<PAGE>
As filed with the Securities and Exchange Commission on September 8, 2000
Registration No. 333-43994
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
INFOSPACE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 7375 91-1718107
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
601 108th Avenue N.E., Suite 1200
Bellevue, Washington 98004
(425) 201-6100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
ELLEN B. ALBEN, Esq.
Senior Vice President,
Legal and Business Affairs
InfoSpace, Inc.
601 108th Avenue N.E., Suite 1200
Bellevue, Washington 98004
(425) 201-6100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
LAWRENCE J. STEELE, Esq. FRANCIS J. FEENEY, Jr., Esq.
CHRISTOPHER J. BELLAVIA, Esq. LAURA S. SARAH, Esq.
DREW G. MARKHAM, Esq. Hutchins, Wheeler & Dittmar
Wilson Sonsini Goodrich & A Professional Corporation
Rosati, P.C. 101 Federal Street
5300 Carillon Point
Kirkland, Washington 98033 Boston, Massachusetts 02110
(425) 576-5800
(617) 951-6600
----------------
Approximate date of commencement of proposed sale to the public: Upon
consummation of the merger described herein.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
[LOGO OF INFOSPACE] [LOGO OF GO2NET]
JOINT PROXY STATEMENT/PROSPECTUS
INFOSPACE, INC./GO2NET, INC.
To the stockholders of InfoSpace, Inc. and Go2Net, Inc.:
After careful consideration, the boards of directors of InfoSpace and Go2Net
have unanimously approved a merger between InfoSpace and Go2Net.
If the merger is completed, each share of Go2Net common stock will be
exchanged for 1.82 shares of InfoSpace common stock. InfoSpace common stock is
traded on the Nasdaq National Market under the trading symbol "INSP," and on
September 5, 2000, the closing price of InfoSpace common stock was $43.1875 per
share. Based on the capitalization of the two companies as of August 28, 2000,
73,646,220 shares of InfoSpace common stock in the aggregate would be issued to
Go2Net stockholders in connection with the merger, representing approximately
24% of the outstanding shares of InfoSpace common stock after the merger.
The merger cannot be completed unless a quorum of the outstanding shares of
InfoSpace and Go2Net are represented in person or by proxy at each of the
stockholder meetings described below, and not less than a majority of the
shares represented at the InfoSpace meeting and the holders of not less than a
majority of the outstanding shares of Go2Net vote in favor of the proposals
presented relating to the merger. The attached joint proxy statement/prospectus
provides detailed information concerning InfoSpace, Go2Net, the merger and
proposals related to the merger. Please give all of the information contained
in the joint proxy statement/prospectus your careful attention. In particular,
you should carefully consider the discussion in the section entitled "Risk
Factors" beginning on page 10 of this joint proxy statement/prospectus.
After careful consideration, the boards of directors of both InfoSpace and
Go2Net have unanimously determined the merger to be fair to the stockholders of
their companies and in their best interests. The boards of directors of both
companies unanimously recommend its approval to the stockholders of their
respective companies.
Stockholders of InfoSpace and Go2Net are cordially invited to attend
stockholder meetings to vote on the proposals related to the merger:
. The special meeting of InfoSpace stockholders will be held on October 12,
2000 at 9:00 a.m. local time at the Hilton Bellevue located at 100 112th
Avenue, Bellevue, Washington, 98004. Only stockholders who hold shares of
InfoSpace at the close of business on August 28, 2000 will be entitled to
vote at this special meeting.
. The special meeting of Go2Net stockholders will be held on October 12,
2000 at 9:00 a.m. local time at the Seattle Art Museum, 100 University
Street, Seattle, Washington 98101. Only stockholders who hold shares of
Go2Net at the close of business on August 28, 2000 will be entitled to
vote at this special meeting.
YOUR VOTE IS VERY IMPORTANT. Please use this opportunity to take part in the
affairs of InfoSpace and Go2Net by voting on the proposals related to the
merger. Whether or not you plan to attend the InfoSpace or Go2Net meeting,
please complete, sign, date and return the accompanying proxy in the enclosed
self-addressed stamped envelope. Returning the proxy does NOT deprive you of
your right to attend the appropriate meeting and to vote your shares in person.
We appreciate your consideration of this matter.
/s/ Naveen Jain /s/ Arun Sarin /s/ Russell C. Horowitz
Naveen Jain Arun Sarin Russell C. Horowitz
Chairman Chief Executive Officer Chairman and Chief
InfoSpace, Inc. InfoSpace, Inc. Executive Officer
Go2Net, Inc.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the adequacy or accuracy of this joint proxy statement/prospectus. Any
representation to the contrary is a criminal offense.
This joint proxy statement/prospectus is dated September 8, 2000 and was first
mailed to stockholders on or about September 12, 2000
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Go2Net from other documents that are not included
in or delivered with the joint proxy statement/prospectus. We will provide to
you a copy of this information or information regarding InfoSpace, without
charge, upon your written or oral request. You should make any request for
documents by October 5, 2000 to ensure timely delivery of the documents.
Requests for documents relating Requests for documents relating to Go2Net
to InfoSpace should be directed should be directed to:
to:
Go2Net, Inc.
Pier 70
InfoSpace, Inc. 2801 Alaskan Way, Suite 200
601 108th Avenue N.E. Seattle, WA 98121
Suite 1200 (206) 357-4000
Bellevue, Washington 98004 Attention: Ethan Caldwell, Esq.
(425) 201-6100
Attention: Ellen B. Alben, Esq.
See "Documents Incorporated by Reference" which begins on page 151.
<PAGE>
INFOSPACE, INC.
601 108th Avenue N.E., Suite 1200
Bellevue, Washington 98004
(425) 201-6100
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 12, 2000 at 9:00 a.m.
To Our Stockholders:
A Special Meeting of Stockholders of InfoSpace, Inc. will be held at the
Hilton Bellevue located at 100 112th Avenue, Bellevue, Washington, 98004, on
October 12, 2000 at 9:00 a.m., Pacific time, for the following purposes:
1. To approve the issuance of shares of InfoSpace common stock in the
proposed merger of a wholly- owned subsidiary of InfoSpace with and into
Go2Net, Inc., as contemplated by the Agreement and Plan of
Reorganization dated as of July 26, 2000, by and among InfoSpace, Go2Net
and a wholly-owned subsidiary of InfoSpace. InfoSpace will issue 1.82
shares of common stock in exchange for each outstanding share of common
stock of Go2Net, and Go2Net will become a wholly-owned subsidiary of
InfoSpace.
2. To transact any other business that properly comes before the Special
Meeting or any adjournments or postponements thereof.
The accompanying joint proxy statement/prospectus describes the proposed
merger in more detail. We encourage you to read the entire document carefully.
We have fixed the close of business on August 28, 2000 as the record date for
the determination of our stockholders entitled to vote at this meeting.
By order of the board of directors
of InfoSpace, Inc.
/s/ Ellen B. Alben
Ellen B. Alben, Esq.
Secretary
Bellevue, Washington
September 8, 2000
Whether or not you expect to be present at the meeting, to assure that your
shares are represented at the meeting, please mark, date and sign the enclosed
proxy card and return it in the envelope which has been provided. No postage
is required for mailing in the United States. In the event you are able to
attend the meeting, you may revoke your proxy and vote your shares in person.
<PAGE>
GO2NET, INC.
Pier 70
2801 Alaskan Way, Suite 200
Seattle, Washington 98121
(206) 357-4000
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 12, 2000 at 9:00 a.m.
To Our Stockholders:
A Special Meeting of Stockholders of Go2Net, Inc. will be held at the Seattle
Art Museum, 100 University Street, Seattle, Washington 98101 , on October 12,
2000, at 9:00 a.m. for the following purposes:
1. To consider and vote on the adoption of the Agreement and Plan of
Reorganization, dated as of July 26, 2000, by and among InfoSpace, Inc.,
Go2Net, and a wholly-owned subsidiary of InfoSpace, and the approval of the
proposed merger of the wholly-owned subsidiary of InfoSpace with and into
Go2Net, as contemplated by this merger agreement. In the merger, InfoSpace
will issue 1.82 shares of its common stock in exchange for each outstanding
share of common stock of Go2Net, and Go2Net will become a wholly-owned
subsidiary of InfoSpace.
2. To transact any other business that properly comes before the Special
Meeting or any adjournments or postponements thereof.
The accompanying joint proxy statement/prospectus describes the proposed
merger in more detail. We encourage you to read the entire document carefully.
We have fixed the close of business on August 28, 2000, as the record date
for the determination of our stockholders entitled to vote at the meeting.
By order of the board of directors
of Go2Net, Inc.
/s/ Ethan A. Caldwell, Esq.
Ethan A. Caldwell, Esq.
Secretary
Seattle, Washington
September 8, 2000
Whether or not you expect to be present at the meeting, to assure that your
shares are represented at the meeting, please mark, date and sign the enclosed
proxy card and return it in the envelope which has been provided. No postage
is required for mailing in the United States. In the event you are able to
attend the meeting, you may revoke your proxy and vote your shares in person.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS........................... 1
The Companies........................................................... 2
We are proposing a merger of InfoSpace and Go2Net....................... 3
Our reasons for proposing the merger of InfoSpace and Go2Net............ 4
Steps for you to take................................................... 5
Other matters to consider............................................... 7
FORWARD-LOOKING STATEMENTS................................................ 9
RISK FACTORS.............................................................. 10
General Risks Related to the Merger..................................... 10
Risks Relating to InfoSpace............................................. 14
Risks Relating to Go2Net................................................ 24
PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA............................ 32
INFOSPACE SELECTED CONSOLIDATED FINANCIAL DATA............................ 32
GO2NET SELECTED CONSOLIDATED FINANCIAL DATA............................... 34
COMPARATIVE PER SHARE DATA................................................ 35
MARKET PRICE AND DIVIDEND INFORMATION..................................... 36
THE INFOSPACE MEETING..................................................... 38
THE GO2NET MEETING........................................................ 41
THE MERGER................................................................ 44
Background of the merger................................................ 44
Recommendation of InfoSpace's board of directors and InfoSpace's reasons
for the merger......................................................... 46
Recommendation of Go2Net's board of directors and Go2Net's reasons for
the merger............................................................. 48
Opinion of InfoSpace's financial advisor................................ 50
Opinion of Go2Net's financial advisor................................... 56
Interests of certain persons in the merger.............................. 65
Completion and effectiveness of the merger.............................. 65
Structure of the merger and conversion of Go2Net common stock........... 66
Exchange of Go2Net stock certificates for InfoSpace stock certificates.. 66
No dividends............................................................ 66
Material United States federal income tax considerations................ 66
Accounting treatment for the merger..................................... 68
Regulatory filings and approvals required to complete the merger........ 68
Certain securities laws considerations.................................. 69
No appraisal rights..................................................... 69
Listing on the Nasdaq National Market of InfoSpace common stock to be
issued in the merger................................................... 69
Delisting and deregistration of Go2Net common stock after the merger.... 69
Conduct of business if merger is not completed.......................... 69
THE MERGER AGREEMENT...................................................... 70
General................................................................. 70
The exchange ratio and treatment of Go2Net preferred stock and common
stock.................................................................. 70
Treatment of restricted stock of Go2Net................................. 70
Treatment of Go2Net stock options....................................... 70
Exchange of certificates................................................ 71
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Representations and warranties......................................... 71
Conduct of business before completion of the merger.................... 72
No solicitation by Go2Net.............................................. 73
Go2Net stockholder's meeting........................................... 75
InfoSpace stockholder's meeting........................................ 75
Employee benefits matters.............................................. 75
Conditions to completion of the merger................................. 76
Termination of the merger agreement.................................... 77
Payment of termination fee by Go2Net................................... 78
Operations after the merger............................................ 79
Extension, waiver and amendment of the merger agreement................ 79
AGREEMENTS RELATED TO THE MERGER......................................... 80
InfoSpace Voting Agreements............................................ 80
Go2Net Voting Agreements............................................... 80
InfoSpace Affiliate Agreements......................................... 81
Go2Net Affiliate Agreements............................................ 81
Option Agreement....................................................... 81
INFOSPACE BUSINESS....................................................... 84
INFOSPACE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 97
INFOSPACE MANAGEMENT..................................................... 112
INFOSPACE PRINCIPAL STOCKHOLDERS......................................... 120
INFOSPACE TRANSACTIONS WITH RELATED PARTIES.............................. 122
GO2NET BUSINESS.......................................................... 124
GO2NET PRINCIPAL STOCKHOLDERS............................................ 125
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS........... 127
DESCRIPTION OF INFOSPACE CAPITAL STOCK................................... 137
COMPARISON OF STOCKHOLDER RIGHTS AND CORPORATE GOVERNANCE MATTERS........ 142
MATERIAL CONTACTS........................................................ 149
LEGAL MATTERS............................................................ 149
EXPERTS.................................................................. 149
STOCKHOLDER PROPOSALS.................................................... 150
DOCUMENTS INCORPORATED BY REFERENCE...................................... 151
INDEX TO FINANCIAL STATEMENTS............................................ F-1
ANNEX A The Merger Agreement
ANNEX B Opinion of InfoSpace's Financial Advisor, Morgan Stanley & Co.
Incorporated
ANNEX C Opinion of Go2Net's Financial Advisor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated
</TABLE>
ii
<PAGE>
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
This joint proxy statement/prospectus pertains to the merger of a wholly-
owned subsidiary of InfoSpace with and into Go2Net, and it is being sent to the
holders of InfoSpace common stock and the holders of Go2Net common stock and
preferred stock. This summary may not contain all of the information that is
important to you. You should read carefully this entire document, including the
merger agreement and its exhibits and other documents attached to this joint
proxy statement/prospectus and the other documents referenced in it for a more
complete understanding of the merger. In particular, you should read the merger
agreement (and the exhibits to the merger agreement), which is attached as
Annex A and is incorporated by reference into this joint proxy
statement/prospectus, the opinion of Morgan Stanley & Co. Incorporated, which
is attached as Annex B, and the opinion of Merrill Lynch Pierce Fenner & Smith
Incorporated, which is attached as Annex C.
1
<PAGE>
The Companies
[LOGO OF INFOSPACE]
InfoSpace, Inc.
601 108th Avenue, N.E.
Suite 1200
Bellevue, WA 98004
(425) 201-6100
http://www.infospace.com
InfoSpace is an international information infrastructure services company.
InfoSpace provides commerce, information and communication infrastructure
services for wireless devices, merchants and Web sites. Our affiliates utilize
and distribute these services through a network of wireless and other devices
including PCs, cellular phones, pagers, screen telephones, television set-top
boxes, online kiosks and personal digital assistants as well as PC-based Web
sites. We have relationships with AT&T Wireless, Verizon Wireless, Vodafone
AirTouch, ALLTEL, SBC, Voicestream, Qwest, Intel, Ericsson, Nokia, Mitsui and
Acer America. InfoSpace's affiliate network also consists of more than
3,100 Web sites that include America Online, Microsoft's MSN, Disney's GO
Network, NBC's Snap, Lycos, Go2Net and ABC LocalNet, among others.
[LOGO OF GO2NET]
Go2Net, Inc.
Pier 70
2801 Alaskan Way, Suite 200
Seattle, WA 98121
(206) 357-4000
http://www.go2net.com
Go2Net is a provider of Internet applications and infrastructure technologies
for both narrowband and broadband devices. Go2Net offers applications and
technologies in the categories of search and directory, small business and
electronic commerce, personal finance and multi-player games. Go2Net also
offers electronic commerce solutions to online merchants by providing payment
authorization and other services to small and medium-sized businesses. Go2Net
is using its proprietary, scaleable technology platforms to develop private
label portal and other applications and electronic commerce solutions for
strategic partners to extend the distribution of its technologies and
applications. We have relationships with a number of companies, including
Amazon.com, Ameritech, Hasbro, Inc., JP Morgan & Co., Merrill Lynch & Co.,
National Discount Brokers, Inc., Net2Phone, Inc., Office Max and US West. Since
inception, a significant portion of Go2Net's revenue has been derived from
advertising sales.
2
<PAGE>
We are proposing a merger of InfoSpace and Go2Net
Q: What is the proposed merger? (see page 44)
A. In the proposed merger, a wholly-owned subsidiary of InfoSpace will merge
with and into Go2Net. Go2Net will survive the merger as a wholly-owned
subsidiary of InfoSpace. The merger agreement is attached to this joint
proxy statement/prospectus as Annex A. You are encouraged to read it
carefully.
Q: What will the Go2Net stockholders receive in the merger? (see page 70)
A. Following the merger:
. Go2Net common stockholders will receive, in exchange for each of their
Go2Net shares, 1.82 shares of InfoSpace common stock.
. Each option to purchase Go2Net common stock outstanding immediately
before the completion of the merger will automatically become an option
to purchase shares of InfoSpace common stock. The number of shares of
InfoSpace common stock which may be purchased under such option will be
equal to the product of the number of Go2Net shares that were purchasable
before the merger multiplied by 1.82. The exercise price per share will
be the pre-merger exercise price divided by 1.82.
. Instead of fractional shares in the merger, Go2Net stockholders will
receive cash in an amount equal to such fraction multiplied by the
average closing prices reported on the Nasdaq National Market for
InfoSpace common stock for the five (5) trading days immediately
preceding the effective date of the merger.
Q: When do you expect the merger to be completed?
A. InfoSpace and Go2Net are working toward completing the merger as quickly as
possible. We hope to complete the merger no later than December 31, 2000.
Q: Are there risks involved in undertaking the merger?
A. Yes. In evaluating the merger, you should carefully consider the factors
discussed in the section of the joint proxy statement/prospectus entitled
"Risk Factors" beginning on page 10.
Q: What are the conditions to completion of the merger? (see page 76)
A. InfoSpace's and Go2Net's respective obligations to complete the merger are
subject to the satisfaction or waiver of specified closing conditions. If
either InfoSpace or Go2Net waives any conditions, each company will consider
the facts and circumstances at that time and make a determination whether a
resolicitation of proxies from its respective stockholders is appropriate.
Q: What stockholder approvals are required for approval of the merger? (see
pages 38 and 41)
A. The holders of a majority of the shares of InfoSpace common stock (including
the outstanding preferred stock which votes together with the common stock)
present or represented by proxy at the stockholders' meeting must approve
the issuance of InfoSpace common stock in the merger.
The holders of a majority of the outstanding shares of Go2Net common stock
(including shares of Go2Net preferred stock voting on an as-converted
basis) and the holders of a majority of the Go2Net preferred stock (voting
as a separate class) must adopt the merger agreement and approve the
merger.
Q: Are there any stockholders already committed to voting in favor of the
merger and the share issuance? (see pages 38 and 41)
A. Yes.
. InfoSpace stockholders who collectively held approximately 24.1% of the
outstanding InfoSpace common stock as of
3
<PAGE>
July 26, 2000 entered into voting agreements requiring them to vote all of
their shares in favor of the issuance of InfoSpace common stock in the
merger.
. Go2Net stockholders who collectively held approximately 36.8% of the
voting power of the Go2Net common stock (including shares of Go2Net
preferred stock voting on an as-converted basis) outstanding as of
July 26, 2000 entered into voting agreements requiring them to vote all
of their shares in favor of adoption of the merger agreement.
Q: Who will be the directors of InfoSpace following the merger? (see page 65)
A. Following the merger, the board of directors of InfoSpace is expected to
consist of five of the then current members of InfoSpace's board of
directors, and Russell C. Horowitz, William D. Savoy and a designee of
Messrs. Horowitz and Savoy acceptable to InfoSpace.
Q: Who will be the executive officers of InfoSpace following the merger?
A. Following the merger, the executive management team of InfoSpace is expected
to include:
. Naveen Jain, as Chairman;
. Arun Sarin, as Vice Chairman and Chief Executive Officer;
. Russell Horowitz, as Vice Chairman and President; and
. Rand L. Rosenberg, as Chief Financial Officer.
Our reasons for proposing the merger of InfoSpace and Go2Net
Q: Why are InfoSpace and Go2Net proposing the merger? (see page 44)
A. InfoSpace and Go2Net are proposing the merger to create an infrastructure
services company to deliver an end-to-end integrated platform of
applications and technologies for multiple platforms including narrowband
and broadband PCs, TVs, personal digital assistants, pagers, cellular phones
and other Web appliances.
Q: Does the board of directors of InfoSpace recommend voting in favor of
issuing InfoSpace shares in the merger? (see page 46)
A. Yes. After careful consideration, InfoSpace's board of directors unanimously
recommends that its stockholders vote in favor of the issuance of InfoSpace
common stock to the stockholders of Go2Net in the merger.
Q: Does the board of directors of Go2Net recommend voting in favor of the
merger agreement and the merger? (see page 48)
A. Yes. After careful consideration, Go2Net's board of directors unanimously
recommends that its stockholders vote in favor of adoption of the merger
agreement and the approval of the proposed merger.
Q: Do persons involved in the merger have interests which may conflict with
mine? (see page 13)
A. Yes. When considering the recommendations of InfoSpace's and Go2Net's boards
of directors, you should be aware that certain Go2Net directors and officers
have interests in the merger that are different from, or are in addition to,
yours. These interests include the employment of some Go2Net executive
officers by InfoSpace after the merger, the appointment of some Go2Net
directors to
4
<PAGE>
the InfoSpace board and the indemnification of directors and officers of
Go2Net against certain liabilities both before and after the merger.
Q: Did InfoSpace's and Go2Net's financial advisors render favorable opinions
concerning the merger? (see pages 50 and 56)
A. Yes.
. In connection with the merger, InfoSpace's board of directors considered
the opinion it received from the company's financial advisor, Morgan
Stanley & Co. Incorporated, as to the fairness, from a financial point of
view, to InfoSpace, of the exchange ratio provided for in the merger
agreement.
. Go2Net's board of directors considered the opinion it received from the
company's financial advisor, Merrill Lynch Pierce Fenner & Smith
Incorporated, as to the fairness, from a financial point of view, to the
holders of Go2Net common stock, of the exchange ratio provided for in the
merger agreement.
. The full text of the written opinions of the financial advisors are
attached to the back of this document as Annex B and Annex C, you should
read them carefully in their entirety to understand the procedures
followed, the assumptions made, matters considered and limitations on the
review undertaken in providing the opinions. The opinion of Morgan
Stanley & Co. Incorporated is directed to the InfoSpace board, and the
opinion of Merrill Lynch is directed to the Go2Net board. These opinions
do not address the prices at which InfoSpace's common stock will trade
after the proposed merger and do not constitute a recommendation to any
stockholder as to how to vote with respect to any matter relating to the
proposed merger.
Steps for you to take
Q: What do I need to do now? (see page 38 or 41)
A. After carefully reading and considering the information contained in this
joint proxy statement/prospectus, please mail your signed proxy card in the
enclosed return envelope.
If you do not include instructions on how to vote your properly signed
proxy card, your common stock will be voted "FOR" approval of matters
related to the merger.
Your vote is important regardless of the number of shares that you own.
Q: Can I submit my proxy by telephone? (see page 40)
A. InfoSpace stockholders may be able to submit their proxy by telephone.
InfoSpace stockholders should refer to the proxy card included with their
materials for instructions about how to vote. If you vote by telephone, you
do not need to complete and mail your proxy card.
Q: When and where will the vote take place? (see page 38 or 41)
A. Special meeting of InfoSpace stockholders. The InfoSpace special meeting
will be held at the Hilton Bellevue located at 100 112th Avenue, Bellevue,
Washington, 98004 on October 12, 2000, starting at 9:00 a.m., Pacific time.
Special meeting of Go2Net stockholders. The Go2Net special meeting will be
held at the Seattle Art Museum located at 100 University Street, Seattle,
Washington, 98101 on October 12, 2000, starting at 9:00 a.m., Pacific time.
Q: Should I send in my Go2Net stock certificates now?
A. No. After the merger is completed, InfoSpace will send you written
instructions for exchanging your Go2Net stock certificates for InfoSpace
stock certificates.
5
<PAGE>
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A. Your broker will vote your shares only if you provide instructions on how
to vote by following the information provided to you by your broker.
Q: What do I do if I want to change my vote? (see page 38 or 41)
A. You can change your vote at any time before your proxy is voted at your
special meeting. There are three ways for you to do this:
1. Send written notice to the secretary of InfoSpace or Go2Net (as
appropriate) that you wish to change or revoke your proxy,
2. Sending a completed proxy bearing a later date than your original proxy
prior to the vote at the special meeting, or
3. Attend the stockholder meeting and vote in person.
Q: What happens if a Go2Net stockholder does not vote? (see page 42)
A. If a Go2Net stockholder fails to submit a proxy or vote at the special
meeting, it will have the same effect as a vote against adoption of the
merger agreement and approval of the merger.
. If you return your proxy and do not indicate how you want to vote, your
proxy will be counted as a vote to adopt the merger agreement and approve
the merger.
. If you submit a proxy and affirmatively elect to abstain from voting,
your proxy will be counted as present for the purpose of determining the
presence of a quorum but will not be voted at the special meeting.
Consequently, your abstention will have the same effect as a vote against
adoption of the merger agreement and approval of the merger.
Q: What happens if an InfoSpace stockholder doesn't vote? (see page 39)
A. If you are an InfoSpace stockholder and do not submit a proxy or vote at
the special meeting, your shares will not be counted as present for
purposes of determining the presence or absence of a quorum and will have
no effect on the outcome of the proposal to approve the issuance of
InfoSpace common stock in the merger.
. If you submit a proxy and do not indicate how you want to vote, your
proxy will be counted as a vote to approve the issuance of shares of
InfoSpace common stock in connection with the merger.
. If you submit a proxy and affirmatively elect to abstain from voting,
your proxy will be counted as present for the purpose of determining the
presence of a quorum but will not be voted at the special meeting.
Consequently, your abstention will have the same effect as a vote against
the issuance of InfoSpace's common stock in connection with the merger.
Q: Am I entitled to dissenters' or appraisal rights in connection with the
merger? (see page 69)
A. No. Under Delaware law, neither stockholders of InfoSpace nor stockholders
of Go2Net are entitled to dissenters' or appraisal rights in connection
with the merger.
6
<PAGE>
Other matters to consider
Q: How do the market prices of InfoSpace and Go2Net common stock compare?
(see page 36)
A. Shares of InfoSpace common stock and Go2Net common stock are listed on the
Nasdaq National Market. InfoSpace's trading symbol is "INSP," and Go2Net's
trading symbol is "GNET." On July 26, 2000, the last full trading day prior
to the public announcement of the proposed merger, the last reported sale
prices were:
. $47.75 per share of InfoSpace common stock, and
. $60.5625 per share of Go2Net common stock.
On September 5, 2000 the last reported sale prices were:
. $43.1875 per share of InfoSpace common stock, and
. $77.25 per share of Go2Net common stock.
InfoSpace and Go2Net urge you to obtain current market quotations.
Q: What are the United States federal income tax consequences of the merger?
(see page 66)
A. We expect that, in general, InfoSpace, Go2Net and Go2Net's stockholders will
not recognize gain or loss for United States federal income tax purposes as
a result of the merger, except for gain or loss attributable to cash
received by Go2Net stockholders instead of fractional shares. It is a
condition to the merger that both InfoSpace and Go2Net receive legal
opinions to the effect that the merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code.
Set forth in "The Merger--Material United States Federal Income Tax
Considerations" is a description of the material current United States
federal income tax consequences of the transaction. The tax consequences to
each Go2Net stockholder will depend on the facts of that stockholder's own
situation. Therefore, Go2Net stockholders are urged to consult their own
tax advisors to determine their particular tax consequences.
Q: How will the merger be accounted for? (see page 68)
A. InfoSpace intends to account for the merger as a "pooling-of-interests" for
financial accounting purposes, in accordance with accounting principles
generally accepted in the United States of America. As a result, for
accounting and financial reporting purposes, we will treat our companies as
if they had always been one company.
Q: Does the merger agreement permit termination of the merger? (see page 77)
A. Yes. The merger agreement may be terminated by either InfoSpace or Go2Net
prior to the effectiveness of the merger under some circumstances.
Q: Could payment of a termination fee be required in connection with the
merger? (see page 78)
A. Yes. If the merger agreement is terminated upon some specified occurrences,
Go2Net may be required to pay to InfoSpace a termination fee of
$120,000,000. In addition, Go2Net granted InfoSpace an option to purchase
the number of its shares of common stock equal to 19.9% of its shares
outstanding as of July 26, 2000 for an exercise price of $84.28 per share.
InfoSpace may exercise the option if specified events occur which give
InfoSpace or Go2Net the right to terminate the merger agreement. However,
the total profit that InfoSpace receives in connection with the termination
fee and this option may not exceed $120,000,000.
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Q: May Go2Net negotiate with other parties? (see page 73)
A. Generally, no. Go2Net agreed, subject to limited exceptions for responses
to or negotiations in connection with unsolicited bona fide offers, not to
initiate or engage in discussions with another party concerning a business
combination with a party other than InfoSpace while the merger is pending.
Q: Are there restrictions on the ability to sell InfoSpace stock received as a
result of the merger? (see page 69)
A. All InfoSpace common stock received by Go2Net stockholders in connection
with the merger will be freely transferable unless the holder is considered
an affiliate of either InfoSpace or Go2Net under the Securities Act of 1933,
as amended. Shares of InfoSpace held by its affiliates may only be sold
pursuant to a registration statement or an exemption from the registration
requirements of the Securities Act.
In addition, certain InfoSpace stockholders and Go2Net stockholders that
will hold in the aggregate approximately 104,709,063 million shares of
InfoSpace common stock following the merger have agreed not to sell or
transfer such shares for a period ending on the date InfoSpace publicly
announces financial results covering at least 30 days of combined operations
of InfoSpace and Go2Net.
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FORWARD-LOOKING STATEMENTS
You should not rely on forward-looking statements in this joint proxy
statement/prospectus. This joint proxy statement/prospectus contains forward-
looking statements that involve risks and uncertainties. InfoSpace and Go2Net
use words such as "anticipates," "believes," "plans," "expects," "future,"
"intends," "may," "will," "should," "estimates," "predicts," "potential,"
"continue" and similar expressions to identify such forward-looking statements.
When used by InfoSpace or Go2Net in this joint proxy statement/prospectus,
these forward-looking statements include, but are not limited to statements
regarding:
. their business and growth strategy,
. the expected demand for and benefits of their services for their
affiliates, advertisers, content providers and distribution partners,
. anticipated benefits from the businesses and technologies they have
acquired or intend to acquire,
. future carriage fees,
. increased advertising and public relations expenditures,
. increased operating expenses and the reasons for such increases,
. expected operating losses,
. increased costs of revenues,
. increased product development expenses,
. increased sales, general and administrative expenses,
. anticipated capital equipment expenditures and
. anticipated cash needs.
This joint proxy statement/prospectus also contains forward-looking
statements attributed to third parties relating to their estimates regarding
the growth of certain markets. Forward-looking statements are subject to known
and unknown risks, uncertainties and other factors that may cause InfoSpace's
and Go2Net's and the Internet services industry's actual results, levels of
activity, performance, achievements and prospects to be materially different
from those expressed or implied by such forward-looking statements. These
risks, uncertainties and other factors include, among others, those identified
under "Risk Factors" and elsewhere in this joint proxy statement/prospectus.
These forward-looking statements apply only as of the date of this joint
proxy statement/prospectus. InfoSpace and Go2Net undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. In light of these risks,
uncertainties, and assumptions, the forward-looking events discussed in this
joint proxy statement/prospectus might not occur.
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RISK FACTORS
The merger involves a high degree of risk. By voting in favor of the merger
or the share issuance, as applicable, current Go2Net stockholders will be
choosing to invest in InfoSpace common stock, and current InfoSpace
stockholders will face dilution of their ownership interest in InfoSpace. An
investment in InfoSpace common stock involves a high degree of risk. In
addition to the other information contained in this joint proxy
statement/prospectus, you should carefully consider all of the following risk
factors relating to the proposed merger, the combined company, InfoSpace and
Go2Net in deciding whether to vote for the merger or the share issuance.
General Risks Related to the Merger
InfoSpace's stock price is volatile. The value of InfoSpace common stock issued
in the merger will depend on its market price at the time of the merger, and no
adjustment will be made as a result of changes in the market price of
InfoSpace's common stock.
At the closing of the merger, each share of Go2Net common stock will be
exchanged for 1.82 shares of InfoSpace common stock. This exchange ratio will
not be adjusted for changes in the market price of InfoSpace common stock or
Go2Net common stock. In addition, neither InfoSpace nor Go2Net may terminate or
renegotiate the merger agreement, and Go2Net may not resolicit the vote of its
stockholders solely because of changes in the market price of InfoSpace common
stock or Go2Net common stock. Any reduction in InfoSpace's common stock price
will result in Go2Net stockholders receiving less value in the merger at
closing. Go2Net stockholders will not know the exact value of InfoSpace's
common stock to be issued to them in the merger at the time of the special
meeting of Go2Net stockholders.
The market price of InfoSpace's common stock, like that of the shares of many
other technology and Internet companies, has been and is expected to continue
to be volatile. For example, since InfoSpace's initial public offering on
December 15, 1998, InfoSpace common stock traded as high as $138.50 per share
and as low as $1.88 per share.
Recently, the stock market in general and the shares of Internet companies in
particular have experienced significant price fluctuations. The market price of
InfoSpace common stock is expected to continue to fluctuate significantly in
response to various factors, including:
. actual or anticipated variations in quarterly results of operations;
. the addition or loss of affiliates or content providers;
. announcements of technological innovations, new products or services by
InfoSpace 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;
. InfoSpace's announcements of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
. additions or departures of key personnel;
. sales of its common stock;
. general market conditions; and
. other events or factors, many of which are beyond InfoSpace's control.
In addition, the stock market in general, and the Nasdaq National Market and
the market for Internet and technology companies in particular, have
experienced extreme price and volume fluctuations that have
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often been unrelated or disproportionate to the operating performance of these
companies. These broad market and industry factors may materially and adversely
affect InfoSpace's stock price, regardless of its operating performance.
InfoSpace will face significant challenges in integrating InfoSpace and Go2Net
and, as a result, may not realize the expected benefits of the merger.
Integrating the operations, systems and personnel of InfoSpace and Go2Net
will be a complex process, and InfoSpace is uncertain that the integration will
be completed in a timely manner or will achieve the anticipated benefits of the
merger. The challenges involved in this integration include:
. retaining existing customers and strategic partners of each company;
. retaining and integrating management and other key employees of both
InfoSpace and Go2Net;
. coordinating research and development activities to enhance introduction
of new products, services and technologies;
. combining product and service offerings effectively and quickly;
. transitioning all systems to a common information technology system;
. persuading employees that the business cultures of InfoSpace and Go2Net
are compatible;
. offering products and services of InfoSpace and Go2Net to each other's
customers and partners;
. bringing together the companies' marketing efforts so that the industry
receives useful information about the merger; and
. developing and maintaining uniform standards, controls, procedures and
policies.
It is not certain that InfoSpace and Go2Net can be successfully integrated in
a timely manner or at all or that any of the anticipated benefits will be
realized. Risks to successful integration of the companies include:
. the impairment of relationships with employees, customers and business
partners as a result of the integration of management and other key
personnel;
. the potential disruption of InfoSpace's ongoing business and distraction
of its management;
. the difficulty of incorporating acquired technology and rights into the
product and service offerings of InfoSpace; and
. unanticipated expenses related to integration of the two companies.
InfoSpace may not succeed in addressing these risks or any other problems
encountered in connection with the merger. The diversion of the attention of
InfoSpace's management and any difficulties encountered in the process of
combining the companies could cause the disruption of, or a loss of momentum
in, the activities of InfoSpace's business. Further, neither InfoSpace nor
Go2Net can assure you that the growth rate of the combined company will equal
the historical growth rates experienced by InfoSpace or Go2Net.
If InfoSpace does not successfully integrate Go2Net or the merger's benefits do
not meet the expectations of investors or financial or industry analysts, the
market price of InfoSpace common stock may decline.
The market price of InfoSpace common stock may decline as a result of the
merger if:
. the combined company is unable to obtain additional capital on acceptable
terms when required;
. the integration of InfoSpace and Go2Net is not completed in a timely and
efficient manner;
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. InfoSpace does not achieve the benefits of the merger as rapidly as, or
to the extent, anticipated by financial or industry analysts;
. InfoSpace's assumptions about Go2Net's business model and operations,
considered on a stand-alone basis, such as the ability of Go2Net to
distribute applications and infrastructure technologies through
narrowband and broadband platforms and to continue to execute its
strategic plan, prove incorrect, thereby requiring additional capital to
fund the operating losses of such facilities;
. the effect of the merger on InfoSpace's financial results is not
consistent with the expectations of financial or industry analysts; or
. significant stockholders of InfoSpace following the merger decide to
dispose of their shares because the results of the merger are not
consistent with their expectations.
Failure to complete the merger could negatively impact the market price of
Go2Net common stock and InfoSpace common stock.
If the merger is not completed for any reason, Go2Net and InfoSpace will be
subject to a number of material risks, including:
. the provision in the merger agreement that Go2Net could be required to
pay InfoSpace a termination fee in the amount of $120 million;
. the market price of Go2Net common stock and InfoSpace common stock may
decline to the extent that the current market price of such shares
reflects a market assumption that the merger will be completed;
. costs related to the merger, such as legal and accounting fees and a
portion of the investment banking fees, must be paid even if the merger
is not completed;
. benefits that InfoSpace expects to realize from the merger, such as the
potentially enhanced financial and competitive position of the combined
company, would not be realized;
. Go2Net stockholders may experience dilution to their stock ownership
because the stock option granted to InfoSpace by Go2Net may become
exercisable;
. Go2Net may no longer qualify as an entity that may be a party to a
business combination for which pooling-of-interests accounting would be
available; and
. the diversion of management attention from the day-to-day business of
Go2Net, the scaling back of marketing and capital spending and the
unavoidable disruption to its employees and its relationships with
customers and suppliers, during the period before consummation of the
merger, may make it difficult for Go2Net to regain its financial and
market position if the merger does not occur.
If the merger is terminated and the Go2Net board of directors seeks another
merger or business combination, Go2Net stockholders cannot be certain that
Go2Net will be able to find a partner willing to pay an equivalent or more
attractive price than the price to be paid by InfoSpace in the merger.
During the pendency of the merger, Go2Net may not be able to enter into a
merger or business combination with another party at a favorable price because
of restrictions in the merger agreement.
Until the merger is completed or the merger agreement is terminated, subject
to specified exceptions, Go2Net is prohibited from entering into or soliciting,
initiating or encouraging any inquiries or proposals that may lead to a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets, tender offer, sale of shares of capital stock or other
similar transactions with any person or entity other than InfoSpace. As a
result of these prohibitions, Go2Net may not be able to enter into an
alternative transaction at a favorable price.
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Go2Net's officers and directors have conflicts of interest that may influence
them to support or approve the merger.
The directors and officers of Go2Net participate in arrangements and have
continuing indemnification against liabilities that provide them with interests
in the merger that are different from, or in addition to, those of other Go2Net
stockholders, including the following:
. directors and officers and their respective affiliates, representing a
significant percentage of Go2Net stockholders, have agreed to vote in
favor of the merger agreement and the merger;
. upon completion of the merger, two current Go2Net directors, Russell C.
Horowitz and William D. Savoy, and their designee acceptable to
InfoSpace, will become directors of InfoSpace;
. upon completion of the merger, the current chairman and chief executive
officer of Go2Net, Russell C. Horowitz, will become vice chairman and
president of InfoSpace;
. upon completion of the merger, InfoSpace may enter into employment
agreements with some executive officers of Go2Net; and
. InfoSpace has agreed to cause the surviving corporation in the merger to
indemnify each present and former Go2Net officer and director against
liabilities arising out of such person's services as an officer or
director. InfoSpace will cause the surviving corporation to maintain
officers' and directors' liability insurance to cover any such
liabilities for the next six years.
The directors and officers of Go2Net may therefore have been and may be more
likely to vote to adopt the merger agreement and approve the merger than if
they did not have these interests. Go2Net stockholders should consider whether
these interests may have influenced these directors and officers to support or
recommend the merger. You should read more about these interests under "The
Merger--Interests of Certain Persons in the Merger" on page 65.
Uncertainties associated with the merger may cause Go2Net to lose key
personnel.
Current and prospective Go2Net employees may experience uncertainty about
their future roles with InfoSpace. This uncertainty may adversely affect
Go2Net's ability to attract and retain key management, sales, marketing and
technical personnel.
The merger could adversely affect combined financial results.
InfoSpace and Go2Net expect to incur direct transaction costs of
approximately $35.0 million in connection with the merger. If the benefits of
the merger do not exceed the costs associated with the merger, including any
dilution to InfoSpace stockholders resulting from the issuance of shares in
connection with the merger, InfoSpace's financial results, including earnings
per share, could be adversely affected. In addition, if the merger is not
accounted for as a pooling-of-interests, the combined company could experience
significant adverse impact to its net income due to the amortization of
goodwill and other intangibles in light of the impact of purchase accounting
for the merger.
Failure to qualify for pooling-of-interests accounting treatment may harm the
future operating results of the combined company.
If, after completion of the merger, events occur that cause the merger to
fail to qualify for pooling-of-interests accounting treatment, the purchase
method of accounting would apply. Purchase accounting treatment would harm the
reported operating results of the combined company. Under purchase accounting,
InfoSpace would record the estimated fair value of InfoSpace common stock
issued in the merger as the cost of the merger. A portion of the purchase price
would be charged to in process research and development expense. The remainder
would be allocated to the net assets acquired, with the excess of the estimated
fair
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value of InfoSpace common stock issued in the merger over the fair value of net
assets acquired recorded as goodwill or other intangible assets. This goodwill
would be amortized in future periods. The estimated fair value of the InfoSpace
common stock to be issued in the merger is much greater than the historical net
book value at which Go2Net carries assets in its accounts.
InfoSpace and Go2Net may not be able to obtain the required regulatory
approvals for completion of the merger.
InfoSpace and Go2Net must obtain, as a condition to their obligation to
complete the merger, clearance under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. On August 23, 2000, early termination of the waiting
period was granted to InfoSpace and Go2Net. Even though early termination was
granted, any federal, state or foreign governmental agency or private person
may challenge the merger at any time before or after its completion.
Risks Relating to InfoSpace
InfoSpace operates in a rapidly emerging environment that involves many
risks, some of which are beyond InfoSpace's control. The following discussion
highlights some of these risks. In the following discussion of risks relating
to InfoSpace, references to "we," "us," "our" and "ours" refer to InfoSpace and
its consolidated subsidiaries.
We have a limited operating history and a history of losses.
We have a limited operating history, which makes it difficult to evaluate our
business and prospects. We have incurred net losses from our inception in March
1996 through June 30, 2000. At June 30, 2000, we had an accumulated deficit of
approximately $213.5 million. We expect to incur operating losses on a
quarterly basis in the future. Our 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. To address the risks we face and to be able
to achieve and sustain profitability, we must, among other things:
. develop and maintain strategic relationships with potential affiliates,
distribution partners and content providers;
. identify and acquire the rights to additional content, technology and
services;
. successfully integrate new features with our consumer, merchant and
wireless services;
. expand our sales and marketing efforts, including relationships with
third parties to sell our merchant services;
. successfully expand into international markets;
. retain and motivate qualified personnel; and
. successfully respond to competitive developments.
If we do not effectively address the risks we face, our business will suffer
and we may not sustain profitability. See "InfoSpace Selected Consolidated
Financial Data" and "InfoSpace Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Our financial results are likely to fluctuate.
Our financial results have varied on a quarterly basis and are likely to
fluctuate substantially in the future. These fluctuations may be caused by
several factors, many of which are beyond our control. These factors include:
. the addition or loss of affiliates;
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. variable demand for our consumer, merchant and wireless services by our
affiliates and distribution providers;
. the cost of acquiring and the availability of content, technology and
services;
. the growth and overall level of demand for consumer, merchant and
wireless services;
. our ability to attract and retain advertisers, content providers,
affiliates and distribution partners;
. seasonal trends in Internet usage and advertising placements;
. the amount and timing of fees we pay to our affiliates to include our
information services on their Web sites and wireless devices;
. the productivity of our direct sales force and the sales forces of our
distribution partners;
. the amount and timing of increased expenditures for expansion of our
operations, including the hiring of new employees, capital expenditures
and related costs;
. our ability to continue to enhance, maintain and support our technology;
. the result of litigation that is currently ongoing against InfoSpace, or
any litigation that is filed against us in the future;
. our ability to attract and retain personnel;
. our ability to successfully integrate and manage newly acquired
companies;
. the introduction of new or enhanced services by us, our affiliates or
distribution partners, or other companies that compete with us or our
affiliates;
. price competition or pricing changes in Internet information
infrastructure services, such as ours;
. technical difficulties, system downtime, system failures or Internet
brown-outs;
. political or economic events and governmental actions affecting Internet
operations or content; and
. general economic conditions and economic conditions specific to the
Internet.
If one or more of these factors or other factors occur, our business could
suffer.
In addition, because InfoSpace only began operations in March 1996, and
because the market for Internet infrastructure services such as ours is new and
evolving, it is very difficult to predict future financial results. As a result
of our recent acquisitions and continued global expansion, we have
significantly increased our sales and marketing, research and development and
general and administrative expenses and intend to continue to do so for the
remainder of the year 2000. Our expenses are partially based on our
expectations regarding future revenues and estimated expenses from our
acquisitions, which are largely fixed in nature, particularly in the short
term. As a result, if our revenues in a period do not meet our expectations,
our financial results will likely suffer.
Pending and potential acquisitions involve risks.
We have acquired complementary technologies or businesses in the past, and
intend to do so in the future. Acquisitions may involve potentially dilutive
issuances of stock, the incurrence of additional debt and contingent
liabilities or large one-time write-offs and amortization expenses related to
goodwill and other intangible assets. Any of these factors could adversely
affect our results of operations or stock price. Acquisitions involve numerous
risks, including:
. difficulties in assimilating the operations, products, technology,
information systems and personnel of the acquired company;
. diverting management's attention from other business concerns;
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. impairing relationships with our employees, affiliates, content providers
and distribution partners;
. being unable to maintain uniform standards, controls, procedures and
policies;
. entering markets in which we have no direct prior experience; and
. losing key employees of the acquired company.
We may not be able to successfully integrate the technology and personnel we
have acquired or the other businesses, technologies or personnel that we
acquire in the future. We and the businesses acquired by us may require
substantial additional capital, and there can be no assurance as to the
availability of such capital when needed, nor as to the terms on which such
capital might be made available to us. We have retained, and may in the future
retain, existing management of acquired companies or technologies, under the
overall supervision of our senior management. The success of the operations of
these acquired companies and technologies will depend, to a great extent, on
the continued efforts of the management of the acquired companies.
We need to manage our growth and maintain procedures and controls.
We have rapidly and significantly expanded our operations and anticipate
further significant expansion to accommodate expected growth in our customer
base and market opportunities. We have increased the number of employees from
15 at January 1, 1998 to 502 at June 30, 2000. We now have offices in Bellevue,
Washington; San Francisco, San Mateo and Mountain View, California; New York
City and Rochester, New York; Toronto and Ottawa, Canada; Papendrecht,
Netherlands; London, United Kingdom, and recently established offices in
Australia and Brazil. This expansion has placed, and is expected to continue to
place, a significant strain on our management and operational resources. We do
not have experience managing multiple offices with multiple facilities and
personnel in disparate locations. As a result, we may not be able to
effectively manage our resources, coordinate our efforts, supervise our
personnel or otherwise successfully manage our resources. We have recently
added a number of key managerial, technical and operations personnel and we
expect to add additional key personnel in the near future. We also plan to
continue to significantly increase our employee base. These additional
personnel may further strain our management resources.
Our relationships with affiliates and distribution partners, content
providers and advertisers are subject to frequent change. Prior to implementing
procedures and controls in this area, these changes were often informal. In
particular, we may have failed to perform our obligations under certain
commercial contracts that may have been modified or terminated by verbal
agreement. We believe that any failure to perform our obligations was not
significant. This practice of the modification or termination of past written
agreements by verbal agreement has resulted, and may result in the future, in
disputes regarding the existence, interpretation and circumstances regarding
modification or termination of commercial contracts. If our relationships with
affiliates and distribution partners, content providers and advertisers evolve
in an adverse manner, if we get into contractual disputes with affiliates and
distribution partners, content providers or advertisers or if any agreements
with such persons are terminated, our business could suffer. See "InfoSpace
Business--Legal Proceedings."
The rapid growth of our business has strained our ability to meet customer
demands and manage the growing number of affiliate relationships. In addition,
our affiliate relationships are also growing in their size and complexity of
services. As a result of the growth in the size, number, and complexity of our
relationships we may be unable to meet the demands of our customer
relationships, which could result in the loss of customers, subject us to
penalties under our affiliate agreements and harm our business reputation.
To manage the expected growth of our operations and personnel, we must
continue maintaining and improving or replacing existing operational,
accounting and information systems, procedures and controls. Further, we must
manage effectively our relationships with various Internet content providers,
distribution partners, wireless carriers, advertisers, affiliates and other
third parties necessary to our business. If we are
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unable to manage growth effectively, our business could suffer. See "--We are
subject to pending legal proceedings" and "InfoSpace Management's Discussion
and Analysis of Financial Condition and Results of Operations."
We depend on third parties for content.
We typically do not create our own content. Rather, we acquire rights to
information from more than 85 third-party content providers, and our future
success is critically dependent upon our ability to maintain relationships with
these content providers and enter into new relationships with other content
providers.
We typically license content under short-term arrangements that do not
require us to pay royalties or other fees for the use of the content. However,
we do enter into revenue-sharing arrangements with certain content providers,
and we pay certain content providers a one-time fee, a periodic fee or a fee
for each query from Web users. In the future, we expect that certain of our
content providers will likely demand a greater portion of advertising revenues
or increase the fees that they charge us for their content. If we fail to enter
into and maintain satisfactory arrangements with content providers, our
business will suffer. See "--We need to manage our growth and maintain
procedures and controls."
We depend on key personnel.
Our performance depends on the continued services of our executive officers
and other key personnel, particularly within our merchant services and wireless
services business areas. We maintain key person life insurance on Naveen Jain,
our Chairman, in the amount of $5.0 million. We do not maintain key person life
insurance policies on any of our other employees. If we lose the services of
any of our executive officers or other key employees, our business could
suffer. See "InfoSpace Business--Employees" and "InfoSpace Management--
Executive Officers and Directors."
We need to hire additional personnel.
Our future success depends on our ability to identify, attract, hire, train,
retain and motivate highly skilled technical, managerial, sales and marketing
and business development personnel. We intend to hire a significant number of
technical, sales and marketing, business development and administrative
personnel during the next year. Our services and the industries to which we
provide our services are relatively new, particularly with respect to our
wireless and merchant services. As a result, qualified technical personnel with
relevant experience to our business are scarce and therefore difficult to
recruit. If we fail to successfully attract, assimilate and retain a sufficient
number of qualified technical, managerial, sales and marketing, business
development and administrative personnel, our business could suffer.
Our international expansion plans involve risks.
A key component of our strategy is expanding our operations into
international markets. We have entered into a joint venture agreement with
Thomson Directories Limited to replicate our infrastructure services in Europe.
The joint venture, TDL InfoSpace (Europe) Limited, launched content services in
the United Kingdom in the third quarter of 1998. On August 31, 2000, we
acquired all of the issued and outstanding stock of TDLI.com Limited. This gave
us complete control of TDL InfoSpace. In March 1999, we began providing
infrastructure services to Canadian affiliates through our wholly-owned
subsidiary, InfoSpaceCanada.com. We expect to launch InfoSpace.com India to
provide comprehensive localized consumer, merchant and wireless services to the
Indian market. In addition, with our acquisition of Saraide, we have begun to
expand our wireless services into Europe, Japan and Canada. We have also
entered into agreements to expand our services into Brazil, China and Australia
and are currently investigating other international opportunities.
To date, we have limited experience in developing and syndicating localized
versions of our information infrastructure services internationally, and we may
not be able to successfully execute our business model in
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these markets. In addition, international markets experience lower levels of
Internet usage and Internet advertising than the United States. We rely on our
business partner in Europe for U.K. directory information and local sales
forces and may enter into similar relationships if we expand into other
international markets. Accordingly, our success in these markets will be
directly linked to the success of our business partners in such activities. If
our business partners fail to successfully establish operations and sales and
marketing efforts in these markets, our business could suffer. See "InfoSpace
Business--International Expansion."
In addition, we face a number of risks inherent in doing business in
international markets, including, among others:
. unexpected changes in regulatory requirements;
. potentially adverse tax consequences;
. export controls relating to encryption technology;
. tariffs and other trade barriers;
. difficulties in staffing and managing foreign operations;
. changing economic conditions;
. exposures to different legal standards (particularly with respect to
intellectual property, data privacy, distribution of information over the
Internet and employment laws);
. burdens of 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.
If any of these risks occur, our business could suffer.
Our business is highly competitive.
We operate in the Internet information infrastructure services market, which
is extremely competitive and is rapidly changing. Our current and prospective
competitors include many large companies that have substantially greater
resources than we have.
Some of the companies we compete with are currently customers of ours, the
loss of which could harm our business. We may also face increased competition
from traditional media companies expanding onto the Internet. Many of our
current customers have established relationships with certain of our current
and potential future competitors. If our competitors develop Internet
information infrastructure services that are superior to ours or that achieve
greater market acceptance than ours, our business will suffer. For a
description of our competitors and competitive factors in our industry, see
"InfoSpace Business--Competition."
Our business relies on the performance of our systems.
Our success depends, in part, on the performance, reliability and
availability of our consumer, merchant and wireless services. Our revenues
depend, in large part, on the number of users that access our consumer,
merchant and wireless services. We are currently transitioning our computer and
communications hardware from our former headquarters in Redmond, Washington to
our new headquarters in Bellevue, Washington.
With the acquisitions of Prio and Saraide, we have data centers in Mountain
View, California serving the promotions technology and Papendrecht, Netherlands
serving wireless customers in Europe. None of
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our data centers are currently redundant. Our success on a global basis will
depend in part on our ability to create carrier class infrastructure systems
and build network operations centers worldwide that can support the delivery of
integrated consumer, merchant and wireless services and the expected growth of
these services. We may be unable to develop or successfully manage the
infrastructure necessary to meet current or future demands for reliability and
scalability of our systems.
The Company has entered into Service Level Agreements with certain merchant
services distributors including merchant banks and most of our wireless
customers. These agreements call for system up times and 24/7 support, and
include penalties for non-performance. We may be unable to fulfill these
commitments, which could subject us to penalties under our agreements, harm our
reputation and result in the loss of customers and distributors, which would
harm our business.
Our systems and operations could be damaged or interrupted by fire, flood,
power loss, telecommunications failure, Internet breakdown, break-in,
earthquake and similar events. We do not have a formal disaster recovery plan,
and we do not carry business interruption insurance that is adequate to
compensate us for all the losses that may occur. In addition, systems that use
sophisticated software may contain bugs, which could also interrupt service.
Any system interruptions resulting in the unavailability of our consumer,
merchant and wireless services would reduce the volume of users able to access
our consumer, merchant and wireless services and the attractiveness of our
service offerings to our affiliates, advertisers and content providers, which
could harm our business.
We rely on advertising and transaction revenues.
We have derived a significant amount of our revenues from the sale of
national and local advertisements, and transaction fees from our affiliates who
use our consumer services, and we expect this to continue into the third
quarter of 2000. Our ability to increase and diversify our revenues will depend
upon a number of factors, including the following:
. the acceptance of the Internet as an advertising medium by national and
local advertisers;
. the acceptance and regular use of our information infrastructure services
by a large number of users who have demographic characteristics that are
attractive to advertisers;
. the availability of attractive advertising space within our private label
solutions;
. the ability of our business development and sales personnel to
effectively sell our broad suite of consumer, merchant and wireless
services;
. the development of the Internet as an attractive platform for electronic
commerce;
. the use of our integrated merchant tools by small and medium sized online
and offline merchants;
. the adoption of our wireless services and solutions by wireless carriers
and device manufacturers; and
. the use of our information services by subscribers on their wireless
devices.
Our ability to maintain or increase our advertising revenues will also be
affected by changes in fee levels and structures. Many of our advertising
contracts provide for fees to be paid for us on a cost per thousand impressions
(CPM) basis. If CPMs decrease in future contracts, or we fail to provide
required minimum levels of user impressions, our revenue growth may slow or
revenues may even decrease.
We rely on our relationships with affiliates.
We will be able to continue generating revenues from advertising, transaction
fees and promotions only if we can secure and maintain distribution for our
information infrastructure services on acceptable commercial terms through a
wide range of affiliates. In particular, we expect that a limited number of our
affiliates, including America Online, Inc., its CompuServe and Digital City
divisions and its Netscape
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Communications subsidiary and Microsoft Network, LLC, will account for a
substantial portion of our affiliate traffic. Our distribution arrangements
with our affiliates typically are for limited durations of between six months
and two years and automatically renew for successive terms thereafter, subject
to termination on short notice. We cannot assure you that such arrangements
will not be terminated or that such arrangements will be renewed upon
expiration of their terms. We generally share with each affiliate a portion of
the revenues generated by advertising on the Web pages that deliver our
content services. We pay carriage fees to certain affiliates, including AOL.
These relationships may not be profitable or result in benefits to us that
outweigh the costs of the relationships. In addition, if we lose a major
affiliate, we may be unable to timely or effectively replace the affiliate
with other affiliates with comparable traffic patterns and user demographics.
The loss of any major affiliate could harm our business.
Our affiliates may be unable to raise sufficient capital or may experience
adverse business conditions.
As a result of unfavorable conditions in the public equity markets, some of
our affiliates may have difficulty raising sufficient capital to support their
long-term operations. As a result, these affiliates may not be able to pay us
some or all of the fees they are required to pay us under their existing
agreements. In addition, our affiliates may experience adverse business
conditions due to market conditions, industry conditions or other factors,
which may render them unable to fulfill their contractual obligations to us.
Such conditions may also prevent potential affiliates to enter into
contractual relationships or other strategic business relationships with us.
We rely on a small number of customers.
We derive a substantial portion of our revenues from a small number of
customers. We expect that this will continue in the foreseeable future.
Our top ten customers represented 53% of our revenues in the first six
months of 2000 and 57% of our revenues for fiscal year 1999. In particular,
Knight Ridder, Inc. and 800-U.S. Search, Inc. each accounted for approximately
11% of our revenues for the six months ended June 30, 2000, and 800-U.S.
Search, Inc. accounted for approximately 21% of our revenues for the year
ended December 31, 1999. If we lose any of these customers, or if any of these
customers are unable or unwilling to pay us amounts that they owe us, our
financial results will suffer.
Our industry is experiencing consolidation.
The Internet industry has recently experienced substantial consolidation.
For example, AOL has acquired Netscape and has agreed to acquire Time Warner,
At Home has acquired Excite, and Compaq has
acquired ZIP2. We expect this consolidation to continue. These acquisitions
could affect us in a number of ways, including:
. companies from whom we acquire content could be acquired by one of our
competitors and stop licensing us content;
. our customers could be acquired by one of our competitors and terminate
their relationship with us; and
. our customers could merge with other customers, which could reduce the
size of our customer base.
This consolidation in the Internet industry could harm our business.
We rely on internally developed software and systems.
We have developed custom software for our network servers and our private
label solutions. This software may contain undetected errors, defects or bugs.
Although we have not suffered significant harm
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from any errors or defects to date, we may discover significant errors or
defects in the future that we may or may not be able to fix. We must expand and
upgrade our technology, transaction-processing systems and network
infrastructure if the volume of traffic on our Web site or our affiliates' Web
sites increases substantially. In addition, as we continue to expand our
merchant and wireless services, we may have to significantly modify our
systems. We could experience periodic temporary capacity constraints, which may
cause unanticipated system disruptions, slower response times and lower levels
of customer service. We may be unable to accurately project the rate or timing
of increases, if any, in the use of our consumer, merchant and wireless
services or expand and upgrade our systems and infrastructure to accommodate
these increases in a timely manner. Any inability to do so could harm our
business.
Rapid technological change affects our business.
Rapidly changing technology, evolving industry standards, evolving customer
demands and frequent new product and service introductions characterize our
market. Our market's early stage of development exacerbates these
characteristics. Our future success depends in significant part on our ability
to develop and introduce compelling services on a timely and competitive basis
and to improve the performance, content and reliability of our consumer,
merchant and wireless services in response to both the evolving demands of the
market and competitive product offerings. Our efforts in these areas may not be
successful. If a large number of affiliates adopt new Internet technologies or
standards, we may need to incur substantial expenditures modifying or adapting
our enabling technologies and Internet information infrastructure services.
We rely on the Internet system infrastructure.
Our success depends, in large part, on other companies maintaining the
Internet system infrastructure. In particular, we rely on other companies to
maintain a reliable network backbone that provides adequate speed, data
capacity and security and to develop products that enable reliable Internet
access and services. If the Internet continues to experience significant growth
in the number of users, frequency of use and amount of data transmitted, the
Internet system infrastructure may be unable to support the demands placed on
it, and the Internet's performance or reliability may suffer as a result of
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.
Any such degradation of Internet performance or reliability could cause
advertisers to reduce their Internet expenditures. If other companies do not
develop the infrastructure or complementary products and services necessary to
establish and maintain the Internet as a viable commercial medium, or if the
Internet does not become a viable commercial medium or platform for
advertising, promotions and electronic commerce, our business could suffer.
We receive information that may subject us to liability.
We obtain content and commerce information from third parties. When we
integrate and distribute this information over the Internet, we may be liable
for the data that is contained in that content. This could subject us to legal
liability for such things as defamation, negligence, intellectual property
infringement and product or service liability. Many of the agreements by which
we obtain content do not contain indemnity provisions in favor of us. Even if a
given contract does contain indemnity provisions, these provisions may not
cover a particular claim. We carry general business insurance, however, this
coverage may be inadequate.
In addition, individuals whose names appear in our yellow pages and white
pages directories have occasionally contacted us. These individuals believed
that their phone numbers and addresses were unlisted, and our directories are
not always updated to delete phone numbers or addresses when they are changed
from listed to unlisted. While we have not received any claims from these
individuals, we may receive claims in the future. Any liability that we incur
as a result of content we receive from third parties could harm our financial
results.
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We also gather personal information from users in order to provide
personalized services. Gathering and processing this personal information may
subject us to legal liability for negligence, defamation, invasion of privacy,
product or service liability. We may also be subject to laws and regulations,
both in the United States and abroad, regarding user privacy. See "InfoSpace
Business--Governmental Regulation."
We may become subject to governmental regulation.
Because of the increasing use of the Internet, the government may adopt laws
and regulations with regard to the Internet covering issues such as user
privacy, pricing, content, taxation, copyrights, distribution and product and
services quality. For a description of certain risks relating to government
regulation, see "InfoSpace Business--Governmental Regulation."
Our networks face security risks.
Even though we have implemented security measures, our wireless and wireline
networks may be vulnerable to unauthorized access by hackers or others,
computer viruses and other disruptive problems. Someone who is able to
circumvent security measures could misappropriate our proprietary information
or cause interruptions in our 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. Our wireless
Internet services may present additional security risks that could lead to
interruptions in services, security breaches and related problems. We may need
to expend significant capital or other resources protecting against the threat
of security breaches or alleviating problems caused by breaches. Although we
intend to continue to implement industry-standard security measures, persons
may be able to circumvent the measures that we implement 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 our content services, any of which could harm our business.
See "InfoSpace Business--Technology and Infrastructure--Data Network
Infrastructure."
Users of online commerce services are highly concerned about the security of
transmissions over public networks. Concerns over security and the privacy of
users may inhibit the growth of the Internet and other online services
generally, and the Web in particular, especially as a means of conducting
commercial transactions. As we expand our merchant services, we intend to rely
on encryption and authentication technology licensed from third parties to
provide the security and authentication necessary to securely transmit
confidential information, such as member profiles and customer credit card
numbers. Users could possibly circumvent the measures we take to protect
customer transaction data. To the extent that our activities involve the
storage and transmission of proprietary information, such as credit card
numbers, security breaches could damage our reputation and expose us to a risk
of loss or litigation and possible liability. Any compromise of our security
could harm our business.
We may be unable to adequately protect or enforce our intellectual property
rights.
Our success depends significantly upon our proprietary technology. To protect
our proprietary rights, we rely on a combination of copyright and trademark
laws, patents, trade secrets, confidentiality agreements with employees and
third parties and protective contractual provisions. Despite our efforts to
protect our proprietary rights, unauthorized parties may copy aspects of our
products or services or obtain and use information that we regard as
proprietary. In addition, others could possibly independently develop
substantially equivalent intellectual property. If we do not effectively
protect our intellectual property, our business could suffer.
Companies in the computer industry have frequently resorted to litigation
regarding intellectual property rights. We may have to litigate to enforce our
intellectual property rights, to protect our trade
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secrets or to determine the validity and scope of other parties' proprietary
rights. From time to time, we have received, and we may receive in the future,
notice of claims of infringement of other parties' proprietary rights. Any such
claims could be time-consuming, result in costly litigation, divert
management's attention, cause product or service release delays, require us to
redesign our products or services or require us to enter into royalty or
licensing agreements. These royalty or licensing agreements, if required, may
not be available on acceptable terms or at all. If a successful claim of
infringement were made against us and we could not develop non-infringing
technology or license the infringed or similar technology on a timely and cost-
effective basis, our business could suffer. See "InfoSpace Business--
Intellectual Property" and "InfoSpace Business--Legal Proceedings."
We are subject to pending legal proceedings.
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business, including
claims of alleged infringement of third-party trademarks and other intellectual
property rights by us. Such claims, even if not meritorious, could require the
expenditure of significant financial and managerial resources, which could harm
our business.
On February 8, 2000, we reached a settlement with an alleged former employee.
Under the terms of the settlement, we paid the alleged employee a cash payment
of $10.5 million.
On December 15, 1999, a former employee filed a complaint against us alleging
claims for breach of contract, fraud, negligent misrepresentation, and
promissory estoppel. The former employee contends he agreed to work for us on
the basis of certain misrepresentations, that he entered into an agreement with
us that entitles him to an option to purchase 300,000 shares of our common
stock, and that he was terminated without cause. The former employee is seeking
the right to purchase the shares of stock, unspecified compensatory and
punitive damages, and litigation costs and attorney's fees.
On December 23, 1998, we filed a complaint against Internet Yellow Pages,
Inc., or IYP, and Greg Crane, asserting claims for (a) account stated, (b)
breach of contract, and (c) fraud. IYP has asserted counterclaims against us
for breach of contract, fraud, extortion and violation of the Washington
Consumer Protection Act, and seeks relief consisting of $1,500,000 and other
unquantified money damages, punitive damages, treble damages and attorney's
fees.
We believe we have meritorious defenses to all of these claims against us.
Nevertheless, litigation is inherently uncertain, and we may not prevail in
these suits.
We had discussions with a number of individuals in the past regarding
employment by us and also hired and subsequently terminated a number of
individuals as employees or consultants. Furthermore, primarily during our
early stage of development, our procedures with respect to the manner of
granting options to new employees were not clearly documented. As a result of
these factors, and in light of the receipt of the above claims, we have in the
past received, and may in the future receive, similar claims from one or more
individuals asserting rights to acquire shares of our stock or to receive cash
compensation. We cannot predict whether such future claims will be made or the
ultimate resolution of any currently outstanding or future claim. See
"InfoSpace Business--Legal Proceedings."
We may require additional funding.
Although we believe that our cash reserves and cash flows from operations
will be adequate to fund our operations for at least the next 12 months, such
sources may be inadequate. Consequently, we may require additional funds during
or after such period. Additional financing may not be available on favorable
terms or at all. If we raise additional funds by selling stock, the percentage
ownership of our then current stockholders will be reduced. If we cannot raise
adequate funds to satisfy our capital requirements, we may
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have to limit our operations significantly. Our future capital requirements
depend upon many factors, including, but not limited to:
. the rate at which we expand our sales and marketing operations;
. the amount and timing of fees paid to affiliates to include our consumer,
merchant and wireless services on their site or service;
. the extent to which we expand our consumer, merchant and wireless
services;
. the extent to which we develop and upgrade our technology and data
network infrastructure;
. the occurrence, timing, size and success of acquisitions;
. the cash requirements of entities we have acquired;
. the number and amount of investments we make in privately held technology
companies;
. the rate at which we expand internationally; and
. the response of competitors to our service offerings.
See "InfoSpace Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
Management owns a large percentage of our stock.
As of July 31, 2000, our officers, directors and affiliated persons
beneficially owned approximately 32% of our common stock. Naveen Jain, our
Chairman, beneficially owned approximately 22% of our common stock as of that
date. As a result, our officers, directors and affiliated persons may
effectively be able to:
. elect, or defeat the election of, our directors;
. amend or prevent amendment of our Certificate of Incorporation or Bylaws;
. effect or prevent a merger, sale of assets or other corporate
transaction; and
. control the outcome of any other matter submitted to the stockholders for
vote.
Our public stockholders may have little control over the outcome of such
transactions. Management's stock ownership may discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of
InfoSpace, which in turn could reduce our stock price or prevent our
stockholders from realizing a premium over our stock price.
Risks Relating to Go2Net
Go2Net operates in a rapidly changing environment that involves a number of
risks, some of which are beyond Go2Net's control. The following discussion
highlights some of these risks. These risks should be read in conjunction with
the "Factors Affecting Go2Net's Business, Operating Results and Financing
Condition" section included in Go2Net's Form 10-K for the fiscal year ended
September 30, 1999.
Go2Net's arrangements with advertisers and sponsors may expose it to
significant financial risks.
Go2Net enters into advertising arrangements with third parties to provide
services on its Web sites, which involve a unique rate structure. Specifically,
Go2Net receives sponsorship fees and, under certain circumstances, a portion of
transaction revenues received by third party sponsors from users originated
through its Web sites, in return for minimum levels of user impressions or user
requests for additional information made by clicking on the promotional
hyperlink or advertisement. To the extent implemented, these arrangements
expose Go2Net to potentially significant financial risks, including the risk
that Go2Net
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fails to deliver required minimum levels of user impressions (in which case,
these agreements typically provide for adjustments to the fees payable
thereunder or "make good" periods) and that third party sponsors do not renew
the agreements at the end of their terms. Some of these arrangements also
require Go2Net to integrate advertisers' or sponsors' content with its
services, which requires the dedication of resources and significant
programming and design efforts to accomplish. Go2Net cannot assure you that it
will be able to attract additional advertisers or sponsors or that it will be
able to renew existing advertising arrangements when they expire. In addition,
Go2Net has granted exclusivity provisions to some of its sponsors and may in
the future grant additional exclusivity provisions. These exclusivity
provisions may have the effect of preventing Go2Net, for the duration of the
exclusivity arrangements, from accepting advertising or sponsorship
arrangements within a particular subject matter in its Web sites or across its
entire service. Go2Net's inability to enter into further sponsorships or
advertising arrangements as a result of its exclusivity arrangements could have
a material adverse impact its business, financial condition and operating
results.
Risks relating to Go2Net's broadband services
Go2Net's broadband business is unproven, and it may not achieve
profitability.
