Acknowledgments. Each Holder acknowledges that other
stockholders of Purchaser may have restrictions on their stockholdings different
than the terms contained herein.
III MISCELLANEOUS PROVISIONS
3.1. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Delaware applicable to agreements between
residents of such State and entered into and be performed entirely within such
State.
3.2. 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.
3.3. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.4. Notices. All notices, requests or other communications required or
permitted under this Agreement shall be deemed to have been duly given to the
Sellers and Purchaser in accordance with Section 7.1 of the Membership Interest
Purchase Agreement.
3.5. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, then such provisions shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provisions were so excluded and shall be enforceable in accordance with its
terms to the maximum extent possible.
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<PAGE>
3.6. Amendments and Waivers. This Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written agreement of all parties.
3.7. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all previous proposals, both oral and written, negotiations, representations,
commitments, writings and all other communications between the parties.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INFOSPACE, INC.
/s/ Naveen Jain
- ---------------------
By: Naveen Jain
Its: President
JOHN E. RICHARDS
/s/ John E. Richards
- ---------------------
John E. Richards
PETER S. RICHARDS
/s/ Peter S. Richards
- ----------------------
Peter S. Richards
JOHN ENGER
/s/ John Enger
- ----------------------
John Enger
ALEXANDER HUTTON CAPITAL, L.L.C.
/s/ Michael Shavry
- ----------------------
By: Michael Shavry
------------------
Its: Vice President
-----------------
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EXHIBIT 10.6
AGREEMENT
THIS AGREEMENT is entered into effective January 2, 1998, by and among
INFOSPACE, INC., a Delaware corporation ("Purchaser"), and JOHN E. RICHARDS,
PETER S. RICHARDS, JOHN ENGER and ALEXANDER HUTTON CAPITAL, L.L.C. (each, a
"Seller," and together, the "Sellers").
RECITALS
A. The parties to this Agreement are parties to that certain Membership
Interest Purchase Agreement, dated as of May 1, 1997 (the "Purchase Agreement").
B. Pursuant to paragraph 1.5 of the Purchase Agreement, Two Million
(2,000,000) shares of the common stock of Purchaser (the "Escrow Shares") were
placed in escrow, to be held until such time as Sellers were entitled to receive
a distribution of all or a portion of the Escrow Shares in accordance with the
terms of the Escrow Agreement, dated as of May 1, 1997, by and among the parties
hereto and First Trust National Association (the "Escrow Agent").
C. The parties now desire to distribute a portion of the Escrow Shares in
complete satisfaction of the payment obligation of Purchaser under the Purchase
Agreement, and to terminate the Escrow Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
agreements and conditions hereinafter set forth, and intending to be legally
bound hereby, the parties hereto agree as follows:
ARTICLE
1
DISTRIBUTION OF ESCROW SHARES
1.1 On the effective date of this Agreement, a total of One Hundred
Seventy Thousand (170,000) of the Escrow Shares shall be delivered out of escrow
to the Sellers. The number of Escrow Shares to be received by each Seller is
indicated next to the signature line for such Seller at the end of this
Agreement. The remaining One Million Eight Hundred Thirty Thousand (1,830,000)
Escrow Shares shall be returned to Purchaser for cancellation.
1.2 Each Seller acknowledges and agrees that although certain Revenues (as
defined in the Purchase Agreement) have been received by Purchaser, no
Distribution Date (as defined in the Purchase Agreement) has occurred and
Purchaser is not
<PAGE>
currently obligated to distribute any of the Escrow Shares out of escrow to
Sellers. Therefore, Sellers acknowledge and agree that the agreement of
Purchaser to distribute Escrow Shares in accordance with this Agreement provides
adequate and complete consideration for the release of Purchaser's obligation to
make any further payment or distribution of Escrow Shares to Seller.
1.3 Upon delivery of a total of One Hundred Seventy Thousand (170,000)
shares of Escrow Stock to Sellers in accordance with this Agreement, Purchaser
shall have no further obligation to Sellers whatsoever under the Purchase
Agreement or the Escrow Agreement.
ARTICLE
2
REGISTRATION RIGHTS AGREEMENT
2.1 In consideration of the distribution of the shares to Sellers as
provided herein, Sellers hereby agree that the Registration Rights Agreement,
dated as of May 1, 1997, by and among the parties to this Agreement, shall be
amended to delete Section 1.13 thereof in its entirety.
2.2 Except as provided in Section 2.1 above, the One Hundred Seventy
Thousand (170,000) shares of Escrow Stock distributed pursuant hereto shall be
"Registerable Securities," as such term is defined in the Registration Rights
Agreement, and with respect to such shares, Sellers shall have the rights of a
"Holder," as defined in the Registration Rights Agreement.
ARTICLE
3
ESCROW AGENT
3.1 Upon execution of this Agreement and delivery of the One Hundred
Seventy Thousand (170,000) shares of Escrow Stock to Sellers, the Escrow Agent
shall immediately return to Purchaser the One Million Eight Hundred Seventy
Thousand (1,870,000) shares of Escrow Stock remaining in escrow. In order to
facilitate the distribution of the Escrow Stock as provided herein, Purchaser
will deliver to Escrow Agent, in exchange for the stock certificate(s)
representing the Escrow Stock, certificates in the names of the Sellers
representing an aggregate of One Hundred Seventy Thousand (170,000) shares.
Upon receipt of such certificates and a fully signed copy of this Agreement,
Escrow Agent is hereby instructed by Purchaser and Sellers to distribute such
certificates to Sellers and to deliver all certificates for the Escrow Stock to
Purchaser. When fully executed, this Agreement
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shall constitute a Distribution Notice, defined in Section 3.3 of the Escrow
Agreement.
3.2 Purchaser and Sellers hereby agree that upon distribution and return
of the stock certificates for the Escrow Stock as provided in Section 3.1 above,
the Escrow Agreement shall terminate and the Escrow Agent shall be released from
any further obligations thereunder.
3.3 The fees of the Escrow Agent for actions required hereunder shall be
borne by Purchaser.
ARTICLE
4
MISCELLANEOUS
4.1 This Agreement may be executed in two (2) or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
4.2 This Agreement shall be governed and construed in accordance with the
laws of the State of Washington.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
January 2, 1998.
Purchaser: INFOSPACE, INC., a Delaware Corporation
By: /s/ Naveen Jain
---------------------------------
NAVEEN JAIN
Its: President
By: /s/ Peter S. Richards
---------------------------------
PETER S. RICHARDS
Shares of Escrow Stock to be distributed to Seller: 30,000
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Purchaser: INFOSPACE, INC., a Delaware Corporation
By: /s/ Naveen Jain
---------------------------------
NAVEEN JAIN
Its: President
By: /s/ John E. Richards
---------------------------------
JOHN E. RICHARDS
Shares of Escrow Stock to be Distributed to Seller: 65,000
Purchaser: INFOSPACE, INC., a Delaware Corporation
By: /s/ Naveen Jain
---------------------------------
NAVEEN JAIN
Its: President
By: /s/ John W. Enger
---------------------------------
JOHN W. ENGER
Shares of Escrow Stock to be Distributed to Seller: 10,000
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Purchaser: INFOSPACE, INC., a Delaware Corporation
By: /s/ Naveen Jain
---------------------------------
NAVEEN JAIN
Its: President
By: /s/ Peter S. Richards
---------------------------------
PETER S. RICHARDS
Shares of Escrow Stock to be Distributed to Seller: 30,000
Purchaser: INFOSPACE, INC., a Delaware Corporation
By: /s/ Naveen Jain
---------------------------------
NAVEEN JAIN
Its: President
Alexander Hutton Capital, LLC
By: [Illegible]
---------------------------------
Signature of Seller
Its: V.P.
--------------------------------
Shares of Escrow Stock to be Distributed to Seller: 65,000
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<PAGE>
EXHIBIT 10.7
FORM OF
INFOSPACE, INC.
COMMON STOCK AND COMMON STOCK WARRANT PURCHASE
AGREEMENT
MAY 21, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Purchase and Sale of Stock and Warrants............................................................... 1
1.1 Authorization................................................................................. 1
1.2 Sale and Issuance of Securities............................................................... 1
1.3 Closing....................................................................................... 1
1.4 Adjustments to Securities..................................................................... 2
2. Representations and Warranties of the Company......................................................... 2
2.1 Organization and Existence.................................................................... 2
2.2 Capitalization................................................................................ 2
2.3 Subsidiaries.................................................................................. 3
2.4 Authorization................................................................................. 3
2.5 Valid Issuance of Common Stock................................................................ 3
2.6 Governmental Consents......................................................................... 4
2.7 Litigation.................................................................................... 4
2.8 Employees..................................................................................... 5
2.9 Patents and Trademarks........................................................................ 5
2.10 Compliance With Other Instruments............................................................. 5
2.11 Permits....................................................................................... 6
2.12 Environmental and Safety Laws................................................................. 6
2.13 Disclosure.................................................................................... 7
2.14 Registration Rights........................................................................... 7
2.15 Title to Property and Assets.................................................................. 7
2.16 Financial Statements.......................................................................... 7
2.17 Certain Agreements............................................................................ 7
2.18 Tax Returns and Audits........................................................................ 8
2.19 No Conflict of Interest....................................................................... 9
2.20 Changes....................................................................................... 9
2.21 Insurance..................................................................................... 9
2.22 Qualified Small Business Stock................................................................ 10
3. Representations and Warranties of the Investor........................................................ 10
3.1 Experience.................................................................................... 10
3.2 Investment.................................................................................... 11
3.3 Rule 144...................................................................................... 11
3.4 No Public Market.............................................................................. 11
3.5 Access to Information......................................................................... 12
3.6 Authorization................................................................................. 12
3.7 Accredited Investor........................................................................... 12
</TABLE>
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<TABLE>
<S> <C> <C>
4. Conditions of Investor's Obligations at Closing....................................................... 12
4.1 Representations and Warranties................................................................ 12
4.2 Performance................................................................................... 13
4.3 Compliance Certificate........................................................................ 13
4.4 Investor Rights Agreement..................................................................... 13
4.5 Co-Sale Agreement............................................................................. 13
4.6 Proceedings and Documents..................................................................... 13
4.7 Due Diligence Investigation................................................................... 13
4.8 Opinion of Company Counsel.................................................................... 13
5. Conditions of the Company's Obligations at Closing.................................................... 13
5.1 Representations and Warranties................................................................ 14
5.2 Performance................................................................................... 14
5.3 Securities Laws............................................................................... 14
5.4 Investor Rights Agreement..................................................................... 14
5.5 Co-Sale Agreement............................................................................. 14
5.6 Consulting and Indemnification Agreements..................................................... 14
6. Miscellaneous......................................................................................... 14
6.1 Governing Law.................................................................................. 14
6.2 Survival....................................................................................... 14
6.3 Successors and Assigns......................................................................... 15
6.4 Entire Agreement; Amendment.................................................................... 15
6.5 Notices, Etc................................................................................... 15
6.6 Delays or Omissions............................................................................ 15
6.7 Expenses....................................................................................... 16
6.8 Finder's Fees.................................................................................. 16
6.9 Counterparts................................................................................... 16
6.10 Severability................................................................................... 16
</TABLE>
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EXHIBITS
Exhibit A-1 Form of Warrant
Exhibit A-2 Form of Warrant
Exhibit A-3 Form of Warrant
Exhibit B Schedule of Exceptions
Exhibit C Investor Rights Agreement
Exhibit D Co-Sale Agreement
Exhibit E-1 Form of Consulting Agreement
Exhibit E-2 Form of Indemnification Agreement
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FORM OF
INFOSPACE, INC.
COMMON STOCK AND COMMON STOCK WARRANT PURCHASE AGREEMENT
This Common Stock and Common Stock Warrant Purchase Agreement is entered
into as of May 21, 1998, by and between InfoSpace, Inc., a Delaware corporation
(the "Company"), and ______________________________ (the "Investor").
1. PURCHASE AND SALE OF STOCK AND WARRANTS
1.1 AUTHORIZATION
The Company has authorized the issuance and sale pursuant to this Agreement
of:
(a) up to an aggregate of __________ shares of its Common Stock, par
value $.0001 per share (the "Common Stock"); and
(b) Common Stock Purchase Warrants to purchase up to __________ shares
of Common Stock at an exercise price of $2.00 per share, __________ shares of
Common Stock at an exercise price of $3.00 per share and __________ shares of
Common Stock at an exercise price of $5.00 per share (the "Warrants").
The Common Stock and the Warrants are hereinafter referred to collectively
as the "Securities."
1.2 SALE AND ISSUANCE OF SECURITIES
Subject to the terms and conditions of this Agreement, the Investor agrees
to purchase from the Company at the Closing (as defined below), and the Company
agrees to sell and issue to the Investor at the Closing:
(a) __________ shares of Common Stock for the aggregate purchase price
of $__________ (the "Shares"); and
(b) the Warrants, in substantially the forms of Exhibits A-1, A-2 and
---------------------
A-3 hereto, for the purchase price of $.01 per share of Common Stock subject
- ---
thereto.
1.3 CLOSING
The purchase and sale of Securities pursuant to this Agreement (the
"Closing") shall take place at the offices of Perkins Coie, 1201 Third Avenue,
Seattle, Washington, at 10:00 a.m., on May 21, 1998, or at such other time and
place as may be mutually agreed orally or in writing by the Company and the
Investor (the date of the Closing
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<PAGE>
being referred to herein as the "Closing Date"). At the Closing, the Company
shall deliver to the Investor a certificate or certificates representing the
shares of Common Stock that the Investor is purchasing against payment of the
purchase price therefor by check, wire transfer, conversion or cancellation of
indebtedness or any combination thereof. In addition, the Company will deliver
the Warrants to the Investor against payment of the purchase price therefor by
check or wire transfer.
1.4 ADJUSTMENTS TO SECURITIES
In the event that, as a result of issuances of shares of Common Stock to
Daniel Kranzler and Mark Kaleem (the "Settlement Shares") in resolution or
settlement of their respective disputes with the Company as more fully described
in the Schedule of Exceptions attached hereto, the sum of (a) the number of
shares of Common Stock outstanding or subject to outstanding options under the
Option Plan (as defined in Section 2.2) as of the Closing Date and (b) the
number of Settlement Shares (the "Adjusted Total") exceeds 30,146,510 shares
(the "Assumed Total"), then the Company shall issue to the Investor an
additional number of shares of Common Stock and Warrants for additional shares
of Common Stock equal to the product of (x) _____% and (y) the difference
between (i) the Adjusted Total and (ii) the Assumed Total (the "Adjustment
Shares").
The number of shares of Common Stock issued to the Investor under this
Section 1.4 shall be the pro rata portion of the Adjustment Shares equal to the
relationship between the number of Shares and the total number of Shares and
shares of Common Stock subject to the Warrants. The number of shares of Common
Stock subject to each of the Warrants shall be increased by the pro rata portion
of the Adjustment Shares equal to the relationship between the number of shares
of Common Stock subject to each such Warrant and the total number of Shares and
shares of Common Stock subject to the Warrants.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedule of Exceptions attached hereto as
Exhibit B, which exceptions also shall constitute representations and warranties
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under this Agreement, the Company hereby represents and warrants to the Investor
as follows:
2.1 ORGANIZATION AND EXISTENCE
The Company is a corporation duly organized and validly existing under the
laws of the state of Delaware and has all requisite corporate power and
authority to carry on its business as currently conducted. The Company is duly
qualified to transact business and is in good standing in the State of
Washington and each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties. True and
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accurate copies of the Company's Certificate of Incorporation and Bylaws, each
as amended and in effect at the Closing, have been delivered to the Investor.
2.2 CAPITALIZATION
The authorized capital stock of the Company consists of Fifteen Million
(15,000,000) shares of Preferred Stock, par value $.0001 per share, of which no
shares are issued and outstanding as of the Closing, and Forty Million
(40,000,000) shares of Common Stock, of which 22,155,510 shares are issued and
outstanding as of the Closing. All such issued and outstanding shares have been
duly authorized and validly issued and are fully paid and nonassessable. The
Company has reserved Five Million (5,000,000) shares of Common Stock for
issuance to officers, directors, employees, consultants, agents, advisors and
independent contractors of the Company pursuant to the Company's 1996 Flexible
Stock Incentive Plan (the "Option Plan"), no shares of which have been issued
and are outstanding as of the Closing and 2,451,000 of which shares are subject
to issuance upon exercise of options that have been granted and are outstanding
as of the Closing. The Company has reserved __________ shares of Common Stock
for issuance upon exercise of the Warrants to be issued and sold pursuant to
this Agreement. Other than the shares reserved for issuance described in this
paragraph and the rights of the Investor set forth in the Investor Rights
Agreement to be entered into as of the Closing between the Company and the
Investor, there are no outstanding rights, options, warrants, preemptive rights,
rights of first refusal or similar rights for the purchase or acquisition from
the Company of any securities of the Company.
2.3 SUBSIDIARIES
The Company does not presently own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity. The
Company is not a participant in any joint venture, partnership, or similar
arrangement other than those joint ventures, partnerships and arrangements in
which the Company participates in the ordinary course of business.
2.4 AUTHORIZATION
All corporate action on the part of the Company, its officers, directors
and stockholders necessary for the authorization, execution and delivery of this
Agreement, the Investor Rights Agreement between the Company and the Investor in
the form attached hereto as Exhibit C (the "Investor Rights Agreement"), the Co-
---------
Sale Agreement between the Company, the Investor and Naveen Jain in the form
attached hereto as Exhibit D (the "Co-Sale Agreement"), the Warrants, each of
---------
the Consulting Agreement (the "Consulting Agreement") and the Indemnification
Agreement (the "Indemnification Agreement") between the Company and the Investor
in the forms attached hereto as Exhibits E-1 and E-2, respectively, the
--------------------
performance of all obligations of the Company hereunder and thereunder, and the
authorization, issuance (or reservation for issuance),
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<PAGE>
sale and delivery of the Securities being sold hereunder and the Common Stock
issuable upon exercise of the Warrants has been taken or will be taken prior to
the Closing, and this Agreement constitutes, and upon execution and delivery
thereof by the Company and the other parties thereto the Investor Rights
Agreement, the Co-Sale Agreement, the Warrants, the Consulting Agreement and the
Indemnification Agreement (collectively, the "Agreements") will constitute,
valid and legally binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, subject to: (i) judicial
principles limiting the availability of specific performance, injunctive relief,
and other equitable remedies; (ii) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect generally relating
to or affecting creditors' rights; and (iii) limitations on the enforceability
of the indemnification provisions of the Investor Rights Agreement.
2.5 VALID ISSUANCE OF COMMON STOCK
The shares of Common Stock that are being purchased by the Investor
hereunder, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be validly issued, fully
paid, and nonassessable, and will be free of restrictions on transfer directly
or indirectly created by the Company, other than restrictions on transfer
contained in the Agreements and under applicable state and federal securities
laws. The Common Stock issuable upon exercise of the Warrants has been duly and
validly reserved for issuance and, upon issuance in accordance with the terms of
the Warrants, will be validly issued, fully paid, and nonassessable and will be
free of restrictions on transfer directly or indirectly created by the Company,
other than restrictions on transfer contained in the Agreements and under
applicable state and federal securities laws.
2.6 GOVERNMENTAL CONSENTS
No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or
local governmental authority on the part of the Company is required in
connection with the offer, sale or issuance of the Securities (and the Common
Stock issuable upon exercise of the Warrants) or the consummation of any other
transaction contemplated hereby, except for the following: (i) the filing of
such notices as may be required under the Securities Act of 1933, as amended
(the "Securities Act"), and (ii) the filing of appropriate notices or other
documents as may be required under state securities laws. Based in part on the
representations of the Investor set forth in Section 3 below, the offer, sale
and issuance of the Securities in conformity with the terms of this Agreement
are exempt from the registration requirements of Section 5 of the Securities Act
and from the registration or qualification requirements of applicable state
securities laws, and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.
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<PAGE>
2.7 LITIGATION
There is no action, suit, proceeding or investigation pending or, to the
Company's knowledge, currently threatened before any court, administrative
agency or other governmental body against the Company which questions the
validity of the Agreements or the right of the Company to enter into any of
them, or to consummate the transactions contemplated thereby, or which could
reasonably result, either individually or in the aggregate, in any material
adverse change in the condition (financial or otherwise), business, property,
assets or liabilities of the Company, or any change in the current equity
ownership of the Company, nor is the Company aware of any basis for the
foregoing. The foregoing includes, without limitation, actions, suits,
proceedings or investigations pending or, to the Company's knowledge, currently
threatened involving the prior employment of any of the Company's employees,
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. The Company is not a
party or subject to, and none of its assets is bound by, the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality which could reasonably have a material adverse effect on the
Company. There is no action, suit, proceeding or investigation by the Company
currently pending or which the Company currently intends to initiate.
2.8 EMPLOYEES
Each employee of the Company has executed a proprietary information
agreement, in substantially the form delivered to the Investor. To the
knowledge of the Company, no officer or employee is in violation of any prior or
current employee contract or proprietary information agreement. The Company is
not a party to or bound by any currently effective employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement, qualified or unqualified employee benefit plan or other
employee compensation agreement or arrangement (other than the Option Plan). No
employees of the Company are represented by any labor union or covered by any
collective bargaining agreement. There is no pending or, to the Company's
knowledge, currently threatened labor dispute involving the Company and any
group of its employees. The employment of each officer and employee of the
Company is terminable at the will of the Company.
2.9 PATENTS AND TRADEMARKS
The Company has sufficient title to and ownership of all trade secrets,
and, to its knowledge, copyrights, information, proprietary rights and
processes, patents, trademarks, service marks and trade names necessary for
its business as now conducted and as proposed to be conducted, without any
material conflict with or infringement of the rights of others. There are no
material outstanding options, licenses, or agreements of any kind
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<PAGE>
relating to the foregoing, nor is the Company bound by or a party to any
material options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other person or
entity. The Company has not received any written communications alleging that
the Company has violated any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. To the Company's knowledge, none of the Company's employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as conducted and as proposed to be conducted. To the
Company's knowledge, neither the execution and delivery of the Agreements nor
the current or proposed conduct of the Company's business will conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of the
Company's employees is now obligated. The Company does not believe it will be
necessary to use any inventions of any of its employees (or persons it currently
intends to hire) made prior to their employment by the Company, other than
inventions that have been validly assigned or contributed to the Company.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS
The Company is not in violation or default of any provision of its
Certificate of Incorporation or Bylaws, each as amended and in effect on and as
of the Closing. The Company is not in violation or default in any material
respect of any instrument, mortgage, deed of trust, loan, contract, commitment,
judgment, decree, order or obligation to which it is a party or by which it or
any of its properties or assets are bound or, to its knowledge, of any provision
of any federal, state or local statute, rule or governmental regulation. The
execution, delivery and performance of and compliance with the Agreements and
the issuance and sale of the Securities will not result in any such violation,
be in conflict with or constitute, with or without the passage of time or giving
of notice, a default under any such provision, require any consent or waiver
under any such provision (other than any consents or waivers that have been
obtained), or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company pursuant to any
such provision.
2.11 PERMITS
The Company has all franchises, permits, licenses, and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could reasonably be expected to materially and adversely
affect the business, properties or financial condition of the Company. The
Company is not in default under any of such franchises, permits, licenses or
other similar authority.
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<PAGE>
2.12 ENVIRONMENTAL AND SAFETY LAWS
The Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and to
its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.13 DISCLOSURE
The Company has fully provided the Investor with all the information which
the Investor has requested in writing for deciding whether to purchase the
Securities and all information which the Company believes is necessary to enable
the Investor to make such a decision. No representation, warranty or statement
by the Company in this Agreement, or in any written statement or certificate
furnished to the Investor pursuant to this Agreement, contains any untrue
statement of a material fact or, omits to state a material fact necessary to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. However, as to any projections furnished
to the Investor, such projections were prepared in good faith by the Company,
but the Company makes no representation or warranty that it will be able to
achieve such projections.
2.14 REGISTRATION RIGHTS
Except as provided in the Investor Rights Agreements, the Company has not
granted or agreed to grant any registration rights, including piggyback rights,
to any person or entity.
2.15 TITLE TO PROPERTY AND ASSETS
The Company has good and marketable title to all of its properties and
assets free and clear of all mortgages, liens and encumbrances, except liens for
current taxes and assessments not yet due and except such liens and encumbrances
which arise in the ordinary course of business and do not materially detract
from the value of the property subject thereto or materially impair the
operations of the Company. With respect to the properties and assets it leases,
the Company is in compliance with such leases and, to its knowledge, holds a
valid leasehold interest free of all liens, claims or encumbrances. The
Company's properties and assets are in good condition and repair in all material
respects.
2.16 FINANCIAL STATEMENTS
The Company has delivered to the Investor its audited balance sheet, and
its audited statements of income, cash flows and stockholders' equity as of and
for the fiscal year ended December 31, 1997. The foregoing financial statements
(the "Financial Statements") fairly present, in all material respects, the
financial position and results of
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<PAGE>
operations of the Company as of the dates and for the periods indicated and have
been prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"). Except as and to the extent reflected or reserved
against in the December 31, 1997 balance sheet, the Company has no material
liabilities or obligations, contingent or otherwise, other than (a) liabilities
or obligations incurred in the ordinary course of business subsequent to the
cut-off date for the preparation of the December 31, 1997 balance sheet and (b)
liabilities or obligations, including liabilities or obligations under contracts
and similar commitments, that are not required by GAAP to be reflected in a
balance sheet that is prepared in accordance with GAAP. Except as disclosed in
the Financial Statements, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or organization. The Company maintains
and will continue to maintain a standard system of accounting administered in
accordance with GAAP.
2.17 CERTAIN AGREEMENTS
(a) Except for agreements described herein and in the Investor Rights
Agreement, there are no agreements, understandings or proposed transactions
between the Company and any of its officers, directors or affiliates.
(b) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the Company
is a party or by which it is bound that may involve (i) obligations (contingent
or otherwise) of or payments by the Company in excess of, $100,000, or (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company, or (iii) provisions restricting or adversely affecting the
development, manufacture or distribution of the Company's products or services
or (iv) indemnification by the Company with respect to infringements of
proprietary rights.
(c) The Company has not (i) declared or paid any dividends or authorized or
made any distribution (other than distributions of capital stock of the Company)
upon or with respect to any class or series of its capital stock, (ii) incurred
any indebtedness for money borrowed or any other liabilities individually in
excess of $100,000 or in excess of $250,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections.
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(e) The Company is not party to and is not bound by any contract, agreement
or instrument, or subject to any restriction under its Articles or Bylaws, that
adversely affects its business as now conducted or as proposed to be conducted,
its properties or its financial condition.
2.18 TAX RETURNS AND AUDITS
The Company has accurately prepared all United States income tax returns
and all state and municipal tax returns required to be filed by it, if any, has
paid all taxes, assessments, fees and charges when and as due under such returns
and has made adequate provision for the payment of all other taxes, assessments,
fees and charges shown on such returns or on assessments received by the
Company, where, if not paid or filed or prepared correctly, would not have a
material adverse effect on the Company. To the Company's knowledge, no
deficiency assessment or proposed adjustment of the Company's United States
income tax or state or municipal taxes is pending.
2.19 NO CONFLICT OF INTEREST
The Company is not indebted, directly or indirectly, to any of its officers
or directors or to their respective spouses or children, in any amount
whatsoever other than in connection with expenses or advances of expenses
incurred in the ordinary course of business or relocation expenses of employees.
To the Company's knowledge, none of the Company's officers or directors, or any
members of their immediate families, are, directly or indirectly, indebted to
the Company or have any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation which competes with the
Company. To the best of the Company's knowledge, none of the Company's officers
or directors or any members of their immediate families, are, directly or
indirectly, interested in any material contract with the Company.
2.20 CHANGES
Since December 31, 1997 , there has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any waiver or compromise by the Company of a valuable right or of
a material debt owed to it;
(c) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
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(d) any resignation or termination of employment of any officer or key
employee of the Company or material change in compensation payable or benefits
accruable to any officer or key employee; and the Company has no knowledge of
any impending resignation or termination of employment of any such officer or
key employee;
(e) any loans or guarantees made by the Company to or for the benefit
of its employees, officers or directors, or any members of their immediate
families, other than travel advances and other advances made in the ordinary
course of business;
(f) to the Company's knowledge, any other event or condition of any
character that could reasonably materially and adversely affect the business,
properties, prospects or financial condition of the Company (as such business is
currently conducted and as it is proposed to be conducted); or
(g) any arrangement or commitment by the Company to do any of the
things described in this Section 2.20.
2.21 INSURANCE
The Company has in full force and effect fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed.
2.22 QUALIFIED SMALL BUSINESS STOCK
As of and immediately following the Closing, the shares of Common Stock to
be issued will meet each of the following requirements for qualification as
"qualified small business stock" as set forth in Section 1202(c) of the Internal
Revenue Code of 1986, as amended (the "Code"): (i) the Company is a domestic C
corporation; (ii) the Company has not made any purchases of its own stock
described in Code Section 1202(c)(3)(B) during the one year period preceding the
Closing; and (iii) the Company's and any predecessor's aggregate gross assets,
as defined by Code Section 1202(d)(2), at no time from the date of incorporation
of the Company through and including the Closing have exceeded $50,000,000,
taking into account the assets of any corporation required to be aggregated with
the Company in accordance with Code Section 1202(d)(3).
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants to the Company that:
3.1 EXPERIENCE
The Investor is experienced in evaluating start-up companies such as the
Company, is able to fend for itself in transactions such as the one contemplated
by this
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Agreement, has such knowledge and experience in financial and business matters
that the Investor is capable of evaluating the merits and risks of the
Investor's prospective investment in the Company, and has the ability to bear
the economic risks of the investment.
3.2 INVESTMENT
The Investor is acquiring the Securities (and the Common Stock issuable
upon exercise of the Warrants) for investment for the Investor's own account and
not with the view to, or for resale in connection with, any distribution
thereof. The Investor understands that the Securities (and the Common Stock
issuable upon exercise of the Warrants) have not been registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein. The Investor
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to any third person with respect
to any of the Securities (or any Common Stock acquired upon exercise of the
Warrants). The Investor understands and acknowledges that the offering of the
Securities pursuant to this Agreement will not, and any issuance of Common Stock
upon exercise of the Warrants may not, be registered under the Securities Act on
the ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from the registration requirements of the
Securities Act.
3.3 RULE 144
The Investor acknowledges that the Securities (and the Common Stock
issuable upon exercise of the Warrants) must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such
registration is available. The Investor is aware of Rule 144 promulgated under
the Securities Act which permits limited resale of securities purchased in a
private placement subject to the satisfaction of certain conditions. In the
absence of an effective registration statement covering the securities in
question, the Investor will sell, transfer, or otherwise dispose of the
Securities (and any Common Stock issued on exercise of the Warrants) only in a
manner consistent with the Investor's representations and covenants set forth in
this Section 3. In connection therewith, the Investor acknowledges that the
Company will make a notation on its stock books regarding the restrictions on
transfer set forth in this Section 3 and will transfer securities on the books
of the Company only to the extent not inconsistent therewith.
3.4 NO PUBLIC MARKET
The Investor understands that no public market now exists for any of the
securities issued by the Company, and that the Company has made no assurances
that a public market will ever exist for the Securities.
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3.5 ACCESS TO INFORMATION
The Investor has received and reviewed information about the Company and
has had an opportunity to discuss the Company's business, management and
financial affairs with its management and to review the Company's facilities.
The Investor understands that such discussions, as well as any written
information issued by the Company, were intended to describe the aspects of the
Company's business and prospects which the Company believes to be material, but
were not necessarily a thorough or exhaustive description. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the right of the Investor to rely
thereon.
3.6 AUTHORIZATION
This Agreement, when executed and delivered by the Investor, will
constitute a valid and legally binding obligation of the Investor, enforceable
in accordance with its terms, subject to: (i) judicial principles respecting
election of remedies or limiting the availability of specific performance,
injunctive relief, and other equitable remedies; (ii) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
generally relating to or affecting creditors' rights; and (iii) limitations on
the enforceability of the indemnification provisions of the Investor Rights
Agreement.
3.7 ACCREDITED INVESTOR
The Investor acknowledges that it is an "accredited investor" as defined in
Rule 501 of Regulation D as promulgated by the Securities and Exchange
Commission under the Securities Act and shall submit to the Company such further
assurances of such status as may be reasonably requested by the Company. For
state securities law purposes, the state of residence of the Investor is that
set forth on the signature page hereof.
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING
The obligations of the Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company contained in Section 2
shall be true and correct in all material respects on and as of the Closing with
the same effect as though such representations and warranties had been made on
and as of the date of the Closing.
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4.2 PERFORMANCE
The Company shall have performed and complied in all material respects with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
4.3 COMPLIANCE CERTIFICATE
The President of the Company shall deliver to the Investor at the Closing a
certificate stating that the conditions specified in Sections 4.1 and 4.2 above
have been fulfilled and that there has been no material adverse change in the
business, affairs, operations, properties, assets or condition of the Company
since the date of this Agreement.
4.4 INVESTOR RIGHTS AGREEMENT
Each party thereto shall have executed and delivered the Investor Rights
Agreement.
4.5 CO-SALE AGREEMENT
Each party thereto shall have executed and delivered the Co-Sale Agreement.
4.6 PROCEEDINGS AND DOCUMENTS
All corporate and other proceedings in connection with the transactions
contemplated hereby, and all documents and instruments incident to these
transactions, shall be reasonably satisfactory in substance to the Investor.
4.7 DUE DILIGENCE INVESTIGATION
The Investor shall have completed its due diligence investigation of the
Company to its satisfaction.
4.8 OPINION OF COMPANY COUNSEL
The Investor shall have received from Perkins Coie LLP, counsel to the
Company, an opinion, dated as of the Closing Date, in substance and form
reasonably satisfactory to the Investor's counsel.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company to the Investor under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions by the Investor:
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<PAGE>
5.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Investor contained in Section 3
shall be true and correct in all material respects on and as of the Closing with
the same effect as though such representations and warranties had been made on
and as of the Closing.
5.2 PERFORMANCE
The Investor shall have performed and complied in all material respects
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
5.3 SECURITIES LAWS
The Company shall be reasonably satisfied that the offer and sale of the
Securities hereunder is exempt from the registration and qualification
requirements of federal and applicable state securities laws.
5.4 INVESTOR RIGHTS AGREEMENT
Each party thereto shall have executed and delivered the Investor Rights
Agreement.
5.5 CO-SALE AGREEMENT
Each party thereto shall have executed and delivered the Co-Sale Agreement.
5.6 CONSULTING AND INDEMNIFICATION AGREEMENTS
Each party to the Consulting Agreement and the Indemnification Agreement
shall have executed and delivered such agreements.
6. Miscellaneous
6.1 GOVERNING LAW
This Agreement shall be governed in all respects by the internal laws of
the state of Washington, without regard to any provisions thereof relating to
conflicts of laws among different jurisdictions.
6.2 SURVIVAL
The representations, warranties, covenants and agreements made herein shall
survive the Closing until the later of (a) two (2) years after the Closing or
(b) the closing of an initial underwritten public offering of the Company's
Common Stock, whereupon such representations, warranties, covenants and
agreements shall cease and be of no
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<PAGE>
further force and effect. All statements as to factual matters contained in any
certificate or exhibit delivered by or on behalf of the Company pursuant hereto
shall be deemed to be the representations and warranties of the Company
hereunder as of the Closing Date.
6.3 SUCCESSORS AND ASSIGNS
Except as otherwise provided herein, the provisions hereof shall inure to
the benefit of, and be binding upon, the successors, assigns, heirs, executors
and administrators of the parties hereto; provided, however, that the rights of
the Investor to purchase Securities shall not be assignable without the consent
of the Company.
6.4 ENTIRE AGREEMENT; AMENDMENT
This Agreement and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement among the parties with regard to
the subjects hereof and thereof and supersede all prior or contemporaneous oral
or written understandings or agreements relating to such subjects. Neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought.
6.5 NOTICES, ETC.
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
otherwise delivered by hand or by messenger, facsimile or courier, addressed (a)
if to the Investor, at the Investor's address set forth on the signature page
hereof, or at such other address as the Investor shall have furnished to the
Company in writing, with a copy to Greg F. Adams, Davis Wright Tremaine, 2600
Century Square, 1501 Fourth Avenue, Seattle, WA 98101 or (b) if to any other
holder of any Securities, at such address as such holder shall have furnished
the Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Securities who
has so furnished an address to the Company, or (c) if to the Company, at its
principal executive office, attention President, or at such other address as the
Company shall have furnished to the Investor, with a copy to Charles J. Katz,
Jr., Perkins Coie, 1201 Third Avenue, 40th Floor, Seattle, WA 98101. If notice
is provided by mail, it shall be deemed to be given three (3) business days
after proper deposit in the U.S. Mail, and if notice is given by hand or by
messenger, facsimile or courier, it shall be deemed to be given upon receipt.
6.6 DELAYS OR OMISSIONS
No delay or omission to exercise any right, power or remedy accruing to any
holder of any Securities upon any breach or default of the Company under this
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Agreement shall impair any such right, power or remedy of such holder, nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing or as
provided in this Agreement. All remedies, either under this Agreement or by law
or otherwise afforded to any holder, shall be cumulative and not alternative.
6.7 EXPENSES
The Company and the Investor shall bear their own expenses and legal fees
incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby.
6.8 FINDER'S FEES
The Company and the Investor shall each indemnify and hold the other
harmless from any liability for any commission or compensation in the nature of
a finder's fee (including the costs, expenses and legal fees of defending
against such liability) for which the Company or the Investor, or any of their
respective partners, employees, or representatives, as the case may be, is
responsible.
6.9 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, and all of which together shall constitute one
instrument.
6.10 SEVERABILITY
In the event that any provision of this Agreement becomes or is declared by
a court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided, however, that no such severability shall be effective if it materially
changes the economic benefit of this Agreement to any party.
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<PAGE>
INVESTOR LIST
Acorn Ventures-IS, LLC 1,875,000 shares of Common Stock
Common Stock Purchase Warrants
1,801,310 shares at $2.00 per share,
788,073 shares at $3.00 per share and
788,073 shares at $5.00 per share
Kellett Partners LLP 312,500 shares of Common Stock
Common Stock Purchase Warrants 245,633
shares at $2.00 per share, 107,464 shares at
$3.00 and 107,464 shares at $5.00 per share
John and Carolyn Cunningham 62,500 shares of Common Stock
Common Stock Purchase Warrants 81,879
shares at $2.00 per share, 35,821 shares at
$3.00 and 35,821 shares at $5.00 per share
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<PAGE>
EXHIBIT 10.8
FORM OF
INFOSPACE, INC.
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (this "Agreement") is entered into as of May
21, 1998, by and between InfoSpace, Inc., a Delaware corporation (the
"Company"), and ____________________ (the "Investor").
RECITALS
A. Pursuant to that certain Common Stock and Common Stock Warrant Purchase
Agreement dated as of the date hereof (the "Purchase Agreement"), the Investor
is purchasing: (i) __________ shares of the common stock of the Company, par
value $.0001 per share (the "Common Stock"), and is also separately purchasing
(ii) Warrants to purchase up to __________ shares of Common Stock (the
"Warrants").
B. The execution and delivery of this Agreement is a condition to the
Closing under the Purchase Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION 1. RESTRICTIONS ON TRANSFERABILITY; REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Holder" shall mean the Investor and any person holding Registrable
------
Securities to whom the rights under this Agreement have been transferred in
accordance with Section 1.13 hereof.
<PAGE>
"Initial Public Offering" shall mean the first public offering of
-----------------------
Common Stock by the Company to the public pursuant to a registration statement
filed with, and declared effective by, the Commission under the Securities Act.
"Initiating Holders" shall mean the Investor or transferees of the
------------------
Investor under Section 1.13 hereof who in the aggregate are Holders of not less
than fifty percent (50%) of the Registrable Securities.
The terms "register", "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in complying with Sections 1.5, 1.6 and 1.7 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
"Registrable Securities" means the Shares and the Warrant Shares or
----------------------
other securities issued or issuable with respect to the Shares or Warrant Shares
upon any stock split, stock dividend, recapitalization or similar event, or any
Common Stock otherwise issued or issuable with respect to the Shares or Warrant
Shares; provided, however, that shares of Common Stock or other securities shall
only be treated as Registrable Securities if and so long as they have not been
(A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(l) thereof so that all transfer restrictions and
restrictive legends with respect thereto are removed upon the consummation of
such sale.
"Restricted Securities" shall mean the securities of the Company
---------------------
required to bear the legend set forth in Section 1.3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for the Holders (as
limited by Section 1.8).
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<PAGE>
"Shares" shall mean the shares of Common Stock being issued pursuant
------
to the Subscription Agreement.
"Warrant Shares" shall mean the Common Stock issued or issuable upon
--------------
exercise of the Warrants.
1.2 RESTRICTIONS
The Shares and the Warrant Shares shall not be sold, assigned, transferred
or pledged except upon the conditions specified in this Agreement, which
conditions are intended to ensure compliance with the provisions of the
Securities Act. The Investor will cause any proposed purchaser, assignee,
transferee or pledgee of the Shares and the Warrant Shares, to agree to take and
hold such securities subject to the provisions and upon the conditions specified
in this Agreement.
1.3 RESTRICTIVE LEGEND
Each certificate representing (i) the Shares, (ii) the Warrant Shares, and
(iii) any other securities issued in respect of the securities referenced in
clauses (i) and (ii) upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event shall (unless otherwise permitted by the
provisions of Section 1.4 below) be stamped or otherwise imprinted with a legend
in the form of Exhibit A attached hereto (in addition to any legend required
---------
under applicable state securities laws). The Investor and Holder consents to
the Company making a notation on its records and giving instructions to any
transfer agent of the Restricted Securities in order to implement the
restrictions on transfer established in this Section 1.
1.4 NOTICE OF PROPOSED TRANSFERS
The holder of each certificate representing Restricted Securities, by
acceptance thereof, agrees to comply in all respects with the provisions of this
Section 1. Prior to any proposed sale, assignment, transfer or pledge of any
Restricted Securities, unless there is in effect a registration statement under
the Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied at such holder's expense by either
(i) a written opinion of legal counsel who shall, and whose legal opinion shall,
be reasonably satisfactory to the Company, addressed to the Company, to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act, or (ii) a "no action" letter from
the Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, or (iii) any other evidence
reasonably satisfactory to counsel to the Company, whereupon the holder of
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<PAGE>
such Restricted Securities shall be entitled to transfer such Restricted
Securities in accordance with the terms of the notice delivered by the holder to
the Company. The Company shall not require such a legal opinion or "no action"
letter in any transaction in compliance with Rule 144. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear,
except if such transfer is made pursuant to Rule 144, the appropriate
restrictive legend set forth in Section 1.3 above, except that such certificate
shall not bear such restrictive legend if, in the opinion of counsel for such
holder and the Company, such legend is not required in order to establish
compliance with any provisions of the Securities Act.
1.5 REQUESTED REGISTRATION
(a) Request for Registration. In case the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to the Registrable Securities, the
Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to take
any action to effect any such registration, qualification or compliance pursuant
to this Section 1.5:
(1) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance, unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(2) Prior to the earlier of (a) one year following the effective
date of the Company's Initial Public Offering or (b) the third anniversary of
the date of this Agreement;
(3) Unless at least one half of the Registrable Securities then
outstanding are included in the request for registration pursuant to Section
1.5(a) above,
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<PAGE>
and the proposed aggregate offering price therefor, net of underwriting
discounts and commissions, is at least $5,000,000;
(4) If the Company is unable to arrange for the proposed
offering to be underwritten on commercially reasonable terms by an underwriting
firm of nationally recognized standing;
(5) After the Company has effected two (2) such registrations
pursuant to this subparagraph 1.5(a) and each such registration has been
declared or ordered effective and remained effective for the period specified in
Section 1.9(a) of this Agreement; or
(6) If the Company shall furnish to such Holders a certificate,
signed by the President of the Company, stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company or
its stockholders for a registration statement to be filed in the near future,
then the Company's obligation to use its commercially reasonable efforts to
register, qualify or comply under this Section 1.5 shall be deferred for a
period not to exceed one hundred and twenty (120) days from the date of receipt
of written request from the Initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve (12) month
period.
Subject to the foregoing clauses (1) through (6), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
(b) Underwriting. The right of any Holder to registration pursuant to
------------
Section 1.5 shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 1.5 and the inclusion of such
Holder's Registrable Securities in the underwriting, to the extent requested, to
the extent provided herein. The Company shall (together with all Holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company (which managing underwriter shall
be reasonably acceptable to a majority in interest of the Initiating Holders).
Notwithstanding any other provision of this Section 1.5, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, then the Company shall so advise all Holders of
Registrable Securities in writing, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting.
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<PAGE>
No Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder to the nearest one hundred (100) shares. If any Holder of Registrable
Securities disapproves of the terms of the underwriting, such person may elect
to withdraw therefrom by written notice to the Company, the managing underwriter
and the Initiating Holders. The Registrable Securities and/or other securities
so withdrawn shall also be withdrawn from registration, and such Registrable
Securities shall not be transferred in a public distribution prior to one
hundred and eighty (180) days after the effective date of such registration.
1.6 COMPANY REGISTRATION
(a) Notice of Registration. If at any time or from time to time after
----------------------
completion of the Company's Initial Public Offering the Company shall determine
to register any of its securities, either for its own account or the account of
a security holder or holders, other than (x) a registration relating solely to
employee benefit plans or (y) a registration relating solely to a Commission
Rule 145 transaction, the Company will (but not more than five (5) times
pursuant to this Section 1.6(a)):
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests made
within fifteen (15) days after receipt of such written notice from the Company
by any Holder.
(b) Underwriting. If the registration of which the Company gives notice is
------------
for a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to Section
1.6(a)(i). In such event, the right of any Holder to registration pursuant to
Section 1.6 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of Registrable Securities in the underwriting, to
the extent requested, to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 1.6, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit the number of
Registrable Securities to be included in the registration and underwriting, on a
pro rata basis based on the total number of securities (including, without
limitation, Registrable Securities) entitled to registration pursuant to
registration rights granted to the participating Holders by the Company. To
facilitate the
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<PAGE>
allocation of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder or other
holder to the nearest one hundred (100) shares. If any Holder or other holder
disapproves of the terms of any such underwriting, he or she may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to one hundred eighty (180) days after the effective date of
the registration statement relating thereto.
(c) Right to Terminate Registration. The Company shall have the right to
-------------------------------
terminate or withdraw any registration initiated by it under this Section 1.6
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.
1.7 REGISTRATION ON FORM S-3
(a) If any Holder or Holders of Registrable Securities requests that the
Company file a registration statement on Form S-3 (or any successor form to Form
S-3) for a public offering of Registrable Securities, the reasonably anticipated
aggregate price to the public of which, net of underwriting discounts and
commissions, would exceed $2,000,000, and the Company is a registrant entitled
to use Form S-3 to register the Registrable Securities for such an offering, the
Company shall use its best efforts to cause such Registrable Securities to be
registered for the offering on such form. The Company will (i) promptly give
written notice of the proposed registration to all other Holders and (ii) as
soon as practicable use its best efforts to effect such registration (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within fifteen (15) days after receipt
of such written notice from the Company. The substantive provisions of Section
1.5(b) shall be applicable to each registration initiated under this Section
1.7.
(b) Notwithstanding the foregoing, the Company shall not be obligated to
take any action pursuant to this Section 1.7: (i) in any particular jurisdiction
in which the Company would be required to execute a general consent to service
of process in effecting such registration, qualification or compliance, unless
the Company is already subject to service in such jurisdiction and except as may
be required by the Securities Act; (ii) during the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date six (6) months immediately following
-7-
<PAGE>
the effective date of, a registration statement (other than with respect to a
registration statement relating to a Rule 145 transaction, an offering solely to
employees or any other registration which is not appropriate for the
registration of Registrable Securities), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective; (iii) after the Company has effected three (3)
such registrations pursuant to this Section 1.7 and each such registration has
been declared or ordered effective and has remained effective for the period
specified in Section 1.9(a) of this Agreement; (iv) in any calendar year after
the Company has effected two (2) such registrations pursuant to this Section 1.7
in such calendar year and each such registration has been declared or ordered
effective and has remained effective for the period specified in Section 1.9(a)
of this Agreement; and (v) if the Company shall furnish to such Holder a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors, it would be seriously detrimental to
the Company or its stockholders for registration statements to be filed in the
near future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed one hundred
twenty (120) days from the receipt of the request to file such registration by
such Holder or Holders; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.
1.8 EXPENSES OF REGISTRATION
All Registration Expenses incurred in connection with any registration
pursuant to Sections 1.5 and 1.6, and up to one registration in any calendar
year after the date hereof under Section 1.7, and the reasonable cost of one
special legal counsel to represent all of the Holders together in any such
registration, shall be borne by the Company. All Registration Expenses incurred
in connection with any registration pursuant to Section 1.7 of this Agreement
above and beyond one registration in any calendar year after the date hereof,
and the cost of any counsel for the Holders in any such registration, shall be
borne by the Holders pro rata according to the number of Registrable Securities
included by them in such registration. If a registration proceeding is begun
upon the request of Initiating Holders pursuant to Section 1.5 or Section 1.7
(if the first request under Section 1.7 in any calendar year), but such request
is subsequently withdrawn, then the Holders of Registrable Securities to have
been registered may either: (i) bear all Registration Expenses of such
proceeding, pro rata on the basis of the number of shares to have been
registered, in which case the Company shall be deemed not to have effected a
registration pursuant to subparagraph 1.5(a) or 1.7, as the case may be, of this
Agreement, or (ii) require the Company to bear all Registration Expenses of such
proceeding, in which case the Company shall be deemed to have effected a
registration pursuant to subparagraph 1.5(a) or 1.7, as the case may be, of this
Agreement. The preceding sentence shall not apply if, at the time of such
withdrawal, the Holders have learned of a material adverse change in the
condition, business or prospects of the Company from that known to the Holders
at the time of their request. Unless otherwise stated, all other Selling
Expenses relating to securities registered on behalf of the Holders
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<PAGE>
shall be borne by the Holders of the securities included in such
registration pro rata on the basis of the number of shares so registered.