Go2Net's broadband business is unproven, and it may not achieve widespread
consumer or commercial acceptance. Go2Net has had difficulty predicting whether
the pricing models or revenue sharing arrangements with its cable and other
high speed access providers for its broadband services will prove to be viable,
the level of demand for its broadband services at the prices these broadband
partners are anticipated to charge for its broadband services or whether
pricing levels will be sustainable. If these pricing levels are not achieved or
sustained or if its broadband services do not achieve or sustain broad market
acceptance, its business will be significantly harmed.
Growth of Go2Net's broadband service may be inhibited by factors beyond its
control.
Go2Net's ability to increase the number of subscribers to its broadband
service to achieve its business plans and generate future revenues will depend
on many factors which are beyond its control. For instance, some of Go2Net's
cable and other high speed access providers have not achieved the subscriber
levels that they had originally anticipated. Other factors include:
. the rate at which Go2Net's current and future broadband partners upgrade
their broadband infrastructures for two-way data services and the
commercial availability of hardware and software necessary for these
services;
. Go2Net's ability and the ability of its broadband partners to coordinate
timely and effective marketing campaigns with the availability of
broadband infrastructure upgrades;
. the success of its broadband partners in marketing and installing
broadband service in their local service areas;
. the prices that Go2Net's broadband partners set for broadband service and
for its installation;
. the speed at which Go2Net's broadband partners can complete the
installations required to initiate service for new subscribers;
. the commercial availability of self-installable, two-way modems that
comply with the recently adopted interface standards known as DOCSIS, and
the success of the roll-out of these products with broadband services;
and
. the quality of customer and technical support Go2Net's broadband partners
provide.
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If Go2Net does not develop new and enhanced features, products and services
for its broadband services, Go2Net may not be able to attract and retain a
sufficient number of users.
Because of the competitiveness of the broadband market, Go2Net believes it is
important to introduce additional or enhanced features, products and services
in the future in order to differentiate its services and attract users. If
Go2Net introduces a feature, product or service that is not favorably received,
people will not use its service, and they may choose a competing service.
Go2Net will need to continually enhance its products and services to
incorporate rapidly changing technologies. Go2Net could incur substantial
development costs if Go2Net needs to modify its products, services or
infrastructure to adapt. Go2Net's business could be harmed if Go2Net incurs
significant costs to adapt to these changes. If Go2Net cannot adapt to these
changes, users may discontinue using its services.
Go2Net may also experience difficulties that could delay or prevent it from
introducing its broadband features, products or services. Furthermore, these
features, products or services may contain errors that are discovered after the
feature, product or services are introduced. Go2Net may need to modify the
design of them significantly to correct these errors. In addition, Go2Net must
consult with and involve its principal cable partners in the development and
design of new features, products or services for its broadband services.
Therefore, the process of introducing new broadband features, products and
services is time consuming and if Go2Net's principal cable partners object to a
new feature, product or service, Go2Net could be prohibited from offering it in
particular areas. Go2Net's business could be adversely affected if Go2Net
experiences difficulties in introducing new products and services or if users
do not accept these new products or services.
Go2Net depends on continued growth in electronic commerce and Internet
infrastructure development.
Use of the Internet by businesses and consumers as a medium for electronic
commerce is at an early stage of development and is subject to a level of
uncertainty. Go2Net depends on the growing use and acceptance of the Internet
as an effective medium of commerce by merchants and customers. The use of and
interest in the Internet is a relatively recent development. Go2Net cannot be
certain that acceptance and use of the Internet will continue to develop as a
medium for commerce or that a sufficiently broad base of merchants and
consumers will adopt, and continue to use, the Internet as a medium of
commerce.
The emergence of the Internet as a commercial marketplace may occur more
slowly than anticipated for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
development of enabling technologies and performance improvements. If the
number of Internet users or their use of Internet resources continues to grow,
it may overwhelm the existing Internet infrastructure. Delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity could also have a detrimental effect.
These factors could result in slower response times or adversely affect usage
of the Internet, resulting in lower numbers ecommerce transactions and lower
demand for Go2Net's services.
Go2Net's success also depends on its ability to grow, or scale, its ecommerce
transaction systems to accommodate increases in the volume of traffic on its
systems, especially during peak periods of demand. Go2Net may not be able to
anticipate increases in the use of its systems and successfully expand the
capacity of its network infrastructure. Go2Net's inability to expand its
systems to handle increased traffic could result in system disruptions, slower
response times and other difficulties in providing services to its merchant
customers, which could materially harm its business.
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Go2Net is exposed to electronic commerce security risks.
A requirement of the continued growth of e-commerce is the secure
transmission of confidential information over public networks. Go2Net relies on
public key cryptography and digital certificate technology to provide the
security and authentication necessary for secure transmission of confidential
information. Various regulatory and export restrictions may prohibit Go2Net
from using the strongest and most secure cryptographic protection available and
thereby expose Go2Net to a risk of data interception. A party who is able to
circumvent Go2Net's security measures could misappropriate proprietary
information or interrupt its operations. Any such compromise or elimination of
Go2Net's security could reduce demand for its services.
The market for Go2Net's products and services has a low barrier of entry.
The market for Internet-based products and services is relatively new,
intensely competitive and rapidly evolving. There are minimal barriers to
entry, and current and new competitors can launch new Internet sites at a
relatively low cost within relatively short time periods. In addition, Go2Net
competes for the time and attention of Internet users with thousands of non-
profit Internet sites operated by individuals, government and educational
institutions. Existing and potential competitors also include magazine and
newspaper publishers, cable television companies and start-up ventures
attracted to the Internet market. As a result, Go2Net expects competition to
persist and intensify and the number of competitors to increase significantly
in the future. As Go2Net attempts to expand the scope of its Internet sites and
product offerings, Go2Net will compete with a greater number of Internet sites
and other companies. Because the operations and strategic plans of existing and
future competitors are undergoing rapid change, it is extremely difficult for
Go2Net to anticipate which companies are likely to offer competitive products
and services in the future. There can be no assurance that Go2Net's Internet
sites will compete successfully.
Go2Net's success depends on its ability to maintain advertising, licensing and
electronic commerce revenues.
Go2Net derives a significant portion of its revenues from the sale of
advertising on its Internet sites. Go2Net will not be able to maintain or
increase its advertising revenues in the future if its advertising customers
move their advertising to competing Internet sites or to traditional forms of
media. Additionally, in selling Internet-based advertising, Go2Net depends in
part on advertising agencies, which exercise substantial control over the
placement of advertising for their clients. Go2Net derives a significant
portion of its revenues from licensing and electronic commerce. Go2Net depends
on its ability to continue to license its technology and applications to third
parties. Additionally, Go2Net must increase the number of merchants that use
its payment process platform and increase the volume of transactions that it
processes. Go2Net's success will depend on its ability to retain, broaden and
diversify its future base of advertising, licensing and electronic commerce
customers.
Alliances may make it more difficult to access Go2Net's products and media
properties.
The acquisitions and alliances among Go2Net's competitors will result in
greater competition as more users of the Internet consolidate on fewer services
that incorporate search and retrieval features. In addition, providers of
software and other Internet products and services are incorporating search and
retrieval features into their offerings. For example, Web browsers offered by
Netscape and Microsoft increasingly incorporate prominent search buttons that
direct search traffic to competing services. These features could make it more
difficult for Internet users to find and use Go2Net's products and services. In
the future, Netscape, Microsoft and other browser suppliers may also more
tightly integrate products and services similar to Go2Net into their browsers
or their browsers' pre-set home pages. Any of these companies could take
actions that would make it more difficult for consumers to find and use
Go2Net's services. Microsoft signed a long term partnership with LookSmart to
provide directory services in the Microsoft Network and other Microsoft online
properties. These search services may be tightly integrated into future
versions of the Microsoft operating system, the
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Internet Explorer browser, and other software applications, and Microsoft may
promote these services within the Microsoft Network or through other Microsoft
affiliated end-user services such as MSNBC or WebTV Networks. Each of these
situations creates a potential competitive advantage over Go2Net because their
Internet navigational offerings may be more conveniently accessed by users.
Go2Net's competitors have greater resources than Go2Net does.
Many, if not all, of Go2Net's competitors have significantly greater
resources than Go2Net does. In particular, Go2Net's competitors have greater
financial, editorial, technical and marketing resources, longer operating
histories, greater name recognition, and greater experience than Go2Net does.
Additionally, Go2Net's competitors have established relationships with more
advertisers and advertising agencies. And they are able to undertake more
extensive marketing campaigns, adopt more aggressive advertising and
subscription price policies and devote substantially more resources to
developing Internet-based products and services than Go2Net is. There can be no
assurance that Go2Net will be able to compete successfully against current or
future competitors or that competitive pressures faced by Go2Net will not
materially adversely affect Go2Net's business, financial condition and
operating results.
Increased competition may exert downward pricing pressure on advertising
contracts.
Go2Net competes with online services, other Web site operators and
advertising networks, as well as traditional offline media such as television,
radio and print for a share of advertisers' total advertising budgets. Go2Net
believes that the number of companies selling Web-based advertising and the
available inventory of advertising space has recently increased substantially.
Accordingly, Go2Net may face increased pricing pressure for the sale of
advertisements, which could reduce its advertising revenues. In addition,
Go2Net's sales may be adversely affected to the extent that its competitors
offer superior advertising services that better target users or provide better
reporting of advertising results.
Go2Net must develop and maintain a "brand identity" for its products.
Go2Net believes that maintaining and building the Go2Net brand is a critical
aspect of its efforts to attract an Internet audience. In addition, Go2Net
believes that the importance of brand recognition will increase due to the
anticipated increase in the number of Internet sites and the relatively low
barriers to entry to providing Internet-based products and services. Promoting
the Go2Net brand name will depend on Go2Net's continued ability to develop and
deliver original and compelling Internet-based products and services. If
Internet users do not continue to perceive Go2Net's Internet sites to be of
sufficient interest and usefulness, Go2Net will be unsuccessful in promoting
and maintaining its brand. If Go2Net expands the focus of its operations beyond
providing its current Internet sites, Go2Net risks diluting its brand,
confusing users and advertisers, and decreasing the attractiveness of its
audience to advertisers. In order to respond to competitive pressures, Go2Net
may find it necessary to increase its budget for developing its products and
services or otherwise to increase substantially its financial commitment to
creating and maintaining a distinct brand loyalty among users. If Go2Net is
unable to provide internet-based products and services or otherwise fails to
promote and maintain the Go2Net brand, or if Go2Net incurs significant expenses
in an attempt to improve its products and services or promote and maintain its
brand, its business, financial condition and operating results will be
adversely affected.
The Internet is characterized by rapid technological changes, and Go2Net must
adapt quickly to these changes to compete effectively.
The market for Internet products and services is characterized by rapid
technological developments, evolving industry standards and customer demands,
and frequent new product introductions and enhancements. For example, to the
extent that higher bandwidth Internet access becomes more widely available,
Go2Net may be required to make significant changes to the design and content of
its products and
28
<PAGE>
media properties. Failure to effectively adapt to these or any other
technological developments could adversely affect Go2Net's business, operating
results and financial condition.
Go2Net may have difficulty managing its growth and integrating recently
acquired companies.
Go2Net's recent growth has placed a significant strain on its managerial,
operational, and financial resources. To manage its growth, Go2Net must
continue to implement and improve its operational and financial systems and to
expand, train, and manage its employee base. Any inability to manage growth
effectively could have a material adverse effect on Go2Net's business,
operating results, and financial condition.
Go2Net depends upon third parties for critical elements of its business.
Go2Net depends upon third parties in order to advertise its Internet sites on
other Internet sites. In addition, the willingness of the owners and operators
of these sites to direct users to Go2Net's Internet sites through hypertext
links are critical to the success of its Internet operations. There can be no
assurance that Go2Net will establish or maintain such arrangements in the
future.
Go2Net depends on third parties for content development of its Internet sites.
Go2Net's ability to develop original and compelling Internet-based products
and services is also dependent on maintaining relationships with and using
products provided by third-party vendors. Developing and maintaining
satisfactory relationships with third parties could become more difficult and
more expensive as competition increases among Internet sites. If Go2Net is
unable to develop and maintain satisfactory relationships with third parties on
terms acceptable to Go2Net, or if Go2Net's competitors are better able to
leverage these relationships, its business, financial condition and operating
results will be materially adversely affected. Go2Net has relied, and will
continue to rely substantially, on the product and service development efforts
of third parties. For example, Go2Net relies on S&P Comstock, Dow Jones &
Company, Inc., New York Stock Exchange, Inc., The Nasdaq Stock Market, Inc.,
Reuters and Market Guide, Inc. to provide a significant portion of the
information included on Go2Net's Internet sites. There can be no assurance
Go2Net will maintain its relationships in the future. Any failure of third
parties to provide this information to Go2Net could have a material adverse
effect on its business, financial condition and operating results.
Go2Net's performance depends on the success of the Metacrawler license.
Go2Net entered into a License Agreement with Netbot, Inc. (the "MetaCrawler
License Agreement"), in which Netbot, Inc. granted Go2Net an exclusive (subject
to some limited exceptions), worldwide license to provide the MetaCrawler
Service. As part of the MetaCrawler License Agreement, Go2Net has the exclusive
right to operate, modify and reproduce the MetaCrawler Service (including,
without limitation, the exclusive right to use, modify and reproduce the name
"MetaCrawler" and the MetaCrawler URL in connection with the operation of the
MetaCrawler Service). A material portion of the traffic to Go2Net's Internet
sites is currently derived from users of the MetaCrawler Service. A termination
of the MetaCrawler License Agreement or the inability of Go2Net to continue to
provide access to the search engines included in the MetaCrawler Service, could
have a material adverse effect on Go2Net's business, financial condition and
operating results. Netbot has licensed the MetaCrawler Service and the other
intellectual property rights associated therewith from the University of
Washington on an exclusive basis. The license has been granted to Go2Net by
Netbot on an exclusive basis, but Netbot has reserved the right to use, modify,
reproduce and license the MetaCrawler search engine for any purpose other than
the provision of the MetaCrawler Service. The license is subject to the rights
of the University of Washington to use, modify and reproduce the MetaCrawler
search engine and derivatives of the MetaCrawler site to operate Internet sites
for internal purposes within the University of Washington domain and to use,
modify and reproduce any of the licensed
29
<PAGE>
technologies for research, instructional and academic purposes. The search
technology underlying the MetaCrawler Service and the MetaCrawler trademark is
licensed to or owned by Netbot and sublicensed to Go2Net pursuant to the
MetaCrawler License Agreement.
Go2Net is subject to U.S. and foreign government regulation of the Internet,
the impact of which is difficult to predict.
There are currently few laws or regulations directly applicable to the
Internet. The application of existing laws and regulations to Go2Net relating
to issues such as user privacy, defamation, pricing, advertising, taxation,
gambling, sweepstakes, promotions, content regulation, quality of products and
services, and intellectual property ownership and infringement can be unclear.
In addition, Go2Net will also be subject to new laws and regulations directly
applicable to its activities. Any existing or new legislation applicable to
Go2Net could expose Go2Net to substantial liability, including significant
expenses necessary to comply with these laws and regulations, and dampen the
growth in use of the Web.
Other nations, including Germany, have taken actions to restrict the free
flow of material deemed to be objectionable on the Web. The European Union has
recently adopted privacy and copyright directives that may impose additional
burdens and costs on Go2Net's international operations. In addition, several
telecommunications carriers, including America's Carriers' Telecommunications
Association, are seeking to have telecommunications over the Web regulated by
the FCC in the same manner as other telecommunications services. Many areas
with high Web use have begun to experience interruptions in phone service, and
local telephone carriers, such as Pacific Bell, have petitioned the FCC to
regulate ISPs and OSPs and to impose access fees. A number of proposals have
been made at the federal, state and local level that would impose additional
taxes on the sale of goods and services through the Internet. If any such
proposals are adopted, it could substantially impair the growth of the Internet
and adversely affect Go2Net.
Several recently passed federal laws could have an impact on Go2Net's
business. The Digital Millennium Copyright Act is intended to reduce the
liability of online service providers for listing or linking to third-party Web
sites that include materials that infringe copyrights or other rights of
others. The Children's Online Protection Act and the Children's Online Privacy
Protection Act are intended to restrict the distribution of materials deemed
harmful to children and impose additional restrictions on the ability of online
services to collect user information from minors. In addition, the Protection
of Children From Sexual Predators Act of 1998 requires online service providers
to report evidence of violations of federal child pornography laws under some
circumstances. Such legislation may impose significant additional costs on
Go2Net's business or subject Go2Net to additional liabilities.
Due to the global nature of the Web, it is possible that the governments of
other states and foreign countries might attempt to regulate its transmissions
or prosecute Go2Net for violations of their laws. Go2Net might unintentionally
violate these laws. These laws may be modified, or new laws enacted, in the
future. Any such developments could have a material adverse effect on Go2Net's
business, results of operations, and financial condition.
Go2Net may be subject to a variety of legal uncertainties that impair its
business.
As a publisher and a distributor of content over the Internet, Go2Net faces
potential liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that Go2Net publishes or distributes. In addition, Go2Net could be exposed to
liability with respect to the content or unauthorized duplication of material
indexed in its search services. Although Go2Net carries liability insurance,
its insurance may not cover potential claims of this type or may not be
adequate to indemnify Go2Net for all liability that may be imposed.
Go2Net hosts a wide variety of services that enable individuals to exchange
information, generate content, conduct business and engage in various online
activities, including services relating to online
30
<PAGE>
auctions and the homesteading and other services. The law relating to the
liability of providers of these online services for activities of their users
is currently unsettled. Claims could be made against Go2Net for defamation,
negligence, copyright or trademark infringement, unlawful activity, tort,
including personal injury, fraud or other theories based on the nature and
content of information that Go2Net provides links to or that may be posted
online or generated by its users or with respect to auctioned materials. These
types of claims have been brought, and sometimes successfully prosecuted,
against online service providers in the past. In addition, Go2Net is aware that
governmental agencies are currently investigating the conduct of online
auctions.
Go2Net also periodically enters into arrangements to offer third-party
products, services, or content under the Go2Net brand or via distribution on
Go2Net's properties, including stock quotes and trading information. Go2Net may
be subject to claims concerning these products, services or content by virtue
of its involvement in marketing, branding, broadcasting or providing access to
them, even if Go2Net does not itself host, operate, provide, or provide access
to these products, services or content. While Go2Net's agreements with these
parties often provide that Go2Net will be indemnified against such liabilities,
such indemnification may not be adequate.
It is also possible that, if any information provided directly by Go2Net
contains errors or is otherwise negligently provided to users, third parties
could make claims against it. For example, Go2Net offers Web-based email
services, which expose Go2Net to potential risks, such as liabilities or claims
resulting from unsolicited email, lost or misdirected messages, illegal or
fraudulent use of email, or interruptions or delays in email service.
Go2Net is subject to pending legal proceedings.
From time to time, Go2Net is, 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 Go2Net. These claims, even if not meritorious, could require
the expenditure of significant financial and managerial resources which could
harm Go2Net's business.
Authorize.Net Corporation, a subsidiary of Go2Net, has been named as a
defendant in a suit filed in June 2000 which purports to be a class action
brought on behalf of persons who leased "virtual terminals" from Authorize.Net
among a myriad of other non-Authorize.Net products in connection with actual or
proposed internet businesses. The leases were allegedly financed by a third-
party unaffiliated leasing company in connection with sales efforts by a third-
party unaffiliated reseller. The suit, insofar as it relates to Authorize.Net,
alleges that the leases of the products at issue were actually sales and that
they were financed by the leasing company at usurious rates. The suit further
alleges that the reseller was acting as an agent of Authorize.Net in these
activities. Go2Net believes that Authorize.Net has meritorious defenses to this
claim against it. Nevertheless, litigation is inherently uncertain, and
Authorize.Net may not prevail in this suit.
Go2Net's success depends on its ability to protect its proprietary technology.
Go2Net's success is dependent upon its ability to protect and leverage the
value of its original Internet technologies, software, content and its
trademarks, trade names, service marks, domain names and other proprietary
rights Go2Net either currently has or may have in the future. Go2Net has filed
service marks for its logo and name, as well as for the names of each of its
sites. In addition, given the uncertain application of existing copyright and
trademark laws to the Internet, there can be no assurance that existing laws
will provide adequate protection for Go2Net's technologies, sites or domain
names. Policing unauthorized use of Go2Net's technologies, content and other
intellectual property rights entails significant expenses and could otherwise
be difficult or impossible to do given the global nature of the Internet.
Actions of other parties in enforcing their intellectual property rights could
prohibit us from offering new products that are complementary to our business
model.
31
<PAGE>
PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
Pro forma combined consolidated balance sheet data for 1999 and pro forma
combined statement of operations data for fiscal years ended 1997, 1998 and
1999 can be found in the unaudited pro forma combined consolidated financial
statements included elsewhere in this joint proxy statement/prospectus. Pro
forma combined consolidated balance sheet data for years ended 1995 through
1998 and pro forma combined statement of operations data for fiscal years ended
1995 and 1996 are not presented herein as there would be no material pro forma
adjustments.
INFOSPACE SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following selected consolidated financial data should be read in
conjunction with "InfoSpace Management's Discussion and Analysis of Financial
Condition and Results of Operations," our Consolidated Financial Statements and
Notes thereto and other financial information included elsewhere in this joint
proxy statement/prospectus. The selected consolidated statements of operations
data for the years ended December 31, 1997, 1998 and 1999 and the selected
consolidated balance sheet data at December 31, 1998 and 1999 are derived from
our audited consolidated financial statements which have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
included elsewhere herein, and are included elsewhere in this joint proxy
statement/prospectus. The consolidated financial statements give retroactive
effect to the acquisition of Prio, Inc., which has been accounted for as
pooling-of-interests as described in Note 7 to InfoSpace's consolidated
financial statements included elsewhere herein. The balance sheet of Prio (a
development stage enterprise) as of December 31, 1998, and the related
statements of operations, shareholders' deficiency, and cash flows for each of
the years in the two-year period ended December 31, 1998, have been audited by
KPMG LLP, independent auditors, as stated in their report included elsewhere
herein, and are included elsewhere in the joint proxy statement/prospectus. The
selected consolidated statements of operations data for the six months ended
June 30, 1999 and 2000 and the selected consolidated balance sheet data as of
June 30, 2000 are derived from unaudited consolidated financial statements
included elsewhere in this joint proxy statement/prospectus. The selected
consolidated statements of operations data for the period from March 1, 1996
(inception of InfoSpace) to December 31, 1996 and the selected consolidated
balance sheet data at December 31, 1996 and 1997 have been derived from audited
consolidated financial statements that have not been included herein.
32
<PAGE>
The data presented below for the periods prior to the inception of InfoSpace
relate to Prio only. The selected consolidated statements of operations data
for the year ended December 31, 1995 and the selected consolidated balance
sheet data at December 31, 1995 have been derived from unaudited financial
statements of Prio. This data, in the opinion of management, includes all
adjustments that are necessary for a fair presentation of Prio's financial
position and results of operations for these periods.
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
------ ------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues............... $ -- $ 199 $ 1,817 $ 9,632 $ 37,390 $ 12,240 $ 43,578
Cost of revenues....... -- 96 493 2,331 7,267 2,954 7,596
------ ------- ------- -------- -------- -------- ---------
Gross profit......... -- 103 1,324 7,301 30,123 9,286 35,982
Operating expenses:
Product development.. 250 1,989 4,560 7,567 11,316 4,925 10,427
Sales, general and
administrative...... 262 2,576 6,546 18,161 60,137 18,702 35,468
Amortization of
intangibles......... -- -- 64 710 3,223 604 27,428
Acquisition and
related charges..... -- -- -- 2,800 13,351 4,969 86,599
Other--non-recurring
charges............. -- -- 137 4,500 11,359 209 2,888
------ ------- ------- -------- -------- -------- ---------
Total operating
expenses.......... 512 4,565 11,307 33,738 99,386 29,409 162,810
------ ------- ------- -------- -------- -------- ---------
Loss from operations... (512) (4,462) (9,983) (26,437) (69,263) (20,123) (126,828)
Other income, net...... 6 95 39 468 11,691 4,626 6,046
Unrealized gain on
investments........... -- -- -- -- -- -- 15,150
Minority interest...... -- -- -- -- -- -- (6,398)
Restructuring
charges............... -- -- -- -- -- -- (2,171)
Income tax expense..... -- -- -- -- -- -- (24)
Cumulative effect of
change in accounting
principle............. -- -- -- -- -- -- (719)
------ ------- ------- -------- -------- -------- ---------
Net loss............... $ (506) $(4,367) $(9,944) $(25,969) $(57,572) $(15,497) $(114,944)
====== ======= ======= ======== ======== ======== =========
Basic and diluted net
loss per share........ $(0.38) $ (0.07) $ (0.11) $ (0.23) $ (0.29) $ (0.08) $ (0.51)
====== ======= ======= ======== ======== ======== =========
Shares used in
computing basic net
loss per share........ 1,315 64,455 91,470 114,519 196,222 189,086 223,708
====== ======= ======= ======== ======== ======== =========
Shares used in
computing diluted net
loss per share........ 1,315 64,455 91,697 114,519 196,222 189,086 223,708
====== ======= ======= ======== ======== ======== =========
<CAPTION>
December 31,
-------------------------------------------- June 30,
1995 1996 1997 1998 1999 2000
------ ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and short-term
investments........... $ 236 $ 3,125 $11,961 $114,266 $162,705 $143,415
Working capital........ (17) 3,284 10,561 108,753 169,562 172,195
Total assets........... 284 4,859 14,470 133,670 365,587 676,675
Total stockholders'
equity................ 30 3,884 11,061 119,730 339,875 620,143
</TABLE>
33
<PAGE>
GO2NET SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial data of Go2Net has been derived
from Go2Net's historical financial statements and related notes and should be
read together with those financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contained in Go2Net's annual reports, quarterly reports and other
information on file with the Securities and Exchange Commission and
incorporated by reference in this joint proxy statement/prospectus. The
Statements of Operations Data and Balance Sheet Data as of and for the years
ended September 30, 1995, 1996, 1997, 1998 and 1999 were derived from Go2Net's
audited financial statements.
<TABLE>
<CAPTION>
Years ended September 30, Nine Months Ended June 30,
------------------------------------------------------------- ---------------------------
1995 1996 1997 1998 1999 1999 2000
--------- --------- ----------- ----------- ------------- ------------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues............... $ 46,863 $ 301,247 $ 1,627,964 $ 7,109,432 $ 22,435,035 $12,651,287 $ 54,994,862
Cost of revenues....... 14,555 18,847 371,810 2,295,194 4,604,193 2,832,068 9,002,838
Operating expenses:
Sales and marketing.. 295 15,541 531,758 2,044,086 6,347,873 4,034,825 15,287,451
General and
administrative...... 3,818 163,408 1,711,380 2,454,620 6,068,647 3,756,141 10,028,451
Product development.. 30,686 544,966 798,146 1,376,238 2,703,874 1,938,613 6,277,352
Merger and
acquisition related
costs............... -- -- -- 1,035,494 873,094 650,257 --
Stock compensation
expense............. -- -- 71,156 212,841 773,584 -- --
Impairment loss...... -- -- -- 398,126 -- -- --
Amortization of
intangibles......... -- -- -- -- 19,432,304 2,740,763 59,965,499
--------- --------- ----------- ----------- ------------- ------------- ------------
Total operating
expenses.......... 34,799 723,915 3,112,440 7,521,405 36,199,376 13,120,599 91,558,753
--------- --------- ----------- ----------- ------------- ------------- ------------
Loss from operations... (2,491) (441,515) (1,856,286) (2,707,167) (18,368,534) (3,301,380) (45,566,729)
Interest income........ -- 12,752 249,488 510,529 6,810,866 3,151,426 12,284,259
--------- --------- ----------- ----------- ------------- ------------- ------------
Loss before taxes...... (2,491) (428,763) (1,606,798) (2,196,638) (11,557,668) (149,954) (33,282,470)
Income tax expense
(benefit)............. 800 800 67,347 69,220 (714,862) 18,533 940,164
--------- --------- ----------- ----------- ------------- ------------- ------------
Net loss before
cumulative effect of
a change in
accounting
principle............. (3,291) (429,563) (1,674,145) (2,265,858) (10,842,806) (168,487) (34,222,634)
Cumulative effect on
prior year of change
in accounting
principle............. -- -- -- -- -- -- 488,748
--------- --------- ----------- ----------- ------------- ------------- ------------
Net loss............... (3,291) (429,563) (1,674,145) (2,265,858) (10,842,806) (168,487) (34,711,382)
Preferred stock
dividend.............. -- -- -- -- 159,930,733 159,930,733 --
--------- --------- ----------- ----------- ------------- ------------- ------------
Net loss applicable to
common stockholders... $ (3,291) $(429,563) $(1,674,145) $(2,265,858) $(170,773,539) $(160,099,220) $(34,711,382)
========= ========= =========== =========== ============= ============= ============
Net loss applicable to
common stockholders
per share............. $ (0.00) $ (0.07) $ (0.08) $ (0.09) $ (6.44) $ (6.23) $ (1.13)
Shares used in
computing net loss
per share (1)......... 1,305,280 6,577,996 20,107,816 24,817,559 26,524,025 25,668,028 30,668,756
</TABLE>
<TABLE>
<CAPTION>
September 30, September 30, September 30, September 30, September 30, June 30,
1995 1996 1997 1998 1999 2000
------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and marketable
securities............ $44,567 $ 891,468 $11,071,214 $ 8,885,602 $217,786,513 $227,250,959
Working capital........ 44,675 900,265 11,088,806 9,310,587 220,322,365 222,943,702
Total assets........... 107,346 1,287,589 13,218,870 12,535,209 508,259,068 582,360,944
Stockholders' equity... 107,346 1,224,359 12,820,747 10,971,576 480,931,375 522,817,110
</TABLE>
--------
(1) Net loss per share is calculated using the weighted average number of
shares of Go2Net common stock outstanding during such period. See Note 1
to Financial Statements in Go2Net's Form 10-K for the fiscal year ended
September 30, 1999 which is incorporated by reference into this joint
proxy statement/prospectus.
34
<PAGE>
COMPARATIVE PER SHARE DATA
The following table reflects (a) the historical net loss and book value per
share of InfoSpace common stock and the historical net loss and book value per
share of Go2Net common stock in comparison with the unaudited pro forma net
loss and book value per share after giving effect to the proposed merger of a
wholly-owned subsidiary of InfoSpace with and into Go2Net, and (b) the
equivalent historical net loss and book value per share attributable to 1.82
shares of InfoSpace common stock which will be received for each share of
Go2Net common stock.
The historical book value per share is computed by dividing stockholders'
equity, by the actual common stock outstanding. The pro forma per share net
loss from continuing operations is computed by dividing the pro forma net loss
from continuing operations by the pro forma weighted average number of shares
outstanding, assuming InfoSpace had merged with Go2Net at the beginning of the
earliest period presented and Go2Net shares were converted to InfoSpace shares
at an exchange ratio of 1.82. The pro forma combined book value per share is
computed by dividing total pro forma stockholders' equity by the pro forma
number of common shares outstanding, assuming the merger (and conversion of
shares) had occurred on that date.
The following information should be read in conjunction with the separate
audited historical consolidated financial statements and related notes of
InfoSpace and Go2Net, the unaudited pro forma condensed combined financial
information and related notes of InfoSpace and the selected historical and
selected unaudited pro forma financial data included elsewhere in this joint
proxy statement/prospectus. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the merger of
InfoSpace and Go2Net had been consummated as of the beginning of the earliest
period presented, nor is it necessarily indicative of the future operating
results or financial position of the combined company.
<TABLE>
<CAPTION>
Years Ended
December 31, Six Months
---------------------- Ended June
1997 1998 1999 30, 2000
------ ------ ------ ----------
<S> <C> <C> <C> <C>
HISTORICAL INFOSPACE:
Basic and diluted net loss from continuing
operations per share..................... $(0.11) $(0.23) $(0.29) $(0.51)
Book value per share at the end of the
period................................... $ 0.12 $ 0.67 $ 1.60 $ 2.67
<CAPTION>
Years Ended
September 30, Six Months
---------------------- Ended June
1997 1998 1999 30, 2000
------ ------ ------ ----------
<S> <C> <C> <C> <C>
HISTORICAL GO2NET:
Basic and diluted net loss from continuing
operations per share..................... $(0.08) $(0.09) $(6.44) $(0.74)
Book value per share at the end of the
period................................... $ 0.62 $ 0.44 $18.13 $16.87
</TABLE>
<TABLE>
<CAPTION>
Fiscal
Year End Six Months
December 31, Ended June
1999 30, 2000
------------ ----------
<S> <C> <C>
INFOSPACE AND GO2NET PRO FORMA COMBINED CONSOLIDATED:
Pro forma net loss from continuing operations per
InfoSpace share--basic and diluted.................. $(0.28) $(0.49)
Pro forma book value per InfoSpace share at the end
of the period....................................... $ 3.15 $ 3.96
</TABLE>
35
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
InfoSpace common stock has been traded on the Nasdaq National Market under
the symbol "INSP" since December 15, 1998, the date of InfoSpace's initial
public offering. Go2Net's common stock traded on the Nasdaq SmallCap Market
under the symbol "GNET" from its initial public offering on April 23, 1997
until October 1, 1998. On October 1, 1998, Go2Net's common stock was approved
for trading on the Nasdaq National Market and has traded on the Nasdaq National
Market since that time. Prior to such dates, there was no established public
trading market for either company's capital stock. The following table sets
forth for the periods indicated the quarterly high and low sale prices per
share of InfoSpace common stock and Go2Net common stock as reported on the
Nasdaq SmallCap Market or the Nasdaq National Market, as appropriate.
<TABLE>
<CAPTION>
INFOSPACE (1) GO2NET (2)
-------------- ------------
Quarters ended: High Low High Low
--------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
June 30, 1997 (commencing April 23, 1997 for
Go2Net).......................................... -- -- 2.75 1.31
September 30, 1997................................ -- -- 2.45 1.41
December 31, 1997................................. -- -- 2.56 1.63
March 31, 1998.................................... -- -- 4.69 1.72
June 30, 1998..................................... -- -- 9.75 4.09
September 30, 1998................................ -- -- 8.75 3.20
December 31, 1998 (commencing December 15, 1998
for InfoSpace)................................... 6.50 1.88 12.94 3.50
March 31, 1999.................................... 12.41 3.56 78.00 8.84
June 30, 1999..................................... 18.16 8.81 99.50 45.00
September 30, 1999................................ 14.73 9.22 96.50 46.06
December 31, 1999................................. 54.25 9.69 111.75 50.25
March 31, 2000.................................... 138.50 40.25 103.00 70.38
June 30, 2000..................................... 78.25 37.13 82.25 35.75
September 30, 2000 (through September 5, 2000).... 60.00 25.50 79.88 43.38
</TABLE>
--------
(1) InfoSpace's stock prices have been adjusted to give effect to two-for-one
stock splits of InfoSpace's common stock consummated in May 1999, in
January 2000 and in April 2000.
(2) Go2Net's stock prices have been adjusted to give effect to two-for-one
stock splits of Go2Net's common stock consummated in February 1999 and in
June 1999.
Recent Share Price
The table below presents the per share closing prices of InfoSpace common
stock and Go2Net common stock on the Nasdaq National Market and the pro forma
equivalent market value of InfoSpace common stock to be issued for Go2Net
common stock in the merger as of the dates specified. July 26, 2000 was the
last trading date before announcement of the merger. September 5, 2000 was the
latest practicable trading day before the printing of this joint proxy
statement/prospectus. The table also sets forth the equivalent per share price
for Go2Net common stock, which was determined by multiplying the closing prices
of the InfoSpace common stock as of the specified dates by the exchange ratio
of 1.82.
<TABLE>
<CAPTION>
InfoSpace
InfoSpace Go2Net Common Stock
Common Stock Common Stock Equivalent Value
------------ ------------ ----------------
<S> <C> <C> <C>
July 26, 2000........................ $46.3125 $62.125 $84.2888
September 5, 2000.................... $43.1875 $77.25 $78.6013
</TABLE>
Go2Net stockholders are advised to obtain current market quotations for
InfoSpace common stock and Go2Net common stock. No assurance can be given as to
the market prices of InfoSpace common stock or Go2Net common stock at any time
before the consummation of the merger or as to the market price of InfoSpace
common stock at any time after the merger. Because the exchange ratio is fixed,
the exchange
36
<PAGE>
ratio will not be adjusted to compensate Go2Net stockholders for decreases in
the market price of InfoSpace common stock which have and could occur before
the merger becomes effective. In the event the market price of InfoSpace common
stock decreases or increases prior to the consummation of the merger, the value
of the InfoSpace common stock to be received in the merger in exchange for
Go2Net common stock would correspondingly decrease or increase.
Dividends
Neither InfoSpace nor Go2Net has ever declared or paid cash dividends on its
capital stock. Pursuant to the merger agreement, each of InfoSpace and Go2Net
has agreed not to pay cash dividends pending the consummation of the merger,
without the written consent of the other. If the merger is not consummated, the
Go2Net board anticipates that it would continue its policy of retaining any and
all earnings to finance the expansion of its business. InfoSpace expects to
retain any and all earnings for use in the operation and expansion of its
business and does not anticipate paying any cash dividends before or after the
merger.
37
<PAGE>
THE INFOSPACE MEETING
Date, time and place of the InfoSpace special meeting
The date, time and place of the special meeting of InfoSpace stockholders are
as follows:
October 12, 2000
9:00 a.m. Pacific Time
at the Hilton Bellevue
100 112th Avenue
Bellevue, Washington 98004
Purpose of the special meeting
InfoSpace is furnishing this joint proxy statement/prospectus to its
stockholders in connection with the solicitation of proxies by InfoSpace's
board of directors. The InfoSpace board of directors will use the proxies at
the special meeting of stockholders of InfoSpace to be held on October 12, 2000
and at any adjournment or postponement thereof.
The special meeting is being held so that InfoSpace stockholders may consider
and vote upon the following proposals:
1. To approve the issuance of shares of InfoSpace common stock in the
proposed merger of a wholly-owned subsidiary of InfoSpace with and into
Go2Net, Inc., as contemplated by the Agreement and Plan of
Reorganization dated as of July 26, 2000, by and among InfoSpace, Go2Net
and a wholly-owned subsidiary of InfoSpace. InfoSpace will issue 1.82
shares of common stock in exchange for each share of outstanding common
stock of Go2Net and Go2Net will become a wholly-owned subsidiary of
InfoSpace.
2. To transact any other business that properly comes before the special
meeting or any adjournments or postponements thereof.
Record date and outstanding shares
InfoSpace's board of directors has fixed the close of business on August 28,
2000 as the record date for the special meeting. Only holders of record of
InfoSpace's common stock at the close of business on the record date are
entitled to notice of and to vote at the meeting. As of August 28, there were
233,598,517 shares of common stock outstanding and entitled to vote. These
shares were held of record by approximately 813 stockholders, although
InfoSpace has been informed that there are in excess of 190,000 beneficial
owners of its common stock.
Vote and quorum required
Holders of InfoSpace common stock are entitled to one vote for each share
held as of the record date. Approval of the proposals to be voted upon by
InfoSpace stockholders requires the affirmative vote of a majority of the total
voting power of the outstanding common stock of InfoSpace present in person or
represented by proxy at the meeting. Attendance at the meeting in person or by
proxy of holders of shares representing a majority of the outstanding shares of
InfoSpace common stock is required for a quorum.
As of July 31, 2000, directors, executive officers and affiliates of
InfoSpace as a group beneficially owned 107,224,105 shares of common stock,
which represents approximately 45.9% of the total voting power represented by
InfoSpace's outstanding common stock. Three affiliated stockholders of
InfoSpace have entered into voting agreements with Go2Net that obligates them
to vote all of their shares, a total of approximately 24.1% of the total voting
power represented by InfoSpace's common stock outstanding as of July 26, 2000,
in favor of approval of the issuance of common stock in connection with the
merger.
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<PAGE>
Abstentions; broker non-votes
Any abstention will be counted for purposes of determining a quorum, and will
have no effect on the outcome of the proposal to approve the issuance of
InfoSpace common stock in the merger.
In the event that a broker, bank, custodian, nominee or other record holder
of InfoSpace's common stock indicates on a proxy that it does not have
discretionary authority to vote certain shares on a particular matter, which is
called a "broker non-vote," those shares will not be considered for purposes of
determining the number of shares entitled to vote with respect to a particular
proposal on which the broker has expressly not voted, but will be counted for
purposes of determining the presence or absence of a quorum for the transaction
of business.
Expenses of proxy solicitation
InfoSpace will pay the expenses of soliciting proxies to be voted at the
meeting, except that Go2Net will share equally the expenses incurred in
connection with filing and printing this joint proxy statement/prospectus.
Following the original mailing of the proxies and other soliciting materials,
InfoSpace will request brokers, custodians, nominees and other record holders
of InfoSpace common stock to forward copies of the proxy and other soliciting
materials to persons for whom they hold shares of InfoSpace common stock and to
request authority for the exercise of proxies. In such cases, upon the request
of the record holders, InfoSpace will reimburse such holders for their
reasonable expenses.
InfoSpace has retained D.F. King & Co., Inc. to aid in the solicitation of
proxies and to verify records relating to the solicitations. D.F. King will
receive $9,000 and customary expense reimbursement for these services. In
addition to solicitation by mail, directors, officers and key employees of
InfoSpace may solicit proxies in person or by telephone, telegram or other
means of communication. These persons will receive no additional compensation
for solicitation of proxies but may be reimbursed for reasonable out-of-pocket
expenses.
Voting of proxies
The proxy accompanying this joint proxy statement/prospectus is solicited on
behalf of the InfoSpace board of directors for use at the meeting. Please
complete, date and sign the accompanying proxy and promptly return it in the
enclosed envelope or otherwise mail it to InfoSpace. All properly signed
proxies that InfoSpace receives prior to the vote at the meeting and that are
not revoked will be voted at the meeting according to the instructions
indicated on the proxies or, if no direction is indicated, such proxies will be
voted FOR each of the proposals to be considered at the special meeting. You
may revoke your proxy at any time before it is exercised at the meeting by
taking any of the following actions:
. delivering a written notice to the secretary of InfoSpace by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked;
. signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting; or
. attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy. Please note, however, that
if your shares are held of record by a broker, bank or other nominee and
you wish to vote at the meeting, you must bring to the meeting a letter
from the broker, bank or other nominee confirming your beneficial
ownership of the shares.
InfoSpace's board of directors does not know of any matter that is not
referred to in this joint proxy statement/prospectus to be presented for action
at the meeting. If any other matters are properly brought before the meeting,
the persons named in the proxies will have discretion to vote on such matters
in accordance with their best judgment.
39
<PAGE>
Voting by telephone
You may be able to vote by telephone. If so, instructions are included with
your proxy card. If you vote by telephone, you do not need to complete and mail
your proxy card.
Recommendation of the board of directors
The board of directors of InfoSpace has unanimously determined that the terms
of the merger agreement and the issuance of common stock in the merger are in
the best interests of InfoSpace and the InfoSpace stockholders. Accordingly,
the InfoSpace board of directors unanimously recommends that InfoSpace
stockholders vote FOR the proposal to approve the issuance of common stock in
the merger.
To assure that your shares are represented at the meeting, please
complete, date and sign the enclosed proxy and mail it promptly in the
postage-paid envelope provided, whether or not you plan to attend the
meeting. You may revoke your proxy at any time before it is voted.
40
<PAGE>
THE GO2NET MEETING
Date, time and place of the Go2Net special meeting
The date, time and place of the special meeting of Go2Net stockholders are as
follows:
October 12, 2000
9:00 a.m. Pacific Time
at the Seattle Art Museum
100 University Street
Seattle, Washington 98101
Purpose of the special meeting
Go2Net is furnishing this joint proxy statement/prospectus to holders of
Go2Net common stock and series A preferred stock in connection with the
solicitation of proxies by Go2Net's board of directors for use at the special
meeting of stockholders of Go2Net to be held on October 12, 2000, and any
adjournment or postponement thereof.
The special meeting is being held so that stockholders may consider and vote
on the following proposals:
1. To consider and vote upon a proposal to approve the merger of Giants
Acquisition Corp., a wholly owned subsidiary of InfoSpace, Inc., with
and into Go2Net, Inc. and to adopt the merger agreement among InfoSpace,
Inc., Giants Acquisition Corp., a wholly owned subsidiary of InfoSpace,
Inc., and Go2Net, Inc., under which each outstanding share of Go2Net
common stock will be converted into the right to receive 1.82 shares of
InfoSpace common stock; and
2. To transact such other business as may properly come before the special
meeting or any adjournment or postponement thereof.
Record date and outstanding shares
The Go2Net board of directors has fixed the close of business on August 28,
2000 as the record date for the special meeting. Only holders of record of
Go2Net common stock and series A preferred stock on the record date are
entitled to notice of and to vote at the special meeting. As of August 28,
2000, Go2Net had outstanding and entitled to vote 40,464,956 shares of common
stock (including shares of series A preferred stock on an as converted basis),
held of record by approximately 318 stockholders although Go2Net has been
informed that there are in excess of 52,000 beneficial owners of common stock.
At the close of business on this date, Go2Net had outstanding and entitled to
vote 300,000 shares of preferred stock held of record by one stockholder.
Vote and quorum required
Holders of Go2Net common stock are entitled to one vote for each share held
as of the record date. Each record holder of preferred stock will be entitled
to one vote for each share of common stock into which the holder's preferred
stock may be converted. Approval of the merger and adoption of the merger
agreement will require the affirmative vote of a majority of the outstanding
shares of Go2Net common stock (including shares of Go2Net common stock issuable
upon conversion of shares of Go2Net preferred stock) as well as a majority of
the outstanding shares of Go2Net preferred stock voting as a separate class.
Attendance at the meeting in person or by proxy of the shares representing a
majority of the shares of Go2Net common stock (including shares of Go2Net
common stock issuable upon conversion of share of Go2Net preferred stock)
issued and outstanding on the record date is required for a quorum.
On August 28, 2000, directors and executive officers of Go2Net and their
affiliates beneficially owned, and were entitled to vote, 18,011,984 shares of
Go2Net common stock (including shares of Go2Net common stock issuable upon
conversion of shares of Go2Net preferred stock), or approximately 44.5% of the
41
<PAGE>
outstanding voting shares. Four affiliated stockholders of Go2Net who as of
July 26, 2000 together owned a total of approximately 36.8% of the voting power
of Go2Net capital stock (including shares of common stock issuable upon
conversion of shares of Go2Net preferred stock), have entered into voting
agreements and have agreed to vote in favor of the adoption of the merger
agreement. In order to receive the required number of votes to approve the
merger and adopt the merger agreement, holders of approximately 21% of the
Go2Net common stock who are not party to the voting agreements must vote their
shares in favor of the approval of the merger and adoption of the merger
agreement.
Abstentions and broker non-votes
Abstentions and broker non-votes each will be included in determining the
number of shares present and voting at the meeting for the purpose of
determining the presence of a quorum. Because approval of the merger and
adoption of the merger agreement requires the affirmative vote of a majority of
the outstanding shares of Go2Net common stock (including shares of common stock
issuable upon conversion of shares of Go2Net preferred stock) entitled to vote
and of a majority of the outstanding shares of Go2Net preferred stock entitled
to vote, abstentions and broker non-votes will have the same effect as votes
against the approval of the merger and adoption of the merger agreement. In
addition, the failure of a Go2Net stockholder to return a proxy or vote in
person will have the effect of a vote against the approval of the merger and
adoption of the merger agreement. Brokers holding shares for beneficial owners
cannot vote on the actions proposed in this joint proxy statement/prospectus
without the owners' specific instructions. Accordingly, Go2Net stockholders are
urged to return the enclosed proxy card marked to indicate their vote.
Expenses of proxy solicitation
Go2Net will pay the costs of soliciting proxies to be voted at the Go2Net
special meeting, except that InfoSpace will share equally the expenses incurred
in connection with filing and printing this joint proxy statement/prospectus.
Following the original mailing of the proxies and other soliciting materials,
Go2Net will request brokers, custodians, nominees and other record holders of
Go2Net stock to forward copies of the proxy and other soliciting materials to
persons for whom they hold shares of Go2Net stock and to request authority for
the exercise of proxies. In such cases, upon the request of the record holders,
Go2Net will reimburse such holders for their reasonable expenses.
Go2Net retained D.F. King & Co. Inc. to aid in the solicitation of proxies
and to verify records relating to the solicitations. D.F. King will receive
$6,500 and customary expense reimbursement for these services. In addition to
solicitation by mail, directors, officers and key employees of Go2Net may
solicit proxies in person or by telephone, telegram or other means of
communication. These persons will receive no additional compensation for
solicitation of proxies but may be reimbursed for reasonable out-of-pocket
expenses.
Voting of proxies
The proxy accompanying this joint proxy statement/prospectus is solicited on
behalf of the Go2Net board of directors for use at the special meeting. Please
complete, date and sign the accompanying proxy and promptly return it in the
enclosed envelope or otherwise mail it to Go2Net. All properly signed proxies
that Go2Net receives prior to the vote at the meeting and that are not revoked
will be voted at the meeting according to the instructions indicated on the
proxies or, if no direction is indicated, such proxies will be voted FOR each
of the proposals to be considered at the special meeting. Brokers will provide
directions on how to instruct the broker to vote the shares to the beneficial
owners of such shares. You may revoke your proxy at any time before it is
exercised at the meeting by taking any of the following actions:
. delivering a written notice to the secretary of Go2Net by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked;
. signing and delivering a proxy relating to the same shares and bearing a
later date before the vote at the meeting; or
42
<PAGE>
. attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy. Please note, however, that
if your shares are held of record by a broker, bank or other nominee and
you wish to vote at the meeting, you must bring to the meeting a letter
from the broker, bank or other nominee confirming your beneficial
ownership of the shares.
Go2Net's board of directors does not know of any matter that is not referred
to in this joint proxy statement/prospectus to be presented for action at the
meeting. If any other matters are properly brought before the meeting, the
persons named in the proxies will have discretion to vote on such matters in
accordance with their best judgment.
Recommendations
The Go2Net board has determined that the merger and the reorganization
agreement are advisable and fair to and in the best interests of Go2Net and its
stockholders. Accordingly after careful consideration, the Go2Net board
unanimously has approved the merger and the merger agreement and unanimously
recommends that the stockholders vote for the approval of the merger and the
adoption of the merger agreement.
Do not send in any stock certificates with your proxy. The exchange agent
will mail transmittal forms with instructions for the surrender of stock
certificates for Go2Net shares to former Go2Net stockholders as soon as
practicable after the completion of the merger.
To assure that your shares are represented at the meeting, please
complete, date and sign the enclosed proxy and mail it promptly in the
postage-paid envelope provided, whether or not you plan to attend the
meeting. You may revoke your proxy at any time before it is voted.
43
<PAGE>
THE MERGER
This section of the joint proxy statement/prospectus describes the proposed
merger. While InfoSpace and Go2Net believe that the description covers the
material terms of the merger and the related transactions, this summary may not
contain all of the information that is important to you. You should carefully
read this entire document and the other documents InfoSpace and Go2Net referred
to for a more complete understanding of the merger.
Background of the merger
Naveen Jain, Chairman of InfoSpace, and Russell C. Horowitz, Chief Executive
Officer of Go2Net, have met periodically since the fall of 1997 to discuss
potential business development activities between the two companies. In late
fall of 1999, Mr. Horowitz and Mr. Jain discussed generally the synergies and
the low degree of redundancy between the two businesses.
At this meeting in the fall of 1999, Mr. Horowitz and Mr. Jain exchanged
preliminary due diligence information between the two companies.
In December of 1999, InfoSpace experienced a material increase in its stock
price, and, therefore, the parties agreed to terminate their discussions about
a potential combination of the two companies at that time.
In May 2000, Mr. Horowitz and Mr. Jain discussed potential business
development opportunities between Go2Net payment processing technologies and
InfoSpace storefront technology. Mr. Horowitz and Mr. Jain also discussed
business opportunities along the lines of distribution of a Go2Net desktop
portal through InfoSpace's wireless distribution network. Mr. Horowitz and Mr.
Jain agreed to meet in person to continue the discussions around the business
development of these two ideas.
Mr. Horowitz and Mr. Jain met in late May 2000. At the meeting, Mr. Jain
introduced Arun Sarin, the new Chief Executive Officer of InfoSpace, to Mr.
Horowitz. While continuing the earlier discussion of potential business
development opportunities, Mr. Sarin suggested that rather than pursue business
development opportunities, the two companies should consider a merger. Mr.
Horowitz agreed that while conceptually a merger was a logical conclusion, no
discussions along these lines could be had unless InfoSpace was willing to
consider a transaction at a consideration amount that would be compelling to
the Go2Net stockholders.
In late June 2000, Mr. Jain and Mr. Sarin phoned Mr. Horowitz and indicated
that InfoSpace would be interested in pursuing a business combination with
Go2Net. During the week of July 3, the parties engaged in preliminary
discussions regarding the proposed business combination.
On July 7, 2000, Mr. Horowitz sent an informal e-mail memo to the Go2Net
board of directors soliciting their approval to move forward with negotiations
regarding a possible business combination of Go2Net and InfoSpace.
Also on July 7, 2000, representatives of InfoSpace presented a draft non-
disclosure agreement. The parties negotiated the non-disclosure agreement over
the next several days and signed it on July 12, 2000.
Also on July 7, 2000, InfoSpace retained Morgan Stanley & Co., Incorporated
as its financial advisor with respect to the merger. InfoSpace's board
subsequently ratified this engagement and InfoSpace entered into an engagement
letter with Morgan Stanley & Co. dated July 24, 2000.
On July 9, 2000, Messrs. Horowitz, Jain and Sarin as well as Rand Rosenberg,
Chief Financial Officer of InfoSpace, met to explore a potential strategic
transaction further.
On July 10, 2000, Mr. Rosenberg had a teleconference with Michael J. Riccio,
Jr., Chief Operating Officer of Go2Net, to discuss conducting due diligence.
44
<PAGE>
Also on July 10, 2000, Go2Net met with representatives of Merrill Lynch & Co.
to discuss the possibility of Merrill Lynch acting as its financial advisor
with respect to the merger. Go2Net's board subsequently ratified this
engagement, and Go2Net entered into an engagement letter with Merrill Lynch &
Co. dated July 17, 2000.
In the period between July 12 and July 17, a series of meetings were held
between the executives of both companies for the purpose of conducting due
diligence. Representatives of Morgan Stanley & Co. and Merrill Lynch & Co.
attended these meetings.
On July 12, 2000, Wilson Sonsini Goodrich & Rosati, as legal representative
of InfoSpace, and Hutchins, Wheeler & Dittmar, as legal representative of
Go2Net, participated in several conference calls regarding the logistics of
conducting the due diligence process. Representatives of both parties conducted
their business, legal, accounting and financial due diligence in Seattle
between July 12 and July 23, 2000. During this period, senior management of
both companies held numerous discussions regarding various business, financial,
operational and technical issues.
On July 14, 2000, the InfoSpace board of directors met to discuss the merger.
Representatives of Wilson Sonsini Goodrich & Rosati attended the meeting, which
included a presentation of the financial analysis performed by Morgan Stanley &
Co. regarding the merger.
On July 18, 2000, Go2Net's board of directors, together with senior
management of Go2Net and representatives of Hutchins, Wheeler & Dittmar and
Merrill Lynch & Co., held an extensive discussion regarding some of the
relative merits and risks of the potential transaction, including financial
analyses of the two companies and the possible synergies of the potential
combined company. Hutchins, Wheeler & Dittmar outlined the directors' legal
duties and responsibilities in connection with considering the merger. The
Go2Net board decided to continue discussions with InfoSpace about a possible
transaction.
On July 18, 2000, Wilson Sonsini Goodrich & Rosati distributed a draft of the
merger agreement and related agreements.
On July 19, 2000, Messrs. Jain, Sarin, Rosenberg, Horowitz and Riccio, as
well as representatives of Morgan Stanley & Co. met in San Mateo, California to
discuss potential synergies that might be present in the combined company.
Merrill Lynch & Co. separately held extensive discussions with members of
Go2Net management regarding potential synergies that might result from the
merger.
On July 20, 2000, Hutchins, Wheeler & Dittmar provided its initial comments
on the draft merger agreement. From July 20, 2000 until July 26, 2000,
representatives of Wilson Sonsini Goodrich & Rosati and Hutchins, Wheeler &
Dittmar participated in a series of negotiations on the terms of the merger
agreement and related agreements.
On July 21, 2000, the InfoSpace board of directors met to further discuss the
merger and the financial analyses performed by Morgan Stanley & Co. regarding
the merger. Management of InfoSpace presented the results of their due
diligence and Wilson Sonsini Goodrich & Rosati discussed the status of
negotiations regarding the merger agreement.
On July 22, 2000, Go2Net's board members held a telephonic board meeting to
review drafts of the merger agreement and related agreements. During the call,
representatives of Merrill Lynch & Co. and Hutchins, Wheeler & Dittmar reviewed
and discussed with Go2Net's board the material terms of the draft merger
agreement. In particular, Go2Net's board reviewed the proposed termination
fees, opportunity to entertain alternative proposals and termination rights.
Representatives of Merrill Lynch & Co. made a presentation to Go2Net's board
regarding the financial analyses Merrill Lynch & Co. had performed regarding
Go2Net, InfoSpace and the merger. The Go2Net board reviewed the status of the
negotiations and directed management to continue negotiations with InfoSpace.
On July 25, 2000, the InfoSpace board met to further discuss the financial
analyses prepared by Morgan Stanley & Co. regarding the merger. Mr. Rosenberg
discussed the results of financial due diligence
45
<PAGE>
performed at Go2Net, and Wilson Sonsini Goodrich & Rosati discussed the
fiduciary duties of the board and legal issues related to the merger.
On July 26, 2000, the InfoSpace board held a special meeting and approved the
proposed exchange ratio of the transaction, the issuance of the InfoSpace
common stock in the merger, the merger agreement and related agreements. Morgan
Stanley & Co. rendered an oral opinion, subsequently confirmed by delivery of a
written opinion, dated July 26, 2000, that, as of such date, the exchange ratio
provided in the merger agreement was fair to InfoSpace from a financial point
of view.
On July 26, 2000, Go2Net's board also held a special meeting to analyze and
approve the final terms of the merger agreement and related agreements. Merrill
Lynch & Co. rendered an oral opinion, subsequently confirmed by delivery of a
written opinion dated July 26, 2000, that, as of that date, the exchange ratio
provided in the merger agreement was fair to the Go2Net stockholders, other
than InfoSpace and its affiliates, from a financial point of view. Go2Net's
board unanimously approved the final terms of the merger agreement and the
related agreements and resolved to recommend that the Go2Net stockholders adopt
the merger agreement and approve the merger.
The merger agreement and related documents were signed by the parties on July
26, 2000. On the evening of July 26, 2000, after the close of the market,
InfoSpace and Go2Net issued a joint press release announcing the transaction.
Recommendation of InfoSpace's board of directors and InfoSpace's reasons for
the merger
At a meeting held on July 26, 2000, the board of directors of InfoSpace
concluded that the merger was in the best interests of InfoSpace and its
stockholders and determined to recommend that the InfoSpace stockholders
approve the issuance of the shares of InfoSpace common stock in the merger. The
summary set forth below briefly describes certain of the reasons, factors and
information taken into account by the InfoSpace board in reaching its
conclusion. The InfoSpace board did not assign any relative or specific weights
to the factors considered in reaching such determination, and individual
directors may have given differing weights to different factors.
In reaching its determination, the InfoSpace board consulted with InfoSpace's
management and legal and financial advisors, and carefully considered a number
of factors, including:
. The potential strategic benefits of the merger;
. Historical information concerning InfoSpace's and Go2Net's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position, including public reports
concerning results of operations for each company filed with the SEC;
. InfoSpace management's view of the financial condition, results of
operations and businesses of InfoSpace and Go2Net before and after giving
effect to the merger;
. Current financial market conditions and historical market prices,
volatility and trading information with respect to InfoSpace's common
stock and Go2Net's common stock;
. The benefits to be received by InfoSpace and the dilution to InfoSpace's
stockholders in the merger and the relationship between the current and
historical market values of InfoSpace's common stock and Go2Net's common
stock and a comparison of comparable merger transactions;
. The belief that the terms of the merger agreement, including the parties'
respective representations, warranties and covenants, and the conditions
to their respective obligations, are reasonable;
. The prospects of InfoSpace independent of Go2Net;
. The potential for other parties to enter into strategic relationships
with or to acquire InfoSpace or Go2Net;
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<PAGE>
. Detailed financial analysis and pro forma and other information with
respect to the companies presented to the board, including the opinion of
Morgan Stanley that the exchange ratio pursuant to the merger was fair
from a financial point of view to InfoSpace. This opinion is subject to
assumptions and limitations noted in the opinion and described under
"Opinion of InfoSpace's Financial Advisor," and you should carefully read
both that section and the opinion that is attached to this document as
Annex B;
. The expectation that the merger will be treated as a tax-free
reorganization for federal income tax purposes;
. The impact of the merger on InfoSpace's customers and employees; and
. Reports from management, legal and financial advisors as to the results
of the due diligence investigation of Go2Net.
In its decision to recommend and approve the merger and the share issuance,
the most important benefits identified by the board of directors of InfoSpace
were the following:
. InfoSpace management believes that, given the complementary nature of the
technologies and business strategies of InfoSpace and Go2Net, the merger
will enhance the opportunity for the potential realization of InfoSpace's
strategic objectives;
. InfoSpace's stockholders would have the opportunity to participate in the
potential for growth of the combined company after the merger;
. The combination of Go2Net's applications and technology infrastructure
for both narrowband and broadband with InfoSpace's merchant and consumer
infrastructure services for wireless and other platforms will allow the
combined company to offer an end-to-end integrated platform of
applications and technologies across the narrowband and broadband
platforms;
. The combination of InfoSpace's and Go2Net's merchant bases and merchant
services will allow the combined company to distribute a more complete
solution to a wider merchant network;
. Go2Net's broadband technologies and applications will facilitate
InfoSpace's entry into the broadband market;
. The broader customer base of the combined company will allow it to
mitigate the risk of customer concentration to which InfoSpace is
currently exposed;
. The stronger financial position of the combined company; and
. The depth of experience provided by the combined management team.
Potential risks or other negative factors identified by the InfoSpace board
of directors include the following:
. The risk that the potential benefits of the merger may not be realized;
. The challenges of integrating the management teams, strategies, cultures
and organizations of the two companies;
. The risk of disruption of sales momentum as a result of uncertainties
created by the announcement of the merger;
. The risk that the merger might not be consummated despite the parties'
efforts, even if approved by each company's stockholders;
. If the merger is not accounted for as a pooling-of-interests, the
significant adverse impact to the net income of the combined company that
will arise due to the amortization of goodwill and other intangibles in
light of the impact of purchase accounting for the merger;
47
<PAGE>
. The substantial charges to be incurred in connection with the merger,
including costs of integrating the businesses and transaction expenses
arising from the merger;
. The effect of public announcement of the merger and the possibility that
the merger might not be consummated on (a) InfoSpace's sales and
operating results, (b) InfoSpace's ability to attract and retain key
management, marketing and technical personnel and (c) progress of certain
development projects; and
. Other applicable risks described in the section of this joint proxy
statement/prospectus entitled "Risk Factors" (see page 10).
The foregoing discussion of the information and factors considered by the
InfoSpace board of directors is not intended to be exhaustive but includes
material factors considered by the InfoSpace board of directors. In view of the
complexity and wide variety of information and factors, both positive and
negative, considered by the InfoSpace board of directors, it did not find it
practical to quantify, rank or otherwise assign relative or specific weights to
the factors considered. In addition, the InfoSpace board did not reach any
specific conclusion with respect to each of the factors considered, or any
aspect of any particular factor. Instead, the InfoSpace board of directors
conducted an overall analysis of the factors described above, including
discussions with InfoSpace's management and legal, financial and accounting
advisors. In considering the factors described above, individual members of the
InfoSpace board of directors may have given different weight to different
factors.
The InfoSpace board considered all these factors as a whole and believed the
factors supported its determination to approve the merger.
After taking into consideration all of the factors set forth above,
InfoSpace's board of directors unanimously concluded that the merger was fair
to, and in the best interests of, InfoSpace and its stockholders and that
InfoSpace should proceed with the merger.
Recommendation of Go2Net's board of directors and Go2Net's reasons for the
merger
The board of directors of Go2Net unanimously concluded that the merger
agreement and the merger are fair to and in the best interests of Go2Net and
its stockholders. The Go2Net board determined to recommend that the
stockholders approve the merger and adopt the merger agreement. This decision
was based upon several potential benefits of the merger that Go2Net's board
believes will contribute to the success of the combined company compared to
Go2Net continuing to operate as an independent business. The Go2Net board
believes that reasons the merger will be beneficial to Go2Net and its
stockholders include the following:
. the ability of the two companies to combine their product lines to create
a leading infrastructure provider offering an end-to-end integrated
platform of applications across narrowband and broadband platforms;
. InfoSpace's wireless technologies and applications will facilitate
Go2Net's entry into the wireless market;
. the increased customer base of the combined company;
. the potential revenue synergies including cross-selling opportunities for
the products of both companies;
. Go2Net's stockholders would have the opportunity to participate in the
future growth potential for the combined company following the merger;
. Go2Net management believes that, given the complementary nature of the
technologies and business strategies of Go2Net and InfoSpace, the merger
will enhance the opportunity for the potential realization of Go2Net's
strategic objectives;
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<PAGE>
. the strong financial position of the combined company; and
. the premium over the market price for their Go2Net common stock
immediately prior to the announcement of the merger that Go2Net
stockholders would have an opportunity to receive.
Go2Net's board reviewed a number of factors in evaluating the merger,
including, but not limited to, the following:
. information concerning InfoSpace's business, financial performance and
condition, operations and management;
. information concerning the financial condition, results of operations and
businesses of InfoSpace and Go2Net before and after giving effect to the
merger;
. current financial market conditions and historical market prices,
volatility and trading information with respect to InfoSpace common stock
and Go2Net common stock;
. the consideration InfoSpace will issue in the merger in light of
comparable merger transactions;
. the belief that the terms of the merger agreement and related agreements
are reasonable;
. the ability of Go2Net's board, in exercise of its fiduciary duties in
accordance with the merger agreement, to authorize Go2Net to provide
information to, engage in negotiations with and, subject to the payment
of a termination fee, enter into a transaction with another party as
described under "The Merger Agreement;"
. the impact of the merger on the customers and employees of Go2Net and the
combined company;
. results of the due diligence investigation conducted by Go2Net's
management, financial advisors and legal counsel; and
. the analyses and presentations prepared by Merrill Lynch & Co. and
Merrill Lynch's written opinion (the full text of which is attached as
Annex C to this joint proxy statement/prospectus) to the effect that, as
of July 26, 2000, and based upon and subject to the qualifications,
assumptions and limitations set forth in its opinion, the exchange ratio
was fair to Go2Net's stockholders, other than InfoSpace and its
affiliates, from a financial point of view.
The Go2Net board also identified and considered a number of potentially
negative factors in its deliberations concerning the merger including the
following:
. the risk that the potential benefits of the merger may not be realized;
. the risk that the merger may not be consummated, notwithstanding the
voting agreements obtained from holders of Go2Net capital stock and
holders of InfoSpace common stock;
. the risk of management and employee disruption associated with the
merger, including that despite the efforts of the combined company, key
technical, sales and management personnel might not remain employed by
the combined company; and
. other applicable risks described in this joint proxy statement/prospectus
under "Risk Factors."
The foregoing discussion of the information and factors considered by the
Go2Net board of directors is not intended to be exhaustive but includes
material factors considered by the Go2Net board of directors. In view of the
complexity and wide variety of information and factors, both positive and
negative, considered by the Go2Net board of directors, it did not find it
practical to quantify, rank or otherwise assign relative or specific weights to
the factors considered. In addition, the Go2Net board did not reach any
specific conclusion with respect to each of the factors considered, or any
aspect of any particular factor. Instead, the Go2Net board of directors
conducted an overall analysis of the factors described above, including
discussions with Go2Net's management and legal, financial and accounting
advisors. In considering the factors described above, individual members of the
Go2Net board of directors may have given different weight to different factors.
49
<PAGE>
The Go2Net board considered all these factors as a whole and believed the
factors supported its determination to approve the merger.
After taking into consideration all of the factors set forth above, Go2Net's
board of directors unanimously concluded that the merger was fair to, and to
the best interests of, Go2Net and its stockholders (other than InfoSpace and
its affiliates) and that Go2Net should proceed with the merger.
Opinion of InfoSpace's financial advisor
Under an engagement letter dated July 24, 2000, InfoSpace retained Morgan
Stanley & Co. Incorporated to provide financial advisory services and a
financial fairness opinion in connection with the merger. InfoSpace's board of
directors selected Morgan Stanley to act as InfoSpace's financial advisor based
on Morgan Stanley's qualifications, expertise and reputation and its knowledge
of Internet and Internet infrastructure industries. At a telephonic meeting of
InfoSpace's board of directors on July 26, 2000, Morgan Stanley rendered its
oral opinion, subsequently confirmed in writing, that, as of July 26, 2000 and
based upon and subject to the various considerations set forth in the written
opinion, the exchange ratio pursuant to the merger agreement was fair to
InfoSpace from a financial point of view.
The full text of the written opinion of Morgan Stanley, dated July 26, 2000,
is attached as Annex B to this document and sets forth, among other things, the
assumptions made, procedures followed, matters considered and limitations on
the scope of the review undertaken by Morgan Stanley in rendering its opinion.
InfoSpace stockholders are urged to, and should, read the opinion carefully and
in its entirety. Morgan Stanley's opinion is directed to InfoSpace's board of
directors and addresses only the fairness to InfoSpace from a financial point
of view of the exchange ratio pursuant to the merger agreement as of the date
of the opinion. It does not address any other aspect of the merger and does not
constitute a recommendation to any holder of InfoSpace common stock or Go2Net
common stock as to how to vote at either the InfoSpace special meeting or the
Go2Net special meeting.
The summary of the opinion of Morgan Stanley set forth in this document is
qualified in its entirety by reference to the full text of the written opinion.
In connection with rendering its opinion, Morgan Stanley, among other things:
(i) reviewed certain publicly available financial statements and other
information of Go2Net and InfoSpace;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning Go2Net prepared by the management of
Go2Net;
(iii) reviewed certain financial projections prepared by the management
of Go2Net;
(iv) reviewed certain internal financial statements and other financial
and operating data concerning InfoSpace prepared by the management
of InfoSpace;
(v) reviewed certain financial projections prepared by the management
of InfoSpace;
(vi) reviewed the past and current operations and financial condition
and the prospects of Go2Net and InfoSpace, including information
relating to certain strategic, financial and operational benefits
anticipated from the merger, with senior executives of Go2Net and
InfoSpace, respectively;
(vii) reviewed the pro forma impact of the merger on InfoSpace's
financial performance, including revenue per share and earnings per
share;
(viii) reviewed the reported prices and trading activity for Go2Net common
stock and InfoSpace common stock;
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<PAGE>
(ix) compared the financial performance of Go2Net and InfoSpace and the
prices and trading activity of Go2Net common stock and InfoSpace
common stock with that of certain other publicly-traded companies
comparable with Go2Net and InfoSpace, respectively, and their
securities;
(x) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(xi) participated in discussions and negotiations among representatives
of Go2Net and InfoSpace and their financial and legal advisors;
(xii) reviewed a draft of the merger agreement dated July 26, 2000, and
certain related documents; and
(xiii) performed such other analyses and considered such other factors as
we have deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by it for the purposes of
its opinion. With respect to the financial projections, including information
relating to certain strategic, financial and operational benefits anticipated
from the merger, Morgan Stanley assumed that they were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of Go2Net and InfoSpace, respectively. In
addition, Morgan Stanley assumed that the merger will be consummated in
accordance with the terms set forth in the draft merger agreement dated July
26, 2000, including that the merger will be treated as a tax-free
reorganization and/or exchange, each pursuant to the Internal Revenue Code of
1986.