1.9 REGISTRATION PROCEDURES
In the case of each registration, qualification or compliance effected by
the Company pursuant to this Section 1, the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective until the distribution described in the
registration statement has been completed, but in no event longer than ninety
(90) days; and
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders participating in such registration and to
the underwriters, if any, of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably request
in order to facilitate the public offering of such securities.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
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(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or other trading market on
which similar securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, (i) an opinion, dated such date,
of the counsel representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters
and to the Holders requesting registration of Registrable Securities.
1.10 INDEMNIFICATION
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all actual out-of-
pocket expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in any litigation or in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, preliminary prospectus,
offering circular or other document, or any amendment or supplement thereto,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation or any
alleged violation by the Company of the Securities Act or the Exchange Act or
any state securities law, or of any rule or regulation promulgated under any of
the foregoing applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other actual
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out-of-pocket expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action, as
such expenses are incurred; provided, however, that the indemnity agreement
contained in this Section 1.10(a) shall not apply to amounts paid in settlement
of any such matter if the settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld; and provided further
that the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information furnished to the
Company by such Holder, controlling person or underwriter specifically for use
therein.
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all actual out-of-pocket expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein, in
light of the circumstances in which they were made, or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, persons, underwriters or control persons for any legal
and any other actual out-of pocket expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, as such expenses are incurred, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by such Holder specifically for use
therein; provided, however, that the indemnity agreement contained in this
Section 1.10(b) shall not apply to amounts paid in settlement of any matter if
the settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; and provided further that the maximum
liability of each selling Holder under this Section 1.10(b) shall be equal to
the total cash proceeds to such selling Holder as a result of such registration
and offering.
(c) Each party entitled to indemnification under this Section 1.10 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification
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(the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that an Indemnified Party (together with all
other Indemnified Parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the
reasonable fees and expenses of such counsel to be paid by the Indemnifying
Party, if representation of such Indemnified Party by the counsel retained by
the Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 1.10 unless the failure to give such
notice is materially prejudicial to an Indemnifying Party's ability to defend
such action. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party (not to be
unreasonably withheld), consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 1.10 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations;
provided, that, in no event shall any contribution by a Holder under this
Subsection 1.10(d) exceed the net proceeds from the offering received by such
Holder, except in the case of willful fraud by such Holder. The relative fault
of the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in
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connection with the underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
(f) The obligations of the Company and Holders under this Section 1.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 INFORMATION BY HOLDER
The Holder or Holders of Registrable Securities included in any
registration shall furnish to the Company such information regarding such Holder
or Holders, the Registrable Securities held by them and the distribution
proposed by such Holder or Holders as the Company may request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Section 1.
1.12 RULE 144 REPORTING
With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of the
Restricted Securities to the public without registration, after such time as a
public market exists for the Common Stock of the Company, the Company agrees to
use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Exchange Act.
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Exchange Act (at any time after it
has become subject to such reporting requirements); and
(c) So long as the Investor owns any Restricted Securities, to
furnish to the Investor forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Exchange Act (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company and
other information in the possession of or reasonably obtainable by the Company
as the Investor may reasonably request in availing itself of any rule or
regulation of the Commission allowing the Investor to sell any such securities
without registration.
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1.13 TRANSFER OF REGISTRATION RIGHTS
The rights to cause the Company to register securities granted to the
Investor under Sections 1.5, 1.6 and 1.7 may be assigned to a transferee or
assignee in connection with any transfer or assignment of Registrable Securities
by the Investor (together with any affiliate); provided that (a) such transfer
may otherwise be effected in accordance with applicable securities laws, (b)
notice of such assignment is given to the Company, and (c) such transferee or
assignee (i) is a wholly-owned subsidiary or constituent partner (including
limited partners, retired partners, spouses and ancestors, lineal descendants
and siblings of such partners or spouses who acquire Registrable Securities by
gift, will or intestate succession) of the Investor, or (ii) acquires from the
Investor at least 250,000 shares of Common Stock (as appropriately adjusted for
stock splits and the like).
1.14 STANDOFF AGREEMENT
Each Holder agrees in connection with any registration of the Company's
securities (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), upon request of the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, pledge (or otherwise encumber or hypothecate),
grant any option for the purchase of, or otherwise directly or indirectly
dispose of any Registrable Securities (other than those included in the
registration) without the prior written consent of the Company and such managing
underwriters for such period of time (not to exceed 180 days) as the Board of
Directors establishes pursuant to its good faith negotiations with such managing
underwriters; provided, however, that the Investor shall not be subject to such
lockup unless the officers and directors of the Company who own stock of the
Company and all other persons with registration rights (whether or not pursuant
to this Agreement) shall also be bound by such restrictions. This Section 1.14
shall apply only to the first such registration statement of the Company which
covers Common Stock (or other securities) to be sold on its behalf to the public
in an underwritten offering.
1.15 TERMINATION OF RIGHTS
The rights of any particular Holder to cause the Company to register
securities under Sections 1.5, 1.6 and 1.7 shall terminate with respect to such
Holder on the earlier of (a) the fifth anniversary of the effective date of the
Company's Initial Public Offering or (b) such time as Rule 144 or another
similar exemption under the Securities Act is available for the sale of all such
Holder's securities during a three (3)-month period without registration or (c)
the seventh anniversary of the date of this Agreement.
1.16 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS
From and after the date of this Agreement, the Company shall not, without
the prior written consent of the Holders of a majority of the Registrable
Securities, enter into
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any agreement with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder (a) to include such
securities in any registration filed under Section 1.5 hereof, unless under the
terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which are included or (b) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either of the dates set forth in subsection 1.5(a)(ii)(2) or within
one hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.5.
SECTION 2. AFFIRMATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
2.1 FINANCIAL INFORMATION
The Company will furnish to the Investor the following reports:
(a) As soon as practicable after the end of each fiscal year, and in
any event within ninety (90) days thereafter, audited consolidated balance
sheets and statements of stockholders' equity of the Company and its
subsidiaries, if any, as of the end of such fiscal year, and consolidated
statements of income and cash flows of the Company and its subsidiaries, if any,
for such fiscal year, prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail and certified by independent
public accountants of national standing selected by the Company;
(b) As soon as practicable after the end of each quarter, and in any
event within 45 days thereafter, unaudited balance sheets of the Company and its
subsidiaries, if any, as of the end of the most recent quarter, and consolidated
statements of income and cash flows of the Company and its subsidiaries, if any,
for such quarter and for the then current fiscal year to the end of such
quarter, all prepared in accordance with generally accepted accounting
principles, together with a comparison of such statements to the Company's
operating plan then in effect; and
(c) Upon the request of the Investor, consolidated balance sheets of
the Company and its subsidiaries, if any, as of the end of each calendar month,
and consolidated statements of income and cash flows for such period and for the
current fiscal year to date, all prepared in accordance with generally accepted
accounting principles, together with a comparison of such statements to the
Company's operating plan then in effect.
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2.2 OPERATING PLAN AND BUDGET
The Company will furnish to the Investor a budget and operating plan
(including projected balance sheets and profit and loss and cash flow
statements) for each fiscal year, as soon as practicable after approval or
adoption thereof by the Company's Board of Directors, but in any event no later
than 30 days before the beginning of the fiscal year covered thereby.
2.3 ASSIGNMENT OF RIGHTS TO FINANCIAL INFORMATION
The rights granted pursuant to Sections 2.1 and 2.2 may be assigned by the
Investor to a third party who acquires at least 250,000 shares of Common Stock
from the Investor (as adjusted for any stock splits, consolidations and the
like) and who is not an actual or potential competitor, or affiliated in any
manner with a competitor, of the Company, provided that the Company receives
notice fifteen (15) days prior to such assignment. If the Company reasonably
believes it necessary to protect proprietary information, the Company may
require any transferee or assignee of the rights under this Section 2 to execute
a confidentiality agreement as a condition receiving such information.
2.4 PREEMPTIVE RIGHT
Subject to the terms and conditions specified in this Section 2.4, the
Company hereby grants to the Investor a right of first offer with respect to
future sales by the Company of its Securities (as hereinafter defined).
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Securities"), the Company shall first make an offering of such
Securities to the Investor in accordance with the following provisions:
(a) The Company shall deliver a notice ("Notice") to the Investor
stating (i) its bona fide intention to offer such Securities, (ii) the number of
such Securities to be offered, (iii) the price, if any, for which it proposes to
offer such Securities, and (iv) any other material terms of such offer.
(b) Within fifteen (15) calendar days after receipt of the Notice, the
Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to an amount of such Securities equal to that
portion of such Securities which equals the proportion that the number of shares
of Common Stock then issued or issuable to the Investor upon exercise of the
Warrants held by the Investor bears to the sum of the number of shares of Common
Stock then issued and outstanding plus the number of shares of Common Stock
issuable upon (i) conversion of all convertible securities of the Company then
outstanding and (ii) exercise of all options and warrants then outstanding.
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The Investor shall be entitled to apportion the right of first offer hereby
granted among itself and its partners and affiliates in such proportions as it
deems appropriate.
(c) If all Securities which the Investor is entitled to purchase
pursuant to this Section 2.4 are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the one hundred eighty (180)
day period following the expiration of the period provided in subsection 2.4(b)
hereof, offer such unsubscribed Securities to any person or persons at a price
not less than, and upon terms not materially more favorable to the offeree than,
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Securities within such period, or if such agreement is not
consummated within thirty (30) days of the execution thereof, the right provided
hereunder shall be deemed to be revived.
(d) The right of first offer in this Section 2.4 shall not be
applicable (i) to the issuance or sale of shares of capital stock (or options
therefor) to employees, officers, directors, consultants or other parties
eligible to receive options under the Company's stock option plan or plans, (ii)
to the issuance or sale of the Company's securities to leasing entities or
financial institutions in connection with commercial leasing or borrowing
transactions, (iii) to, or after consummation of, the Company's Initial Public
Offering, (iv) to conversions of convertible securities or exercises of
exercisable securities, (v) to any issuance of securities in connection with any
acquisition, business combination, reorganization, merger or similar event, (vi)
to any issuance of securities in connection with the settlement or resolution of
the disputes (as more fully described in the Schedule of Exceptions to the
Purchase Agreement) between the Company and each of Daniel Kranzler and Mark
Kaleem, or (vii) after the tenth anniversary of this Agreement.
2.5 KEY MAN INSURANCE
The Company shall maintain a key man insurance policy on the life of Naveen
Jain in the amount of $1,000,000, with benefits payable to the Company.
2.6 RESTRICTION ON ISSUANCE OF SECURITIES
Until a simple majority of the Board of Directors of the Company is
comprised of directors who have not been appointed by Naveen Jain (including
Jain himself), the Company shall not (a) without additional cash consideration
paid therefor by Naveen Jain, issue to Naveen Jain any shares of Common Stock or
(b) in any twelve-month period, grant to Naveen Jain options to purchase more
than 25,000 shares of Common Stock (as such number of shares may be adjusted for
stock splits, recapitalizations and similar events).
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2.7 TERMINATION OF COVENANTS
The covenants set forth in Sections 2.1 through 2.6 shall (if not
terminated by their own terms) terminate on, and be of no further force or
effect after, the closing of the Company's Initial Public Offering.
SECTION 3. MISCELLANEOUS
3.1 ASSIGNMENT
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto.
3.2 THIRD PARTIES
Nothing in this Agreement, express or implied, is intended to confer upon
any party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
3.3 GOVERNING LAW
This Agreement shall be governed by and construed under the laws of the
State of Washington in the United States of America without regard to the
conflict or choice of law provisions of such State.
3.4 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.
3.5 NOTICES
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
otherwise delivered by hand or by messenger, facsimile or courier, addressed (a)
if to the Investor, at such Investor's address set forth on the signature page
hereto, or at such other address as the Investor shall have furnished to the
Company in writing, with a copy to Greg F. Adams, Davis Wright Tremaine, 2600
Centure Square, 1501 Fourth Avenue, Seattle, WA 98101, or (b) if to any other
Holder of Registrable Securities, at such address as such Holder shall have
furnished the Company in writing, or, until any such Holder so furnishes an
address to the Company, then to and at the address of the last Holder of such
Registrable Securities who has so furnished an address to the Company, or (c) if
to the Company, at
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its principal executive office, attention President, or at such other address as
the Company shall have furnished to the Investor, with a copy to Charles J.
Katz, Jr., Perkins Coie, 1201 Third Avenue, 40th Floor, Seattle, WA 98101. If
notice is provided by mail, it shall be deemed to be given three (3) business
days after proper deposit in the U.S. Mail, and if notice is given by hand or by
messenger, facsimile or courier, it shall be deemed to be given upon receipt.
3.6 SEVERABILITY
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, portions of such provisions, or such provisions in their
entirety, to the extent necessary, shall be severed from this Agreement, and the
balance of this Agreement shall be enforceable in accordance with its terms.
3.7 AMENDMENT AND WAIVER
Any provision of this Agreement may be amended with the written consent of
the Company and the Holders of at least fifty percent (50%) of the outstanding
shares of the Registrable Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities and the Company. In addition, the Company may waive performance of
any obligation owing to it, as to some or all of the Holders of Registrable
Securities, or agree to accept alternatives to such performance, without
obtaining the consent of any Holder of Registrable Securities. In the event
that an underwriting agreement is entered into between the Company and any
Holder, and such underwriting agreement contains terms differing from this
Agreement, as to any such Holder the terms of such underwriting agreement shall
govern.
3.8 EFFECT OF AMENDMENT OR WAIVER
The Investor and its successors and assigns acknowledge that by the
operation of Section 3.7 hereof the holders of fifty percent (50%) of the
outstanding Registrable Securities, acting in conjunction with the Company, will
have the right and power to diminish or eliminate any or all rights or increase
any or all obligations pursuant to this Agreement.
3.9 RIGHTS OF HOLDERS
Each Holder of Registrable Securities shall have the absolute right to
exercise or refrain from exercising any right or rights that such holder may
have by reason of this Agreement, including, without limitation, the right to
consent to the waiver or modification of any obligation under this Agreement,
and such Holder shall not incur any liability to any other holder of any
securities of the Company as a result of exercising or refraining from
exercising any such right or rights.
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3.10 DELAYS OR OMISSIONS
No delay or omission to exercise any right, power or remedy accruing to any
party to this Agreement, upon any breach or default of the other party, shall
impair any such right, power or remedy of such non-breaching party nor shall it
be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement, or by law or otherwise afforded to
any holder, shall be cumulative and not alternative.
3.11 AGGREGATION OF SHARES
All Registrable Securities held or acquired by affiliated persons or
entities shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.
3.12 ENTIRE AGREEMENT
This Agreement constitutes the full and entire understanding of the parties
hereto with regard to the matters set forth herein and supersedes any prior or
contemporaneous agreements or understandings with respect hereto.
[This space intentionally left blank.]
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EXHIBIT A
RESTRICTIVE LEGEND
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF AN INVESTOR RIGHTS AGREEMENT, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION, AND MAY NOT BE SOLD, TRANSFERRED OR
ENCUMBERED EXCEPT IN ACCORDANCE WITH THE TERMS AND PROVISIONS OF SAID AGREEMENT
AS SAID AGREEMENT MAY FROM TIME TO TIME BE AMENDED AND SUPPLEMENTED.
<PAGE>
INVESTOR LIST
<TABLE>
<CAPTION>
<S> <C>
Acorn Ventures-IS, LLC 1,875,000 shares of Common Stock
Common Stock Purchase Warrants to
purchase up to 3,377,457 shares
Kellett Partners LLP 312,500 shares of Common Stock
Common Stock Purchase Warrants to
purchase up to 460,561 shares
John and Carolyn Cunningham 62,500 shares of Common Stock
Common Stock Purchase Warrants to
purchase up to 153,521 shares
</TABLE>
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<PAGE>
EXHIBIT 10.9
FORM OF
INFOSPACE, INC.
CO-SALE AGREEMENT
This Co-Sale Agreement (the "Co-Sale Agreement") is entered into as of May
21, 1998, by and among InfoSpace, Inc., a Delaware corporation (the "Company"),
____________________ (the "Investor"), and Naveen Jain (the "Founder").
RECITALS
A. Pursuant to that certain Common Stock and Common Stock Warrant Purchase
Agreement dated as of the date hereof (the "Purchase Agreement"), the Investor
is purchasing: (i) __________ shares of the common stock of the Company, par
value $.0001 per share (the "Common Stock") and (ii) three Warrants to purchase
up to __________ shares of Common Stock.
B. The execution and delivery of this Agreement is a condition to the
Closing under the Purchase Agreement.
AGREEMENTS
Now, therefore, in consideration of the mutual promises and covenants
hereinafter set forth, the Company, the Investor and the Founder hereby agree as
follows:
1. RIGHT OF CO-SALE
1.1 SALES BY FOUNDER
In the event that the Founder proposes to sell, assign, transfer or
otherwise convey any shares of Common Stock or securities convertible into,
exchangeable for or exercisable for Common Stock ("Co-Sale Securities"), the
Founder shall offer in writing to the Investor the right to participate in such
sale on the same terms and conditions available to the Founder if, immediately
prior to or as a result of such proposed sale, the Founder has transferred or
would transfer more than 2,250,000 shares of Co-Sale Securities (such amount of
Co-Sale Securities, as adjusted to reflect any stock split, stock dividend or
recapitalization of the Company and subject to Section 1.4 hereof, the "Co-Sale
Cap"). Upon written notice to the Founder within fifteen (15) days of receipt
by the Investor of notification from the Founder of the proposed sale, the
Investor may sell that number of shares of Co-Sale Securities equal to (a) the
lesser of (i) the total number of shares to be sold in the transaction or (ii)
the difference between the total number of shares of Co-Sale Securities the
Founder would have transferred after the proposed sale and the Co-Sale
<PAGE>
Cap, multiplied by (b) a fraction, the numerator of which is the number of
shares of Co-Sale Securities held by the Investor and the denominator of which
is the number of shares of Co-Sale Securities held by the Investor plus the
Founder. To the extent the Investor exercises such right of participation, the
number of shares of Co-Sale Securities that the Founder may sell in the
transaction shall be correspondingly reduced. For purposes of this Section 1.1,
the number of shares of Co-Sale Securities other than Common Stock shall be that
number of shares of Common Stock the Co-Sale Securities are convertible into,
exchangeable for, or exercisable for.
1.2 LIMITATIONS ON RIGHT OF CO-SALE
Section 1.1 of this Agreement shall not apply (and the amount of Co-Sale
Securities so transferred shall not be included in determining whether the
Founder has transferred Co-Sale Securities in excess of the Co-Sale Cap) where
the sale, assignment, transfer or other conveyance of Co-Sale Securities by the
Founder is: (a) to the Founder's spouse or former spouse, parents, or children
or other members of the Founder's family (including relatives by marriage), or
to a custodian, trustee or other fiduciary for the benefit of the Founder or
members of his family or to a family limited partnership, limited liability
company or other entity or person in connection with a bona fide estate planning
transaction; (b) by way of bequest or inheritance upon death; (c) to the
Company; (d) by way of a bona fide gift or (e) by way of any pledge of Co-Sale
Securities made by the Founder pursuant to a bona fide loan transaction with an
established financial institution that creates a mere security interest;
provided, however, that any transferees pursuant to this Section 1.2 shall
receive and hold such Co-Sale Securities subject in all respects to the
provisions of this Agreement, and that there shall be no further transfer of
such shares except in accordance herewith.
1.3 TERMINATION OF CO-SALE RIGHT
The Co-Sale Right set forth in this Agreement shall terminate and be of no
further force and effect immediately upon the earliest of:
(a) the closing of an initial firm commitment underwritten public
offering of the Company's Common Stock pursuant to an effective registration
statement on Form S-1 under the Securities Act of 1933, as amended, covering the
offer and sale of Common Stock by the Company to the public at an aggregate
offering price of at least $35,000,000 and a per share offering price to the
public at least equal to six dollars ($6.00) (appropriately adjusted to reflect
any stock split, stock dividend or recapitalization of the Company);
(b) the acquisition of all or substantially all the assets or stock of
the Company or the merger of the Company with or into any other entity in which
a change of control of the Company occurs; or
-2-
<PAGE>
(c) ten years after the date of this Agreement.
2. PROHIBITED TRANSFERS
2.1 TREATMENT OF PROHIBITED TRANSFERS
In the event the Founder sells any Co-Sale Securities of the Company in
contravention of the participation rights of the Investor under this Agreement
(a "Prohibited Transfer"), the Investor, in addition to such other remedies as
may be available at law, in equity or hereunder, shall have the put option
provided in Section 2.2 below, and the Founder shall be bound by the applicable
provisions of such put option.
2.2 PUT OPTION
In the event of a Prohibited Transfer, the Investor shall have the right to
sell to the Founder, and, if such right is exercised, the Founder shall have the
obligation to purchase from the Investor, a number of shares of Common Stock of
the Company (either directly or through delivery of Co-Sale Securities) equal to
the number of shares the Investor would have been entitled to transfer to the
purchaser in the Prohibited Transfer pursuant to the terms hereof. Such sale
shall be made on the following terms and conditions:
(a) The price per share at which the shares are to be sold to the
Founder shall be equal to the price per share paid by the purchaser to the
Founder in the Prohibited Transfer. The Founder shall also reimburse the
Investor for any and all reasonable fees and expenses, including legal fees and
expenses, promptly following demand therefor, incurred pursuant to the exercise
or the attempted exercise of the Investor's rights under this Section 2.
(b) In order to exercise the put option created under this Section 2,
the Investor must, within 20 days after the later of the date on which the
Investor (i) received notice from the Founder of the Prohibited Transfer or (ii)
otherwise become aware of the Prohibited Transfer, deliver to the Founder the
certificate or certificates representing shares to be sold, each certificate to
be properly endorsed for transfer.
(c) The Founder shall, upon receipt of the certificate or certificates
for the shares to be sold by the Investor, pursuant to Section 2.2(b), promptly
pay the aggregate purchase price therefor and the amount of reimbursable fees
and expenses, as specified in Section 2.2(a), by certified check or bank draft
made payable to the order of the Investor.
-3-
<PAGE>
3. MISCELLANEOUS
3.1 GOVERNING LAW
This Agreement shall be governed in all respects by and construed in all
respects in accordance with the laws of the State of Washington, without regard
to the conflicts of laws provisions of such State.
3.2 SUCCESSORS AND ASSIGNS
Except as otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
transferees, executors and administrators of the parties hereto. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.3 ENTIRE AGREEMENT
This Agreement constitutes the full and entire understanding and agreement
between the parties hereto with regard to the subject matter hereof and
supersedes any prior or contemporaneous agreements or understandings with
respect thereto.
3.4 AMENDMENT AND WAIVER
This Agreement, or any provision hereof, may be amended or waived only in
writing signed by the Company, the Founder and the Investor, and any amendment
or waiver so approved shall be binding upon the Founder and Investor (including
the transferee of any Founder or the Investor).
3.5 NOTICES, ETC.
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
otherwise delivered by hand or by messenger, facsimile or courier, addressed (a)
if to the Investor, at the Investor's address set forth on the signature page
hereto, or at such other address as the Investor shall have furnished to the
Company and the Founder in writing, with a copy to Greg F. Adams, Davis Wright
Tremaine, 2600 Century Square, 1501 Fourth Avenue, Seattle, WA 98101, (b) if to
the Founder, at the address as it appears on the books of the Company or at such
other address as the Founder shall have furnished the Company and the Investor
in writing, or (c) if to the Company, at
its principal executive office, attention President, or at such other address as
the Company shall have furnished to the Investor and the Founder, with a copy to
Charles J. Katz, Jr., Perkins Coie, 1201 Third Avenue, 40th Floor, Seattle,
-4-
<PAGE>
WA 98101. If notice is provided by mail, it shall be deemed to be given three
(3) business days after proper deposit in the U.S. Mail, and if notice is given
by hand or by messenger, facsimile or courier, it shall be deemed to be given
upon receipt.
3.6 SEVERABILITY
In the event that any provision of this Agreement is held to be
unenforceable under applicable law, this Agreement shall continue in full force
and effect without said provision and shall be enforceable in accordance with
its terms.
3.7 TITLES AND SUBTITLES
The titles of the sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
3.8 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one instrument.
3.9 NO ADVERSE EFFECT
Failure of the Investor to exercise a right under Section 1 or Section 2 of
this Agreement shall not adversely affect the Investor's rights upon subsequent
sales or proposed sales by the Founder.
3.10 LEGENDED CERTIFICATES
Each certificate representing shares of the Co-Sale Securities of the
Company or issued to any permitted transferee pursuant to Section 1.2 shall be
endorsed with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN CO-SALE AGREEMENT BY AND AMONG THE STOCKHOLDER, THE
CORPORATION AND A CERTAIN HOLDER OF COMMON STOCK OF THE CORPORATION.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION."
The foregoing legend shall be removed upon termination of this Co-Sale
Agreement in accordance with the provisions of Section 1.3.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Co-Sale Agreement as of
the date first above written.
INFOSPACE, INC.
By: _____________________________________
Naveen Jain, President and Chief
Executive Officer
FOUNDER:
_________________________________________
Naveen Jain
INVESTOR:
ACORN VENTURES-IS, LLC
By: _____________________________________
Name: ___________________________________
Title: __________________________________
Tax I.D. No.: ___________________________
Address: 1309 - 114th Avenue SE
Suite 200
Bellevue, WA 98004
[SIGNATURE PAGE FOR CO-SALE AGREEMENT]
-6-
<PAGE>
INVESTOR LIST
Acorn Ventures-IS, LLC 1,875,000 shares of Common Stock
Three Common Stock Purchase Warrants to
purchase up to 3,375,457 shares
Kellett Partners LLP 325,000 shares of Common Stock
Three Common Stock Purchase Warrants to
purchase up to 460,561 shares
John and Carolyn Cunningham 62,500 shares of Common Stock
Three Common Stock Purchase Warrants to
purchase up to 153,521 shares
-7-
<PAGE>
EXHIBIT 10.10
NEITHER THE SECURITY EVIDENCED BY THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE LAW, AND NO INTEREST HEREIN OR THEREIN MAY
BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS
(A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES,
(B) THE COMPANY RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF SAID
SECURITIES (CONCURRED IN BY LEGAL COUNSEL FOR THE COMPANY) STATING THAT SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION, OR (C) THE COMPANY OTHERWISE SATISFIES
ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.
No. W-__ WARRANT TO PURCHASE
ISSUED: May 21, 1998 __________ SHARES OF
VOID AFTER: May 21, 2008 COMMON STOCK
FORM OF
INFOSPACE, INC.
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY that, for $___________, the receipt of which is hereby
acknowledged, and subject to the terms and conditions hereof,
_______________________, or such person to whom this Warrant is transferred
pursuant to Section 7 hereof (the "Holder"), is entitled, at any time on or
after the date hereof but not later than 5:00 p.m., Seattle time, on May 21,
2008 (the "Exercise Period"), subject to the provisions hereof, to purchase in
whole or from time to time in part up to __________ fully paid and nonassessable
shares of Common Stock (the "Common Stock"), $.0001 par value per share, of
INFOSPACE, INC., a Delaware corporation (the "Company"), at the price of [$2.00]
[$3.00] [$5.00] per share (the "Exercise Price") (such number of shares subject
to this Warrant ("Warrant Stock") and such Exercise Price being subject to
adjustment as provided herein).
1. EXERCISE
1.1 PROCEDURE FOR EXERCISE
Notwithstanding any other provision of this Warrant, this Warrant may be
exercised only with respect to shares of Warrant Stock, if any, as to which the
Repurchase Option (as defined in Section 1.3 below) shall have terminated and
ceased to apply ("Eligible Shares"). Subject to the foregoing, this Warrant may
be exercised at any time during the Exercise Period in whole or part by
delivering to the Company (a) the form of Exercise Notice attached hereto duly
completed and executed by the Holder, (b) this Warrant certificate, and (c) a
bank cashier's check payable to the Company in the amount of the Exercise Price
multiplied by the
<PAGE>
number of shares for which this Warrant is being exercised (the "Purchase
Price"). The Holder will be deemed to be the holder of record of the Eligible
Shares as to which the Warrant was exercised in accordance with this Warrant,
effective at the close of business, Seattle time, on the date such exercise is
completed and all documents specified above are delivered to the Company.
1.2 NET EXERCISE
Notwithstanding the payment provisions set forth above, the Holder may
elect to exercise this Warrant, subject to the limitations set forth in the
first sentence of Section 1.1 above, by converting this Warrant into Eligible
Shares as provided in this Section 1.2, such election to be effected by
surrender of this Warrant at the principal office of the Company, together with
the Notice of Exercise indicating such election, in which case the Company shall
issue to the Holder the number of Eligible Shares determined as follows:
X = Y (A-B)
-----------
A
Where: X = the number of Eligible Shares to be issued
Y = the number of Eligible Shares as to which the Warrant is being
exercised
A = the Fair Market Value (as defined below) of one (1) share of
Warrant Stock
B = the Exercise Price
For purposes of the above calculation, the Fair Market Value of a share of
Warrant Stock shall be determined in good faith by the Board of Directors of the
Company (the "Board"); provided, however, that if a public market for the Common
Stock exists at the time of such exercise, then such Fair Market Value shall be
deemed to be equal to the average of the closing bid and asked prices of the
Common Stock as quoted in the Over-the-Counter Market Summary or the last
reported sale price of the Common Stock or the closing price quoted on the
Nasdaq National Market System or on any exchange on which the Common Stock is
then listed, whichever is applicable, for the five (5) trading days prior to the
date of exercise of this Warrant. Notwithstanding the foregoing, in the event
this Warrant is exercised in connection with the Company's initial public
offering of Common Stock, the Fair Market Value per share shall be deemed to be
equal to the per share offering price to the public of the Company's initial
public offering.
2
<PAGE>
1.3 REPURCHASE OPTION
This Warrant is subject to repurchase by the Company as follows (the
"Repurchase Option"):
(a) The Repurchase Option shall entitle the Company to repurchase this
Warrant as to 100% of the Warrant Stock subject hereto, provided that the
Repurchase Option shall be subject to termination in whole or in part (meaning
that the percentage of Warrant Stock as to which this Warrant may be repurchased
shall be reduced and the number of Eligible Shares shall be correspondingly
increased) as provided elsewhere in this Section 1.3 and in Section 4. The
Repurchase Option, to the extent still in effect, may be exercised by the
Company in whole or in part at any time during the period beginning April 1,
2002 and ending at 5:00 p.m., Seattle time, on June 30, 2002 (the "Repurchase
Deadline") by notice to the Holder. The notice shall indicate the number of
shares of Warrant Stock as to which this Warrant is being repurchased and the
proposed closing date for the repurchase (such date being not later than thirty
(30) days after the date of the notice). The repurchase price to be paid by the
Company to the Holder shall be $.01 per share of Warrant Stock as to which the
Warrant is being repurchased. At the closing, the Holder shall deliver this
Warrant and the Company shall deliver the amount due to Holder and, if
applicable, a new warrant of like tenor (but excluding the Repurchase Option)
representing the number of shares of Warrant Stock not repurchased by the
Company.
(b) The percentage of Warrant Stock as to which this Warrant may be
repurchased pursuant to the Repurchase Option shall be reduced, and the
Repurchase Option shall terminate, according to the following schedule as the
Company completes Qualified Financings (as defined below) prior to March 31,
2002:
<TABLE>
<CAPTION>
PERCENTAGE OF WARRANT STOCK AS
TO WHICH REPURCHASE OPTION
QUALIFIED FINANCINGS TERMINATES
--------------------------------------------------- -------------------------------------------------
<S> <C>
At least $5 million but less than $10 million 10%
At least $10 million but less than $15 million 20%
At least $15 million but less than $20 million 30%
At least $20 million but less than $25 million 40%
At least $25 million but less than $30 million 50%
At least $30 million but less than $35 million 60%
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
At least $35 million but less than $40 million 70%
At least $40 million but less than $45 million 80%
At least $45 million but less than $50 million 90%
Greater than $50 million 100%
</TABLE>
Any such incremental reduction in the percentage of Warrant Stock as
to which the Repurchase Option applies, and the corresponding increase in the
number of Eligible Shares, shall be deemed to occur simultaneously with the
closing of the Qualified Financing that triggered such reduction.
The term "Qualified Financings" shall mean the Company's issuance of
debt or equity securities to purchasers for the primary purpose of financing the
operations, including without limitation, acquisitions of other entities for
cash, of the Company, the closings of which occur on or after the date of this
Warrant and during the period that the Consulting Agreement, dated as of May 21,
1998, between the Company and ____________________ (the "Consulting Agreement")
is in effect (it being understood that financings through the issuance and sale
of shares of Common Stock occurring on or after the date of this Warrant shall
not be considered a Qualified Financing with respect to $3,000,000 of such
financings); provided, however, that Qualified Financings shall not include (i)
securities issued pursuant to a stock option plan, employee stock purchase plan,
stock grant program or other equity incentive plan or arrangement approved by
the Board; (ii) securities issued as consideration for the acquisition or
development of other entities, or otherwise issued in connection with strategic
acquisitions or alliances with strategic business partners, as approved by the
Board, provided, however, that any transaction described in this subclause (ii)
in which the Company receives cash upon issuance of the Company's debt or equity
securities shall be considered a Qualified Financing and, further, provided that
the value of such Qualified Financing for the purposes of this Section 1.3 shall
be limited to the amount of cash received by the Company in exchange for such
debt or equity securities; and (iii) shares of Common Stock issuable upon
conversion of preferred stock or other convertible securities into Common Stock
or upon exercise of any warrants and similar purchase rights.
(c) If, prior to March 31, 2002, (i) the Board, in its discretion, has
not actively pursued a business strategy for the Company which, if successfully
implemented, would be reasonably likely to result in the need for Qualified
Financings of at least $50 million or (ii) the Consulting Agreement is
terminated by the Company, then the Repurchase Option shall terminate as of the
close of business, Seattle time, on March 31, 2002, it being understood and
agreed that if less than $50 million in Qualified Financings are closed on or
prior to March 31, 2002, such fact shall not be sufficient in and of itself to
cause the Repurchase
4
<PAGE>
Option to terminate under this subsection (c); provided further, that no
termination of the Repurchase Option shall occur under this subsection (c) if
the Holder shall have materially breached the Consulting Agreement or materially
failed to perform Holder's obligations thereunder.
(d) If (i) Naveen Jain (the "Founder") transfers more than 2,250,000
shares of Common Stock (the "Transfer Limit") and (ii) the Company issues shares
of Common Stock, as a result of which issuance the Founder and Acorn Ventures-
IS, LLC and its affiliates collectively own beneficially less than 50% of the
outstanding voting interests of Common Stock, then the Repurchase Option shall
terminate upon the date of such issuance; provided, however, that in determining
whether the Founder has transferred shares of Common Stock in excess of the
Transfer Limit under subsection 1.3(d)(i) above, shares of Common Stock
transferred by the Founder shall not be included in such determination where the
sale, assignment, transfer or other conveyance of shares of Common Stock by the
Founder is: (x) to the Founder's spouse or former spouse, parents, or children
or other members of the Founder's family (including relatives by marriage), or
to a custodian, trustee or other fiduciary for the benefit of the Founder or
members of his family or to a family limited partnership, limited liability
company or other entity or person in connection with a bona fide estate planning
transaction; (y) by way of bequest or inheritance upon death; (z) by way of any
pledge of shares of Common Stock made by the Founder pursuant to a bona fide
loan transaction with an established financial institution that creates a mere
security interest (such transfers described in subparts (x), (y) and (z) above,
"Exempt Transfers"); provided further, however, that any further transfer by
such transferees which is not an Exempt Transfer shall be included in
determining whether the Founder has transferred shares of Common Stock in excess
of the Transfer Limit.
2. DELIVERY OF STOCK CERTIFICATE
Within twenty days after the exercise of this Warrant (in full or in part)
and payment of the Purchase Price then due (if exercise is made pursuant to
Section 1.1), the Company shall issue in the name of and deliver to the Holder
(a) a certificate or certificates for the number of fully paid and nonassessable
shares of Warrant Stock to which the Holder shall be entitled upon such exercise
and (b) if applicable, a new Warrant of like tenor to purchase up to that number
of shares of Warrant Stock, if any, as to which this Warrant shall not have been
previously exercised by the Holder or repurchased by the Company.
5
<PAGE>
3. RESERVATION OF WARRANT STOCK
The Company covenants and agrees that the Company will at all times have
authorized and reserved a sufficient number of shares of Common Stock to provide
for the exercise of the rights represented by this Warrant.
4. TERMINATION UPON REORGANIZATION
Simultaneous with the closing of a merger, consolidation, acquisition of
all or substantially all of the assets or stock, reorganization or liquidation
of the Company as a result of which the stockholders of the Company will own
less than 50% of the voting capital stock of the Company immediately after the
transaction or, in the case of a sale of assets or liquidation, the Company will
own after the transaction less than substantially all of the assets owned by the
Company prior to the transaction (collectively, a "Reorganization") prior to the
expiration of the Exercise Period, as a result of which the stockholders of the
Company receive cash, stock or other property in respect of their shares of
Common Stock, this Warrant shall be canceled and all rights granted hereunder
shall terminate; provided, however, that (a) the Company shall have delivered to
the Holder notice of the Reorganization no less than 15 business days before the
date scheduled for closing of the Reorganization, and (b) the Holder shall have
the right immediately prior to (and contingent upon) the closing of such
Reorganization to exercise this Warrant to purchase any and all Eligible Shares.
5. ADJUSTMENTS FOR STOCK SPLITS AND SIMILAR MATTERS
If the Company shall issue any shares of Common Stock as a stock dividend
or subdivide the number of outstanding shares of Common Stock into a greater
number of shares, then, in either such case, the Exercise Price in effect before
such dividend or subdivision shall be proportionately reduced and each of (a)
the number of shares of Warrant Stock at that time purchasable pursuant to this
Warrant and (b) the number of shares of Common Stock constituting the Transfer
Limit shall be proportionately increased; and, conversely, if the Company shall
reduce the number of outstanding shares of Common Stock by combining such shares
into a smaller number of shares, then the Exercise Price in effect before such
combination shall be proportionately increased and each of (x) the number of
shares of Warrant Stock at that time purchasable pursuant to this Warrant and
(y) the number of shares of Common Stock constituting the Transfer Limit shall
be proportionately decreased. Upon each adjustment in the Exercise Price
pursuant to this Section 5, the number of shares of Warrant Stock purchasable
hereunder shall be adjusted, to the nearest whole share, to the product obtained
by multiplying such number of shares purchasable immediately prior to such
adjustment in the Exercise Price by a fraction, the numerator of which shall be
the
6
<PAGE>
Exercise Price immediately prior to such adjustment and the denominator of which
shall be the Exercise Price immediately thereafter.
6. FRACTIONAL SHARES
No fractional shares shall be issued upon the exercise of this Warrant. In
lieu of fractional shares, the Company shall pay the Holder a sum in cash equal
to the fair market value of the fractional shares (as determined by the Board)
on the date of exercise.
7. RESTRICTIONS ON TRANSFER
Neither this Warrant nor any securities purchased upon exercise of this
Warrant may be transferred unless (a) such transfer is registered under the
Securities Act of 1933, as amended (the "Securities Act"), and any applicable
state securities or blue sky laws, (b) the Company has received a legal opinion
reasonably satisfactory to the Company to the effect that the transfer is exempt
from the prospectus delivery and registration requirements of the Securities Act
and any applicable state securities or blue sky laws, or (c) the Company
otherwise satisfies itself that such transfer is exempt from registration.
8. LEGEND
A legend setting forth or referring to the above restrictions shall be
placed on this Warrant, any replacement hereof and any certificate representing
a security issued pursuant to the exercise hereof, and a stop transfer
restriction or order shall be placed on the books of the Company and with any
transfer agent until such securities may be legally sold or otherwise
transferred.
9. HOLDER AS OWNER
The Company may deem and treat the Holder of this Warrant as the absolute
owner hereof for all purposes regardless of any notice to the contrary.
10. NO STOCKHOLDER RIGHTS
This Warrant shall not entitle the Holder to any voting rights or any other
rights as a stockholder of the Company or to any other rights whatsoever except
the rights stated herein; and no dividend or interest shall be payable or shall
accrue in respect of this Warrant or the Warrant Stock purchasable hereunder
unless, until and to the extent that this Warrant shall be exercised.
11. CONSTRUCTION
The validity and interpretation of the terms and provisions of this Warrant
7
<PAGE>
shall be governed by the laws of the State of Washington. The descriptive
headings of the several sections of this Warrant are inserted for convenience
only and shall not control or affect the meaning or construction of any of the
provisions thereof.
12. EXPIRATION
This Warrant shall be void and all rights represented thereby shall cease
unless exercised during the Exercise Period, as such period may be adjusted
pursuant to Section 4 hereof. All restrictions set forth herein on the shares
of capital stock issued upon exercise of any rights hereunder shall survive such
exercise and expiration of the rights granted hereunder.
13. EXCHANGE OF WARRANT
This Warrant is exchangeable upon the surrender hereof by the Holder at the
office of the Company for new Warrants of like tenor representing in the
aggregate the rights to subscribe for and purchase the number of shares which
may be subscribed for and purchased hereunder, each of such new Warrants to
represent the right to subscribe for and purchase such number of shares as shall
be designated by the Holder at the time of such surrender.
14. LOST WARRANT CERTIFICATE
If this Warrant is lost, stolen, mutilated or destroyed, the Company shall,
upon request in writing from the Holder and subject to compliance by Holder with
the following sentence, issue a new Warrant of like denomination, tenor and date
as this Warrant, subject to the Company's right to require the Holder to give
the Company a bond or other satisfactory security sufficient to indemnify the
Company against any claim that may be made against it (including any expense or
liability) on account of the alleged loss, theft, mutilation or destruction of
this Warrant or the issuance of such new Warrant. The Holder shall reimburse
the Company for any and all expenses and costs incurred by the Company in
connection with issuing a new Warrant under this Section.
15. WAIVERS AND AMENDMENTS
This Warrant or any provision hereof may be changed, waived, discharged or
terminated only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
8
<PAGE>
16. NOTICES
All notices or other communications required or permitted hereunder shall
be in writing and shall be delivered by personal delivery, reputable overnight
courier service, telecopier or mailed by United States mail, first-class postage
prepaid, or by registered or certified mail with return receipt requested,
addressed as follows:
If to the Holder:
________________________
________________________
________________________
________________________
________________________
If to the Company:
InfoSpace, Inc.
8424 - 154th Avenue N.E.
Redmond, WA 98052
Fax: (425) 882-0988
Attention: President
Each of the foregoing parties shall be entitled to specify a different
address by giving five days' advance written notice as aforesaid to the other
parties.
17. INVESTMENT INTENT
By accepting this Warrant, the Holder represents that it is acquiring this
Warrant for investment and not with a view to, or for sale in connection with,
any distribution thereof.
9
<PAGE>
NOTICE OF EXERCISE
TO INFOSPACE, INC.
The undersigned hereby irrevocably elects to exercise the Warrant delivered
herewith pursuant to Section __ [fill in 1.1 or 1.2] thereof as to shares
of Common Stock and requests that certificates for such shares (or so many
thereof as may be issuable upon this exercise, if this exercise is being made
pursuant to Section 1.2 of the Warrant) be issued in the name of and delivered
to the undersigned at the address stated below, and, if additional shares remain
available for purchase pursuant to the Warrant, the new Warrant evidencing the
right to purchase the balance of such shares shall be registered in the name of,
and delivered to, the undersigned at the address stated below. The undersigned
hereby agrees with and represents to the Company that said shares of common
stock are acquired for investment and not with a view to, or for sale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act of 1933, as amended, and agrees that the exercise of the
Warrant and the issuance and transfer of the common stock to be purchased are
subject to Sections 7 and 8 of the Warrant.
Payment is enclosed in the amount of $____________________
Dated: _____________________
_________________________________
By _______________________________________
Its_______________________________________
ADDRESS:
_____________________________
_____________________________
_____________________________
EIN:____________________
PHONE:_______________________
FACSIMILE:___________________
<PAGE>
ASSIGNMENT
For value received ________________ hereby sells, assigns and transfers
unto________________the InfoSpace, Inc. Common Stock Purchase Warrant number W-
___, together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint Perkins Coie attorney, to transfer said
Warrant on the books of the within-named Company, with full power of
substitution in the premises.
Dated:_______________________
_______________________________________
By_____________________________________
Its____________________________________
<PAGE>
LIST OF HOLDERS
<TABLE>
<CAPTION>
<S> <C>
Acorn Ventures - IS, LLC W-1, Warrant to purchase up to 1,801,310
shares of Common Stock at $2.00 per share.
W-2, Warrant to purchase up to 788,073
shares of Common Stock at $3.00 per share.
W-3 Warrant to purchase up to 788,073
shares of Common Stock at $5.00 per share.
Kellett Partners, L.L.P. W-4, Warrant to purchase up to 245,633
shares of Common Stock at $2.00 per share.
W-5, Warrant to purchase up to 107,464
shares of Common Stock at $3.00 per share.
W-6, Warrant to purchase up to 107,464
shares of Common Stock at $5.00 per share.
John and Carolyn Cunningham W-7, Warrant to purchase up to 81,879
shares of Common Stock at $2.00 per share.
W-8, Warrant to purchase up to 35,821
shares of Common Stock at $3.00 per share.
W-9, Warrant to purchase up to 35,821
shares of Common Stock at $5.00 per share.
</TABLE>
<PAGE>
EXHIBIT 10.11
INFOSPACE, INC.
COMMON STOCK
PURCHASE AGREEMENT
AUGUST 6, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1.1 Purchase and Sale of Stock........................ 1
1.1 Authorization..................................... 1
1.2 Sale and Issuance of Securities................... 1
1.3 Closing
2. Representations and Warranties of the Company.......... 1
2.1 Organization and Existence........................ 2
2.2 Capitalization.................................... 2
2.3 Subsidiaries...................................... 2
2.4 Authorization..................................... 3
2.5 Valid Issuance of Common Stock.................... 3
2.6 Governmental Consents............................. 3
2.7 Litigation........................................ 4
2.8 Employees......................................... 4
2.9 Patents and Trademarks............................ 5
2.10 Compliance With Other Instruments................. 5
2.11 Permits........................................... 6
2.12 Environmental and Safety Laws..................... 6
2.13 Disclosure........................................ 6
2.14 Registration Rights............................... 6
2.15 Title to Property and Assets...................... 6
2.16 Financial Statements.............................. 7
2.17 Certain Agreements................................ 7
2.18 Tax Returns and Audits............................ 8
2.19 No Conflict of Interest........................... 8
2.20 Changes........................................... 9
2.21 Insurance......................................... 10
2.22 Qualified Small Business Stock.................... 10
3. Representations and Warranties of the Investor......... 10
3.1 Experience........................................ 10
3.2 Investment........................................ 10
3.3 Rule 144.......................................... 11
3.4 No Public Market.................................. 11
3.5 Access to Information............................. 11
3.6 Authorization..................................... 12
3.7 Accredited Investor............................... 12
4. Conditions of Investor's Obligations at Closing........ 12
4.1 Representations and Warranties.................... 12
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
4.2 Performance...................................... 12
4.3 Compliance Certificate........................... 12
4.4 Stockholder Rights Agreement..................... 13
4.5 Proceedings and Documents........................ 13
5. Conditions of the Company's Obligations at Closing.... 13
5.1 Representations and Warranties................... 13
5.2 Performance...................................... 13
5.3 Securities Laws.................................. 13
5.4 Stockholder Rights Agreement..................... 14
6. Miscellaneous......................................... 14
6.1 Governing Law.................................... 14
6.2 Survival......................................... 14
6.3 Successors and Assigns........................... 14
6.4 Entire Agreement; Amendment...................... 14
6.5 Notices, Etc..................................... 15
6.6 Delays or Omissions.............................. 15
6.7 Expenses......................................... 15
6.8 Finder's Fees.................................... 16
6.9 Counterparts..................................... 16
6.10 Severability..................................... 16
</TABLE>
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<PAGE>
EXHIBITS
Exhibit A Schedule of Investors
Exhibit B Schedule of Exceptions
Exhibit C Stockholder Rights Agreement
<PAGE>
INFOSPACE, INC.
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement is entered into as of August 6, 1998,
by and among InfoSpace, Inc., a Delaware corporation (the "Company"), and the
investors listed on Exhibit A hereto (the "Investors").
---------
1. PURCHASE AND SALE OF STOCK
1.1 AUTHORIZATION
The Company has authorized the issuance and sale pursuant to this Agreement
of up to an aggregate of 985,000 shares of its Common Stock, par value $.0001
per share (the "Common Stock").
1.2 SALE AND ISSUANCE OF SECURITIES
Subject to the terms and conditions of this Agreement, each Investor
agrees, severally and not jointly, to purchase from the Company at the Closing
(as defined below), and the Company agrees to sell and issue to each Investor at
the Closing, the number of shares of Common Stock set forth opposite such
Investor's name on Exhibit A hereto for the purchase price as set forth thereon.