Morgan Stanley relied upon, without independent verification, the assessment
by the management of Go2Net and InfoSpace of the strategic benefits expected to
result from the transaction. Morgan Stanley also relied upon, without
independent verification, the assessment by the management of Go2Net and
InfoSpace of the technologies and products of Go2Net and InfoSpace, the timing
and risks associated with the integration of Go2Net and InfoSpace and the
validity of, and risks associated with, Go2Net's and InfoSpace's existing and
future products and technologies.
Morgan Stanley did not make any independent valuation or appraisal of the
assets or liabilities of Go2Net or InfoSpace, nor was Morgan Stanley furnished
with any such appraisals. Morgan Stanley's opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to Morgan Stanley as of, the date of its opinion.
The following is a brief summary of certain of the analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion dated July 26, 2000. Certain of these summaries of financial
analyses include information presented in tabular format. In order to
understand fully the financial analyses used by Morgan Stanley, the tables must
be read together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Exchange Ratio Analysis. Morgan Stanley reviewed the ratios of the closing
prices of Go2Net common stock to the corresponding closing prices of InfoSpace
common stock over various periods from July 24, 1999 through July 24, 2000.
Morgan Stanley examined the premiums represented by the exchange ratio of
1.820x over the averages of these daily ratios over various periods:
<TABLE>
<CAPTION>
Period Transaction
Average Exchange Ratio
Period Ended July 24, 2000 Exchange Ratio Premium
-------------------------- -------------- --------------
<S> <C> <C>
July 24, 2000................................ 1.222x 48.9%
Last 10 Days................................. 1.087 67.4%
Last 30 Days................................. 0.922 97.3%
Last 60 Days................................. 0.891 104.2%
Last 90 Days................................. 0.943 92.9%
</TABLE>
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<PAGE>
Go2Net
Trading Range. Morgan Stanley reviewed the range of closing prices of Go2Net
common stock prior to July 24, 2000. Morgan Stanley observed the following:
<TABLE>
<CAPTION>
Value Per
Period Prior to July 24, 2000 Share
----------------------------- --------------
<S> <C>
52 weeks................................................... $35.75-$111.75
</TABLE>
Comparable Company Trading Analysis. Morgan Stanley compared certain publicly
available financial information of Go2Net with publicly available information
for selected companies comparable to the business or businesses of Go2Net. The
following table lists the relevant comparable companies analyzed by Morgan
Stanley:
Go2Net Comparable Companies
America Online, Inc.
Yahoo! Inc.
Excite@Home Corporation
OpenTV Corp.
Exodus Communications, Inc.
Inktomi Corporation
Critical Path, Inc.
In conducting its analysis, Morgan Stanley applied the relevant financial
multiples of the comparable companies to publicly available securities research
analyst estimates of various financial statistics for Go2Net. Morgan Stanley
then estimated the implied value per share of Go2Net as of July 24, 2000.
Morgan Stanley estimated the following:
<TABLE>
<CAPTION>
Calendar Year Comparable Implied Value per
Financial Statistic Company Multiple Share of Go2Net
------------------- ---------------- -----------------
<S> <C> <C>
2000 Estimated Revenues................ 20.0x-60.0x $47-$125
2001 Estimated Revenues................ 15.0x-40.0x $53-$128
</TABLE>
Based on the comparable company analysis, Morgan Stanley estimated an implied
value range per share of Go2Net of $50 to $126.
No company utilized in the comparable company analysis is identical to Go2Net
or InfoSpace. In evaluating the comparable companies, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Go2Net and InfoSpace, such as the impact of
competition on the businesses of Go2Net or InfoSpace and the industry in
general, industry growth and the absence of any material adverse change in the
financial condition and prospects of Go2Net or InfoSpace or the industry or in
the financial markets in general. Mathematical analysis, such as determining
the average or median, is not in itself a meaningful method of using comparable
company data.
Precedent Transactions Analysis. Based on publicly available information as
of July 24, 2000, Morgan Stanley compared the premiums paid in selected
precedent merger and acquisition transactions to the relevant financial
statistics for Go2Net implied by the exchange ratio and the share price of
InfoSpace common stock as of July 24, 2000. The following table presents
certain of the precedent transactions analyzed by Morgan Stanley:
Selected Precedent Transactions
Acquiree/Acquiror:
Lycos Inc./Terra Networks, S.A.
Verio Inc./NTT Communications Corp.
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<PAGE>
Spyglass, Inc./OpenTV Corp.
Network Solutions, Inc./Verisign, Inc.
InterVU Inc./Akamai Technologies, Inc.
Time Warner Inc./America Online, Inc.
Mapquest.com, Inc./America Online, Inc.
Flycast Communications Corporation/CMGI, Inc.
Earthlink, Inc./Mindspring Enterprises, Inc.
iMall, Inc./Excite@Home Corporation
Abacus Direct Corporation/DoubleClick Inc.
Broadcast.com, Inc./Yahoo! Inc.
GeoCities/Yahoo! Inc.
Excite, Inc./@Home Corporation
Netscape Communications Corporation/America Online, Inc.
Based on its analysis of the precedent transactions, Morgan Stanley applied
the following premiums to the historical trading performance of Go2Net and
InfoSpace common stock:
<TABLE>
<CAPTION>
Implied Value per
Trading Performance Statistic Premium Share of Go2Net
----------------------------- ----------- -----------------
<S> <C> <C>
Go2Net Current Price (as of July 24, 2000)... 10.0%-75.0% $61-$96
10-day Average Exchange Ratio................ 10.0%-85.0% $54-$91
30-day Average Exchange Ratio................ 10.0%-95.0% $46-$81
60-day Average Exchange Ratio................ 10.0%-80.0% $44-$72
90-day Average Exchange Ratio................ 10.0%-80.0% $47-$77
</TABLE>
No transaction utilized in the precedent transactions analysis is identical
to the merger. In evaluating the transactions listed above, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of InfoSpace and Go2Net, such as the impact of
competition on the businesses of Go2Net or InfoSpace and the industry in
general, industry growth and the absence of any material adverse change in the
financial condition and prospects of InfoSpace or Go2Net or the industry or in
the financial markets in general. Mathematical analysis, such as determining
the average or median, is not in itself a meaningful method of using comparable
transaction data.
Relative Contribution. Morgan Stanley analyzed the relative contributions of
certain financial statistics of Go2Net and InfoSpace to the pro forma financial
performance of the combined company based on selected financial statistics. The
relevant information for Go2Net and InfoSpace was obtained from selected
research analyst estimates available as of July 24, 2000. Morgan Stanley then
compared the pro forma ownership of Go2Net implied by the relative contribution
analysis to the pro forma ownership of Go2Net implied by the exchange ratio.
Morgan Stanley observed the following:
<TABLE>
<CAPTION>
Calendar Year Implied Go2Net
Financial Statistic Pro Forma Ownership
------------------- -------------------
<S> <C>
2000 Estimated Revenues................................. 50.0%
2001 Estimated Revenues................................. 42.3%
2000 Estimated Gross Profit............................. 50.7%
2001 Estimated Gross Profit............................. 42.9%
2001 Estimated Operating Income......................... 88.6%
Based on the Exchange Ratio............................. 24.3%
</TABLE>
Discounted Equity Value. Morgan Stanley performed a discounted future equity
value analysis to estimate the present value per share of Go2Net. The
projections of financial performance were based on securities research analyst
estimates available as of July 24, 2000.
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<PAGE>
The following table presents the multiples and discount rates applied to the
projected financial performance of Go2Net:
<TABLE>
<CAPTION>
Calendar Year Next Calendar Implied Value Per
Financial Statistic Year Multiple Discount Rate Share of Go2Net
------------------- ------------- ------------- -----------------
<S> <C> <C> <C>
2002 Estimated Revenues....... 15.0x-40.0x 25.0% $59-$145
2003 Estimated Revenues....... 15.0x-40.0x 25.0% $64-$161
</TABLE>
Based on the foregoing multiples and discount rate, Morgan Stanley estimated
an implied value range per share of Go2Net of $61 to $153.
InfoSpace
Trading Range. Morgan Stanley reviewed the range of closing prices of
InfoSpace common stock prior to July 24, 2000. Morgan Stanley observed the
following:
<TABLE>
<CAPTION>
Period Prior to July 24, 2000 Value Per Share
----------------------------- ---------------
<S> <C>
52 weeks..................................................... $9.22-$138.50
</TABLE>
Comparable Company Trading Analysis. Morgan Stanley compared certain publicly
available financial information of InfoSpace with publicly available
information for selected companies comparable to the business or businesses of
InfoSpace. The following table lists the relevant comparable companies analyzed
by Morgan Stanley:
InfoSpace Comparable Companies
Phone.com, Inc.
Aether Systems Inc.
724 Solutions Inc.
Puma Technology, Inc.
Exodus Communications, Inc.
Inktomi Corporation
Critical Path, Inc.
In conducting its analysis, Morgan Stanley applied the relevant financial
multiples of the comparable companies to publicly available securities research
analyst estimates of various financial statistics for InfoSpace. Morgan Stanley
then estimated the implied value per share of InfoSpace as of July 24, 2000.
Morgan Stanley estimated the following:
<TABLE>
<CAPTION>
Calendar Year Comparable Implied Value per
Financial Statistic Company Multiple Share of InfoSpace
------------------- ---------------- ------------------
<S> <C> <C>
2000 Estimated Revenues................. 30.0x-280.0x $12-$98
2001 Estimated Revenues................. 20.0x-90.0x $17-$67
</TABLE>
Based on the comparable company analysis, Morgan Stanley estimated an implied
value range per share of InfoSpace of $14 to $82.
Discounted Equity Value. Morgan Stanley performed a discounted future equity
value analysis to estimate the present value per share of InfoSpace. The
projections of financial performance were based on securities research analyst
estimates available as of July 24, 2000.
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<PAGE>
The following table presents the multiples and discount rates applied to the
projected financial performance of InfoSpace:
<TABLE>
<CAPTION>
Calendar Year Next Calendar Implied Value
Financial Statistic Year Multiple Discount Rate Per Share of InfoSpace
------------------- ------------- ------------- ----------------------
<S> <C> <C> <C>
2002 Estimated Revenues.. 20.0x-90.0x 25.0% $19-$80
2003 Estimated Revenues.. 20.0x-90.0x 25.0% $22-$93
</TABLE>
Based on the foregoing multiples and discount rate, Morgan Stanley estimated
an implied value range per share of InfoSpace of $20 to $87.
Pro Forma Merger Analysis. Morgan Stanley analyzed the pro forma impact of
the merger on InfoSpace's combined projected revenues per share and earnings
per share for the calendar year 2000 and 2001 and for each quarter from
calendar fourth quarter 2000 through calendar fourth quarter 2001. Such
analysis was based on projections by securities research analysts for InfoSpace
and Go2Net. Excluding the effect of any potential synergies resulting from the
merger, Morgan Stanley observed the following:
<TABLE>
<CAPTION>
Accretion/(Dilution)
-----------------------------------------
Period of Time Revenue Per Share Cash Earnings Per Share
-------------- ----------------- -----------------------
<S> <C> <C>
Fourth Quarter 2000................ 38% Not Meaningful
Calendar Year 2000................. 48% Not Meaningful
First Quarter 2001................. 32% Not Meaningful
Second Quarter 2001................ 30% Not Meaningful
Third Quarter 2001................. 26% 98%
Fourth Quarter 2001................ 25% 72%
Calendar Year 2001................. 28% 186%
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors, and may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to
be Morgan Stanley's view of the actual value of InfoSpace or Go2Net. In
performing its analyses, Morgan Stanley made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of InfoSpace or Go2Net. Any
estimates contained in Morgan Stanley's analyses are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates.
The analyses performed were prepared solely as part of Morgan Stanley's
analysis of the fairness from a financial point of view to InfoSpace of the
exchange ratio pursuant to the merger agreement and were conducted in
connection with the delivery of Morgan Stanley's opinion. The analyses do not
purport to be appraisals or to reflect the prices at which InfoSpace or Go2Net
might actually be sold.
The exchange ratio pursuant to the merger agreement was determined through
arm's-length negotiations between InfoSpace and Go2Net and was approved by the
InfoSpace board of directors. Morgan Stanley provided advice to InfoSpace
during such negotiations; however, Morgan Stanley did not recommend any
specific form or amount of consideration to InfoSpace or that any specific form
or amount of consideration constituted the only appropriate form or amount of
consideration in connection with the merger.
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<PAGE>
In addition, Morgan Stanley's opinion and presentation to the InfoSpace board
of directors was one of many factors taken into consideration by InfoSpace's
board of directors in making its decision to approve the merger. Consequently,
the Morgan Stanley analyses as described above should not be viewed as
determinative of the opinion of the InfoSpace board of directors with respect
to the merger or of whether the InfoSpace board of directors would have been
willing to agree to a transaction with a different form or amount of
consideration.
The InfoSpace board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan
Stanley, as part of its investment banking business, is continuously engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate, estate and other purposes. In the ordinary course of
Morgan Stanley's trading and brokerage activities, Morgan Stanley or its
affiliates may at any time hold long or short positions, may trade or otherwise
effect transactions, for its own account or for the account of customers in the
securities of InfoSpace, Go2Net or any of the other parties to the transaction.
Under the engagement letter, Morgan Stanley provided financial advisory
services and the financial fairness opinion in connection with the merger, and
InfoSpace agreed to pay Morgan Stanley a customary fee. In addition, InfoSpace
has agreed to reimburse Morgan Stanley for any out-of-pocket expenses incurred
by Morgan Stanley in connection with its engagement and to indemnify Morgan
Stanley and its affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling Morgan Stanley or any of its
affiliates against certain liabilities and expenses, including certain
liabilities under the federal securities laws, related to or arising out of
Morgan Stanley's engagement.
Opinion of Go2Net's financial advisor
Go2Net retained Merrill Lynch, Pierce, Fenner & Smith Incorporated to act as
its financial advisor with respect to the merger. In connection with that
engagement, Go2Net requested that Merrill Lynch evaluate the fairness, from a
financial point of view, to the holders of shares of Go2Net common stock (other
than InfoSpace and its affiliates) of the exchange ratio in the merger. At the
meeting of the board of directors of Go2Net on July 26, 2000, Merrill Lynch
rendered its oral opinion to the board of directors of Go2Net, subsequently
confirmed in writing, that as of July 26, 2000, based upon the assumptions
made, matters considered and limits of such review, as set forth in its
opinion, the exchange ratio in the merger was fair to the holders of shares of
Go2Net common stock (other than InfoSpace and its affiliates), from a financial
point of view.
The full text of Merrill Lynch's opinion, which sets forth material
information relating to Merrill Lynch's opinion that the exchange ratio was
fair, from a financial point of view, to holders of Go2Net common stock (other
than InfoSpace and its affiliates), including the assumptions made, matters
considered and qualifications and limitations on the scope of review undertaken
by Merrill Lynch, is attached as Annex C and is incorporated in this joint
proxy statement/prospectus by reference. This description of Merrill Lynch's
opinion should be reviewed together with the full text of the opinion, and
stockholders of Go2Net are urged to read the opinion and consider it carefully.
Merrill Lynch's opinion is addressed to Go2Net's board of directors and
addresses only the fairness, from a financial point of view, of the exchange
ratio in the merger to the holders of Go2Net common stock (other than InfoSpace
and its affiliates). The terms of the merger, including the exchange ratio,
were determined through negotiations between Go2Net and InfoSpace and were not
determined or recommended by Merrill Lynch. Merrill Lynch's opinion does not
address the merits of the underlying decision of Go2Net to engage in the merger
and does not constitute, nor should it be construed as, a recommendation to any
stockholder of Go2Net or InfoSpace as to how to vote on the merger or any
matter related to the merger.
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<PAGE>
In arriving at its opinion, Merrill Lynch, among other things:
(1) Reviewed certain publicly available business and financial information
relating to Go2Net and InfoSpace that Merrill Lynch deemed to be
relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and liabilities and
prospects of Go2Net and InfoSpace, furnished to it or discussed with it
by Go2Net and InfoSpace;
(3) Conducted discussions with members of senior management of Go2Net and
InfoSpace concerning their respective businesses and prospects, and
potential financial benefits of the merger;
(4) Reviewed the historical market prices and trading activity for Go2Net
common stock and InfoSpace common stock and compared them with that of
certain publicly traded companies which Merrill Lynch deemed to be
reasonably similar to Go2Net and InfoSpace, respectively;
(5) Compared the results of operations of Go2Net and InfoSpace with those
of certain companies which Merrill Lynch deemed to be reasonably
similar to Go2Net and InfoSpace, respectively;
(6) Compared the proposed financial terms of the transactions contemplated
by the merger agreement with the financial terms of certain other
mergers and acquisitions which Merrill Lynch deemed to be relevant;
(7) Reviewed the merger agreement; and
(8) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as
Merrill Lynch deemed necessary, including its assessment of general
economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to it,
discussed with or reviewed by or for it, or publicly available, and Merrill
Lynch did not assume any responsibility for independently verifying such
information or undertaking an independent evaluation or appraisal of any of the
assets or liabilities of InfoSpace or Go2Net, nor was Merrill Lynch furnished
with any such evaluation or appraisal. In addition, Merrill Lynch did not
assume any obligation to conduct, nor did Merrill Lynch conduct any physical
inspection of the properties or facilities of InfoSpace or Go2Net. Neither
Go2Net nor InfoSpace made available to Merrill Lynch any internal management
forecasts of future financial performance. For purposes of its analysis,
Merrill Lynch used the publicly available estimates of certain research
analysts and Merrill Lynch assumed, with consent of the respective managements
of Go2Net and InfoSpace, that such estimates had been reasonably prepared and
reflected the best then available estimates of Go2Net's and InfoSpace's future
financial performance. Merrill Lynch further assumed that the merger would
qualify as a tax-free reorganization for United States federal income tax
purposes. Merrill Lynch also assumed that the final form of the merger
agreement would be substantially similar to the drafts made available to and
reviewed by Merrill Lynch.
Merrill Lynch's opinion was necessarily based upon market, economic and other
conditions as they existed and could be evaluated on the date of the Merrill
Lynch opinion, and on the information made available to Merrill Lynch as of the
date of the opinion. According to the terms of its engagement by Go2Net,
Merrill Lynch has no obligation to update its opinion to take into account
events occurring after the date that its opinion was delivered to Go2Net's
board of directors. As a result, circumstances could develop prior to
consummation of the merger that, if known at the time Merrill Lynch rendered
its opinion, would have altered such opinion. Merrill Lynch expresses no
opinion as to the prices at which shares of Go2Net common stock or InfoSpace
common stock will trade following the announcement or consummation of the
merger.
The matters considered by Merrill Lynch in arriving at its opinion are based
on numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions, many of which
are beyond the control of InfoSpace and Go2Net, and involve the
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application of complex methodologies and educated judgment. Any estimates
incorporated in the analyses performed by Merrill Lynch are not necessarily
indicative of actual past or future results or values, which may be
significantly more or less favorable than these estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future.
At the meeting of Go2Net's board of directors held on July 26, 2000, Merrill
Lynch presented certain financial analyses accompanied by written materials in
connection with the delivery of its oral opinion at that meeting and its
subsequent written opinion. The following is a summary of certain material
financial analyses performed by Merrill Lynch in arriving at its opinion.
Premiums Analysis
Premium to Historical Stock Price and Exchange Ratio. Merrill Lynch reviewed,
over various periods, both the average closing stock price of Go2Net as well as
the average historical exchange ratio of the Go2Net common share price to that
of the Infospace common share price. Merrill Lynch then reviewed the premiums
represented by the implied transaction offer price ($84.29) to the average
closing stock prices of Go2Net and the premiums represented by the transaction
exchange ratio (1.820x) to the average historical exchange ratios over such
periods:
<TABLE>
<CAPTION>
Premium
Period Premium Period Represented
Average Represented Average by
Period Ended One Day Go2Net by the Go2Net Transaction
Prior to the Transaction Stock Implied Exchange Exchange
Announcement Date Price Offer Price Ratio Ratio
------------------------ ------- ----------- -------- -----------
<S> <C> <C> <C> <C>
1 Day............................. $62.13 35.7% 1.341x 35.7%
10 Day Average.................... 53.93 56.3% 1.120 62.4%
1 Month Average................... 50.57 66.7% 0.992 83.5%
3 Month Average................... 48.27 74.6% 0.898 102.6%
6 Month Average................... 63.94 31.8% 0.931 95.6%
</TABLE>
Merrill Lynch observed that the implied offer price and the transaction
exchange ratio represented a premium range of 31.8% to 74.6% and 35.7% to
102.6% to the average closing price of Go2Net common stock and the historical
exchange ratio, respectively for the one day, ten day, one, three and six month
periods.
Go2Net
Trading Analysis. Merrill Lynch reviewed the recent trading performance of
shares of Go2Net common stock. The per share closing price trading data for the
six, three and one month periods prior to and including the day prior to
announcement on July 26, 2000 are summarized in the table below:
<TABLE>
<CAPTION>
Period Low ($) High ($)
------ ------- --------
<S> <C> <C>
6 Months.................................................... 36.00 97.00
3 Months.................................................... 36.00 62.13
1 Month..................................................... 43.75 62.13
</TABLE>
Merrill Lynch observed that the implied offer price for Go2Net was in the
range of the six month trading range and above the three and one month trading
performance of the Go2Net stock.
Selected Public Trading Multiples. Using publicly available Wall Street
equity analyst forecasts and other information, Merrill Lynch compared selected
financial data of Go2Net with similar data for selected publicly traded
companies engaged in businesses that Merrill Lynch judged to be reasonably
comparable to Go2Net. These companies were:
OpenTV, Corp.
Yahoo!, Inc.
Liberate Technologies, Inc.
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Lycos, Inc.
LookSmart, Ltd.
America Online, Inc.
GoTo.com, Inc.
Excite@Home Corporation
AskJeeves, Inc.
Merrill Lynch selected these companies because they engage in businesses
reasonably comparable to those of Go2Net. Merrill Lynch used publicly available
financial projections by equity analysts covering each comparable company to
determine the ratio of market capitalization to projected revenues for calendar
years 2000 and 2001 for each of these companies. The following table presents a
comparison of the mean and median revenue multiples of the comparable
companies.
<TABLE>
<CAPTION>
Mean Median
----- ------
<S> <C> <C>
2000 Revenue Multiple.......................................... 34.8x 18.3x
2001 Revenue Multiple.......................................... 22.5x 13.3x
</TABLE>
Merrill Lynch observed that the implied multiples of 2000 and 2001 forecasted
revenue of Go2Net being paid by InfoSpace exceeded the mean and median of the
comparable company revenue multiples for each of 2000 and 2001.
It should be noted that no company utilized in the analysis above is
identical to Go2Net. In evaluating companies identified by Merrill Lynch as
comparable to Go2Net, Merrill Lynch made judgments and assumptions with regard
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Go2Net,
such as the impact of competition on the business of Go2Net and the industry
generally, industry growth and the absence of any material change in the
financial condition and prospects of Go2Net or the industry or in the financial
markets in general. A complete analysis involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
values of such comparable companies to which they are being compared;
mathematical analysis (such as determining the mean or the median) is not in
itself a meaningful method of using selected company data.
Equity Analyst Research Review. Using publicly available Wall Street equity
research analyst forecasts and other information, Merrill Lynch reviewed the
twelve-month stock price target estimates of certain Wall Street equity
research analysts. Utilizing a discount rate of 22.5% Merrill Lynch calculated
the implied current value of the Go2Net stock price based on such estimates.
<TABLE>
<CAPTION>
Low ($) High ($)
------- --------
<S> <C> <C>
Implied Current Wall Street Equity Research Value for
Go2Net per Share........................................ 61.25 106.25
</TABLE>
Merrill Lynch observed that the implied offer price for Go2Net was in the
range of the implied current Wall Street equity research value for Go2Net per
share.
Comparable Transaction Analysis. Using publicly available Wall Street equity
research analyst forecasts and other information, Merrill Lynch examined the
following transactions that Merrill Lynch deemed to be relevant to determine
the ratio of transaction value to projected next calendar year revenues where
"transaction value" is generally defined as the sum of the per share offer
price for the target company multiplied by the number of company shares
outstanding and the number of target company options outstanding, net of option
proceeds, plus the preferred equity at liquidation, if any, the short-term
debt, the long-term debt and any minority interests, less cash, marketable
securities and exercisable option proceeds. Merrill Lynch also calculated the
premiums paid to the one month average stock price of the companies acquired in
such transactions:
SoftAware Networks/Digital Island, Inc.
Lycos, Inc./Terra Networks, S.A.
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Octane Software, Inc./E.piphany, Inc.
Silknet Software, Inc./Kana Communications, Inc.
InterVU, Inc./Akamai Technologies, Inc.
Andover.Net, Inc./VA Linux Systems, Inc.
Direct Hit Technologies, Inc./Ask Jeeves, Inc.
mySimon, Inc./CNET Networks, Inc.
Yesmail.com, Inc./CMGI, Inc.
Gamesville.com/Lycos, Inc.
Bluemountain.com/Excite@Home Corporation
Interactive Pictures Corporation/Bamboo.com, Inc.
Flycast Communications Corporation/CMGI, Inc.
AdForce, Inc./CMGI, Inc.
MSN Sidewalk/Ticketmaster Online, Inc.
iMall, Inc./Excite@Home Corporation
Infoseek Corporation/The Walt Disney Company
NetGravity/DoubleClick, Inc.
AltaVista Company/Shopping.com/Zip2/CMGI, Inc.
AboveNet Communications, Inc./Metromedia Fiber Network, Inc.
Abacus Direct Corporation/DoubleClick, Inc.
Telebanc Financial Corporation/E*TRADE Group, Inc.
Broadcast.com, Inc./Yahoo!, Inc.
MovieFone, Inc./America Online, Inc.
GeoCities/Yahoo!, Inc.
Excite, Inc./@Home Corporation
Shopping.com/Compaq Computer Corporation/AltaVista Company
All multiples and premiums paid for the selected transactions were based on
public information available at the time of public announcement, and Merrill
Lynch's analysis did not take into account different market and other
conditions during the period in which the selected transactions occurred. The
comparable transaction analysis yielded the following mean and median multiples
of projected next calendar year revenues and premiums paid to the one month
average closing stock price of the acquired company:
<TABLE>
<CAPTION>
Mean Median
---- ------
<S> <C> <C>
Transaction Value/Next CY Revenue............................... 23.6x 18.6x
Premium Paid to 1 Month Average Closing Stock Price............. 57.0% 54.3%
</TABLE>
Merrill Lynch observed that the implied transaction value to next calendar
year's revenue multiple for Go2Net as well as the implied offer price premium
over the one month average closing price of Go2Net's share price exceeded the
mean and median of the comparable transaction revenue multiples for next
calendar year and the premiums paid of the comparable transactions.
It should be noted that no transaction utilized in the analysis above is
identical to the Go2Net-InfoSpace merger. A complete analysis involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies involved in these transactions and other
factors that could affect the transaction multiples or premiums paid in such
comparable transactions to which the merger is being compared; mathematical
analysis (such as determining the mean or the median) is not in itself a
meaningful method of using selected transaction data.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash flow
analysis of Go2Net, without giving effect to the merger, for the years 2001
through 2005. Merrill Lynch calculated a range of equity values per share for
Go2Net based upon the sum of the discounted net present value of Go2Net's five-
year stream of projected unlevered free cash flows plus the discounted net
present value of the terminal value based on a range of multiples of its
projected 2006 revenue.
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Using discount rates ranging from 20% to 25% and terminal value multiples of
estimated 2006 revenue ranging from 10.0x to 15.0x, Merrill Lynch calculated
the following range of implied equity values per share for Go2Net common stock:
<TABLE>
<CAPTION>
Low ($) High ($)
------- --------
<S> <C> <C>
Implied Equity Value Per Share of Go2Net Common Stock..... 56.25 89.50
</TABLE>
Merrill Lynch observed that the implied offer price for Go2Net was near the
high end of the range of the implied equity value per share of Go2Net common
stock as determined by the discounted cash flow analysis.
InfoSpace
Trading Analysis. Merrill Lynch reviewed the recent common stock trading
performance of shares of InfoSpace. The per share closing price trading data
for the six, three and one month periods prior to and including the day prior
to announcement on July 26, 2000 are summarized in the table below:
<TABLE>
<CAPTION>
Period Low ($) High ($)
------ ------- --------
<S> <C> <C>
6 Months.................................................... 41.50 103.53
3 Months.................................................... 41.50 72.00
1 Month..................................................... 43.38 59.25
</TABLE>
Merrill Lynch observed that the InfoSpace share price one day prior to the
transaction announcement date, was in the low end of the range of the six
month, three and one month trading performance of the InfoSpace stock.
Selected Public Trading Multiples. Using publicly available Wall Street
equity analyst forecasts and other information, Merrill Lynch compared selected
financial data of InfoSpace with similar data for selected publicly traded
companies engaged in businesses that Merrill Lynch judged to be reasonably
comparable to InfoSpace. These companies were:
Aether Systems, Inc.
Akamai Technologies, Inc.
VeriSign, Inc.
Software.com, Inc.
Phone.com, Inc.
Inktomi Corporation
Portal Software, Inc.
Merrill Lynch selected these companies because they engage in businesses
reasonably comparable to those of InfoSpace. Merrill Lynch used publicly
available financial projections by equity analysts covering each comparable
company to determine the ratio of market capitalization to projected calendar
year revenues for 2000 and 2001 for each of these companies. The following
table presents a comparison of the median revenue multiples of the comparable
companies.
<TABLE>
<CAPTION>
Mean Median
----- ------
<S> <C> <C>
2000 Revenue Multiple.......................................... 87.3x 65.2x
2001 Revenue Multiple.......................................... 43.7x 43.8x
</TABLE>
Merrill Lynch observed that the trading multiple of InfoSpace exceeded the
median and mean of the comparable company revenue multiples for each of 2000
and 2001.
It should be noted that no company utilized in the analysis above is
identical to InfoSpace. In evaluating companies identified by Merrill Lynch as
comparable to InfoSpace, Merrill Lynch made judgments and
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assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of InfoSpace, such as the impact of competition on the business of
InfoSpace and the industry generally, industry growth and the absence of any
material change in the financial condition and prospects of InfoSpace or the
industry or in the financial markets in general. A complete analysis involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies and other factors that
could affect the public trading values of such comparable companies to which
they are being compared; mathematical analysis (such as determining the mean or
the median) is not in itself a meaningful method of using selected company
data.
Equity Analyst Research Review. Using publicly available Wall Street equity
analyst forecasts and other information, Merrill Lynch reviewed the twelve-
month stock price target estimates of certain Wall Street equity research
analysts. Utilizing a discount rate of 22.5% Merrill Lynch calculated the
implied current value of the InfoSpace stock price based on such estimates.
<TABLE>
<CAPTION>
Low ($) High ($)
------- --------
<S> <C> <C>
Implied Current Wall Street Equity Research Value for
InfoSpace Per Share..................................... 81.75 126.50
</TABLE>
Merrill Lynch observed that the InfoSpace share price, the day prior to the
transaction announcement, was below the range of the implied current value
share price as observed by Wall Street equity research analysts.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash flow
analysis of InfoSpace, without giving effect to the merger, for the years 2001
through 2005. Merrill Lynch calculated a range of equity values per share for
InfoSpace based upon the sum of the discounted net present value of InfoSpace's
five-year stream of projected unlevered free cash flows plus the discounted net
present value of the terminal value based on a range of multiples of its
projected 2006 revenue.
Using discount rates ranging from 20% to 25% and terminal value multiples of
estimated 2006 revenue ranging from 30.0x to 50.0x, Merrill Lynch calculated
the following range of implied equity values per share for InfoSpace common
stock:
<TABLE>
<CAPTION>
Low ($) High ($)
------- --------
<S> <C> <C>
Implied Equity Value Per Share of InfoSpace Common Stock.. 44.50 88.50
</TABLE>
Merrill Lynch observed that the InfoSpace share price, the day prior to the
transaction announcement, was within the low end of the range of the implied
equity value per share of InfoSpace common stock as determined by the
discounted cash flow analysis.
Relative Valuation Analysis
Relative Historical Exchange Ratio Analysis. Merrill Lynch reviewed the
historical stock prices of Go2Net and InfoSpace common stock and the implied
market exchange ratios determined by dividing the closing price per share of
Go2Net common stock by the price per share of InfoSpace common stock. The
implied exchange ratios for the six, three and one month period up to and
including the day prior to the announcement on July 26, 2000 are summarized in
the table below:
<TABLE>
<CAPTION>
Period Low High
------ ------ ------
<S> <C> <C>
6 Months....................................................... 0.621x 1.341x
3 Months....................................................... 0.720x 1.341x
1 Month........................................................ 0.785x 1.341x
</TABLE>
Merrill Lynch observed that the offer exchange ratio of 1.820 InfoSpace
shares per Go2Net share exceeded the historical implied range of market
exchange ratios determined by dividing the price per share
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of Go2Net common stock by the price per share of InfoSpace common stock for the
six, three and one month periods.
Relative Equity Analyst Research Review. Merrill Lynch calculated the
exchange ratio implied by dividing the Implied Wall Street Equity research
current value per share of Go2Net by the implied Wall Street equity research
current value of InfoSpace per share (as calculated above). The implied low and
high exchange ratios are summarized as follows:
<TABLE>
<CAPTION>
Low High
------ ------
<S> <C> <C>
Implied Exchange Ratio....................................... 0.484x 1.300x
</TABLE>
Merrill Lynch observed that the offer exchange ratio exceeded the range of
implied exchange ratios determined by dividing the Implied Wall Street equity
research current value of Go2Net per share by the implied Wall Street equity
research current value of InfoSpace per share.
Relative Contribution to Operating Results. Merrill Lynch analyzed the
relative contributions of revenue and earnings before interest, taxes,
depreciation and amortization, commonly known as EBITDA, for the forecasted
years 2001 and 2005 of Go2Net and InfoSpace to the combined entity. These
analyses were performed without taking into account any potential synergies
resulting from the merger. Using the forecasted revenue and EBITDA projections
and the treasury stock method of calculating shares outstanding for each
company Merrill Lynch observed the following range of implied exchange ratios:
<TABLE>
<CAPTION>
Low High(1)
------ -------
<S> <C> <C>
Implied Exchange Ratio -- Contribution of 2001 and 2005
Revenue and EBITDA........................................ 1.943x 4.327x
</TABLE>
Merrill Lynch observed that the offer exchange ratio was below the range of
implied exchange ratios as calculated by the contribution of operating results
to the combined entity.
Relative Growth Contribution to Operating Results. Merrill Lynch calculated
the relative contributions of the growth in revenue and EBITDA for the
forecasted period from 2001 to 2005 of Go2Net and InfoSpace to the combined
entity. Using the forecasted revenue and EBITDA projections for each company
Merrill Lynch observed the following range of implied exchange ratios:
<TABLE>
<CAPTION>
Low High
------ ------
<S> <C> <C>
Implied Exchange Ratio -- Revenue and EBITDA Growth
Contribution from 2001 to 2005............................. 1.503x 3.005x
</TABLE>
Merrill Lynch observed that the offer exchange ratio was in the range of the
implied exchange ratio as calculated by the growth contribution of operating
results to the combined entity.
Comparable Transaction Exchange Premiums Analysis. Using publicly available
information, Merrill Lynch examined the following comparable transactions to
determine the premiums paid to the one-month average exchange ratio of the
companies acquired in such transactions:
SoftAware Networks/Digital Island, Inc.
Lycos, Inc./Terra Networks, S.A.
Octane Software, Inc./E.piphany, Inc.
Silknet Software, Inc./Kana Communications, Inc.
InterVU, Inc./Akamai Technologies, Inc.
Andover.Net, Inc./VA Linux Systems, Inc.
Direct Hit Technologies, Inc./Ask Jeeves, Inc.
mySimon, Inc./CNET Networks, Inc.
--------
(1) Excludes 2001 estimated EBITDA contribution.
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Yesmail.com,Inc./CMGI, Inc.
Gamesville.com/Lycos, Inc.
Bluemountain.com/Excite@Home Corporation
Interactive Pictures Corporation/Bamboo.com, Inc.
Flycast Communications Corporation/CMGI, Inc.
AdForce, Inc./CMGI, Inc.
MSN Sidewalk/Ticketmaster Online, Inc.
iMall, Inc./Excite@Home Corporation
Infoseek Corporation/The Walt Disney Company
NetGravity/DoubleClick, Inc.
AltaVista Company/Shopping.com/Zip2/CMGI, Inc.
AboveNet Communications, Inc./Metromedia Fiber Network, Inc.
Abacus Direct Corporation/DoubleClick, Inc.
Telebanc Financial Corporation/E*TRADE Group, Inc.
Broadcast.com,Inc./Yahoo!, Inc.
MovieFone, Inc./America Online, Inc.
GeoCities/Yahoo!, Inc.
Excite, Inc./@Home Corporation
Shopping.com/Compaq Computer Corporation/AltaVista Company
The comparable transaction analysis yielded the following mean and median
percentage premiums paid:
<TABLE>
<CAPTION>
Mean Median
---- ------
<S> <C> <C>
Percentage Premiums Paid to One Month
Average Exchange Ratio......................................... 47.7% 37.3%
</TABLE>
Merrill Lynch observed that percentage premium to the one-month average
exchange ratio of Go2Net share price divided by InfoSpace share price was in
excess of both the mean and median premiums paid in comparable transactions. A
complete analysis involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies
involved in comparable transactions and other factors that could affect the
exchange ratio premiums in such comparable transactions to which the merger is
being compared; mathematical analysis (such as determining the mean or the
median) is not in itself a meaningful method of using selected company data.
Relative Discounted Cash Flow Analysis. Merrill Lynch, utilizing the
standalone discounted cash flow analyses (as described in this section)
calculated the implied exchange ratio, by the division of the discounted cash
flow equity value per share of Go2Net by the discounted equity value per share
of InfoSpace. Based upon this analysis, Merrill Lynch calculated the following
implied exchange ratio range:
<TABLE>
<CAPTION>
Low High
------ ------
<S> <C> <C>
Implied Discounted Cash Flow
Analysis Exchange Ratio....................................... 0.636x 2.009x
</TABLE>
Merrill Lynch observed that the offer exchange ratio was in the range of the
implied discounted cash flow exchange ratio.
Other items
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at its opinion. The
preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore; such an opinion is not readily susceptible to partial analysis
or summary description, and taking portions of the analyses set out above,
without considering the analysis as a whole, would, in the view of Merrill
Lynch, create an
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incomplete and misleading picture of the processes underlying the analyses
considered in rendering Merrill Lynch's opinion. In arriving at its opinion,
Merrill Lynch did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Merrill Lynch believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
factors and analyses, could create a misleading view of the analyses underlying
Merrill Lynch's opinion.
Go2Net retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking
firm with substantial experience in transactions similar to the merger. Merrill
Lynch, as part of its investment banking business, is continually engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions and for other purposes and has substantial experience in
transactions similar to the merger.
Under the terms of the engagement letter between Merrill Lynch and Go2Net,
Merrill Lynch provided financial advisory services and the financial fairness
opinion in connection with the merger, and Go2Net agreed to pay Merrill Lynch a
customary fee. In addition, Go2Net has agreed to indemnify Merrill Lynch and
its affiliates, their respective directors, officers, agents and employees and
each person, if any, controlling, Merrill Lynch or any of its affiliates
against certain liabilities and expenses, including certain liabilities under
the federal securities laws, related to or arising out of Merrill Lynch's
engagement.
In the ordinary course of its business, Merrill Lynch may actively trade in
the securities of Go2Net and InfoSpace, for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
Interests of certain persons in the merger
When considering the recommendations of Go2Net's board of directors, you
should be aware that the directors and officers of Go2Net have interests in the
merger and have arrangements that are different from, or are in addition to,
those of Go2Net stockholders generally. These include:
. Directors. Three new directors, including Russell Horowitz, William Savoy
and a third director designated by Messrs. Horowitz and Savoy and
acceptable to InfoSpace, will be appointed to the InfoSpace board of
directors.
. Employment. Some executive officers of Go2Net have employment agreements
under which they will be entitled to salary continuation and accelerated
vesting of their outstanding options, including the Go2Net options
assumed by InfoSpace in the merger, in the event that they are not
offered employment by InfoSpace in a comparable position and at a
comparable salary, or their employment is terminated by InfoSpace without
cause during the term of their employment agreement. In addition, some
executive officers of Go2Net will become executive officers of InfoSpace.
. Indemnification. Go2Net directors and executive officers have customary
rights to indemnification against losses incurred as a result of actions
or omissions occurring prior to the effective time of the merger. In
addition, the merger agreement provides that for a period of six years
after the effective time, InfoSpace will maintain directors' and
officers' liability insurance covering persons who are covered by
Go2Net's directors' and officers' insurance policy.
As a result, these directors, executive officers and stockholders could be
more likely to vote in favor of recommending the merger agreement and the
merger than if they did not have these interests.
Completion and effectiveness of the merger
The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, including adoption of the merger agreement and
approval of the merger by the stockholders of
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Go2Net and approval of the issuance of InfoSpace common stock in the merger by
the stockholders of InfoSpace. The merger will become effective upon the filing
of the certificate of merger with the Secretary of State of the State of
Delaware.
Structure of the merger and conversion of Go2Net common stock
Pursuant to the merger agreement, Giants Acquisition Corp., a wholly-owned
Delaware subsidiary of InfoSpace, will merge with and into Go2Net. Immediately
following this merger, Go2Net will be a wholly-owned subsidiary of InfoSpace.
Upon completion of the merger, each outstanding share of Go2Net common stock
will be converted into the right to receive 1.82 shares of InfoSpace common
stock. No fractional shares of InfoSpace common stock will be issued pursuant
to the merger. In lieu of the issuance of any fractional shares of InfoSpace
common stock, InfoSpace will pay a cash amount equal to the product of such
fractional share amount, after aggregating all fractional shares to which a
former holder of Go2Net common stock would be entitled, and the average closing
price of InfoSpace common stock as reported on Nasdaq for the five trading days
immediately preceding the effective time of the merger.
Exchange of Go2Net stock certificates for InfoSpace stock certificates
When the merger is completed, InfoSpace's exchange agent will mail to Go2Net
stockholders a letter of transmittal and instructions for use in surrendering
Go2Net stock certificates in exchange for InfoSpace stock certificates. When
former Go2Net stockholders deliver their Go2Net stock certificates to the
exchange agent along with an executed letter of transmittal and any other
required documents, the Go2Net stock certificates will be canceled, and former
Go2Net stockholders will receive InfoSpace stock certificates representing the
number of full shares of InfoSpace common stock to which they are entitled
under the merger agreement. They will receive payment in cash, without
interest, in lieu of any fractional shares of InfoSpace common stock which
would have been otherwise issuable to them in the merger.
Go2Net stockholders should not submit their Go2Net stock certificates for
exchange until they receive the transmittal instructions and a form of letter
of transmittal from the exchange agent.
No dividends
Go2Net stockholders are not entitled to receive any dividends or other
distributions on InfoSpace common stock until the merger is completed and they
have surrendered their Go2Net stock certificates in exchange for InfoSpace
stock certificates.
Subject to the effect of applicable laws, promptly following surrender of
Go2Net stock certificates and the issuance of the corresponding InfoSpace
certificates, Go2Net stockholders will be paid the amount of dividends or other
distributions, without interest, with a record date after the completion of the
merger which were previously paid with respect to their whole shares of
InfoSpace common stock.
InfoSpace will only issue Go2Net stockholders an InfoSpace stock certificate
or a check in lieu of a fractional share in the name in which the surrendered
Go2Net stock certificate is registered. If Go2Net stockholders wish to have
their certificates issued in another name they must present the exchange agent
with all documents required to show and effect the unrecorded transfer of
ownership and show that they paid any applicable stock transfer taxes.
Material United States federal income tax considerations
The following is a summary description of the material current United States
federal income tax consequences of the merger generally applicable to holders
of Go2Net common stock who, pursuant to the merger,
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exchange their Go2Net common stock for InfoSpace common stock, assuming that
the merger is effected pursuant to applicable state law and as described in the
merger agreement and in this joint proxy statement/prospectus. This summary is
not a comprehensive description of all of the tax consequences that may be
relevant to Go2Net stockholders. For example, this discussion does not describe
tax consequences that arise from rules that apply to some classes of taxpayers.
This discussion also does not describe tax consequences that are generally
assumed to be known by investors.
The following discussion is based on and subject to the Internal Revenue
Code, as amended, the regulations promulgated under the Internal Revenue Code,
and existing administrative rulings and court decisions, all as in effect on
the date of this joint proxy statement/prospectus and all of which are subject
to change, possibly with retroactive effect. This discussion also is based upon
assumptions, limitations, representations and covenants, including those
contained in certificates of InfoSpace, Giants Acquisition Corp., and Go2Net,
and may not be relied upon if any of such assumptions, limitations,
representations or covenants are, or later become, inaccurate.
In addition, this discussion assumes that Go2Net stockholders hold their
shares of common stock as a capital asset and does not address all the United
States federal income tax consequences that may be relevant to Go2Net
stockholders in light of their particular circumstances or if Go2Net
stockholders are persons subject to special rules, such as rules applicable to:
. banks and other financial institutions;
. tax-exempt organizations and pension funds;
. insurance companies;
. dealers or traders in securities;
. Go2Net stockholders who received their Go2Net common stock through the
exercise of employee stock options or similar derivative securities or
otherwise as compensation;
. Go2Net stockholders who are subject to the alternative minimum tax
provisions of the Internal Revenue Code;
. Go2Net stockholders whose functional currency is not the United States
dollar;
. Go2Net stockholders who are not citizens or residents of the United
States; and
. Go2Net stockholders who held Go2Net common stock as part of a hedge,
appreciated financial position, straddle or conversion transaction.
This discussion does not address any consequences arising under the laws of
any state, locality or foreign jurisdiction. This discussion also does not
address the tax consequences of an exchange or conversion of options or
warrants for Go2Net common stock into options or warrants for InfoSpace common
stock.
Completion of the merger is conditioned on the receipt by InfoSpace of an
opinion from Wilson Sonsini Goodrich & Rosati, Professional Corporation,
InfoSpace's tax counsel, and the receipt by Go2Net of an opinion from Hutchins,
Wheeler & Dittmar, A Professional Corporation, Go2Net's tax counsel, stating
that the merger will be a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code. These opinions will be based upon the existing
law and the continuing truth and accuracy of the representations of Go2Net and
InfoSpace described above, and will be subject to certain assumptions and
qualifications, including the assumption that the merger will be effected
pursuant to applicable state law and otherwise completed according to the terms
of the merger agreement. The tax opinions are not binding on the Internal
Revenue Service or the courts, and there can be no assurance that the Internal
Revenue Service or the courts will not take a contrary view. No ruling from the
Internal Revenue Service has been or will be sought. Future legislative,
judicial or administrative changes or interpretations could alter or modify the
statements and conclusions set forth herein, and any such changes or
interpretations could be retroactive and could affect the tax consequences of
the merger to InfoSpace, Go2Net, or the stockholders of Go2Net.
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Counsel to InfoSpace and Go2Net have stated in writing to InfoSpace and
Go2Net, respectively, their respective views that the discussion in the five
bullet points below fairly presents the material current United States federal
income tax consequences generally applicable to the merger, based upon the
opinions of counsel described above and the foregoing assumptions:
. no gain or loss will be recognized by InfoSpace or Go2Net as a result of
the merger;
. no gain or loss will be recognized by Go2Net stockholders upon the
receipt of InfoSpace common stock solely in exchange for Go2Net common
stock in the merger, except to the extent of cash received in lieu of a
fractional share of InfoSpace;
. cash payments received by Go2Net stockholders in lieu of a fractional
share of InfoSpace common stock will result in capital gain (or loss)
measured by the difference between the cash payment received and the
portion of the aggregate adjusted tax basis in the shares of Go2Net
common stock surrendered that is allocable to such fractional share. Such
gain (or loss) will be long-term capital gain (or loss) if the holding
period of the Go2Net common stock deemed to have been exchanged for the
fractional share of InfoSpace common stock is more than one year at the
effective time of the merger;
. the aggregate tax basis of the InfoSpace common stock received by Go2Net
stockholders in the merger will be the same as the aggregate adjusted tax
basis of the Go2Net common stock surrendered in exchange, reduced by any
tax basis allocable to a fractional share for which cash is received; and
. the holding period of InfoSpace common stock received by each Go2Net
stockholder in the merger will include the holding period of the Go2Net
common stock surrendered in exchange.
A successful Internal Revenue Service challenge to the "reorganization"
status of the merger would result in a Go2Net stockholder recognizing gain or
loss with respect to each share of Go2Net common stock surrendered in the
merger, equal to the difference between the Go2Net stockholder's adjusted tax
basis in such share and the fair market value, as of the effective time of the
merger, of the InfoSpace common stock received in exchange. In such event, a
Go2Net stockholder's aggregate tax basis in the InfoSpace common stock received
would equal its fair market value as of the effective time of the merger, and
the Go2Net stockholder's holding period for such stock would begin the day
after the merger.
Tax matters are very complicated, and the tax consequences of the merger to
Go2Net stockholders will depend on their particular situation. Go2Net
stockholders are encouraged to consult their own tax advisor regarding the
specific tax consequences of the merger, including tax return reporting
requirements, the applicability of federal, state, local and foreign tax laws
and the effect of any proposed change in the tax laws. This discussion is not
intended to be a complete analysis or description of all potential tax
consequences of the merger.
Accounting treatment for the merger
InfoSpace intends to account for the merger as a "pooling-of-interests" for
financial reporting and accounting purposes, under United States generally
accepted accounting principles. This accounting method means that after the
merger Infospace will report financial results as if Go2Net had always been
combined with InfoSpace.
Regulatory filings and approvals required to complete the merger
This merger is subject to review by the Department of Justice and the Federal
Trade Commission to determine whether it is in compliance with applicable
antitrust laws. Under the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, the merger may not be consummated until
the specified waiting period requirements of that Act have been satisfied.
InfoSpace and Go2Net filed
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notification reports, together with requests for early termination of the
waiting period, with the Department of Justice and the Federal Trade Commission
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, on
August 8, 2000. Two Go2Net affiliates also filed notification reports with the
Federal Trade Commission. On August 23, 2000, early termination of the waiting
period was granted to InfoSpace and Go2Net and both of the Go2Net affiliates.
In addition, the completion of this merger is subject to the effectiveness of
the registration statement of which this joint proxy statement/prospectus is a
part and compliance with applicable corporate laws of the State of Delaware.
Certain securities laws considerations
The issuance of the shares of InfoSpace common stock to be issued in the
merger will be registered under the Securities Act of 1933, as amended. These
shares will be freely transferable under the Securities Act, except for
InfoSpace common stock issued to any person who is deemed to be an affiliate of
Go2Net. Persons who may be deemed to be affiliates include individuals or
entities that control, are controlled by, or are under common control with
Go2Net and may include some of Go2Net's officers and directors, as well as its
principal stockholders. Go2Net's affiliates may not sell their InfoSpace common
stock acquired in the merger except pursuant to (1) an effective registration
statement under the Securities Act covering the resale of those shares, (2) an
exemption under paragraph (d) of Rule 145 under the Securities Act or (3) any
other applicable exemption under the Securities Act.
No appraisal rights
Under Delaware corporate law, holders of InfoSpace common stock and holders
of Go2Net common stock are not entitled to appraisal rights in connection with
the merger because, on the record date, Go2Net common stock was designated and
quoted for trading on the Nasdaq National Market and will be converted into
shares of InfoSpace common stock which at the effective time of the merger will
be listed on the Nasdaq National Market.
Listing on the Nasdaq National Market of InfoSpace common stock to be issued in
the merger
InfoSpace has agreed to cause the shares of InfoSpace common stock to be
issued in the merger to be approved for listing on the Nasdaq National Market,
subject to official notice of issuance prior to the effective time of the
merger.
Delisting and deregistration of Go2Net common stock after the merger
If the merger is completed, Go2Net's common stock will be delisted from the
Nasdaq National Market and will be deregistered under the Securities Exchange
Act of 1934, as amended.
Conduct of business if merger is not completed
If the merger is not consummated, Go2Net will carry on its business in the
usual, regular and ordinary course consistent with past practice.
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THE MERGER AGREEMENT
This section of the joint proxy statement/prospectus describes the merger
agreement. While InfoSpace and Go2Net believe that the description covers the
material terms of the merger agreement, this summary may not contain all of the
information that is important to you. The merger agreement is attached to this
joint proxy statement/prospectus as Annex A, and InfoSpace and Go2Net urge you
to read it carefully.
General
Following the adoption of the merger agreement and approval of the merger by
Go2Net stockholders, the approval of the share issuance by the InfoSpace
stockholders and the satisfaction or waiver of the other conditions to the
merger, the transitory subsidiary, a wholly-owned subsidiary of InfoSpace, will
merge with and into Go2Net. Go2Net will survive the merger as a wholly-owned
subsidiary of InfoSpace. If all conditions to the merger are satisfied or
waived, the merger will become effective at the time of the filing by Go2Net of
a duly executed certificate of merger with the Secretary of State of the State
of Delaware.
The exchange ratio and treatment of Go2Net preferred stock and common stock
Immediately prior to the effective time of the merger, each issued and
outstanding share of Go2Net preferred stock will be converted into 30.2526
shares of Go2Net common stock. At the effective time of the merger, each issued
and outstanding share of Go2Net common stock will be converted into the right
to receive 1.82 shares of InfoSpace common stock. However, any shares owned by
Go2Net or any of its wholly-owned subsidiaries will be cancelled without
conversion. InfoSpace will adjust the exchange ratio to reflect any
reclassification, stock split, stock dividend, reorganization or other similar
change with respect to InfoSpace common stock or Go2Net common stock occurring
before the effective time of the merger.
Based on the exchange ratio of 1.82, and based on the number of shares of
Go2Net common stock, preferred stock and vested options to purchase Go2Net
common stock outstanding as of August 28, 2000, a total of approximately
80,346,246 shares of InfoSpace common stock and options to purchase InfoSpace
common stock will be issued or granted in the merger.
Treatment of restricted stock of Go2Net
Any shares of Go2Net capital stock outstanding at the effective time of the
merger which are subject to a repurchase option, risk of forfeiture or other
condition under any restricted stock purchase agreement or other arrangements
will be converted into unvested shares of InfoSpace common stock based on the
exchange ratio and will remain subject to the same terms, restrictions and
vesting schedules as were applicable prior to the effective time of the merger.
InfoSpace will assume any rights Go2Net held prior to the effective time of the
merger to repurchase these unvested shares.
Treatment of Go2Net stock options
At the effective time of the merger, InfoSpace will assume each outstanding
option, whether vested or unvested, to purchase shares of Go2Net common stock
and convert them into options to purchase InfoSpace common stock subject to the
same terms and conditions as were applicable prior to the effective time of the
merger, including, without limitation, any repurchase rights or vesting
provisions. The number of shares of InfoSpace common stock issuable upon the
exercise of these stock options will be adjusted based on the exchange ratio.
Any fractional share of InfoSpace common stock resulting from such adjustment
will be rounded down to the nearest whole number. The exercise price per share
of InfoSpace common stock issuable under each Go2Net option will equal the
exercise price per share of the Go2Net common stock purchasable under the
Go2Net option divided by the exchange ratio. The exercise price will be rounded
up to the nearest whole cent.
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InfoSpace will reserve for issuance a sufficient number of shares of its
common stock for delivery upon a Go2Net optionholder's exercise of his or her
option. InfoSpace will file a registration statement on Form S-8 with respect
to the assumed Go2Net stock options.
As of the effective time of the merger, Go2Net's Employee Stock Purchase Plan
will be terminated, and participants of that plan will become participants in
InfoSpace's Employee Stock Purchase Plan.
Exchange of certificates
Exchange Agent; Exchange Procedures; No Further Ownership Rights. After the
effective time of the merger, InfoSpace's exchange agent will mail to each
record holder of Go2Net common stock a letter of transmittal and instructions
for surrendering their certificates. Only those holders who properly surrender
their certificates in accordance with the instructions will receive
certificates representing InfoSpace common stock, cash in lieu of any
fractional InfoSpace common stock and any dividends or distributions to which
they are entitled. The surrendered certificates representing shares of Go2Net
common stock will be cancelled. After the effective time of the merger, each
certificate representing shares of Go2Net common stock that have not been
surrendered will only represent (1) the number of whole shares of common stock
of InfoSpace into which such shares have been converted, (2) the right to
receive cash in lieu of any fractional share of InfoSpace common stock and (3)
any dividends or distributions that may be applicable. Following the effective
time of the merger, Go2Net will not register any transfers of Go2Net common
stock on its stock transfer books.
No Fractional Shares. InfoSpace will not issue any fractional shares of
common stock in the merger. Instead, each holder of shares of Go2Net common
stock exchanged in the merger who would otherwise be entitled to receive a
fraction of a share of common stock of InfoSpace will receive cash, without
interest, equal to such fraction multiplied by the average closing price per
share of InfoSpace common stock on the Nasdaq National Market for the five
trading days immediately preceding the effective time of the merger.
Distributions With Respect to Unexchanged Shares. After the effective date of
the merger, dividends or other distributions declared or made after the closing
of the merger with respect to InfoSpace common stock will be paid to the holder
of any unsurrendered Go2Net certificate when the holder surrenders its Go2Net
certificate in accordance with the letter of transmittal.
Lost Certificates. If any Go2Net common stock certificate is lost, stolen or
destroyed, a Go2Net stockholder must provide an appropriate affidavit
certifying that fact. InfoSpace may require a Go2Net stockholder to deliver a
bond as indemnity against any claim that may be made against InfoSpace with
respect to any lost, stolen or destroyed certificate.
Holders of Go2Net common stock should not send in their certificates until
they receive a letter of transmittal from the exchange agent.
Representations and warranties
InfoSpace and Go2Net each made a number of representations and warranties in
the merger agreement regarding aspects of their respective businesses,
financial condition, structure and other facts pertinent to the merger.
Representations and warranties
Each of the companies made representations and warranties as to:
. corporate organization and qualification to do business;
. certificate of incorporation and bylaws;
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. capitalization;
. authorization of the merger agreement;
. the effect of the merger on obligations under applicable laws;
. the vote of stockholders required to approve the merger or the share
issuance (as applicable);
. regulatory approvals required to complete the merger;
. filings and reports with the Securities and Exchange Commission;
. financial statements;
. liabilities;
. changes in business since June 30, 2000;
. taxes;
. intellectual property used;
. compliance with applicable laws;
. restrictions on the conduct of business;
. permits required to conduct business and compliance with those permits;
. litigation;
. payments, if any, required to be made to brokers and agents on account of
the merger;
. employee benefit plans;
. title to the properties owned and leased;
. applicable environmental laws;
. labor relations;
. material agreements, contracts and commitments;
. information supplied in this joint proxy statement/prospectus and the
related registration statement filed by InfoSpace;
. approval by the board of directors;
. the inapplicability of state takeover statues to the merger; and
. the fairness opinion received by each company from its financial advisor.
All representations and warranties of Go2Net and InfoSpace expire at the
effective time of the merger.
The representations and warranties contained in the merger agreement are
complicated and not easily summarized. You are urged to carefully read the
articles of the merger agreement entitled "Representations and Warranties of
Company," relating to Go2Net and "Representations and Warranties of Parent and
Merger Sub," relating to InfoSpace and Giants Acquisition Corp.
Conduct of business before completion of the merger
Go2Net and InfoSpace each agreed that, until the earlier of the completion of
the merger or termination of the merger agreement or unless the other consents
in writing, each company will use its commercially reasonable efforts
consistent with past practices and policies to:
. preserve intact its present business organization;
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. keep available the services of its present officers and employees; and
. preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings.
Go2Net and InfoSpace each also agreed that until the earlier of the
completion of the merger or termination of the merger agreement or unless the
other consents in writing, each company will conduct its business in compliance
with certain specific restrictions relating to the following:
. restricted stock and stock options;
. employees and employee benefits, including severance and termination
payments;
. intellectual property;
. the issuance of dividends or other distributions;
. the issuance, encumbrance and redemption of securities;
. amendment to its certificate of incorporation and bylaws;
. the acquisition of assets or other entities;
. the sale, lease, license and disposition of assets;
. the incurrence of indebtedness;
. the adoption, amendment or increase of employee benefit plans, policies
or arrangements;
. payment or settlement of liabilities;
. modification, amendment or termination of material contracts;
. revaluation of assets or changing of accounting policies and procedures;
. actions which could be expected to impact treatment of the merger as a
"reorganization" under the Internal Revenue Code; and
. making of tax elections.
The agreements related to the conduct of Go2Net's and InfoSpace's businesses
in the merger agreement are complicated and not easily summarized. You are
urged to carefully read the sections of the merger agreement entitled "Conduct
of Business by Company," relating to Go2Net and "Conduct of Business By
Parent," relating to InfoSpace.
No solicitation by Go2Net
Go2Net further agreed to cease, as of the date of the merger agreement, any
and all existing activities, discussions or negotiations with any parties
conducted prior to that date with respect to any Acquisition Proposal (as
defined below).
Until the merger is completed or the merger agreement is terminated, Go2Net
and its subsidiaries agreed not to directly or indirectly take any of the
following actions:
. solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal;
. except as provided below with respect to an unsolicited bona fide
proposal, furnish to any person any non-public information with respect
to any Acquisition Proposal;
. take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to any
Acquisition Proposal;
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. except as provided below with respect to an unsolicited bona fide
proposal, engage in discussions or negotiations with any person with
respect to any Acquisition Proposal;
. subject to limited exceptions, approve, endorse or recommend any
Acquisition Proposal; or
. enter into any contract relating to any Acquisition Transaction.
Go2Net's board of directors may, without breaching the merger agreement,
respond to an unsolicited, bona fide written Acquisition Proposal by discussing
the proposal with the party making the proposal, furnishing information to the
party making the proposal, recommending a Superior Offer to Go2Net's
stockholders or terminating the merger agreement with InfoSpace in order to
immediately thereafter enter into a Superior Offer (as defined below), if
certain of the following conditions are met:
. Go2Net's board determines in good faith, after consulting with its
outside legal counsel, that this action is necessary to comply with its
fiduciary obligations under applicable laws;
. Go2Net receives from such person an executed confidentiality agreement;
. Go2Net gives prior written notice to InfoSpace of discussions or
negotiations with, or furnishing of information to, the party making the
proposal;
. when furnishing nonpublic information to the party making the proposal,
Go2Net contemporaneously furnishes the same information to InfoSpace, to
the extent it has not already been received by InfoSpace;
. neither Go2Net nor any representative of Go2Net or its subsidiaries shall
have violated any of the non-solicitation provisions contained in the
merger agreement; and
. in the case of a termination of the merger agreement or a change of
recommendation, Go2Net's board concludes in good faith that the proposal
constitutes a Superior Offer.
For purposes of the foregoing, any action by any officer, director, affiliate
or employee of Go2Net or any investment banker, attorney or other advisor or
representative of Go2Net is deemed to be an action by Go2Net.
An "Acquisition Proposal" is any offer, inquiry or proposal relating to any
Acquisition Transaction, other than an offer, inquiry or proposal from
InfoSpace.
An "Acquisition Transaction" is any transaction or series of related
transactions, other than the InfoSpace/Go2Net merger, involving any of the
following:
. the acquisition or purchase from Go2Net of more than a 15% interest in
the total outstanding voting securities of Go2Net or any of its
subsidiaries;
. any tender offer or exchange offer that if consummated would result in
any person or group beneficially owning 15% or more of the total
outstanding voting securities of Go2Net or any of its subsidiaries;
. any merger, consolidation, business combination or similar transaction
involving Go2Net pursuant to which the stockholders of Go2Net immediately
preceding such transaction hold less than 85% of the equity interests in
the surviving or resulting entity;
. any sale, lease outside the ordinary course of business, exchange,
transfer, license outside the ordinary course of business, acquisition or
disposition of more than 15% of the assets of Go2Net; or
. any liquidation or dissolution of Go2Net.
A "Superior Offer" is an unsolicited, bona fide written offer made by a third
party to consummate any of the following transactions, and which Go2Net's board
of directors determines in its reasonable judgment
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(based on written advice of its nationally recognized financial advisor) is
more favorable to its stockholders from a financial point of view than the
merger with InfoSpace:
. a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Go2Net in which
the stockholders Go2Net just prior to the transaction would hold less
than 51% of the equity interest in the resulting entity after the
transaction;
. a sale or disposition by Go2Net of assets, excluding inventory and used
equipment sold in the ordinary course of business, which comprise more
than 51% of the market value of Go2Net's business just prior to the sale;
or
. the acquisition of beneficial ownership of more than 51% of the voting
power of Go2Net's outstanding stock.
Go2Net has agreed to promptly inform InfoSpace of any request for information
that Go2Net reasonably believes would lead to an Acquisition Proposal, or of
any Acquisition Proposal, or any inquiry with respect to or which Go2Net
reasonably believes would lead to any Acquisition Proposal, the material terms
and conditions of such request, Acquisition Proposal or inquiry, and the
identity of the person or group making any such request, Acquisition Proposal
or inquiry. Go2Net further agreed to keep InfoSpace informed in all material
respects of the status and details, including material amendments or proposed
amendments, of any such request, Acquisition Proposal or inquiry, and to
provide InfoSpace with advance notice of any meeting of the Go2Net board of
directors at which the board of directors is reasonably expected to consider an
Acquisition Proposal or recommend a Superior Proposal to Go2Net's stockholders.
Go2Net stockholder's meeting
Regardless of whether there has been a Superior Offer, unless the merger
agreement has been terminated, Go2Net is obligated to hold and convene the
Go2Net special meeting of stockholders for purposes of voting for adoption of
the merger agreement and approval of the merger. Go2Net's board of directors
will recommend that Go2Net's stockholders vote in favor of adoption of the
merger agreement and approval of the merger; provided, however, that the board
can withhold, withdraw, amend or modify its recommendation if:
. a Superior Offer is made to Go2Net;
. neither Go2Net nor any of its representatives have violated the non-
solicitation provisions and thereby breached the merger agreement;
. Go2Net's board determines in good faith, after consulting with its
outside legal counsel, that this action is necessary to comply with its
fiduciary obligations under applicable laws; and
. Go2Net gives InfoSpace at least forty-eight (48) hours notice and the
opportunity to meet with Go2Net and its legal counsel.
InfoSpace stockholder's meeting
Unless the merger agreement is terminated, InfoSpace is obligated under the
merger agreement to hold and convene the InfoSpace special meeting of
stockholders for purposes of voting on the issuance of shares of InfoSpace
common stock in the merger. InfoSpace's board of directors will recommend that
InfoSpace's stockholders vote in favor of the issuance of InfoSpace's shares in
connection with the merger.
Employee benefits matters
Individuals who continue to be employed by Go2Net after the merger is
completed who become participants or are subject to InfoSpace's employee
benefit plans will, subject to certain qualifications, receive credit for
length of service with Go2Net prior to the merger for eligibility and vesting
purposes.
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Conditions to completion of the merger
The obligations of InfoSpace and Go2Net to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver, to the extent legally permissible, of each of the
following conditions before completion of the merger:
. the merger agreement must be adopted and the merger must be approved by
the requisite vote of holders of Go2Net stock;
. the issuance of InfoSpace's shares to Go2Net's stockholders must be
approved by the requisite vote of InfoSpace stockholders under applicable
laws;
. InfoSpace's registration statement on Form S-4 must be effective, no stop
order suspending its effectiveness can be in effect and no proceedings
for suspension of its effectiveness can have been initiated or threatened
by the SEC;
. no law, regulation or order has been enacted or issued which has the
effect of making the merger illegal or otherwise prohibiting completion
of the merger;
. all applicable waiting periods under applicable antitrust laws must have
expired or been terminated;
. InfoSpace and Go2Net must each receive from their respective tax counsel
an opinion to the effect that the merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code; and
. the shares of InfoSpace's common stock to be issued in the merger will
have been authorized for listing on the Nasdaq National Market.
Go2Net's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before completion of the merger:
. InfoSpace's representations and warranties must be true and correct as of
July 26, 2000 and at and as of the date the merger is to be completed as
if made at and as of that time except:
--to the extent InfoSpace's representations and warranties address
matters only as of a particular date, they must be true and correct as
of that date; and
--if any of InfoSpace's representations and warranties (other than
representations and warranties relating to authority to enter into the
merger, board approval, inapplicability of state takeover statutes and
receipt of a fairness opinion) are not true and correct but the effect,
in the aggregate, of the inaccuracies of these representations and
breaches of these warranties does not have a material adverse effect on
InfoSpace, then this condition will be deemed satisfied;
. InfoSpace must perform or comply in all material respects with all of its
agreements and covenants required by the merger agreement to be performed
or complied with by InfoSpace at or before completion of the merger; and
. InfoSpace has had no material adverse change since July 26, 2000.
InfoSpace's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before completion of the merger:
. Go2Net's representations and warranties must be true and correct as of
July 26, 2000 and at and as of the date the merger is to be completed as
if made at and as of that time except:
--to the extent Go2Net's representations and warranties address matters
only as of a particular date, they must be true and correct as of that
date; and
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--if any of Go2Net's representations and warranties (other than
representations and warranties relating to authority to enter into the
merger, board approval, inapplicability of state takeover statutes and
receipt of a fairness opinion) are not true and correct but the effect,
in the aggregate, of the inaccuracies of these representations and
breaches of these warranties does not have a material adverse effect on
Go2Net, then this condition will be deemed satisfied;
. Go2Net must perform or comply in all material respects with all of its
agreements and covenants required by the merger agreement to be performed
or complied with by Go2Net at or before completion of the merger; and
. Go2Net has had no material adverse change since July 26, 2000.
Termination of the merger agreement
The merger agreement may be terminated at any time prior to completion of the
merger, whether before or after adoption of the merger agreement and approval
of the merger by Go2Net stockholders and InfoSpace's stockholders:
. by mutual consent of the board of directors of InfoSpace and Go2Net;
. by InfoSpace or Go2Net, if the merger is not completed before January 31,
2001 except that this right to terminate the merger agreement is not
available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the merger to occur on
or before January 31, 2001 and this action or failure to act constitutes
a material breach of the merger agreement;
. by InfoSpace or Go2Net, if there is any final and nonappealable action of
a court or governmental authority having jurisdiction over either
InfoSpace or Go2Net permanently restraining, enjoining or prohibiting the
completion of the merger;
. by InfoSpace or Go2Net, if the stockholders of Go2Net fail to adopt the
merger agreement and approve the merger at a Go2Net stockholders'
meeting, or if the stockholders of InfoSpace fail to approve the share
issuance at an InfoSpace stockholders' meeting, except that this right to
terminate the merger agreement is not available to any party where the
failure to obtain the requisite stockholder vote was caused by that
party's action or failure to act which constitutes a breach of the merger
agreement;
. by Go2Net, upon InfoSpace's breach of any covenant or agreement in the
merger agreement, or if any of InfoSpace's representations or warranties
are or become untrue so that the corresponding condition to completion of
the merger would not be met. However, if the breach or inaccuracy is
curable by InfoSpace, and InfoSpace exercises commercially reasonable
efforts to cure the breach, Go2Net may not terminate the merger agreement
for 30 days after delivery of written notice from Go2Net to InfoSpace of
the breach;
. by InfoSpace, upon Go2Net's breach of any covenant or agreement in the
merger agreement, or if any of Go2Net's representations or warranties are
or become untrue so that the corresponding condition to completion of the
merger would not be met. However, if the breach or inaccuracy is curable
by Go2Net and Go2Net exercises commercially reasonable efforts to cure
the breach, InfoSpace may not terminate the merger agreement for 30 days
after delivery of written notice from InfoSpace to Go2Net of the breach;
. by InfoSpace if any of the following shall have occurred:
--Go2Net's board of directors withdraws, modifies or changes its
recommendation of the merger agreement or the merger in a manner
adverse to InfoSpace or its stockholders;
--Go2Net's board of directors approves or recommends any Acquisition
Proposal or Go2Net enters into an agreement or contract accepting an
Acquisition Proposal;
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--Go2Net breaches any of the non-solicitation provisions of the merger
agreement; or
--an Acquisition Proposal is announced or becomes publicly known to
Go2Net's board of directors, or a tender offer or exchange offer
relating to at least 15% of Go2Net's outstanding capital stock is
commenced and, in either case, Go2Net's board of directors fails to
recommend against that proposal or fails to reconfirm its approval and
recommendation of the merger agreement and the merger, within ten
business days; or
. by Go2Net before the vote of its stockholders on the merger agreement, if
after receiving a Superior Offer and in the absence of any breach of the
non-solicitation provisions of the merger agreement, the Go2Net board of
directors determines in good faith, after consulting with its outside
legal counsel, that termination of the merger agreement is necessary to
comply with its fiduciary duties under applicable law. Go2Net may not
terminate the merger agreement, however, until two business days after
notifying InfoSpace of the Go2Net board's determination and until Go2Net
has paid InfoSpace the termination fee set forth in the merger agreement.
Payment of termination fee by Go2Net
Go2Net will pay InfoSpace a termination fee of $120 million if any of the
following conditions occur:
. InfoSpace terminates the merger agreement because of any of the
following:
--Go2Net's board of directors withdraws, modifies or changes its
recommendation of the merger agreement or the merger in a manner
adverse to InfoSpace or its stockholders;
--Go2Net's board of directors approves or recommends any Acquisition
Proposal;
--Go2Net breaches any of the non-solicitation provisions of the merger
agreement;
--an Acquisition Proposal is announced or becomes publicly known to
Go2Net's board of directors, or a tender offer or exchange offer
relating to at least 15% of Go2Net's outstanding capital stock is
commenced and, in either case, Go2Net's board of directors fails to
recommend against that proposal or fails to reconfirm its approval and
recommendation of the merger agreement and the merger, within ten
business days; or
. Go2Net terminates the merger agreement prior to the vote of its
stockholders, because it received a Superior Offer which the Go2Net board
of directors determined in good faith, after consulting with its outside
legal counsel, necessitated terminating the merger agreement in order to
comply with its fiduciary duties under applicable law.
Further, Go2Net will pay to InfoSpace the termination fee of $120 million if
the merger agreement is terminated because the merger is not consummated by
January 31, 2001 or Go2Net's stockholders do not approve the merger agreement
and:
. prior to termination a third party announces an Acquisition Proposal; and
. within twelve months following the termination of the merger agreement
any of the following is consummated or Go2Net enters into an agreement or
binding letter of intent providing for any of the following transactions
(which transaction is subsequently consummated):
--a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Go2Net
pursuant to which stockholders of Go2Net immediately prior to the
transaction hold less than 60% of the aggregate equity interests of the
resulting entity;
--a sale or disposition by Go2Net of assets representing greater than 60%
of the market value of its business immediately before that sale; or
--the acquisition of beneficial ownership of greater than 50% of the
voting power of Go2Net's outstanding capital stock.
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Additionally, Go2Net granted InfoSpace an option to purchase such number of
shares equal to 19.9% of Go2Net's common stock outstanding as of July 26, 2000
for an exercise price of $84.28 per share. This option is exercisable by
InfoSpace upon the occurrence of any event which causes the termination fee to
become payable by Go2Net to InfoSpace under the merger agreement. For more
information regarding the option, you should refer to the "Option Agreement"
included as Exhibit B to the merger agreement and see page 81 of this joint
proxy statement/prospectus.
Operations after the merger
Following the merger, it is expected that Go2Net will continue its operations
as a wholly-owned subsidiary of InfoSpace. The stockholders of Go2Net will
become stockholders of InfoSpace, and their rights as stockholders will be
governed by the InfoSpace certificate of incorporation and bylaws, as currently
in effect, and the laws of Delaware. See "Comparison of Stockholder Rights and
Corporate Governance Matters" on page 142 of this joint proxy
statement/prospectus.
Extension, waiver and amendment of the merger agreement
InfoSpace and Go2Net may amend the merger agreement before completion of the
merger by mutual written consent. In addition, either InfoSpace or Go2Net may
extend the other's time for the performance of any of the obligations or other
acts under the merger agreement, waive any inaccuracies in the other's
representations and warranties and waive compliance by the other with any of
the agreements or conditions contained in the merger agreement.
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AGREEMENTS RELATED TO THE MERGER
This section of the joint proxy statement/prospectus describes agreements
related to the merger agreement, including the InfoSpace Voting Agreements, the
Go2Net Voting Agreements, the InfoSpace Affiliate Agreements, the Go2Net
Affiliate Agreements and the Option Agreement. While InfoSpace and Go2Net
believe that these descriptions cover the material terms of these agreements,
these summaries may not contain all of the information that is important to
you. Forms of these agreements are attached as exhibits to Annex A of this
joint proxy statement/prospectus.
InfoSpace Voting Agreements
The following significant InfoSpace stockholders entered into voting
agreements: Naveen Jain, Arun Sarin and Rufus Lumry (on behalf of Acorn
Ventures). By entering into the voting agreements these InfoSpace stockholders
have irrevocably appointed the directors of Go2Net as their lawful attorney and
proxy. These proxies give Go2Net the limited right to vote the shares of
InfoSpace common stock beneficially owned by these InfoSpace stockholders and
affiliated entities, subject to the voting agreements, in favor of the approval
of the issuance of InfoSpace common stock under the merger agreement. These
InfoSpace stockholders may vote their shares of InfoSpace common stock on all
other matters.
As of July 26, 2000, the date of the merger agreement, these InfoSpace
stockholders entered into voting agreements with respect to approximately
72,201,680 million shares of InfoSpace common stock beneficially owned by them,
which represented approximately 24% of all outstanding InfoSpace common stock.
None of the InfoSpace stockholders who are parties to the voting agreements
were paid additional consideration in connection with them.
Each InfoSpace stockholder who is a party to a voting agreement agreed not to
sell the InfoSpace stock and options owned, controlled or acquired, either
directly or indirectly, by that person until the earlier of the termination of
the merger agreement or the completion of the merger, unless each person to
which any of those securities or any interest in any of those securities is
transferred agrees to be bound by the terms and provisions of the voting
agreement.
The voting agreements will terminate upon the earlier to occur of the
termination of the merger agreement or the completion of the merger. The form
of InfoSpace voting agreement is attached as Exhibit A-2 to the merger
agreement which is attached as to this joint proxy statement/prospectus as
Annex A, and you are urged to read it in its entirety.
Go2Net Voting Agreements
The following significant Go2Net stockholders entered into voting agreements:
Russel Horowitz, John Keister, Michael Riccio and Vulcan Ventures Incorporated.
By entering into the voting agreements these Go2Net stockholders have
irrevocably appointed the directors of InfoSpace as their lawful attorney and
proxy. These proxies give InfoSpace the limited right to vote the shares of
Go2Net common stock beneficially owned by these Go2Net stockholders, subject to
the voting agreements, in favor of the adoption of the merger agreement. These
Go2Net stockholders may vote their shares of Go2Net common stock on all other
matters.
As of July 26, 2000, the date of the merger agreement, these Go2Net
stockholders entered into voting agreements with respect to approximately
14,866,277 million shares of Go2Net common stock beneficially owned by them
(including shares of Go2Net common stock issuable upon conversion of shares of
Go2Net preferred stock) which represented approximately 36.8% of the voting
power of Go2Net capital stock on July 19, 2000 (assuming that all outstanding
shares of preferred stock were converted into common stock). None of the Go2Net
stockholders who are parties to the voting agreements were paid additional
consideration in connection with them.
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Each Go2Net stockholder who is a party to a voting agreement agreed not to
sell the Go2Net stock and options owned, controlled or acquired, either
directly or indirectly, by that person until the earlier of the termination of
the merger agreement or the completion of the merger, unless each person to
which any of those securities or any interest in any of those securities is
transferred agrees to be bound by the terms and provisions of the voting
agreement.
The Go2Net voting agreements will terminate upon the earlier to occur of the
termination of the merger agreement and the completion of the merger. The form
of Go2Net voting agreement is attached as Exhibit A-1 to the merger agreement
which is attached to this joint proxy statement/prospectus as Annex A, and you
are urged to read it in its entirety.
InfoSpace Affiliate Agreements
Each member of the InfoSpace board of directors, each executive officer of
InfoSpace and certain significant stockholders of InfoSpace have each executed
an affiliate agreement. Under the affiliate agreements, these InfoSpace
officers, directors and stockholders agreed not to transfer or otherwise reduce
their risk relative to any shares of InfoSpace common stock during the period
from the date 30 days prior to the merger effective date until InfoSpace
publicly announces financial results covering at least 30 days of combined
operations of InfoSpace and Go2Net. In accordance with the affiliate
agreements, InfoSpace will be entitled to issue stop transfer instructions to
the transfer agent for the InfoSpace common stock held by these directors,
officers and significant stockholders. The form of InfoSpace affiliate
agreement is attached as Exhibit C-2 to the merger agreement which is attached
to this joint proxy statement/prospectus as Annex A, and you are urged to read
it in its entirety.
Go2Net Affiliate Agreements
Each member of the Go2Net board of directors, each executive officer of
Go2Net and certain significant stockholders of Go2Net have each executed an
affiliate agreement. Under the affiliate agreements, these Go2Net officers,
directors and stockholders agreed not to transfer or otherwise reduce their
risk relative to any shares of Go2Net common stock during the period from the
date 30 days prior to the merger effective date until InfoSpace publicly
announces financial results covering at least 30 days of combined operations of
InfoSpace and Go2Net. Further, these persons have also acknowledged the resale
restrictions imposed by Rule 145 under the Securities Act on shares of
InfoSpace common stock to be received by them in the merger. In accordance with
the affiliate agreements, InfoSpace will be entitled to place appropriate
legends on these Go2Net stockholders' certificates evidencing any InfoSpace
common stock to be received by them and to issue stop transfer instructions to
the transfer agent for the InfoSpace common stock held by them. The form of
Go2Net affiliate agreement is attached as Exhibit C-1 to the merger agreement
which is attached to this joint proxy statement/prospectus as Annex A, and you
are urged to read it in its entirety.
Option Agreement
As a condition to InfoSpace's willingness to enter into the merger agreement,
Go2Net granted to InfoSpace an irrevocable option to acquire up to 6,239,917
shares of common stock, which was equal to 19.9% of Go2Net's outstanding shares
as of July 26, 2000. The exercise price payable for these shares is $84.28 per
share, payable in cash. The number of shares issuable upon exercise of the
option and the exercise price of the option are subject to adjustment to
prevent dilution. The form of option agreement is attached as Exhibit B to the
merger agreement, which is attached to this proxy statement/prospectus as Annex
A, and you are urged to read it in its entirety.
The option is intended to increase the likelihood that the merger will be
completed. Some of the aspects of the stock option agreement may have the
effect of discouraging persons who might now or at any time be interested in
acquiring all or a significant interest in Go2Net or its assets before
completion of the merger.
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Exercise Events. InfoSpace may exercise the option, in whole or part, at any
time or from time to time, upon the occurrence of any of the following events:
. the termination of the merger agreement by InfoSpace if Go2Net's board of
directors withdraws, modifies, or changes its recommendation of the
merger agreement or the merger in a manner adverse to InfoSpace;
. the termination of the merger agreement by InfoSpace if Go2Net fails to
include in this joint proxy statement its recommendation in favor of the
adoption of the merger agreement and approval of the merger;
. the termination of the merger agreement by InfoSpace if:
--Go2Net's board of directors recommends an Acquisition Proposal to
Go2Net's stockholders other than the transaction contemplated by the
merger agreement;
--Go2Net enters into any agreement or contract accepting any Acquisition
Proposal other than the transaction contemplated by the merger
agreement;
--a tender or exchange offer relating to at least 15% of Go2Net's
outstanding stock is commenced by a third party, and Go2Net fails to
recommend rejection of such offer within 10 business days; or
--an acquisition proposal is publicly announced and Go2Net fails to
reaffirm its recommendation within ten days of InfoSpace's request;
. the termination of the merger agreement by Go2Net after it receives a
Superior Offer;
. the termination of the merger agreement by InfoSpace if Go2Net fails to
comply with the provisions in the merger agreement regarding
nonsolicitation; or
. the termination of the merger agreement because the required approval of
the Go2Net stockholders has not been obtained and prior to this
transaction a bona fide acquisition proposal was announced or otherwise
became publicly known and within 12 months after such termination, Go2Net
enters into a binding letter of intent or definitive acquisition
agreement providing for an acquisition of Go2Net or an acquisition of
Go2Net is consummated, other than the acquisition contemplated by the
merger agreement.
Termination. The option will terminate and cease to be exercisable upon the
earliest of any of the following:
. the completion of the merger;
. 12 months after termination of the merger agreement based on a failure of
the merger to be consummated by January 31, 2001 or the failure to obtain
the required approval of Go2Net stockholders if no event causing the
termination fee to become payable has occurred;
. 12 months after termination of the merger agreement based on Go2Net's:
--board of directors' withdrawing, modifying or changing its
recommendation regarding the merger adverse to InfoSpace;
--board of directors' recommendation of another Acquisition Proposal;
--failure to comply with the nonsolicitation provisions;
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--board of directors' failure to recommend against acceptance and
reconfirm its approval of the merger agreement and related transactions
after the public announcement of a bona fide Acquisition Proposal or
other public knowledge of such an acquisition;
--entering into any agreement or contract accepting any acquisition
proposal other than the transaction contemplated by the merger
agreement;
--failure to recommend rejection of a tender or exchange offer relating
to at least 15% of Go2Net's outstanding stock by a third party within
10 business days; or
--termination of the merger agreement after receiving a Superior Offer;
. 12 months after payment of the termination fee in connection with a
termination of the merger agreement based on a failure of the merger to
have been consummated by January 31, 2001 or failure to obtain the
required approval of Go2Net's stockholders; and
. the date on which the merger agreement is otherwise terminated.
Repurchase at the Option of InfoSpace. During the period when the option is
exercisable, InfoSpace may require Go2Net to repurchase from InfoSpace the
unexercised portion of the option at a price, referred to as the Market/Tender
Offer Price, equal to the difference between: (a) the higher of (i) the highest
price per share offered pursuant to any acquisition proposal and (ii) the
highest closing sale price of Go2Net common stock on the Nasdaq National Market
for the 20 preceding trading days; and (b) the option exercise price. InfoSpace
can also require Go2Net to repurchase from InfoSpace shares that InfoSpace
purchased upon exercise of the option at a repurchase price equal to the
exercise price plus the difference between the Market/Tender Offer Price and
the option exercise price multiplied by the number of shares purchased. In no
event will Go2Net be required to pay in excess of an aggregate of $120,000,000
minus the amount of the total termination fee paid by Go2Net to InfoSpace
pursuant to the merger agreement.
Economic Benefit to InfoSpace is Limited. The option agreement limits the
maximum profit to InfoSpace, including the amount, if any, paid to InfoSpace as
a termination fee under the merger agreement, which may be received by
InfoSpace to $120 million.
Registration Rights. The option agreement grants registration rights to
InfoSpace with respect to the shares of Go2Net common stock represented by the
option, including the right to demand that Go2Net register all or part of such
shares with the Securities and Exchange Commission, provided that InfoSpace
will only be able to make two such demands, and has the right to register all
or part of such shares if Go2Net otherwise register effects a registration for
its own account.
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INFOSPACE BUSINESS
In this section, InfoSpace Business, references to "we," "us," "our" and
"ours" refer to InfoSpace and its consolidated subsidiaries.
Overview
InfoSpace is an international information infrastructure services company.
InfoSpace provides commerce, information and communication infrastructure
services for wireless devices, merchants and Web sites. Our affiliates utilize
and distribute these services through a network of wireless and other non-PC
devices including PCs, cellular phones, pagers, screen telephones, television
set-top boxes, online kiosks, and personal digital assistants as well as PC-
based Web sites. We have relationships with AT&T Wireless, Verizon Wireless,
Vodafone AirTouch, ALLTEL, SBC, VoiceStream, Qwest, Intel, Ericsson, Nokia,
Mitsui and Acer America. InfoSpace's affiliate network also consists of more
than 3,100 Web sites that include America Online, Microsoft's MSN, Disney's GO
Network, NBC's Snap, Lycos, Go2Net and ABC LocalNet, among others.
Our Infrastructure Services
We have developed a scalable, flexible technology platform that enables us to
deliver a broad, integrated suite of services to Web sites, merchants and
wireless carriers. All of our consumer, merchant and wireless services utilize
the same core technology platform within the same operational infrastructure.
Our consumer services are designed for the end user and are distributed through
wireless devices and Web sites. These services include four main components:
(1) unified communication services, including device-independent email and
instant messaging; (2) information services, such as integrated directory,
news, and lifestyle information; (3) community services, including the "sticky"
services such as online address books and calendars; and (4) the ability to
offer collaboration services, including real-time document sharing. We target
merchant services to local merchants (including service-based merchants such as
restaurants and dry cleaners) and distribute these services through our
relationships with the regional bell operating companies (RBOCs), merchant
banks and other financial institutions and other local media networks,
including newspapers and television and radio stations. These services include
commerce services such as online storebuilding and technology that promotes
merchant services. We target wireless services to mobile users, whether on a
cellular phone, personal digital assistant (or PDA), pager or other non-PC
device, and distribute these services through our relationships with wireless
carriers and device manufacturers. These services include the ability to
conduct secure commerce using single-click buying, integrated information
services such as real-time stock quotes and traffic reports, and services that
manage users' lives, including online address books and calendars.
We design our infrastructure services to be highly flexible and customizable,
enabling affiliates to select from among our broad range of consumer, merchant
and wireless services. One of our principal strengths is our internally
developed technology, which enables us to easily and rapidly add new affiliates
and distribution partners by employing a distributed, scalable architecture
adapted specifically to our Internet-based infrastructure services. We help our
affiliates and distribution partners build and maintain their brands by
delivering our consumer, merchant and wireless services with the look and feel
and navigation features specific to each affiliate's delivery platform and
format, including the growing number of emerging wireless devices.
We have built a large distribution network through our direct sales force and
through reseller channels. Our reseller channels are based on distribution
agreements with online advertising networks, such as DoubleClick and Flycast,
who offer both our consumer and merchant services to their network of thousands
of Web sites; reseller agreements with RBOCs, including BellSouth, SBC, Verizon
and Qwest; merchant banks such as American Express and Bank of America; and
other local media networks who provide our services to local merchants.
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A key component of our strategy is expanding our operations into
international markets. Through a joint venture, we began providing content
services in the United Kingdom in the third quarter of 1998. In March 1999 we
began providing infrastructure services to Canadian affiliates through a
Canadian subsidiary. In addition, with our acquisition of Saraide, we have
begun to expand our wireless services into Europe, Japan and Canada. We expect
to launch our subsidiary in India to provide comprehensive, localized consumer,
merchant and wireless services to the India market. We have also entered into
agreements to expand our services into Brazil, China and Australia and are
currently investigating other international opportunities.
Consumer Services
Information Services
We provide information of broad appeal to users of wireless devices and PCs,
including maps, directories, financial data, traffic reports, sports, news and
entertainment. In most cases, we receive regular data feeds from our content
providers and store the content on our Web servers in order to maintain its
reliability and increase its accessibility. In other cases, our proprietary
technology allows Web users to transparently access content that is stored
directly on the content provider's system. In either case, our technology
enables us to integrate heterogeneous content from multiple sources and make it
appear as if it comes from one source, which is then delivered to our
affiliates. Our technology pulls the information 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 wireless device.
We have acquired rights to third-party content pursuant to more than 85
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 us a carriage fee for syndication of
its content to our network of affiliates. In other instances, we share with the
content provider advertising revenues attributable to end-user access of the
provider's content. For certain of our content, including our core directory
and map content, we pay a one-time or periodic fee or fee per content query to
the content provider. We typically enter into nonexclusive arrangements with
our content providers. However, in certain instances we have entered into
exclusive relationships, which may limit our ability to enter into additional
content agreements.
For our directory services, we integrate our yellow pages and white pages
information with each other and utilize yellow pages category headings in
combination with a natural word search feature to provide a user-friendly
interface and navigation vehicle within our directory services. We also
typically include maps and directions for addresses included in our directory
services. We further enhance the relevance and accuracy of responses to user
queries by employing a radial search feature to our 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.
In addition to our directory services, we distribute other valuable
information of broad appeal with everyday significance, such as classifieds,
news, travel and city guide information, real-time stock quotes and financial
information, Web directories and entertainment.
Our future success will depend on our ability to continue to integrate and
distribute information services of broad appeal. Our ability to maintain our
relationships with content providers and to build new relationships with
additional content providers is critical to the success of our business.
Community and Communications Services
We offer an extensive and integrated platform of consumer services that
includes community services and communication services.
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Community-building services that we offer our affiliates include the "sticky"
services that are designed to keep a user on an affiliates' site. These include
personalized Web-based address books and calendars, personal home pages, online
chat and message boards.
We also offer unified communication services including device-independent
email and instant messaging. We integrate these services into the community-
building services we offer, making it easy for users to send email and instant
messages directly from their address book from any device and also view "buddy
lists" on any device.
Our Affiliate Network
We offer our infrastructure services to wireless device manufacturers such as
Nokia and Ericcson, wireless carriers such as AT&T Wireless, Verizon Wireless,
Voicestream and USWest (now part of Qwest) and wireless service providers such
as AvantGo. Our PC-based affiliate network now consists of over 3,100 portals
and affinity sites, including 4 of the top 5 most trafficked sites, according
to Media Metrix. In addition, we believe our affiliate network now reaches over
90% of all Internet users based on data as of March 31, 2000, provided by Media
Metrix.
Our consumer services revenue is derived from advertising, licensing fees and
guaranteed transaction fees in lieu of revenue share.
Merchant Services
Our merchant services give merchants the ability to create, promote, sell and
distribute their products and services across multiple channels through our
broad distribution network. We have reseller agreements with RBOCs, including
BellSouth, SBC, Bell Atlantic and Qwest, merchant banks and other local media
networks, such as newspapers, who provide our services to local merchants
worldwide.
Based on a broad platform of technology, we can deliver a broad array of
merchant services such as:
. the online delivery to any device of promotions that can be used online
and offline;
. single-click buying from any Web site directly from a wireless device;
. Page Express, which enables local merchants to create a Web presence;
. StoreBuilder, which enables merchants to build online stores;
. ActivePromotion, which enables merchants to create targeted product
promotions and distribute them across our network; and
. ActiveShopper, which provides an open marketplace where consumers can
find, research and purchase products from our merchant network.
Due to a recent acquisition, we can now integrate online promotion
technologies with an offline merchant's existing credit card processing
infrastructure, bridging the gap between the online and offline worlds. Our
enhanced commerce infrastructure will be designed to target and deliver online
promotions to consumers on their wireless devices or while they are looking for
goods and services on Web sites. To take advantage of the promotion, the user
can purchase the goods online, through a catalog or at a physical retail store.
Through our acquisition of Millet Software (PrivacyBank.com), we believe we
will be able to provide a server-based technology that enables wireless
Internet devices to become commerce-enabled devices by giving mobile users the
ability to press one key to make on-the-spot purchases from virtually any Web
site. This is possible through a patent-pending secure technology that provides
an automated process for completing payment forms, eliminating the need to
continually enter in payment or shipping information, register at sites or
enter any specific passwords.
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Buyers can also purchase multiple products from multiple merchants, using
our shopping cart that provides the convenience of single-click purchasing.
Currently, over 600,000 merchants use our merchant service offerings.
Wireless Services
Our wireless services are comprised of an integrated suite of wireless
portal services that provide mobile users with relevant information services,
such as real-time stock quotes and traffic reports, the ability to conduct
secure commerce transactions from a wireless device, including single-click
buying, communication services such as device-independent instant messaging
and email, personalization capabilities and location-based services that
enable users to search for location-based information, such as the restaurant
closest to the mobile user's current location.
As a result of our acquisition of Saraide, we have begun to expand our
wireless services into Europe, Japan and Canada.
Our wireless services are distributed through the following wireless
carriers, device manufacturers and software providers.
Wireless Carriers AT&T Wireless, Verizon Wireless,
Vodafone AirTouch, ALLTEL, SBC,
VoiceStream, Qwest
Wireless Software Application AvantGo, JP Systems, WolfeTech,
Developers Phone.com
Wireless Device Manufacturers Nokia and Ericcson
Pagers Motorola
Web Appliances Intel
Our platform of wireless services includes:
. Form-filling instant buying technology, which allows mobile users to
press a single key to conduct transactions from virtually any Web site.
. Promotions technology, which allows mobile users to find and receive
real-time promotions on wireless devices from retailers and service-based
merchants, such as dry cleaners and restaurants, that can be used online
and offline. To take advantage of the promotion, the user can either
purchase the goods online, go to the retail store or simply utilize the
service. Promotions are seamlessly matched and automatically credited to
the user's credit card statement through secure back-end transaction
processing.
. Location-based directory services, that enable mobile users to search for
information, such as finding an Italian restaurant closest to where they
are when they conduct the search.
. Secure wireless commerce through a collaboration with VeriSign to deliver
a broad range of services aimed at facilitating trusted and secure
commerce applications across the wired and wireless Internet. By
incorporating VeriSign's strengths in Internet authentication, validation
and payment services, we will be able to offer a broad range of secure
services tailored to the wireless market.
Our wireless Internet services are device-independent and provide a platform
which enables our wireless carriers to support HDML and SMTP and a variety of
emerging protocols such as WAP, VXML and PQA's for Palm VII. Our services are
compatible with a variety of gateway technologies including WAP gateways from
Nokia, Phone.com and Ericsson.
Our wireless services are private-labeled for each carrier, preserving the
brand of the carrier and their relationship with their customer and helping to
create a barrier to switch. Revenues are primarily generated from the carrier
and include licensing fees, per subscriber/per month fees in the United States
and per
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query/per message fees in Europe. In addition, we receive commerce revenue for
the transactions completed on the wireless devices.
International Expansion
We intend to capitalize on what we perceive to be a significant opportunity
for our services in international markets. We currently maintain offices in the
United States, Canada, the Netherlands, France, the United Kingdom, Australia
and Brazil. Our wholly-owned subsidiary, InfoSpaceCanada.com, was formed in
early 1999 and has affiliate relationships with canada.com, a leading Canadian
Web site and search engine, as well as AOL Canada, MSN Canada and Sprint
Canada. InfoSpace.com India was formed as a result of our December 1999
acquisition of privately-held Zephyr Software and its wholly-owned subsidiary,
Zephyr Software (India) Private Limited.
In 1998, we entered into a joint venture with TDLI.com Limited, a subsidiary
of Thomson Directories Limited, to form TDL InfoSpace to replicate our
infrastructure 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 license agreement between Thomson and TDL InfoSpace,
Thomson licenses its U.K. directory information database to TDL InfoSpace.
Under the Web site services agreement between Thomson and TDL InfoSpace,
Thomson also sells Internet yellow pages advertising for the joint venture
through its local sales force. Under our license agreement with TDL InfoSpace,
we license our technology and provide hosting services to TDL InfoSpace. On
August 31, 2000, we acquired all of the issued and outstanding capital stock of
TDLI.com Limited. This acquisition gave us 100% control of TDL InfoSpace.
With our acquisition of Saraide Inc. in March 2000, we have begun to expand
our wireless services into Europe, Japan and Canada. We have also entered into
agreements to expand our services into Brazil, China and Australia and are
currently investigating additional international opportunities. The expansion
into international markets involves a number of risks. See "Risk Factors--Risks
Relating to InfoSpace--Our international expansion plans involve risks" for a
description of these risks.
Revenue Sources
We have derived substantially all of our revenues for our consumer, merchant,
and wireless services from national and local advertising, licensing fees,
commerce transaction fees, and guaranteed transaction fees in lieu of revenue
share.
Advertising
National Advertising
Throughout our consumer services, we sell banner advertisements based on
costs per thousand impressions (CPMs) and other CPM-based national advertising.
Our national advertising agreements generally have terms of less than six
months and guarantee a minimum number of impressions. 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 may fluctuate. Our guarantee of minimum levels of impressions
exposes us to potentially significant financial risks, including the risk that
we may fail to deliver required minimum levels of user impressions, in which
case we typically continue to provide advertising without compensation until
such levels are met.
Local Internet Yellow Pages Advertising
We generate a basic Internet yellow pages listing free of charge for all U.S.
local business listings. Similar to traditional yellow pages industry
practices, we generate revenues by selling enhancements to this
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basic listing. Internet yellow pages advertising agreements provide for terms
of one year with costs to the local advertisers ranging from $50 to $300 or
greater per year, depending on the types of enhancements selected.
Subscription Fees
We receive subscription fees from some of our consumer, merchant and wireless
services. Subscription fees are derived from the distribution of our consumer
services to many of the affiliates in our network. Subscription fees from
merchant services are derived through our reseller relationships with wireless
carriers, device manufacturers, RBOCs, merchant banks and other local media
networks, and include per store/per month fees and per service/per month fees.
Subscription fee agreements for our consumer and merchant services generally
range from one to three years in duration.
Commerce Fees
We generate commerce fees from links and completed transactions through our
merchant services delivered on wireless devices and the PC. Under our merchant
services arrangements, merchants agree to pay us a commission-based transaction
fee when a user clicks through to their site and purchases a product. These
commissions typically range from 5 to 25 percent of the purchase amount. These
fees are generally paid to us monthly or quarterly, after the merchant has
collected its payment from the user.
Guaranteed Transaction Fees
We have agreements with some affiliates and merchants under which they agree
to pay us guaranteed transaction fees. These arrangements are individually
negotiated and have a range of specially adapted features involving various
compensation structures. These are often based on the range and extent of
customization rather than on CPMs. These arrangements vary in terms and
duration, but generally have longer terms than arrangements for our CPM-based
advertising. In some of these arrangements, we may also receive transaction
revenues when transactions exceed the guaranteed minimum payments. If the
merchant offers a commerce opportunity in its promotion, we may derive
transaction revenues based on the number of transactions made through the
promotion.
We also have arrangements with wireless carriers, device manufacturers and
software providers whereby we receive guaranteed transaction fees as well as
transaction revenues on a per-subscriber and per-query basis on existing
devices, such as pagers, in excess of the guaranteed minimum payments.
We generate a significant amount of our revenues from advertising and
guaranteed transaction fees from our affiliates who use our consumer services,
which involves a number of risks. For additional information about these risks,
see "Risk Factors--Risks Relating to InfoSpace--We rely on advertising and
transaction revenues."
Technology and Infrastructure
One of our principal strengths is our internally developed technology, which
we have designed specifically for our Internet-based consumer, merchant and
wireless services. Our technology architecture features specially adapted
capabilities to enhance performance, reliability and scalability, consisting of
multiple proprietary software modules that support the core functions of our
operations. Our technology includes Web Server Technology, Database Technology,
a Web Scraping Engine, Gateway Technology and database network infrastructure.
Web Server Technology
We designed our Web Server Technology to enable rapid development and
deployment of information over multiple platforms and formats. It incorporates
an automated publishing engine that dynamically builds
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a page to conform to the look and feel and navigation features of each
affiliate. Our wireless Internet services are device-independent and provide a
platform which enables our wireless carriers to support HDML and SMTP and a
variety of emerging protocols such as WAP, VXML and PQA's for Palm VII. Our
services are compatible with a variety of gateway technologies including WAP
gateways from Nokia, Phone.com and Ericsson.
Our Web Server Technology includes other features designed to optimize the
performance of our information infrastructure services, including:
. an HTML compressor that enables modifications of file content to reduce
size, thereby reducing download time for users;
. 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
. 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
We have developed proprietary database technology to address the specific
requirements of our business strategy and information infrastructure services.
We designed our Co-operative Database Architecture to function with a high
degree of efficiency within the unique operating parameters of the Internet, as
opposed to commonly used database systems that were developed prior to the
widespread acceptance of the Internet. The architecture is tightly integrated
with our Web Server Technology and incorporates the following features:
Our 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 our 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, our pre-search and post-search
processing capabilities enable users to modify search parameters in real time
before and after querying a database.
Our 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 us to achieve an efficient balance between disk
space and compression/decompression when storing or accessing data.
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. Our 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.
We incorporate 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 our services, we believe we provide end
users with a more intuitive mechanism to search for and locate information.
For our merchant services we have developed a comprehensive enterprise-wide
data warehouse. This data warehouse contains information relating to merchants,
products, services, users, customers, profiles,
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storefronts, purchases, site traffic and metrics. The aggregation of this
information in one place allows us to leverage our development efforts and
reduce redundant information.
Web Scraping Engine
We have developed our Web Scraping 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. Our
State Machine-Based Profiling system catalogs the data on each source site,
which is later accessed by our Web Scraping 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 Web Scraping 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 price comparison feature of our ActiveShopper
merchant 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.
Gateway Technology
Our Gateway Technology allows us to take content from one source protocol and
forward it to a device destination that does not include any of the hardware or
software necessary for establishing an Internet connection. The content can be
sent directly or may have some processing performed before transmission to the
destination. This can be used for a single message, or multiple messages sent
on a timed basis such as weather, stock quotes, news and horoscopes. Messages
may be sent to a single user or group of users.
Data Network Infrastructure
We maintain a carrier-class data network center designed to ensure high-level
performance and reliability of our information services. We connect directly to
the Internet from our facilities in Bellevue and, until the transition of our
data center is complete, Redmond, Washington through redundant, dedicated DS-3
communication lines provided by multiple telecommunication service providers.
Our hardware resides in a secure climate-controlled room. As we expand our
operations, we expect to locate server facilities at various strategic
geographic locations.
With the acquisitions of Prio and Saraide, we have data centers in Mountain
View, California serving the promotions technology and Papendrecht, Netherlands
serving wireless customers in Europe.
Product Development
We believe that our technology platform is essential to successfully
implement our strategy of expanding our affiliate network, acquiring value-
added content to add to our consumer, merchant and wireless services, expanding
internationally and into other services and maintaining the attractiveness and
competitiveness of our private label solutions. We have invested significant
time and resources in creating our proprietary technology. Product development
expenses were $10.4 million for the six months ended June 30, 2000, $11.3
million for the year ended December 31, 1999, $7.6 million for the year ended
December 31, 1998 and $4.6 million for the year ended December 31, 1997.
Rapidly changing technology, evolving industry standards, evolving customer
demands and frequent new product and service introductions characterize our
market. See "Risk Factors--Risks Relating to InfoSpace--Rapid technological
change affects our business" for a discussion of certain risks in this regard.
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Intellectual Property
Our success depends significantly upon our proprietary technology. To protect
our proprietary rights, we rely on a combination of copyright and trademark
laws, patents, trade secrets, confidentiality agreements with employees and
third parties and protective contractual provisions. All of our employees have
executed confidentiality and nonuse agreements that transfer any rights they
may have in copyrightable works or patentable technologies to us. In addition,
prior to entering into discussions with potential content providers and
affiliates regarding our business and technologies, we generally require that
such parties enter into nondisclosure agreements with us. If these discussions
result in a license or other business relationship, we also generally require
that the agreement setting forth the parties' respective rights and obligations
include provisions for the protection of our intellectual property rights. For
example, our standard affiliate agreement provides that we retain ownership of
all patents and copyrights in our technology and requires our customers to
display our copyright and trademark notices.
"InfoSpace" and "ActiveShopper" are registered trademarks of ours. We also
have applied for registration of certain other service marks and trademarks,
including "ActivePromotion" and the "InfoSpace" logo in the United States and
in other countries, and will seek to register additional service marks and
trademarks, as appropriate. We may not be successful in obtaining the service
marks and trademarks for which we have applied. We have been issued one U.S.
patent and have filed 35 U.S. patent applications relating to various aspects
of our technology for querying and developing databases, for developing and
constructing web pages, for electronic commerce for on-line directory services
and for web scraping. Our issued patent covers private-label commerce solutions
and tracking the purchase of products, services and information on the Internet
and on wireless devices. We are preparing additional patent applications on
other features of our technology. We have instituted a formal patent program
and anticipate on-going patent application activity in the future. Patents with
respect to our technology may not be granted, and, if granted, patents may be
challenged or invalidated. In addition, issued patents may not provide us with
any competitive advantages and may be challenged by third parties.
Despite our efforts to protect our proprietary rights, unauthorized parties
may copy aspects of our products or services or obtain and use information that
we regard 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.
In addition, others could possibly independently develop substantially
equivalent intellectual property. If we do not effectively protect our
intellectual property, our business could suffer.
Companies in the Internet services industry have frequently resorted to
litigation regarding intellectual property rights. We may have to litigate to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of other parties' proprietary rights. From
time to time, we have received, and may receive in the future, notice of claims
of infringement of other parties' proprietary rights. Any such claims could be
time-consuming, result in costly litigation, divert management's attention,
cause product or service release delays, require us to redesign our products or
services or require us to enter into royalty or licensing agreements. These
royalty or licensing agreements, if required, may not be available on
acceptable terms or at all. If a successful claim of infringement were made
against us and we could not develop non-infringing technology or license the
infringed or similar technology on a timely and cost-effective basis, our
business could suffer. See "--Legal Proceedings."
Competition
We operate in the Internet information infrastructure services market, which
is extremely competitive and is rapidly changing. Our current and prospective
competitors include many large companies that have substantially greater
resources than we have. We believe that the primary competitive factors in the
market for Internet information infrastructure services are:
. the ability to provide information of broad appeal, which is likely to
result in increased user traffic and increase the brand name value of the
Web sites and wireless devices to which the services are provided;
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. the ability to meet the specific information and service demands of a
particular Web site or wireless device;
. the cost-effectiveness and reliability of the consumer, merchant or
wireless information services;
. the ability to provide consumer, merchant or wireless information
services that are attractive to advertisers and end users;
. the ability to achieve comprehensive coverage of a particular category of
information or services; and
. the ability to integrate related information to increase the utility of
the consumer, merchant or wireless information services offered.
We compete, directly or indirectly, in the following ways, among others:
. our directory services compete with AnyWho? (a division of AT&T), GTE
SuperPages, Switchboard, ZIP2 (which was acquired by Compaq), various
RBOCs' directory services, infoUSA's Lookup USA, City Search's Sidewalk
and Yahoo! Yellow Pages and White Pages;
. other information services we provide, such as classifieds, horoscopes
and real-time stock quotes, compete with specialized content providers;
. our U.K. operations compete with British Telecom's YELL service and Scoot
(UK) Limited in directory services; Inktomi and Autonomy in
infrastructure services, Excite, Yahoo! and MSN in syndication;
Shopguide, Shopsmart and Yahoo! shopping for merchant services and
various specialized content providers for information services;
. our community and communication services compete with services offered by
Internet portals such as AOL, Yahoo!, and Excite, as well as specialized
content service providers such as Hotmail;
. our merchant services compete with e-tailers such as Amazon.com, portals
such as AOL, Yahoo! and MSN, merchant aggregators such as Big Step and
Microsoft's Bcentral and infrastructure providers such as Inktomi; and
. our wireless services compete with portals such as AOL, Yahoo!, MSN and
Lycos, with specialized content providers, and with software companies
like Phone.com (which recently agreed to merge with Software.com).
We expect that in the future we will experience competition from other
Internet services companies and providers of Internet software, including
Microsoft, Yahoo!, AOL, Excite, Disney, Lycos and NBC's Snap. Some of these
companies are currently customers of ours, the loss of which could harm our
business. We may also face increased competition from traditional media
companies expanding onto the Internet.
Many of our current customers have established relationships with certain of
our current and potential future competitors. If our competitors develop
information infrastructure services that are superior to ours or that achieve
greater market acceptance than ours, our business will suffer.
Governmental Regulation
Because of the increasing use of the Internet, U.S. and foreign governments
have adopted or may in the future adopt laws and regulations relating to the
Internet, addressing issues such as user privacy, pricing, content, taxation,
copyrights, distribution and product and services quality.
Recent concerns regarding Internet user privacy has led to the introduction
of U.S. federal and state legislation to protect Internet user privacy.
Existing laws regarding user privacy that we may be subject to include the
Children's Online Privacy Protection Act, which regulates the online collection
of personal information from children under 13, and the Gramm-Leach-Bliley Act,
which regulates the collection and processing of personal financial
information. In addition, the Federal Trade Commission has initiated
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investigations and hearings regarding Internet user privacy which could result
in rules or regulations that could adversely affect our business. As a result,
we could become subject to new laws and regulations that could limit our
ability to conduct targeted advertising, or to distribute or collect user
information.
European legislation to protect Internet user privacy has not heretofore
greatly impacted us. In October 1998, the European Union adopted a directive
that may limit our collection and use of information regarding Internet users
in Europe. European countries may pass new laws in accordance with the
directive, or may seek to more strictly enforce existing legislation, which may
prevent us from offering some or all of our services in some European
countries.
We may be subject to provisions of the Federal Trade Commission Act that
regulate advertising in all media, including the Internet, and require
advertisers to substantiate advertising claims before disseminating
advertising. The Federal Trade Commission has the power to enforce this Act. It
has recently brought several actions charging deceptive advertising via the
Internet and is actively seeking new cases involving advertising via the
Internet.
We may also be subject to the provisions of the recently enacted
Communications Decency Act. This Act imposes substantial monetary fines and/or
criminal penalties on anyone who distributes or displays certain prohibited
material over the Internet. Also recently enacted was the Children's Online
Protection Act, which restricts the distribution of certain materials deemed
harmful to children. Although some court decisions have cast doubt on the
constitutionality of these Acts, they could subject us to substantial
liability.
These or any other laws or regulations that may be enacted in the future
could have several adverse effects on our business. These effects include:
. we may be subject to substantial liability, including fines and criminal
penalties;
. we may incur substantial expense in order to comply with such laws and
regulations;
. we could be prevented from offering certain products or services; and
. the growth in Internet usage could be substantially limited.
There is substantial uncertainty as to how existing laws and regulations,
including those relating to privacy, taxation and intellectual property, apply
to activities conducted on the Internet. Also, due to the global nature of the
Internet, it is possible that governments of states or countries in which we
did not knowingly conduct business may attempt to regulate our activities of
prosecute us for violations of their laws. To the extent that there is
uncertainty in the application of existing laws, or that new laws are enacted
in the future, we cannot predict the impact these laws may have on our
business.
Employees
At June 30, 2000, we had 502 employees. None of our employees is represented
by a labor union, and we consider our employee relations to be good.
Competition for qualified personnel in our industry is intense, particularly
for software development and other technical staff and for personnel with
experience in wireless services. We believe that our future success will depend
in part on our continued ability to attract, hire and retain qualified
personnel. See "Risk Factors--Risks Relating to InfoSpace--We need to manage
our growth and maintain procedures and controls" and "--We depend on key
personnel" and "--We need to hire additional personnel."
Facilities
In June 2000 we relocated to significantly larger facilities under a lease
for a new principal administrative, engineering, marketing and sales facility
located in Bellevue, Washington totaling approximately 131,118 square feet.
Under the five-year lease, we will pay a monthly base rent of $250,825
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per month during the first year, $252,647 per month during the second year,
$263,551 per month during the third year, $265,373 per month during the fourth
year and $276,276 per month during the final year.
Previously, our principal administrative, engineering, marketing and sales
facilities totaled approximately 16,864 square feet and were located in
Redmond, Washington. Under that lease, which commenced on July 13, 1998, and
expires on August 31, 2003, we pay a monthly base rent of $19,775 through
August 2001 and $22,030 during the final two years of the lease. Subsequent to
our move to Bellevue, we continue to maintain our data center in Redmond and
have sublet the remaining space to third parties.
We maintain a sales office housed in an approximately 2,271-square-foot space
in San Francisco, California under a lease that expires on November 30, 2001
with a monthly base rent of $5,299. We also maintain a sales office in New York
City for 1,900 square feet with a monthly base rent of $3,667, under a lease
that expires April 2004. We do not own any real estate.
With the acquisitions of Saraide and Prio, we now have facilities in Mountain
View and San Mateo, California; Ottawa, Canada; Papendrecht, Netherlands; and
London, United Kingdom. Also, we recently established offices in Australia and
Brazil.
We are currently transitioning our computer and communications hardware from
our facilities in Redmond, Washington to our new headquarters in Bellevue,
Washington. We intend to install additional hardware and high-speed Internet
connections at a location outside the West Coast as well as in the
United Kingdom.
Our 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. See "Risk Factors--Risks Relating to
InfoSpace--Our business relies on the performance of our systems."
Legal Proceedings
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business, including
claims of alleged infringement of third-party trademarks and other intellectual
property rights by us. These claims, even if not meritorious, could require the
expenditure of significant financial and managerial resources.
On December 15, 1999, a former employee filed a complaint against us in
federal court in New Jersey alleging claims for breach of contract, breach of
the covenant of good faith and fair dealing, fraud, negligent
misrepresentation, and promissory estoppel. The former employee contends he
agreed to work for InfoSpace on the basis of certain misrepresentations, that
he entered into an agreement with us that entitles him to an option to purchase
300,000 shares of our common stock, and that he was terminated without cause.
The former employee seeks (1) the right to purchase 300,000 shares of our
common stock, (2) unspecified compensatory and punitive damages, and (3)
litigation costs and attorney's fees. On January 31, 2000, we answered the
complaint, denying the claims. Discovery is complete. The case has been
transferred to the United States District Court for the Western District of
Washington, and trial has not yet been set. We are currently investigating the
claims at issue and believe we have meritorious defenses to such claims.
Nevertheless, litigation is uncertain and we may not prevail in this suit.
On February 18, 1999, a former consultant filed a complaint in the Superior
Court for Santa Clara County, California alleging, among other things, that he
had the right in connection with his consulting to the company to purchase
56,924 shares of our common stock. We settled this lawsuit in September 1999.
Under the settlement, we permitted the former consultant to purchase 33,012
shares of our common stock at a price of $.05 per share.
On January 26, 1999, Civix-DDI, LLC filed a complaint in the U.S. District
Court in Colorado against us and 19 other defendants for infringement of two
patents relating to electronic mapping systems. In July
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1999 we settled this litigation by entering into a license agreement for these
patents, pursuant to which we made a single lump sum royalty payment.
On December 23, 1998, we initiated litigation against Internet Yellow Pages,
Inc. ("IYP") by filing suit in United States District Court for the Western
District of Washington. On February 3, 1999, we served a first amended
complaint on IYP and Greg Crane, an agent of IYP, in which we asserted claims
for (a) account stated, (b) breach of contract, and (c) fraud. On March 5,
1999, IYP answered our complaint in the Washington action, and asserted claims
for breach of contract, fraud, extortion and Consumer Protection Act
violations. IYP seeks relief consisting of approximately $1,500,000 and other
unquantified money damages, treble damages under the CPA, and attorneys' fees.
Discovery is complete. We are currently investigating the claims at issue and
believe we have meritorious defenses to such claims. Nevertheless, litigation
is uncertain and we may not prevail in these suits. The case is scheduled for a
streamlined mini-trial before a federal magistrate on October 2, 2000.
On December 7, 1998, a complaint was filed against us on behalf of an alleged
former employee in Superior Court for Suffolk County in the Commonwealth of
Massachusetts alleging that he was terminated without cause and that he entered
into an agreement with us that entitles him to an option to purchase 4,000,000
shares of our common stock or 10% of our equity. We settled this lawsuit in
February 2000. Under the settlement, we made a cash payment of $10.5 million.
On April 16, 1998, one of our former employees filed a complaint in the
Superior Court for Santa Clara County, California alleging, among other things,
that he had the right in connection with his employment to purchase shares of
our common stock representing up to 5% of our equity as of an unspecified date.
We settled this lawsuit in February 1999. Under the settlement, we made a cash
payment of $4.5 million.
We had discussions with a number of individuals in the past regarding
employment by us and also hired and subsequently terminated a number of
individuals as employees or consultants. Furthermore, primarily during our
early stage of development, our procedures with respect to the manner of
granting options to new employees were not clearly documented. As a result of
these factors, and in light of the receipt of the above claims, we have in the
past received, and may in the future receive, similar claims from one or more
individuals asserting rights to acquire shares of our stock or to receive cash
compensation. We cannot predict whether such future claims will be made or the
ultimate resolution of any currently outstanding or future claim.
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INFOSPACE MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this section, InfoSpace Management's Discussion and Analysis of Financial
Condition and Results of Operations, references to "we," "us," "our" and "ours"
refer to InfoSpace and its consolidated subsidiaries.
You should read the following discussion and analysis in conjunction with
"Selected Consolidated Financial Data" and our Consolidated Financial
Statements and Notes thereto included elsewhere in this joint proxy
statement/prospectus. In addition to historical information, the following
discussion contains certain forward-looking statements that involve known and
unknown risks and uncertainties, such as statements of our plans, objectives,
expectations and intentions. You should read the cautionary statements made in
this joint proxy statement/prospectus as being applicable to all related
forward-looking statements wherever they appear in this joint proxy
statement/prospectus. Our 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. See "Forward-Looking Statements." You should not rely on
these forward-looking statements, which reflect only our opinion as of the date
of this joint proxy statement/prospectus. We do not assume any obligation to
revise forward-looking statements.
Overview
InfoSpace, Inc. is an international information infrastructure services
company. InfoSpace provides commerce, information and communication
infrastructure services for wireless devices, merchants and Web sites. We began
operations in March 1996. During the period from inception through December 31,
1996, we had insignificant revenues and were primarily engaged in the
development of technology for the aggregation, integration and distribution of
Internet content and the hiring of employees. In 1997, we expanded our
operations, adding business development and sales personnel in order to
capitalize on the opportunity to generate Internet advertising revenues. We
began generating material revenues in 1997 with our consumer services. Revenues
in 1998 were also primarily generated through our consumer services. Throughout
1999 and the first half of 2000, we have expanded our infrastructure services
to enhance our consumer, merchant and wireless services. At June 30, 2000, we
had 502 employees. The following provides greater detail on each of our service
offerings:
Consumer Services: We provide information of broad appeal to users of
wireless devices and PC's including directories, sports, news and
entertainment, financial data and traffic reports. We also offer an integrated
platform of consumer services that includes community building services such as
online address books, calendars, online chat and message boards, and
communication services including device independent e-mail and instant
messaging. Our consumer services are designed for the end user and are
distributed through wireless devices and Web sites. Our affiliate network
consists of more than 3,100 portals and affinity Web sites.
Revenues from our consumer services are generated from advertising,
subscriber fees and guaranteed transaction fees in lieu of revenue share.
Merchant Services: We provide comprehensive end-to-end merchant services and
an extensive distribution network that includes regional bell operating
companies (known as RBOCs), merchant banks and other local media networks. Our
end-to-end merchant services give merchants the ability to create, promote,
sell and distribute their products and services across multiple channels
through our broad distribution network. We have extensive reseller agreements
with RBOCs, including BellSouth, SBC, Verizon, and Qwest, merchant banks such
as American Express and Bank of America and other local media networks such as
newspapers and television and radio stations who provide our services to
millions of local merchants worldwide.
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Our merchant services consist of a comprehensive platform of technology that
enables us to deliver unique services such as:
. the online delivery of promotions to any device that can be used online
and offline;
. buying from any Web site directly from a wireless device with a single
click;
. PageExpress(TM) which enables local merchants to create a Web presence;
. StoreBuilder which enables merchants to build online stores;
. ActivePromotion(TM) which enables merchants to create targeted product
promotions and distribute them across our network;
. ActiveShopper(TM) which provides an open marketplace where consumers can
find, research and purchase products from our merchant network; and
. Yellow page listings and enhanced listings.
Revenues from our merchant services are primarily generated from commerce
fees and subscriber fees, including per store/per month or per promotion/per
month fees. Our national and local merchant network consists of more than
600,000 local and national merchants.
Wireless Services: Our wireless services are comprised of a comprehensive,
integrated suite of wireless portal services that provide mobile users relevant
information services such as real-time stock quotes and traffic reports, the
ability to conduct secure commerce transactions including single click buying,
communication services such as device-independent instant messaging and e-mail,
personalization capabilities and location-based services that enable the user
to search for location-based information such as the restaurant closest to the
mobile user's current location. These services are distributed through wireless
carriers, device manufacturers and software providers. Our wireless affiliates
include Verizon Wireless, AT&T Wireless, SBC and ALLTELL.
Our wireless services are private-labeled for each carrier, preserving the
brand of the carrier and their relationship with their customer and creating a
barrier to switch. Revenues are primarily generated from the carrier and
include licensing fees, per subscriber/per month fees in the U.S. and per
query/per message fees in Europe and Japan. In addition we receive commerce
revenue for the transactions delivered on the wireless devices.
All of our services are built on our core technology platform and use the
same operational infrastructure. We do not allocate development or operating
costs to any of these services.
Recent Acquisitions
In May 1997, we acquired Yellow Pages on the Internet, LLC, or YPI, a
Washington limited liability company that provided Internet yellow pages
directory information. In June 1998, we acquired Outpost, a Washington
corporation engaged primarily in electronic commerce through the sale of cards
and gifts via the Internet. In June 1999, we acquired the MyAgent technology
and related assets from Active Voice Corporation. In October 1999, we acquired
Union-Street.com, a provider of business services including private label e-
mail, address book, calendar, personal home page, chat and message boards. In
December 1999, we acquired eComLive.com, Inc., a provider of Web-based real-
time collaboration and interaction solutions specialized for consumer-to-
consumer, business-to-business and business-to-consumer vertical markets and
Zephyr Software Inc., an infrastructure services company for the Indian market.
These acquisitions were accounted for under the purchase method and,
accordingly, are included in our operating results from the date of acquisition
forward. The impact of the YPI acquisition on our consolidated statement of
operations was not substantial. The acquisitions of Outpost, MyAgent, Union-
Street and eComLive resulted in write-offs of in-process research and
development and the recording of goodwill, assembled
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workforce and core technology. The acquisition of Zephyr Software resulted in
the recording of goodwill. We have integrated these businesses and the acquired
technologies with our other products and services.
In October 1999, we acquired INEX Corporation, a developer of Internet
commerce solutions designed for small and medium-sized merchants. This
transaction was accounted for as a pooling-of-interests. The consolidated
financial statements for the three years ended December 31, 1999 and the
accompanying notes reflect the Company's financial position and results of
operations as if INEX was a wholly-owned subsidiary since inception.
In February 2000, we acquired Prio, Inc., a provider of commerce solutions
specializing in the development of strategic partnerships, technologies and
programs that drive commerce in both traditional and online shopping
environments. The consolidated financial statements and accompanying notes
reflect the Company's financial position and results of operations as if Prio
was a wholly-owned subsidiary since inception. In March 2000, we acquired an
eighty-percent interest in Saraide Inc. (formerly saraide.com, inc), a provider
of wireless Internet services in Europe, Japan and Canada. Also in March 2000,
we acquired Millet Software (privacybank.com). Millet developed secure
technology that provides an automated process for filling in payment forms. The
acquisitions of Saraide and Millet are accounted for as purchases and their
results of operations are included in the consolidated financial statements
from the date of acquisition.
In July 1998, we entered into a joint venture agreement with TDLI.com
Limited, a subsidiary of Thomson Directories Limited, to form TDL InfoSpace to
replicate our content, community and consumer services in Europe. TDL InfoSpace
launched content services in the United Kingdom in the third quarter of 1998.
Under the Web site services agreement, Thomson provides its directory
information to TDL InfoSpace and sells Internet yellow pages advertising for
the joint venture through its local sales forces. We also license our
technology and provide hosting services to TDL InfoSpace. Thomson and we each
purchased a 50% interest in TDL InfoSpace and are required to provide
reasonable working capital to TDL InfoSpace. As of December 31, 1999, we had
contributed $496,000 to the joint venture. We account for our investment in the
joint venture under the equity method. For the years ended December 31, 1999
and 1998, we recorded losses from the joint venture of $12,000 and $125,000,
respectively. On August 31, 2000, we acquired all of the issued and outstanding
capital stock of TDLI.com Limited. This acquisition gave us 100% control of TDL
InfoSpace.
We have incurred losses since our inception and, as of June 30, 2000, we had
an accumulated deficit of approximately $213.5 million. For the six months
ended June 30, 2000, our net loss totaled $114.9 million, including
amortization of intangibles of $27.4 million, $86.6 million in acquisition and
related charges associated with the acquisitions of Prio, Saraide and Millet
and $2.9 million in other non-recurring charges related to warrants issued by
Prio for services provided. For the year ended December 31, 1999, our net loss
totaled $57.6 million, including $13.4 million in acquisition and related
charges and $11.4 million in other non-recurring charges. See "--Acquisitions"
and "InfoSpace Business--Legal Proceedings."
We believe that our future success will depend largely on our ability to
continue to offer consumer, merchant and wireless solutions that are attractive
to our existing and potential future affiliates and distribution partners.
Accordingly, we plan to significantly increase our operating expenses in order
to, among other things:
. expand our affiliate network, which may require us to pay additional
carriage fees to certain affiliates;
. expand our business development and marketing operations and hire more
sales and business development personnel;
. increase our advertising and promotional activities;
. develop and upgrade our technology and purchase equipment for our
operations and network infrastructure;
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. expand internationally; and
. expand our commerce, merchant and wireless services.
After giving effect to our recent acquisitions, we expect to incur
significant operating losses on a quarterly basis in the future. In light of
the rapidly evolving nature of our business and limited operating history, we
believe that period-to-period comparisons of our revenues and operating results
are not necessarily meaningful, and you should not rely upon them as
indications of future performance. Although we have experienced sequential
quarterly growth in revenues over the past twelve quarters, we do not believe
that our historical growth rates are necessarily sustainable or indicative of
future growth. For information on recent and pending acquisitions see "--
Acquisitions."
Historical Results of Operations
The following table sets forth the historical results of our operations
expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
------------------ -------------
1997 1998 1999 1999 2000
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues................................. 100 % 100 % 100 % 100 % 100 %
Cost of revenues......................... 27 24 19 24 17
---- ---- ---- ----- -----
Gross profit........................... 73 76 81 76 83
Operating expenses:
Product development.................... 251 79 30 40 24
Sales, general and administrative...... 360 189 160 153 81
Amortization of intangibles............ 4 7 9 5 63
Acquisition and related charges........ -- 29 36 41 199
Other--non-recurring charges........... 8 47 30 2 7
---- ---- ---- ----- -----
Total operating expenses............. 623 351 265 241 374
---- ---- ---- ----- -----
Loss from operations..................... (550) (275) (184) (165) (291)
Other income, net........................ 20 65 31 38 14
Unrealized gain on investments........... -- -- -- -- 35
Minority interest........................ -- -- -- -- (15)
Restructuring charges, cumulative effect
of change in accounting and income tax
expense principle....................... -- -- -- -- (6)
---- ---- ---- ----- -----
Net loss................................. (530)% (270)% (153)% (127)% (263)%
==== ==== ==== ===== =====
</TABLE>
Results of Operations for the Years Ended December 31, 1997, 1998 and 1999 and
Six Months Ended June 30, 1999 and 2000
Revenues. Currently our revenues are derived from our consumer, merchant and
wireless services. These include advertising, subscriber fees, commerce
transaction fees, and guaranteed transaction fees in lieu of revenue share. We
tailor agreements to fit the needs of our customers, affiliates and
distribution partners, and under any one agreement we may earn revenue from a
combination of these sources. We also have agreements that utilize services
from more than one of our areas of service. Revenues were $37.4 million the
year ended December 31, 1999, $9.6 million the year ended December 31, 1998 and
$1.8 million for the year ended December 31, 1997. The increases are primarily
due to significant growth in our consumer and merchant services as a result of
increased expansion of our affiliate network, increased traffic to our
affiliate network that results in increased page views, increased use of our
consumer, merchant and wireless services, as well as larger and longer term
agreements with advertisers, affiliates and
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distribution partners. We entered into 286 new agreements with advertisers,
affiliates and distribution partners during the year ended December 31, 1999.
Revenues increased $31.3 million, or 256%, to $43.6 million in the six-month
period ended June 30, 2000 from the comparable period in 1999. This increase is
due primarily to significant growth in our consumer and merchant services as a
result of the expansion of our affiliate network, which consists of more than
3,100 Web sites and wireless devices and increased use of our consumer,
merchant and wireless services, as well as larger and longer term agreements
with advertisers, affiliates and distribution partners.
Cost of Revenues. Cost of revenues consists of expenses associated with the
enhancement, maintenance and support of our consumer, merchant and wireless
services, including direct personnel expenses, communication costs such as
high-speed Internet access, server equipment depreciation, and content license
fees. Cost of revenues were $7.3 million, or 19% of revenues, for the year
ended December 31, 1999 compared to $2.3 million, or 24% of revenues, for the
year ended December 31, 1998 and $493,000, or 27% of revenues, for the year
ended December 31, 1997. Cost of revenues were $7.6 million, or 17% of
revenues, for the six-month period ended June 30, 2000 compared to $3.0
million, or 24% of revenues, for the six-month period ended June 30, 1999. The
absolute dollar increases are primarily attributable to personnel costs and
other costs incurred in order to support greatly increased delivery of our
consumer, merchant and wireless solutions, including communication lines, data
licenses and equipment. We expect the absolute dollars spent on personnel,
enhanced content and expanded communications will continue to increase in the
foreseeable future. We currently anticipate that cost of revenues will be in
the high teens as a percentage of revenues for the remainder of 2000.
Product Development Expenses. Product development expenses consist
principally of personnel costs for research, design and development of the
proprietary technology we use to integrate and distribute our consumer,
merchant and wireless services. Product development expenses were $11.3 million
or 30% of revenues for the year ended December 31, 1999, compared to $7.6
million or 79% of revenues, for the year ended December 31, 1998 and $4.6
million, or 251% of revenues, for the year ended December 31, 1997. Product
development expenses increased $5.5 million to $10.4 million in the six-month
period ended June 30, 2000, from $4.9 million for the comparable period in
1999. The increases in absolute dollars are primarily attributable to increases
in engineering personnel needed for continued development of our products and
service offerings. We believe that significant investments in technology are
necessary to remain competitive. Accordingly, we expect product development
expenses to continue to increase in absolute dollars as we hire additional
personnel who will develop and enhance our proprietary technology.
Sales, General and Administrative Expenses. Sales, general and administrative
expenses consist primarily of salaries and related benefits for sales, general
and administrative personnel, advertising and promotion expenses, carriage
fees, professional service fees, occupancy and general office expenses and
travel expenses. Sales, general and administrative expenses were $60.1 million
or 161% of revenues, for the year ended December 31, 1999 compared to $18.2
million or 189% of revenues, for the year ended December 31, 1998 and $6.5
million or 360% of revenues, for the year ended December 31, 1997. The absolute
dollar increases from the prior year were primarily due to increased staffing
levels necessary to manage and support our sales and operations teams, carriage
fees paid to certain affiliates, increased advertising and expansion of our
facilities and professional services. Sales, general and administrative
expenses were $35.5 million, or 81% in the six-month period ended June 30,
2000, compared to $18.7 million or 153% for the comparable period in 1999. The
absolute dollar increase is primarily due to increased personnel costs,
carriage fees paid to certain affiliates to include our content services on
their Web sites and travel expenses. Included in the 1999 expense is $17.7
million of expense recorded for the fair market value of warrants issued by
Prio, Inc. Prio had issued warrants for services provided.
Amortization of Intangibles. Amortization of intangibles includes
amortization of goodwill, core technology, purchased domain names, trademark,
contract lists and assembled workforce. Amortization of intangibles was $3.2
million in 1999, compared to $710,000 in 1998 and $64,000 in 1997. Amortization
of
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intangibles was $27.4 million in the six months ended June 30, 2000, compared
to $604,000 in the six months ended June 30, 1999. The increases are a result
of amortization of intangibles recorded from the acquisitions of Saraide and
Millet Software in March 2000, Zephyr Software and eComLive in December of
1999, Union-Street in October 1999, the MyAgent technology acquisition in June
1999 and Outpost Network in July 1998. With the exception of Zephyr,
intangibles of applicable goodwill, core technology, contract list and acquired
workforce for each acquisition are being amortized over five years. The
amortization of goodwill for Zephyr is over three years. We acquired IQOrder on
July 3, 2000. Amortization expense for the intangibles acquired in this
transaction will be included in the third quarter of 2000. In the event that we
complete additional acquisitions, which we expect to do, expenses relating to
the amortization of intangibles could increase in the future.
Acquisition and Related Charges. Acquisition and other related charges
consist of in-process research and development and other one-time charges
related directly to acquisitions, such as legal and accounting fees. The
acquisition and related charges in 1999 were one-time in-process research and
development charges and costs incurred in the purchase acquisitions of
eComLive, Union-Street and the My Agent technology. Also included in
acquisition and other related charges in 1999 are the costs incurred in the
acquisition of INEX, which was accounted for as a pooling-of-interests. Total
in-process research and development charges in 1999 were $9.2 million. The
acquisition and related charges in the six months ended June 30, 2000 were one-
time in-process research and development charges and costs incurred in the
purchase acquisitions of Saraide and Millet Software. Also included in
acquisition and other related charges in 2000 are the costs incurred in the
acquisition of Prio, which was accounted for as a pooling of interests
transaction. Total in-process research and development charges in the first six
months of 2000 was $74.1 million. We expect to continue to pursue an aggressive
growth strategy to enhance and expand our consumer, merchant and wireless
services. In the event we complete additional acquisitions, we could incur
additional acquisition and related charges in the future.
Other Non-Recurring Charges. Other non-recurring charges in 1999 consist of
costs associated with litigation settlements. In February 2000, we reached a
settlement with an alleged employee in a lawsuit for a cash payment of $10.5
million. We accrued and expensed this liability in 1999. On July 23, 1999, we
settled a patent infringement claim in exchange for a lump sum royalty payment
of $209,500. This expense was recorded in 1999. On February 22, 1999, we
reached a settlement with a former employee for a cash payment of $4.5 million.
We accrued and expensed this liability in 1998.
In the six months ended June 30, 2000 other non-recurring charges consisted
of an expense recorded for the fair market value of warrants issued by Prio.
Prio had previously issued warrants for services provided. These warrants were
accounted for under variable plan accounting. Subsequent to the acquisition of
Prio, the agreement pursuant to which these warrants were granted was
terminated and the remaining unvested warrants accelerated to full vesting. For
1999 the warrant expense was $17,652,693 and for the six months ended June 30,
2000 the warrant expense was $2,887,609. As these warrants are fully vested, no
additional expense for these warrants will be recorded in future periods.
Unrealized Gain on Investments Held. Unrealized gain on investments held
represents the unrealized gain on the investments in the InfoSpace Venture
Capital Fund 2000 of which InfoSpace owned 59.2% as of June 30, 2000. In
accordance with Accounting for Investments in Venture Capital Funds, the
investments are recorded at their market value and the unrealized gains are
reflected in the income statement in the Fund, which is fully consolidated. The
unrealized gain recognized in the six months ended June 30, 2000 is not
necessarily indicative of future results.
Minority Interest in Venture Capital Fund. As the majority holder in the
InfoSpace Venture Capital Fund 2000, we have recorded 100% of the balance sheet
and statement of operations in our consolidated financial statements. The non-
InfoSpace portion of the net income in the fund has been reflected as minority
interest. As of June 30, 2000, InfoSpace owned 59.2% of the fund, our employees
owned the remaining 40.8% of the fund.
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Restructuring Charges. Restructuring charges of $2.2 million for the six
months ended June 30, 2000 reflect actual and estimated costs associated with
the closure of our Dallas, Texas facility. These costs are primarily comprised
of the write off of leasehold improvements, early lease termination penalties,
relocation costs and other personnel costs. We acquired this facility in the
acquisition of Saraide, Inc in March of 2000. Our decision to close this office
was primarily due to duplicated efforts in this facility and our other
locations and the forecasted cost savings from the closure of the facility.
Other Income, Net. Other income consists primarily of interest income for all
periods. Other income was $11.7 million in 1999, $593,000 in 1998 and $39,000
in 1997. Other income was $6.0 million in the six months ended June 30, 2000,
compared to $4.6 million from the comparable period of 1999. The increase from
the prior years is primarily due to interest earned on higher average cash
balances resulting from private financings in July and August of 1998, the net
proceeds from our initial public offering completed in December 1998, and the
net proceeds from our follow-on offering, which closed in April 1999.
We have reinvested and will continue to reinvest part of our fixed income
securities in equity investments. We anticipate that our expansion plans may
require greater cash uses in the remainder 2000 than in prior years. With these
two factors, we anticipate that our interest income from our fixed securities
will decrease in the remainder 2000, compared with 1999.
Provision for Income Taxes and Income Tax Expense. Net operating losses have
been incurred to date on a cumulative basis, and no tax benefit has been
recorded, as sufficient uncertainty exists regarding the realizability of the
deferred tax assets. The income tax expense in the six months ended June 30,
2000 is from our international operations in Europe.
Balance Sheet Commentary
Accounts Receivable. As we enter into agreements for larger amounts with
larger, well established companies, we periodically must provide extended
payment terms beyond our standard 15 to 30 day terms to allow for the
customer's internal approval and payment processing systems. In addition, we
are issuing single invoices for larger dollar amounts. For example, at June 30,
2000 the receivable from one customer represented 23% of the accounts
receivable balance. This amount was received within payment terms subsequent to
period end.
Allowance for Doubtful Accounts. We specifically reserve all accounts sixty
days or more past due. In addition, we reserve an amount based on revenues and
the accounts receivable balance for accounts not specifically identified.
We have a stringent credit review process and require payment in advance from
those customers that do not qualify under our trade credit guidelines.
Deferred Revenue. The increase in the six months ending June 30, 2000 was
primarily due to prepayment under two new large contracts closed during the
quarter and our policy put in place at the beginning of the year of obtaining
payment from customers in advance of delivering services whenever practicable.