---------
1.3 CLOSING
The purchase and sale of the Common Stock pursuant to this Agreement (the
"Closing") shall take place at the offices of Perkins Coie, 1201 Third Avenue,
Seattle, Washington, at 10:00 a.m., on August 6, , 1998, or at such other time
and place as may be mutually agreed orally or in writing by the Company and the
Investors acquiring in the aggregate at least a majority of the shares of Common
Stock being issued at the Closing (such shares issued at the Closing, the
"Shares", and the date of the Closing, the "Closing Date"). At the Closing, the
Company shall deliver to each Investor a certificate or certificates
representing the Shares that such Investor is purchasing against payment of the
purchase price therefor by check or wire transfer.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedule of Exceptions attached hereto as
Exhibit B, which exceptions also shall constitute representations and warranties
- ---------
under this Agreement, the Company hereby represents and warrants to the
Investors as follows:
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<PAGE>
2.1 ORGANIZATION AND EXISTENCE
The Company is a corporation duly organized and validly existing under the
laws of the state of Delaware and has all requisite corporate power and
authority to carry on its business as currently conducted. The Company is duly
qualified to transact business and is in good standing in the State of
Washington and each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties.
2.2 CAPITALIZATION
The authorized capital stock of the Company consists of Fifteen Million
(15,000,000) shares of Preferred Stock, par value $.0001 per share, of which no
shares are issued and outstanding as of the Closing, and Forty Million
(40,000,000) shares of Common Stock, of which 30,234,292 shares are issued and
outstanding as of the Closing (including those shares to be issued pursuant to
this Agreement). All such issued and outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable. The Company
has reserved Five Million (5,000,000) shares of Common Stock for issuance to
officers, directors, employees, consultants, agents, advisors and independent
contractors of the Company pursuant to the Company's 1996 Flexible Stock
Incentive Plan (the "Option Plan"), no shares of which have been issued and are
outstanding as of the Closing and 3,491,250 of which shares are subject to
issuance upon exercise of options that have been granted and are outstanding as
of the Closing. The Company has reserved 553,495 shares of Common Stock for
issuance to officers, directors and employees of the Company pursuant to the
Company's 1998 Stock Purchase Right Plan (the "Purchase Right Plan") and
5,083,588 shares of Common Stock for issuance upon exercise of outstanding
warrants. Other than the shares reserved for issuance described in this
paragraph, the rights set forth in the agreements described on Schedule 2.2 to
the Schedule of Exceptions, there are no outstanding rights, options, warrants,
preemptive rights, rights of first refusal or similar rights for the purchase or
acquisition from the Company of any securities of the Company.
2.3 SUBSIDIARIES
The Company does not presently own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity. The
Company is not a participant in any joint venture, partnership, or similar
arrangement other than those joint ventures, partnerships and arrangements in
which the Company participates in the ordinary course of business.
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<PAGE>
2.4 AUTHORIZATION
All corporate action on the part of the Company, its officers, directors
and stockholders necessary for the authorization, execution and delivery of this
Agreement and Stockholder Rights Agreement by and among the Company and the
Investors in the form attached hereto as Exhibit C (the "Stockholder Rights
---------
Agreement") the performance of all obligations of the Company hereunder and
thereunder, and the authorization, issuance, sale and delivery of the Shares
being sold hereunder has been taken or will be taken prior to the Closing, and
this Agreement constitutes, and upon execution and delivery thereof by the
Company and the other parties thereto the Stockholder Rights Agreement (the
"Agreements") will constitute, valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, subject to: (i) judicial principles limiting the availability of
specific performance, injunctive relief, and other equitable remedies; (ii)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors' rights; and
(iii) limitations on the enforceability of the indemnification provisions of the
Stockholder Rights Agreement.
2.5 VALID ISSUANCE OF COMMON STOCK
The shares of Common Stock that are being purchased by the Investors
hereunder, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be validly issued, fully
paid, and nonassessable, and will be free of restrictions on transfer directly
or indirectly created by the Company, other than restrictions on transfer
contained in the Agreements and under applicable state and federal securities
laws.
2.6 GOVERNMENTAL CONSENTS
No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state or
local governmental authority on the part of the Company is required in
connection with the offer, sale or issuance of the Shares or the consummation of
any other transaction contemplated hereby, except for the following: (i) the
filing of such notices as may be required under the Securities Act of 1933, as
amended (the "Securities Act"), and (ii) the filing of appropriate notices or
other documents as may be required under state securities laws. Based in part
on the representations of the Investors set forth in Section 3 below, the offer,
sale and issuance of the Shares in conformity with the terms of this Agreement
are exempt from the registration requirements of Section 5 of the Securities Act
and from the registration or qualification requirements of applicable
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<PAGE>
state securities laws, and neither the Company nor any authorized agent acting
on its behalf will take any action hereafter that would cause the loss of such
exemption.
2.7 LITIGATION
Except as set forth in the Schedule of Exceptions, there is no action,
suit, proceeding or investigation pending or, to the Company's knowledge,
currently threatened before any court, administrative agency or other
governmental body against the Company which questions the validity of the
Agreements or the right of the Company to enter into any of them, or to
consummate the transactions contemplated thereby, or which could reasonably
result, either individually or in the aggregate, in any material adverse change
in the condition (financial or otherwise), business, property, assets or
liabilities of the Company, or any change in the current equity ownership of the
Company, nor is the Company aware of any basis for the foregoing. The foregoing
includes, without limitation, actions, suits, proceedings or investigations
pending or, to the Company's knowledge, currently threatened involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to, and none of its assets is
bound by, the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality which could reasonably have a
material adverse effect on the Company. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company currently
intends to initiate.
2.8 EMPLOYEES
Each employee of the Company has executed a proprietary information
agreement. To the knowledge of the Company, no officer or employee is in
violation of any prior or current employee contract or proprietary information
agreement. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement, qualified or unqualified
employee benefit plan or other employee compensation agreement or arrangement
(other than the Option Plan and the Purchase Right Plan). No employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement. There is no pending or, to the Company's knowledge,
currently threatened labor dispute involving the Company and any group of its
employees. The employment of each officer and employee of the Company is
terminable at the will of the Company.
-4-
<PAGE>
2.9 PATENTS AND TRADEMARKS
The Company has sufficient title to and ownership of all trade secrets,
and, to its knowledge, copyrights, information, proprietary rights and
processes, patents, trademarks, service marks and trade names necessary for its
business as now conducted and as proposed to be conducted, without any material
conflict with or infringement of the rights of others. There are no material
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any material options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company has
not received any written communications alleging that the Company has violated
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity. To the
Company's knowledge, none of the Company's employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict with the
Company's business as conducted and as proposed to be conducted. To the
Company's knowledge, neither the execution and delivery of the Agreements nor
the current or proposed conduct of the Company's business will conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of the
Company's employees is now obligated. The Company does not believe it will be
necessary to use any inventions of any of its employees (or persons it currently
intends to hire) made prior to their employment by the Company, other than
inventions that have been validly assigned or contributed to the Company.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS
The Company is not in violation or default of any provision of its
Certificate of Incorporation or Bylaws, each as amended and in effect on and as
of the Closing. The Company is not in violation or default in any material
respect of any instrument, mortgage, deed of trust, loan, contract, commitment,
judgment, decree, order or obligation to which it is a party or by which it or
any of its properties or assets are bound or, to its knowledge, of any provision
of any federal, state or local statute, rule or governmental regulation. The
execution, delivery and performance of and compliance with the Agreements and
the issuance and sale of the Shares will not result in any such violation, be in
conflict with or constitute, with or without the passage of time or giving of
notice, a default under any such provision, require any consent or waiver under
any such provision (other than any consents or waivers that have been obtained),
or result in the creation of any mortgage, pledge, lien,
-5-
<PAGE>
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such provision.
2.11 PERMITS
The Company has all franchises, permits, licenses, and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could reasonably be expected to materially and adversely
affect the business, properties or financial condition of the Company. The
Company is not in default under any of such franchises, permits, licenses or
other similar authority.
2.12 ENVIRONMENTAL AND SAFETY LAWS
The Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and to
its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.13 DISCLOSURE
The Company has fully provided the Investors with all the information which
the Investors have requested in writing for deciding whether to purchase the
Shares No representation, warranty or statement by the Company in this
Agreement, or in any written statement or certificate furnished to the Investors
pursuant to this Agreement, contains any untrue statement of a material fact or,
omits to state a material fact necessary to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. However, as to any projections furnished to the Investors, such
projections were prepared in good faith by the Company, but the Company makes no
representation or warranty that it will be able to achieve such projections.
2.14 REGISTRATION RIGHTS
Except as provided in the Stockholder Rights Agreement and in Schedule 2.14
of the Schedule of Exceptions, the Company has not granted or agreed to grant
any registration rights, including piggyback rights, to any person or entity.
2.15 TITLE TO PROPERTY AND ASSETS
The Company has good and marketable title to all of its properties and
assets free and clear of all mortgages, liens and encumbrances, except liens for
current taxes and assessments not yet due and except such liens and encumbrances
which arise in the ordinary course of business and do not materially detract
from the value of the
-6-
<PAGE>
property subject thereto or materially impair the operations of the Company.
With respect to the properties and assets it leases, the Company is in
compliance with such leases and, to its knowledge, holds a valid leasehold
interest free of all liens, claims or encumbrances. The Company's properties and
assets are in good condition and repair in all material respects.
2.16 FINANCIAL STATEMENTS
The Company will deliver to the Investors its audited balance sheet, and
its audited statements of income, cash flows and stockholders' equity as of and
for the fiscal year ended December 31, 1997 as soon as the foregoing financial
statements (the "Financial Statements") become available. The Financial
Statements shall fairly present, in all material respects, the financial
position and results of operations of the Company as of the dates and for the
periods indicated and have been prepared in accordance with generally accepted
accounting principles consistently applied ("GAAP"). Except as and to the
extent reflected or reserved against in the December 31, 1997 balance sheet, the
Company has no material liabilities or obligations, contingent or otherwise,
other than (a) liabilities or obligations incurred in the ordinary course of
business subsequent to the cut-off date for the preparation of the December 31,
1997 balance sheet and (b) liabilities or obligations, including liabilities or
obligations under contracts and similar commitments, that are not required by
GAAP to be reflected in a balance sheet that is prepared in accordance with
GAAP. Except as disclosed in the Financial Statements, the Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
organization. The Company maintains and will continue to maintain a standard
system of accounting administered in accordance with GAAP.
2.17 CERTAIN AGREEMENTS
(a) Except for agreements described herein and in the Stockholder
Rights Agreement, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors or
affiliates.
(b) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees outside of the
ordinary course of business to which the Company is a party or by which it is
bound that may involve (i) obligations (contingent or otherwise) of or payments
by the Company in excess of, $100,000, or (ii) the license of any patent,
copyright, trade secret or other proprietary right to or from the Company, or
(iii) provisions restricting or adversely affecting the development, manufacture
or distribution of the Company's products or services or (iv) indemnification by
the Company with respect to infringements of proprietary rights.
-7-
<PAGE>
(c) The Company has not (i) declared or paid any dividends or
authorized or made any distribution (other than distributions of capital stock
of the Company) upon or with respect to any class or series of its capital
stock, (ii) incurred any indebtedness for money borrowed or any other
liabilities individually in excess of $100,000 or in excess of $250,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under its Articles or
Bylaws, that adversely affects its business as now conducted or as proposed to
be conducted, its properties or its financial condition.
2.18 TAX RETURNS AND AUDITS
The Company has accurately prepared all United States income tax returns
and all state and municipal tax returns required to be filed by it, if any, has
paid all taxes, assessments, fees and charges when and as due under such returns
and has made adequate provision for the payment of all other taxes, assessments,
fees and charges shown on such returns or on assessments received by the
Company, where, if not paid or filed or prepared correctly, would not have a
material adverse effect on the Company. To the Company's knowledge, no
deficiency assessment or proposed adjustment of the Company's United States
income tax or state or municipal taxes is pending.
2.19 NO CONFLICT OF INTEREST
The Company is not indebted, directly or indirectly, to any of its officers
or directors or to their respective spouses or children, in any amount
whatsoever other than in connection with expenses or advances of expenses
incurred in the ordinary course of business or relocation expenses of employees.
To the Company's knowledge, none of the Company's officers or directors, or any
members of their immediate families, are, directly or indirectly, indebted to
the Company or have any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any
-8-
<PAGE>
firm or corporation which competes with the Company. To the best of the
Company's knowledge, none of the Company's officers or directors or any members
of their immediate families, are, directly or indirectly, interested in any
material contract with the Company.
2.20 CHANGES
Since December 31, 1997, there has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any waiver or compromise by the Company of a valuable right or of
a material debt owed to it;
(c) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(d) any resignation or termination of employment of any officer or key
employee of the Company or material change in compensation payable or benefits
accruable to any officer or key employee; and the Company has no knowledge of
any impending resignation or termination of employment of any such officer or
key employee;
(e) any loans or guarantees made by the Company to or for the benefit
of its employees, officers or directors, or any members of their immediate
families, other than travel advances and other advances made in the ordinary
course of business;
(f) to the Company's knowledge, any other event or condition of any
character that could reasonably materially and adversely affect the business,
properties, prospects or financial condition of the Company (as such business is
currently conducted and as it is proposed to be conducted); or
(g) any arrangement or commitment by the Company to do any of the
things described in this Section 2.20.
2.21 INSURANCE
The Company has in full force and effect fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed.
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<PAGE>
2.22 QUALIFIED SMALL BUSINESS STOCK
As of and immediately following the Closing, the shares of Common Stock to
be issued will meet each of the following requirements for qualification as
"qualified small business stock" as set forth in Section 1202(c) of the Internal
Revenue Code of 1986, as amended (the "Code"): (i) the Company is a domestic C
corporation; (ii) the Company has not made any purchases of its own stock
described in Code Section 1202(c)(3)(B) during the one year period preceding the
Closing; and (iii) the Company's and any predecessor's aggregate gross assets,
as defined by Code Section 1202(d)(2), at no time from the date of incorporation
of the Company through and including the Closing have exceeded $50,000,000,
taking into account the assets of any corporation required to be aggregated with
the Company in accordance with Code Section 1202(d)(3).
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
Each Investor hereby represents and warrants to the Company, severally and
not jointly, that:
3.1 EXPERIENCE
Such Investor is experienced in evaluating start-up companies such as the
Company, is able to fend for itself in transactions such as the one contemplated
by this Agreement, has such knowledge and experience in financial and business
matters that the Investor is capable of evaluating the merits and risks of such
Investor's prospective investment in the Company, and has the ability to bear
the economic risks of the investment.
3.2 INVESTMENT
Such Investor is acquiring the Shares for investment for such Investor's
own account and not with the view to, or for resale in connection with, any
distribution thereof. Such Investor understands that the Shares have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent as expressed herein. Such
Investor does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participation to any third person with
respect to any of the Shares. Such Investor understands and acknowledges that
the offering of the Shares pursuant to this Agreement will not be registered
under the Securities Act on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from the
registration requirements of the Securities Act.
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<PAGE>
3.3 RULE 144
Such Investor acknowledges that the Shares must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such
registration is available. Such Investor is aware of Rule 144 promulgated under
the Securities Act which permits limited resale of securities purchased in a
private placement subject to the satisfaction of certain conditions. In the
absence of an effective registration statement covering the securities in
question, such Investor will sell, transfer, or otherwise dispose of the Shares
only in a manner consistent with such Investor's representations and covenants
set forth in this Section 3. In connection therewith, such Investor
acknowledges that the Company will make a notation on its stock books regarding
the restrictions on transfer set forth in this Section 3 and will transfer
securities on the books of the Company only to the extent not inconsistent
therewith.
3.4 NO PUBLIC MARKET
Such Investor understands that no public market now exists for any of the
securities issued by the Company, and that the Company has made no assurances
that a public market will ever exist for the Shares.
3.5 ACCESS TO INFORMATION
Such Investor has received and reviewed information about the Company and
has had an opportunity to discuss the Company's business, management and
financial affairs with its management and to review the Company's facilities.
Such Investor understands that such discussions, as well as any written
information issued by the Company, were intended to describe the aspects of the
Company's business and prospects which the Company believes to be material, but
were not necessarily a thorough or exhaustive description. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the right of the Investors to rely
thereon.
3.6 AUTHORIZATION
This Agreement, when executed and delivered by such Investor, will
constitute a valid and legally binding obligation of such Investor, enforceable
in accordance with its terms, subject to: (i) judicial principles respecting
election of remedies or limiting the availability of specific performance,
injunctive relief, and other equitable remedies; (ii) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
generally relating to or affecting creditors' rights; and (iii) limitations on
the enforceability of the indemnification provisions of the Stockholder Rights
Agreement.
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<PAGE>
3.7 ACCREDITED INVESTOR
Such Investor acknowledges that it is an "accredited investor" as defined
in Rule 501 of Regulation D as promulgated by the Securities and Exchange
Commission under the Securities Act and shall submit to the Company such further
assurances of such status as may be reasonably requested by the Company. For
state securities law purposes, the state of residence of such Investor is that
set forth on Exhibit A.
---------
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING
The obligations of each Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company contained in Section 2
shall be true and correct in all material respects on and as of the Closing with
the same effect as though such representations and warranties had been made on
and as of the date of the Closing.
4.2 PERFORMANCE
The Company shall have performed and complied in all material respects with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
4.3 COMPLIANCE CERTIFICATE
The President of the Company shall deliver to each Investor at the Closing
a certificate stating that the conditions specified in Sections 4.1 and 4.2
above have been fulfilled and that there has been no material adverse change in
the business, affairs, operations, properties, assets or condition of the
Company since the date of this Agreement.
4.4 STOCKHOLDER RIGHTS AGREEMENT
Each party thereto shall have executed and delivered the Stockholder Rights
Agreement.
-12-
<PAGE>
4.5 PROCEEDINGS AND DOCUMENTS
All corporate and other proceedings in connection with the transactions
contemplated hereby, and all documents and instruments incident to these
transactions, shall be reasonably satisfactory in substance to the Investor.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company to each Investor under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions by that Investor:
5.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of such Investor contained in Section 3
shall be true and correct in all material respects on and as of the Closing with
the same effect as though such representations and warranties had been made on
and as of the Closing.
5.2 PERFORMANCE
Such Investor shall have performed and complied in all material respects
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
5.3 SECURITIES LAWS
The Company shall be reasonably satisfied that the offer and sale of the
Shares hereunder is exempt from the registration and qualification requirements
of federal and applicable state securities laws.
5.4 STOCKHOLDER RIGHTS AGREEMENT
Each party thereto shall have executed and delivered the Stockholder Rights
Agreement.
6. MISCELLANEOUS
6.1 GOVERNING LAW
This Agreement shall be governed in all respects by the internal laws of
the state of Washington, without regard to any provisions thereof relating to
conflicts of laws among different jurisdictions.
-13-
<PAGE>
6.2 SURVIVAL
The representations, warranties, covenants and agreements made herein shall
survive the Closing until the later of (a) two (2) years after the Closing or
(b) the closing of an initial underwritten public offering of Common Stock,
whereupon such representations, warranties, covenants and agreements shall cease
and be of no further force and effect. All statements as to factual matters
contained in any certificate or exhibit delivered by or on behalf of the Company
pursuant hereto shall be deemed to be the representations and warranties of the
Company hereunder as of the Closing Date.
6.3 SUCCESSORS AND ASSIGNS
Except as otherwise provided herein, the provisions hereof shall inure to
the benefit of, and be binding upon, the successors, assigns, heirs, executors
and administrators of the parties hereto; provided, however, that the rights of
an Investor to purchase Securities shall not be assignable without the consent
of the Company.
6.4 ENTIRE AGREEMENT; AMENDMENT
This Agreement and the other documents delivered pursuant hereto constitute
the full and entire understanding and agreement among the parties with regard to
the subjects hereof and thereof and supersede all prior or contemporaneous oral
or written understandings or agreements relating to such subjects. Neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought.
6.5 NOTICES, ETC.
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
otherwise delivered by hand or by messenger, facsimile or courier, addressed (a)
if to an Investor other than Acorn Ventures-IS, LLC, at such Investor's address
set forth on Exhibit A, or at such other address as such Investor shall have
---------
furnished to the Company in writing, (b) if to Acorn Ventures-IS, LLC, at such
address set forth on Exhibit A, with a copy to Greg F. Adams, Davis Wright
Tremaine, 2600 Century Square, 1501 Fourth Avenue, Seattle, WA 98101 or (c) if
to any other holder of any Shares, at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Shares who has so furnished an address to the Company, or (d) if to the Company,
at its principal executive office, attention President, or at such other address
as the Company shall have furnished to the
-14-
<PAGE>
Investors, with a copy to Charles J. Katz, Jr., Perkins Coie, 1201 Third Avenue,
40th Floor, Seattle, WA 98101. If notice is provided by mail, it shall be deemed
to be given three (3) business days after proper deposit in the U.S. Mail, and
if notice is given by hand or by messenger, facsimile or courier, it shall be
deemed to be given upon receipt.
6.6 DELAYS OR OMISSIONS
No delay or omission to exercise any right, power or remedy accruing to any
holder of any Shares upon any breach or default of the Company under this
Agreement shall impair any such right, power or remedy of such holder, nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing or as
provided in this Agreement. All remedies, either under this Agreement or by law
or otherwise afforded to any holder, shall be cumulative and not alternative.
6.7 EXPENSES
The Company and each Investor shall bear their own expenses and legal fees
incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby.
6.8 FINDER'S FEES
The Company and the Investors shall each indemnify and hold the other
harmless from any liability for any commission or compensation in the nature of
a finder's fee (including the costs, expenses and legal fees of defending
against such liability) for which the Company or the Investors, or any of their
respective partners, employees, or representatives, as the case may be, is
responsible.
6.9 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, and all of which together shall constitute one
instrument.
-15-
<PAGE>
6.10 SEVERABILITY
In the event that any provision of this Agreement becomes or is declared by
a court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided, however, that no such severability shall be effective if it materially
changes the economic benefit of this Agreement to any party.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INFOSPACE, INC.
By: /s/ Naveen Jain
-----------------------------------------
Naveen Jain, President and Chief Executive
Officer
THE INVESTORS:
ACORN VENTURES-IS, LLC
By: /s/ Rufus Lumry
----------------------------------------
Name: Rufus W. Lumry III
Title: President
JOHN AND CAROLYN CUNNINGHAM
/s/ John Cunningham
-------------------------------------------
John Cunningham
/s/ Carolyn Cunningham
-------------------------------------------
Carolyn Cunningham
SIGNATURE PAGE FOR COMMON STOCK PURCHASE AGREEMENT]
-17-
<PAGE>
H & Q INFOSPACE INVESTORS, L.P.
By: /s/ Jackie Berterretche
------------------------------
Name: Jackie Berterretche
Title:
---------------------------
HAMBRECHT & QUIST CALIFORNIA
By: /s/ Jackie Berterretche
------------------------------
Name: Jackie Berterretche
Title:
---------------------------
INFOSPACE INVESTORS GENERAL
PARTNERSHIP
By: /s/ Jack G. Levin
------------------------------
Name: Jack G. Levin
Title:
-------------------------
KELLETT PARTNERS, L.L.P.
By: /s/ Stiles A. Kellett, Jr.
-----------------------------
Name: Stiles A. Kellett, Jr.
Title: General Partner
[SIGNATURE PAGE FOR COMMON STOCK PURCHASE AGREEMENT]
-18-
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
INVESTOR Amount Invested No. of Shares
-------- --------------- -------------
<S> <C> <C>
Acorn Ventures-IS, LLC $500,000 125,000
1309 114th Avenue SE
Suite 200
Bellevue, WA 98004
John and Carolyn Cunningham $125,000 31,250
4303 54th Avenue, NE
Seattle, WA 98105
Kellettt Partners, LLP $1,125,000 281,250
200 Galleria Parkway
Suite 1800
Atlanta, GA 30339
H&Q InfoSpace Investors, LP $1,400,000 350,000
c/o Hambrecht & Quist, LLC
One Bush Street
San Francisco, CA 94104
Hambrecht & Quist California $600,000 150,000
c/o Hambrecht & Quist, LLC
One Bush Street
San Francisco, CA 94104
InfoSpace Investors General $190,000 47,500
Partners
c/o NationsBanc Montgomery
Securities
600 Montgomery Street
San Francisco, CA 94111
TOTALS $3,940,000.00 985,000
</TABLE>
-19-
<PAGE>
EXHIBIT 10.12
INFOSPACE, INC.
STOCKHOLDER RIGHTS AGREEMENT
This Stockholder Rights Agreement (this "Agreement") is entered into as of
August 6, 1998, by and among InfoSpace, Inc., a Delaware corporation (the
"Company"), and the investors listed on the Schedule of Investors attached
hereto as Exhibit A (the "Investors").
---------
RECITALS
A. Pursuant to those certain Common Stock Purchase Agreement of even date
herewith (the "Purchase Agreement"), the Investors are purchasing an aggregate
of 985,000 shares of Common Stock.
B. The execution and delivery of this Agreement is a condition to the
Closing under the Purchase Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION 1. RESTRICTIONS ON TRANSFERABILITY; REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Holder" shall mean any Investor holding Registrable Securities and
------
any person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 1.11 hereof.
"Initial Public Offering" shall mean the first public offering of
-----------------------
Common Stock by the Company to the public pursuant to a registration statement
filed with, and declared effective by, the Commission under the Securities Act.
<PAGE>
The terms "register", "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in complying with Section 1.5 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company).
"Registrable Securities" means the Shares or other securities issued
----------------------
or issuable with respect to the Shares upon any stock split, stock dividend,
recapitalization or similar event, or any Common Stock otherwise issued or
issuable with respect to the Shares; provided, however, that shares of Common
Stock or other securities shall only be treated as Registrable Securities if and
so long as they have not been (A) sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction, or (B)
sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(l) thereof so that all
transfer restrictions and restrictive legends with respect thereto are removed
upon the consummation of such sale.
"Restricted Securities" shall mean the securities of the Company
---------------------
required to bear the legend set forth in Section 1.3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
"Shares" shall mean the shares of Common Stock being issued pursuant
------
to the Purchase Agreement, but shall not include shares of Common Stock
purchased by any of the Investors pursuant to prior agreements.
1.2 RESTRICTIONS
The Shares shall not be sold, assigned, transferred or pledged except upon
the conditions specified in this Agreement, which conditions are intended to
ensure compliance with the provisions of the Securities Act. Each Investor will
cause any proposed purchaser, assignee, transferee or pledgee of the Shares, to
agree to take and
-2-
<PAGE>
hold such securities subject to the provisions and upon the conditions specified
in this Agreement.
1.3 RESTRICTIVE LEGEND
Each certificate representing the Shares and any other securities issued in
respect of the Shares upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event shall (unless otherwise permitted by the
provisions of Section 1.4 below) be stamped or otherwise imprinted with a legend
in the form of Exhibit B attached hereto (in addition to any legend required
---------
under applicable state securities laws). Each Investor and Holder consents to
the Company making a notation on its records and giving instructions to any
transfer agent of the Restricted Securities in order to implement the
restrictions on transfer established in this Section 1.
1.4 NOTICE OF PROPOSED TRANSFERS
The holder of each certificate representing Restricted Securities, by
acceptance thereof, agrees to comply in all respects with the provisions of this
Section 1. Prior to any proposed sale, assignment, transfer or pledge of any
Restricted Securities, unless there is in effect a registration statement under
the Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied at such holder's expense by either
(i) a written opinion of legal counsel who shall, and whose legal opinion shall,
be reasonably satisfactory to the Company, addressed to the Company, to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act, or (ii) a "no action" letter from
the Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, or (iii) any other evidence
reasonably satisfactory to counsel to the Company, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. The Company shall not require such a legal opinion or "no action"
letter in any transaction in compliance with Rule 144. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear,
except if such transfer is made pursuant to Rule 144, the appropriate
restrictive legend set forth in Section 1.3 above, except that such certificate
shall not bear such restrictive legend if, in the opinion of counsel for such
holder and the Company, such legend is not required in order to establish
compliance with any provisions of the Securities Act.
-3-
<PAGE>
1.5 COMPANY REGISTRATION
(a) Notice of Registration. If at any time or from time to time after
----------------------
completion of the Company's Initial Public Offering the Company shall determine
to register any of its securities, either for its own account or the account of
a security holder or holders, other than (x) a registration relating solely to
employee benefit plans or (y) a registration relating solely to a Commission
Rule 145 transaction, the Company will (but not more than five (5) times
pursuant to this Section 1.5(a)):
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests made within fifteen (15) days after receipt of such written notice from
the Company by any Holder.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.5(a)(i). In such event, the right of any Holder to
registration pursuant to Section 1.5 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting, to the extent requested, to the extent provided herein.
All Holders proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by
the Company. Notwithstanding any other provision of this Section 1.5, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
number of Registrable Securities to be included in the registration and
underwriting, on a pro rata basis based on the total number of securities
(including, without limitation, Registrable Securities) entitled to registration
pursuant to registration rights granted to the participating Holders by the
Company. To facilitate the allocation of shares in accordance with the above
provisions, the Company or the underwriters may round the number of shares
allocated to any Holder or other holder to the nearest one hundred (100) shares.
If any Holder or other holder disapproves of the terms of any such underwriting,
he or she may elect to withdraw therefrom by written notice to the Company and
the managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of the registration statement relating thereto.
(c) Right to Terminate Registration. The Company shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section 1.5
prior to the
-4-
<PAGE>
effectiveness of such registration, whether or not any Holder has elected to
include securities in such registration.
1.6 EXPENSES OF REGISTRATION
All Registration Expenses incurred in connection with any registration
pursuant to Section 1.5 and the reasonable cost of one special legal counsel to
represent all of the Holders together in any such registration (and any other
holders of securities registered in such registration), shall be borne by the
Company. Unless otherwise stated, all Selling Expenses relating to securities
registered on behalf of the Holders shall be borne by the Holders of the
securities included in such registration pro rata on the basis of the number of
shares so registered.
1.7 REGISTRATION PROCEDURES
In the case of each registration, qualification or compliance effected by
the Company pursuant to this Section 1, the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective until the distribution described in the
registration statement has been completed, but in no event longer than ninety
(90) days; and
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders participating in such registration and to
the underwriters, if any, of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably request
in order to facilitate the public offering of such securities.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act.
-5-
<PAGE>
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or other trading market on
which similar securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, (i) an opinion, dated such date,
of the counsel representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters
and to the Holders requesting registration of Registrable Securities.
1.8 INDEMNIFICATION
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all actual out-of-
pocket expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in any litigation or in
settlement of any litigation, commenced or threatened, arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained
-6-
<PAGE>
in any registration statement, prospectus, preliminary prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation or any alleged violation
by the Company of the Securities Act or the Exchange Act or any state securities
law, or of any rule or regulation promulgated under any of the foregoing
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers and directors, and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, for any
legal and any other actual out-of-pocket expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, as such expenses are incurred; provided, however,
that the indemnity agreement contained in this Section 1.8(a) shall not apply to
amounts paid in settlement of any such matter if the settlement is effected
without the consent of the Company, which consent shall not be unreasonably
withheld; and provided further that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by such Holder, controlling person or
underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all actual out-of-pocket expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein, in
light of the circumstances in which they were made, or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, persons, underwriters or control persons for any legal
and any other actual out-of pocket expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, as such expenses are incurred, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such
-7-
<PAGE>
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder specifically for use therein; provided, however, that the
indemnity agreement contained in this Section 1.8(b) shall not apply to amounts
paid in settlement of any matter if the settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld; and
provided further that the maximum liability of each selling Holder under this
Section 1.8(b) shall be equal to the total cash proceeds to such selling Holder
as a result of such registration and offering.
(c) Each party entitled to indemnification under this Section 1.8 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that an Indemnified Party (together with all
other Indemnified Parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the
reasonable fees and expenses of such counsel to be paid by the Indemnifying
Party, if representation of such Indemnified Party by the counsel retained by
the Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 1.8 unless the failure to give such notice
is materially prejudicial to an Indemnifying Party's ability to defend such
action. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party (not to be unreasonably
withheld), consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
(d) If the indemnification provided for in this Section 1.8 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations; provided, that, in no event shall any contribution by a Holder
under this Subsection 1.8(d) exceed the net
-8-
<PAGE>
proceeds from the offering received by such Holder, except in the case of
willful fraud by such Holder. The relative fault of the indemnifying party and
of the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section 1.8
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.9 INFORMATION BY HOLDER
The Holder or Holders of Registrable Securities included in any
registration shall furnish to the Company such information regarding such Holder
or Holders, the Registrable Securities held by them and the distribution
proposed by such Holder or Holders as the Company may request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Section 1.
1.10 RULE 144 REPORTING
With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of the
Restricted Securities to the public without registration, after such time as a
public market exists for the Common Stock of the Company, the Company agrees to
use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Exchange Act.
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Exchange Act (at any time after it
has become subject to such reporting requirements); and
(c) So long as an Investor owns any Restricted Securities, to furnish
to the Investor forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time after
ninety (90)
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<PAGE>
days after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public), and of the
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as the
Investor may reasonably request in availing itself of any rule or regulation of
the Commission allowing the Investor to sell any such securities without
registration.
1.11 TRANSFER OF REGISTRATION RIGHTS
The rights to cause the Company to register securities granted to the
Investors under Section 1.5 may be assigned to a transferee or assignee in
connection with any transfer or assignment of Registrable Securities by an
Investor (together with any affiliate); provided that (a) such transfer may
otherwise be effected in accordance with applicable securities laws, (b) notice
of such assignment is given to the Company, and (c) such transferee or assignee
(i) is a wholly-owned subsidiary or constituent partner (including limited
partners, retired partners, spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession) of such Investor, or (ii) acquires from such
Investor at least 50,000 shares of Common Stock (as appropriately adjusted for
stock splits and the like).
1.12 STANDOFF AGREEMENT
Each Holder agrees in connection with any registration of the Company's
securities (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), upon request of the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, pledge (or otherwise encumber or hypothecate),
grant any option for the purchase of, or otherwise directly or indirectly
dispose of any Registrable Securities (other than those included in the
registration) without the prior written consent of the Company and such managing
underwriters for such period of time (not to exceed 180 days) as the Board of
Directors establishes pursuant to its good faith negotiations with such managing
underwriters; provided, however, that the Investors shall not be subject to such
lockup unless the officers and directors of the Company who own stock of the
Company and all other persons with registration rights (whether or not pursuant
to this Agreement) shall also be bound by such restrictions. If requested by
the underwriter, the Investor will reaffirm the agreement set forth in this
Section 1.12 in a separate writing in a form satisfactory to such underwriter.
This Section 1.12 shall apply only to the first such registration statement of
the Company which covers Common Stock (or other securities) to be sold on its
behalf to the public in an underwritten offering.
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<PAGE>
1.13 TERMINATION OF RIGHTS
The rights of any particular Holder to cause the Company to register
securities under Section 1.5 shall terminate with respect to such Holder on the
earlier of (a) the fifth anniversary of the date of this Agreement or (b) such
time as Rule 144 or another similar exemption under the Securities Act is
available for the sale of all such Holder's securities during a three (3)-month
period without registration.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS
From and after the date of this Agreement, the Company shall not, without
the prior written consent of the Holders of a majority of the Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder to include such securities in any registration filed under Section 1.5
hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which are included.
SECTION 2. AFFIRMATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
2.1 FINANCIAL INFORMATION
The Company will furnish to each Investor who holds Registrable Securities
the following reports:
(a) As soon as practicable after the end of each fiscal year, and in
any event within ninety (90) days thereafter, audited consolidated balance
sheets and statements of stockholders' equity of the Company and its
subsidiaries, if any, as of the end of such fiscal year, and consolidated
statements of income and cash flows of the Company and its subsidiaries, if any,
for such fiscal year, prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail and certified by independent
public accountants of national standing selected by the Company;
(b) As soon as practicable after the end of each quarter, and in any
event within 45 days thereafter, unaudited balance sheets of the Company and its
subsidiaries, if any, as of the end of the most recent quarter, and consolidated
statements of income and cash flows of the Company and its subsidiaries, if any,
for such quarter and for the then current fiscal year to the end of such
quarter, all prepared in accordance with generally accepted accounting
principles, together with a comparison of such statements to the Company's
operating plan then in effect; and
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<PAGE>
(c) Upon the request of an Investor, consolidated balance sheets of
the Company and its subsidiaries, if any, as of the end of each calendar month,
and consolidated statements of income and cash flows for such period and for the
current fiscal year to date, all prepared in accordance with generally accepted
accounting principles, together with a comparison of such statements to the
Company's operating plan then in effect.
2.2 OPERATING PLAN AND BUDGET
The Company will furnish to each Investor who holds Registrable Securities
a budget and operating plan (including projected balance sheets and profit and
loss and cash flow statements) for each fiscal year, as soon as practicable
after approval or adoption thereof by the Company's Board of Directors, but in
any event no later than 30 days before the beginning of the fiscal year covered
thereby.
2.3 ASSIGNMENT OF RIGHTS TO FINANCIAL INFORMATION
The rights granted pursuant to Sections 2.1 and 2.2 may be assigned by an
Investor to a third party who acquires at least 50,000 shares of Common Stock
from such Investor (as adjusted for any stock splits, consolidations and the
like) and who is not an actual or potential competitor, or affiliated in any
manner with a competitor, of the Company, provided that the Company receives
notice fifteen (15) days prior to such assignment. If the Company reasonably
believes it necessary to protect proprietary information, the Company may
require any transferee or assignee of the rights under this Section 2 to execute
a confidentiality agreement as a condition receiving such information.
2.4 TERMINATION OF COVENANTS
The covenants set forth in Sections 2.1 through 2.3 shall terminate on, and
be of no further force or effect after, the closing of the Company's Initial
Public Offering.
SECTION 3. MISCELLANEOUS
3.1 ASSIGNMENT
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto.
3.2 THIRD PARTIES
Nothing in this Agreement, express or implied, is intended to confer upon
any party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
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<PAGE>
3.3 GOVERNING LAW
This Agreement shall be governed by and construed under the laws of the
State of Washington in the United States of America without regard to the
conflict or choice of law provisions of such State.
3.4 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.
3.5 NOTICES
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
otherwise delivered by hand or by messenger, facsimile or courier, addressed (a)
if to an Investor, at such Investor's address set forth on Exhibit A hereto, or
---------
at such other address as such Investor shall have furnished to the Company in
writing, (b) if to any other Holder of Registrable Securities, at such address
as such Holder shall have furnished the Company in writing, or, until any such
Holder so furnishes an address to the Company, then to and at the address of the
last Holder of such Registrable Securities who has so furnished an address to
the Company, or (c) if to the Company, at its principal executive office,
attention President, or at such other address as the Company shall have
furnished to the Investors, with a copy to Charles J. Katz, Jr., Perkins Coie,
1201 Third Avenue, 40th Floor, Seattle, WA 98101. If notice is provided by
mail, it shall be deemed to be given three (3) business days after proper
deposit in the U.S. Mail, and if notice is given by hand or by messenger,
facsimile or courier, it shall be deemed to be given upon receipt.
3.6 SEVERABILITY
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, portions of such provisions, or such provisions in their
entirety, to the extent necessary, shall be severed from this Agreement, and the
balance of this Agreement shall be enforceable in accordance with its terms.
3.7 AMENDMENT AND WAIVER
Any provision of this Agreement may be amended with the written consent of
the Company and the Holders of at least fifty percent (50%) of the outstanding
shares of the Registrable Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities and the Company. In addition, the Company may waive performance of
any obligation owing to it, as to some or all of the Holders of Registrable
Securities, or agree to accept alternatives to such
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<PAGE>
performance, without obtaining the consent of any Holder of Registrable
Securities. In the event that an underwriting agreement is entered into between
the Company and any Holder, and such underwriting agreement contains terms
differing from this Agreement, as to any such Holder the terms of such
underwriting agreement shall govern.
3.8 EFFECT OF AMENDMENT OR WAIVER
The Investors and their successors and assigns acknowledge that by the
operation of Section 3.7 hereof the holders of fifty percent (50%) of the
outstanding Registrable Securities, acting in conjunction with the Company, will
have the right and power to diminish or eliminate any or all rights or increase
any or all obligations pursuant to this Agreement.
3.9 RIGHTS OF HOLDERS
Each Holder of Registrable Securities shall have the absolute right to
exercise or refrain from exercising any right or rights that such Holder may
have by reason of this Agreement, including, without limitation, the right to
consent to the waiver or modification of any obligation under this Agreement,
and such Holder shall not incur any liability to any other holder of any
securities of the Company as a result of exercising or refraining from
exercising any such right or rights.
3.10 DELAYS OR OMISSIONS
No delay or omission to exercise any right, power or remedy accruing to any
party to this Agreement, upon any breach or default of the other party, shall
impair any such right, power or remedy of such non-breaching party nor shall it
be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement, or by law or otherwise afforded to
any holder, shall be cumulative and not alternative.
3.11 AGGREGATION OF SHARES
All Registrable Securities held or acquired by affiliated persons or
entities shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.
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<PAGE>
3.12 ENTIRE AGREEMENT
This Agreement is being executed by the Company and the Investors. The
parties to this Agreement hereby agree that this Agreement constitutes the full
and entire understanding of the parties with regard to the matters set forth
herein and supersedes any prior or contemporaneous agreements or understandings
with respect hereto. This Agreement shall not amend, modify, or supersede any
Shareholder Rights Agreement or similar agreement previously entered into
between the Company and any of the Investors with respect to other shares of the
Company's Common Stock or warrants with respect thereto held by such Investors.
[This space intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INFOSPACE, INC.
By: /s/ Naveen Jain
------------------------------------------
Naveen Jain, President and Chief Executive
Officer
THE INVESTORS:
ACORN VENTURES-IS, LLC
By: /s/ Rufus Lumry
------------------------------------------
Name: Rufus W. Lumry III
Title: President
JOHN AND CAROLYN CUNNINGHAM
/s/ John Cunningham
---------------------------------------------
John Cunningham
/s/ Carolyn Cunningham
---------------------------------------------
Carolyn Cunningham
[SIGNATURE PAGE FOR STOCKHOLDER RIGHTS AGREEMENT]
<PAGE>
H & Q INFOSPACE INVESTORS, L.P.
By: /s/ Jackie Berterretche
---------------------------------------
Name: Jackie Berterretche
Title:
------------------------------------
HAMBRECHT & QUIST CALIFORNIA
By: /s/ Jackie Berterretche
---------------------------------------
Name: Jackie Berterretche
Title:
------------------------------------
INFOSPACE INVESTORS GENERAL PARTNERSHIP
By: /s/ Jack Levin
---------------------------------------
Name: Jack G. Levin
Title:
-----------------------------------
KELLETT PARTNERS, L.L.P.
By: /s/ Stiles Kellett, Jr.
--------------------------------------
Name: Stiles A. Kellett, Jr.
Title: General Partner
[SIGNATURE PAGE FOR STOCKHOLDER RIGHTS AGREEMENT]
<PAGE>
EXHIBIT A
INVESTOR
--------
Acorn Ventures-IS, LLC
1309 114th Avenue SE
Suite 200
Bellevue, WA 98004
John and Carolyn Cunningham
4303 54th Avenue, NE
Seattle, WA 98105
Kellettt Partners, LLP
200 Galleria Parkway
Suite 1800
Atlanta, GA 30339
H&Q InfoSpace Investors, LP
c/o Hambrecht & Quist, LLC
One Bush Street
San Francisco, CA 94104
Hambrecht & Quist California
c/o Hambrecht & Quist, LLC
One Bush Street
San Francisco, CA 94104
InfoSpace Investors General
Partners
c/o NationsBanc Montgomery
Securities
600 Montgomery Street
San Francisco, CA 94111
<PAGE>
EXHIBIT B
RESTRICTIVE LEGEND
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN STOCKHOLDER RIGHTS AGREEMENT, DATED AS OF AUGUST 6,
1998, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION, AND
MAY NOT BE SOLD, TRANSFERRED OR ENCUMBERED EXCEPT IN ACCORDANCE WITH THE TERMS
AND PROVISIONS OF SAID AGREEMENT AS SAID AGREEMENT MAY FROM TIME TO TIME BE
AMENDED AND SUPPLEMENTED.
<PAGE>
EXHIBIT 10.13
FORM OF
AMENDMENT TO
COMMON STOCK AND COMMON STOCK WARRANT PURCHASE AGREEMENT
This Amendment to Common Stock and Common Stock Warrant Purchase Agreement
(this "Amendment") is entered into as of August 6, 1998, by and between
InfoSpace, Inc., a Delaware corporation (the "Company"), and _______________
(the "Investor").
RECITALS
A. Pursuant to Section 1.4 of the Common Stock and Common Stock Warrant
Purchase Agreement, dated as of May 21, 1998, by and between the Company and the
Investor (the "Purchase Agreement"), the Investor is entitled to Adjustment
Shares upon the occurrence of certain events.
B. The Company wishes to terminate its obligations to issue Adjustment
Shares in the future and is willing to issue a certain amount of Adjustment
Shares in exchange for the termination of any further obligations.
C. The Investor wishes to receive such Adjustment Shares in exchange for
the termination of any further obligation of the Company to issue any additional
Adjustment Shares.
AGREEMENTS
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises and covenants set forth herein, the parties hereto hereby agree as
follows:
1. DEFINITIONS
All terms capitalized and not otherwise defined herein shall have the
meanings ascribed to them in the Purchase Agreement.
2. ISSUANCE OF SECURITIES
The Company agrees to issue the Investor shares of Common Stock and
warrants to purchase Common Stock as set forth in this Section 2 as soon as
practicable upon execution and delivery of this Amendment by the parties hereto.
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<PAGE>
2.1 AGREEMENT TO ISSUE COMMON STOCK
The Company agrees to issue to the Investor ________ shares of Common Stock
(the "Settlement Shares"). The Settlement Shares shall have and be subject to
the same terms, rights, conditions and benefits of the Shares issued pursuant to
the Purchase Agreement, including the terms and conditions of the Investor
Rights Agreement and the Co-Sale Agreement.
2.2 AGREEMENT TO ISSUE COMMON STOCK PURCHASE WARRANTS
The Company agrees to issue to the Investor Common Stock Purchase Warrants
to purchase up to ________ shares of Common Stock at an exercise price of $2.00
per share, ________ shares of Common Stock at an exercise price of $3.00 per
share and ________ shares of Common Stock at an exercise price of $5.00 per
share (the "Settlement Warrants"). The Settlement Warrants shall have the same
terms and conditions of, and be in the substantially the same form as, the
Warrants issued pursuant to the Purchase Agreement.
3. TERMINATION OF SECTION 1.4 OF PURCHASE AGREEMENT
The Investor acknowledges and agrees that the issuance of the Settlement
Shares and Settlement Warrants as provide for herein satisfy the obligations of
the Company under Section 1.4 of the Purchase Agreement and the parties hereby
terminate Section 1.4 of the Purchase Agreement in its entirety, and it shall be
of no further force or effect.
4. General
The parties hereby agree that the provisions of Section 6 of the Purchase
Agreement shall govern this Amendment; provided, however, that Section 6.4 of
the Purchase Agreement is hereby modified to include this Amendment within the
scope of the materials constituting the final agreement of the parties thereto.
[remainder of page left blank]
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<PAGE>
INVESTOR LIST
Acorn Ventures-IS, LLC 33,360 shares of Common Stock
Common Stock Purchase Warrants 32,049
shares at $2.00 per share, 14,022 shares at
$3.00 per share and 14,022 shares at $5.00
per share
Kellett Partners LLP 4,854 shares of Common Stock
Common Stock Purchase Warrants 3,815 shares
at $2.00 per share, 1,669 shares at $3.00
and 1,669 shares at $5.00 per share
John and Carolyn Cunningham 965 shares of Common Stock
Common Stock Purchase Warrants 1,264 shares
at $2.00 per share, 553 shares at $3.00 and
553 shares at $5.00 per share
-3-
<PAGE>
EXHIBIT 10.14
Redacted Version
[LOGO]
This AGREEMENT made and entered into as of the later of the two signature
dates below (the "Effective Date") by and between American Business Information,
Inc. ("ABI"), a Delaware Corporation, and InfoSpace, Inc., a Delaware
Corporation ("LICENSEE").
WHEREAS, ABI owns proprietary databases as defined in APPENDIX A of this
AGREEMENT and desires to license its databases to LICENSEE on the terms provided
in this AGREEMENT, and
WHEREAS, the LICENSEE desires to license ABI's databases on the terms
provided in this AGREEMENT for use on its Internet web site service known as
infospace.com, and
WHEREAS, the parties agree that ABI, as the data content provider and
Infospace as the distributor desire to distribute products and services created
with ABI's databases through LICENSEE'S Internet web site service including all
links to such service, and that their intent is to maximize revenue for both ABI
and Infospace through increased distribution of ABI's databases on and through
Infospace's service in a manner that minimizes the risk of cannibalization of
existing sales, renewals or growth potential of ABI and InfoSpace.
Now therefore the parties mutually agree as follows:
1. DEFINITIONS.
1.1. ABI DATABASE refers to the databases described in APPENDIX A.
1.2. USER refers to any company, organization or individual, which has access
to the ABI DATABASE for its own internal use through LICENSEE under the
terms of this AGREEMENT.
1.3. SERVICE refers to the application(s) and licensed use of the ABI DATABASE
described in APPENDIX B.
1.4. a) LICENSE FEES refer to the fees due ABI for the use of the ABI
DATABASE as provided in paragraph 3 below, and fully described in
APPENDIX C.
b) ROYALTIES refer to the fees due to the parties through revenue
sharing as described in APPENDIX C.
1.5 CODEMASTER shall mean the Codemaster Data Table and Abbreviation Table as
described in APPENDIX D. LICENSEE's use of the CODEMASTER is subject to
all terms of this AGREEMENT, except that the CODEMASTER is to be used by
LICENSEE for internal use only, and is provided by ABI so that LICENSEE is
able to interpret the ABI DATABASE raw data.
"[*]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant
to a request for confidential treatment.