Liquidity and Capital Resources
From our inception in March 1996 through May 1998, we funded operations with
approximately $1.5 million in equity financing and, to a lesser extent, from
revenues generated for services performed. In May 1998, we completed a $5.1
million private placement of our common stock, and in July and August 1998, we
completed an additional private placement of our common stock for $8.2 million.
Sales of our common stock to employees pursuant to our 1998 Stock Purchase
Rights Plan also raised $1.7 million in July 1998. Our initial public offering
in December 1998 yielded net proceeds of $77.8 million and a follow-on
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public offering in April 1999 yielded net proceeds of $185.0 million. As of
June 30, 2000, we had cash, cash equivalents and short-term investments of
$146.7 million and long-term investments of $76.5 million.
Net cash used by operating activities was $34.9 million in 1999. Cash used in
operating activities for the year ended December 31, 1999 consisted primarily
of net operating losses and increases in accounts receivable, notes receivable
and prepaid expenses. These uses of cash were partially offset by increases in
accrued expenses. Net cash used by operating activities was $13.6 million in
1998. Cash used in operating activities in 1998 consisted primarily of net
operating losses and increases in accounts receivable and prepaid expenses.
These uses of cash were partially offset by increases in accrued expenses. Net
cash used by operating activities was $7.3 million in 1997, which was primarily
comprised of the net loss. Net cash used by operating activities was $21.1
million in the six months ended June 30, 2000, consisting primarily of net
operating losses and decreases in accounts payable. Net cash used by operating
activities of $13.5 million during the six months ended June 30, 1999 consisted
primarily of net operating losses.
Net cash used by investing activities was $159.7 million in the year ended
December 31, 1999. For 1999, cash used in investing activities was primarily
comprised of business acquisitions, securities investments, other investments
and purchase of fixed assets. The change in securities investments is primarily
a result of investing proceeds from our follow-on offering in short and long-
term investments. Net cash used in investing activities in 1998 was $83.7
million. This was primarily a result of investing the cash proceeds from the
initial public offering in short and long-term investments. Net cash used by
investing activities in 1997 was $958,000 and was primarily for the purchase of
fixed assets. Net cash provided by investing activities was $23.9 million in
the six months ended June 30, 2000. For this period, cash provided by investing
activities was primarily comprised of the reduction of short-term and long-term
investments and inclusion of minority interest. This cash increase was offset
by business acquisition costs, issuance of notes receivable and additional
investments. Net cash used by investing activities during the six months ended
June 30, 1999 was $104.4 million. This was primarily a result of investing the
cash proceeds from the initial public offering in short and long-term
investments.
Cash provided by financing activities in 1999 was $192.6 million and was
primarily comprised of our net proceeds from our follow-on offering in April
1999. Cash provided by financing activities in 1998 was $125.3 million. The
1998 net proceeds were primarily from our initial public offering and, to a
lesser extent, from private placements of common stock. Cash provided by
financing activities in 1997 was primarily from private placements of our
common stock. Cash used in financing activities in the six months ended June
30, 2000 of $4.8 million was primarily comprised of the payoff of debt assumed
in the acquisition of Saraide and was offset by proceeds from the exercise of
stock options, warrants and issuance of shares under our 1998 Employee Stock
Purchase Plan. Cash provided by financing activities in the six months ended
June 30, 1999 of $187.8 was primarily comprised of proceeds from the sale of
common stock in our follow-on offering in April 1999.
We plan to use our cash for strategic investments and acquisitions,
investments in internally developed technology, global expansion of our
services and continued build-out of infrastructure in Europe, Asia and South
America.
We believe that existing cash balances, cash equivalents and cash generated
from operations will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
However, the underlying assumed levels of revenues and expenses may not prove
to be accurate. We 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 favorable terms. If we raise
additional funds by issuing equity securities, dilution to existing
stockholders will result. If funding is insufficient at any time in the future,
we may be unable to develop or enhance our products or services, take advantage
of business opportunities or respond to competitive pressures, any of which
could harm our business. See "Risk Factors--Risks Relating to InfoSpace--We may
require additional funding."
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Acquisitions
Orchest, Inc. On August 4, 2000 we acquired all of the outstanding capital
stock of Orchest, Inc., a privately held company based in Cupertino,
California, for a purchase consideration of 255,288 shares of our common stock.
Orchest is an online provider of financial services that enables users to
access a consolidated view of their personal financial information from
multiple institutions. The acquisition was accounted for as a purchase.
IQorder.com, Inc. On July 3, 2000, we acquired Tempe, Arizona-based
IQorder.com, a company that has developed technology that allows consumers to
enter in a model number, UPC code, part number, barcode or ISBN to locate a
product, compare prices and make an instant purchase. Under the terms of the
acquisition, which will be accounted for as a purchase, we exchanged 989,959
shares of our common stock for all of IQorder's outstanding shares, warrants
and options valued at $58 million.
Millet Software. On March 31, 2000 we acquired all of the common stock of
Millet Software, a privately held company, for a purchase consideration of
488,224 shares of our common stock and acquisition expenses of $54,531. The
acquisition was accounted for as a purchase in accordance with the provisions
of APB No. 16.
In this transaction, we assumed net assets of $5.9 million. This includes
$6.0 million in purchased technology which includes in-process research and
development, $170,000 of acquired workforce and $294,020 in net liabilities. We
issued shares with a fair value of $29.6 million and incurred acquisition costs
of $54,531. This resulted in $18.5 million of goodwill.
We recorded a non-recurring charge of $2.4 million for in-process research
and development that had not yet reached technological feasibility and had no
alternative future use. Among the factors we considered in determining the
amount of the allocation of the purchase price to in-process research and
development the estimated stage of development of each module of the
technology, including the complexity and technical obstacles to overcome,
estimating the estimated expected life of each module, estimated cash flows
resulting from the expected revenues, margins, and operating expenses generated
from each module, and discounted the present value of cash flows associated
with the in-process technologies. Considering the inherent difficulty in
developing estimates of future performance for emerging technologies such as
the Millet Software applications, we utilized a relatively high rate of return
(30%) to discount to present value the cash flows associated with the in-
process technologies.
Within the Millet Software technology there are three technologies, Form L,
Smart Mapper and Screen Walking. As of the date of acquisition, we estimated
that the Form L, Smart Mapper and Screen Walking technologies were 100%, 85%
and 65% completed, respectively. The percentage completed pre-acquisition for
each application was based primarily on the evaluation of two major factors:
time-based data and complexity-based data. The core technology reliance for the
Smart Mapper and Screen Walking technologies was 40% and 20%, respectively.
We expect to fully integrate these technologies into our full suite of
Internet information infrastructure service offerings. Further, the modules
will not be distinguishable market segments for financial reporting purposes or
for management purposes. Consequently, there will be no separate and
distinguishable allocations or utilizations of net working capital, and no
specific charges for use of contributory assets. None of our operating expenses
are allocated to specific service offerings. The expected life of the modules
being developed was assumed to be five years, after which substantial
modification and enhancement would be required for the modules to remain
competitive.
Our revenue assumptions for these modules were based on the subscription and
transaction revenue we expect to generate from our shopping services. Our
expense assumptions for these modules included cost of revenues, which we
estimated to be 3% of revenues as we will incur minimal costs to deliver this
technology
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on the platforms already developed and in use by us. Sales and marketing
expenses combined with general and administrative expenses were estimated to be
35% in the first two years, and thereafter to range between 30% to 35% as a
percentage of revenues. However, cost of revenues, sales and marketing expenses
and general and administrative expenses may vary, both in absolute dollars and
as a percentage of revenues.
While we believe that the assumptions discussed above were made in good faith
and were reasonable when made, such assumptions remain largely untested, as the
three modules are not yet in service. Accordingly, the assumptions we made may
prove to be inaccurate, and there can be no assurance that we will realize the
revenues, gross profit, growth rates, expense levels or other variables set
forth in such assumptions.
We do not expect to have the ability to calculate revenues specifically and
exclusively attributable to the integrated Millet technology. Further, the
absence of such attribution will not be material to any module's success. The
amount that we can charge customers for access and use of these modules will be
greatly influenced by market forces and competitor's pricing of their own
packaged and integrated offerings.
Saraide Inc. On March 10, 2000 we acquired eighty percent of the common stock
of Saraide, a privately held company, for a purchase consideration of 9,233,672
shares and acquisition expenses of $340,489. The acquisition was accounted for
as a purchase in accordance with the provisions of APB No. 16.
In this transaction, we assumed net liabilities of $16.2 million. The
purchase includes $97.0 million in purchased technology which includes in-
process research and development, $16.0 million of contract list, $2.1 million
of acquired workforce and $16.2 million in net liabilities.
We issued shares with a fair value of $347.0 million and incurred acquisition
costs of $340,489. This resulted in $248.4 million of goodwill.
We recorded a non-recurring charge of $71.7 million for in-process research
and development that had not yet reached technological feasibility and had no
alternative future use. Among the factors we considered in determining the
amount of the allocation of the purchase price to in-process research and
development were various factors such as estimating the stage of development of
each module of the technology, including the complexity and technical obstacles
to overcome, estimating the expected life of each module, estimating cash flows
resulting from the expected revenues, margins, and operating expenses generated
from each module, and discounting to present value the cash flows associated
with the in-process technologies.
At the date of acquisition, Sariade had eight technologies which had not yet
reached technological feasibility: (1) asynchronous bridges, (2) lookup
service/persistent cache services, (3) transaction services, (4) open standards
application provider interface ("API"), (5) SS7 signaling functionality, (6)
security infrastructure, (7) location enabler, and (8) commerce enabler. With
the exception of the asynchronous bridges, all projects were estimated to be
commercially deployable in 2000. Once complete, these projects will provide the
fundamental operating system and infrastructure for the distributed networked
system platform ("DNSP"), Saraide's value added service platform under
development.
The expected life of the modules being developed was assumed to be five to
seven years, after which substantial modification and enhancement would be
required for the modules to remain competitive.
Our revenue assumptions for these modules were based on the number of
carriers in Europe and North America we estimated would utilize these services,
and the number of messages per month for Europe and the number of subscribers
per month for North America signed up with these carriers that would utilize
these services.
Our expense assumptions for these modules included cost of revenues, which we
estimated to be 65% for 2000 and decreasing to 43% of revenues as we will incur
costs to deploy the technology globally.
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Research and development costs were estimated to be 4.4% of revenues in 2000,
decreasing to 2.2%. Sales and marketing expenses combined with general and
administrative expenses were estimated to be 70% for 2000, and thereafter
decreasing to 20% as a percentage of revenues in line with industry levels as
the Company capitalizes on economies of scale. However, cost of revenues, sales
and marketing expenses and general and administrative expenses may vary, both
in absolute dollars and as a percentage of revenues.
While we believe that the assumptions discussed above were made in good faith
and were reasonable when made, such assumptions remain largely untested, as the
technologies are in the process of being integrated and released with our full
suite of integrated Internet information infrastructure technologies and
services for wireless devices. Accordingly, the assumptions we made may prove
to be inaccurate, and there can be no assurance that we will realize the
revenues, gross profit, growth rates, expense levels or other variables set
forth in such assumptions. Considering the inherent difficulty in developing
estimates of future performance for emerging technologies such as the Saraide
technologies, we utilized a relatively high rate of return (35.0% to 37.5%) to
discount to present value the cash flows associated with the in-process
technologies.
We do not expect to have the ability to calculate revenues specifically and
exclusively attributable to the integrated Saraide technology. Further, the
absence of such attribution will not be material to any module's success. The
amount that we can charge the wireless carriers and device manufacturers for
access and use of these modules will be greatly influenced by market forces and
by our competitor's pricing of their own packaged and integrated offerings.
Prio, Inc. On February 14, 2000, we consummated the acquisition, pursuant to
an Agreement and Plan of Acquisition and Amalgamation, of Prio, a privately
held company. The combination was accounted for as a pooling of interests. We
issued 9,322,418 shares of our common stock in exchange for all the outstanding
common and preferred stock of Prio.
Prio provides commerce solutions specializing in the development of strategic
partnerships, technologies and programs that drive commerce in both traditional
and online shopping environments and Internet commerce applications that
deliver solutions designed for small and medium-sized merchants to build,
manage and promote online storefronts. We have added these service offerings to
our merchant services. The consolidated financial statements and the
accompanying notes reflect our financial position and the results of operations
as if Prio was our wholly-owned subsidiary since inception.
Zephyr Software Inc.: On December 29, 1999, we acquired all of the common
stock of Zephyr Software Inc., a privately held company, and its wholly owned
subsidiary Zephyr Software (India) Private Limited for a purchase consideration
of 651,392 shares of our common stock and acquisition expenses of $539,512. The
acquisition was accounted for as a purchase in accordance with Accounting
Principles Board ("APB") No. 16. Results of operations for Zephyr have been
included with our results of operations for the period subsequent to the date
of acquisition.
In this transaction, we assumed net liabilities of $20,690, issued shares
with a fair value of $8,643,105 and incurred acquisition costs of $539,512.
This acquisition resulted in our recording $9,203,307 of goodwill.
eComLive.com, Inc.: On December 16, 1999, we acquired all of the common stock
of eComLive.com, Inc., a privately held company, for a purchase consideration
of 1,372,712 shares and acquisition expenses of $582,246. The acquisition was
accounted for as a purchase in accordance with the provisions of APB No. 16.
In this transaction, we assumed net assets of $5,439,075. This includes
$5,300,000 in purchased technology which includes in-process research and
development, $140,000 of acquired workforce and $925 in net liabilities. We
issued shares with a fair value of $31,995,220 and incurred acquisition costs
of $582,246. This acquisition resulted in our recording $27,138,391 of
goodwill.
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We recorded a non-recurring charge of $2.0 million for in-process research
and development that had not yet reached technological feasibility and had no
alternative future use.
The eComLive technology is built on client-server architecture. There are
three main applications, Interactive eComLive for the Consumer to Consumer
(C2C) market, Business eComLive targeted to the Business to Business (B2B)
market and Consumer eComLive for the Business to Consumer (B2C) market. We have
the ability to integrate the C2C eComLive technology into the InfoSpace Web
site and launch this technology with our consumer services. We also plan to
offer a co-branded version to our affiliates as part of our suite of co-branded
service offerings. The expected life of the modules being developed was assumed
to be five years, after which substantial modification and enhancement would be
required for the modules to remain competitive.
Union-Street: On October 14, 1999 we acquired all of the common stock of
Union-Street, a privately held company, for a purchase consideration of
1,746,588 shares and acquisition expenses of $395,656. The acquisition was
accounted for as a purchase in accordance with the provisions of APB No. 16.
In this transaction, we assumed net assets of $5,352,781. This includes
$5,300,000 in purchased technology which includes in-process research and
development, $160,000 of acquired workforce and $107,219 in net liabilities. We
issued shares with a fair value of $20,487,518 and incurred acquisition costs
of $395,656. This acquisition resulted in our recording $15,530,393 of
goodwill.
We recorded a non-recurring charge of $3.3 million for in-process research
and development that had not yet reached technological feasibility and had no
alternative future use.
The Union-Street technology called Traction Series 3.0 is comprised of six
modules that promote inter-activity on the customer's Web site. Businesses can
integrate individual modules onto their sites or integrate all of the modules
to form a comprehensive community solution. The modules include (1) Web Site
Creator, (2) Event Manager, (3) Relationship Manager, (4) Forums, (5) Chat and
(6) Email. We have integrated most of the Union-Street technology into the
InfoSpace Web site and have launched the technology with our consumer services.
We also plan to offer a co-branded version to our affiliates as part of our
suite of co-branded service offerings. The expected life of the modules being
developed was assumed to be five years, after which substantial modification
and enhancement would be required for the modules to remain competitive.
INEX Corporation: On October 14, 1999, we consummated an Agreement and Plan
of Acquisition and Amalgamation with INEX Corporation, a privately held
company. The combination was accounted for as a pooling of interests. We issued
3,600,000 shares of our common stock (1) directly to those INEX stockholders
who elected to receive our common stock in exchange for their INEX shares at
the closing of the combination, (2) upon the exchange or redemption of the
exchangeable shares of InfoSpace.com Canada Holdings Inc., an indirect
subsidiary of ours, which exchangeable shares were issued to those INEX
stockholders who elected to receive exchangeable shares, or who did not make an
election to receive shares of our common stock at the closing, and (3) upon the
exercise of outstanding warrants and options to purchase INEX common shares,
which we assumed and which will become exercisable for shares of our common
stock.
INEX developed and marketed Internet commerce applications that deliver
solutions designed for small and medium-sized merchants to build, manage and
promote online storefronts. We have added these products to our merchant
services. The consolidated financial statements for the three years ended
December 31, 1999 and the accompanying notes reflect our financial position and
the results of operations as if INEX were our wholly-owned subsidiary since
inception.
MyAgent(TM) Technology: On June 30, 1999, we acquired the MyAgent technology
and related assets from Active Voice Corporation for a cash payment of $18
million. In addition, we hired six employees who
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comprised the MyAgent development team at Active Voice. The acquisition was
accounted for as a purchase in accordance with the provisions of APB No. 16.
Other than the MyAgent technology modules, no other assets or liabilities were
assumed as part of this acquisition.
The total purchase price of the acquisition of the MyAgent technology was
$18.1 million including direct acquisition expenses of $83,054. In this
transaction, we assumed net assets of $4,380,000. This includes $4,300,000 in
purchased technology, which includes in-process research and development, and
$80,000 of acquired workforce. This acquisition resulted in our recording
$13,703,054 of goodwill.
We recorded a non-recurring charge of $3.9 million for in-process research
and development that had not yet reached technological feasibility and had no
alternative future use. Separately, we recorded a one-time charge of $1.0
million for expenses related to bonus payments made to the Active Voice MyAgent
team employees who accepted employment with us on the date of the MyAgent
technology acquisition, but who have no obligation to continue their employment
with us.
Within the MyAgent technology there are three main modules, the Client,
Server Intelligence, and Web Interface. We integrated the MyAgent technology
into the InfoSpace Web site and launched the technology with our desktop
portal. We also plan to offer a co-branded version to our affiliates as part of
our suite of co-branded service offerings. The Client and Server Intelligence
and Web interface were released in the fourth quarter of 1999.
Technology from Outpost: In June 1998, we acquired Outpost, which included
the acquisition of the Outpost technology and the hiring of approximately ten
employees. In the second quarter of 1998, we wrote off approximately $2.8
million of in-process research and development in connection with the Outpost
acquisition.
Within the acquired Outpost technology (smart-shopping services) there are
four main modules:
. integrated content that provides users with product pricing and merchant
information;
. transaction proxy that allows us to track sales transactions from
beginning to end and to receive confirmation reports from the retailers;
. branding that allows users to travel to affiliate Web sites without
leaving the InfoSpace.com Web site; and
. universal shopping cart that allows users to make multiple purchases at
different retailers in one execution.
These modules have been integrated into our full suite of Internet service
offerings. The integrated content module was completed and integrated into our
Web site in the third quarter of 1998. Relevant portions of the transaction
proxy, branding and shopping cart modules were completed and integrated into
our ActiveShopper(TM) electronic commerce private label solution that was
launched in 1999.
Quarterly Results of Operations
The following table sets forth certain consolidated statements of operations
data for our ten most recent quarters, as well as such data expressed as a
percentage of revenues. We have derived this information from our unaudited
consolidated financial statements. In management's opinion, we have prepared
this unaudited information on the same basis as the audited annual consolidated
financial statements, and this information includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation for the
quarters presented. You should read this information in conjunction with our
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.
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<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
--------- -------- ------------- ------------ --------- -------- ------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... $ 1,028 $ 1,881 $ 2,613 $ 4,110 $ 5,259 $ 6,980 $10,465 $ 14,686 $ 19,006
Cost of
revenues........ 213 378 632 1,108 1,309 1,644 2,027 2,287 3,119
------- ------- ------- -------- ------- ------- ------- -------- --------
Gross profit.... 815 1,503 1,981 3,002 3,950 5,336 8,438 12,399 15,887
Operating
expenses:
Product
development.... 1,044 1,629 2,207 2,688 2,487 2,439 2,647 3,743 4,777
Sales, general
and
administrative.. -- 4,168 4,757 6,770 8,067 10,633 11,421 12,364 14,530
Amortization of
intangibles.... 14 107 293 296 299 305 1,014 1,605 7,491
Acquisition and
related
charges........ -- 2,800 -- -- -- 4,970 926 7,455 86,397
Other--non-
recurring
charges........ -- 240 -- 4,260 -- 210 1,487 27,315 2,888
------- ------- ------- -------- ------- ------- ------- -------- --------
Total operating
expenses....... 3,524 8,944 7,257 14,014 10,853 18,557 17,495 52,482 116,083
------- ------- ------- -------- ------- ------- ------- -------- --------
Loss from
operations...... (2,709) (7,441) (5,276) (11,012) (6,903) (13,221) (9,057) (40,083) (100,196)
Other income,
net............. 123 31 448 267 266 3,361 3,327 3,738 3,463
Unrealized gain
(loss) on
investments..... -- -- -- -- -- -- -- -- 23,598
Restructuring
charges......... -- -- -- -- -- -- -- -- --
Minority
interest........ -- -- -- -- -- -- -- -- (9,843)
Income tax
expense......... -- -- -- -- -- -- -- -- (18)
Cumulative effect
of change in
accounting
principle....... -- -- -- -- -- -- -- -- (719)
------- ------- ------- -------- ------- ------- ------- -------- --------
Net income
(loss).......... $(2,586) $(7,410) $(5,228) $(10,745) $(5,637) $(9,860) $(5,730) $(36,345) $(83,715)
======= ======= ======= ======== ======= ======= ======= ======== ========
<CAPTION>
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
--------- -------- ------------- ------------ --------- -------- ------------- ------------ ---------
(as a percentage of revenues)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of
revenues........ 20.7 20.1 24.2 27.0 24.9 23.6 19.4 15.6 16.4
------- ------- ------- -------- ------- ------- ------- -------- --------
Gross profit.... 79.3 79.9 75.8 73.0 75.1 76.4 80.6 84.4 83.6
Operating
expenses:
Product
development.... 101.6 86.6 84.5 65.4 47.3 34.9 25.3 25.5 25.1
Sales, general
and
administrative.. 142.1 121.6 182.1 164.8 153.4 152.3 109.1 84.2 76.5
Amortization of
intangibles.... 1.4 5.7 11.2 7.2 5.7 4.4 9.7 10.9 39.4
Acquisition and
related
charges........ -- 148.9 -- -- -- 71.2 8.8 50.8 454.6
Other--non-
recurring
charges........ -- 12.8 -- 103.6 -- 3.0 14.2 186.0 15.2
------- ------- ------- -------- ------- ------- ------- -------- --------
Total operating
expenses....... 342.8 475.5 277.7 341.0 206.4 265.9 167.2 357.4 610.8
------- ------- ------- -------- ------- ------- ------- -------- --------
Loss from
operations...... (263.5) (395.6) (201.9) (267.9) (131.3) (189.4) (86.5) (272.9) (527.2)
Other income,
net............. 12.0 1.6 1.8 6.5 24.1 48.1 31.8 24.3 18.2
Unrealized gain
(loss) on
investments..... -- -- -- -- -- -- -- -- 124.2
Restructuring
charges......... -- -- -- -- -- -- -- -- (51.8)
Minority
interest........ -- -- -- -- -- -- -- -- --
Income tax
expense......... -- -- -- -- -- -- -- -- 0.0
Cumulative effect
of change in
accounting
principle....... -- -- -- -- -- -- -- -- 0.4
------- ------- ------- -------- ------- ------- ------- -------- --------
Net income
(loss).......... (251.6)% (393.9)% (200.1)% (261.4)% (107.2)% (141.3)% (54.8)% (247.5)% (436.6)%
======= ======= ======= ======== ======= ======= ======= ======== ========
<CAPTION>
June 30,
2000
----------
<S> <C>
Revenues......... $ 24,572
Cost of
revenues........ 4,478
----------
Gross profit.... 20,094
Operating
expenses:
Product
development.... 5,649
Sales, general
and
administrative.. 20,938
Amortization of
intangibles.... 19,938
Acquisition and
related
charges........ 202
Other--non-
recurring
charges........ --
----------
Total operating
expenses....... 46,727
----------
Loss from
operations...... (26,633)
Other income,
net............. 2,583
Unrealized gain
(loss) on
investments..... (8,447)
Restructuring
charges......... (2,171)
Minority
interest........ 3,445
Income tax
expense......... (6)
Cumulative effect
of change in
accounting
principle....... --
----------
Net income
(loss).......... $(31,229)
==========
<CAPTION>
June 30,
2000
----------
<S> <C>
Revenues......... 100.0 %
Cost of
revenues........ 18.2
----------
Gross profit.... 81.8
Operating
expenses:
Product
development.... 23.0
Sales, general
and
administrative.. 85.2
Amortization of
intangibles.... 81.1
Acquisition and
related
charges........ 0.8
Other--non-
recurring
charges........ --
----------
Total operating
expenses....... 190.1
----------
Loss from
operations...... (108.3)
Other income,
net............. 10.5
Unrealized gain
(loss) on
investments..... (34.3)
Restructuring
charges......... 14.0
Minority
interest........ (8.9)
Income tax
expense......... 0.0
Cumulative effect
of change in
accounting
principle....... --
----------
Net income
(loss).......... (127.0)%
==========
</TABLE>
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Our quarterly and annual revenue, expenses and operating results have
fluctuated in the past and are likely to fluctuate significantly in the future
due to a variety of factors, many of which are beyond our control. Because of
these fluctuations, we believe that period-to-period comparisons are not a good
indication of our future financial performance. We may not be able to sustain
or increase our level of revenue or our rate of revenue growth on a quarterly
or annual basis. Our quarterly or annual operating results may not meet the
expectations of investors. If this happens, the price of our stock could
decline. See "Risk Factors--Risks Relating to InfoSpace--Our financial results
are likely to fluctuate" and "Risk Factors--General Risks Related to the
Merger--InfoSpace's stock is volatile."
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements. We
adopted SAB 101 on January 1, 2000. Prior to January 1, 2000 and implementation
of the SAB, we recorded gross revenues from customers for development fees,
implementation fees and/or integration fees when the service was completed. If
this revenue were recognized on a straight-line basis, in accordance with SAB
101, we would have deferred $719,216 as of January 1, 2000. In accordance with
SAB 101, we recorded a cumulative effect of change in accounting principle of
$719,216. We recorded $367,896 in revenue in the six months ended June 30, 2000
related to this deferred revenue. The remaining balance will be recognized from
July 2000 through November 2001.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities. SFAS 133, as amended by SFAS 137, establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. Because the Company has never used
nor currently intends to use derivatives, management does not anticipate that
the adoption of this new standard will have a significant effect on earnings or
the financial position of the Company.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risks, including changes in interest rates
and equity price fluctuations.
Interest Rate Risk: We invest our excess cash in high-quality corporate
issuers, and in debt instruments of the U.S. Government and its agencies. By
policy, we limit our credit exposure to any one issuer. We do not have any
derivative instruments in our investment portfolio. We protect and preserve
invested funds by limiting default, market and reinvestment risk. Investment in
both fixed rate and floating rate interest earning instruments carries a degree
of interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates, while floating rate
securities may produce less income than expected if interest rates fall. Due in
part to these factors, the Company's future investment income may fall short of
expectations due to changes in interest rates or the Company may suffer losses
in principal if forced to sell securities which have declined in market value
due to changes in interest rates.
Equity Investment Risk The Company invests in equity instruments of public
and privately-held technology companies for business and strategic purposes.
These investments are recorded as long-term assets and are classified as
available-for-sale. For the privately-held investments, our policy is to
regularly review the assumptions underlying the operating performance and cash
flow forecasts in assessing the carrying value. For our publicly-held
investments, we are subject to significant fluctuations in fair market value
due to the volatility of the stock market. Changes in fair market value are
recorded as a component of other comprehensive income and do not effect net
income until the securities are sold and a realized gain or loss is incurred.
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INFOSPACE MANAGEMENT
In this section, InfoSpace Management, references to "we," "us," "our" and
"ours" refer to InfoSpace and its consolidated subsidiaries.
Executive Officers and Directors
The following table sets forth certain information as of August 28, 2000 with
respect to InfoSpace's executive officers and directors:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Naveen Jain................... 40 Chairman of the Board
Arun Sarin.................... 45 Vice Chairman; Chief Executive Officer and
President, Wireless Services
Ashok Narasimhan.............. 51 Chief Operating Officer; President, Merchant
Services and Director
Rand L. Rosenberg............. 47 Chief Financial Officer; Senior Vice
President, Finance and Corporate Development
Ellen B. Alben................ 37 Senior Vice President; Legal and Business
Affairs and Secretary
Rasipuram ("Russ") V. Arun.... 42 Chief Technology Officer
Tammy D. Halstead............. 37 Senior Vice President and Chief Accounting
Officer
Joanne R. Harrell............. 45 Senior Vice President, Human Resources and
Facilities
Arif Janjua................... 44 Senior Vice President, Corporate Development
and Content
Chris Nabinger................ 43 Senior Vice President, Worldwide Operations
John E. Cunningham, IV(1)..... 43 Director
Peter L.S. Currie(1)(2)....... 44 Director
David C. House(2)............. 50 Director
Rufus W. Lumry, III........... 53 Director
Carl Stork(2)................. 40 Director
</TABLE>
--------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Naveen Jain founded InfoSpace in March 1996. Mr. Jain has served as our Chief
Executive Officer from inception to April 2000, as our President from inception
to November 1998 and as our sole director from 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 a M.B.A. from St.
Xavier's School of Management.
Arun Sarin joined InfoSpace in April 2000 as Chief Executive Officer and
President, Wireless Services. He was appointed a director in April 2000 and was
appointed Vice Chairman in May 2000. He served as Chief Executive Officer of
the USA/Asia Pacific Region for Vodafone AirTouch, Plc from June 1999 to April
2000. From February 1997 to June 1999, Mr. Sarin was the President and Chief
Operating Officer of AirTouch Communications, Inc., a wireless
telecommunications services company (which was merged with Vodafone Group Plc
to form Vodafone AirTouch, Plc in June 1999). He served as President and Chief
Executive Officer of AirTouch International from April 1994 to February 1997.
After joining Pacific Telesis Group in 1984 (from which AirTouch was spun off
in 1994), Sarin held a variety of positions, including Vice President and
General Manager--Bay and Regional Markets, Vice President--Chief Financial
Officer,
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<PAGE>
Controller and Strategy at Pacific Bell; and Vice President of Corporate
Strategy for Pacific Telesis Group. Mr. Sarin currently serves on the Boards of
Directors of Vodafone AirTouch, Plc, Charles Schwab Corporation and Cisco
Systems, Inc. Mr. Sarin holds an M.B.A. and an M.S. degree from the University
of California at Berkeley and a B.S. in engineering from the Indian Institute
of Technology.
Ashok Narasimhan joined InfoSpace in February 2000 as President, Merchant
Services and was appointed Chief Operating Officer and a director in April
2000. He founded Prio, Inc. in March 1996, and served as Chairman and Chief
Executive Officer. We acquired Prio in February 2000. During the seven years
prior to forming Prio, he was part of the core management team at VeriFone,
where he served as Vice President of Product Development. Prior to VeriFone, he
was the founding Chief Executive Officer of the computer businesses of Wipro,
the largest computer, software and information technology company in India. He
holds a B.S. and an M.B.A. from the Indian Institute of Management, associated
with the Sloan School of Management at MIT.
Rand L. Rosenberg joined InfoSpace in June 2000 as Chief Financial Officer
and Senior Vice President, Finance and Corporate Development. He was a Senior
Managing Director in the media and telecommunications group at Bank of America
Securities (formerly Montgomery Securities) from February 1996 to January 2000.
From February 1994 to February 1996, Mr. Rosenberg was a Managing Director at
Salomon Brothers (now Salomon Smith Barney), where he was head of the global
telecommunications group. Prior to joining Salomon Brothers, Mr. Rosenberg was
a Vice President in the telecommunications and media group at Goldman Sachs,
and served as Executive Director, Corporate Development of Pacific Telesis
Group. Mr. Rosenberg has a B.A. from Whitman College and an M.B.A. from the
University of Chicago.
Ellen B. Alben joined InfoSpace in May 1998 as Vice President, Legal and
Business Affairs and Secretary, and became a Senior Vice President in September
1999. 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., 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, a nursing home provider, and from June 1993 to July 1994 she
served as Associate Counsel of Hillhaven. Prior to joining Hillhaven, Ms. Alben
was in private practice, 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.
Rasipuram ("Russ") V. Arun joined InfoSpace in May 2000 as Chief Technology
Officer. From 1992 to May 2000, he worked for Microsoft where he served in
various capacities including Product Unit Manager, responsible for development
and strategy of products for handheld devices, Win95 Base Program Manager,
Windows 98 Team Group Manager and Java Group Performance Manager. Prior to
joining Microsoft, Mr. Arun had ten years of experience working for SunSoft,
Inc., Multisolutions, Inc. and Zenith Data Systems. Mr. Arun holds a B.S. from
the Indian Institute of Technology, an M.S. from Syracuse University and an
M.B.A. from the University of California at Los Angeles.
Tammy D. Halstead joined InfoSpace in July 1998 as Corporate Controller. In
December 1998, she was appointed Vice President and Chief Accounting Officer,
and from November 1999 to June 2000 she served as Acting Chief Financial
Officer. In June 1999, she became a Senior Vice President. From March 1997 to
June 1998, she worked at the Seattle office of USWeb Corporation, an Internet
professional services firm, where she served as Director of Finance and
Administration and later as Vice President, Finance and Administration. From
April 1996 to March 1997, she was the Director of Finance and Administration at
Cosmix, Inc., which was acquired by USWeb Corporation in March 1997. From
December 1993 to February 1996, she served as Controller of ConnectSoft, Inc.,
a software development company. Prior to joining ConnectSoft, Inc., she spent
eight years in private industry with a division of Gearbulk Ltd., an
international shipping company, and in public accounting with Ernst & Whinney
(now Ernst & Young LLP). She holds a B.A. in Business Administration from Idaho
State University and is a licensed CPA.
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Joanne R. Harrell joined InfoSpace in May 2000 as Senior Vice President,
Human Resources and Facilities. She was President and Chief Executive Officer
for United Way of King County from July 1997 to May 2000. Prior to joining
United Way, Ms. Harrell worked at USWest for 19 years. Most recently, she
headed Nebraska Operations for USWest from July 1995 until July 1997, and
served as Vice President and General Manager for USWest Public Services from
June 1990 to June 1995. Ms. Harrell holds a B.A and an M.B.A. from the
University of Washington.
Arif Janjua joined InfoSpace in December 1999 as President, Consumer Services
and was named Senior Vice President, Corporate Development and Content in May
2000. From February 1999 to November 1999, he was General Manager of North
American operations at Saraide. Prior to Saraide, from 1995 to 1999, he was a
Vice President at A.T. Kearney, a global management consulting firm, where he
led the firm's high technology practice. Prior to that, Mr. Janjua was Director
of Business Operations at a graphics semiconductor firm, S3, where he had
marketing responsibility for all desktop products. From 1991 to 1994, Mr.
Janjua was a senior manager with Gemini Consulting, specializing in the
communications and computer industry. From 1985 to 1989, Mr. Janjua was
Director of Marketing at the Imaging and Graphics Division of Gould
Electronics. From 1981 to 1985, Mr. Janjua was Product Marketing Manager at
International Imaging Systems. He holds a B.S. and M.S. in Electrical
Engineering from University of Windsor, Canada and an M.B.A. from University of
California, Berkeley.
Chris Nabinger joined InfoSpace as Senior Vice President, Worldwide
Operations, in February 2000. He was with Prio, Inc. from October 1998 until
its acquisition by InfoSpace where he served as the Executive Vice President of
Engineering and Operations and oversaw the development and delivery of a
complete suite of online promotional and back-office systems that make up and
support the Prio "e-nabled" commerce product. From March 1996 to October 1998,
Mr. Nabinger served as Vice President, Information Technology at ICG Netcom, an
internet service provider, and from February 1996 to September 1999, he served
as Chief Information Officer for Mobile Telecommunications Technologies
Corporation and GTE Airfone. From September 1994 to February 1996, Mr. Nabinger
was Vice President--Information Services of Mobile Telecommunications
Technologies Corporation. Mr. Nabinger holds a B.S. in Industrial Technology
from Binghamton University and an M.S. in Management, Computing and Systems
from Houston Baptist University.
John E. Cunningham, IV has served as a director of InfoSpace 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, Meals.com, digiMine.com and Gear.com.
Mr. Cunningham also serves as an advisor to Array Microsystems, Inc. and
Virtual Bank.com. 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 InfoSpace 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., 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 currently serves on
the board of directors of Corsair Communications, Inc. Mr. Currie holds a B.A.
from Williams College and an M.B.A. from Stanford University.
David C. House has served as a director of InfoSpace since January 2000. In
June 2000, Mr. House was named Group President, Global Establishment Services
and Travelers Cheque Group of American Express Company. From October 1995 to
June 2000, he served as President, Establishment Services Worldwide of
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American Express Travel Related Services Company, Inc. From January 1993 to
October 1995, he served as Senior Vice President of Sales and Field Marketing
for the United States Establishment Services Group of American Express. In
addition, Mr. House served as a director of Prio, Inc. prior to its acquisition
by the Company in March 2000. Mr. House holds a B.S. from the University of
Minnesota and completed the Program for Management Development at the Harvard
Graduate School of Business Administration.
Rufus W. Lumry, III has served as a director of InfoSpace since December
1998. Since 1992, Mr. Lumry has served as President of Acorn Ventures, Inc., a
venture capital firm he founded. Prior to founding Acorn Ventures, Mr. Lumry
served as a director and Chief Financial Officer of McCaw Cellular
Communications. Mr. Lumry was one of the founders of McCaw in 1982, and retired
from McCaw in 1990 as Executive Vice President and Chief Financial Officer. Mr.
Lumry holds an A.B. from Harvard University and an M.B.A. from the Harvard
Graduate School of Business Administration.
Carl Stork has served as a director of InfoSpace since September 1998. Since
April 1998, Mr. Stork has been General Manager, Hardware Strategy and Business
Development, at Microsoft Corporation. Mr. Stork has held various other
management positions at Microsoft since 1981. Mr. Stork holds a B.A. from
Harvard College and an M.B.A. from the University of Washington.
Board of Directors
Our 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.
We currently have eight directors.
Our board of directors is divided into three classes, with each class to be
as equal in number as possible. Each Class 2 director will serve until our next
annual meeting of stockholders, each Class 3 director will serve until the
following annual meeting of stockholders, and each Class 1 director will serve
until the 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. Messrs. Cunningham, Narasimhan and Sarin
serve as Class 1 directors; Messrs. House, Lumry and Stork serve as Class 2
directors; and Messrs. Jain and Currie serve as Class 3 directors. Directors
may be removed by stockholders only for cause.
Committees of the Board of Directors
The Compensation Committee consists of Messrs. Cunningham and Currie. The
Compensation Committee reviews and approves the compensation and benefits for
our executive officers, administers our Stock Incentive Plan and makes
recommendations to the board of directors regarding such matters.
The Audit Committee consists of Messrs. Currie, House and Stork. Among other
functions, the Audit Committee makes recommendations to our board of directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors, reviews
our balance sheet, statement of operations and cash flows and reviews and
evaluates our internal control functions.
Compensation Committee Interlocks and Insider Participation
No member of our 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 our board of
directors or Compensation Committee.
Director Compensation
We pay directors $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. We also reimburse directors for travel
expenses incurred to attend meetings of the board of directors or committee
meetings.
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Directors are eligible to participate in the Stock Incentive Plan. See "--
Benefit Plans--Stock Option Program for Nonemployee Directors."
Limitation of Liability and Indemnification Matters
Our Restated Certificate of Incorporation limits the liability of our
directors to the fullest 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:
. for any breach of their duty of loyalty to the corporation or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. for any transaction from which the director derived an improper personal
benefit.
Our Restated Bylaws provide that we shall indemnify our directors and
officers and may indemnify our employees and agents to the fullest extent
permitted by law. We believe that indemnification under our Restated Bylaws
covers at least negligence and gross negligence on the part of indemnified
parties. We have also entered into agreements to indemnify our directors and
executive officers. Pursuant to these agreements, among other things, we have
agreed to indemnify our directors and officers for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by them in
any action or proceeding arising out of their services as a director or
officer. We believe that these agreements are necessary to attract and retain
qualified directors and officers.
On December 11, 1998, InfoSpace, all of our directors and Naveen Jain, our
Chief Executive Officer at the time, entered into an Indemnification Agreement
whereby Mr. Jain placed 8,000,000 shares of our common stock beneficially owned
by him in an escrow account to indemnify us and our directors for certain known
and unknown liabilities that may have arisen prior to September 30, 1998. See "
InfoSpace Business--Legal Proceedings."
Compensation of Executive Officers
The following table sets forth information concerning the compensation we
paid to Naveen Jain, our chief executive officer, and the three other executive
officers of InfoSpace as of December 31, 1999 who earned compensation in excess
of $100,000 during 1999 (collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------ ------------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary Options(#) Compensation
--------------------------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Naveen Jain...................... 1999 $231,571 1,400,000 $500(1)
Chief Executive Officer 1998 62,500 -- --
Bernee D. L. Strom(2)............ 1999 270,795 -- --
President and Chief Operating
Officer
Ellen B. Alben................... 1999 130,625 40,000 --
Senior Vice President, Legal and
Business Affairs
and Secretary
Michael D. Kantor(3)............. 1999 541,126(4) 40,000 --
Senior Vice President,
Advertising
</TABLE>
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<PAGE>
--------
(1) Consists of an award to Mr. Jain in connection with patent filings.
(2) Ms. Strom served as our President and Chief Operating Officer until
December 31, 1999. From January 1, 2000 to June 30, 2000, Ms. Strom served
as President of InfoSpace Venture Capital Fund 2000, LLC.
(3) Mr. Kantor resigned his position with InfoSpace effective June 30, 2000.
(4) Consists of $90,792 in base salary and sales commissions of $450,334 paid
to Mr. Kantor for advertising revenue attributable to Mr. Kantor.
Option Grants in Last Fiscal Year
The following table sets forth certain information regarding stock options
granted by InfoSpace to the Named Executive Officers during 1999.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term(3)
----------------------------------------------------- ----------------------------
Number of
Securities Percent of Total
Underlying Options Granted
Options to Employees in Exercise Expiration
Name Granted(#) Fiscal Year(1) Price($/Sh)(2) Date 5%($) 10%($)
---- ---------- ---------------- -------------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Naveen Jain............. 1,400,000 16.3% $ 5.813 2/22/09 $ 5,117,630 $ 12,969,079
Bernee D. L. Strom...... -- -- -- -- -- --
Ellen B. Alben.......... 40,000 0.5% 11.844 10/25/09 297,940 755,039
Michael D. Kantor....... 40,000 0.5% 11.516 8/31/09 289,686 734,122
</TABLE>
--------
(1) Based on a total of 8,605,180 option shares granted to employees during
1999.
(2) Options were granted at an exercise price equal to the fair market value of
our common stock at the time of the grant.
(3) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates required by applicable regulations of the SEC and are
therefore not intended to forecast possible future appreciation, if any, of
the price of our common stock. Assumes all options are exercised at the end
of their respective 10-year terms. Actual gains, if any, on stock option
exercises depend on the future performance of the common stock and overall
stock market conditions, as well as the option holders' continued
employment through the vesting period. The amounts reflected in this table
may not be achieved.
Aggregate Option Exercises in 1999 and Year-End Option Values
The following table shows certain information concerning stock options
exercised by the Named Executive Officers during 1999, including the aggregate
value of any gains realized on such exercise. The table also shows information
regarding the number and value of unexercised in-the-money options held by the
Named Executive Officers on December 31, 1999.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In the Money Options at
Shares Fiscal Year-End(1) Fiscal Year-End ($)(2)
Acquired on Value ------------------------- -------------------------
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Naveen Jain............. -- -- 50,000 1,350,000 $ 2,384,375 $ 64,378,125
Bernee D. L. Strom...... 333,324 $10,436,540 1,250,008 4,416,668 64,531,663 228,010,486
Ellen B. Alben.......... 167,012 2,143,797 62,160 490,828 3,236,923 25,239,306
Michael D. Kantor....... 177,464 1,623,586 195,167 123,369 10,316,395 6,017,673
</TABLE>
--------
(1) Represents the aggregate fair market value on the respective dates of
exercise of the shares of common stock received on exercise of the options,
less the aggregate exercise price of the options.
(2) These values represent the number of shares subject to in-the-money options
multiplied by the difference between the closing price of our common stock
on December 31, 1999 ($53.50 per share) and the exercise price of the
options.
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Employment Agreement
We entered into an employment agreement dated as of December 16, 1999 with
Bernee D.L. Strom, pursuant to which Ms. Strom served as InfoSpace's President
and Chief Operating Officer through December 31, 1999, and as President of our
venture capital division from January 1, 2000 through June 30, 2000. This
employment agreement superseded a prior employment agreement with Ms. Strom
entered into in December 1998. Among other things, the employment agreement
provided that we would continue to provide Ms. Strom with salary and benefits
equal to those granted under her prior employment agreement, including an
annual salary of $250,000 and insurance and other employee benefits and option
grants previously made to Ms. Strom pursuant to her prior employment agreement
through June 30, 2000. In addition, the employment agreement provided for a
severance payment of $250,000 to Ms. Strom on June 30, 2000 and, under certain
circumstances, reimbursement of certain expenses incurred by Ms. Strom in
connection with her relocation to the Seattle, Washington area.
In connection with this employment agreement, we loaned Ms. Strom $10 million
for her exercise of stock options and payment of federal taxes thereon. The
loan is due and payable on December 16, 2001 and accrues interest at the prime
rate.
Benefit Plans
The following is a brief summary of plans in effect during 1999 under which
our executive officers and directors received benefits:
Restated 1996 Flexible Stock Incentive Plan
The purpose of the Stock Incentive Plan is to provide an opportunity for our
employees, officers, directors, independent contractors and consultants to
acquire our common stock. The Stock Incentive Plan provides for grants of stock
options, stock appreciation rights, or SARs, and stock awards. We have
authorized an aggregate of 45,967,866 shares of common stock for issuance under
the Stock Incentive Plan. As of June 30, 2000, options to purchase 25,510,699
shares of common stock were outstanding under the Stock Incentive Plan at a
weighted average exercise price of $29.0398 per share, and options to purchase
11,334,009 shares were available for future grant.
Stock Option Program for Nonemployee Directors
Under the Stock Incentive Plan, we grant a nonqualified stock option to
purchase 20,000 shares of common stock to each nonemployee director on the date
the director is first appointed or elected to our board of directors.
Nonemployee directors serving at the time of the adoption of the program each
received an option to purchase 5,000 shares of common stock. On November 19,
1998, each nonemployee director received a supplemental option to purchase
80,000 shares of common stock. We grant to each nonemployee director an
additional nonqualified stock option to purchase 15,000 shares of common stock
immediately following each Annual Meeting of Stockholders, except for those
nonemployee directors who were newly elected to the board of directors at such
Annual Meeting of Stockholders or within the three-month period prior to such
Annual Meeting of Stockholders. All options granted under the program for
nonemployee directors fully vest on the first anniversary of the date of such
grant.
1998 Employee Stock Purchase Plan
We adopted the 1998 Employee Stock Purchase Plan in August 1998. The Purchase
Plan is intended to qualify under Section 423 of the Code and permits eligible
employees to purchase our common stock through payroll deductions of up to 15%
of their compensation. Under the Purchase Plan, no employee may purchase stock
worth more than $25,000 in any calendar year, valued as of the first day of
each offering period. We have authorized an aggregate of 3,600,000 shares of
common stock for issuance under the Purchase Plan.
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The Purchase Plan is implemented with six-month offering periods. Offering
periods begin on each February 1 and August 1. Participants purchase common
stock under the Purchase Plan at a price equal to the lesser of 85% of their
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. As of June 30, 2000,
189,278 shares of common stock have been issued under the Purchase Plan.
InfoSpace, Inc. and Saraide Inc. 2000 Stock Plan
InfoSpace, Inc. and Saraide each adopted the 2000 Stock Plan effective April
17, 2000. The purpose of the 2000 Stock Plan is to attract, retain and provide
incentives to employees, directors and consultants of Saraide. The 2000 Stock
Plan provides for grants of both Saraide options and InfoSpace options;
optionees will have the right to exercise either set of options as they vest.
When an optionee exercises a number of Saraide options, this will automatically
cancel a proportional number of the optionee's InfoSpace options, and
similarly, when an optionee exercises a number of InfoSpace options, this will
automatically cancel a proportional number of the optionee's Saraide options.
InfoSpace has authorized an aggregate of 10,000,000 shares of InfoSpace common
stock for issuance under the 2000 Stock Plan, and Saraide has authorized an
aggregate of 10,000,000 shares of Saraide common stock for issuance under the
2000 Stock Plan.
As of June 30, 2000, options to purchase 6,528,700 shares of InfoSpace common
stock were outstanding under the 2000 Stock Plan at a weighted average exercise
price of $45.4375 per share, and options to purchase 3,471,300 shares of
InfoSpace common stock were available for future grant.
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<PAGE>
INFOSPACE PRINCIPAL STOCKHOLDERS
In this section, InfoSpace Principal Stockholders, references to "we," "us,"
"our" and "ours" refer to InfoSpace and its consolidated subsidiaries.
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of July 31, 2000 and as adjusted to reflect
the issuance of our common stock in connection with the merger as to (i) each
person who is known by us to own beneficially more than 5% of the outstanding
shares of our common stock, (ii) each of our directors, (iii) each of the
executive officers named in the Summary Compensation Table in "InfoSpace
Management--Compensation of Executive Officers," and (iv) all of our directors
and executive officers as a group.
<TABLE>
<CAPTION>
Shares
Shares Beneficially
Beneficially Owned Owned After
Prior to Merger(1) Merger
------------------ ------------------
Number Percent Number Percent
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Principal Stockholders, Directors
and Executive Officers
Naveen Jain(2).......................... 52,370,614 22.2% 52,370,614 17.3%
c/o InfoSpace, Inc.
15375 N.E. 90th Street
Redmond, WA 98052
Acorn Ventures-IS, LLC(3)............... 19,585,191 7.9% 19,585,191 6.1%
1309 114th Avenue S.E.
Suite 200
Bellevue, WA 98004
Pilgrim Baxter & Associates(4).......... 14,528,000 6.2% 14,528,000 4.7%
825 Duportail Road
Wayne, PA 19087
Putnam Investments, Inc.(5)............. 13,827,412 5.9% 13,827,412 4.5%
One Post Office Square
Boston, MA 02109
Ellen B. Alben(6)....................... 281,870 * 281,870 *
John E. Cunningham, IV(7)............... 902,263 * 902,263 *
Peter L. S. Currie(8)................... 146,910 * 146,910 *
David C. House.......................... 530 * 530 *
Michael D. Kantor(9).................... 329,216 * 329,216 *
Rufus W. Lumry, III(10)................. 19,585,191 7.9% 19,585,191 6.1%
Ashok Narasimhan(11).................... 646,414 * 646,414 *
Arun Sarin(12).......................... 2,300,875 * 2,300,875 *
Carl Stork(13).......................... 430,000 * 430,000 *
Bernee D. L. Strom(14).................. 1,874,810 * 1,874,810 *
All directors and executive officers as
a group (15 persons)(15)............... 77,229,309 32.4% 77,229,309 23.7%
</TABLE>
--------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
SEC. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of
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<PAGE>
common stock subject to options or warrants held by that person that are
currently exercisable or will become exercisable within 60 days are
deemed outstanding, while such shares are not deemed outstanding for
purposes of computing the percentage ownership of any other person.
Unless otherwise indicated in the footnotes below, the persons and
entities named in the table have sole voting and investment power with
respect to all shares beneficially owned, subject to community property
laws where applicable.
(2) Represents 37,849,228 shares of common stock held in the name of Naveen
and Anuradha Jain, 3,999,302 shares of common stock held by the Jain
Family Irrevocable Trust, 3,971,042 shares of common stock held by
Naveen Jain GRAT No. 1, 3,971,042 shares of common stock held by
Anuradha Jain GRAT No. 1, 525,000 shares subject to options exercisable
by Naveen Jain within 60 days of July 31, 2000, and 2,055,000 shares
subject to options exercisable by Anuradha Jain within 60 days of July
31, 2000. Anuradha Jain is Mr. Jain's spouse.
(3) Includes 13,750,208 shares of common stock issuable upon exercise of
warrants currently exercisable, 30,173 shares of common stock held by
Rufus W. Lumry, III, and 100,000 shares of common stock held by Mr.
Lumry subject to options exercisable within 60 days of July 31, 2000.
Mr. Lumry is the principal stockholder, sole director and President of
Acorn Ventures, Inc., the sole member of Acorn Ventures-IS, LLC.
(4) As of December 31, 1999, based on a Schedule 13G/A filed with the SEC on
January 7, 2000, and adjusted to give effect to two-for-one stock splits
effected by InfoSpace on January 4, 2000 and April 6, 2000.
(5) As of December 31, 1999, based on a Schedule 13G filed with the SEC on
February 17, 2000, and adjusted to give effect to two-for-one stock
splits effected by InfoSpace on January 4, 2000 and April 6, 2000.
Consists of 13,377,412 shares beneficially owned with shared dispositive
power by Putnam Investment Management, Inc. and 450,000 shares
beneficially owned with shared dispositive power by The Putnam Advisory
Company, Inc. (with shared voting power over 86,600 of these shares),
which are registered investment advisors and wholly owned by Putnam
Investments, Inc. Putnam Investments, Inc. is a wholly owned subsidiary
of Marsh & McLennan Companies, Inc.
(6) Includes 81,196 shares of common stock subject to options exercisable
within 60 days of July 31, 2000.
(7) Includes 110,000 shares of common stock subject to options exercisable
within 60 days of July 31, 2000, and 92,806 shares of common stock held
by Clear Fir Partners LP. Mr. Cunningham is the President of Clear Fir
Partners, LP.
(8) Includes 110,000 shares of common stock subject to options exercisable
within 60 days of July 31, 2000.
(9) Includes 4,992 shares of common stock subject to options exercisable
within 60 days of July 31, 2000.
(10) Includes 100,000 shares of common stock subject to options exercisable
within 60 days of July 31, 2000, and shares held by Acorn Ventures-IS,
LLC. See note (3) above.
(11) Includes 58,393 shares of common stock subject to options and warrants
exercisable within 60 days of July 31, 2000. Represents 504,837 shares
of common stock held directly by Ashok Narasimhan, 16,028 shares of
common stock held by the Akshay Narasimhan Trust, 29,746 shares of
common stock held by the Amrita Narasimhan Trust, and 37,410 shares of
common stock held by the Anisha Narasimhan Trust.
(12) Includes 2,296,875 shares of common stock subject to options exercisable
within 60 days of July 31, 2000. Should Mr. Sarin leave InfoSpace within
twelve months of his hire date, a ratable portion of the vested options
would be returned to InfoSpace.
(13) Includes 20,000 shares of common stock subject to options exercisable
within 60 days of July 31, 2000.
(14) Includes 674,818 shares of common stock subject to options exercisable
within 60 days of July 31, 2000.
(15) Includes 19,166,104 shares of common stock subject to options and
warrants exercisable within 60 days of July 31, 2000.
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INFOSPACE TRANSACTIONS WITH RELATED PARTIES
In this section, InfoSpace Transactions with Related Parties, references to
"we," "us," "our" and "ours" refer to InfoSpace and its consolidated
subsidiaries.
Acorn Ventures-IS, LLC and John E. and Carolyn Cunningham are entitled to
certain registration rights with respect to the shares of our common stock and
our common stock issuable upon exercise of warrants purchased in private
placements completed in 1998. Rufus W. Lumry, III, one of our directors, is the
principal stockholder, sole director and president of Acorn Ventures, Inc., the
sole member of Acorn Ventures-IS, LLC. John E. Cunningham is also one of our
directors.
On May 21, 1998, we entered into Consulting Agreements with Acorn Ventures
and John E. Cunningham, IV, pursuant to which we are required to pay reasonable
out-of-pocket expenses incurred by them in connection with their services as
consultants. In addition, we have entered into agreements to indemnify Acorn
Ventures-IS, LLC and John E. Cunningham, IV against expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by them in
any action or proceeding in which they are parties or participants arising out
of their services as consultants. These consulting services include assistance
in defining our business strategy, identifying and meeting with sources of
financing and assisting us in structuring and negotiating such financings. The
Consulting Agreements have terms of five years and are terminable by either
party upon breach of the Consulting Agreement by the other party or on 30 days'
notice. Other than the reimbursement of out-of-pocket expenses, there is no
cash compensation due under the Consulting Agreements. We anticipate that the
Consulting Agreements will be terminated in the third quarter of 2000.
In July 1998, we entered into a joint venture agreement with TDLI.com
Limited, a subsidiary of Thomson Directories Limited, to form TDL InfoSpace to
replicate our infrastructure services in Europe. TDL InfoSpace has been
providing content services in the United Kingdom since the third quarter of
1998. Under the Web site services agreement, Thomson provides its directory
information to TDL InfoSpace and sells Internet yellow pages advertising for
the joint venture through its local sales forces. We also license our
technology and provide hosting services to TDL InfoSpace. Thomson and InfoSpace
each purchased a 50% interest in TDL InfoSpace and are required to provide
reasonable working capital to TDL InfoSpace. As of December 31, 1999, we had
contributed $496,000 to the joint venture. Gary C. List, formerly one of our
directors, is Chairman of Thomson Directories Limited and Chief Executive of
its parent company, TDL Group Limited. On July 26, 2000, we entered into a
definitive agreement to acquire all of the issued and outstanding stock of
TDLI.com Limited. This will give us complete control of TDL InfoSpace.
In January 2000, we entered into contracts to provide content and promotional
services to ImageX.com, Inc., pursuant to which we may earn up to $1.2 million
in fees over a one-year period. Rufus W. Lumry, III, one of our directors, is
President of Acorn Ventures, Inc., which directly and through affiliated
entities beneficially owns over 12% of the common stock of ImageX.com, Inc. as
of February 29, 2000 (based on information filed with the SEC by ImageX.com,
Inc.).
During 1999, we entered into a technology license and development agreement
for the development of online shopping cart technology with TEOCO Corporation.
Under the terms of the agreement, we paid a development fee to TEOCO
Corporation of $400,000. We own all rights to the technology and have granted a
perpetual license to TEOCO Corporation to use the developed technology for
certain limited uses. Atul Jain, the President and majority stockholder of
TEOCO Corporation, is the brother of Naveen Jain, our Chairman.
We believe that all the transactions set forth above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties. Any future transactions, including loans, between us and our officers,
directors and principal stockholders and their affiliates will be approved by a
majority of
122
<PAGE>
the board of directors, including a majority of the independent and
disinterested directors, and will be on terms no less favorable to us than
could be obtained from unaffiliated third parties.
We have entered into indemnification agreements with each of our executive
officers and directors.
On December 11, 1998, we, all of our current and future directors and Naveen
Jain entered into an Indemnification Agreement whereby Mr. Jain placed
8,000,000 shares of our common stock beneficially owned by him into an escrow
account to indemnify us and our directors for a period of five years for
certain known and unknown liabilities that may have arisen prior to September
30, 1998. The indemnification agreement, however, did not provide for
indemnification for certain matters known by the Board prior to September 30,
1998 or losses less than $100,000. On February 10, 2000, in exchange for the
release of such shares, Mr. Jain entered in a Noncompetition Agreement with us.
In addition to noncompetition, nondisclosure and invention release provisions
which apply during his employment, the Noncompetition Agreement also provides
that Mr. Jain will not engage in activities which compete with our business
during the two years after termination of his employment with us for any
reason.
In connection with our Employment Agreement dated as of December 16, 1999
with Bernee D. L. Strom, we loaned $10 million to Ms. Strom for the purpose of
exercising stock options and paying federal taxes thereon. The loan will be due
and payable two years from the date of the Employment Agreement, and accrues
interest at the prime rate. The largest amount outstanding since the date of
the Employment Agreement was $10 million, which was the outstanding balance of
the loan as of June 30, 2000. For a further description of the Employment
Agreement, see "InfoSpace Management--Employment Agreement."
123
<PAGE>
GO2NET BUSINESS
Go2Net is a provider of Internet applications and infrastructure technologies
for both narrowband and broadband devices. Go2Net offers applications and
technologies in the categories of search and directory, small business and
electronic commerce services, personal finance and multi-player games. Go2Net
also offers electronic commerce solutions to online merchants by providing
payment authorization and other services to small and medium-sized businesses.
Go2Net is using its proprietary, scaleable technology platforms to develop
private label portal and other applications and e-commerce solutions for
strategic partners to extend the distribution of its applications and
technologies. Go2Net's applications and technologies power its branded Web
properties offered through the Go2Net Network including:
--Go2Net Personal (www.go2net.com), which provides users with a
comprehensive Internet start page offering customizable news, discussion
and portfolio information as well as direct access to Go2Net's own finance,
search and directory, shopping, auction and multiplayer games sites;
--MetaCrawler (www.metacrawler.com) and Dogpile (www.dogpile.com), the
Web's leading providers of metasearch services, which simultaneously query
a variety of search engines and directory services and combine the search
results;
--Silicon Investor (www.siliconinvestor.com), the Web's premier financial
discussion community which also offers proprietary articles, portfolio
tracking tools, company research, charting and analytics and business and
finance news;
--The HyperMart Network, consisting of HyperMart (www.hypermart.net),
Virtual Avenue (www.virtualave.net) and FreeYellow.com
(www.freeyellow.com), the Web's leading provider of free hosting and
electronic commerce solutions for small businesses;
--Authorize.Net (www.authorize.net), a leading payment processing service
for online businesses;
--Haggle Online (www.haggle.com), a provider of Web based person to person
auction services;
--WebMarket (www.webmarket.com), a one-stop comparison shopping service;
--100Hot (www.100hot.com), a leading directory of the Web's most popular
sites; and
--PlaySite (www.playsite.com), a Java-based multiplayer games site.
As of June 30, 2000, Go2Net had relationships with over 590 advertisers,
including Amazon.com, Ameritech, JP Morgan & Co., Merrill Lynch & Co., National
Discount Brokers, Inc., Net2Phone, Inc., Office Max and US West. Since
inception, a significant portion of Go2Net's revenue has been derived from
advertising sales.
Go2Net was incorporated in February 1996 under the laws of the State of
Delaware. Go2Net's principal executive offices are located at Pier 70, 2801
Alaskan Way, Suite 200, Seattle, Washington 98121, and its telephone number is
(206) 357-4000.
See "Where You Can Find More Information" and "Documents Incorporated by
Reference" in this joint proxy statement/prospectus.
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<PAGE>
GO2NET PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Go2Net's common stock as of August 28, 2000 (i) by each person who
is known by Go2Net to own beneficially more than five percent (5%) of Go2Net's
common stock, (ii) by each of Go2Net's directors, (iii) by each executive
officer of Go2Net, and (iv) by all directors and executive officers who served
as directors or executive officers at August 28, 2000 as a group.
<TABLE>
<CAPTION>
Amount and nature of Percent of
Name and address of beneficial owner beneficial ownership (1) class
------------------------------------ ------------------------ ----------
<S> <C> <C>
Russell C. Horowitz(2).................... 3,760,736 9.1%
c/o Go2Net, Inc.
Pier 70, 2801 Alaskan Way
Seattle, Washington 98121
John Keister(3)........................... 1,005,500 2.43%
c/o Go2Net, Inc.
Pier 70, 2801 Alaskan Way
Seattle, Washington 98121
Michael J. Riccio, Jr.(4)................. 875,282 2.12%
c/o Go2Net, Inc.
Pier 70, 2801 Alaskan Way
Seattle, Washington 98121
Rick Thompson............................. 492,600 1.22%
c/o Go2Net, Inc.
Pier 70, 2801 Alaskan Way
Seattle, Washington 98121
Eric Zocher(5)............................ 37,500 0.09%
c/o Go2Net, Inc.
Pier 70, 2801 Alaskan Way
Seattle, Washington 98121
Dennis Cline(6)........................... 139,060 0.34%
40 Landing Ct.
Moorstown, New Jersey 08057
William D. Savoy(7)....................... 6,250 0.02%
c/o Vulcan Ventures Incorporated
110 110th Avenue N.E., Suite 550
Bellevue, Washington 98004
Diane Daggatt(8).......................... 8,650 0.02%
c/o Vulcan Ventures Incorporated
110 110th Avenue N.E., Suite 550
Bellevue, Washington 98004
William A. Fleckenstein(9)................ 6,250 0.02%
600 University Street, Suite 3011
Seattle, Washington 98101
Vulcan Ventures Incorporated(10).......... 11,922,406 29.47%
110 110th Avenue N.E., Suite 550
Bellevue, Washington 98004
All executive officers and directors as a 6,331,828 15.36%
group
(8 persons)(2)(3)(4)(5)(6)(7)(8)(9)......
</TABLE>
125
<PAGE>
--------
(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 held by that person that are
currently exercisable, or become exercisable within 60 days from August 28,
2000, are deemed outstanding. However, such shares are not deemed
outstanding for purposes of computing the percentage ownership of any other
person. Percentage ownership is based on 40,464,956 shares of common stock
outstanding as of August 28, 2000 which includes shares of Series A
preferred stock convertible into 9,075,782 shares of common stock on an as
converted basis because the Series A preferred stock votes on an as
converted basis with the common stock as a single class.
(2) Includes 1,800,000 shares of common stock held by The Porpoise Corporation,
a Washington corporation wholly owned by Mr. Horowitz and 407,656 shares of
common stock held by Xanthus Management, LLC, of which Mr. Horowitz is a
director and an executive officer. Mr. Horowitz disclaims beneficial
ownership of the shares held by Xanthus Management, LLC, except to the
extent of his pecuniary interests therein. Also includes options to
purchase 885,000 shares of common stock that are currently exercisable, or
become exercisable within 60 days of August 28, 2000.
(3) Includes options to purchase 937,500 shares of common stock that are
currently exercisable, or become exercisable within 60 days of August 28,
2000.
(4) Includes options to purchase 875,146 shares of common stock that are
currently exercisable, or become exercisable within 60 days of August 28,
2000.
(5) Includes options to purchase 37,500 shares of common stock that are
currently exercisable, or become exercisable within 60 days of August 28,
2000.
(6) Includes options to purchase 46,250 shares of common stock that are
currently exercisable or become exercisable within 60 days of August 28,
2000.
(7) Includes options to purchase 6,250 shares that are currently exercisable,
or become exercisable within 60 days of August 28, 2000. William D. Savoy
disclaims beneficial ownership of the shares held by Vulcan.
(8) Includes options to purchase 6,250 shares that are currently exercisable,
or become exercisable within 60 days of August 28, 2000. Diane Daggatt
disclaims beneficial ownership of the shares held by Vulcan.
(9) Includes options to purchase 6,250 shares that are currently exercisable,
or become exercisable within 60 days of August 28, 2000.
(10) Includes 300,000 shares of Series A preferred stock, which are convertible
into 9,075,782 shares of common stock. Also includes 40,000 shares of
common stock owned directly by Paul G. Allen.
126
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
Overview
On July 26, 2000, InfoSpace entered into an agreement to merge with Go2Net in
a transaction which is intended to be accounted for under the pooling-of-
interests method of accounting. The terms of the merger agreement require
InfoSpace to issue 1.82 shares of InfoSpace common stock for each share of
Go2Net common stock share outstanding as of the effective date of the merger.
The accompanying unaudited pro forma combined consolidated balance sheets as
of fiscal year end 1999 and June 30, 2000, assumes that the merger took place
as of the earliest date presented. The unaudited pro forma combined
consolidated balance sheets combine the unaudited consolidated balance sheet of
InfoSpace as of December 31, 1999 and June 30, 2000 and the unaudited
consolidated balance sheets of Go2Net as of September 30, 1999 and June 30,
2000.
The accompanying unaudited pro forma combined consolidated statements of
operations present the results of operations of InfoSpace for: (i) the six
months ended June 30, 2000 combined with the consolidated statement of
operations for Go2Net for the six months ended June 30, 2000; (ii) the six
months ended June 30, 1999, combined with the consolidated statement of
operations for Go2Net for the six months ended June 30, 1999; (iii) the year
ended December 31, 1999, combined with the consolidated statement of operations
for Go2Net for the fiscal year ended September 30, 1999; (iv) the year ended
December 31, 1998, combined with the consolidated statement of operations for
Go2Net for the fiscal year ended September 30, 1998; and (v) the year ended
December 31, 1997, combined with the consolidated statement of operations for
Go2Net for the fiscal year ended September 30, 1997. The unaudited pro forma
combined consolidated statements of operations give effect to the merger as if
it had occurred as of the earliest period presented.
The unaudited pro forma combined consolidated balance sheet and statements of
operations are not necessarily indicative of the financial position and
operating results that would have been achieved had the transaction been in
effect as of the dates indicated and should not be construed as being a
representation of financial position or future operating results of the
combined companies.
The unaudited pro forma combined consolidated financial information should be
read in conjunction with the audited consolidated financial statements and
related notes of InfoSpace and Go2Net which are included elsewhere in this
registration statement.
127
<PAGE>
INFOSPACE, INC. AND GO2NET, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
As of June 30, 2000
<TABLE>
<CAPTION>
Pro Forma Pro Forma
InfoSpace Go2Net Adjustments Combined
--------- -------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 35,992 $ 16,166 $ 52,158
Short-term investments.......... 107,422 211,085 318,507
Accounts receivable, net of
allowance...................... 14,148 10,559 24,707
Interest receivable............. 2,663 2,663
Notes receivable, net of
allowance...................... 32,278 32,278
Deferred tax asset.............. 8,890 (715) 8,175
Prepaid expenses and other
assets......................... 10,496 4,204 (80) 14,620
--------- -------- --------- ----------
202,999 250,904 (795) 453,108
Long-term investments............. 13,805 55,774 69,579
Property and equipment, net....... 27,403 11,567 38,970
Intangible assets, net............ 365,805 163,782 529,587
Other investments................. 62,726 98,918 161,644
Other............................. 3,936 1,416 5,352
--------- -------- --------- ----------
Total assets.................. $ 676,674 $582,361 $ (795) $1,258,240
========= ======== ========= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable................ $ 3,133 $ 2,299 $ 5,432
Accrued expenses................ 11,589 5,983 17,572
Other current liabilities and
short-term debt................ 100 0 100
Deferred revenues............... 15,983 19,679 35,662
--------- -------- --------- ----------
Total current liabilities..... 30,805 27,961 58,766
Notes and leases payable--long
term............................. 416 0 416
Deferred revenue.................. 5,370 5,370
Deferred tax liability............ 26,214 26,214
Other long term liabilities....... 25,311 25,311
Shareholders' equity:
Preferred stock................. 450,832 (450,832) 0
Common stock.................... 23 7 30
Additional paid-in capital...... 838,467 93,536 450,825 1,382,828
Accumulated deficit............. (213,457) (49,930) (795) (264,182)
Other comprehensive income...... (1,979) 28,378 26,399
Deferred expense--warrants...... (1,904) (1,904)
Unearned compensation--stock
options........................ (1,008) (1,008)
--------- -------- --------- ----------
Total stockholders' equity.... 620,142 522,816 (795) 1,142,163
--------- -------- --------- ----------
Total liabilities and
stockholders' equity............. $ 676,674 $582,361 $ (795) $1,258,240
========= ======== ========= ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements.
128
<PAGE>
INFOSPACE, INC. AND GO2NET, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended June 30, 2000
<TABLE>
<CAPTION>
Pro Forma Pro Forma
InfoSpace Go2Net Adjustments Combined
--------- -------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Revenues........................... $ 43,578 $ 41,588 (14) $ 85,152
Cost of revenues................... 7,596 6,646 14,242
--------- -------- ------- ---------
Gross profit....................... 35,982 34,942 (14) 70,910
Operating expenses:
Product development.............. 10,427 4,911 15,338
Sales, general & administrative.. 35,468 18,410 (78) 53,800
Amortization of intangibles...... 27,428 40,540 67,968
Acquisition and related charges.. 86,599 0 86,599
Other--non-recurring charges..... 2,888 0 2,888
--------- -------- ------- ---------
Total operating expenses....... 162,810 63,861 (78) 226,593
--------- -------- ------- ---------
Loss from operations........... (126,828) (28,919) 64 (155,683)
Other income, net.................. 6,046 8,387 14,433
Unrealized gain on investments..... 15,150 0 15,150
Minority interest.................. (6,398) 0 (6,398)
Restructuring charges.............. (2,171) 0 (2,171)
--------- -------- ------- ---------
Loss from operations before
income tax and cumulative effect
of change in accounting
principle....................... (114,201) (20,532) 64 (134,669)
--------- -------- ------- ---------
Income tax expense................. 24 1,788 1,812
Loss from operations before
cumulative effect of change in
accounting principle............ (114,225) (22,320) 64 (136,481)
--------- -------- ------- ---------
Cumulative effect of change in
accounting principle.............. (719) (489) (1,208)
Net loss........................... $(114,944) $(22,809) $ 64 $(137,689)
========= ======== ======= =========
Basic and diluted net loss per
share............................. $ (0.51) $ (0.74) $ (0.49)
========= ======== =========
Shares used in computing basic and
diluted net loss per share
calculations...................... 223,708 30,988 25,410 280,106
========= ======== ======= =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements.
129
<PAGE>
INFOSPACE, INC. AND GO2NET, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended June 30, 1999
<TABLE>
<CAPTION>
Pro Forma Pro Forma
InfoSpace Go2Net Adjustments Combined
---------- --------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Revenues......................... $ 12,240 $ 10,051 (28) $ 22,263
Cost of revenues................. 2,954 2,144 5,098
-------- --------- ------ ---------
Gross profit..................... 9,286 7,907 (28) 17,165
Operating expenses:
Product development............ 4,925 1,274 6,199
Sales, general &
administrative................ 18,702 6,335 (81) 24,956
Amortization of intangibles.... 604 2,741 3,345
Acquisition and related
charges....................... 4,969 0 4,969
Other--non-recurring charges... 209 0 209
-------- --------- ------ ---------
Total operating expenses..... 29,409 10,350 (81) 39,678
-------- --------- ------ ---------
Loss from operations......... (20,123) (2,443) 53 (22,513)
Other income, net................ 4,626 3,036 7,662
-------- --------- ------ ---------
Income (loss) from operations
before income tax and
preferred stock dividend.... (15,497) 593 53 (14,851)
Income tax expense............... 18 18
-------- --------- ------ ---------
Net Loss..................... (15,497) 575 53 (14,869)
Preferred stock dividend......... 159,931 159,931
Net loss attributable to common
stockholders.................... $(15,497) $(159,356) $ 53 $(174,800)
======== ========= ====== =========
Basic and diluted net loss per
share........................... ($0.08) (6.17) ($0.74)
======== ========= =========
Shares used in computing basic
and diluted net loss per share
calculations.................... 189,086 25,816 21,169 236,071
======== ========= ====== =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements.
130
<PAGE>
INFOSPACE, INC. AND GO2NET
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
For the fiscal year end 1999
<TABLE>
<CAPTION>
InfoSpace Go2Net Pro Forma Pro Forma
December 31 September 30 Adjustments Combined
------------ ------------ ----------- ---------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $ 37,985 $ 66,787 $ 104,772
Short-term investments...... 124,720 151,000 275,720
Accounts receivable, net of
allowance.................. 6,664 5,713 12,377
Interest receivable......... 3,334 3,334
Notes receivable, net of
allowance.................. 11,581 11,581
Deferred tax asset.......... 2,144 (715) 1,429
Prepaid expenses and other
assets..................... 10,304 4,569 (80) 14,793
-------- -------- -------- ---------
194,588 230,213 (795) 424,006
Long-term investments......... 71,417 53,771 125,188
Property and equipment, net... 7,999 3,255 11,254
Intangible assets, net........ 73,842 197,929 271,771
Other investments............. 17,039 21,676 38,715
Other......................... 702 1,415 2,117
-------- -------- -------- ---------
Total assets.................. $365,587 $508,259 $(795) $ 873,051
======== ======== ======== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............ $ 2,810 $ 1,254 $ 4,064
Accrued expenses and other
current liabilities........ 18,501 5,563 24,064
Other current liabilities
and short-term debt........ 1,042 1,042
Deferred revenues........... 2,673 3,073 5,746
-------- -------- ---------
Total current
liabilities.............. 25,026 9,890 34,916
Long-term liabilities......... 686 686
Deferred revenue.............. 531 531
Deferred tax liability........ 16,906 16,906
Minority interest............. 0 0
Stockholders' equity:
Preferred stock............. 450,928 (450,928) 0
Common stock................ 21 7 28
Additional paid-in capital.. 440,878 42,722 450,921 934,521
Accumulated deficit......... (98,512) (15,218) (795) (114,525)
Accumulated other
comprehensive income....... 1,317 2,500 3,817
Deferred expense--warrants.. (2,311) (2,311)
Unearned compensation--stock
options.................... (1,518) (1,518)
-------- -------- -------- ---------
Total stockholders'
equity................... 339,875 480,932 (795) 820,012
-------- -------- -------- ---------
Total liabilities and
stockholders' equity......... $365,587 $508,259 $(795) $ 873,051
======== ======== ======== =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
131
<PAGE>
INFOSPACE, INC. AND GO2NET, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the fiscal year ended 1999
<TABLE>
<CAPTION>
InfoSpace Go2Net Pro Forma Pro Forma
December 31 September 30 Adjustments Combined
----------- ------------ ----------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Revenues...................... $ 37,390 $ 22,435 (365) $ 59,460
Cost of revenues.............. 7,267 4,604 (54) 11,817
-------- --------- ------ ---------
Gross profit.................. 30,123 17,831 (311) 47,643
Operating expenses:
Product development......... 11,316 2,704 589 14,609
Sales, general &
administrative............. 60,137 12,417 11 72,565
Amortization of
intangibles................ 3,223 19,432 22,655
Acquisition and related
charges.................... 13,351 873 14,224
Stock comp expense.......... 774 (774)
Other--non-recurring
charges.................... 11,359 0 11,359
-------- --------- ------ ---------
Total operating expenses.. 99,386 36,200 (174) 135,412
-------- --------- ------ ---------
Loss from operations...... (69,263) (18,369) (137) (87,769)
Other income (expense), net... 11,691 6,811 18,502
Net loss...................... (57,572) (11,558) (137) (69,267)
Income tax benefit............ 715 (715) 0
Preferred stock dividend...... 159,931 159,931
Net loss attributable to
common stockholders.......... $(57,572) $(170,774) $ (852) $(229,198)
======== ========= ====== =========
Basic and diluted net loss per
share........................ $ (0.29) $ (6.44) $ (0.94)
======== ========= =========
Shares used in computing basic
and diluted net loss per
share calculations........... 196,222 26,524 21,750 244,496
======== ========= ====== =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements.
132
<PAGE>
INFOSPACE, INC. AND GO2NET, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the fiscal year ended 1998
<TABLE>
<CAPTION>
InfoSpace Go2Net Pro Forma Pro Forma
December 31 September 30 Adjustments Combined
----------- ------------ ----------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Revenues....................... $ 9,632 $ 7,109 (15) $16,726
Cost of revenues............... 2,331 2,295 4,626
-------- ------- ------ -------
Gross profit................... 7,301 4,814 (15) 12,100
Operating expenses:
Product development.......... 7,567 1,376 8,943
Sales, general &
administrative.............. 18,161 4,499 144 22,804
Amortization of intangibles.. 710 0 710
Acquisition and related
charges..................... 2,800 1,035 3,835
Stock compensation expense... 213 (213) -
Other--non-recurring
charges..................... 4,500 398 4,898
-------- ------- ------ -------
Total operating expenses... 33,738 7,521 (69) 41,190
-------- ------- ------ -------
Loss from operations....... (26,437) (2,707) 54 (29,090)
Other income, net.............. 468 511 979
Income tax expense............. 69 69
Net loss....................... $(25,969) $(2,265) $ 54 (28,180)
======== ======= ====== =======
Basic and diluted net loss per
share......................... $ (0.23) (0.09) $ (0.18)
======== ======= =======
Shares used in computing basic
and diluted net loss per share
calculations.................. 114,519 24,818 20,351 159,688
======== ======= ====== =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements.
133
<PAGE>
INFOSPACE, INC. AND GO2NET, INC.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
For the fiscal year ended 1997
<TABLE>
<CAPTION>
InfoSpace Go2Net Pro Forma Pro Forma
December 31 September 30 Adjustments Combined
----------- ------------ ----------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Revenues....................... $ 1,817 $ 1,628 $ 3,445
Cost of revenues............... 493 372 865
------- ------- ------ --------
Gross profit................... 1,324 1,256 2,580
Operating expenses:
Product development.......... 4,560 1,711 71 6,342
Sales, general &
administrative.............. 6,546 1,330 (3) 7,873
Amortization of intangibles.. 64 0 64
Stock compensation expense... 0 71 (71) --
Other--non-recurring
charges..................... 137 0 137
------- ------- ------ --------
Total operating expenses... 11,307 3,112 (3) 14,416
------- ------- ------ --------
Loss from operations....... (9,983) (1,856) 3 (11,836)
Other income, net.............. 39 249 288
Income tax expense............. 67 67
Net loss....................... $(9,944) $(1,674) $ 3 $(11,615)
======= ======= ====== ========
Basic and diluted net loss per
share......................... $ (0.11) $ (0.08) $ (0.09)
======= ======= ========
Shares used in computing basic
and diluted net loss per share
calculations.................. 91,470 20,108 16,489 128,067
======= ======= ====== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements.
134
<PAGE>
INFOSPACE, INC. AND GO2NET, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
1. The Periods Combined
The InfoSpace, Inc. consolidated balance sheets as of December 31, 1999 and
June 30, 2000 have been combined with the Go2Net, Inc. consolidated balance
sheets as of September 30, 1999 and June 30, 2000.
The InfoSpace, Inc. consolidated statements of operations for the years ended
December 31, 1997, 1998 and 1999 and for the six months ended June 30, 1999 and
2000 have been combined with the Go2Net, Inc. statements of operations for the
periods from October 1, 1996 to September 30, 1997, October 1, 1997 to
September 30, 1998, October 1, 1998 to September 30, 1999 and the six months
ended June 30, 1999 and 2000, as if the merger had occurred as of the beginning
of the period. Go2Net reported results on a fiscal year ending September 30.
InfoSpace has a fiscal year end of December 31, and Go2Net has a fiscal year
end of September 30. The unaudited pro forma statements of operation for the
fiscal years ended 1999, 1998 and 1997 combine the different fiscal year ends.
The unaudited pro forma statements of operation for the six months ended
June 30, 2000 and 1999, present the combined information for the six months
ended June 30, 2000 and 1999. As such, the statement of operations of Go2Net
for the first quarter of fiscal year end September 30, 2000 is not presented.
Go2Net had revenues of $14.0 million and a net loss of $11.3 million for the
first quarter of fiscal year ended September 30, 2000.
2. Pro Forma Basis of Presentation
The pro forma adjustments made in connection with the development of the pro
forma information have been made solely for purposes of developing such pro
forma information as necessary to comply with the disclosure requirements of
the Securities and Exchange Commission. The Unaudited Pro Forma Combined
Consolidated Financial Statements do not purport to be indicative of the
combined financial position or results of operations of future periods or
indicative of the results of operations of future periods or indicative of the
results that actually would have been realized had the entities been a single
entity during these periods.
The Unaudited Pro Forma Combined Financial Statements reflect the issuance of
shares of InfoSpace, Inc. common stock in exchange for all of the outstanding
stock, warrants, and options of Go2Net, Inc. InfoSpace will issue 1.82 shares
of InfoSpace common stock for each share of Go2Net Common Stock. The pro forma
adjustments reflect the additional shares that would be used in computing basic
and diluted earnings per share as if the merger had occurred at the earliest
period presented.
3. Pro Forma Earnings Per Share
The Unaudited Pro Forma Combined Consolidated Financial Statements for
InfoSpace, Inc. have been prepared as if the merger was completed at the
earliest periods presented. The pro forma basic net loss per share is based on
the combined weighted average number of shares of InfoSpace, Inc. Common Stock
outstanding during the period and the number of InfoSpace, Inc. Common Stock to
be issued in exchange as discussed in Note 2.
The Pro Forma diluted loss per share is computed using the weighted average
number of InfoSpace, Inc. common stock and dilutive common equivalent shares
outstanding during the period and the number of shares of InfoSpace, Inc.
common stock to be issued in exchange. Common equivalent shares consist of the
incremental common shares issuable upon conversion of the exercise of stock
options and warrants using the treasury stock method. Common equivalent shares
are excluded from the computation if their effect is
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INFOSPACE, INC. AND GO2NET, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
antidilutive. The combined Company had a pro forma net loss for all periods
presented herein; therefore, none of the options and warrants outstanding
during each of the periods presented were included in the computation of pro
forma dilutive earnings per share as they were antidilutive.
4. Pro Forma Adjustments
The objective of the pro forma information is to show what the significant
effects on the historical financial information might have been had the
Companies been merged for the periods presented. The Pro Forma adjustments are
preliminary and based on management's best estimates.
Pro Forma Adjustment represents the issuance of 1.82 shares of InfoSpace,
Inc. Common Stock in exchange for each share of Go2Net, Inc. including shares
issued and outstanding, vested warrants and vested stock options. The pro forma
adjustments reflect the additional shares that would be used in computing basic
and diluted earnings per share as if the Merger had occurred at the beginning
of each period.
Pro Forma adjustments include certain reclassifications to conform to
combined presentation.
Go2Net had reflected a tax benefit of approximately $715,000 in the fiscal
year ending September 30, 1999. On a combined basis this benefit would not be
realized as the combined company does not project sufficient taxable income
with which to realize this benefit. A Pro Forma adjustment was recorded to
reverse this $715,000 benefit.
All intercompany transactions between InfoSpace, Inc. and Go2Net, Inc. have
been eliminated for all periods presented.
Pro Forma adjustments reflect the conversion of 300,000 shares of preferred
stock converted to common stock of Go2Net, Inc. at a conversion ratio 30.2526.
These shares are adjusted for the exchange of 1.82 shares of InfoSpace, Inc.
common stock.
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DESCRIPTION OF INFOSPACE CAPITAL STOCK
Our authorized capital stock consists of 900,000,000 shares of common stock,
$0.0001 par value per share, and 15,000,000 shares of preferred stock, $0.0001
par value per share. The following summary of certain provisions of our 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 our
certificate of incorporation and by the applicable provisions of Delaware law.
Common Stock
As of August 28, 2000, there were 233,598,517 shares of our common stock
outstanding held by approximately 813 holders of record.
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 InfoSpace, 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--Risks Relating to InfoSpace--Management
owns a large percentage of our stock" and "Market Price and Dividend
Information--Dividends."
Preferred Stock
Pursuant to our Certificate of Incorporation, our board of directors has the
authority, without further action by our 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. Our 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 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.
Voting Share
A single share of series A preferred stock, the voting share, was issued in
connection with the INEX Corporation acquisition and the voting and exchange
trust agreement entered into by and among InfoSpace, InfoSpace.com Canada
Holdings and Montreal Trust Company of Canada. The voting share was issued to
Montreal Trust Company of Canada, as trustee, to hold for the benefit of the
holders of exchangeable shares that were issued by an indirect subsidiary of
InfoSpace to complete this transaction. The trustee is entitled to the number
of votes equal to the number of votes the holders of the outstanding
exchangeable shares, not held directly or indirectly by InfoSpace or its
subsidiaries, would be entitled to if the exchangeable shares were exchanged
for shares of InfoSpace's common stock. As of August 28, 2000, there were
846,570 outstanding exchangeable shares not held by InfoSpace or its
subsidiaries, which gives the trustee 846,570 votes to exercise on behalf of
the exchangeable shareholders.
The holders of the exchangeable shares have the right to require
InfoSpace.com Canada Holdings to redeem any or all of their exchangeable shares
for an amount per share equal to the current market price of
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one share of InfoSpace common stock, which shall be paid in full by delivering
one share of InfoSpace common stock for each exchangeable share presented to be
redeemed. The certificate of the powers, designation, preferences and rights of
the series A preferred stock provide that the voting share and the common stock
shall vote together as a single class.
The voting share will not entitle the trustee to receive dividends. In the
event of our dissolution, liquidation or the winding up of our affairs, the
trustee will receive an amount equal to $1.00, together with payment to any
class of stock ranking equally with the Series A preferred and before payment
shall be made to the holders of stock ranking junior. This amount will be
adjusted to reflect the effect of any stock split, stock dividend, combination
or similar change on the voting share. When there are no longer any outstanding
exchangeable shares other than those exchangeable shares which are held by us
or our subsidiaries, the voting share will cease to have any rights. In such
event, we will redeem the voting share for an amount equal to the par value of
the voting share and it will automatically return to being an authorized but
unissued share of our preferred stock. There are no sinking fund provisions or
preemptive rights applicable to the voting share.
Warrants
As of August 31, 2000, there were outstanding warrants to purchase 18,866,056
shares of our common stock. Two investors hold warrants to purchase an
aggregate of 13,673,584 and 242,880 shares of common stock, which expire on May
21, 2008 and August 6, 2008, respectively, at a weighted average exercise price
of $0.73 per share. On August 24, 1998, in connection with the agreement
relating to our white pages directory services, we issued to AOL warrants to
purchase up to 7,919,328 shares of common stock, which warrants vest in 16
equal quarterly installments over four years, based on the delivery by AOL of a
minimum number of searches on our white pages directory service. As of August
31, 2000, AOL had 4,949,592 outstanding warrants. The warrants have an exercise
price of $1.50 per share.
Upon consummation of our combination with INEX, we assumed warrants that are
exercisable for approximately 288,808 shares of our common stock.
Antitakeover Effects of Certain Provisions of Certificate of Incorporation and
Washington and Delaware Law; Right of First Negotiation
As noted above, our board of directors, without stockholder approval, has the
authority under our Certificate of Incorporation to issue preferred stock with
rights superior to the rights of the holders of common stock. As a result, we
could issue preferred stock quickly and easily, which 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 or make removal of management more
difficult.
Election and Removal of Directors. Our bylaws provide for the division of our
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 our stockholders. See "InfoSpace 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 InfoSpace 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 of Certain Business Combinations. Our 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 our 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.
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Stockholder Meetings. Under our certificate of incorporation and bylaws, our
stockholders may call a special meeting only upon the request of holders of at
least 30% of our outstanding shares. Additionally, our board of directors,
Chairman of the Board or our President may call special meetings of
stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our 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 our board of
directors or a committee thereof.
Washington Statute. The laws of Washington, where our 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, or 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:
. the corporation has a class of voting stock registered pursuant to
Section 12 or 15 of the Securities Exchange Act of 1934;
. the corporation's principal executive office is located in Washington;
. any of:
. more than 10% of the corporation's stockholders of record are
Washington residents;
. more than 10% of its shares of record are owned by Washington
residents; or
. 1,000 or more of its stockholders of record are Washington residents;
. a majority of the corporation's employees are Washington residents or
more than 1,000 Washington residents are employees of the corporation;
and
. 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 we meet 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 InfoSpace.
Delaware Statute. We are subject to Section 203 of the Delaware General
Corporation law, 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:
. 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;
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. 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
. 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 two-thirds 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:
. owns 15% or more of the corporation's voting stock; or
. 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.
AOL Agreement. Pursuant to certain agreements with AOL, if we receive an
unsolicited proposal, or we determine to solicit proposals or otherwise enter
into discussions that would result in a sale of a controlling interest in
InfoSpace or other merger, asset sale or other disposition that effectively
results in a change of control (a "Disposition"), then we are required to give
written notice to AOL, and AOL has seven days to provide notice to us of its
desire to negotiate in good faith with us regarding a Disposition involving
AOL. In the event that AOL timely delivers such a notice, then we must
negotiate exclusively and in good faith with AOL regarding a Disposition for a
period of 30 days from the date of delivery of our initial notice to AOL, after
which we will be free to negotiate a Disposition with other third parties if we
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 our 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.
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.
Registration Rights
Pursuant to Investor Rights Agreements dated as of May 21, 1998, three
investors holding an aggregate of 8,916,712 shares of our common stock and
warrants to purchase 14,373,792 shares of common stock are entitled to certain
rights with respect to the registration of such shares under the Securities Act
of 1933. If we propose to register any of our securities under the Securities
Act, either for our own account or for the account of other security holders,
these investors are entitled to notice of such registration and to include
shares of common stock in such registration at our expense. Additionally, these
investors are entitled to demand registration rights pursuant to which they may
require us to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock, and we are required to
use our commercially reasonable efforts to effect such registration. Further,
these investors may require us to file up to three additional registration
statements on Form S-3 (and no more than two in any calendar year), and we must
bear the expense for up to one such registration in any calendar year. All of
these registration rights are subject to conditions and limitations, among them
the right of the underwriters of an offering to limit the number of shares
included in such registration.
Pursuant to a Stockholder Rights Agreement dated as of August 6, 1998, six
investors holding an aggregate of 3,700,000 shares of common stock are entitled
to notice of registration if we propose to register any of our securities under
the Securities Act, either for our own account or for the account of other
security holders, and are entitled to include shares of common stock in such
registration at our expense. These registration rights are subject to
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in such registration.
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In connection with the acquisition of all the outstanding membership units of
YPI, the former members of YPI holding an aggregate of 680,000 shares of common
stock may require us 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 7,919,328 shares of our common stock,
is entitled to notice of registration if we propose to register any of our
securities under the Securities Act, either for our 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 our
expense. Further, AOL may require us to file up to four additional registration
statements on Form S-3, and we will bear the expense for such registrations.
These registration rights are subject to conditions and limitations, among them
the right of the underwriters of an offering to limit the number of shares
included in such registration.
Pursuant to a Registration Rights Agreement dated as of December 29, 1999,
the former stockholders of Zephyr Software holding an aggregate of 651,392
shares of our common stock are entitled to notice of registration if we propose
to register any of our securities under the Securities Act on a Form S-3
registration statement (other than a registration relating to a merger,
acquisition or exchange of a convertible debt transaction), either for our own
account or for the account of other security holders, and are entitled to
include shares of common stock in such registration at our expense. These
registration rights are subject to conditions and limitations, among them the
rights 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 our common stock is ChaseMellon
Stockholder Services, Seattle, Washington.
Nasdaq National Market Listing
Our common stock is listed on the Nasdaq National Market under the symbol
"INSP."
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COMPARISON OF STOCKHOLDER RIGHTS
AND CORPORATE GOVERNANCE MATTERS
This section of the joint proxy statement/prospectus describes the material
differences between the rights of holders of Go2Net common stock and holders of
InfoSpace common stock. While InfoSpace and Go2Net believe that the description
covers the material differences between the two, this summary may not contain
all of the information that is important to you. This summary is not intended
to be a complete discussion of the respective certificates of incorporation and
bylaws of InfoSpace and Go2Net and it is qualified in its entirety to
applicable Delaware law as well as to InfoSpace's and Go2Net's respective
certificates of incorporation and bylaws. You should carefully read this entire
summary and the other documents we refer to for a more complete understanding
of the differences between being a stockholder of Go2Net and being a
stockholder of InfoSpace. InfoSpace's and Go2Net's respective certificates of
incorporation and bylaws are on file with the SEC and will also be sent to you
upon request. See "Where You Can Find More Information."
Both InfoSpace and Go2Net are incorporated under the laws of the State of
Delaware. Accordingly the rights of their stockholders are governed by Delaware
law and by their respective certificates of incorporation and bylaws. If the
merger is completed, stockholders of Go2Net will become stockholders of
InfoSpace and the rights of such former stockholders of Go2Net will be governed
by Delaware law, the InfoSpace certificate of incorporation and the InfoSpace
bylaws. The following summarizes differences in the charter documents of Go2Net
and InfoSpace that could materially affect the rights of stockholders of Go2Net
after completion of the merger. A number of the provisions of InfoSpace's
charter documents may have the effect of delaying, deferring or preventing a
future change in control of InfoSpace.
SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF
GO2NET STOCKHOLDERS AND RIGHTS THOSE STOCKHOLDERS WILL HAVE AS
INFOSPACE STOCKHOLDERS FOLLOWING THE MERGER
<TABLE>
<CAPTION>
INFOSPACE GO2NET
--------- ------
<S> <C> <C>
Authorized Capital Stock The total number of shares of The total number of shares of
authorized capital stock is authorized capital stock is
915,000,000 consisting of: 500,000,000 consisting of:
. 900,000,000 shares of common stock, . 499,000,000 shares of common
par value $.0001 per share, and stock, par value $.01 per share,
and
. 15,000,000 shares of preferred . 1,000,000 shares of preferred
stock, par value $.0001 per share. stock, par value $.01 per share.
The InfoSpace certificate of The Go2Net certificate of
incorporation authorizes the board incorporation authorizes the board
of directors to issue shares of of directors to issue shares of
preferred stock in one or more preferred stock in one or more
series and to determine or alter the series and to determine or alter
rights, preferences, privileges and the rights, preferences,
restrictions of the shares to be privileges and restrictions of the
included in such series. shares to be included in such
series.
. 1 share is designated as Series A . 300,000 shares are designated as
preferred stock. Series A preferred stock. Each
share of Series A preferred stock
has a $1,000 liquidation
preference and converts into
30.2526 shares of common stock.
</TABLE>
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<TABLE>
<CAPTION>
INFOSPACE GO2NET
--------- ------
<S> <C> <C>
Board of Directors
Size of the Board of The number of directors shall be no The authorized number of directors
Directors less than 5 and no more than 9, with of the company will be no less than
the specific number fixed by 1 and up to that number set by the
resolution of the board. board.
The current board consists of 8 The current board consists of 5
directors. directors.
Classification of the The InfoSpace bylaws provide that the Go2Net does not have a classified
Board of Directors board is divided into three classes, board.
Class 1, Class 2 and Class 3. The term
of the initial members of Class 1 will
expire at the annual stockholders
meeting in 2000. The term of the
initial members of Class 2 will expire
at the annual stockholders meeting in
2001. The term of the initial members
of Class 3 will expire at the annual
stockholders meeting in 2002. At each
stockholder meeting thereafter,
directors will be elected to three-
year terms.
Removal of Directors InfoSpace's bylaws provide that any Go2Net's bylaws provide that any
director or the entire board of director may be removed from office
directors, may be removed only for at any time with or without cause by
cause by the holders of a majority of the affirmative vote of the holders
the outstanding capital stock entitled of at least a majority of the voting
to vote generally in the election of power of all of the then outstanding
directors, voting at a special meeting shares of voting stock, or by a
called for that purpose, or by written majority of the board of directors,
consent. in each case at a special meeting
called for that purpose.
Vacancies on the Board InfoSpace's bylaws provide that Go2Net's bylaws provide that
of Directors vacancies resulting from any increase vacancies on the board of directors
in the authorized number of directors resulting from any reason may be
will be filled by a majority of the filled by a majority of the
directors then in office, though less remaining directors, provided, that
than a quorum, and the directors so the shareholders removing any
chosen shall hold their position director, may at the same meeting,
subject to the bylaws until the next fill the resulting vacancy, and
annual meeting of stockholders at provided further, if the directors
which the term of office of their fail to fill such vacancy, the
class expires and their successors are shareholders may, at any special
duly elected and qualified or until meeting called for that purpose,
their earlier resignation or removal. fill such vacancy.
</TABLE>
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<TABLE>
<CAPTION>
INFOSPACE GO2NET
--------- ------
<S> <C> <C>
Newly created directorships
resulting from any increase in the
number of directors shall be filled
only by the affirmative vote of the
directors then in office. Any
director elected to hold a newly
created directorship shall hold the
office until the next annual
election or until such director's
successor shall have been elected
and qualified.
Special Meetings of the InfoSpace's bylaws provide that Go2Net's bylaws provide that special
Board of Directors special meetings of the board may be meetings of the board of directors
called by or at the request of the for any purpose or purposes may be
chairman, the president, the chief called at any time by the chairman
executive officer, the secretary or of the board or the president.
any director on 2 days' notice if by Notice must be mailed to each
personal delivery, or 5 days' notice director at his residence or usual
if by mail, to each director. place of business at least 5 days in
advance.
Stockholders' Meetings
Annual Meetings InfoSpace's annual meeting of Go2Net's annual meeting of the
stockholders will be held on April stockholders will be held on the
30th in each year or at such other first day of May of each year or as
date and time as designated by the soon after such date as may be
board of directors. practicable.
Special Meetings InfoSpace's bylaws provide that Go2Net's bylaws provide that a
special meetings may be called by the special meeting of the stockholders
president, the chairman, the board or may be called at any time by the (i)
the holders of at least 30% of all board of directors, (ii) the
outstanding shares of the company. president or (iii) the holders of a
majority of the outstanding shares
of Go2Net capital stock entitled to
vote.
Advance Notice Under the InfoSpace's bylaws, Go2Net's bylaws provide that
Provisions stockholders must receive notice of a stockholders must receive notice of
meeting (whether annual or special) a meeting (whether annual or
not less than 10 days nor more than 10 special) not less than 10 days nor
days before the date of the meeting, more than 60 days before the date of
unless the meeting is to consider a the meeting.
merger or consolidation involving the
company or a sale of substantially all
of its assets. Notice of a meeting to
consider these actions shall be given
between 20 and 60 days before the
meeting.
</TABLE>
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<TABLE>
<CAPTION>
INFOSPACE GO2NET
--------- ------
<S> <C> <C>
Voting Rights Each outstanding share entitled to Subject to the laws of Delaware and
vote shall be entitled to one vote the certificate of incorporation,
upon the matter to be considered. each holder of common stock will be
entitled to one vote per share on
Subject to the laws of Delaware and all matters to be voted on by the
the certificate of incorporation, the stockholders. Each holder of series
affirmative vote of holders of a A preferred stock is entitled to one
majority of outstanding shares present vote for each share common stock
in person or by proxy shall be the into which such holder's preferred
action of the stockholders, except for stock could then be converted.
election of directors, which shall be
by a plurality of votes. The holders of series A preferred
stock vote with the holders of
Matters regarding a business common stock on all matters upon
combination, generally a merger or which the common stock votes. In
sale of the company, with an addition, the affirmative vote of a
interested stockholder pursuant to majority of the holders of series A
Section 203 of the Delaware General preferred stock is required for (i)
Corporation Law require at least a 66 any amendments to the company's
2/3% affirmative vote. certificate of incorporation or
bylaws which would adversely affect
Matters regarding a business the series A preferred stock or (ii)
combination between the company or any any business combination,
of its subsidiaries and a third party liquidation or dissolution of the
require at least a 66 2/3% affirmative company, or redemption or repurchase
vote, unless at least 2/3 of the board of stock of a junior class.
of directors approved the matter, in
which case, a 51% affirmative vote is All matters brought before the
required. meeting of stockholders will be
decided by a majority vote. However,
The holder of InfoSpace's one matters regarding a business
outstanding share of preferred stock combination with an interested
is entitled to the number of votes stockholder pursuant to Section 203
equal to the number of votes of the of the Delaware General Corporation
holders of the outstanding Law require at least a 66 2/3%
exchangeable shares not directly or affirmative vote.
indirectly held by InfoSpace. The
holder of the voting share shall vote Votes can be cast in person or by
with the holders of common stock on proxy, but no proxy will be voted on
all matters to be voted upon. or after eleven months from its
date, unless the proxy provides for
Votes can be cast in person or by a longer period.
proxy, but no proxy will be voted on
or after 3 years from its date, unless
the proxy provides for a longer
period.
</TABLE>
145
<PAGE>
<TABLE>
<CAPTION>
INFOSPACE GO2NET
--------- ------
<S> <C> <C>
Amendments to Organizational Documents
Certificate of The Delaware General Corporation Law The Delaware General Corporation Law
Incorporation generally requires a vote of generally requires a vote of
InfoSpace's board of directors Go2Net's board of directors followed
followed by the affirmative vote of by the affirmative vote of the
the holders of a majority of the holders of a majority of the
outstanding stock of each class outstanding stock of each class
entitled to vote for any amendment to entitled to vote for any amendment
the certificate of incorporation to the certificate of incorporation
unless a higher vote is required by unless a higher vote is required by
InfoSpace's certificate of Go2Net's certificate of
incorporation. If an amendment alters incorporation. If an amendment
the powers, preferences or special alters the powers, preferences or
rights of a particular class or series special rights of a particular class
of stock so as to affect them or series of stock so as to affect
adversely, that class or series them adversely, that class or series
generally has the power to vote as a generally has the power to vote as a
class notwithstanding the absence of class notwithstanding the absence of
any specifically enumerated power in any specifically enumerated power in
the certificate of incorporation. the certificate of incorporation.
InfoSpace's certificate of
incorporation provides that the vote
of the holders of a majority of the
outstanding voting shares is required
to amend any provision of the
certificate of incorporation.
Bylaws InfoSpace's bylaws may be amended or Go2Net's board has the power to
repealed or new bylaws may be adopted make, rescind, amend, alter and
by the stockholders or by the board, repeal the bylaws of the company,
provided that the board may not amend provided that the stockholders may
or repeal any bylaw that the make, rescind, amend, alter and
stockholders have expressly provided repeal any bylaws so made by the
may not be amended or repealed by the board.
board.
</TABLE>
146
<PAGE>
<TABLE>
<CAPTION>
INFOSPACE GO2NET
--------- ------
<S> <C> <C>
Exculpation and Indemnification
Exculpation InfoSpace's certificate of Go2Net's certificate of
incorporation provides that to the incorporation provides that no
fullest extent that a limitation on director will be personally liable
liability of directors is permitted by to Go2Net or its stockholders for
the Delaware General Corporation Law, monetary damages for breach of his
no director will be liable to or her fiduciary duty, except for
InfoSpace or its stockholders for liability:
monetary damages for breach of his or
her fiduciary duty.
. for a breach of the duty of
loyalty to Go2Net and its
stockholders
. for acts or omissions not in good
faith or which involve intentional
misconduct or a knowing violation
of law,
. pursuant to Section 174 of the
Delaware General Corporation Law,
which governs the liability of
directors for unlawful payment of
dividends or unlawful stock
purchases or redemptions, or
. for transactions from which the
director derived improper personal
benefit.
Indemnification Pursuant to InfoSpace's bylaws, Pursuant to Go2Net's bylaws, the
InfoSpace agreed to indemnify its company agreed to indemnify its
directors and officers against directors, officers, employees and
expenses, judgments, fines and amounts agents against expenses, judgments,
actually incurred in connection with fines and amounts paid in settlement
the defense of any proceeding brought of suits brought by or in the name
against such person by reason of the of Go2Net or by a third party, if
fact that such person was a director such person acted in good faith and
or officer of InfoSpace or of another in a manner reasonably believed to
entity, if service was at the request be in or not opposed to the best
of the company, provided, however, interests of Go2Net, and with
that the board must authorize or respect to any criminal action, had
ratify any indemnification in no reasonable cause to believe that
connection with any proceeding his action was unlawful (unless such
initiated by the indemnitee. person is successful on the merits
or otherwise in defense, in which
Expenses, including attorneys' fees, case the company will indemnify such
incurred in defending an action will person).
be paid by InfoSpace in advance of the
final disposition of such action, Notwithstanding the foregoing, if
promptly after the company receives a the person is adjudged liable to
request therefor. The claimant must Go2Net, no indemnification shall be
post an undertaking to repay such made unless the Delaware court of
amount if the Delaware General chancery determines that such
Corporation Law requires such liability, indemnification would be
undertaking. proper.
</TABLE>
147
<PAGE>
<TABLE>
<CAPTION>
INFOSPACE GO2NET
--------- ------
<S> <C> <C>
If InfoSpace does not pay in full any
indemnification claim submitted by a
director or officer within 60 days (or
within 20 days for advancement of
expenses claims) after receipt of a
written claim, the indemnitee shall be
entitled to sue the company for such
amounts. If the indemnitee is
successful, InfoSpace shall also pay
the expense of prosecuting or
defending such suit.
The right to indemnification continues
to persons who have ceased to be
directors, officers, employees or
agents and inures to the benefit of
their heirs, executors and
administrators.
InfoSpace may, by action of the board,
grant similar indemnification or
advancement of expenses rights to
employees or agents, or groups of
employees or agents.
</TABLE>
148
<PAGE>
MATERIAL CONTACTS
InfoSpace and Go2Net are parties to a three year agreement dated September
21, 1998 pursuant to which Go2Net hosts InfoSpace content on its web site. The
parties share the revenue derived from advertising hosted on the co-branded web
pages.
InfoSpace is party to an agreement with Dogpile, LLC, a wholly-owned
subsidiary of Go2Net pursuant to which Dogpile is linked to InfoSpace web
pages. Go2Net receives a percentage of the revenue derived from advertising
hosted on the pages to which Dogpile directs web users.
LEGAL MATTERS
The validity of the shares of InfoSpace common stock to be issued in
connection with the merger will be passed upon for InfoSpace by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, of Kirkland, Washington. Wilson
Sonsini Goodrich & Rosati and Hutchins, Wheeler & Dittmar, A Professional
Corporation, of Boston, Massachusetts, counsel for Go2Net, will deliver
opinions concerning the qualification of the merger as a reorganization within
the meaning of Section 368(a) of the Code. See "The Merger--Material United
States Federal Income Tax Considerations" and "The Merger Agreement--Conditions
to Completion of the Merger."
EXPERTS
The financial statements of InfoSpace, Inc. as of December 31, 1999, 1998 and
1997, and for each of the two years ended December 31, 1999 and for the period
from April 9, 1996 (date of incorporation) to December 31, 1997, included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, appearing herein, and has been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of Go2Net, Inc. as of September 30,
1999 and 1998 and for each of the years in the three-year period ended
September 30, 1999, the financial statements of Haggle Online, Inc. as of
December 31, 1997 and 1998 and for the period from June 6, 1997 (inception) to
December 31, 1997 and the year ended December 31, 1998, the financial
statements of USAOnline, Inc. as of December 31, 1997 and 1998 and for the
years then ended and the financial statements of IQC Corporation as of December
31, 1997 and 1998 and for the years then ended, the financial statements of
FreeYellow.com, Inc. as of December 31, 1998 and for the period from December
29, 1998 (inception) to December 31, 1998, the financial statements of Dogpile
LLC and Predecessors as of July 31, 1998 and 1999 and for the years then ended,
have been incorporated by reference in reliance upon the reports of KPMG LLP,
independent auditors, incorporated by reference and upon the authority of said
firm as experts in accounting and auditing.
The financial statements of Prio, Inc. as of December 31, 1998, and for each
of the years in the two-year period ended December 31, 1998, have been audited
by KPMG LLP, independent auditors, as stated in their report, which is included
herein, and has so been included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
149
<PAGE>
STOCKHOLDER PROPOSALS
If the merger is not completed, as an InfoSpace stockholder, you may be
entitled to present proposals for our 2001 annual meeting if you comply with
the requirements of the proxy rules established by the Securities and Exchange
Commission. It is expected that such annual meeting will be held on or about
April 30, 2001. Proposals of InfoSpace stockholders intended to be presented
for consideration at the InfoSpace 2001 annual meeting of stockholders must be
received by InfoSpace no later than December 26, 2000, in order that they may
be included in the proxy statement and form of proxy relating to that meeting.
Although it is expected that the closing of the merger with InfoSpace will
occur promptly after the stockholders' special meetings, in the event the
closing of the merger is delayed, and Go2Net is required to hold an annual
meeting in 2001, it is expected that such annual meeting will be held on or
about March 15, 2001. In such event, stockholder proposals for inclusion in the
proxy material for Go2Net's 2001 annual meeting of stockholders should be
submitted to the secretary of Go2Net in writing and received at the executive
offices of Go2Net on or about October 7, 2000. Such proposals must also have
met the other requirements of the rules of the Securities and Exchange
Commission relating to stockholder proposals and must have satisfied the notice
procedures for stockholder proposals set forth in the Go2Net bylaws. If Go2Net
is not notified of a stockholder proposal by December 21, 2000, then proxies
held by management of Go2Net provide discretionary authority to vote on such
stockholder proposal, even though the proposal is not discussed in the related
Proxy Statement.
150
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
This joint proxy statement/prospectus incorporates documents by reference
that are not presented in or delivered with this document. The Securities and
Exchange Commission allows Go2Net to "incorporate by reference" the information
that Go2Net files with it, which means that Go2Net can disclose important
information to you by referring you to those documents. The documents contain
important information about Go2Net and its finances.
All documents filed by Go2Net under section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, after the date hereof and before
the date of the Go2Net special meeting are incorporated by reference into and
to be a part of this joint proxy statement/prospectus from the date of filing
of these documents.
You should rely only on the information contained in this document or that
Go2Net has referred to you. Go2Net has not authorized anyone to provide you
with information that is different.
The following documents, which were filed by Go2Net with the Securities and
Exchange Commission, are incorporated by reference into this joint proxy
statement/prospectus:
. Go2Net's annual report on Form 10-K for the fiscal year ended September
30, 1999;
. Go2Net's definitive proxy statement for its 2000 annual meeting of
stockholders;
. Go2Net's quarterly reports on Form 10-Q for the quarters ended December
31, 1999, March 31, 2000 and June 30, 2000;
. Go2Net's current reports on Form 8-K dated November 5, 1999 and July 31,
2000 and Form 8-K/A on October 18, 1999, January 4, 2000 and January 10,
2000; and
. Go2Net's Registration Statement on Form S-3 filed April 27, 2000.
Any statement contained in a document incorporated or deemed to be
incorporated in this document by reference will be deemed to be modified or
superseded for purposes of this joint proxy statement/prospectus to the extent
that a statement contained in this document or any other subsequently filed
document that is deemed to be incorporated in this document by reference
modifies or supersedes the statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part
of this joint proxy statement/prospectus.
The documents incorporated by reference into this joint proxy
statement/prospectus are available from Go2Net upon request. Although not
incorporated into this joint proxy statement/prospectus, documents are also
available from InfoSpace upon request. We will provide to you a copy of any and
all of the information that is incorporated by reference in this joint proxy
statement/prospectus (not including exhibits to the information unless those
exhibits are specifically incorporated by reference into this joint proxy
statement/prospectus), without charge, upon written or oral request. You should
make any request for documents by October 5, 2000 to ensure timely delivery of
the documents.
Requests for documents relating to Requests for documents relating to
InfoSpace should be directed to: Go2Net should be directed to:
InfoSpace, Inc. Go2Net, Inc.
601 108th Avenue N.E. Pier 70
Suite 1200 2801 Alaskan Way, Suite 200
Bellevue, WA 98004 Seattle, WA 98121
(425) 201-6100 (206) 357-4000
Attention: Ellen B. Alben, Esq. Attention: Ethan Caldwell, Esq.
151
<PAGE>
InfoSpace and Go2Net each file reports, proxy statements and other
information with the SEC. Copies of their respective reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the SEC:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a website that contains reports, proxy statements and other
information regarding each of us. The address of the SEC website is
http://www.sec.gov.
Reports, proxy statements and other information concerning InfoSpace and
Go2Net may also be inspected at: The National Association of Securities
Dealers, 1735 K Street N.W., Washington, D.C. 20006.
InfoSpace has filed a registration statement under the Securities Act with
the SEC with respect to InfoSpace's common stock to be issued to Go2Net
stockholders in the merger. This joint proxy statement/prospectus constitutes
the prospectus of InfoSpace filed as part of the registration statement. This
joint proxy statement/prospectus does not contain all of the information set
forth in the registration statement because certain parts of the registration
statement are omitted as provided by the rules and regulations of the SEC. You
may inspect and copy the registration statement at any of the addresses listed
above.
You should rely only on the information contained in this joint proxy
statement/prospectus to vote on the proposals related to the merger. InfoSpace
and Go2Net have not authorized anyone to provide you with information that is
different from what is contained in this joint proxy statement/prospectus. This
joint proxy statement/prospectus is dated September 8, 2000. You should not
assume that the information contained in this joint proxy statement/prospectus
is accurate as of any date other than September 8, 2000, and neither the
mailing of the joint proxy statement/prospectus to InfoSpace and Go2Net
stockholders nor the issuance of InfoSpace common stock in the merger shall
create any implication to the contrary.
This document does not constitute an offer to sell, or a solicitation of an
offer to purchase, the InfoSpace common stock or the solicitation of a proxy,
in any jurisdiction to or from any person to whom or from whom it is unlawful
to make the offer, solicitation of an offer or proxy solicitation in that
jurisdiction. Neither the delivery of this joint proxy statement/prospectus nor
any distribution of securities means, under any circumstances, that there has
been no change in the information set forth in this document or in its affairs
since the date of this joint proxy statement/prospectus. The information
contained in this document with respect to Go2Net and its subsidiaries was
provided by Go2Net. The information contained in this document with respect to
InfoSpace and its subsidiaries was provided by InfoSpace.
152
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
InfoSpace, Inc.:
Independent Auditors' Report............................................. F-2
Independent Auditors' Report............................................. F-3
Consolidated Balance Sheets.............................................. F-4
Consolidated Statements of Operations.................................... F-5
Consolidated Statements of Changes in Stockholders' Equity and
Accumulated Other Comprehensive Income.................................. F-6
Consolidated Statements of Cash Flows.................................... F-7
Notes to Consolidated Financial Statements............................... F-9
Saraide, Inc.:
Independent Auditors' Report............................................. F-33
Consolidated Balance Sheets.............................................. F-34
Consolidated Statements of Operations.................................... F-35
Consolidated Statements of Stockholders' Equity.......................... F-36
Consolidated Statements of Cash Flows.................................... F-37
Notes to Consolidated Financial Statements............................... F-38
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of InfoSpace
Redmond, Washington
We have audited the accompanying consolidated balance sheets of InfoSpace,
Inc. and subsidiaries (the Company) as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholders' equity
and accumulated other comprehensive income, and cash flows for the years ended
December 31, 1999, 1998 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. The consolidated
financial statements give retroactive effect to the merger of the Company and
Prio, Inc. (Prio), which has been accounted for as a pooling of interests as
described in Note 7 to the consolidated financial statements. We did not audit
the financial statements of Prio for the years ended December 31, 1998 and
1997, which statements reflect total revenues of $9,000 and $74,000,
respectively, net loss of $14,150,000 and $8,283,000 for the respective years
then ended, and total assets of $30,665,000 as of December 31, 1998. Those
financial statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Prio for such periods, is based solely on the report of such other
auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 and the report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of InfoSpace, Inc. and subsidiaries
as of December 31, 1999 and 1998, and results of their operations and their
cash flows for the years ended December 31, 1999, 1998 and 1997, in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Seattle, Washington
March 17, 2000
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Prio, Inc.:
We have audited the balance sheet of Prio, Inc. (the Company), formerly
SaveSmart, Inc., (a development stage enterprise) as of December 31, 1998, and
related statements of operations, shareholders' deficiency, and cash flows for
each of the years in the two-year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Prio, Inc. (a development
stage enterprise) as of December 31, 1998, and the results of its operations
and its cash flows for each of the years in the two-year period ended December
31, 1998, in conformity with generally accepted accounting principles.
KPMG LLP
Mountain View, California
April 2, 1999
F-3
<PAGE>
INFOSPACE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1999 1998 2000
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 37,985,250 $ 39,986,609 $ 35,992,483
Short-term investments, held-to-
maturity (fair market value
$124,656,361, $74,315,294 and
$110,330,936).................... 124,720,142 74,301,803 107,422,059
Accounts receivable, net of
allowance for doubtful accounts
of $702,960, $603,278 and
$1,689,023....................... 6,663,497 3,470,364 14,148,316
Interest receivable............... 3,333,772 9,874 2,663,181
Notes receivable, net of allowance
of $12,075, $0 and $9,975........ 11,580,866 35,061 32,277,484
Prepaid expenses and other assets
................................. 10,304,244 3,899,715 10,496,287
------------ ------------ -------------
Total current assets............ 194,587,771 121,703,426 202,999,810
Long-term investments, held-to-
maturity (fair market value
$70,971,645, $1,252,051 and
$13,848,271)....................... 71,416,776 1,252,438 13,805,271
Property and equipment, net ........ 7,998,957 4,126,312 27,402,689
Other long-term assets ............. 702,641 639,106 3,935,928
Other investments .................. 17,038,508 644,391 62,725,876
Intangible assets, net.............. 73,842,557 5,304,256 365,805,073
------------ ------------ -------------
Total assets........................ $365,587,210 $133,669,929 $ 676,674,647
============ ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................. $ 2,810,141 $ 3,834,505 $ 3,132,721
Accrued expenses.................. 18,501,053 6,656,497 11,588,877
Deferred revenues................. 2,672,531 1,401,865 15,983,279
Other current liabilities and
short-term debt.................. 1,042,437 1,057,560 99,881
------------ ------------ -------------
Total current liabilities....... 25,026,162 12,950,427 30,804,758
Long-term liabilities............... 685,762 989,431 416,346
Minority interest................... -- -- 25,310,803
------------ ------------ -------------
Total liabilities............... 25,711,924 13,939,858 25,727,149
Commitments and contingencies (Note
8)
Stockholders' equity:
Preferred stock, par value
$.0001--Authorized, 15,000,000
shares; issued and outstanding,
1, 0 and 1 share................. -- -- --
Common stock, par value $.0001--
Authorized, 900,000,000 shares;
issued and outstanding,
211,853,372, 178,958,716 and
231,915,485 shares............... 21,185 17,896 23,192
Additional paid-in capital........ 440,878,391 164,490,626 838,466,993
Accumulated deficit............... (98,512,435) (40,940,646) (213,456,817)
Deferred expense--warrants........ (2,311,159) (3,126,862) (1,903,308)
Unearned compensation--stock
options.......................... (1,518,144) (668,595) (1,008,107)
Accumulated other comprehensive
income........................... 1,317,448 (42,348) (1,979,213)
------------ ------------ -------------
Total stockholders' equity...... 339,875,286 119,730,071 620,142,740
------------ ------------ -------------
Total liabilities and stockholders'
equity............................. $365,587,210 $133,669,929 $ 676,674,647
============ ============ =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
INFOSPACE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
--------------------------------------- ---------------------------
1999 1998 1997 2000 1999
------------ ------------ ----------- ------------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 37,390,303 $ 9,631,927 $ 1,816,542 $ 43,577,835 $ 12,240,104
Cost of revenues ....... 7,267,447 2,330,685 492,809 7,596,373 2,954,201
------------ ------------ ----------- ------------- ------------
Gross profit......... 30,122,856 7,301,242 1,323,733 35,981,462 9,285,903
Operating expenses:
Product development.... 11,316,073 7,567,202 4,560,136 10,426,568 4,924,566
Sales, general and
administrative........ 60,137,292 18,161,340 6,545,714 35,467,566 18,701,842
Amortization of
intangibles........... 3,223,031 709,923 64,056 27,428,465 603,940
Acquisition and
related charges....... 13,350,700 2,800,000 0 86,599,409 4,969,365
Other--non-recurring
charges............... 11,359,500 4,500,000 137,000 2,887,609 209,500
------------ ------------ ----------- ------------- ------------
Total operating
expense............. 99,386,596 33,738,465 11,306,906 162,809,617 29,409,213
------------ ------------ ----------- ------------- ------------
Loss from
operations.......... (69,263,740) (26,437,223) (9,983,173) (126,828,155) (20,123,310)
Other income, net....... 11,703,468 593,348 39,258 6,046,246 4,625,712
Unrealized gain (loss)
on investments......... (11,517) (124,976) -- 15,150,355 --
Restructuring charges... -- -- -- (2,171,462) --
Minority interest....... -- -- -- (6,398,032) --
------------ ------------ ----------- ------------- ------------
Loss from operations
before income tax
expense and cumulative
effect of change in
accounting principle... (57,571,789) (25,968,851) (9,943,915) (114,201,048) (15,497,598)
Income tax expense...... -- -- -- 24,118 --
------------ ------------ ----------- ------------- ------------
Loss from operations
before cumulative
effect of change in
accounting principle... (57,571,789) (25,968,851) (9,943,915) (114,225,166) (15,497,598)
Cumulative effect of
change in accounting
principle.............. -- -- -- (719,216) --
------------ ------------ ----------- ------------- ------------
Net loss................ $(57,571,789) $(25,968,851) $(9,943,915) $(114,944,382) $(15,497,598)
============ ============ =========== ============= ============
Basic and diluted net
loss per share......... $ (0.29) $ (0.23) $ (0.11) $ (0.51) $ (0.08)
============ ============ =========== ============= ============
Shares used in computing
basic net loss per
share.................. 196,222,147 114,519,323 91,469,901 223,707,864 189,085,936
============ ============ =========== ============= ============
Shares used in computing
diluted net loss per
share.................. 196,222,147 114,519,323 91,696,568 223,707,864 189,085,936
============ ============ =========== ============= ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
INFOSPACE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND ACCUMULATED OTHER COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended December 31, June 30,
---------------------------------------- -------------
1999 1998 1997 2000
------------ ------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C>
Common stock and
additional paid in
capital:
Balance, beginning of
year................... $164,508,522 $ 26,247,955 $ 8,988,597 $ 440,899,576
Common stock issued... 202,757,019 121,765,685 15,606,030 --
Common stock issued
for acquisitions..... 61,125,843 7,902,309 292,188 376,669,824
Common stock issued
for stock options.... 2,313,210 1,019,850 23 10,689,470
Common stock issued in
exchange
transactions......... 1,414,000 224,726 109,720 110,000
Common stock issued
for warrants and
preferred shares..... 5,315,541 2,356,412 988,957 6,890,580
Common stock issued
for conversion of
special shares and
debentures........... 170,369 -- -- --
Common stock issued
for employee stock
purchase plan........ 286,088 -- -- 343,126
Unearned
compensation--stock
options.............. 3,175,984 1,728,772 262,440 --
Cancelled options for
deferred services.... (167,000) -- -- --
Deferred expense--
warrants............. -- 3,262,813 -- 2,887,609
------------ ------------ ------------ -------------
Balance, end of year.... 440,899,576 164,508,522 26,247,955 838,490,185
------------ ------------ ------------ -------------
Balance attributed to
common stock........... 21,185 17,896 9,323 23,192
Balance attributed to
additional paid in
capital................ 440,878,391 164,490,626 26,238,632 838,466,993
------------ ------------ ------------ -------------
Balance, common stock
and additional paid in
capital................ 440,899,576 164,508,522 26,247,955 838,490,185
------------ ------------ ------------ -------------
Accumulated deficit:
Balance, beginning of
year................... (40,940,646) (14,971,795) (5,027,880) (98,512,435)
Net loss.............. (57,571,789) (25,968,851) (9,943,915) (114,944,382)
------------ ------------ ------------ -------------
Balance, end of year.... (98,512,435) (40,940,646) (14,971,795) (213,456,817)
------------ ------------ ------------ -------------
Deferred expense--
warrants:
Balance, beginning of
year................... (3,126,862) -- -- (2,311,159)
Deferred expense--
warrants............. -- (3,262,813) -- (2,887,609)
Warrant expense....... 815,703 135,951 -- 3,295,460
------------ ------------ ------------ -------------
Balance, end of year.... (2,311,159) (3,126,862) -- (1,903,308)
------------ ------------ ------------ -------------
Unearned compensation--
stock options:
Balance, beginning of
year................... (668,595) (189,955) (71,437) (1,518,144)
Unearned
compensation--stock
options.............. (3,175,984) (1,728,772) (262,440) --
Cancelled options for
deferred services.... 167,000 -- -- --
Compensation expense--
stock options........ 2,159,435 1,250,132 143,922 510,037
------------ ------------ ------------ -------------
Balance, end of year.... (1,518,144) (668,595) (189,955) (1,008,107)
------------ ------------ ------------ -------------
Accumulated other
comprehensive income:
Balance, beginning of
year................... (42,348) (25,780) (5,181) 1,317,448
Unrealized gain (loss)
on equity
investments.......... 1,324,301 -- -- (2,946,803)
Foreign currency
translation
adjustment........... 35,495 (16,568) (20,599) (349,858)
------------ ------------ ------------ -------------
Balance, end of year.... 1,317,448 (42,348) (25,780) (1,979,213)
------------ ------------ ------------ -------------
$339,875,286 $119,730,071 $ 11,060,425 $ 620,142,740
============ ============ ============ =============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
INFOSPACE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------------------- ---------------------------
1999 1998 1997 2000 1999
------------ ----------- ---------- ------------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss................ (57,571,789) (25,968,851) (9,943,915) $(114,944,382) $(15,497,598)
Adjustments to
reconcile net loss to
net cash provided
(used) by operating
activities............. -- -- -- -- --
Trademark
amortization.......... 1,500,000 1,500,000 -- -- 1,500,000
Depreciation and other
amortization.......... 5.545,201 1,578,543 590,325 30,205,019 1,591,856
Write-off of in-
process research and
development........... 9,200,000 2,800,000 -- 74,100,000 3,900,000
Write-down of
inventory to net
realizable value...... -- -- 783,000 -- --
Compensation expense--
stock options......... 19,811,694 1,273,132 859,922 510,037 402,567
Currency translation... 42,520 (28,308) (29,830) -- --
Warrants expense....... 815,703 135,951 -- 3,295,460 407,851
Noncash issuance of
common stock.......... -- 70,000 -- -- --
Noncash services
exchanged............. 1,414,000 190,436 49,720 110,000 --
Bad debt expense....... 499,464 687,602 47,000 1,085,700 245,783
(Equity) loss from
joint venture......... 25,759 56,976 -- (64,207) 76,459
Gain on disposal of
interest in
investee.............. -- (35,000) -- -- --
Gain on sale of
intangibles........... (7,830) -- -- -- (7,830)
Loss (gain) on
disposal of fixed
assets................ 21,019 111,229 225,743 360,086 10,583
Performance warrant
revenue............... (1,295,325) -- -- (5,919,609) --
Unrealized gain in
investments........... -- -- -- (15,150,355) --
Cumulative translation
adjustment............ -- -- -- (294,758) 41,887
Minority interest in
venture fund.......... -- -- -- 6,398,032 --
Business acquisition
costs................. -- -- -- 12,499,409 --
Cumulative effect of
change in accounting
principle ............ -- -- -- 351,332 --
Cash provided (used)
by changes in
operating assets and
liabilities, net of
assets acquired in
business
combinations: -- -- -- -- --
Accounts receivable... (3,681,473) (3,656,668) (421,990) (9,627,316) (1,271,897)
Notes receivable...... (11,314,171) -- -- -- --
Interest receivable... (3,312,082) -- -- -- (658,775)
Prepaid expenses and
other assets......... (8,055,947) (2,506,941) (286,253) 520,466 (1,809,836)
Other long-term
assets............... (90,716) (337,500) -- (772,804) (173,676)
Other tangible
assets............... -- (66,865) -- -- --
Accounts payable...... (1,024,359) 4,332,060 583,374 (607,053) (2,301,544)
Accrued expenses...... 11,365,894 4,845,658 199,648 (16,088,251) (188,671)
Other long-term
liabilities.......... (57,000) 128,440 -- -- --
Deferred revenue...... 1,273,928 1,337,716 58,261 12,959,416 188,324
------------ ----------- ---------- ------------- ------------
Net cash used by
operating activities... (34,895,510) (13,552,390) (7,284,995) (21,073,778) (13,544,527)
Investing Activities:
Business acquisitions
net of cash required... (19,514,794) (311,951) (14,000) (9,591,595) (18,083,054)
Other investments....... (13,800,250) (150,000) -- (27,500,000) (5,488,265)
Purchase of domain
name................... (120,000) -- -- -- (100,000)
Proceeds from sale of
domain name............ 10,000 -- -- -- 10,000
Purchase of trademark... -- (3,290,000) -- -- --
Internally developed
software............... (340,498) -- -- -- --
Purchase of property
and equipment.......... (5,369,792) (3,938,162) (914,666) (14,849,336) (2,363,778)
Investments in joint
venture................ -- (495,767) -- -- --
Notes receivable, net... -- -- -- (18,446,134) (5,955,065)
Minority interest
contribution in
venture fund........... -- -- -- 19,365,000 --
Proceeds from sales of
fixed assets........... -- 4,997 -- -- --
Purchase of other
assets................. -- -- -- -- --
Short-term investments,
net.................... (50,418,339) (74,301,803) -- 17,298,083 (2,879,544)
Long-term investments,
net.................... (70,164,338) (1,252,438) -- 57,611,500 (69,637,745)
Other................... -- -- (29,087) -- --
------------ ----------- ---------- ------------- ------------
Net cash provided
(used) by investing
activities............. (159,718,011) (83,735,124) (957,753) 23,887,574 (104,497,451)
Financing Activities:
Proceeds from issuance
of common stock....... 66,000 46,153,871 14,348,010 -- 186,990,573
Payment to shareholders
for fractional
shares................ -- (28) -- -- --
Proceeds from public
offerings, net of
expenses.............. 185,039,027 77,830,903 -- -- --
Proceeds from issuance
of long-term debt..... 550,000 1,144,992 2,912,254 -- --
Repayment of long-term
debt.................. (958,000) (868,220) (141,2340) -- --
Repayment of
stockholder loan
payable............... -- (5,116) (39,728) -- --
Proceeds from issuance
of ESPP shares........ 286,088 -- -- 343,126 --
Proceeds from exercise
of warrants........... 5,315,541 40,161 -- 6,890,580 --
Proceeds from exercise
of stock options...... 2,313,210 1,016,210 -- 10,689,470 353,062
Short-term and long-
term investments...... -- -- -- (22,729,739) 460,367
------------ ----------- ---------- ------------- ------------
Net cash provided
(used) by financing
activities............ 192,611,866 125,312,773 17,079,302 (4,806,563) 187,804,002
------------ ----------- ---------- ------------- ------------
Net increase (decrease)
in cash and cash
equivalents............ (2,001,655) 28,025,259 8,836,554 (1,992,737) 69,762,024
</TABLE>
F-7
<PAGE>
INFOSPACE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
---------------------------------- ----------------------
1999 1998 1997 2000 1999
---------- ---------- ---------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash and cash
equivalents, beginning
of period.............. 39,986,905 11,961,646 3,125,092 37,985,250 39,986,609
---------- ---------- ---------- ---------- -----------
Cash and cash
equivalents, end of
period................. 37,985,250 39,986,905 11,961,646 35,992,483 109,748,633
---------- ---------- ---------- ---------- -----------
Supplemental Disclosure
of Noncash Financing
and Investing
Activities:
Acquisitions from
purchase transactions:
Stock issued........... 61,125,843 7,932,000 382,188 -- --
Net assets assumed..... (149,723) (191,000) (90,000) -- --
Issuance of convertible
preferred stock upon
conversion of note and
accrued interest
payable................ -- -- 1,531,000 -- --
Property and equipment
acquired under
equipment financing and
capital lease
obligations............ 308,000 198,000 376,000 -- --
Issuance of common stock
for notes receivable... -- -- 32,000 -- --
Issuance of warrants and
options for deferred
services and abandoned
financing.............. 2,665,000 216,000 28,000 -- --
Conversion of note
payable as
consideration for
interest in previously
consolidated
subsidiary............. -- 250,000 -- -- --
Compensation expense for
Series E warrants...... 17,652,000 -- -- -- --
Stock issued in exchange
transaction............ 169,000 334,726 102,720 110,000 --
Stock issued for
retirement of
debentures............. 170,369 -- -- -- --
Interest paid........... 132,000 124,923 36,000 -- --
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999, 1998 and 1997 and
Six Months Ended June 30, 2000 and 1999 (unaudited)
Note 1: Summary of Significant Accounting Policies
Description of business: InfoSpace, Inc., (the Company or InfoSpace),
previously known as InfoSpace.com, Inc., a Delaware corporation, was founded in
March 1996. The Company is an international Internet information infrastructure
services company that provides enabling technologies and Internet services to
Web sites, merchants and wireless devices.
Principles of consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Business combinations: Business combinations accounted for under the purchase
method of accounting include the results of operations of the acquired business
from the date of acquisition. Net assets of the companies acquired are recorded
at their fair value at the date of acquisition. Amounts allocated to in-process
research and development are expensed in the period of acquisition.
Business combinations accounted for under the pooling-of-interests method of
accounting include the financial position and results of operations as if the
acquired company had been a wholly-owned subsidiary since inception. In such
cases, the assets, liabilities and stockholders' equity of the acquired
entities were combined with the Company's respective amounts at their recorded
values. The equity of the acquired entity is reflected on an as-if-converted
basis to InfoSpace equity at the time of issuance. Prior period financial
statements have been recast to give effect to the merger. Certain
reclassifications have been made to the financial statements of the pooled
entities to conform with the Company.
Unaudited information: The accompanying unaudited consolidated financial
statements include all adjustments, consisting of normal recurring adjustments
that, in the opinion of management, are necessary to present fairly the
financial information set forth therein. Prior period financial statements have
been recast to give effect to mergers accounted for as a pooling of interests.
Results of operations for the three and six-month periods ended June 30, 2000
are not necessarily indicative of future financial results.
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. Cash and cash equivalents are carried at cost, which approximates
market.
Investments: The Company principally invests its available cash in high-
quality corporate issuers, and in debt instruments of the U.S. Government and
its agencies. All debt instruments with original maturities greater than three
months up to one year from the balance sheet date are considered short-term
investments. Investments maturing after twelve months from the balance sheet
date are considered long-term. The Company accounts for investments in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company's short-term and long-term investments are
classified as held-to-maturity as of the balance sheet date as the company has
both the ability and the intent to hold the investments to maturity and are
reported at amortized cost.
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 and software................................. 3 years
Office equipment................................................ 5 years
Office furniture................................................ 7 years
Leasehold improvements.......................................... lease term
</TABLE>
F-9
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On January 1, 1999, the Company adopted Statement of Position 98-1,
Accounting for the Costs of Computer Software developed or Obtained for
Internal Use. This requires capitalization of certain costs incurred in
connection with developing or obtaining internal use software and amortization
of these costs over future periods, which prior to the adoption of SOP 98-1,
were expensed. For the year ended December 31, 1999, the Company has
capitalized $478,304 of costs associated with internally developed software.
These costs are included in property and equipment on the accompanying balance
sheet and are generally amortized over five years.
Intangible assets: Goodwill, purchased technology and other intangibles are
amortized on a straight-line basis over their estimated useful lives. Goodwill
and purchased technology are generally amortized over three to five years.
Other intangibles, primarily consisting of purchased trademarks and domain name
licenses are amortized over an estimated useful life of three years.
Other investments: The Company invests in equity investments of public and
privately-held technology companies for business and strategic purposes. These
investments are included in long-term assets and are classified as available-
for-sale. Investments in companies whose securities are not publicly traded are
recorded at cost. Investments in companies whose securities are publicly traded
are recorded at fair value. Unrealized gains or losses on these investments are
recorded as comprehensive income in the Company's stockholders' equity.
Realized gains or losses are recorded based on the identified cost of the
investment sold.
Other long-lived assets: Management periodically evaluates long-lived assets,
consisting primarily of purchased technology, goodwill, property and equipment,
to determine whether there has been any impairment of the value of these assets
and the appropriateness of their estimated remaining life. No impairment loss
has been recognized through December 31, 1999.
Revenue recognition: The Company's revenues are derived from its consumer,
merchant and wireless services. These include advertising, content carriage,
licensing fees, e-commerce fees and guaranteed transaction fees in lieu of
revenue share.
Advertising: Revenues from contracts based on the number of impressions
displayed or click throughs provided are recognized as services are rendered.
Content carriage: Revenues from fixed fee content carriage agreements are
recognized ratably over the related contract term. For content carriage fee
contracts that are performance based with an established maximum, the Company
recognizes revenues as the services are rendered, not to exceed the maximum
amount over the fixed term.
Licensing fees: Revenue from licensed services is recognized ratably over the
term of the license agreement.
Commerce fees: Transaction fees are recognized in the period the transaction
occurred and was reported to the Company by the content providers or online
merchants.
Guaranteed transaction fees: Guaranteed minimum payments are recognized
ratably over the term of the agreements. Revenues earned above the guaranteed
minimum payments are recognized ratably over the remaining term of the
agreements.
Also included in revenues are barter revenues generated from exchanging
banners for banners, banners for content or banners for print or other
advertising. Barter revenues are recorded at the lower of the estimated fair
market value of goods and services received or impressions given, and are
recognized when
F-10
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Company's advertisements are run. For barter agreements, the Company
records a receivable or liability at the end of the reporting period for the
difference in the fair value of the services provided or received.
Cost of revenues: Cost of revenues consists of expenses associated with the
enhancement, maintenance and support of our content services, including direct
personnel expenses, communication costs such as high-speed Internet access,
server equipment depreciation and content license fees. Fees paid for content
licenses are capitalized and amortized over the license period.
Product development: Product development expenses consist principally of
personnel costs for research, design, development, enhancement and maintenance
of the proprietary technology used to integrate and distribute the Company's
consumer, merchant and wireless services. These expenses are net of capitalized
internally developed software costs.
Advertising costs: Costs for print advertising are recorded as expense when
the advertisement appears. Advertising costs related to electronic impressions
are recorded as expense as impressions are provided. Advertising expense
totaled approximately $5,369,000, $1,280,000 and $263,000 for the years ended
December 31, 1999, 1998 and 1997, 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 (Note 5). The
amortization of unearned compensation is charged to operations and is amortized
over the vesting period of the options.
Deferred expense-warrants: Deferred expense-warrants represents the fair
value of the warrants that were issued and is expensed ratably over the four
year vesting period. The amortization of deferred warrant expense is charged to
sales and marketing expense.
Acquisition and other related charges: Acquisition and other related charges
consist of in-process research and development and other one-time charges
related directly to the acquisitions, such as legal and accounting fees.
Other non-recurring charges: Other non-recurring charges in the first quarter
of 2000 consist of expense recorded for the fair market value of warrants
issued by Prio, Inc. Prio had previously issued warrants for services provided.
These warrants were accounted for under variable plan accounting. Subsequent to
the acquisition of Prio, the agreement with these warrants was terminated and
the remaining unvested warrants accelerated to full vesting. Other non-
recurring charges in 1999 consist of costs associated with litigation
settlements.
Foreign currencies: Assets and liabilities denominated in foreign currencies
are translated at the exchange rate on the balance sheet date. Translation
adjustments resulting from this process are charged or credited to other
comprehensive income. Revenue and expenses are translated at average rates of
exchange prevailing during the period. Gains and losses on foreign currency
transactions are included in Other income, net.