<PAGE>
2. LICENSE.
2.1 Subject to the terms and conditions of this AGREEMENT, ABI grants the
LICENSEE a limited non-exclusive, non-transferable license during the term
of this AGREEMENT to incorporate the ABI DATABASE into the SERVICE in the
manner described in APPENDIX B.
2.2 Any use of the ABI DATABASE not expressly authorized in this AGREEMENT is
strictly prohibited. Without limiting the generality of the foregoing,
LICENSEE and the USERS are expressly prohibited from (i) sublicensing or
reselling the ABI database (ii) using or allowing third parties to use the
ABI DATABASE for the purpose of compiling, enhancing, verifying,
supplementing, adding to or deleting from any mailing list, geographic or
trade directories, business directories, classified directories, classified
advertising, or other compilation of information which is sold, rented,
published, furnished or in any manner provided to a third party; (ii) using
the ABI DATABASE in any service or product not specifically authorized in
this AGREEMENT or offering it through any third party; or (iii)
disassembling, decompiling, reverse engineering, modifying or otherwise
altering the ABI DATABASE or any part thereof without ABI's prior written
consent, such consent may be withheld in ABI's sole discretion.
2.3 LICENSEE acknowledges that any unauthorized use of the ABI DATABASE will
cause irreparable harm and injury to ABI for which there is no adequate
remedy at law. In addition to all other remedies available under this
AGREEMENT, at law or in equity, LICENSEE further agrees that ABI shall be
entitled to injunctive relief in the event LICENSEE uses the ABI DATABASE
in violation of the limited license granted hereunder after notice of such
violation from ABI.
2.4 LICENSEE agrees to provide appropriate legal notices relevant to the ABI
DATABASE in the SERVICE as requested by ABI and described in APPENDIX E.
2.5 LICENSEE shall maintain a system of controls that will:
a) Protect the integrity of the ABI DATABASE
b) Control access to the ABI DATABASE;
c) Prevent unauthorized usage of the ABI DATABASE; and
d) Reasonably ensure that the amount of usage of the ABI DATABASE is
accurately recorded.
3. LICENSE FEES AND ROYALTIES.
3.1 a) The LICENSEE shall pay to ABI LICENSE FEES as described in
APPENDIX C.
b) ABI shall pay to LICENSEE ROYALTY FEES as described in APPENDIX C.
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<PAGE>
3.2 Any fees payable under this AGREEMENT by LICENSEE, which are not paid when
due, shall accrue interest at the annual rate of 10% from the due date
until paid.
3.3 Subject to any confidentiality obligations that LICENSEE may have to third
parties, the LICENSEE agrees to allow, not more frequently than semi-
annually, an independent third-party to audit its accounts as they relate
to the use of the ABI DATABASE at ABI's expense and upon reasonable notice,
to verify that the terms of this AGREEMENT are in effect.
3.4 Time is of the essence with respect to LICENSEE's payment of any fees under
this AGREEMENT, and LICENSEE specifically acknowledges that failure to make
payment when due may, at ABI's sole discretion, be treated as a material
breach of this AGREEMENT pursuant to the provisions of paragraph 6.1(a)
herein. In the event this AGREEMENT is terminated for whatever reason,
LICENSEE acknowledges that such termination shall not terminate, diminish
or otherwise affect LICENSEE's obligation to pay the minimum ROYALTY,
LICENSE FEES, or any fees and costs which have accrued under this
AGREEMENT.
4. DELIVERY.
4.1 ABI will supply the LICENSEE with the ABI DATABASE as described in APPENDIX
A. ABI reserves the right to withhold updates of the ABI DATABASE in the
event that the LICENSEE should be in material default of this AGREEMENT.
5. TERM. The term of this AGREEMENT is described in APPENDIX F.
6. TERMINATION.
6.1 Either party may terminate this AGREEMENT if the other party:
(a) materially breaches any term or condition of this AGREEMENT
(except as provided in paragraph 6.2 of this AGREEMENT) and fails
to remedy such breach within thirty (30) days after written
notice of such breach; or
(b) becomes subject to any receivership, insolvency, bankruptcy,
moratorium or similar proceeding for more than thirty (30) days.
6.2 ABI may immediately terminate this AGREEMENT if LICENSEE participates in
any unauthorized use of the ABI DATABASE, or fails to maintain controls as
outlined in paragraph 2.5 above.
6.3 Upon termination of this AGREEMENT for any reason, LICENSEE shall (i)
ensure that all copies of the ABI DATABASE and any related data and
information is deleted from its computers and the computers of any service
provider or other third party who processed the ABI DATABASE for the
LICENSEE; (ii) cease any and all use of the ABI DATABASE; (iii) return all
copies, whether in print, tape or other media, of all or any part of the
ABI DATABASE to ABI no later than five (5) days after termination of this
AGREEMENT; and, (iv) certify in writing within ten (10) days after
termination of this AGREEMENT that
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<PAGE>
LICENSEE and its service providers have deleted or returned to ABI all
copies of the ABI DATABASE.
6.4 Except as otherwise provided in this AGREEMENT, the remedies contained in
this AGREEMENT are in addition to all other remedies available to either
party at law or in equity.
7. PROPRIETARY RIGHTS. The LICENSEE acknowledges that all rights, title and
interest to the ABI DATABASE, regardless of the form of media in which it
is contained, shall be retained by ABI, subject to the license granted to
LICENSEE hereunder.
8. CONFIDENTIALITY. Except as required by law or any provision of this
AGREEMENT (and then only after prior reasonable written notice thereof),
the parties agree during the term of this AGREEMENT and for a period of one
(1) year thereafter to retain in confidence and not disclose to any third
party all information (whether tangible or intangible, or stored
electronically or in magnetic media) received from the other party within
the scope of this AGREEMENT; except where the party receiving such
disclosures can establish that: (i) such information was known to the
receiving party prior to disclosure by the other; (ii) such information was
known to the public prior to disclosure to the receiving party, or has
become known to the public through no fault of the receiving party; or
(iii) such information was subsequently disclosed to the receiving party by
a third party with a lawful right to make such disclosure without
limitation on disclosure. For purposes of this AGREEMENT, the parties
expressly agree that the ABI DATABASE and its contents are confidential and
proprietary to ABI.
9. WARRANTIES; DISCLAIMER OF WARRANTIES AND LIMITATIONS OF REMEDY.
9.1 ABI warrants and represents that it (a) it has the necessary power and
authority to enter into and perform its obligations under this AGREEMENT
and has properly authorized the same by all requisite action; (b) it has
all necessary rights to grant the license granted to LICENSEE under this
AGREEMENT; and (c) the ABI DATABASE and associated trademarks do not
infringe upon any copyright, patent, trademark or proprietary right
(collectively "Intellectual Property Rights") of any third party.
9.2 Except for those warranties previously set forth in paragraph 9.1, the ABI
DATABASE is licensed on an "AS IS" basis without guarantee, and ABI does
not guarantee that the ABI DATABASE will meet the LICENSEE's or USER's
requirements; that it will operate in the combinations, or in the
equipment, selected by the LICENSEE or USERs; or that its operation will be
error-free or without interruption.
Notwithstanding any other provision in this AGREEMENT, ABI shall defend or
settle at its own expense any claim or suit against LICENSEE arising out of
or in connection with an assertion that the ABI DATABASE or any portion
thereof infringes any copyrights or other Intellectual Property Rights, and
ABI shall indemnify and hold harmless LICENSEE from damages, costs, and
attorneys' fees, if any, finally awarded in such suit or the amount of the
settlement thereof. In the event that an allegation of infringement of
Intellectual Property
-4-
<PAGE>
Rights is made against LICENSEE, LICENSEE will i) give ABI prompt written
notice of and control over the defense and settlement of any demand, claim,
action, or lawsuit for which LICENSEE believes it is entitled to
indemnification under this paragraph and ii) cooperate fully in such
defense and settlement.
If any such claim of infringement of Intellectual Property Rights has
occurred or in ABI's opinion is likely to occur, then ABI may, in addition
to indemnifying LICENSEE as set forth in the preceding paragraph and at its
option and expense, i) procure for LICENSEE the right to use the
infringing data; or ii) at no expense to LICENSEE replace the ABI DATABASE
with an equally suitable, compatible and functionally equivalent
compilation of data, or iii) modify the infringing data without reducing
the quality or effectiveness thereof so that the same is no longer subject
to any such infringement claim. If neither of the foregoing solutions is
available on commercially reasonable terms, then ABI may request that
LICENSEE cease all use of the infringing data and return the infringing
data to ABI, for a pro-rated refund of the consideration paid therefor. If
LICENSEE does not comply with such request, LICENSEE may continue to use
the infringing data but ABI shall have no indemnity obligation therefor
under this paragraph 9.
ABI shall have no obligation under this AGREEMENT to indemnify or defend
LICENSEE against a claim of infringement of Intellectual Property Rights
resulting from the modification or alteration by LICENSEE of the ABI
DATABASE provided hereunder by LICENSEE, or the combination of such data
with any data not supplied by ABI, as long as the ABI DATABASE in the form
supplied by ABI could not itself constitute an infringement.
9.3 EXCEPT AS STATED HEREIN, ABI MAKES NO EXPRESS OR IMPLIED WARRANTIES,
INCLUDING, WITHOUT LIMITATION, ANY EXPRESS OR IMPLIED WARRANTY OF FITNESS
FOR A PARTICULAR PURPOSE OR WARRANTY OF MERCHANTABILITY.
9.4 ABI SHALL NOT BE LIABLE FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES OR FOR ANY
LOST PROFITS OR ANY CLAIM OR DEMAND OF A SIMILAR NATURE OR KIND, WHETHER
ASSERTED BY LICENSEE AGAINST ABI OR AGAINST LICENSEE BY ANY OTHER PARTY,
EVEN IF ABI HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; AND
LICENSEE AGREES TO DEFEND, INDEMNIFY AND HOLD ABI HARMLESS FROM ANY AND ALL
CLAIMS, ACTIONS, DEMANDS, OR OTHER LIABILITY (INCLUDING ATTORNEYS' FEES) TO
THIRD PARTIES WHICH RESULT FROM THE USE OF THE ABI DATABASE THROUGH
LICENSEE.
9.5 EXCEPT FOR INDEMNITY AGAINST INFRINGEMENT SET FORTH IN PARAGRAPH 9.2, ABI's
ENTIRE AGGREGATE LIABILITY FOR DAMAGES, IF ANY, IN CONNECTION WITH THE USE
OF THE ABI DATABASE PROVIDED TO LICENSEE OR PROVIDED BY LICENSEE TO USERS
(WHETHER BASED IN CONTRACT, TORT OR OTHERWISE), SHALL NOT EXCEED THE FEES
ACTUALLY PAID BY LICENSEE DURING ANY ONE YEAR OF THE AGREEMENT.
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9.6 LICENSEE warrants and represents that it (a) it has the necessary power and
authority to enter into and perform its obligations under this AGREEMENT
and has properly authorized the same by all requisite action; (b) it has
all necessary rights to accept the license granted to LICENSEE under this
Agreement; and (c) the LICENSEE'S SERVICE and associated trademarks do not
infringe upon any Intellectual Property Rights of any third party.
Notwithstanding any other provision in this AGREEMENT, LICENSEE shall
defend or settle at its own expense any claim or suit against ABI arising
out of or in connection with an assertion that the LICENSEE'S SERVICE or
any portion thereof infringes any Intellectual Property Rights, and
LICENSEE shall indemnify and hold harmless ABI from damages, costs, and
attorneys' fees, if any, finally awarded in such suit or the amount of the
settlement thereof. In the event that an allegation of infringement of
Intellectual Property Rights is made against ABI, ABI will i) give LICENSEE
prompt written notice of and control over the defense and settlement of any
demand, claim, action, or lawsuit for which ABI believes it is entitled to
indemnification under this paragraph and ii) cooperate fully in such
defense and settlement.
LICENSEE shall have no obligation under this AGREEMENT to indemnify or
defend ABI against a claim of infringement of Intellectual Property Rights
that relates solely to the ABI DATABASE.
9.7 EXCEPT AS STATED HEREIN, LICENSEE MAKES NO EXPRESS OR IMPLIED WARRANTIES,
INCLUDING, WITHOUT LIMITATION, ANY EXPRESS OR IMPLIED WARRANTY OF FITNESS
FOR A PARTICULAR PURPOSE OR WARRANTY OF MERCHANTABILITY.
9.8 LICENSEE SHALL NOT BE LIABLE FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES OR FOR
ANY LOST PROFITS OR ANY CLAIM OR DEMAND OF A SIMILAR NATURE OR KIND,
WHETHER ASSERTED BY ABI AGAINST LICENSEE OR AGAINST ABI BY ANY OTHER PARTY,
EVEN IF LICENSEE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
10. FORCE MAJEURE. Neither party shall be responsible for delays or failures
in performance resulting from acts beyond the reasonable control of such
party. Such acts shall include but not be limited to acts of God, riots,
acts of war, and other disasters.
11. ASSIGNMENTS. LICENSEE shall not assign this AGREEMENT, or assign, transfer
or sell all or substantially all of its assets or in any way transfer
control (directly or indirectly) over LICENSEE without the prior written
consent of ABI. In the event LICENSEE breaches this paragraph, ABI shall
have the right to immediately terminate this AGREEMENT.
12. MODIFICATION. No modification of this AGREEMENT shall be binding upon the
LICENSEE and ABI unless made in writing and signed by duly authorized
officers of both parties.
13. WHOLE AGREEMENT. This AGREEMENT does not constitute an offer by ABI and it
shall not be effective until signed by both parties. This AGREEMENT, with
its APPENDICES, which are expressly made a part hereof, constitutes the
entire AGREEMENT
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between the parties with respect to the SERVICE and all other subject
matter hereof and merges all prior and contemporaneous communication. This
AGREEMENT supercedes that certain Database License Agreement by and between
Infospace and American Business Information, Inc. dated September 18, 1997.
This AGREEMENT shall not be modified except by a written agreement dated
subsequent to the date of this AGREEMENT and signed on behalf of LICENSEE
and ABI by their respective duly authorized representatives.
14. WAIVERS. The failure of either party to require the performance of any
term or condition of this AGREEMENT, shall not prevent any subsequent
enforcement of this term or condition, nor shall it be deemed a wavier of
any subsequent breach.
15. GOVERNING LAW. This AGREEMENT shall be governed by and construed in
accordance with the laws of the State of Nebraska, without regard to
Nebraska's conflicts of laws principles and both parties consent to the
exclusive jurisdiction of any state or federal court located in Omaha,
Douglas County, Nebraska.
16. SEVERABILITY. A decision by any court of competent jurisdiction
invalidating or holding unenforceable any part of this AGREEMENT will not
affect the validity and enforceability of any other part of this AGREEMENT.
17. NO THIRD PARTY BENEFICIARIES. This AGREEMENT is made solely and
specifically between and for the benefit of the parties signatory hereto,
and no other person or entity whatsoever shall have any rights, interests
or claims hereunder or be entitled to any benefits under or on account of
this AGREEMENT as a third party beneficiary or otherwise.
18. NOTICES. All correspondence to ABI and data deliveries required by this
AGREEMENT shall be addressed as follows:
Bill Kerrey, Executive Vice President
American Business Information, Inc.
5711 South 86th Circle, Box 27347
Omaha, NE 68127
WITH A COPY TO:
Michael C. Pallesen, Esq.
Vice President & Corporate Counsel
American Business Information
5711 South 86th Circle, Box 27347
Omaha, NE 68127
All correspondence and data deliveries TO LICENSEE required by this
AGREEMENT shall be addressed to the individual(s) listed in APPENDIX A.
Any notice required shall be given in writing and shall be deemed
effectively given upon personal delivery, deposit in the U.S. post office
as certified or registered mail or deposited in a private next day delivery
service.
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19. RELATIONSHIP OF PARTIES. This AGREEMENT does not create a joint venture or
partnership between ABI and the LICENSEE, and each will act independently
of the other. Neither party is empowered to bind or commit the other to
any contract or other obligation.
20. COMPLIANCE. LICENSEE agrees to use, and to ensure that its USERS use, the
ABI DATABASE in strict compliance with all applicable federal, state and
local laws, rules and regulations.
21. TAXES. LICENSEE shall be responsible to pay all taxes of any type, nature
or description (including, but not limited to, sale, use, gross receipts,
excise, import, export, income and employment taxes); provided, however,
LICENSEE shall not be responsible for any income taxes imposed upon ABI by
any taxing jurisdiction, arising by virtue of the performance of this
AGREEMENT.
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READ AND APPROVED
AMERICAN BUSINESS INFORMATION, INFOSPACE, INC.
INC.
/s/ Bill Chasse /s/ Naveen Jain
_____________________________________ ___________________________________
SIGNATURE SIGNATURE
BILL CHASSE NAVEEN JAIN
PRESIDENT PRESIDENT & CEO
DATE: JULY 28, 1998 DATE: JULY 28, 1998
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APPENDIX A
INFOSPACE
NOTICES/DATA ELEMENTS/UPDATES
A.1.1. All correspondence to LICENSEE required by this AGREEMENT, shall be
addressed as follows:
Licensee: InfoSpace
Name: Naveen Jain
Title: President & CEO
Address: 15375 90th Avenue NE
Redmond, WA 98052
Phone: (425) 882-1602
Fax: (425) 881-5792
E-Mail: [email protected]
With a copy to:
Ellen B. Alben
V.P., Legal & Business Affairs
15375 90th Avenue NE
Redmond, WA 98052
Phone: (425) 882-1602
Fax: (425) 882-0988
E-Mail: [email protected]
A.1.2. The ABI DATABASE shall be delivered to and used exclusively at:
Licensee: InfoSpace
Name:
Address: 8424 154th Avenue NE
Redmond, WA 98052
OR
15375 90th Avenue NE
Redmond, WA 98052
Phone: (425) 882-1602
Fax: (425) 882-0988
E-Mail: @infospace.com
A.2.1. The ABI DATABASE refers to:
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a) The "BUSINESS FILE (US)" containing approximately ten (10) million
businesses in the United States, with data elements, where available, as
follows:
[*]
b) The "BUSINESS FILE (CANADA)" containing approximately 1.5 Canadian
businesses with data elements, where available, as follows:
[*]
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c) The "WHITE PAGE FILE (US)" containing information on approximately 115
million individuals with data elements, where available, as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[*]
[*]
[*]
[*]
[*]
[*]
[*]
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</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
[*]
[*]
</TABLE>
*Fields available at a future date
d) The "WHITE PAGE FILE (CANADA)" containing information on individuals in
Canada, when available.
A.2.2. ABI will provide LICENSEE the ABI DATABASE within fifteen working days
of the Effective Date.
A.2.3. ABI will provide monthly full-file updates to LICENSEE subject to the
FEES in paragraph C.1.2.
A.2.4. ABI will provide an updated CODEMASTER with each update.
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APPENDIX B
INFOSPACE
INTERNET SERVICE
B.1. LICENSEE will house the ABI DATABASE on the Internet behind firewalls
necessary to prevent unauthorized usage of the ABI DATABASE. Except as set
forth in paragraph B.5. below, LICENSEE shall take all commercially
reasonable steps to prevent unauthorized downloading or printing of mailing
or telemarketing lists and other unauthorized usage of the ABI DATABASE.
B.2. PRODUCT and/or SERVICE refers to LICENSEE'S Internet Directory Service
(the "SERVICE") known as INFOSPACE- THE ULTIMATE DIRECTORY which shall
incorporate the ABI DATABASES into Yellow and White Page look-up services
and a Maps and Driving Directions feature as follows:
a) [*]
b) The SERVICE's search-results screen may:
(i) [*]
(ii) Display advertising information along with a business listing;
(iii) Display business listings that are not from the ABI DATABASE,
except that in no event shall LICENSEE publish business or
consumer listings or append data to the ABI DATABASE from any
other databases provided by a direct competitor of ABI; and/or
(iv) Permit USERS to modify their own listings;
c) The SERVICE may display one (1) business listing per map.
d) [*]
e) LICENSEE may make the ABI DATABASE available on all display platforms
such as phones, TVs, windows CE machines, Kiosks etc., provided the
display of the Data Express hyperlinks shall conform to all terms and
conditions described in this APPENDIX B.
f) Sample "screen shots" are attached as Attachment A to APPENDIX B.
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B.3 In the event ABI requires its licensees who license ABI data for internet
directory service applications to change the search, display or
functionality of the ABI DATABASE on their services or to implement per-
transaction pricing for searching (such as searching by Yellow Page heading
within a city) LICENSEE shall implement the changes specified by ABI
within thirty (30) days after receiving written notice from ABI specifying
the changes. [*]
B.4 The SERVICE may also include additional enhanced features which may be
developed by LICENSEE to allow USERS to access information contained in the
SERVICE through various data access mechanisms or to use data contained
within the SERVICE to enable other services, including, but not limited to
call completion (telephony). Prior to the launch of any such enhanced
features using data from the ABI DATABASE, the parties shall negotiate in
good faith a commercially reasonable revenue share to be paid by LICENSEE
for such use of the ABI DATABASE.
B.5 HYPERLINKS: DATA EXPRESS:
The LICENSEE shall post on the screens of its SERVICE hyperlinked buttons
developed by ABI, and ABI and LICENSEE will work together in good faith to
agree upon the display of such buttons in order to encourage USERS to
purchase mailing lists, business profiles, credit profiles and other
content derived from ABI's databases. LICENSEE shall post ABI's buttons in
such a manner as to encourage USERS to purchase ABI products and services
derived from the ABI DATABASES.
At this time, such hyperlinked buttons are the DATA EXPRESS buttons
identified below. However, LICENSEE shall also post on the SERVICE such
other hyperlinked buttons as ABI may develop in the future upon terms and
conditions to be mutually agreed to by the parties.
a) LIST EXPRESS allows USERS to purchase data from the ABI DATABASE
in a mailing list format through the SERVICE. LICENSEE will feature a
hyper-linked icon on the search results screen for every Category search on
the SERVICE. The hyper-linked icon will be prominently placed on the
search results screen so those USERS do not have to scroll to view on a
640x480 screen as shown in Attachment A.
The hyper-linked icon will contain a text message to be agreed upon by both
parties. An example would be "Download All Found Records ($)".
The hyper-linked icons will link the USER'S search criteria and attach to
the following URL: EP.INFOUSA.COM.
b) PROFILE EXPRESS allows USERS to purchase company profiles from the
ABI DATABASE in a print report format through the SERVICE. LICENSEE will
feature a hyper-linked icon on the search results screen as described in
paragraph B.2.b. beside every business listing found in a Name or Category
search on the SERVICE. The hyper-linked icon will be prominently placed
beside the business listing as described in Attachment A.
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The hyper-linked icon will contain a text message to be agreed upon by both
parties. An example would be "Profile It".
The hyper-linked icons will link the ABI Number and attach to the following
URL: EP.INFOUSA.COM.
c) The service will include Promotional Advertisements on LICENSEE's
home page (replacing existing sales leads and mailing list buttons) as
described in Attachment A.
[Sample "screen shots" are attached as Attachment A to APPENDIX B]
B.6 LICENSEE and ABI shall cooperate and work together in good faith to
maximize sales through the Data Express hyperlinked buttons or any similar
hyperlinked buttons, which ABI may develop in the future.
B.7 CO-BRANDING
a) [*]
b) LICENSEE is prohibited from pursuing or establishing co-branding
relationships with ABI licensees and/or their customers for the purpose of
supplanting the ABI DATABASE with LICENSEE'S SERVICE, without prior written
approval by ABI. LICENSEE shall not pursue ABI licensees and /or their
customers who license the Business File for the purpose of offering the
White Page File for incorporation into the co-branded SERVICE. A non-
exclusive list of the third-parties and sublicensees who are currently
using ABI databases is attached as APPENDIX G. ABI may, at its option,
provide LICENSEE periodic updates to APPENDIX G. In the event that ABI
adds an ABI licensee and/or customer to APPENDIX G who has an existing
agreement with LICENSEE which predates this AGREEMENT, such ABI licensee
and/or customer will not be subject to the prohibition described in this
paragraph B.7.b.
c) LICENSEE shall work with ABI to cobrand a customized version of the
Yellow Pages, White Pages, and Maps and Driving Directions features of the
SERVICE, and any other features of the SERVICE ABI may desire to add in the
future (the Customized Service"). The Customized Service shall be
developed to the reasonable satisfaction of both parties, however, in any
event LICENSEE shall include in the Customized Service those features shown
on the sample screen shots as attached hereto as Attachment B to Appendix B
and which include without limitation hyperlinked buttons linking the
Customized Service to the paid services offered through ABI's proprietary
websites (i.e., "Sales Leads and Mailing Lists,
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Business Credit Reports, Customer Analyzer, and New Businesses). The
parties shall share advertising revenue derived from the Customized Service
as described in Appendix C.2.3.
B.8 REPORTING REQUIREMENTS
a) LICENSEE shall provide ABI with quarterly reports identifying all co-
branded relationships with access to the ABI DATABASE through the
SERVICE.
b) LICENSEE shall provide ABI access to monthly reports describing
placement of banner advertising impressions required under paragraph
C.3 of this AGREEMENT.
c) LICENSEE shall provide ABI with quarterly reports identifying "Real-
Time" reporting of usage, click-throughs, and impressions as they
relate to the ABI website.