Concentration of credit risk: Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash
equivalents, short-term investments, and trade receivables. These instruments
are generally unsecured and uninsured. The Company places its cash equivalents
and investments with major financial institutions. The Company operates in one
business segment and sells advertising to various companies across several
industries. Accounts receivable are typically
F-11
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 years ended December
31, 1999 and 1998, one customer accounted for approximately 21% and 20% of
revenues, respectively. For the year ended December 31, 1997, no one customer
accounted for more than 10% of revenues. At December 31, 1999, one customer
accounted for approximately 14% of accounts receivable. At December 31, 1998,
one customer accounted for approximately 26% of accounts receivable.
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 loss carryforwards, and
liabilities are determined based on temporary differences between the book and
tax basis of assets and liabilities. The Company believes sufficient
uncertainty exists regarding the realizability of the deferred tax assets such
that a full valuation allowance is required.
Reclassification: Certain reclassifications have been made to the 1998 and
1997 balances to conform with the 1999 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.
Stock splits: A two-for-one stock split of the Company's common stock was
effected in May 1999. A second two-for-one stock split of the Company's common
stock was effected in January 2000. A third two-for-one stock split of the
Company's common stock was effected in April 2000. All references in the
financial statements to shares, share prices, per share amounts and stock plans
have been adjusted retroactively for these stock splits.
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 December 1999, the Securities and
Exchange Commission staff issued Staff Accounting Bulletin (SAB) 101, Revenue
Recognition in Financial Statements. The Company adopted SAB 101 on January 1,
2000. Prior to January 1, 2000 and implementation of the SAB, the Company
recorded revenues from customers for development fees, implementation fees
and/or integration fees when the service was completed. If this revenue was
recognized on a straight-line basis over the term of the related service
agreements, in accordance with SAB 101, the Company would have deferred
$719,216 as of January 2000. In accordance with SAB 101, the Company recorded a
cumulative effect of change in accounting principle of $719,216. The Company
recorded $367,896 in revenue in the six months ended June 30, 2000 (unaudited)
related to this deferred revenue. The remaining balance will be recognized from
July 2000 through November 2001.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities. SFAS 133, as amended by SFAS 137, establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. Because the Company has never used
nor currently intends to use derivatives, management does not anticipate that
the adoption of this new standard will have a significant effect on earnings or
the financial position of the Company.
F-12
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2: Balance Sheet Components
Investments at December 31, 1999 consist of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Corporate notes and bonds
......................... $100,604,357 $ 61,109 $(530,513) $100,134,953
U.S. Government securities
......................... 52,920,693 14,198 (249,720) 52,685,171
Commercial paper ......... 27,362,325 147,997 -- 27,510,322
Certificate of deposit ... 15,249,543 79,125 (31,108) 15,297,560
------------ -------- --------- ------------
$196,136,918 $302,429 $(811,341) $195,628,006
============ ======== ========= ============
</TABLE>
Maturity information is as follows:
<TABLE>
<CAPTION>
Amortized
Cost Fair Value
------------ ------------
<S> <C> <C>
Within one year .................................. $124,720,142 $124,656,361
1 year through 5 years ........................... 71,416,776 70,971,645
------------ ------------
$196,136,918 $195,628,006
============ ============
</TABLE>
Investments at December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Commercial paper ............ $68,810,756 $13,259 $(253) $68,823,762
Municipal securities ........ 1,499,665 485 -- 1,500,150
U.S. Government securities
............................ 5,243,820 -- (387) 5,243,433
----------- ------- ----- -----------
$75,554,241 $13,744 $(640) $75,567,345
=========== ======= ===== ===========
</TABLE>
Maturity information is as follows:
<TABLE>
<CAPTION>
Amortized
Cost Fair Value
----------- -----------
<S> <C> <C>
Within one year .................................... $74,301,803 $74,315,294
1 year through 5 years ............................. 1,252,438 1,252,051
----------- -----------
$75,554,241 $75,567,345
=========== ===========
</TABLE>
F-13
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Property and equipment:
Computer equipment ............................. $ 6,624,664 $3,561,385
Purchased software ............................. 2,736,850 773,808
Internally developed software .................. 478,304 --
Office equipment ............................... 403,977 152,028
Office furniture ............................... 346,181 296,145
Leasehold improvements ......................... 904,698 431,715
----------- ----------
11,494,674 5,215,081
Accumulated depreciation ....................... (3,495,717) (1,088,769)
----------- ----------
$ 7,998,957 $4,126,312
=========== ==========
Intangible assets:
Goodwill ....................................... $70,436,117 $4,860,671
Core technology ................................ 6,500,000 800,000
Assembled workforce ............................ 420,000 40,000
Other .......................................... 624,590 499,974
----------- ----------
77,980,707 6,200,645
Accumulated amortization ....................... (4,138,150) (896,389)
----------- ----------
$73,842,557 $5,304,256
=========== ==========
Accrued expenses:
Salaries and related expenses .................. $ 2,979,731 $ 193,592
Accrued carriage fees .......................... 907,503 --
Accrued revenue share .......................... 1,064,638 93,067
Accrued settlement costs ....................... 10,500,000 4,500,000
Other .......................................... 3,049,181 1,869,838
----------- ----------
$18,501,053 $6,656,497
=========== ==========
</TABLE>
Note 3: Notes Receivable
On June 30, 1999, the Company loaned an unrelated third party $6.0 million at
12% interest per annum. The short-term note and accrued interest was repaid on
February 7, 2000.
On December 1, 1999, the Company loaned an unrelated third party $2.5
million. This short-term note is due by August 1, 2000, and accrues interest at
12% per annum. On January 19, 2000 and February 18, 2000, the Company loaned
the same third party an additional $1.0 million and $1.5 million. These two
notes are due by September 1, 2000 and accrue interest at 12% per annum. All
three of these notes are secured by all of the assets and properties of the
borrower and are considered fully collectible. At December 31, 1999, accrued
interest on this note is $25,000.
On December 21, 1999, the Company loaned a director of the Company $1.9
million. The promissory note is due on December 16, 2001, and accrues interest
at the prime rate. The note is secured by a pledge of the officer's shares of
the Company's common stock. The pledged shares are valued in excess of the note
balance. At December 31, 1999, accrued interest on this note is $4,405. At
December 31, 1999, the Company also had approximately $1.1 million in short-
term loans to employees and unrelated parties at various interest rates.
Approximately $941,000 of this balance has been repaid subsequent to year-end
(unaudited).
F-14
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4: Long-Term Debt
The Company's long-term debt as of December 31 consists of (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Demand note payable.............................. $ 250,000 $ 250,000
Equipment lease line............................. 1,219,331 1,186,063
Loan related to joint venture.................... -- 144,000
Equipment financing and capitalized leases ...... 187,525 175,143
Current portion.................................. (1,042,436) (1,057,560)
----------- -----------
Long-term portion................................ $ 614,420 $ 697,646
=========== ===========
</TABLE>
In January 1996, the Company executed a demand note with a commercial entity
in the amount of $250,000, which is the amount outstanding as of December 31,
1999. The note bears interest at LIBOR (5.82% as of December 31, 1999) plus 1%
per annum, and the full principal amount plus interest is due on demand. The
note may be converted into shares of the Company's preferred stock at the then
prevailing conversion or market price, until the note is paid in full. In
January 2000, the Company exercised its right to repay the demand note in
accordance with the terms of the note payable (the "Terms"), by sending a check
for full amount of principal and accrued interest. Lender attempted to reject
the repayment on the grounds that it had attempted to convert the note in early
1998. Management believes that such lender's claim is without merit based on
the Terms and intends to defend its claim vigorously.
In June 1997, the Company entered into a loan and security agreement (the
"Agreement," as amended in September 1998) with Phoenix Leasing Incorporated.
The Agreement provides the Company with
available borrowings not to exceed $2,124,000, in aggregate, $2,099,000 of
which was drawn through December 31, 1999. Principal and interest are due in 36
equal monthly installments with a final payment equal to 15% of the original
principal amount due on the 37th month from the time of the borrowing. The
notes bear interest at effective rates ranging from 15.0% to 16.4% per annum.
Principal repayments for the borrowings are due as follows: 2000, $607,000;
2001, $561,000; and 2002, $50,000.
In October 1997, the Company entered into a joint venture agreement (the
Joint Agreement) with DataCard to form DSIPL. Pursuant to the terms of the
Joint Agreement, DSIPL will perform development services for DataCard and the
Company. In connection with the Joint Agreement, DataCard loaned Prio $500,000,
the proceeds of which were used by Prio to fund DSIPL. DataCard had the option
to convert $250,000 of the notes payable into 50% ownership interest in DSIPL,
which was exercised by DataCard in May 1998. The remaining amount of the note
of $144,000 was paid in full during 1999.
Note 5: Other Investments
The Company invests in equity instruments of public and privately-held
technology companies for business and strategic purposes. These investments are
recorded as long-term assets and are classified as available-for-sale
securities.
The Company also holds warrants in public and privately-held technology
companies for business and strategic purposes. Certain of these warrant
agreements contain provisions that require the Company to meet specific
performance criteria for the warrants to vest. When the Company meets its
performance obligations it records revenue equal to the difference in the
exercise price of the warrant and the fair market value of the underlying
security. The Company recorded revenue in the amount of $1,895,325 for vesting
in performance warrants and stock for the year ended December 31, 1999.
F-15
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Unrealized Carrying
Gain Value
---------- -----------
<S> <C> <C>
Investments in public companies...................... $1,324,301 $ 4,060,076
Investments in privately-held companies.............. -- 12,359,800
Investment in joint venture.......................... -- 618,632
---------- -----------
Total other investments.............................. $1,324,301 $17,038,508
========== ===========
</TABLE>
Note 6: Stockholders' Equity
Authorized shares: On May 1, 1998, the Company's 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.
Also, 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.
In April 1999, the Company closed a follow-on offering. The Company sold
17,360,000 shares and raised approximately $185 million, net of expenses.
Certain shareholders sold 12,080,000 shares.
On April 6, 1999, the Board of Directors approved a two-for-one stock split
of the Company's common stock. The stock split was effected on May 5, 1999.
On May 24, 1999, the stockholders of the Company approved an amendment to the
Company's Certificate of Incorporation to increase the authorized number of
shares of the Company's common stock to 200,000,000 shares.
On November 29, 1999, the Board of Directors approved a two-for-one stock
split of the Company's common stock. The stock split was effected on January 5,
2000.
On January 21, 2000, the Board of Directors approved a two-for-one stock
split of the Company's common stock. The stock split was effected on April 6,
2000. On April 3, 2000, the stockholders of the Company approved an amendment
to the Company's Certificate of Incorporation to increase the number of
authorized shares to 900,000,000 shares.
Restated 1996 Flexible Stock Incentive Plan: On June 3, 1998, the Board of
Directors approved the Restated 1996 Flexible Stock Incentive Plan (the Plan).
The Plan provides employees (including officers and directors who are
employees) of the Company an opportunity to purchase shares of stock pursuant
to options which may qualify as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as amended (the Code), and employees,
officers, directors, independent contractors and consultants of the 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
F-16
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
entitle holders to cash compensation measured by appreciation in the value of
the stock. Not more than 3,000,000 shares of stock shall be available for the
grant of options or the issuance of stock under the Plan. If an option is
surrendered or for any other reason ceases to be exercisable in whole or in
part, the shares which were subject to option but on which the option has not
been exercised shall continue to be available under the Plan. The Plan is
administered by the Board of Directors. Options granted under the Plan
typically vest over four years, 25% one year from the date of grant and ratably
thereafter on a monthly basis. Additional options have been granted to retain
certain existing employees, which options vest monthly over four years.
On June 3, 1998, the Board of Directors approved the Option Exchange Program
and the Option Replacement Program, allowing employees of the Company to
exchange their nonqualified stock options for incentive stock options.
Nonqualified stock options to purchase a total of 2,900,424 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.
On May 24, 1999, the stockholders approved an amendment to the Plan to
increase the number of shares of Common Stock reserved for issuance thereunder
by 8,000,000 shares. On January 21, 2000, the Board of Directors approved the
deletion of this limitation.
On May 24, 1999, the stockholders approved an amendment to the Plan to
annually increase the number of shares reserved for issuance on the first day
of the Company's fiscal year beginning January 1, 2000 by an amount equal to
the lesser of (A) 8,000,000 shares, (B) three percent of the Company's
outstanding shares at the end of the Company's preceding fiscal year, and (C) a
lesser amount determined by the Board of Directors.
On May 24, 1999, the stockholders approved an amendment to the Plan to limit
the number of shares of Common Stock that may be granted to any one individual
pursuant to stock options in any fiscal year of the Company to 8,000,000
shares, plus an additional 8,000,000 shares in connection with his or her
initial employment with the Company, which grant shall not count against the
limit.
Included in the table below as outstanding at December 31, 1999 are options
to purchase 1,630,675 shares that were issued outside of the Plan, of which
754,269 were exercisable as of December 31, 1999. The options issued outside
the Plan include 1,512,971 options that were assumed in acquisitions.
F-17
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Activity and price information regarding the options are summarized as
follows:
<TABLE>
<CAPTION>
Weighted average
Options Exercise price
---------- ----------------
<S> <C> <C>
Outstanding, December 31, 1996 ................. 8,650,442 $ 0.03
Granted ...................................... 3,348,054 0.56
Cancelled..................................... (61,865) 0.76
Exercised .................................... (29,470) 0.51
----------
Outstanding, December 31, 1997 ................. 11,907,161 0.18
Granted ...................................... 16,791,512 1.37
Cancelled .................................... (4,137,972) 0.41
Exercised .................................... (2,318,484) 0.45
----------
Outstanding, December 31, 1998 ................. 22,242,217 1.00
Granted ...................................... 8,725,180 13.76
Cancelled .................................... (838,008) 2.91
Exercised .................................... (4,055,202) 0.71
----------
Outstanding, December 31, 1999 ................. 26,074,187 5.26
Granted ...................................... 18,024,394 53.28
Cancelled .................................... (4,661,960) 5.52
Exercised .................................... (6,059,936) 1.12
----------
Outstanding, June 30, 2000...................... 33,376,685 31.40
==========
Options exercisable, June 30, 2000.............. 7,761,471 13.01
==========
</TABLE>
Information regarding stock option grants during the years ended December 31,
1999, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1999 Year ended December 31, 1998 December 31, 1997
--------------------------- ---------------------------- ---------------------------
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........... -- $ -- $ -- -- -- $ -- 2,000,000 $0.50 $0.38
Exercise price equals
market price........... 8,354,955 13.99 14.00 14,659,512 1.46 1.50 413,062 0.19 2.01
Exercise price is less
than market price...... 430,756 8.68 14.20 2,132,000 0.17 0.45 934,992 0.10 0.30
</TABLE>
The Company granted 3,067,527 options in the first quarter of 2000 at
exercise prices equal to market prices. The weighted average exercise price and
fair market value of these options is $85.45 and $88.28, respectively.
The Company has elected to follow the measurement provisions of Accounting
Principles Board Opinion No. 25, under which no recognition of expense is
required in accounting for stock options granted to employees for which the
exercise price equals or exceeds the fair market value of the stock at the
grant date. In those cases where options have been granted when the option
price is below fair market value, the Company recognizes compensation expense
over the vesting period using the aggregated percentage of compensation accrued
method as prescribed by Financial Standards Accounting Board Interpretation
No. 28. Compensation expense of $884,714, $1,246,132, and $143,922, was
recognized during the years
F-18
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ended December 31, 1999, 1998 and 1997, respectively, and $510,037 for the six
months ended June 30, 2000 for options granted with exercise prices less than
grant date fair market 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 December 31, 1999: risk-free interest
rate ranging from 4.24% to 6.56%; expected dividend yield of 0-%; 121%
volatility; and an expected life of five years for 1999 and six years for 1998
and prior.
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 years
ended December 31, 1999, 1998 and 1997, and six months ended June 30, 2000
would have been adjusted to the following pro forma amounts:
<TABLE>
<CAPTION>
Year ended Six months
--------------------------------------- ended
1999 1998 1997 June 30, 2000
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Net loss as reported.... $(57,571,793) $(25,968,851) $(9,943,915) $(114,944,382)
Net loss, pro forma..... (73,024,084) (26,384,715) (9,995,405) (251,667,303)
Basic net loss per
share, pro forma....... $ (0.38) $ (0.23) $ (0.11) $ (1.13)
</TABLE>
Additional information regarding options outstanding as of December 31, 1999,
is as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------- -----------------------
Weighted
average Weighted Weighted
Range of remaining average average
exercise Number contractual exercise Number exercise
prices outstanding life (yrs.) price Exercisable price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.003-- 0.94 7,808,136 6.65 $ 0.13 5,694,528 $ 0.06
1.00-- 4.89 9,850,925 7.97 1.89 2,722,225 1.94
5.35-- 9.97 2,802,776 7.74 6.69 346,779 6.65
10.11--14.32 4,041,800 9.75 16.48 -- --
15.59--28.78 874,000 9.87 22.99 -- --
37.25--50.81 696,550 9.94 45.45 49,784 38.13
---------- ---- ------ --------- ------
26,074,187 8.62 5.26 8,813,316 1.11
========== ==== ====== ========= ======
</TABLE>
At December 31, 1999 17,806,060 shares were available for future grants under
the Plan.
In connection with the May and August 1998 private placement offering, the
Company issued warrants to purchase 16,510,688 shares of common stock to five
third-party participants for consulting services performed in identifying,
structuring and negotiating future financings. These warrants expire between
May 21, 2008 and August 6, 2008. The activity and additional information are as
follows:
<TABLE>
<S> <C>
Outstanding, December 31, 1998............................... 16,510,688
Exercised.................................................... (1,870,872)
----------
Outstanding, December 31, 1999............................... 14,639,816
==========
</TABLE>
<TABLE>
<CAPTION>
Range of
Exercise Number
prices Outstanding
-------- -----------
<S> <C>
$0.25-0.50.................................................. 7,869,968
0.63-0.75.................................................. 3,415,960
1.25....................................................... 3,353,888
</TABLE>
F-19
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In July 1998, the Company issued warrants to purchase 3,823,736 shares of
common stock at an exercise price of $.003 to a former consultant in
conjunction with the acquisition of Outpost (Note 4). All of these warrants
were exercised in 1999.
On August 24, 1998, the Company issued to AOL warrants to purchase up to
7,919,328 shares of common stock, which warrants vest in 16 equal quarterly
installments over four years, conditioned on the delivery by AOL of a minimum
number of searches each quarter on the Company's white pages directory service.
The warrants have an exercise price of $1.50 per share. The warrants were
valued using the fair value method, as required under SFAS No. 123. The fair
value of the warrants was approximately $3,300,000 at the date of grant, and is
being amortized ratably over the four-year vesting period. The underlying
assumptions used to determine the value of the warrants are an expected life of
six years and a 5.5% risk-free interest rate.
The Company assumed warrants to purchase 288,808 shares of the Company's
common stock as a result of the acquisition of INEX Corporation (Note 7). These
warrants were issued to seven third-party participants. Two of the third party
participants exercised 24,486 of the warrants in December 1999. The remaining
warrants expire between January 29, 2000 and July 31, 2000. The range of
exercise prices and number outstanding at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Range of Number
Exercise prices Outstanding
--------------- -----------
<S> <C>
$1.88........................................................ 34,278
4.00........................................................ 85,640
</TABLE>
The Company assumed warrants to purchase 474,203 shares of the Company's
stock as a result of the acquisition of Prio, Inc. with an exercise price of
$9.97 per share. The warrants were issued to a third-party participant in
December of 1998 and are exercisable over a maximum of a 48 month period, based
on achievement of performance milestones and other criteria as defined in the
warrant agreement. In 1999, Prio recorded warrant expense for all the warrants
issued, of which 118,551 were unvested at December 31, 1999, of $18 million
based on the fair value of these warrants using the Black-Scholes option
pricing model with the following assumptions: dividend yield of 0%; expected
volatility of 75%; contractual life of nine years; and risk-free interest rate
of 6.37%. The compensation cost for the unvested warrants was remeasured when
vesting occurred and additional warrant expense of $2.9 million was recognized
in the six months ended June 30, 2000.
Stock purchase rights plan: On June 26, 1998, the Board of Directors approved
the InfoSpace Stock Purchase Rights Plan. The plan was offered to employees of
the Company and its subsidiaries. The purpose of the plan was to provide an
opportunity for employees to invest in the Company and increase their incentive
to remain with the Company. A maximum of 4,000,000 shares of common stock were
available for issuance under the plan. During July 1998, the Company offered
shares to employees under the plan, resulting in the sale of 1,786,008 shares
at $.94 per share. The plan was terminated on August 24, 1998.
1998 Employee Stock Purchase Plan: The Company adopted the 1998 Employee
Stock Purchase Plan (the ESPP) in August 1998. The ESPP was implemented upon
the effectiveness of the initial public offering. The ESPP is intended to
qualify under Section 423 of the Code, and permits eligible employees of the
Company and its subsidiaries to purchase common stock through payroll
deductions of up to 15% of their compensation. Under the ESPP, no employee may
purchase common stock worth more than $25,000 in any calendar year, valued as
of the first day of each offering period. In addition, owners of 5% or more of
the Company or subsidiary's common stock and the Company's executives may not
participate in the ESPP. An aggregate of 3,600,000 shares of common stock are
authorized for issuance under the ESPP.
F-20
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The ESPP was implemented with six-month offering periods, with the first such
period commencing upon the effectiveness of the initial public offering and
ending July 31, 1999. Thereafter, offering periods will begin on each February
1 and August 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 was 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 July 31, 1999. The ESPP does not have a
fixed expiration date, but may be terminated by the Company's Board of
Directors at any time. There were 152,580 shares issued for the first ESPP
offering period which ended on July 31, 1999.
Note 7: Business Combinations
Millet Software (unaudited): On March 31, 2000 the Company acquired all of
the common stock of Millet Software (privacybank.com) for purchase
consideration of 488,224 shares of the Company's common stock and acquisition
expenses of $54,531. Millet was a privately held company that developed secure
technology that provides an automated process for filling in payment forms. The
acquisition was accounted for as a purchase in accordance with Accounting
Principles Board Opinion ("APB") No. 16. Results of operations for Millet have
been included with those of the Company for the period subsequent to the date
of acquisition.
The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as follows:
<TABLE>
<S> <C>
Tangible assets acquired...................................... $ 110,354
Liabilities assumed........................................... (404,374)
-----------
Book value of net liabilities acquired....................... (294,020)
Fair value adjustments:
Fair value of purchased technology, including in-process
research and development.................................... 6,000,000
Fair value of assembled workforce............................ 170,000
-----------
Fair value of net assets acquired............................. 5,875,980
Purchase price:
Fair value of shares issued.................................. 29,647,618
Acquisition costs............................................ 54,531
-----------
Excess of purchase price over net assets acquired, allocated
to goodwill.................................................. $23,826,169
===========
</TABLE>
The $6,000,000 value of purchased technology includes purchased in-process
research and development for future InfoSpace products. Generally accepted
accounting principles in the U.S. require purchased in-process research and
development with no alternative future use to be recorded and charged to
expense in the period acquired. Accordingly, the results of operations for the
quarter ended March 31, 2000, include the write-off of $2,400,000 of purchased
in-process research and development. The remaining $3,600,000 represents the
purchase of core technology and existing products which are being amortized
over an estimated useful life of five years. The Company is amortizing the
goodwill and assembled workforce over an estimated life of five years.
Saraide Inc. (unaudited): On March 10, 2000 the Company acquired eighty
percent of the common stock of Saraide, Inc. (formerly saraide.com, inc.), a
privately held provider of wireless Internet services in
F-21
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Europe, Japan and Canada, for purchase consideration of 9,233,672 shares of the
Company's common stock and acquisition expenses of $340,489. The acquisition
was accounted for as a purchase in accordance with APB No. 16. Results of
operations for Saraide have been included with those of the Company for the
period subsequent to the date of acquisition.
The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as follows:
<TABLE>
<S> <C>
Tangible assets acquired..................................... $ 15,231,884
Liabilities assumed.......................................... (31,412,332)
------------
Book value of net liabilities acquired...................... (16,180,448)
Fair value adjustments:
Fair value of purchased technology, including in-process
research and development................................... 97,000,000
Fair value of contract list................................. 16,000,000
Fair value of assembled workforce........................... 2,100,000
------------
Fair value of net assets acquired............................ 98,919,552
Purchase price:
Fair value of shares issued................................. 347,022,206
Acquisition costs........................................... 340,489
------------
Excess of purchase price over net assets acquired, allocated
to goodwill................................................. $248,443,143
============
</TABLE>
The $97,000,000 value of purchased technology includes purchased in-process
research and development for future InfoSpace products. Generally accepted
accounting principles in the United States require purchased in-process
research and development with no alternative future use to be recorded and
charged to expense in the period acquired. Accordingly, the results of
operations for the quarter ended March 31, 2000, include the write-off of
$71,700,000 of purchased in-process research and development. The remaining
$25,300,000 represents the purchase of core technology and existing products
which are being amortized over an estimated useful life of five years. The
Company is amortizing the goodwill, assembled workforce and contract list over
an estimated life of five years.
Minority Interest:
Net liabilities and losses applicable to the minority interest in Saraide
exceed the minority interest equity capital in Saraide. The minority interest
portion of the net liabilities and further losses are charged against the
Company, the majority interest, since the minority interest is not obligated to
fund these net liabilities and further losses. If Saraide has future earnings,
the Company will recognize income to the extent of such losses previously
absorbed.
Prio, Inc.: On February 14, 2000, the Company completed the merger with Prio,
Inc., a privately held provider of commerce solutions specializing in the
development of strategic partnerships, technologies and programs that drive
commerce in both traditional and online shopping environments. Under the terms
of the merger, which was accounted for as a pooling-of-interests, the Company
exchanged 9,322,418 shares of the Company's common stock for all of the
preferred and common shares of Prio. The consolidated balance sheet as of March
31, 2000, December 31, 1999 and December 31, 1998, the statements of operations
and statements of cash flows for the quarters ended March 31, 2000 and 1999 and
the years ended December 31, 1999, 1998 and 1997, and the statement of
stockholders' equity for the years ended December 31, 1999, 1998 and 1997 are
presented as if Prio was a wholly-owned subsidiary since inception.
F-22
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro forma information-- Prio, Inc. merger:
The following reflects the summarized results of operations for InfoSpace and
Prio for the quarters ended March 31, 2000 and 1999. These results of
operations 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 dates indicated or which may occur in the
future.
<TABLE>
<CAPTION>
Quarter ended March 31,
-------------------------
2000 1999
------------ -----------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
InfoSpace................................... $ 17,686,289 $ 5,259,418
Prio........................................ 1,319,459 --
------------ -----------
$ 19,005,748 $ 5,259,418
============ ===========
Net loss:
InfoSpace................................... $(66,327,822) $(1,486,150)
Prio........................................ (17,387,486) (4,150,553)
------------ -----------
$(83,715,308) $(5,636,703)
============ ===========
Change in stockholders' equity:
InfoSpace................................... $318,325,098
Prio........................................ (10,615,185)
</TABLE>
Zephyr Software Inc: On December 29, 1999, the Company acquired all of the
common stock of Zephyr Software Inc., a privately held company, and its wholly
owned subsidiary Zephyr Software (India) Private Limited ("Zephyr") for a
purchase consideration of 651,392 shares of the Company's common stock and
acquisition expenses of $539,512. The acquisition was accounted for as a
purchase in accordance with Accounting Principles Board Opinion ("APB") No. 16.
Results of operations for Zephyr have been included with those of the Company
for the period subsequent to the date of acquisition.
The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as follows:
<TABLE>
<CAPTION>
Book and
Fair Value
----------
<S> <C>
Tangible assets acquired....................................... $ 217,932
Liabilities assumed............................................ (238,622)
----------
Book value of net liabilities acquired....................... (20,690)
Purchase price:
Fair value of shares issued.................................. 8,643,105
Acquisition costs............................................ 539,512
----------
Excess of purchase price over net assets acquired, allocated to
goodwill...................................................... $9,203,307
==========
</TABLE>
The Company is amortizing the goodwill over an estimated useful life of three
years.
eComLive.com, Inc.: On December 16, 1999, the Company acquired all of the
common stock of eComLive.com, Inc., a privately held company, for a purchase
consideration of 1,372,712 shares and acquisition expenses of $582,246. The
acquisition was accounted for as a purchase in accordance with the provisions
of APB No. 16.
F-23
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as follows:
<TABLE>
<CAPTION>
Book and
Fair Value
-----------
<S> <C>
Tangible assets acquired...................................... $ 59,128
Liabilities assumed........................................... (60,053)
-----------
Book value of net liabilities acquired...................... (925)
Fair value adjustments:
Fair value of purchased technology, including in-process
research and development................................... 5,300,000
Fair value of assembled workforce........................... 140,000
-----------
Fair value of net assets acquired............................. 5,439,075
Purchase price:
Fair value of shares issued................................. 31,995,220
Acquisition costs........................................... 582,246
-----------
Excess of purchase price over net assets acquired, allocated
to goodwill.................................................. $27,138,391
===========
</TABLE>
The $5,300,000 value of purchased technology includes purchased in-process
research and development for future InfoSpace products. Generally accepted
accounting principles require purchased in-process research and development
with no alternative future use to be recorded and charged to expense in the
period acquired. Accordingly, the results of operations for the year ended
December 31, 1999, include the write-off of $2,000,000 of purchased in-process
research and development. The remaining $3,300,000 represents the purchase of
core technology and existing products which are being amortized over an
estimated useful life of five years. The Company is amortizing the goodwill
over an estimated life of five years.
Union-Street.com: On October 14, 1999, the Company acquired all of the common
stock of Union-Street.com, a privately held company, for a purchase
consideration of 1,746,588 shares and acquisition expenses of $395,656. The
acquisition was accounted for as a purchase in accordance with the provisions
of APB No. 16.
The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as follows:
<TABLE>
<CAPTION>
Book and
Fair Value
-----------
<S> <C>
Tangible assets acquired...................................... $ 69,412
Liabilities assumed........................................... (176,631)
-----------
Book value of net liabilities acquired...................... (107,219)
Fair value adjustments:
Fair value of purchased technology, including in-process
research and development................................... 5,300,000
Fair value of assembled workforce........................... 160,000
-----------
Fair value of net assets acquired............................. 5,352,781
Purchase price:
Fair value of shares issued................................. 20,487,518
Acquisition costs........................................... 395,656
-----------
Excess of purchase price over net assets acquired, allocated
to goodwill.................................................. $15,530,393
===========
</TABLE>
F-24
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The $5,300,000 value of purchased technology includes purchased in-process
research and development for future InfoSpace products. Generally accepted
accounting principles require purchased in-process research and development
with no alternative future use to be recorded and charged to expense in the
period acquired. Accordingly, the results of operations for the year ended
December 31, 1999, include the write-off of $3,300,000 of purchased in-process
research and development. The remaining $2,000,000 represents the purchase of
core technology and existing products which are being amortized over an
estimated useful life of five years. The Company is amortizing the goodwill
over an estimated useful life of five years.
INEX Corporation: On October 14, 1999, the Company completed the merger with
INEX Corporation, a privately held company that developed and marketed Internet
commerce applications to deliver solutions designed for small and medium-sized
merchants to build, manage and promote online storefronts. Under the terms of
the merger , which was accounted for as a pooling-of-interests, the Company
exchanged 3,600,000 shares of common stock for (1) directly to those INEX
shareholders who elected to receive our common stock in exchange for their INEX
shares at the closing of the combination, (2) upon the exchange or redemption
of the exchangeable shares of InfoSpace.com Canada Holdings Inc., an indirect
subsidiary of the Company, which exchangeable shares were issued to those INEX
shareholders who elected to receive exchangeable shares, or who did not make an
election to receive shares of our common stock at the closing, and (3) upon the
exercise of outstanding warrants and options to purchase INEX common shares,
which the Company assumed and which will become exercisable for shares of
InfoSpace common stock. The consolidated financial statements for the three
years ended December 31, 1999 and the accompanying notes reflect the Company's
financial position and the results of operations as if INEX was a wholly-owned
subsidiary since inception.
My Agent technology: On June 30, 1999 the Company acquired the MyAgent
technology and related assets from Active Voice Corporation for $18 million
dollars. The acquisition was accounted for as a purchase in accordance with the
provisions of APB No. 16. Under the purchase method of accounting, the purchase
price is allocated to the assets acquired and the liabilities assumed based on
their fair values at the date of the acquisition. Other than the MyAgent
technology modules, no other assets or liabilities were assumed as part of this
acquisition.
The Company recorded a non-recurring charge of $3.9 million for in-process
research and development that had not yet reached technological feasibility and
had no alternative future use. Separately, the Company also recorded a one-time
charge of approximately $1.0 million for expenses related to bonus payments
made to certain Active Voice MyAgent team employees who accepted employment
with InfoSpace but who are under no agreement to continue their employment with
InfoSpace. The Company also recorded $13.7 million of goodwill and $480,000 of
other intangible assets. These intangibles will be amortized over their useful
life, which the Company has estimated to be five years.
The allocation of the purchase price is summarized as follows:
<TABLE>
<S> <C>
Fair value of purchased technology, including in-process
research and development..................................... $ 4,300,000
Fair value of assembled workforce............................. 80,000
-----------
Fair value of net assets acquired............................. 4,380,000
Purchase price:
Cash paid................................................... 18,000,000
Acquisition costs........................................... 83,054
-----------
Excess of purchase price over net assets acquired, Allocated
to goodwill.................................................. $13,703,054
===========
</TABLE>
F-25
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The $4.3 million value of purchased technology includes purchased in-process
research and development for future InfoSpace products. Generally accepted
accounting principles require purchased in-process research and development
with no alternative future use to be recorded and charged to expense in the
period acquired. Accordingly, the results of operations for the quarter ended
June 30, 1999, include the write-off of $3.9 million of purchased in-process
research and development. The remaining $400,000 represents the purchase of
core technology which is being amortized over an estimated useful life of five
years. The Company is amortizing the goodwill over an estimated life of five
years.
Prior to the acquisition, the MyAgent product team was not accounted for as a
separate entity, a subsidiary, or a line of business, or division of the
business, but rather was an integral part of the research and development
group. Accordingly, historical financial information is not available.
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 11,999,904 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.
Of the purchase price of $7,992,000, $2,800,000 was allocated to in-process
research and development, $800,000 was allocated to core technology and
existing products and $4,543,000 was recorded as goodwill. Generally accepted
accounting principles require purchased in-process research and development
with no alternative future use to be recorded and charged to expense in the
period acquired. Accordingly, the results of operations for the year ended
December 31, 1998, include the write-off of the purchased in-process research
and development. The core technology and goodwill are being amortized over a
useful life of five years.
YPI: On May 16, 1997, the Company acquired all outstanding Membership
Interest Units of YPI, a limited liability company, in a transaction accounted
for as a purchase. YPI operations began to be included in the Company's
financial statements on the effective date of the acquisition, May 1, 1997. In
conjunction with the acquisition, the Company acquired certain advertising
agreements and assumed a note payable for $90,000. The purchase price of
$306,000 was allocated to advertising agreements of $85,417, note payable of
$90,000 and goodwill of $310,383. The aggregate number of shares of the stock
issued was derived from revenues generated by the business during the specified
measurement period. Before December 31, 1997, the number of shares to be issued
was finalized and a total of 680,000 shares were issued to the sellers on
January 2, 1998.
Pro forma information relating to acquisitions (unaudited)
The following unaudited pro forma information shows the results of the
Company for the year ended December 31, 1999 as if the acquisitions of Zephyr
Software, eComLive and Union-Street occurred on January 1, 1999 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 combinations been in effect on the dates
indicated or which may occur in the future.
<TABLE>
<CAPTION>
(unaudited)
------------
<S> <C>
Revenue....................................................... $ 37,470,483
Net loss...................................................... (70,947,571)
Basic and diluted net loss per share.......................... $ (0.36)
</TABLE>
F-26
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8: Commitments and Contingencies
The Company has noncancellable operating leases for corporate facilities. The
leases expire through 2003. Rent expense under operating leases totaled
approximately $1,181,000, $935,000 and $339,000, for the years ended December
31, 1999, 1998 and 1997, respectively. The Company also has noncancellable
carriage fee agreements with certain affiliates.
Future minimum rental payments required under noncancellable operating leases
are as follows for the years ending December 31:
<TABLE>
<S> <C>
2000............................................................ $1,397,000
2001............................................................ 1,311,000
2002............................................................ 1,296,000
2003............................................................ 596,000
2004............................................................ 17,000
----------
$4,617,000
==========
</TABLE>
Future payments required under noncancellable affiliate carriage fee
agreements are as follows for the years ending December 31:
<TABLE>
<S> <C>
2000........................................................... $12,083,000
2001........................................................... 11,572,000
2002........................................................... 900,000
2003........................................................... 900,000
2004........................................................... 900,000
-----------
$26,355,000
===========
</TABLE>
Litigation: On December 15, 1999, a complaint was filed against the Company
on behalf of a former employee in federal court in New Jersey alleging claims
for breach of contract, breach of the covenant of good faith and fair dealing,
fraud, negligent misrepresentation, and promissory estoppel. The former
employee contends he agreed to work for InfoSpace on the basis of certain
misrepresentations, that he entered into an agreement with the Company that
entitles him to an option to purchase 300,000 shares of the Company's common
stock, and that he was terminated without cause. The former employee seeks
(1) the right to purchase the shares of stock, (2) unspecified compensatory and
punitive damages, and (3) litigation costs and attorney's fees. On January 31,
2000, the Company answered the complaint. Discovery is complete. The case has
been transferred to the United States District Court for the Western District
of Washington and a trial date has not yet been set. The Company is currently
investigating the claims at issue and believes the Company has meritorious
defenses to such claims. Nevertheless, litigation is uncertain and the Company
may not prevail in this suit.
One of the shareholders of INEX Corporation filed a complaint on September
22, 1999 alleging that the original shareholders of INEX and INEX itself were
bound by a shareholders agreement that entitled it to pre-emptive rights and
rights of first refusal. The complaint alleges that INEX improperly made
private placements, issued employee options and permitted share transfers after
February 1997. The complainant alleges it should have acquired rights in
approximately 88% of the INEX share capital, which would be less than one
percent of our common stock. The complaint also alleges other breaches of
contract, breach of fiduciary duty, corporate oppression, unlawful interference
with economic relations and conspiracy. The complaint was amended on December
20, 1999 to allege that the Company assumed the obligations of
F-27
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
INEX under the alleged shareholders agreement as a result of our acquisition of
INEX on October 14, 1999. The complaint seeks damages against the Company and
named former INEX shareholders for the difference between the issue or sale
price of INEX shares issued or transferred after February 1997 and before
October 14, 1999 and the highest trading value of shares of the Company's
common stock received or receivable in exchange attained before the date of
trial. In the alternative, the complaint seeks special damages in the amount of
$50,000,000 Canadian. The complaint also seeks $500,000 in punitive damages and
constructive trusts, equitable liens and tracing remedies in both INEX shares
formerly held by certain shareholders and shares of the Company's common stock
received by those shareholders in exchange for their INEX shares. 435,134
shares of the Company's common stock and shares exchangeable into the Company's
common stock that were part of the INEX purchase price which are held to
satisfy this claim. The Company is currently investigating the claims at issue
and believes the Company has meritorious defenses to such claims. Nevertheless,
litigation is uncertain and the Company may not prevail in this suit.
On December 23, 1998, the Company initiated litigation against Internet
Yellow Pages, Inc., or IYP, by filing suit in United States District Court for
the Western District of Washington. On February 3, 1999, the Company served a
first amended complaint on IYP and Greg Crane, an agent of IYP, in which the
Company asserted claims for (a) account stated, (b) breach of contract, and (c)
fraud. On March 5, 1999, IYP answered the Company's complaint in the Washington
action, and asserted claims for breach of contract, fraud, extortion and
Consumer Protection Act violations. IYP seeks relief consisting of
approximately $1,500,000 and other unquantified money damages and treble
damages for the CPA and attorneys' fees. Discovery is complete. The Company is
currently investigating the claims at issue and believes the Company has
meritorious defenses to such claims. Nevertheless, litigation is uncertain and
the Company may not prevail in these suits. The case is scheduled for a
streamlined mini-trial before a federal magistrate on July 31, 2000.
Settlement of litigation: On February 8, 2000, the Company reached a
settlement with an alleged former employee. Under the terms of the settlement,
the alleged former employee received a cash payment of $10.5 million. As this
subsequent event was settled prior to the issuance of the financial statements,
the expense has been recorded in the fourth quarter of 1999 in Other non-
recurring expense.
On February 22, 1999, the Company reached a settlement with a former
employee. Under the terms of the settlement the former employee received a cash
payment of $4.5 million. As this subsequent event was settled after December
31, 1998 but prior to the issuance of the financial statements, the expense was
recorded in the fourth quarter of 1998 in Other non-recurring expense.
Contingencies: In the Company's early stage of development, the Company did
not clearly document arrangements with employees and consultants, including
matters relating to the issuance of stock options. As a result of this
incomplete documentation, the Company may receive claims in the future
asserting rights to acquire common stock.
F-28
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9: Income Taxes
No provision for federal income tax has been recorded as the Company has
incurred net operating losses through December 31, 1999. 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>
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward .... $ 24,633,500 $ 3,036,000 $ 1,688,000
Tax credits......................... 1,492,000 472,000 273,000
Intangible amortization ............ 428,000 60,000 37,000
Compensation expense--stock options
................................... 204,000 59,000 59,000
Allowance for bad debt ............. 237,000 203,000 16,000
Litigation accrual ................. 3,675,000 1,530,000 47,000
Accrued carriage fees............... 318,000 -- --
Other, net ......................... 473,500 503,000 636,000
Warrants ........................... 6,002,000 46,000 --
Deferred revenue ................... 199,000 473,000 --
Sect. 195 start-up costs............ 7,273,000 5,604,000 1,400,000
State tax assets.................... 4,236,000 2,564,000 445,000
------------ ------------ -----------
Gross deferred tax assets ........ 49,171,000 14,550,000 4,601,000
Deferred tax liabilities:
Purchased technology ............... 868,000 252,000 --
Prepaid expenses ................... 125,000 113,000 --
Depreciation ....................... 115,000 13,000 2,000
Unrealized investment gains ........ 463,000 -- --
Other .............................. 5,000 -- 2,000
------------ ------------ -----------
Gross deferred tax liabilities ... 1,576,000 378,000 4,000
------------ ------------ -----------
Net deferred tax assets .......... 47,595,000 14,172,000 4,597,000
Valuation allowance .................. (47,595,000) (14,172,000) (4,597,000)
------------ ------------ -----------
Deferred tax balance ................. $ -- $ -- $ --
============ ============ ===========
</TABLE>
At December 31, 1999, 1998 and 1997, 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 years ended
December 31, 1999, 1998 and 1997, was $33,423,000, $9,575,000 and $3,080,000,
respectively.
As of December 31, 1999, the Company's federal net operating loss
carryforward for income tax purposes was approximately $70 million. If not
utilized, the federal net operating loss carryforwards will begin to expire
between 2011 and 2019. Changes in ownership, as defined by Section 382 of the
Code, may limit the amount of net operating loss carryforwards used in any one
year. The Company's federal research tax credit carryforwards for income tax
purposes are approximately $1,492,000. If not utilized, the federal tax credit
carryforwards will begin to expire between 2011 and 2019.
Deferred tax assets of approximately $17.5 million as of December 31, 1999
pertain to certain net operating loss carryforwards and credit carryforwards
resulting from the exercise of employee stock options. When recognized, the tax
benefit of these loss and credit carryforwards are accounted for as a credit to
additional paid-in capital rather than a reduction of the income tax provision.
F-29
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company acquired Prio, Inc. in February 2000. As of the date of
acquisition, the availability of Prio's tax attributes consisting primarily of
net operating loss carryforwards and credit carryforwards will be limited under
Federal and California tax laws. As of December 31, 1998, Prio, Inc. has
federal net operating loss carryforwards of $20,750,000, which will expire
between 2009 and 2019 and California net operating loss carryforwards of
$21,033,000 which will expire from 2001 through 2004. Prio also has available
research tax credit carryforwards of $1,120,000, which will expire between 2011
and 2019 and California research and manufacturing credits of $693,000 which
will carry forward indefinitely.
Note 10: 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 5, were
included in the computation of diluted loss per share as they were
antidilutive. Options and warrants to purchase a total of 31,909,169,
12,757,182 and 5,517,716 shares of common stock were excluded from the
calculations of diluted loss per share for the years ended December 31, 1999,
1998 and 1997, respectively. 680,000 contingently issuable shares of common
stock have been excluded from the calculation of basic earnings per share for
the year ended December 31, 1997 (Note 6).
Note 11: Information on Products and Services
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 statements for the year ended December 31, 1998. The adoption of SFAS
131 did not have a material effect on the Company's primary consolidated
financial statements but did affect the Company's disclosures.
The Company generates substantially all of its revenues through integrated
technology and services delivered through a common physical infrastructure, and
therefore the Company has only one reportable segment. Substantially all
revenues are generated from domestic sources. Substantially all of the
Company's long-lived assets are physically located within the United States.
Total operating expenses are controlled centrally based on established
budgets by operating department. Operating departments include product
development, sales and marketing, account management and customer service, and
finance and administration. Assets, technology, and personnel resources of the
Company are shared and utilized for all of the Company's service offerings.
These resources are allocated based on contractual requirements, the
identification of enhancements to the current service offerings, and other non-
financial criteria. The Company does not prepare operating statements by
revenue source. The Company does not account for, and does not report to
management, its assets or capital expenditures by revenue source.
F-30
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Information
Revenues are derived from the Company's consumer, merchant and wireless
services. These services generate revenues from advertising, content carriage,
licensing fees, commerce transaction fees and guaranteed transaction fees in
lieu of revenue share. Contracts with customers often utilize services from
more than one area of service and include revenue from more than one revenue
source.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Consumer revenues........................ $29,371,286 $8,370,965 $1,424,748
Merchant revenues........................ 7,355,717 1,260,962 391,794
Wireless revenues........................ 663,300 -- --
----------- ---------- ----------
Total revenues........................... $37,390,303 $9,631,927 $1,816,542
=========== ========== ==========
</TABLE>
Note 12: Related-Party Transactions
During the years ended December 31, 1999, 1998 and 1997, the Company sold
advertising to other entities in which the Company's chief executive officer
had equity interests resulting in revenues of $580,912, $19,269 and $200,000,
respectively.
During 1999, the Company entered into a technology license and development
agreement for the development of a shopping cart technology with a software
development company whose majority owner is related to the Company's Chairman.
Under the terms of the agreement the Company paid a development fee of
$400,000. The Company owns all rights to the technology and has granted a
perpetual license to the software development company to use the developed
technology for certain limited uses.
In 1999 and 1998, Prio advanced to its affiliate $325,000 and $175,000,
respectively. Payments which are due in 13 installments, as defined in the
advance agreement, through December 2001, are applied against amounts due
affiliate for consulting services provided by the affiliate to Prio. The total
expense for such consulting services amounted to $100,000 and $270,000 for the
years ended December 31, 1999 and 1998, respectively.
The outstanding current portion of the advance is $187,000 and $100,000 as of
December 31, 1999 and 1998, respectively. The long-term portion of $50,000 as
of December 31, 1999 is included in Other Assets.
Note 13: Investments in Joint Ventures
In 1998, the Company entered into a joint venture with Thomson Directories
Limited to form TDL InfoSpace to replicate the Company's infrastructure
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 license agreement between Thomson and TDL InfoSpace, Thomson licenses its
U.K. directory information database to TDL InfoSpace. Under the Web site
services agreement between Thomson and TDL InfoSpace, Thomson also sells
Internet yellow pages advertising for the joint venture through its local sales
force. Under the Company's license agreement with TDL InfoSpace, the Company
licenses technology and provides hosting services to TDL InfoSpace.
In October 1997, Prio entered into a joint venture agreement with DataCard to
form DSIPL. Pursuant to the terms of the joint venture agreement, DSIPL
performs development services for DataCard and Prio.
F-31
<PAGE>
INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 14: Subsequent Events (unaudited)
Business Combinations:
On August 4, 2000 the Company acquired all of the outstanding capital of
Orchest, Inc., a privately held company based in Cupertino, California, for a
purchase consideration of 255,288 shares of our common stock. Orchest is an
online provider of financial services that enables users to access a
consolidated view of their personal financial information from multiple
institutions. The acquisition was accounted for as a purchase.
On July 26, 2000, the Company signed a definitive agreement to acquire
Seattle, Washington-based Go2Net, Inc., a provider of applications and
technology infrastructure for narrowband and broadband. Under terms of the
acquisition, which is intended to be accounted for as a pooling of interests,
the Company will exchange 1.82 shares of its common stock for each of Go2Net's
shares and options. The Company expects to complete this acquisition in the
third or fourth quarter of 2000, subject to satisfaction of customary closing
conditions, including shareholder approval.
On July 24, 2000, the Company signed a definitive agreement to acquire
Thomson Directories Limited's investment in TDL InfoSpace. The acquisition of
this investment will give the Company control of TDL InfoSpace. The number of
shares to be exchanged will be determined at the close of the transaction. The
Company expects this transaction to close in the third or fourth quarter of
2000.
On July 3, 2000, the Company acquired Tempe, Arizona-based IQorder.com, a
company that has developed technology that allows consumers to enter in a model
number, UPC code, part number, barcode or ISBN in order to locate a product,
compare prices and make an instant purchase. Under the terms of the
acquisition, which will be accounted for as a purchase, the Company exchanged
989,959 shares of common stock for all of IQorder's outstanding shares,
warrants and options valued at $58 million.
On June 27, 2000, the Company signed a definitive agreement for an asset
purchase with The boxLot Company. The asset purchase is valued at approximately
$21.5 million. The Company expects this purchase to be completed in the third
or fourth quarter of 2000.
Commitments:
In March 2000, the Company entered into a five-year lease agreement which
began in May 2000 for the corporate headquarters in Bellevue, Washington. The
Company will pay a monthly base rent of $250,825 per month during the first
year, $252,647 per month during the second year, $263,551 per month during the
third year, $265,373 per month during the fourth year and $276,276 per month
during the final year.
Investment in Joint Venture:
On May 25, 2000, the Company sold its interest in DSIPL at an amount equal to
the Company's book value.
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and shareholders of
Saraide, Inc. and Subsidiaries
San Mateo, California
We have audited the accompanying consolidated balance sheets of Saraide, Inc.
and subsidiaries (collectively, the "Company") as of December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year ended December 31, 1999, and the period from
inception (June 30, 1998) to December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial position of the Company as of
December 31, 1999 and 1998, and the results of its operations and its cash
flows for the year ended December 31, 1999, and the period from inception
(June 30, 1998) to December 31, 1998, in conformity with accounting principles
generally accepted in the United States of America.
The Company was in the development stage at December 31, 1998; during the
year ended December 31, 1999, the Company completed its development activities
and commenced its planned principal operations.
DELOITTE & TOUCHE LLP
San Jose, California
May 10, 2000
F-33
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 4,768,833 $ 2,319,678
Accounts receivable, net of allowance for doubtful
accounts of $18,203................................ 619,560 --
Other receivables................................... 291,713 37,220
Prepaid expenses and other current assets........... 814,762 46,623
------------ -----------
Total current assets.............................. 6,494,868 2,403,521
Intangible Assets, Net................................ 13,031,596 1,800,000
Property and Equipment, Net........................... 7,694,196 672,933
Other Long-term Assets................................ 1,042,590 290,657
------------ -----------
Total................................................. $ 28,263,250 $ 5,167,111
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities............ $ 4,443,038 $ 1,871,711
Notes payable....................................... 18,950,332 --
Current portion of capital lease obligations........ 311,560 --
Deferred revenue.................................... 799,909 --
------------ -----------
Total current liabilities......................... 24,504,839 1,871,711
Capital Lease Obligations, net of current portion..... 909,957 --
------------ -----------
Total liabilities................................. 25,414,796 1,871,711
Commitments and Contingencies (Note 9)
Stockholders' equity;
Series A convertible preferred stock, par value
$0.01; 1999 and 1998, 25,000,000 shares and
20,000,000 shares authorized, respectively; 1999
and 1998, 19,061,478 shares and 6,751,078 shares
issued and outstanding, respectively (liquidation
preference of $19,061,478)............................ 190,615 67,511
Series B convertible preferred stock, par value
$0.01; 1999, 2,166,667 shares authorized, 1,666,667
shares issued and outstanding, none in 1998
(liquidation preference of $7,500,000)................ 16,667 --
Common stock, par value $0.01; 1999 and 1998,
43,833,333 and 20,010,000 shares authorized,
respectively; 1999, 2,468,434 shares issued and
outstanding, none in 1998.......................... 24,684 --
Additional paid-in capital.......................... 37,637,463 6,683,567
Accumulated deficit................................. (31,247,278) (3,411,379)
Unearned compensation--stock options................ (3,719,960) --
Accumulated other comprehensive loss................ (53,737) (44,299)
------------ -----------
Total stockholders' equity........................ 2,848,454 3,295,400
------------ -----------
Total................................................. $ 28,263,250 $ 5,167,111
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 1999 and Period from
Inception (June 30, 1998) Through December 31, 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Revenues:
Service revenue...................................... $ 1,662,066 $ --
Consulting revenue................................... 150,000 --
----------- ----------
Total revenues..................................... 1,812,066 --
Cost of revenues....................................... 8,482,412 --
----------- ----------
Gross loss............................................. 6,670,346 --
Operating expenses:
Product development.................................. 2,098,887 1,335,430
Selling, general and administrative.................. 10,279,438 2,161,603
Amortization of intangible assets.................... 1,953,520 --
In-process research and development.................. 3,460,000 --
Stock compensation expense........................... 2,438,551 --
----------- ----------
Total operating expenses........................... 20,230,396 3,497,033
----------- ----------
Operating loss......................................... 26,900,742 3,497,033
Other expense (income):
Interest income...................................... (348,763) (85,654)
Interest expense..................................... 1,189,147 --
Other................................................ 94,773 --
----------- ----------
Total other expense (income)....................... 935,157 (85,654)
----------- ----------
Net loss............................................... 27,835,899 3,411,379
Currency translation adjustment........................ 9,438 44,299
----------- ----------
Comprehensive loss..................................... $27,845,337 $3,455,678
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Year Ended December 31, 1999 and Period from
Inception (June 30, 1998) Through December 31, 1998
<TABLE>
<CAPTION>
Series A Preferred
Shares Series B Preferred Shares Common Stock
-------------------- ---------------------------------------------
Shares Amount Shares Amount Shares Amount
----------- -------- -------------- ---------------------- -------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock issued
to founders for cash in
July 1998.............. 4,751,078 $ 47,511 -- $ -- -- $ --
Preferred stock issued
to Northern Telecom
Ltd. in July 1998 for
developed technology... 2,000,000 20,000 -- -- -- --
Net loss................ -- -- -- -- -- --
Currency translation
adjustment............. -- -- -- -- -- --
----------- -------- -------------- ----------- ---------- -------
Balance, December 31,
1998................... 6,751,078 67,511 -- -- -- --
Exercise of stock
options.............. -- -- -- -- 1,554,199 15,542
Common stock issued to
employees............ -- -- -- -- 914,235 9,142
Warrants issued for
technology........... -- -- -- -- -- --
Warrants issued for
loan facility........ -- -- -- -- -- --
Preferred stock and
warrants issued for
acquisition.......... -- -- 1,666,667 16,667 -- --
Preferred stock issued
to investors......... 12,310,400 123,104 -- -- -- --
Unearned
compensation--stock
options.............. -- -- -- -- -- --
Compensation expense--
stock options........ -- -- -- -- -- --
Net loss.............. -- -- -- -- -- --
Currency translation
adjustment........... -- -- -- -- -- --
----------- -------- -------------- ----------- ---------- -------
Balance, December 31,
1999................... 19,061,478 $190,615 1,666,667 $ 16,667 2,468,434 $24,684
=========== ======== ============== =========== ========== =======
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Paid-in Accumulated Unearned Comprehensive Stockholders'
Capital Deficit Compensation Loss Equity
----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Preferred stock issued
to founders for cash in
July 1998.............. $ 4,703,567 $ -- $ -- $ -- $ 4,751,078
Preferred stock issued
to Northern Telecom
Ltd. in July 1998 for
developed technology... 1,980,000 -- -- -- 2,000,000
Net loss................ -- (3,411,379) -- -- (3,411,379)
Currency translation
adjustment............. -- -- -- (44,299) (44,299)
----------- ------------ ----------- -------- ------------
Balance, December 31,
1998................... 6,683,567 (3,411,379) -- (44,299) 3,295,400
Exercise of stock
options.............. 279,622 -- -- -- 295,164
Common stock issued to
employees............ 212,634 -- -- -- 221,776
Warrants issued for
technology........... 62,500 -- -- -- 62,500
Warrants issued for
loan facility........ 2,795,000 -- -- -- 2,795,000
Preferred stock and
warrants issued for
acquisition.......... 9,258,333 -- -- -- 9,275,000
Preferred stock issued
to investors......... 12,187,296 -- -- -- 12,310,400
Unearned
compensation--stock
options.............. 6,158,511 -- (6,158,511) -- --
Compensation expense--
stock options........ -- -- 2,438,551 -- 2,438,551
Net loss.............. -- (27,835,899) -- -- (27,835,899)
Currency translation
adjustment........... -- -- -- (9,438) (9,438)
----------- ------------ ----------- -------- ------------
Balance, December 31,
1999................... $37,637,463 $(31,247,278) $(3,719,960) $(53,737) $ 2,848,454
=========== ============ =========== ======== ============
</TABLE>
See notes to consolidated financial statements.
F-36
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1999 and Period from
Inception (June 30, 1998) Through December 31, 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss........................................... $(27,835,899) $(3,411,379)
Reconciliation to net cash used in operating
activities:
Depreciation of property and equipment............ 1,095,591 38,283
Amortization expense.............................. 1,953,520 200,000
In-process research and development............... 3,460,000 --
Non-cash compensation expense--stock options...... 2,438,551 --
Non-cash interest expense--warrants............... 745,332 --
Changes in operating assets and liabilities:
Accounts receivable.............................. (1,452,925) (37,220)
Other non-current assets......................... (751,933) --
Prepaid expenses................................. (1,059,446) (46,623)
Accounts payable and accrued liabilities......... 514,532 1,871,711
Deferred revenue................................. 799,909 --
Other current liabilities........................ 3,115,099 --
------------ -----------
Net cash used in operating activities........... (16,977,669) (1,385,228)
Cash Flows From Investing Activities:
Capital expenditures............................... (6,958,460) (711,216)
Internally developed software...................... (1,345,661) --
Cash balances of acquired business--GSM Network.... 50,384 --
Acquisition of GSM Information Network (Note 3).... (2,358,858)
Deposits........................................... (290,657)
------------ -----------
Net cash used in investing activities........... (10,612,595) (1,001,873)
Cash Flows From Financing Activities:
Notes payable to related parties................... 16,000,000 --
Proceeds from issuance of common stock............. 516,940 --
Net proceeds from capital leases................... 1,221,517 --
Proceeds from issuance of preferred stock.......... 12,310,400 4,751,078
------------ -----------
Net cash provided by financing activities....... 30,048,857 4,751,078
Impact of Changes in Current Exchange Rates......... (9,438) (44,299)
------------ -----------
Net Increase in Cash and Cash Equivalents........... 2,449,155 2,319,678
Cash and Cash Equivalents:
Beginning of year.................................. 2,319,678 --
------------ -----------
End of year........................................ $ 4,768,833 $ 2,319,678
============ ===========
Supplemental Disclosure of Cash Flow Information:
Warrant for loan facility.......................... $ 2,795,000 $ --
============ ===========
Preferred stock and warrants issued for GSM
Information Network acquisition................... $ 9,275,000 $ --
============ ===========
Warrants issued for technology..................... $ 62,500 $ --
============ ===========
Cash paid during the year for interest............. $ 58,308 $ --
============ ===========
Preferred stock issued for developed technology.... $ -- $ 2,000,000
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-37
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1999 and Period from
Inception (June 30, 1998) Through December 31, 1998
Note 1: Nature of Business and Subsequent Event
Business--Saraide, Inc. (a Delaware corporation) and its subsidiaries
(collectively, the "Company") develops processing and transmission engines and
establishes relationships with data or information providers for the purposes
of developing, improving and distributing services that enable wireless
carriers and internet content providers to create and deliver wireless internet
services via both Short Message Service ("SMS") and Wireless Application
Protocol ("WAP") technologies.
During the period from its inception (June 30, 1998) to December 31, 1998,
the Company devoted substantially all of its efforts to recruiting personnel to
conduct research, product development, and sales and marketing and did not
generate revenues from services. During the year ended December 31, 1999, the
Company completed its development activities and commenced its planned
principal operations.
Subsequent Events--On March 10, 2000, the Company was acquired by InfoSpace,
Inc. (formerly InfoSpace.com, Inc.), a global Internet information
infrastructure services company. Under the terms of the Reorganization
Agreement, InfoSpace's wireless services were merged with and into the Company,
and InfoSpace issued 9,590,864 shares (or options to purchase shares), as
adjusted for a subsequent 2:1 stock split, of its common stock in exchange for
eighty-percent (80%) of the then outstanding shares of the Company's common and
preferred stock, and options to purchase shares of common stock.
Note 2: Summary of Significant Accounting Policies
Basis of Presentation--The consolidated financial statements include the
accounts of Saraide, Inc. and its wholly-owned subsidiaries Saraide.com Ltd.
(Canada), GSM Information Network, b.v. (GIN) and Saraide Sarl (France). All
intercompany balances and transactions have been eliminated.
Business combinations--The acquisition of GIN (Note 3) was accounted for
under the purchase method of accounting in accordance with the provisions of
Accounting Principles Board Opinion ("APB") No. 16, "Business Combinations",
and the consolidated financial statements include the results of operations of
GIN from the date of acquisition. Net assets of GIN were recorded at their fair
value at the date of acquisition with the excess of the purchase price over
such fair values allocated to goodwill.
Use of Estimates in Preparation of Financial Statements--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 disclosures 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 results
could differ from those estimates.
Cash and Cash Equivalents--The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents include amounts held in bank demand
accounts and highly liquid money market funds. The carrying amount of money
market funds approximates fair value due to the short maturity of these
instruments. The Company's policy is to place its cash and cash equivalents
with high credit quality financial institutions, government agencies and
corporate entities.
Property and Equipment--Property and equipment are recorded at cost and
depreciated using the straight-line method over their estimated useful lives.
Computer equipment, computer software, computer licenses and other property,
plant and equipment are depreciated over periods ranging from 3 to 5 years.
F-38
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Leasehold improvements are amortized over the shorter of their estimated lives,
being 3 years, or the lease term, including option periods, as appropriate.
Intangible Assets--Intangible assets, consisting of the rights and title to
Northern Telecom Ltd.'s DNSP developed software, goodwill and other intangible
assets associated with the acquisition of GIN (Note 3), are amortized using the
straight-line basis over their estimated useful lives of five years.
Accumulated amortization was $2,153,000 and $200,000 at December 31, 1999 and
1998, respectively.
Long-Lived Assets--In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of", the Company reviews for the
impairment of long-lived assets and certain identifiable intangibles whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Under SFAS 121, an impairment loss would be
recognized when estimated future cash flows expected to result from the use of
the asset and its eventual disposition is less than its carrying amount. No
such impairment losses were identified by the Company for the years ended
December 31, 1999 and in the period from inception to December 31, 1998.
Revenue Recognition--Revenue recognition policies for each revenue source are
as follows:
. Services--Service revenues are comprised of amounts earned for the
delivery of messaging services to wireless carriers. Revenue for these
services is recognized as incurred and billed. Fees billed to mobile
phone carriers for the set-up and integration of service agreements are
deferred and recognized ratably over the contract period.
. Consulting--Consulting revenues are recognized upon delivery of services
to end users.
Research and Development--Research and development expenses are charged to
operations as incurred.
Foreign Currency--The functional currencies of the foreign subsidiaries are
the local currencies. Assets and liabilities denominated in foreign currencies
are translated at the exchange rate at the balance sheet date. Translation
adjustments resulting from this process are charged or credited to Other
Comprehensive Income (Loss). Revenue and expenses are translated at average
rates of exchange prevailing during the period. Gains and losses on foreign
currency transactions are included in Other Expense (Income).
Comprehensive Income (Loss)--At December 31, 1999 and 1998, accumulated other
comprehensive loss consisted of unrealized exchange rate losses.
Concentration of credit risk--Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash
equivalents and trade receivables. These instruments are generally unsecured
and uninsured. Accounts receivables are typically unsecured and are derived
from revenues earned from wireless carriers located primarily in the
Netherlands. The Company performs ongoing credit evaluations of its customers
and maintains reserves for potential credit losses. For the years ended
December 31, 1999, four customers accounted for approximately 33%, 17%, 13% and
10% of revenues. At December 31, 1999, three customers accounted for
approximately 20%, 18% and 16% of account receivables.
Stock-Based Compensation--As permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company has elected to account for stock-based
awards to employees using the intrinsic value method in accordance with
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees." Options granted to non-employees are accounted for using
the minimum value method prescribed by SFAS 123.
F-39
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unearned compensation--Unearned compensation represents the unamortized
difference between the option exercise price and the fair 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 (Note 7). Amortization
of unearned compensation is charged to operations over the vesting period of
the options.
Income Taxes--The Company accounts for income taxes using the asset and
liability approach for financial reporting purposes. Under SFAS No. 109
"Accounting for Income Taxes", deferred tax assets, including net operating
loss carryforwards, and liabilities are determined based on temporary
differences between the book and tax basis of assets and liabilities. The
Company has fully provided for its net operating loss carry forwards as
realization is not assured.
Recent Accounting Pronouncements--In June 1998, the FASB issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether
a derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. The Company is required to adopt SFAS No. 133 for
its fiscal year ending December 31, 2001. Management anticipates the adoption
of SFAS No. 133 will not have a significant effect, if any, on the Company's
financial position or results of operations.
Effective January 1, 1999, the Company adopted Statement of Position No. 98-1
("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." Accordingly, in 1999 the Company capitalized direct
payroll costs totaling $1,345,661. No depreciation of such costs was recorded
in fiscal 1999 as the projects were in progress at year-end. Prior to adoption
of SOP 98-1, such software development costs were expensed as incurred.
Note 3: Purchase Business Combinations
On May 25, 1999, the Company acquired all of the common stock of GIN, a
privately held company, for a purchase consideration of $16,775,000, consisting
of $7,500,000 in cash ($2,500,000 paid in September 1999 and $5,000,000 to be
paid in May 2000); and $9,275,000 representing 1,666,667 shares of Series B
Preferred Stock at $4.50 per share, and warrants to purchase a total of 500,000
shares of Series B Preferred Stock, at $1.00 per share.
The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as follows:
<TABLE>
<S> <C>
Goodwill........................................................ $ 7,972,617
Developed technology............................................ 3,800,000
In-process research and development............................. 3,460,000
Customer list................................................... 1,200,000
Assembled workforce............................................. 150,000
Other net assets................................................ 192,383
-----------
Fair value of net assets acquired............................. $16,775,000
===========
</TABLE>
Accounting principles generally accepted in the United States of America
require purchased in-process research and development with no alternative
future use to be recorded and charged to expense in the period acquired.
Accordingly, the results of operations for the year ended December 31, 1999,
include the write-off of $3,460,000 of purchased in-process research and
development.
F-40
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The operating results of GIN have been included in the consolidated
statements of operations from the date of acquisition. Unaudited pro forma
results of operations, assuming the acquisition had taken place at January 1,
1999, would be as follows:
<TABLE>
<CAPTION>
1999
------------
<S> <C>
Revenue........................................................ $ 2,939,000
============
Operating loss................................................. (28,012,000)
============
Net loss....................................................... (28,947,000)
============
</TABLE>
Note 4: Property and Equipment
Property and equipment at December 31 consists of:
<TABLE>
<CAPTION>
1999 1998
----------- --------
<S> <C> <C>
Computer hardware..................................... $ 2,795,099 $484,650
Computer software..................................... 4,027,459 143,907
Office equipment...................................... 543,396 82,659
Leasehold improvements................................ 1,459,244 --
Other................................................. 4,374 --
----------- --------
8,829,572 711,216
Accumulated depreciation and amortization............. (1,135,376) (38,283)
----------- --------
$ 7,694,196 $672,933
=========== ========
</TABLE>
Note 5: Accrued Liabilities
Accounts payable and accrued liabilities at December 31 consist of:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Accounts payable...................................... $2,908,523 $1,076,625
Accrued payroll and related benefits.................. 526,958 489,712
Accrued interest...................................... 385,507 --
Accrued rent.......................................... 320,270 303,822
Taxes payable......................................... 181,412 --
Other accrued liabilities............................. 120,368 1,552
---------- ----------
$4,443,038 $1,871,711
========== ==========
</TABLE>
Note 6: Notes Payable
Notes Payable at December 31, 1999 consists of:
<TABLE>
<S> <C>
Bridge loan from shareholders................................... $16,000,000
Discount on bridge loan......................................... (2,049,668)
Note payable for the GIN Acquisition (Note 3)................... 5,000,000
-----------
$18,950,332
===========
</TABLE>
On September 1, 1999 and November 9, 1999, the Company entered into bridge
loan agreements with its shareholders by issuing convertible promissory notes
(Promissory Notes), bearing interest at prime (8.50% at December 31, 1999) in
exchange for $10 million and $6 million in cash, respectively. Principal and
any accrued but unpaid interest were due and payable on December 31, 2000.
F-41
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the first bridge loan, the Company granted the
shareholders warrants ("Warrants") expiring December 31, 2004 or on the
occurrence of a liquidity event, as defined, and exercisable for shares of
Series A at a rate of 50,000 shares per $1 million of principal amount of the
applicable Promissory Note, at a purchase price of either (i) $10.00 per share
if the Next Financing were not to have occurred on or prior to December 31,
1999 or (ii) the price per share of the Company's most senior equity securities
issued and sold at the Next Financing if this event were to have occurred on or
prior to December 31, 1999. No beneficial conversion feature was attributed to
the warrants as the $10 per share represent management's best estimate of the
fair value of the Next Financing. The estimated value of the warrants was
$2,795,000 when issued. Such amount was recognized as an addition to
shareholders equity with an offsetting discount against the $10,000,000 face
amount of the first bridge loan. The discount is being amortized to interest
expense over the term of the loan agreements. Such amortization totaled
approximately $745,000 for the year ended December 31, 1999.
On December 13, 1999, the Company entered into an Election and Termination
Agreement in which the shareholders elected not to convert the Promissory Notes
into equity and to terminate the Warrants in exchange for the Company's promise
to repay the bridge loans as soon as practicable following the closing of the
transactions contemplated by the Reorganization Agreement (Note 1). As a
result, the bridge loans were repaid immediately following the acquisition of
the Company by InfoSpace, Inc., on March 10, 2000.