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APPENDIX C
INFOSPACE
LICENSE FEES, MINIMUMS & ROYALTIES
LICENSEE shall pay ABI LICENSE FEES AND ROYALTIES as follows:
C.1.1. MINIMUM ROYALTY FEES:
LICENSEE shall pay ABI the greater of:
a) Revenue Share for "Access to the ABI Database" and "Advertising" as
described in paragraphs C.2.2. and C.2.3. below; or
b) An annual minimum ROYALTY FEE of [*] which includes FEES for updated
versions of the ABI DATABASE of [*] per month. The minimum ROYALTY
FEE shall be a credit against the revenues payable to ABI under
paragraphs C.2.2. and C.2.3. below.
LICENSEE will be given a credit against the annual minimum ROYALTY FEE
for a prorated refund of the license fee paid by LICENSEE to ABI under
that certain Database License Agreement by and between InfoSpace and ABI
dated September 18, 1997 in the amount of [*] (calculated at [*] per day
multiplied by 53 days remaining on the 9/18/97 agreement).
C.1.2. PAYMENT SCHEDULE:
LICENSEE shall pay ABI a non-refundable annual minimum ROYALTY FEE of
[*] on the Effective Date in year one (1) of the AGREEMENT, and on the
anniversary dates of the Effective Date in the remaining years of the
AGREEMENT
C.2.1. REVENUE SHARE for DATA EXPRESS PRODUCTS:
ABI and LICENSEE will equally split the net revenues collected from
sales of Data Express Products through hyperlinked buttons as described
in Appendix B. ABI will collect all fees for sales of Data Express
products through credit card transactions and will pay LICENSEE its
share of the net revenue on a quarterly basis.
In instances where LICENSEE receives compensation for providing USERS
access to the ABI DATABASE through the SERVICE and other than through a
cobranding relationship, LICENSEE and ABI will equally share the net
revenues from such relationship. LICENSEE will collect all fees for
access to the ABI DATABASE and will pay ABI its share of the net revenue
on a quarterly basis.
C.2.3. REVENUE SHARE FOR ADVERTISING ON THE CUSTOMIZED SERVICE:
In instances where LICENSEE sells advertising to be displayed on the
Customized Service, LICENSEE and ABI will share equally in Advertising
Revenues received by LICENSEE after a [*] percent [*] commission is
deducted by LICENSEE.
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C.3. BANNER ADVERTISEMENTS:
LICENSEE will run at least [*] banners per year to promote ABI Data
Express Products. All revenues generated from these banners will be
split equally between ABI and LICENSEE.
C.4 REPORTING
C.4.1. Within thirty (30) days following the close of each calendar quarter
during the term of this AGREEMENT, the LICENSEE will supply ABI with a
Revenue Share Report and all Advertising Revenues and all other fees due
that quarter under this APPENDIX C. The Revenue Share Report shall show
all amounts credited against the minimum ROYALTY FEE or otherwise owed
to ABI.
C.4.2. Within thirty (30) days following the close of each calendar quarter
during the term of this AGREEMENT, ABI will supply LICENSEE with a
Revenue Share Report and all revenue realized from the sale of Data
Express products, and all other fees due that quarter under this
APPENDIX C. The Revenue Share Report shall show all amounts owed to
LICENSEE.
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APPENDIX D
CODEMASTER LAYOUT
[*]
INDUSTRY SPECIFIC MASTER LAYOUT
[*]
FRANCHISE MASTER LAYOUT
[*]
APPENDIX E
INFOSPACE
LEGAL AND COPYRIGHT NOTICES
E.1. LICENSEE shall display the following copyright notice(s) on all screens
where the ABI DATABASE is displayed:
"Business (Household) data provided by American Business Information (R),
Omaha, Nebraska, Copyright (C) 1998, All Rights Reserved".
E.2. In the event that ABI makes changes to its legal or copyright notices,
LICENSEE agrees to incorporate the changes into its SERVICE within thirty
(30) days of ABI'S prior written notice of such change. LICENSEE shall
receive ABI's prior written approval to use any ABI logo, trademark,
service mark or trade name except as mandated in this AGREEMENT.
APPENDIX F
INFOSPACE
TERM
F.1 The term of this AGREEMENT will be for five (5) years commencing from the
Effective Date.
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APPENDIX G
NON-EXCLUSIVE LIST OF
CURRENT THIRD-PARTIES
AND SUBLICENSEES OF THE ABI DATABASE
[*]
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EXHIBIT 10.15
Redacted Version
AMENDED AND RESTATED CONTENT PROVIDER AGREEMENT
THIS AMENDED AND RESTATED CONTENT PROVIDER AGREEMENT (the "Agreement")
supercedes any and all agreements relating to a Content Provider Agreement or
Internet Joint Marketing Agreement between the parties mentioned below. This
Agreement is made as of August 24, 1998, effective as of April 25, 1998 (the
"Effective Date"), by and among INFOSPACE, INC., ("INFOSPACE"), a Delaware
corporation having a principal place of business at 15375 90th Ave. NE, Redmond,
WA 98052, 800-U.S. SEARCH, Inc. ("SEARCH"), a California corporation, with
offices at 9107 Wilshire Blvd., Suite 700, Beverly Hills, CA 90210 and The
Kushner-Locke Company ("PARENT"), a California corporation, with offices at
11601 Wilshire Blvd., 21st Floor, Los Angeles, CA 90025.
WHEREAS, INFOSPACE provides information and other content in various media to
end users via several sites on the World Wide Web (the "Web") and other
electronic media environments;
WHEREAS, SEARCH supplies public record information and other related
capabilities via the Web;
WHEREAS, SEARCH is a subsidiary of PARENT, and PARENT is willing to guarantee
SEARCH's obligations under this Agreement; and
WHEREAS, SEARCH desires, and INFOSPACE agrees to enter into an agreement whereby
SEARCH's content and functionality will be integrated into a Web site branded in
accordance with INFOSPACE's "look and feel" and located at
http://www.infospace.com (the "INFOSPACE Site") and distributed on certain areas
of the INFOSPACE Network (as defined below).
NOW THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS.
The following terms shall have the following meanings for the purpose of this
Agreement:
1.1 "SEARCH CONTENT" means the text, pictures, graphics, sound, video,
other data, functionality, computer software and code to be provided by SEARCH.
1.2 "SEARCH MARKS" means the SEARCH logos and trademarks to be provided to
INFOSPACE in accordance with this Agreement.
1.3 "INFOSPACE MARKS" means the INFOSPACE logos and trademarks to be
provided to SEARCH in accordance with this Agreement.
"[*]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant
to a request for confidential treatment.
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1.4 "INFOSPACE Network" means the WebSites that deliver INFOSPACE's
content services, including the INFOSPACE Site, other Web Sites owned by
INFOSPACE and the co-branded Web sites of the affiliates with whom INFOSPACE has
distribution arrangements.
2. OBLIGATIONS
2.1 INFOSPACE'S OBLIGATIONS
2.1.1 INFOSPACE will fully integrate SEARCH Content into the INFOSPACE
Site in such a manner that the search service will be built into the INFOSPACE
Site and offered as a co-branded service. There will be a mutually agreed upon
heading built into the INFOSPACE Site homepage and 5 mutually agreed upon
subheadings listed underneath. Each will link to the appropriate service, all of
which is a part of the INFOSPACE Site.
2.1.2 INFOSPACE will integrate a link and description to the SEARCH chat
room from the INFOSPACE Site Chat area.
2.1.3 INFOSPACE will integrate the SEARCH background check service into
appropriate areas within the INFOSPACE Site personals and employment sections in
the classifieds.
2.1.4 INFOSPACE will integrate SEARCH Content into PARENT.COM.
2.1.5 INFOSPACE will provide SEARCH with a minimum of [*] banner
impressions per month anywhere within the INFOSPACENetwork whitepages
("WHITEPAGE BANNERS").
2.1.6 INFOSPACE will provide a button sponsorship to SEARCH on every page
within the whitepages located within the INFOSPACE Site and on selected pages
throughout the INFOSPACE Network ("WHITEPAGE BUTTONS"). INFOSPACE will guarantee
that the WHITEPAGE BUTTONS will receive a minimum of [*] impressions per month
anywhere within the INFOSPACE Network.
2.1.7 INFOSPACE will provide a button sponsorship to SEARCH on every non-
whitepages page located within the INFOSPACE Site and on selected pages
throughout the INFOSPACE Network ("STANDARD BUTTONS"). INFOSPACE will guarantee
that the STANDARD BUTTONS will receive a minimum of [*] impressions per month
anywhere within the INFOSPACE Network.
2.1.8 INFOSPACE will place a text link on the INFOSPACE navigation bar
located within the INFOSPACE Site and on selected pages throughout the INFOSPACE
Network ("TEXT
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LINK"). INFOSPACE will guarantee that the TEXT LINK will receive a minimum of
[*] impressions anywhere within the INFOSPACE Network.
2.1.9 INFOSPACE maintains the right to sell banner and sponsorship
advertising on all pages that contain SEARCH Content that is built into the
INFOSPACE Site, as an INFOSPACE service, and will keep [*] of the revenue from
such advertising.
2.2 SEARCH'S OBLIGATIONS.
2.2.1 SEARCH shall make the SEARCH Content available to INFOSPACE via
electronic transfer or by other automated means to be mutually agreed on by the
parties.
2.2.2 SEARCH shall provide all payments in a timely manner as defined in
Section 3.
2.2.3 SEARCH will not include any INFOSPACE competitors, as defined by
INFOSPACE, in any of its advertising for the duration of this Agreement. SEARCH
agrees to use its best efforts to include INFOSPACE in its television and print
advertising by the second quarter of 1998 and continuing for the duration of
this Agreement.
3. REMUNERATION
3.1 1998 PROMOTION AND DISTRIBUTION FEES. SEARCH will pay to INFOSPACE for
promotion and distribution of the SEARCH Content, during the first eight months
of this Agreement, the following flat fees: [*]
During this time period, the CPM rates set forth in section 3.2 below shall be
imputed for purposes of the parties' internal accounting procedures as
necessary.
INFOSPACE agrees to allow SEARCH to defer payment of [*] per month from the
months of June through November of 1998. This deferred payment of [*] will be
made by SEARCH over the first 6 months of 1999 with a payment of [*] per month.
This payment is in addition to the regular fees as described in 3.2.
3.2 ON-GOING PROMOTION AND DISTRIBUTION FEES. After the first eight months
of this Agreement (beginning in January 1999), SEARCH will pay to INFOSPACE, for
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promotions and distribution of the SEARCH Content, the following fees based on
exposure levels:
FLAT INTEGRATION FEE of [*] per month
WHITEPAGE BANNER at a CPM of [*] for non-linking banner and [*] for linking
banners.
WHITEPAGE BUTTONS at a CPM of [*]
STANDARD BUTTONS at a CPM of [*]
TEXT LINKS at a CPM of [*]
Beginning January 1999, the minimum monthly fee will be [*]
3.3 REPORTS AND PAYMENT. Within ninety (90) days following the end of
each of July and August 1998 and within sixty (60) days following the end of
each month thereafter, SEARCH shall render payment in full of all fees due.
3.4 TAXES. All fees and payments stated herein exclude, and SEARCH shall
pay, any sales, use, property, license, value added, withholding, excise or
similar tax, federal, state or local, related to the parties' performance of its
obligations or exercise of its rights under this Agreement and any related
duties, tariffs, imposts and similar charges.
3.5 RECORDS. Each party shall keep reasonable records in connection with
its respective performance under this Agreement and shall permit the other party
reasonable access to such records at such other party's expense upon reasonable
notice.
3.6 GUARANTEE. Until the earlier of December 31, 1999 or the date of
effectiveness of a registration statement for SEARCH'S initial public offering,
if any, in the event that SEARCH fails to comply with Sections 3.1 through 3.4
above, PARENT shall guarantee to INFOSPACE the payment of all amounts due
thereunder within ten (10) days of the payment dates set forth in Section 3.3.
In the event that any such payment is not timely made by SEARCH as aforesaid,
INFOSPACE shall give notice to SEARCH and SEARCH shall make such payment within
10 days. In the event SEARCH fails to do so, INFOSPACE may give notice to PARENT
so stating and PARENT shall make such payment within ten (10) days thereafter,
provided that PARENT shall be entitled to assert any offsets, claims, or
defenses to which SEARCH may be entitled in connection therewith.
4. PROPRIETARY RIGHTS AND LICENSE.
4.1 LICENSE GRANT. SEARCH hereby grants to INFOSPACE for the term of this
Agreement, a non-exclusive, worldwide license to electronically reproduce,
electronically distribute, create derivative works of, publicly perform,
publicly display and digitally perform SEARCH Content in connection with the
parties' objectives hereunder. INFOSPACE hereby grants to SEARCH, for the term
of this Agreement, a non-exclusive, nontransferable, royalty-free, worldwide
license to use INFOSPACE's Marks for the purposes of marketing, promotion, and
content directories or indexes, and in electronic or printed advertising,
publicity, press releases, newsletters and mailings about SEARCH.
4.2 OWNERSHIP OF SEARCH CONTENT AND SEARCH MARKS. All right, title and
interest in and to the SEARCH Content and SEARCH Marks as well as intellectual
property rights (including without limitation all rights therein under
copyright, trademark, trade secret and similar laws) shall remain with SEARCH or
its licensors and/or suppliers.
* Confidential Treatment Requested
4
<PAGE>
Notwithstanding the foregoing, SEARCH hereby grants to INFOSPACE a non-
exclusive, nontransferable, royalty-free, worldwide license to use SEARCH Marks
in the INFOSPACE Site and for the purposes of marketing, promotion, and content
directories or indexes, and in electronic or printed advertising, publicity,
press releases, newsletters and mailings about the INFOSPACE Site. Further, any
information collected from providing the classified Apartment service will be
owned and controlled by INFOSPACE.
4.3 OWNERSHIP OF INFOSPACE MARKS. All right, title and interest in and
to the INFOSPACE Marks as well as intellectual property rights (including
without limitation all rights therein under trademark and similar laws) shall
remain with INFOSPACE or its licensors and/or suppliers. Notwithstanding the
foregoing, INFOSPACE hereby grants to SEARCH a non-exclusive, nontransferable,
royalty-free, worldwide license to use INFOSPACE Marks for the purposes of
marketing, promotion, and content directories or indexes, and in electronic or
printed advertising, publicity, press releases, newsletters and mailings.
4.4 QUALITY CONTROL AND USE RESTRICTIONS BY SEARCH. SEARCH shall use the
INFOSPACE Marks in accordance with any written instructions provided by
INFOSPACE. SEARCH acknowledges that SEARCH's use of the INFOSPACE Marks will
not create in it, nor will it represent it has, any right, title or interest in
or to the INFOSPACE Marks other than the license granted by INFOSPACE above.
SEARCH will not challenge the validity of or attempt to register any of the
INFOSPACE Marks or its interest therein as a licensee. SEARCH acknowledges
INFOSPACE's and its affiliates' ownership and exclusive right to use the
INFOSPACE Marks and agrees that all goodwill arising as a result of the use of
the INFOSPACE Marks shall inure to the benefit of INFOSPACE and its affiliates.
4.5 QUALITY CONTROL AND USE RESTRICTIONS BY INFOSPACE. INFOSPACE shall
use the SEARCH Marks in accordance with any written instructions provided by
SEARCH. INFOSPACE acknowledges that INFOSPACE's use of the SEARCH Marks will not
create in it, nor will it represent it has, any right, title or interest in or
to the SEARCH Marks other than the license granted by SEARCH above. INFOSPACE
will not challenge the validity of or attempt to register any of the SEARCH
Marks or its interest therein as a licensee. INFOSPACE acknowledges SEARCH's and
its affiliates' ownership and exclusive right to use the SEARCH Marks and agrees
that all goodwill arising as a result of the use of the SEARCH Marks shall inure
to the benefit of SEARCH and its affiliates.
4.6 SEARCH NON-EXCLUSIVITY. The parties agree and acknowledge that
nothing in this Agreement shall be deemed or construed to prohibit SEARCH from
providing the SEARCH Content to any other third party.
4.7 INFOSPACE EXCLUSIVITY. During the term of this Agreement, INFOSPACE
will not run advertising on the INFOSPACE Site from any of SEARCH's competitors
where competitor is defined as any company who provides a pay-for people
locating service including but not limited to the companies listed on Exhibit B.
The list on Exhibit B may be amended
5
<PAGE>
by mutual agreement of the parties to this Agreement. Notwithstanding the
foregoing, INFOSPACE shall not provide such exclusivity to SEARCH another sites
in the INFOSPACE Network, other than on the INFOSPACE Site, including, but not
limited to, Netscape and AOL. During the Term, the parties agree to discuss the
possibility of including co-branded sites in such exclusivity.
5. LIMITED WARRANTY.
5.1 REGARDING SERVICES. SEARCH provides the SEARCH Content as is and all
services performed hereunder "AS IS" and without any warranty of any kind.
SEARCH does not guarantee continuous or uninterrupted display or distribution of
the services.
5.2 NO OTHER WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED IN SECTION 5, EACH
PARTY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
6. INDEMNITY.
6.1 INDEMNITY BY INFOSPACE. INFOSPACE shall indemnify and hold harmless
SEARCH and its affiliates and suppliers against all claims, losses, damages,
liabilities, costs and expenses, including reasonable attorneys' fees, which
SEARCH and its affiliates and suppliers may incur as a result of any claims
relating to the infringement by the INFOSPACE Marks of any third party
trademark.
6.2 SEARCH'S INDEMNITY. SEARCH shall indemnify and hold harmless INFOSPACE
and its affiliates and suppliers against all claims, losses, damages,
liabilities, costs and expenses, including reasonable attorneys' fees, which
INFOSPACE and its affiliates and suppliers may incur as a result of claims
relating to the infringement by the SEARCH Content or the SEARCH Marks of any
third party copyright, trademark or trade secret.
6.3 MECHANICS OF INDEMNITY. The party seeking indemnification (the
"Indemnified Party") shall: (a) give the proposed indemnifier (the "Indemnifying
Party") notice of the relevant claim, (b) cooperate with the Indemnifying Party,
at the Indemnifying Party's expense, in the defense of such claim, and (c) give
the Indemnifying Party the right to control the defense and settlement of any
such claim, except that the Indemnifying Party shall not enter into any
settlement that affects the Indemnified Party's rights or interest without the
Indemnified Party's prior written approval. The Indemnified Party shall have
the right to participate in the defense at its expense.
6
<PAGE>
7. LIMITATION OF LIABILITY.
EXCEPT WITH RESPECT TO ANY LIABILITY OF EITHER PARTY TO THE OTHER PARTY
ARISING UNDER SECTION 6 HEREUNDER: IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
LOSS OF PROFITS, REVENUES OR DATA, OR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL,
PUNITIVE OR EXEMPLARY DAMAGES, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES, NOR SHALL EITHER PARTY'S LIABILITY UNDER THIS AGREEMENT EXCEED THE
AMOUNTS ACTUALLY PAID BY SEARCH TO INFOSPACE HEREUNDER.
8. TERM AND TERMINATION.
8.1 TERM. This Agreement shall expire four (4) years following the first
date on which the SEARCH Content is available on the INFOSPACE Site. After this
Agreement expires, SEARCH will have first right of re-negotiation.
8.2 TERMINATION. Except as provided below, neither party may terminate
this Agreement, prior to the end of the Term, unless (a) there is a material
breach of the obligations defined herein that is not cured after 30 days from
the receipt of written notification of such breach; (b) either party files for
bankruptcy protection; or (c) either party is indicted for any criminal
activity. Upon the effective date of expiration or termination, all obligations
defined herein expire except the obligations set forth in Section 6 and SEARCH's
obligation to pay in full all amounts due under Section 3, including but not
limited to the deferred payment of [*].
9. GENERAL PROVISIONS.
9.1 GOVERNING LAW. This Agreement will be governed and construed in
accordance with the laws of the State of Washington without giving effect its
conflict of law principles.
9.2 COMPLIANCE WITH LAWS. At their own expense, SEARCH and INFOSPACE
shall comply with all applicable laws, regulations, rules, ordinances and orders
regarding their respective activities related to this Agreement.
9.3 SEVERABILITY; HEADINGS. If any provision of this Agreement is held to
be invalid or unenforceable for any reason, the remaining provisions will
continue in full force without being impaired or invalidated in any way. The
parties agree to replace any invalid provision with a valid provision, which
most closely approximates the intent and economic effect of the invalid
provision. Headings are for reference purposes only and in no way define, limit,
construe or describe the scope or extent of such section, or in any way affect
this Agreement.
* Confidential Treatment Requested
7
<PAGE>
9.4 INDEPENDENT CONTRACTORS. The parties to this Agreement are
independent contractors, and no agency, partnership, joint venture or employee-
employer relationship is intended or created by this Agreement. Neither party
may take any actions, which are binding, on the other party. Without limiting
the foregoing, SEARCH shall not make any representations or warranties to third
parties on behalf of INFOSPACE.
9.5 NOTICE. Any notices required or permitted hereunder shall be given to
the appropriate party at the address specified above or at such other address as
the party shall specify in writing. Unless otherwise specified, such notice
shall be deemed given: upon personal delivery; if sent by fax, upon confirmation
of receipt; or if sent by certified or registered mail, postage prepaid, three
(3) days after the date of mailing.
9.6 ENTIRE AGREEMENT; WAIVER. This Agreement and the Exhibits attached
hereto set forth the entire understanding and agreement of the parties, and
supersede any and all prior or contemporaneous oral or written agreements or
understandings between the parties, as to the subject matter of this Agreement.
In the event of any conflict between the Agreement and an Exhibit, the terms of
the Exhibit shall control. Except as provided herein, only writing signed by
both parties may change this Agreement. Waiver by either party of a breach of
any provision contained herein must be in writing, and no such waiver shall be
construed as a waiver of any succeeding breach of such provision or a waiver of
the provision itself.
9.7 ASSIGNMENT AND TRANSFER OF CONTROL. INFOSPACE may assign this
Agreement, upon notice to SEARCH, to its parent corporation, or to any wholly or
partially owned domestic or foreign subsidiary or joint venture thereof provided
that the assignee assumes and agrees in writing to perform all of INFOSPACE's
executory obligations and INFOSPACE guarantees performance by the assignee
throughout the Term. In addition, INFOSPACE may, upon notice to SEARCH, assign
its rights under this Agreement to any entity acquiring all or substantially all
of the assets of the INFOSPACE. Notwithstanding the above provision, in no event
may INFOSPACE assign this Agreement to any direct competitors of SEARCH without
SEARCH's prior written consent. SEARCH may assign this Agreement, in whole or in
part, to any of its Affiliates, defined as Web sites and Web appliance companies
to whom INFOSPACE licenses its content, provided such Affiliate assumes and
agrees to perform all of SEARCH's obligations throughout the Term.
9.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed to be one instrument.
INFOSPACE: SEARCH:
By: /s/ Naveen Jain By: /s/ Nicholas Matzorkis
--------------- ----------------------
8
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Title: President & CEO Title: President & CEO
--------------- ------------------
Date: 8/24/98 Date: 8/24/98
--------------- ------------------
PARENT
By: /s/ Peter Locke
------------------
Title: Co-Chairman
------------------
Date: 8/26/98
------------------
9
<PAGE>
EXHIBIT A
1. CONTENT AND FUNCTIONALITY TO BE PROVIDED.
SEARCH will provide the following Content and Functionality:
TO BE ADDED
EXHIBIT B
TO BE PROVIDED BY SEARCH.
10
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE REGISTRANT
InfoSpace Investments, Ltd., a UK corporation.
Outpost Network, Inc., a Washington corporation.
Yellow Pages on the Internet, LLC, a Washington Limited Liability Company.
<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 Registration Statement (No. 333-__________) of
InfoSpace.com, Inc. on Form S-1 of our report dated August 25, 1998 on the
financial statements of InfoSpace.com, Inc., appearing in the Prospectus, which
is a part of this Registration Statement, and to the references to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus. We also consent to the use in this Registration Statement of our
report dated July 27, 1998 on the financial statements of Outpost Network, Inc.
DELOITTE & TOUCHE LLP
Seattle, Washington
August 26, 1998
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<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 324,415 5,774,724
<SECURITIES> 0 0
<RECEIVABLES> 514,187 1,132,166
<ALLOWANCES> (47,000) (235,000)
<INVENTORY> 0 4,845
<CURRENT-ASSETS> 913,175 6,768,237
<PP&E> 335,380 464,202
<DEPRECIATION> 118,941 183,515
<TOTAL-ASSETS> 1,129,614 10,505,418
<CURRENT-LIABILITIES> 370,125 965,256
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0 0
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<TOTAL-LIABILITY-AND-EQUITY> 1,129,614 10,505,418
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<CGS> 347,183 543,654
<TOTAL-COSTS> 2,056,319 6,893,745
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<LOSS-PROVISION> 47,000 188,000
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (697,110) (4,539,183)
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