Note 7: Shareholders' Equity
Significant terms of the Series A and B preferred shares, which are not
redeemable, are as follows:
Conversion Rights--Each share of Series A and B is convertible (1) at the
option of the holder into a number of common shares determined by dividing the
Conversion Price, as defined, by the $1.00 and $4.50 Issue Prices,
respectively, and (2) will automatically convert into shares of common stock
upon the closing of a firmly underwritten public offering by the Company
resulting in gross proceeds to the Company of not less than $25,000,000 at a
price per share equal to at least $10.00, as adjusted for dilution, provided
that the valuation of the Company prior to such offering is not less than
$75,000,000 ("Qualified Public Offering"). The Conversion Price is subject to
adjustments for certain dilutive issuances, splits and combinations, as
defined.
Liquidation Preferences--Upon any dissolution, liquidation or winding up of
the Company, whether voluntary or involuntary, Series A and B holders are
entitled to receive a distribution in the amount per share equal to the Issue
Price as adjusted for stock splits, combinations, recapitalizations or
Preferred Dividends, prior and in preference to any payments to common
stockholders. After payment of these preferences, any remaining assets shall be
distributed ratably to common stock holders.
Dividend Rights--No dividends or other distributions on common stock unless
the Series A and B holders simultaneously receive a distribution at least equal
to the per share amount to be declared, paid or set aside for the common stock,
multiplied by the number of shares of common stock into which such Series A and
B shares is then convertible.
Voting Rights--The Series A and B holders have the number of votes equal to
the number of shares of common stock into which such Series A and B shares are
then convertible, and vote together with the common stock holders as a single
class.
Stock Option Plans
In December 1998, the Board of Directors approved the 1998 Equity Incentive
Plan (the Plan). The Plan provides employees (including officers and directors
who are employees) of the Company an
F-42
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
opportunity to purchase shares of stock pursuant to options which may qualify
as incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended (the Code), and employees, officers, directors, independent
contractors and consultants of the Company an opportunity to purchase shares of
stock pursuant to options which are not described in Section 422 of the Code
(nonqualified stock options). Not more than 4,185,000 shares of stock shall be
available for the grant of options 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 options have not been
exercised shall continue to be available under the Plan. The Plan is
administered by a committee appointed by the Board of Directors. This committee
has the authority to determine the employees, officers, independent contractors
and consultants (excluding member(s) of the committee) to whom awards will be
made, the amount of the awards, and the other terms and conditions of the
awards. Options granted under the Plan typically vest over four years, ratably
on a quarterly basis.
If the continuous service of a participant in the Plan terminates due to an
involuntary termination without cause or due to a constructive termination, as
defined, within one month before, or eighteen months after a Change of Control,
as defined, the vesting and exercisability of all stock option awards of the
participant are accelerated in full. The transaction with InfoSpace described
in Note 1 resulted in a Change in Control.
The following transactions have occurred in the Plan from its adoption
through December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
---------- --------
<S> <C> <C>
Granted (fair value of $0.24 per share)............... 612,235 $0.24
Exercised............................................. -- --
Canceled.............................................. -- --
----------
Outstanding, December 31, 1998 (612,235 options
exercisable)......................................... 612,235 0.24
Granted (fair value of $1.27 per share)............... 2,281,650 0.19
Exercised............................................. (1,554,199) 0.19
Canceled.............................................. (198,343) 0.13
----------
Outstanding, December 31, 1999 (1,141,343 options
exercisable)......................................... 1,141,343 0.22
==========
</TABLE>
At December 31, 1999, a total of 1,489,458 shares were available for future
grants under the Plan.
The following table summarizes information as of December 31, 1999 concerning
options outstanding:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------
Weighted Average
Ranges of Remaining
Exercise Number Contractual
Prices Outstanding Life (Yrs.)
--------- ----------- ----------------
<S> <C> <C>
$0.10........................................ 753,931 7.95
$0.45........................................ 387,412 9.71
--------- ----
$0.10-0.45................................... 1,141,343 8.53
========= ====
</TABLE>
Additional Stock Plan Information
As discussed in Note 1, the Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
"Accounting for Stock Issued to Employees," and its related
F-43
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
interpretations. Accordingly, no compensation expense has been recognized in
the financial statements for employee stock awards granted at fair market
value.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income as if the Company had adopted the fair value
method. Under SFAS No. 123, the fair value of stock-based awards to employees
is calculated through the use of the minimum value method, which requires
subjective assumptions, including the expected time to exercise, which affect
the calculated values. The Company's calculations were made using the minimum
value method with the following weighted average assumptions for 1999 and 1998,
respectively: no dividends during the expected term; risk-free interest rates
ranging from 4.80% to 5.82%, and expected life of five years. The Company's
calculations are based on a multiple option valuation approach and forfeitures
are recognized as they occur. If the computed fair value of the employee awards
had been amortized to expense over the vesting period of the employee awards,
pro forma net loss would have been $28,566,000 for the fiscal year ended
December 31, 1999 and would not have been materially different from the net
loss for the period from inception through December 31, 1998.
Note 8: Income Taxes
Deferred tax assets (liabilities) are comprised of the following at December
31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards--US............... $ 5,758,000 $ 1,284,000
Net operating loss carryforwards--Foreign.......... 3,007,000 --
Depreciation and amortization...................... 183,000 263,000
Stock compensation................................. 449,000 --
Deferred revenue................................... 259,000 --
Other.............................................. 329,000 66,000
----------- -----------
Total gross deferred tax assets.................. 9,985,000 1,613,000
Valuation allowance................................ (9,985,000) (1,613,000)
----------- -----------
Net deferred tax assets............................ $ -- $ --
=========== ===========
</TABLE>
At December 31, 1999, the Company has available federal and California state
net operating loss carryforwards of approximately $16,934,000 and $2,625,000,
respectively, to offset future taxable income through 2019 and 2003,
respectively. The Company also has net operating loss carryforwards for
Canadian tax purposes of approximately $6,834,000 which will begin to expire in
2005. In addition, the Company has Canadian investment tax credits of
approximately $170,000 available to be carried forward. The investment tax
credits will expire beginning in 2008. At December 31, 1999, the deferred tax
assets have been fully reserved due to the uncertainty surrounding the
realization of such benefits.
Current tax laws impose substantial restrictions on the utilization of net
operating loss and credit carryforwards in the event of an "ownership change,"
as defined by the Internal Revenue Code. The events described under Note 1 may
limit the Company's ability to utilize its carryforwards.
Note 9: Commitments and Contingencies
Leases and Third Party Service Agreements--The Company's offices are leased
under various noncancelable operating lease arrangements. The agreements expire
at various dates through May 2004, and certain of the leases contain renewal
options. The Company also leases certain equipment under various
F-44
<PAGE>
SARAIDE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
capital and operating lease agreements. Future minimum lease payments under
capital and operating leases were as follows at December 31, 1999:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------- ----------
<S> <C> <C>
Fiscal year ending:
2000................................................ $ 515,287 $1,823,361
2001................................................ 507,735 1,296,366
2002................................................ 320,661 749,870
2003................................................ -- 369,150
2004................................................ -- 153,813
---------- ----------
Total minimum lease payments.......................... 1,343,683 $4,392,560
==========
Amount representing interest.......................... 122,166
----------
Present value of minimum lease payments............... 1,221,517
Current portion....................................... 311,560
----------
Long-term obligations................................. $ 909,957
==========
</TABLE>
Capital lease obligations are collateralized by equipment with a cost of
$1,572,982 (net book value of $1,482,587) at December 31, 1999.
Rent expense related to operating leases was $1,672,538 in fiscal 1999.
Note 10: Employee Benefit Plan
During 1999, the Company adopted a 401(k) Profit Sharing Plan. Qualified
employees as defined under the Plan are eligible to participate and may make
voluntary contributions subject to the limitation set forth by the Plan or
applicable tax laws. Employee salary contributions are fully vested. The
Company may make discretionary contributions as determined by the Company's
management. There were no contributions made during 1999.
Note 11: Subsequent Event (unaudited)
The Company recorded a restructuring charge of $2,171,462 in the second
quarter of 2000 for the closure of its Dallas, Texas facility. The
restructuring charges consist of the following:
<TABLE>
<CAPTION>
Restructuring Reserve
Type of Charge Cash/Non-cash Charge Balance
-------------- ------------- ------------- --------
<S> <C> <C> <C>
Severance and related costs............... Cash $ 957,000 $957,000
Lease termination penalties............... Cash 412,300 --
Leasehold improvements.................... Cash 802,162 --
---------- --------
$2,171,462 $957,000
</TABLE>
* * * * * *
F-45
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INFOSPACE, INC.
GIANTS ACQUISITION CORP.
AND
GO2NET, INC.
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER...................................................... A- 6
1.1 The Merger.......................................................... A- 6
1.2 Effective Time; Closing............................................. A- 6
1.3 Effect of the Merger................................................ A- 6
1.4 Certificate of Incorporation; Bylaws................................ A- 6
1.5 Directors and Officers.............................................. A- 6
1.6 Effect on Capital Stock............................................. A- 6
1.7 Surrender of Certificates........................................... A- 8
1.8 No Further Ownership Rights in Company Common Stock................. A- 9
1.9 Lost, Stolen or Destroyed Certificates.............................. A- 9
1.10 Tax and Accounting Consequences..................................... A- 9
1.11 Taking of Necessary Action; Further Action.......................... A- 9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY....................... A-10
2.1 Organization of Company............................................. A-10
2.2 Company Capital Structure........................................... A-10
2.3 Obligations With Respect to Capital Stock........................... A-10
2.4 Authority........................................................... A-11
2.5 SEC Filings; Company Financial Statements........................... A-12
2.6 Absence of Certain Changes or Events................................ A-13
2.7 Taxes............................................................... A-13
2.8 Company Intellectual Property....................................... A-14
2.9 Compliance; Permits; Restrictions................................... A-16
2.10 Litigation.......................................................... A-16
2.11 Brokers' and Finders' Fees.......................................... A-16
2.12 Employee Benefit Plans.............................................. A-16
2.13 Absence of Liens and Encumbrances................................... A-18
2.14 Environmental Matters............................................... A-18
2.15 Labor Matters....................................................... A-18
2.16 Agreements, Contracts and Commitments............................... A-19
2.17 Statements; Joint Proxy Statement/Prospectus........................ A-20
2.18 Board Approval...................................................... A-20
2.19 State Takeover Statutes............................................. A-20
2.20 Fairness Opinion.................................................... A-20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........ A-21
3.1 Organization of Parent.............................................. A-21
3.2 Parent Capital Structure............................................ A-21
3.3 Obligations With Respect to Capital Stock........................... A-21
3.4 Authority........................................................... A-22
3.5 SEC Filings; Parent Financial Statements............................ A-23
3.6 Absence of Certain Changes or Events................................ A-24
3.7 Taxes............................................................... A-24
3.8 Parent Intellectual Property........................................ A-24
3.9 Compliance; Permits; Restrictions................................... A-25
3.10 Litigation.......................................................... A-26
3.11 Brokers' and Finders' Fees.......................................... A-26
3.12 Employee Benefit Plans.............................................. A-26
3.13 Absence of Liens and Encumbrances................................... A-28
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
3.14 Environmental Matters.............................................. A-28
3.15 Labor Matters...................................................... A-28
3.16 Agreements, Contracts and Commitments.............................. A-28
3.17 Statements; Joint Proxy Statement/Prospectus....................... A-29
3.18 Board Approval..................................................... A-30
3.19 State Takeover Statutes............................................ A-30
3.20 Fairness Opinion................................................... A-30
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................ A-30
4.1 Conduct of Business by Company..................................... A-30
4.2 Conduct of Business by Parent...................................... A-32
ARTICLE V ADDITIONAL AGREEMENTS........................................... A-35
5.1 Joint Proxy Statement/Prospectus; S-4; Other Filings; Board
Recommendations.................................................... A-35
5.2 Stockholder Meetings............................................... A-36
5.3 Confidentiality; Access to Information............................. A-38
5.4 No Solicitation.................................................... A-38
5.5 Public Disclosure.................................................. A-39
5.6 Commercially Reasonable Efforts; Notification...................... A-39
5.7 Third Party Consents............................................... A-40
5.8 Stock Options; ESPP and Employee Benefits.......................... A-40
5.9 Form S-8........................................................... A-42
5.10 Indemnification.................................................... A-42
5.11 Affiliate Agreements............................................... A-42
5.12 Regulatory Filings; Reasonable Efforts............................. A-43
5.13 Action by Board of Directors....................................... A-43
5.14 Parent of Board of Directors....................................... A-43
5.15 Nasdaq Listing..................................................... A-44
5.16 Opinion of Accountants............................................. A-44
5.17 Tax-Free Reorganization............................................ A-44
5.18 Non-Disclosure, Invention Release and Non-Competition Agreements... A-44
ARTICLE VI CONDITIONS TO THE MERGER....................................... A-44
6.1 Conditions to Obligations of Each Party to Effect the Merger....... A-44
6.2 Additional Conditions to Obligations of Company.................... A-45
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.. A-45
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER............................. A-46
7.1 Termination........................................................ A-46
7.2 Notice of Termination; Effect of Termination....................... A-48
7.3 Fees and Expenses.................................................. A-48
7.4 Amendment.......................................................... A-49
7.5 Extension; Waiver.................................................. A-49
ARTICLE VIII GENERAL PROVISIONS........................................... A-49
8.1 Non-Survival of Representations and Warranties..................... A-49
8.2 Notices............................................................ A-49
8.3 Interpretation..................................................... A-50
8.4 Counterparts....................................................... A-51
8.5 Entire Agreement; Third Party Beneficiaries........................ A-51
8.6 Severability....................................................... A-51
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
8.7 Other Remedies; Specific Performance................................ A-51
8.8 Governing Law....................................................... A-51
8.9 Rules of Construction............................................... A-51
8.10 Assignment.......................................................... A-51
8.11 Waiver of Jury Trial................................................ A-51
</TABLE>
INDEX OF EXHIBITS
<TABLE>
<C> <S>
Exhibit A-1 Form of Company Voting Agreement
Exhibit A-2 Form of Parent Voting Agreement
Exhibit B Form of Stock Option Agreement
Exhibit C-1 Form of Company Affiliate Agreement
Exhibit C-2 Form of Parent Affiliate Agreement
Exhibit D Form of Acknowledgement Agreement (not included)*
</TABLE>
--------
* Registrant hereby agrees to furnish supplementally a copy of any omitted
exhibit to the Securities and Exchange Commission upon request.
A-4
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of July 26, 2000, among InfoSpace, Inc., a Delaware corporation
("Parent"), Giants Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), and Go2Net, Inc., a Delaware corporation
("Company").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law ("Delaware Law"), Parent,
Merger Sub and Company intend to enter into a business combination transaction.
B. The Board of Directors of Company (i) has determined that the Merger (as
defined in Section 1.1) is consistent with and in furtherance of the long-term
business strategy of Company and fair to, and in the best interests of, Company
and its stockholders, (ii) has approved this Agreement, the Merger and the
other transactions contemplated by this Agreement, (iii) has adopted a
resolution declaring the Merger advisable and (iv) has determined to recommend
that the stockholders of Company adopt this Agreement.
C. The Board of Directors of Parent (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Parent
and fair to, and in the best interests of, Parent and its stockholders, (ii)
has approved this Agreement, the Merger and the other transactions contemplated
by this Agreement, (iii) has adopted a resolution declaring the Merger
advisable and (iv) has determined to recommend that the stockholders of Parent
approve the issuance of shares of Parent Common Stock (as defined below)
pursuant to the Merger (the "Share Issuance").
D. Concurrently with the execution of this Agreement and as a condition and
inducement to Parent's willingness to enter into this Agreement: (1) certain
stockholders of Company are entering into Voting Agreements in substantially
the form attached hereto as Exhibit A-1 (the "Company Voting Agreements"), (2)
Company is executing and delivering a Stock Option Agreement in favor of Parent
in substantially the form attached hereto as Exhibit B (the "Stock Option
Agreement"), (3) certain Company Affiliates are entering into Company Affiliate
Agreements in substantially the form attached hereto as Exhibit C-1 (the
"Company Affiliate Agreements"), and (4) certain individuals are entering into
Acknowledgment Agreements in substantially the form attached hereto as Exhibit
D (the "Acknowledgment Agreements").
E. Concurrently with the execution of this Agreement and as a condition and
inducement to Company's willingness to enter into this Agreement: (1) certain
stockholders of Parent are entering into Voting Agreements in substantially the
form attached hereto as Exhibit A-2 (the "Parent Voting Agreements"), and (2)
certain Parent affiliates are entering into Parent Affiliate Agreements in
substantially the form attached as Exhibit C-2 hereto (the "Parent Affiliate
Agreements").
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
F. It is also intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
A-5
<PAGE>
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject
to and upon the terms and conditions of this Agreement and the applicable
provisions of Delaware Law, Merger Sub shall be merged with and into Company
(the "Merger"), the separate corporate existence of Merger Sub shall cease and
Company shall continue as the surviving corporation. Company as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing a Certificate
of Merger with the Secretary of State of the State of Delaware in accordance
with the relevant provisions of Delaware Law (the "Certificate of Merger") (the
time of such filing (or such later time as may be agreed in writing by Company
and Parent and specified in the Certificate of Merger) being the "Effective
Time") as soon as practicable on or after the Closing Date (as herein defined).
The closing of the Merger (the "Closing") shall take place at the offices of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, at a time and date
to be specified by the parties, which shall be no later than the second
business day after the satisfaction or waiver of the conditions set forth in
Article VI, or at such other time, date and location as the parties hereto
agree in writing (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of Company and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of Company and Merger Sub shall become
the debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, subject to the provisions of Section 5.10, the
Certificate of Incorporation of Merger Sub shall be the Certificate of
Incorporation of the Surviving Corporation; provided, however, that the
Certificate of Incorporation of the Surviving Corporation shall be amended
so that the name of the Surviving Corporation shall be "Go2Net, Inc.".
(b) Subject to the provisions of Section 5.10, the Bylaws of Merger Sub,
as in effect immediately prior to the Effective Time, shall be, at the
effective time, the Bylaws of the Surviving Corporation.
1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time until their successors shall have been duly elected and
qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time.
1.6 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Merger Sub, Company or the holders of any of the
following securities, the following shall occur:
(a) Conversion of Company Common Stock. In accordance with the
Certificate of Designation of the Company, each share of Preferred Stock,
par value $0.01 per share (the "Company Preferred Stock") issued and
outstanding immediately prior to the Effective Time will automatically be
converted into 30.2526 shares of Common Stock, par value $0.01 per share,
of Company (the "Company
A-6
<PAGE>
Common Stock"). Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (including shares of Preferred
Stock converted into Company Common Stock, but excluding any share of
Company Common Stock to be canceled and extinguished pursuant to Section
1.6(b)) will be automatically converted (subject to Sections 1.6(e) and
(f)) into 1.82 (the "Exchange Ratio") of a share of Common Stock, par value
$0.001 per share, of Parent (the "Parent Common Stock"), which shall be
referred to in this Agreement as the "Merger Consideration." If any shares
of Company Common Stock outstanding immediately prior to the Effective Time
are unvested or are subject to a repurchase option, risk of forfeiture or
other condition under any applicable restricted stock purchase agreement or
other agreement with Company, then the shares of Parent Common Stock issued
in exchange for such shares of Company Common Stock will also be unvested
and subject to the same repurchase option, risk of forfeiture or other
condition, and the certificates representing such shares of Parent Common
Stock may accordingly be marked with appropriate legends.
(b) Cancellation of Company-Owned Stock. Each share of Company Common
Stock held by Company or any direct or indirect wholly-owned subsidiary of
Company immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Stock Options; Employee Stock Purchase Plans. At the Effective Time,
all options to purchase Company Common Stock then outstanding under
Company's 2000 Stock Option Plan and 1996 Stock Option Plan, the
Authorize.Net Corporation 1999 Stock Incentive Plan, the Silicon Investor,
Inc. 1996 Plan, the Web 21 Stock Option Plan, the Haggle Online, Inc. Non-
qualified Stock Option Agreement and the IQC Option to Purchase Common
Stock (collectively, the "Company Option Plans"), and Company Option Plans
themselves, shall be assumed by Parent in accordance with Section 5.8. At
the Effective Time, Company's 1999 Employee Stock Purchase Plan (the
"ESPP") will be terminated in accordance with Section 5.8.
(d) Capital Stock of Merger Sub. Each share of Common Stock, $0.001 par
value per share, of Merger Sub (the "Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of Common Stock,
$0.001 par value per share, of the Surviving Corporation. Each certificate
evidencing ownership of shares of Merger Sub Common Stock shall evidence
ownership of such shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted
to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into or exercisable or exchangeable for Parent Common Stock or
Company Common Stock), extraordinary cash dividend, reorganization,
recapitalization, reclassification, combination, exchange of shares or
other like change with respect to Parent Common Stock or Company Common
Stock occurring or having a record date on or after the date hereof and
prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common Stock will
be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to receive a
fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock that otherwise would be received
by such holder) shall, upon surrender of such holder's Certificates(s) (as
defined in Section 1.7(c)) receive from Parent an amount of cash (rounded
to the nearest whole cent), without interest, equal to the product of (i)
such fraction, multiplied by (ii) the average closing price of one share of
Parent Common Stock for the five (5) most recent days that Parent Common
Stock has traded ending on the trading day immediately prior to the
Effective Time, as reported on the Nasdaq National Market ("Nasdaq").
A-7
<PAGE>
1.7 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Parent shall select a
bank or trust company reasonably acceptable to Company to act as the
exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I, the shares of Parent Common Stock issuable
pursuant to Section 1.6(a) in exchange for outstanding shares of Company
Common Stock, and cash in an amount sufficient for payment in lieu of
fractional shares pursuant to Section 1.6(f) and any dividends or
distributions to which holders of shares of Company Common Stock may be
entitled pursuant to Section 1.7(d).
(c) Exchange Procedures. As soon as practicable after the Effective Time,
and in no event later than fifteen (15) days thereafter, Parent shall cause
the Exchange Agent to mail to each holder of record (as of the Effective
Time) of a certificate or certificates, which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock (the
"Certificates") (i) a letter of transmittal in customary form (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Parent
Common Stock pursuant to Section 1.6(a), cash in lieu of any fractional
shares pursuant to Section 1.6(f) and any dividends or other distributions
pursuant to Section 1.7(d). Upon surrender of Certificates for cancellation
to the Exchange Agent or to such other agent or agents as may be appointed
by Parent, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, the holders
of such Certificates shall be entitled to receive in exchange therefor
certificates representing the number of whole shares of Parent Common Stock
into which their shares of Company Common Stock were converted pursuant to
Section 1.6(a), payment in lieu of fractional shares which such holders
have the right to receive pursuant to Section 1.6(f) and any dividends or
other distributions payable pursuant to Section 1.7(d), and the
Certificates so surrendered shall forthwith be canceled. Until so
surrendered, outstanding Certificates will be deemed, from and after the
Effective Time, to evidence only the ownership of the number of whole
shares of Parent Common Stock into which such shares of Company Common
Stock shall have been so converted (including any voting, notice or other
rights associated with the ownership of such shares of Parent Common Stock
under the Certificate of Incorporation or Bylaws of Parent or under
Delaware Law) and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6(f) and any
dividends or other distributions payable pursuant to Section 1.7(d).
(d) Distributions With Respect to Unexchanged Shares. Dividends or other
distributions declared or made after the date of this Agreement with
respect to Parent Common Stock with a record date after the Effective Time
will be paid to the holders of any unsurrendered Certificates with respect
to the shares of Parent Common Stock represented thereby when the holders
of record of such Certificates surrender such Certificates.
(e) Transfers of Ownership. If certificates representing shares of Parent
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have (i) paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the
issuance of certificates representing shares of Parent Common Stock in any
name other than that of the registered holder of the Certificates
surrendered, or (ii) established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
(f) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable
A-8
<PAGE>
pursuant to this Agreement to any holder or former holder of Company Common
Stock such amounts as may be required to be deducted or withheld therefrom
under the Code or state, local or foreign law. To the extent such amounts
are so deducted or withheld, such amounts shall be treated for all purposes
under this Agreement as having been paid to the person to whom such amounts
would otherwise have been paid.
(g) No Liability. Notwithstanding anything to the contrary in this
Section 1.7, neither the Exchange Agent, Parent, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of Parent Common
Stock or Company Common Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
1.8 No Further Ownership Rights in Company Common Stock. All shares of Parent
Common Stock issued in accordance with the terms hereof (including any cash
paid in respect thereof pursuant to Sections 1.6(f) and 1.7(d)) shall be deemed
to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock. There shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue and pay in exchange for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the holder
thereof, certificates representing the shares of Parent Common Stock into which
the shares of Company Common Stock represented by such Certificates were
converted pursuant to Section 1.6(a), cash for fractional shares, if any, as
may be required pursuant to Section 1.6(f) and any dividends or distributions
payable pursuant to Section 1.7(d); provided, however, that the Exchange Agent,
may, in its discretion and as a condition precedent to the issuance of such
certificates representing shares of Parent Common Stock and the payment of cash
and other distributions, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
1.10 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall constitute
a reorganization within the meaning of Section 368(a) of the Code. The
parties hereto adopt this Agreement as a "plan of reorganization" within
the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Treasury Regulations. Accordingly, both prior to and after the Closing,
each party's books and records shall be maintained and all federal, state
and local income tax returns and schedules thereto shall be filed in a
manner consistent with the Merger being qualified as a reverse triangular
merger under Section 368(a)(2)(E) of the Code. Each party shall provide to
each other such information, reports, returns or schedules as may be
reasonably required to assist such party in accounting for and reporting
the Merger being so qualified.
(b) It is intended by the parties hereto that the Merger shall qualify as
a pooling of interests for accounting purposes.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Parent
and the Surviving Corporation shall be fully authorized (in the name of Merger
Sub, Company, the Surviving Corporation and otherwise) to take all such
necessary action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent and Merger Sub, subject to such
exceptions as are disclosed in writing in the disclosure letter supplied by
Company to Parent dated as of the date hereof (the "Company Schedule"), which
disclosure shall provide an exception to or otherwise qualify the
representations or warranties of Company contained in the section of this
Agreement corresponding by number to such disclosure and the other
representations and warranties herein to the extent such disclosure shall
reasonably appear to be applicable to such other representations or warranties,
as follows:
2.1 Organization of Company.
(a) Company and each of its subsidiaries is a corporation or limited
liability company duly organized, validly existing and in good corporate or
limited liability company standing under the laws of the jurisdiction of
its incorporation; has the corporate or limited liability power and
authority to own, lease and operate its assets and property and to carry on
its business as now being conducted and as proposed to be conducted; and is
duly qualified to do business and in good corporate or limited liability
standing as a foreign corporation or limited liability company in each
jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect (as defined in Section 8.3) on Company.
(b) Company has delivered to Parent a true and complete list of all of
Company's subsidiaries, indicating the jurisdiction of incorporation of
each subsidiary and Company's equity interest therein.
(c) Company has delivered or made available to Parent a true and correct
copy of the Certificate of Incorporation and Bylaws of Company and similar
governing instruments of each of its material subsidiaries, each as amended
to date, and each such instrument is in full force and effect. Neither
Company nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent
governing instruments.
2.2 Company Capital Structure. The authorized capital stock of Company
consists of 499,000,000 shares of Common Stock, par value $0.01 per share, of
which there were 31,356,368 shares issued and outstanding as of July 19, 2000,
and 1,000,000 shares of Preferred Stock, par value $0.01 per share ("Company
Preferred Stock"), of which there were 300,000 shares issued and outstanding as
of July 19, 2000. All outstanding shares of Company Common Stock and Company
Preferred Stock are duly authorized, validly issued, fully paid and
nonassessable and are not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of Company or any agreement or document
to which Company is a party or by which it is bound. As of July 19, 2000,
Company had reserved an aggregate of 18,520,375 shares of Company Common Stock,
net of exercises, for issuance to employees, consultants and non-employee
directors pursuant to the Company Stock Option Plans, under which options are
outstanding for an aggregate of 14,323,344 shares and under which 4,273,717
shares are available for grant as of July 19, 2000. As of July 19, 2000,
Company has reserved 1,000,000 shares of Company Common Stock for issuance
under the ESPP, of which 6,655 shares had been issued. As of July 19, 2000, the
Company had reserved 9,075,783 shares of Company Common Stock for issuance upon
conversion of the Company Preferred Stock. All shares of Company Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, would be duly
authorized, validly issued, fully paid and nonassessable.
2.3 Obligations With Respect to Capital Stock.
Except as set forth in Section 2.2, there are no equity securities,
partnership interests or similar ownership interests of any class of Company,
or any securities exchangeable or convertible into or exercisable for such
equity securities, partnership interests or similar ownership interests issued,
reserved for issuance or outstanding. Except for securities Company owns,
directly or indirectly through one or more
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subsidiaries, there are no equity securities, partnership interests or similar
ownership interests of any class of any subsidiary of Company, or any security
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests issued, reserved for
issuance or outstanding. Except as set forth in Section 2.2, there are no
options, warrants, equity securities, partnership interests or similar
ownership interests, calls, rights (including preemptive rights), commitments
or agreements of any character to which Company or any of its subsidiaries is a
party or by which it is bound obligating Company or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or
repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or
acquisition, of any shares of capital stock of Company or any of its
subsidiaries or obligating Company or any of its subsidiaries to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, partnership interest or similar ownership interest, call, right,
commitment or agreement. There are no registration rights and, to the knowledge
of Company there are no voting trusts, proxies or other agreements or
understandings with respect to any equity security of any class of Company or
with respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries.
2.4 Authority.
(a) Company has all requisite corporate power and authority to enter into
this Agreement and the Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby, and the execution and delivery of the Stock Option Agreement and
the consummation of the transactions contemplated thereby, have been duly
authorized by all necessary corporate action on the part of Company,
subject only to the adoption of this Agreement by Company's stockholders
and the filing and recordation of the Certificate of Merger pursuant to
Delaware Law. A vote of the holders of at least (i) a majority of the
outstanding shares of the Company Common Stock and Company Preferred Stock,
voting as a single class with the Company Preferred Stock voting on an as-
converted basis), and (ii) a majority of the outstanding shares of Company
Preferred Stock voting as a single class, is required for Company's
stockholders to approve and adopt this Agreement and approve the Merger.
This Agreement and the Company Stock Option Agreement have been duly
executed and delivered by Company and, assuming the due authorization,
execution and delivery by Parent and, if applicable, Merger Sub, constitute
the valid and binding obligations of Company, enforceable in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement and the Stock Option Agreement by
Company do not, and the performance of this Agreement and the Stock Option
Agreement by Company will not, (i) conflict with or violate the Certificate
of Incorporation or Bylaws of Company or the equivalent organizational
documents of any of its subsidiaries, (ii) subject to obtaining the
approval and adoption of this Agreement and the approval of the Share
Issuance by Parent's stockholders as contemplated in Section 5.2 and
compliance with the requirements set forth in Section 2.4(b) below,
conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Company or any of its subsidiaries or by which its or
any of their respective properties is bound or affected, or (iii) result in
any breach of, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or impair Company's
rights or alter the rights or obligations of any third party under, or give
to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any
of the properties or assets of Company or any of its subsidiaries pursuant
to, any material note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to
which Company or any of its subsidiaries is a party or by which Company or
any of its subsidiaries or its or any of their respective properties are
bound or affected, except to the extent such conflict, violation, breach,
default, impairment or other effect could not, in the case of clause (ii)
or (iii), individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect on Company.
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(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission
or other governmental authority or instrumentality ("Governmental Entity")
is required by or with respect to Company in connection with the execution
and delivery of this Agreement and the Stock Option Agreement or the
consummation of the transactions contemplated hereby or thereby, except for
(i) the filing of a Form S-4 Registration Statement (the "S-4") with the
Securities and Exchange Commission ("SEC") in accordance with the
Securities Act of 1933, as amended (the "Securities Act"), (ii) the filing
of the Certificate of Merger with the Secretary of State of Delaware, (iii)
the filing of the Joint Proxy Statement/Prospectus (as defined in Section
2.18) with the SEC in accordance with the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable federal and state securities laws and the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and
the laws of any foreign country and (v) such other consents,
authorizations, filings, approvals and registrations which, if not obtained
or made, would not be material to Company or Parent or have a material
adverse effect on the ability of the parties to consummate the Merger.
2.5 SEC Filings; Company Financial Statements.
(a) Company has filed all forms, reports and documents required to be
filed with the SEC since the initial filing date of the registration
statement for Company's initial public offering, and has made available to
Parent such forms, reports and documents in the form filed with the SEC.
All such required forms, reports and documents (including those that
Company may file subsequent to the date hereof) are referred to herein as
the "Company SEC Reports." As of their respective dates, the Company SEC
Reports (i) were prepared in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Company SEC Reports,
and (ii) did not at the time they were filed (or if amended or superseded
by a filing prior to the date of this Agreement, then on the date of such
filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. None of Company's subsidiaries is required to
file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports (the
"Company Financials"), including any Company SEC Reports filed after the
date hereof until the Closing, (i) complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, (ii) was prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case
of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q under the Exchange Act) and (iii) fairly presented the
consolidated financial position of Company and its subsidiaries at the
respective dates thereof and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not, or are not expected to be, material in amount.
The balance sheet of Company as of June 30, 2000 is hereinafter referred to
as the "Company Balance Sheet." Except as disclosed in the Company
Financials, neither Company nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Company and its subsidiaries taken as
a whole, except liabilities (i) provided for in the Company Balance Sheet,
or (ii) incurred since the date of the Company Balance Sheet in the
ordinary course of business consistent with past practices and which would
not reasonably be expected to have a Material Adverse Effect on the
Company.
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(c) Company has heretofore furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with
the SEC but which will be required to be filed, to agreements, documents or
other instruments which previously had been filed by Company with the SEC
pursuant to the Securities Act or the Exchange Act.
2.6 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet, there has not been: (i) any Material Adverse Effect on Company,
(ii) any material change by Company in its accounting methods, principles or
practices, except as required by concurrent changes in GAAP, or (iii) any
revaluation by Company of any of its assets, including, without limitation,
writing down the value of capitalized inventory or writing off notes or
accounts receivable other than in the ordinary course of business.
2.7 Taxes.
Definition of Taxes. For the purposes of this Agreement, "Tax" or,
collectively, "Taxes", means (i) any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts; (ii) any liability for the payment of any
amounts of the type described in clause (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any period; and (iii)
any liability for the payment of any amounts of the type described in clause
(i) as a result of any express or implied obligation to indemnify any other
person or as a result of any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(a) Tax Returns and Audits.
(i) Company and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") relating to Taxes required to be
filed by Company and each of its subsidiaries with any Tax authority,
except such Returns which are not material to Company. Company and each
of its subsidiaries have paid all Taxes shown to be due on such
Returns.
(ii) Company and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state
income taxes, Taxes pursuant to the Federal Insurance Contribution Act
and other Taxes required to be withheld, except such Taxes which are
not material to Company.
(iii) Neither Company nor any of its subsidiaries has been delinquent
in the payment of any material Tax nor is there any material Tax
deficiency outstanding, assessed, or, to Company's knowledge, proposed
against Company or any of its subsidiaries, nor has Company or any of
its subsidiaries executed any unexpired waiver of any statute of
limitations on or extending the period for the assessment or collection
of any Tax.
(iv) No audit or other examination of any Return of Company or any of
its subsidiaries by any Tax authority is presently in progress, nor has
Company or any of its subsidiaries been notified of any request for
such an audit or other examination.
(v) No adjustment relating to any Returns filed by Company or any of
its subsidiaries has been proposed in writing formally or to Company's
knowledge informally by any Tax authority to Company or any of its
subsidiaries or any representative thereof.
(vi) Neither Company nor any of its subsidiaries has any liability
for any material unpaid Taxes which has not been accrued for or
reserved on Company Balance Sheet in accordance with GAAP, whether
asserted or unasserted, contingent or otherwise, which is material to
Company,
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other than any liability for unpaid Taxes that may have accrued since
June 30, 2000 in connection with the operation of the business of
Company and its subsidiaries in the ordinary course.
(vii) There is no contract, agreement, plan or arrangement to which
Company or any of its subsidiaries is a party as of the date of this
Agreement, including but not limited to the provisions of this
Agreement, covering any employee or former employee of Company or any
of its subsidiaries that, individually or collectively, would
reasonably be expected to give rise to the payment of any amount that
would not be deductible pursuant to Sections 280G, 404 or 162(m) of the
Code. There is no contract, agreement, plan or arrangement to which
Company is a party or by which it is bound to compensate any individual
for excise taxes paid pursuant to Section 4999 of the Code.
(viii) Neither Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as defined in Section 341(f)(4) of the Code) owned by
Company or any of its subsidiaries.
(ix) Neither Company nor any of its subsidiaries (A) has ever been a
member of an affiliated group filing a consolidated federal income Tax
Return (other than a consolidated group the common parent of which is
Company), (B) is a party to any Tax sharing or Tax allocation
agreement, arrangement or understanding, (C) is liable for the Taxes of
any other person under Treasury Regulation 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise, and (D) is a party to any joint
venture, partnership or other arrangement that could be treated as a
partnership for income Tax purposes.
(x) Neither the Company nor any of its subsidiaries has constituted
either a "distributing corporation" or a "controlled corporation" in a
distribution of stock qualifying for tax-free treatment under Section
355 of the Code (i) in the two years prior to the date of this
Agreement or (ii) in a distribution which could otherwise constitute
part of a "plan" or "series of related transactions" (within the
meaning of Section 355(e) of the Code) in conjunction with the Merger.
(xi) None of Company's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code.
2.8 Company Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or
not), invention disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data and customer lists, and
all documentation relating to any of the foregoing; (iii) all copyrights,
copyrights registrations and applications therefor, and all other rights
corresponding thereto throughout the world; (iv) all industrial designs and
any registrations and applications therefor throughout the world; (v) all
trade names, logos, common law trademarks and service marks, trademark and
service mark registrations and applications therefor throughout the world;
(vi) all databases and data collections and all rights therein throughout
the world; (vii) all domain names; (viii) all moral and economic rights of
authors and inventors, however denominated, throughout the world, and (ix)
any similar or equivalent rights to any of the foregoing anywhere in the
world.
"Company Intellectual Property" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, Company or any of its
subsidiaries.
"Registered Intellectual Property" means all United States, international
and foreign: (i) patents and patent applications (including provisional
applications); (ii) registered trademarks,
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applications to register trademarks, intent-to-use applications, or other
registrations or applications related to trademarks; (iii) registered
copyrights and applications for copyright registration; and (iv) any other
Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued, filed with, or recorded by
any state, government or other public legal authority.
"Company Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, Company or any of
its subsidiaries.
(a) No Company Intellectual Property or product or service of Company
or any of its subsidiaries is subject to any proceeding or outstanding
decree, order, judgment, contract, license, agreement, or stipulation
restricting in any manner the use, transfer, or licensing thereof by
Company or any of its subsidiaries, or which may affect the validity,
use or enforceability of such Company Intellectual Property.
(b) Company or one of its subsidiaries owns and has good and
exclusive title to, or has license to (sufficient for the conduct of
its business as currently conducted and as proposed to be conducted),
each material item of Company Intellectual Property or other
Intellectual Property used by Company or any of its subsidiaries free
and clear of any lien or encumbrance (excluding licenses and related
restrictions); and Company or one of its subsidiaries is the exclusive
owner of all trademarks and trade names used in connection with the
operation or conduct of the business of Company and its subsidiaries,
including the sale of any products or the provision of any services by
Company and its subsidiaries.
(c) Company or one of its subsidiaries owns exclusively, and has good
title to, all copyrighted works that are Company products or which
Company or any of its subsidiaries otherwise expressly purports to own.
(d) To the extent that any material Intellectual Property has been
developed or created by a third party for Company or any of its
subsidiaries, Company or one of its subsidiaries has a written
agreement with such third party with respect thereto and Company or one
of its subsidiaries thereby either (i) has obtained ownership of, and
is the exclusive owner of, or (ii) has obtained a license (sufficient
for the conduct of its business as currently conducted and as proposed
to be conducted) to all such third party's Intellectual Property in
such work, material or invention by operation of law or by valid
assignment.
(e) Neither Company nor any of its subsidiaries has transferred
ownership of, or granted any exclusive license with respect to, any
Intellectual Property that is or was material Company Intellectual
Property, to any third party.
(f) To the knowledge of Company, the operation of the business of
Company and its subsidiaries as such business currently is conducted,
including Company's and its subsidiaries' design, development,
manufacture, marketing and sale of the products or services of Company
and its subsidiaries (including products currently under development)
has not, does not and will not infringe or misappropriate the
Intellectual Property of any third party or, to its knowledge,
constitute unfair competition or trade practices under the laws of any
jurisdiction.
(g) Neither Company nor any of its subsidiaries has received notice
from any third party that the operation of the business of Company or
any of its subsidiaries or any act, product or service of Company or
any of its subsidiaries, infringes or misappropriates the Intellectual
Property of any third party or constitutes unfair competition or trade
practices under the laws of any jurisdiction.
(h) To the knowledge of Company, no person has materially infringed
or is materially infringing or misappropriating any Company
Intellectual Property.
(i) Company and each of its subsidiaries has taken reasonable steps
to protect Company's and its subsidiaries' rights in Company's
confidential information and trade secrets that it wishes to protect or
any trade secrets or confidential information of third parties provided
to Company or
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any of its subsidiaries, and, without limiting the foregoing, each of
Company and its subsidiaries has and enforces a policy requiring each
employee and contractor to execute a proprietary
information/confidentiality agreement substantially in the form
provided to Parent and all current and former employees and contractors
of Company and any of its subsidiaries have executed such an agreement,
except where the failure to do so is not reasonably expected to be
material to Company.
2.9 Compliance; Permits; Restrictions.
(a) Neither Company nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or violation of (i) any law, rule,
regulation, order, judgment or decree applicable to Company or any of its
subsidiaries or by which its or any of their respective properties is bound
or affected, or (ii) any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which Company or any of its subsidiaries is a party or by
which Company or any of its subsidiaries or its or any of their respective
properties is bound or affected. To the knowledge of Company, no
investigation or review by any Governmental Entity is pending or threatened
against Company or its subsidiaries, nor has any Governmental Entity
indicated in writing an intention to conduct the same. There is no material
agreement, judgment, injunction, order or decree binding upon Company or
any of its subsidiaries which has or could reasonably be expected to have
the effect of prohibiting or materially impairing any business practice of
Company or any of its subsidiaries, any acquisition of material property by
Company or any of its subsidiaries or the conduct of business by Company as
currently conducted.
(b) Company and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to the operation of the business of Company (collectively, the
"Company Permits"). Company and its subsidiaries are in compliance in all
material respects with the terms of the Company Permits.
2.10 Litigation. As of the date of this Agreement, there is no action, suit,
proceeding, claim, arbitration or investigation pending, or as to which Company
or any of its subsidiaries has received any notice of assertion nor, to
Company's knowledge, is there a threatened action, suit, proceeding, claim,
arbitration or investigation against Company or any of its subsidiaries which
reasonably would be likely to be material to Company, or which in any manner
challenges or seeks to prevent, enjoin, alter or delay any of the transactions
contemplated by this Agreement.
2.11 Brokers' and Finders' Fees. Except for fees payable to Merrill Lynch &
Co. pursuant to an engagement letter dated July 17, 2000, copies of which have
been provided to Parent, Company has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.12 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments, agreements or other arrangements (whether
or not set forth in a written document and including, without limitation,
all "employee benefit plans" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
covering any active or former employee, director or consultant of Company
("Company Employee" which shall for this purpose mean an employee of
Company or an ERISA Affiliate (as defined below)), any subsidiary of
Company or any trade or business (whether or not incorporated) which is a
member of a controlled group or which is under common control with Company
within the meaning of Section 414 of the Code (an "ERISA Affiliate"), or
with respect to which Company has or, to its knowledge, may in the future
have liability, are listed in Section 2.12(a) of the Company Schedule (the
"Company Plans"). Company has provided or will make available to Parent:
(i) correct and complete copies of all
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documents embodying each Company Plan including (without limitation) all
amendments thereto, all related trust documents, and all material written
agreements and contracts relating to each such Company Plan; (ii) the most
recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Company Plan; (iii) the most recent summary plan
description together with the summary(ies) of material modifications
thereto, if any, required under ERISA with respect to each Company Plan;
(iv) all IRS determination, opinion, notification and advisory letters; (v)
all material correspondence to or from any governmental agency relating to
any Company Plan; (vi) all forms and related notices required under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"); (vii) the most recent discrimination tests for each Company
Plan; (viii) the most recent actuarial valuations, if any, prepared for
each Company Plan; (ix) if the Company Plan is funded, the most recent
annual and periodic accounting of the Company Plan assets; and (x) all
communication to Company Employees relating to any Company Plan and any
proposed Company Plan, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules, or other events which would
result in any material liability to Company or any ERISA Affiliate.
(b) Each Company Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations (foreign
or domestic), including but not limited to ERISA and the Code, which are
applicable to such Company Plans. No suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of Company
Plan activities) has been brought, or to the knowledge of Company, is
threatened, against or with respect to any such Company Plan. There are no
audits, inquiries or proceedings pending or, to the knowledge of Company,
threatened by the Internal Revenue Service (the "IRS") or Department of
Labor (the "DOL") with respect to any Company Plans. All contributions,
reserves or premium payments required to be made or accrued as of the date
hereof to the Company Plans have been timely made or accrued. Any Company
Plan intended to be qualified under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code (i) has either
obtained a favorable determination, notification, advisory and/or opinion
letter, as applicable, as to its qualified status from the IRS or still has
a remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such letter and to make any amendments
necessary to obtain a favorable determination, and (ii) incorporates or has
been amended to incorporate all provisions required to comply with the Tax
Reform Act of 1986 and subsequent legislation. To the knowledge of Company,
no condition or circumstance exists giving rise to a material likelihood
that any such Company Plan would not be treated as qualified by the IRS.
Company does not have any plan or commitment to establish any new Company
Plan, to modify any Company Plan (except to the extent required by law or
to conform any such Company Plan to the requirements of any applicable law,
in each case as previously disclosed to Parent in writing, or as required
by the terms of any Company Plan or this Agreement), or to enter into any
new Company Plan. Each Company Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to Parent, Company or any of its ERISA Affiliates (other than
ordinary administration expenses).
(c) Neither Company, any of its subsidiaries, nor any of their ERISA
Affiliates has at any time ever maintained, established, sponsored,
participated in, or contributed to any plan subject to Title IV of ERISA or
Section 412 of the Code and at no time has Company contributed to or been
requested to contribute to any "multiemployer plan," as such term is
defined in ERISA. Neither Company, any of its subsidiaries, nor any officer
or director of Company or any of its subsidiaries is subject to any
material liability or penalty under Section 4975 through 4980B of the Code
or Title I of ERISA. No "prohibited transaction," within the meaning of
Section 4975 of the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 4975 of the Code and Section 408 of ERISA,
has occurred with respect to any Company Plan which could subject Company
or its ERISA Affiliates to material liability.
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(d) None of the Company Plans promises or provides retiree medical or
other retiree welfare benefits to any person except as required by
applicable law, and neither Company nor any of its subsidiaries has
represented, promised or contracted (whether in oral or written form) to
provide such retiree benefits to any Company Employee, former employee,
director, consultant or other person, except to the extent required by
statute.
(e) Except as would not have a Material Adverse Effect, Company is in
compliance in all material respects with all applicable material foreign,
federal, state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and
hours.
(f) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any stockholder, director or Company
Employee or any of its subsidiaries under any Company Plan or otherwise,
(ii) materially increase any benefits otherwise payable under any Company
Plan, or (iii) result in the acceleration of the time of payment or vesting
of any such benefits.
2.13 Absence of Liens and Encumbrances. Company and each of its subsidiaries
has good and valid title to, or, in the case of leased properties and assets,
valid leasehold interests in, all of its material tangible properties and
assets, real, personal and mixed, used in its business, free and clear of any
liens or encumbrances except as reflected in the Company Financials and except
for liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which would not be material to Company.
2.14 Environmental Matters.
(a) Hazardous Materials Activities. Except as would not reasonably be
likely to result in a material liability to Company (in any individual case
or in the aggregate), (i) neither Company nor any of its subsidiaries has
transported, stored, used, manufactured, disposed of, released or exposed
its employees or others to pollutants, contaminants, wastes, any toxic,
radioactive or otherwise hazardous materials ("Hazardous Materials") in
violation of any law in effect on or before the Closing Date, and (ii)
neither Company nor any of its subsidiaries has disposed of, transported,
sold, used, released, exposed its employees or others to or manufactured
any product containing a Hazardous Material (collectively, "Hazardous
Materials Activities") in violation of any rule, regulation, treaty or
statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(b) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or
to Company's knowledge, threatened concerning any Company Permit relating
to any environmental matter, Hazardous Material or any Hazardous Materials
Activity of Company or any of its subsidiaries. Company is not aware of any
fact or circumstance which could involve Company or any of its subsidiaries
in any environmental litigation or impose upon Company or any of its
subsidiaries any environmental liability.
2.15 Labor Matters. (i) There are no controversies pending or, to the
knowledge of each of Company and its respective subsidiaries, threatened,
between Company or any of its subsidiaries and any of their respective
employees which could reasonably be expected to result in a cash payment
obligation by Company in excess of $250,000; (ii) as of the date of this
Agreement, neither Company nor any of its subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by Company or its subsidiaries nor does Company or its
subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and (iii) as of the date of this Agreement,
neither Company nor any of its subsidiaries has any knowledge of any strikes,
slowdowns, work stoppages or lockouts, or threats thereof, by or with respect
to any employees of Company or any of its subsidiaries.
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2.16 Agreements, Contracts and Commitments. Neither Company nor any of its
subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment with
any officer or director or higher level employee or member of Company's
Board of Directors, other than those that are terminable by Company or any
of its subsidiaries on no more than thirty (30) days' notice without
liability or financial obligation to Company;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification or any guaranty other than any
agreement of indemnification entered into in the ordinary course of
business of Company;
(d) any agreement, contract or commitment containing any covenant
limiting in any material respect the right of Company or any of its
subsidiaries to engage in any line of business (other than with respect to
limitations on the distribution by Company of certain content and service
providers), or to compete with any person or granting any exclusive
distribution rights of Company services;
(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by Company or any of its subsidiaries after
the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Company has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Company's subsidiaries;
(f) (i) any dealer, distributor, joint marketing or development
agreement currently in force under which Company or any of its subsidiaries
have continuing material obligations to jointly market any product,
technology or service and which may not be canceled without penalty upon
notice of ninety (90) days or less, or (ii) any material agreement pursuant
to which Company or any of its subsidiaries have continuing material
obligations to jointly develop any intellectual property that will not be
owned, in whole or in part, by Company or any of its subsidiaries and which
may not be canceled without penalty upon notice of ninety (90) days or less
except for agreements, contracts or commitments with an annual value of
less than $100,000;
(g) any agreement, contract or commitment currently in force to provide
source code to any third party for any product or technology that is
material to Company and its subsidiaries taken as a whole;
(h) any agreement, contract or commitment currently in force to license
any third party to manufacture or reproduce any Company product, service or
technology or any agreement, contract or commitment currently in force to
sell or distribute any Company products, service or technology except those
agreements with customers, distributors or sales representatives made in
the normal course of business and substantially in the form previously
provided to Parent;
(i) any mortgages, indentures, guarantees, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit;
(j) any settlement agreement entered into within five (5) years prior to
the date of this Agreement; or
(k) any other agreement, contract or commitment that involves annual
expenditures or receipts of $2,500,000 or more individually.
Neither Company nor any of its subsidiaries, nor to Company's knowledge any
other party to a Company Contract (as defined below), is in breach, violation
or default under, and neither Company nor any
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of its subsidiaries has received written notice that it has breached, violated
or defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which Company or any of its
subsidiaries is a party or by which it is bound that are required to be
disclosed in the Company Schedule (any such agreement, contract or commitment,
a "Company Contract") in such a manner as would permit any other party to
cancel or terminate any such Company Contract, or would permit any other party
to seek material damages or other remedies (for any or all of such breaches,
violations or defaults, in the aggregate).
2.17 Statements; Joint Proxy Statement/Prospectus. None of the information
supplied or to be supplied by Company for inclusion or incorporation by
reference in (i) the S-4 (as defined in Section 2.4(b)) will at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading and (ii)
the proxy statement/prospectus to be sent to the stockholders of Company and
stockholders of Parent in connection with the meeting of Company's stockholders
to consider the adoption of this Agreement (the "Company Stockholders'
Meeting") and in connection with the meeting of Parent's stockholders to
consider the approval of the Share Issuance (the "Parent Stockholders'
Meeting") (such joint proxy statement/prospectus as amended or supplemented is
referred to herein as the "Joint Proxy Statement/Prospectus") shall not, on the
date the Joint Proxy Statement/Prospectus is first mailed to Company's
stockholders and Parent's stockholders, at the time of the Company
Stockholders' Meeting or the Parent Stockholders' Meeting and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Stockholders' Meeting or the Parent
Stockholders' Meeting which has become false or misleading. The Joint Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder. If at
any time prior to the Effective Time, any event relating to Company or any of
its affiliates, officers or directors should be discovered by Company which
should be set forth in an amendment to the S-4 or a supplement to the Joint
Proxy Statement/Prospectus, Company shall promptly inform Parent.
Notwithstanding the foregoing, Company makes no representation or warranty with
respect to any information supplied by Parent or Merger Sub which is contained
in any of the foregoing documents.
2.18 Board Approval. The Board of Directors of Company has, as of the date of
this Agreement, (i) determined that the Merger is fair to, advisable and in the
best interests of Company and its stockholders, (ii) determined to recommend
that the stockholders of Company adopt this Agreement and (iii) duly approved
the Merger, this Agreement and the transactions contemplated hereby.
2.19 State Takeover Statutes. The Board of Directors of Company has approved
the Merger, this Agreement, the Stock Option Agreement, the Parent Voting
Agreement and the transactions contemplated hereby and thereby, and such
approval is sufficient to render inapplicable to the Merger, this Agreement,
the Stock Option Agreement, the Parent Voting Agreement and the transactions
contemplated hereby and thereby the provisions of Section 203 of Delaware Law
to the extent, if any, such section is applicable to the Merger, this
Agreement, the Stock Option Agreement, the Parent Voting Agreement and the
transactions contemplated hereby and thereby. No other state takeover statute
or similar statute or regulation applies to or purports to apply to the Merger,
this Agreement, the Stock Option Agreement, the Parent Voting Agreement or the
transactions contemplated hereby and thereby.
2.20 Fairness Opinion. Company has received a written opinion from Merrill
Lynch & Co., dated as of the date hereof, to the effect that as of the date
hereof, the Exchange Ratio is fair to Company's stockholders from a financial
point of view and has delivered to Parent a copy of such opinion.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to Company,
subject to such exceptions as are disclosed in writing in the disclosure letter
supplied by Parent to Company dated as of the date hereof (the "Parent
Schedule"), which disclosure shall provide an exception to or otherwise qualify
the representations or warranties of Parent and Merger Sub contained in the
section of this Agreement corresponding by number to such disclosure and the
other representations and warranties herein to the extent such disclosure shall
reasonably appear to be applicable to such other representations or warranties,
as follows:
3.1 Organization of Parent.
(a) Parent and each of its subsidiaries is a corporation or limited
liability company duly organized, validly existing and in good corporate or
limited liability company standing under the laws of the jurisdiction of
its incorporation; has the corporate or limited liability company power and
authority to own, lease and operate its assets and property and to carry on
its business as now being conducted and as proposed to be conducted; and is
duly qualified to do business and in good corporate or limited liability
company standing as a foreign corporation or limited liability in each
jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on Parent.
(b) Parent has delivered to Company a true and complete list of all of
Parent's subsidiaries, indicating the jurisdiction of incorporation of each
subsidiary and Parent's equity interest therein.
(c) Parent has delivered or made available to Company a true and correct
copy of the Certificate of Incorporation and Bylaws of Parent and similar
governing instruments of each of its material subsidiaries, including,
without limitation, Merger Sub, each as amended to date, and each such
instrument is in full force and effect. Neither Parent nor any of its
subsidiaries is in violation of any of the provisions of its Certificate of
Incorporation or Bylaws or equivalent governing instruments.
3.2 Parent Capital Structure. The authorized capital stock of Parent consists
of 900,000,000 shares of Common Stock, par value $0.0001 per share, of which
there were 230,115,,485 shares issued and outstanding as of June 30, 2000 and
15,000,000 shares of Preferred Stock, par value $0.0001 per share, of which one
share was issued and outstanding. The authorized capital stock of Merger Sub
consists of 100 shares of Common Stock, par value $0.0001 per share (the
"Merger Sub Common Stock"), all of which, as of the date hereof, are issued and
outstanding and are held by Parent. All outstanding shares of Parent Common
Stock, Parent Preferred Stock and Merger Sub Common Stock are duly authorized,
validly issued, fully paid and non-assessable and are not subject to preemptive
rights created by statute, the Certificate of Incorporation or Bylaws of Parent
or Merger Sub, respectively, or any agreement or document to which Parent or
Merger Sub is a party or by which it is bound. As of June 30, 2000, Parent had
reserved an aggregate of 45,967,866 shares of Parent Common Stock, net of
exercises, for issuance to employees, consultants and non-employee directors
pursuant to Parent's 1996 Flexible Stock Incentive Plan (the "Parent Stock
Option Plan"), under which options are outstanding for 25,489,533 shares and
under which 11,356,009 shares are available for grant as of June 30, 2000. As
of June 30, 2000, 7,904,794 shares were reserved for issuance pursuant to
options granted outside the Parent Stock Option Plan. As of June 30, 2000,
there were 18,965,024 warrants outstanding to purchase shares of Parent Common
Stock. All shares of Parent Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, would be duly authorized, validly issued, fully paid
and nonassessable.
3.3 Obligations With Respect to Capital Stock. Except as set forth in Section
3.2, there are no equity securities, partnership interests or similar ownership
interests of any class of Parent, or any securities exchangeable or convertible
into or exercisable for such equity securities, partnership interests or
similar
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ownership interests issued, reserved for issuance or outstanding. Except for
securities Parent owns, directly or indirectly through one or more
subsidiaries, there are no equity securities, partnership interests or similar
ownership interests of any class of any subsidiary of Parent, or any security
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests issued, reserved for
issuance or outstanding. Except as set forth in Section 3.2, there are no
options, warrants, equity securities, partnership interests or similar
ownership interests, calls, rights (including preemptive rights), commitments
or agreements of any character to which Parent or any of its subsidiaries is a
party or by which it is bound obligating Parent or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or
repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or
acquisition, of any shares of capital stock of Parent or any of its
subsidiaries or obligating Parent or any of its subsidiaries to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, partnership interest or similar ownership interest, call, right,
commitment or agreement. There are no registration rights and, to the knowledge
of Parent there are no voting trusts, proxies or other agreements or
understandings with respect to any equity security of any class of Parent or
with respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries.
3.4 Authority.
(a) Parent has all requisite corporate power and authority to enter into
this Agreement and the Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby, and Merger Sub has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby, and the execution and delivery of the Stock Option Agreement and
the consummation of the transactions contemplated thereby, have been duly
authorized by all necessary corporate action on the part of Parent, subject
only to the approval of the Share Issuance by Parent's stockholders and the
filing and recordation of the Certificate of Merger pursuant to Delaware
Law. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Merger Sub. A vote of the holders
of at least a majority of the outstanding shares of the Parent Common Stock
voting with respect to the Share Issuance is required for Parent's
stockholders to approve the Share Issuance. This Agreement and the Stock
Option Agreement have been duly executed and delivered by Parent and,
assuming the due authorization, execution and delivery by Company,
constitute the valid and binding obligations of Parent, enforceable in
accordance with their respective terms, except as enforceability may be
limited by bankruptcy and other similar laws and general principles of
equity. This Agreement has been duly executed and delivered by Merger Sub
and, assuming the due authorization, execution and delivery by Company,
constitutes the valid and binding obligation of Merger Sub, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement and the Stock Option Agreement by
Parent and of this Agreement by Merger Sub do not, and the performance of
this Agreement and the Stock Option Agreement by Parent and of this
Agreement by Merger Sub will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws of Parent or the equivalent
organizational documents of any of its subsidiaries, (ii) subject to
obtaining the approval and adoption of the Share Issuance by Parent's
stockholders as contemplated in Section 5.2 and compliance with the
requirements set forth in Section 3.4(b) below, conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to Parent
or any of its subsidiaries or by which its or any of their respective
properties is bound or affected, or (iii) result in any breach of, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair Parent's rights or alter the
rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of Parent or any of its subsidiaries pursuant to, any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is
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a party or by which Parent or any of its subsidiaries or its or any of
their respective properties are bound or affected, except to the extent
such conflict, violation, breach, default, impairment or other effect could
not, in the case of clause (ii) or (iii), individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Parent.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to Parent in connection with the execution and delivery of this
Agreement and the Stock Option Agreement, or to Merger Sub in connection
with the execution and delivery of this Agreement, or the consummation of
the transactions contemplated hereby or thereby, except for (i) the filing
of a S-4 with the SEC in accordance with the Securities Act, (ii) the
filing of the Certificate of Merger with the Secretary of State of
Delaware, (iii) the filing of the Joint Proxy Statement/Prospectus with the
SEC in accordance with the Exchange Act, (iv) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and the HSR Act
and the laws of any foreign country and (v) such other consents,
authorizations, filings, approvals and registrations which, if not obtained
or made, would not be material to Parent or Company or have a material
adverse effect on the ability of the parties to consummate the Merger.
3.5 SEC Filings; Parent Financial Statements.
(a) Parent has filed all forms, reports and documents required to be
filed with the SEC since the initial filing date of the registration
statement for Parent's initial public offering and has made available to
Company such forms, reports and documents in the form filed with the SEC.
All such required forms, reports and documents (including those that Parent
may file subsequent to the date hereof) are referred to herein as the
"Parent SEC Reports." As of their respective dates, the Parent SEC Reports
(i) were prepared in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Parent SEC Reports, and (ii) did not
at the time they were filed (or if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of Parent's subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports (the
"Parent Financials"), including any Parent SEC Reports filed after the date
hereof until the Closing, (i) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto,
(ii) was prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may
be permitted by the SEC on Form 10-Q under the Exchange Act) and (iii)
fairly presented the consolidated financial position of Parent and its
subsidiaries at the respective dates thereof and the consolidated results
of its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not, or are not expected to be,
material in amount. The balance sheet of Parent as of June 30, 2000 is
hereinafter referred to as the "Parent Balance Sheet." Except as disclosed
in the Parent Financials, neither Parent nor any of its subsidiaries has
any liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which
are, individually or in the aggregate, material to the business, results of
operations or financial condition of Parent and its subsidiaries taken as a
whole, except liabilities (i) provided for in the Parent Balance Sheet, or
(ii) incurred since the date of the Parent Balance Sheet in the ordinary
course of business consistent with past practices which would not
reasonably be expected to have a Material Adverse Effect on Parent.
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(c) Parent has heretofore furnished to Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with
the SEC but which will be required to be filed, to agreements, documents or
other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
3.6 Absence of Certain Changes or Events. Since the date of the Parent
Balance Sheet, there has not been: (i) any Material Adverse Effect on Parent,
(ii) any material change by Parent in its accounting methods, principles or
practices, except as required by concurrent changes in GAAP, or (iii) any
revaluation by Parent of any of its assets, including, without limitation,
writing down the value of capitalized inventory or writing off notes or
accounts receivable other than in the ordinary course of business.
3.7 Taxes.
(a) Parent and each of its subsidiaries have timely filed all Returns
relating to Taxes required to be filed by Parent and each of its
subsidiaries with any Tax authority, except such Returns which are not
material to Parent. Parent and each of its subsidiaries have paid all Taxes
shown to be due on such Returns.
(b) Parent and each of its subsidiaries as of the Effective Time will
have withheld with respect to its employees all federal and state income
taxes, Taxes pursuant to the Federal Insurance Contribution Act and other
Taxes required to be withheld, except such Taxes which are not material to
Parent.
(c) Neither Parent nor any of its subsidiaries has been delinquent in the
payment of any material Tax nor is there any material Tax deficiency
outstanding, assessed, or, to Parent's knowledge, proposed against Parent
or any of its subsidiaries, nor has Parent or any of its subsidiaries
executed any unexpired waiver of any statute of limitations on or extending
the period for the assessment or collection of any Tax.
(d) No audit or other examination of any Return of Parent or any of its
subsidiaries by any Tax authority is presently in progress, nor has Parent
or any of its subsidiaries been notified of any request for such an audit
or other examination.
(e) No adjustment relating to any Returns filed by Parent or any of its
subsidiaries has been proposed in writing formally or to Parent's knowledge
informally by any Tax authority to Parent or any of its subsidiaries or any
representative thereof.
(f) Neither Parent nor any of its subsidiaries has any liability for any
material unpaid Taxes which has not been accrued for or reserved on Parent
Balance Sheet in accordance with GAAP, whether asserted or unasserted,
contingent or otherwise, which is material to Parent, other than any
liability for unpaid Taxes that may have accrued since June 30, 2000 in
connection with the operation of the business of Parent and its
subsidiaries in the ordinary course.
3.8 Parent Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Parent Intellectual Property" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, Parent or any of its subsidiaries.
"Parent Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, Parent or any of
its subsidiaries.
(a) No Parent Intellectual Property or product or service of Parent
or any of its subsidiaries is subject to any proceeding or outstanding
decree, order, judgment, contract, license, agreement, or stipulation
restricting in any manner the use, transfer, or licensing thereof by
Parent or any of its subsidiaries, or which may affect the validity,
use or enforceability of such Parent Intellectual Property.
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(b) Parent or one of its subsidiaries owns and has good and exclusive
title to, or has license to (sufficient for the conduct of its business
as currently conducted and as proposed to be conducted), each material
item of Parent Intellectual Property or other Intellectual Property
used by Parent or any of its subsidiaries free and clear of any lien or
encumbrance (excluding licenses and related restrictions); and Parent
or one of its subsidiaries is the exclusive owner of all trademarks and
trade names used in connection with the operation or conduct of the
business of Parent and its subsidiaries, including the sale of any
products or the provision of any services by Parent and its
subsidiaries.
(c) Parent or one of its subsidiaries owns exclusively, and has good
title to, all copyrighted works that are Parent products or which
Parent or any of its subsidiaries otherwise expressly purports to own.
(d) To the extent that any material Intellectual Property has been
developed or created by a third party for Parent or any of its
subsidiaries, Parent or one of its subsidiaries has a written agreement
with such third party with respect thereto and Parent or one of its
subsidiaries thereby either (i) has obtained ownership of, and is the
exclusive owner of, or (ii) has obtained a license (sufficient for the
conduct of its business as currently conducted and as proposed to be
conducted) to all such third party's Intellectual Property in such
work, material or invention by operation of law or by valid assignment.
(e) Neither Parent nor any of its subsidiaries has transferred
ownership of, or granted any exclusive license with respect to, any
Intellectual Property that is or was material Parent Intellectual
Property, to any third party.
(f) To the knowledge of Parent, the operation of the business of
Parent and its subsidiaries as such business currently is conducted,
including Parent's and its subsidiaries' design, development,
manufacture, marketing and sale of the products or services of Parent
and its subsidiaries (including products currently under development)
has not, does not and will not infringe or misappropriate the
Intellectual Property of any third party or, to its knowledge,
constitute unfair competition or trade practices under the laws of any
jurisdiction.
(g) Neither Parent nor any of its subsidiaries has received notice
from any third party that the operation of the business of Parent or
any of its subsidiaries or any act, product or service of Parent or any
of its subsidiaries, infringes or misappropriates the Intellectual
Property of any third party or constitutes unfair competition or trade
practices under the laws of any jurisdiction.
(h) To the knowledge of Parent, no person has materially infringed or
is materially infringing or misappropriating any Parent Intellectual
Property.
(i) Parent and each of its subsidiaries has taken reasonable steps to
protect Parent's and its subsidiaries' rights in Parent's confidential
information and trade secrets that it wishes to protect or any trade
secrets or confidential information of third parties provided to Parent
or any of its subsidiaries, and, without limiting the foregoing, each
of Parent and its subsidiaries has and enforces a policy requiring each
employee and contractor to execute a proprietary
information/confidentiality agreement substantially in the form
provided to Company and all current and former employees and
contractors of Parent and any of its subsidiaries have executed such an
agreement, except where the failure to do so is not reasonably expected
to be material to Parent.
3.9 Compliance; Permits; Restrictions.
(a) Neither Parent nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or violation of (i) any law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which its or any of their respective properties is bound
or affected, or (ii) any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise
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or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its subsidiaries or
its or any of their respective properties is bound or affected. To the
knowledge of Parent, no investigation or review by any Governmental Entity
is pending or threatened against Parent or its subsidiaries, nor has any
Governmental Entity indicated in writing an intention to conduct the same.
There is no material agreement, judgment, injunction, order or decree
binding upon Parent or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of Parent or any of its subsidiaries, any
acquisition of material property by Parent or any of its subsidiaries or
the conduct of business by Parent as currently conducted.
(b) Parent and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to the operation of the business of Parent (collectively, the
"Parent Permits"). Parent and its subsidiaries are in compliance in all
material respects with the terms of the Parent Permits.
3.10 Litigation. As of the date of this Agreement, there is no action, suit,
proceeding, claim, arbitration or investigation pending, or as to which Parent
or any of its subsidiaries has received any notice of assertion nor, to
Parent's knowledge, is there a threatened action, suit, proceeding, claim,
arbitration or investigation against Parent or any of its subsidiaries which
reasonably would be likely to be material to Parent, or which in any manner
challenges or seeks to prevent, enjoin, alter or delay any of the transactions
contemplated by this Agreement.
3.11 Brokers' and Finders' Fees. Except for fees payable to Morgan Stanley &
Co. Incorporated pursuant to an engagement letter dated July 24, 2000, a copy
of which has been provided to Company, Parent has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.12 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments, agreements or other arrangements (whether
or not set forth in a written document and including, without limitation,
all "employee benefit plans" within the meaning of Section 3(3) of ERISA)
covering any active or former employee, director or consultant of Parent
("Parent Employee" which shall for this purpose mean an employee of Company
or any ERISA Affiliate (as defined below)), any subsidiary of Parent or any
trade or business (whether or not incorporated) which is an ERISA
Affiliate, or with respect to which Parent has or, to its knowledge, may in
the future have liability, are listed in Section 3.12(a) of the Parent
Schedule (the "Parent Plans"). Parent has provided or will make available
to Company: (i) correct and complete copies of all documents embodying each
Parent Plan including (without limitation) all amendments thereto, all
related trust documents, and all material written agreements and contracts
relating to each such Parent Plan; (ii) the most recent annual reports
(Form Series 5500 and all schedules and financial statements attached
thereto), if any, required under ERISA or the Code in connection with each
Parent Plan; (iii) the most recent summary plan description together with
the summary(ies) of material modifications thereto, if any, required under
ERISA with respect to each Parent Plan; (iv) all IRS determination,
opinion, notification and advisory letters; (v) all material correspondence
to or from any governmental agency relating to any Parent Plan; (vi) all
forms and related notices required by COBRA; (vii) the most recent
discrimination tests for each Parent Plan; (viii) the most recent actuarial
valuations, if any, prepared for each Parent Plan; (ix) if the Parent Plan
is funded, the most recent annual and periodic accounting of the Parent
Plan assets; and (x) all communication to Parent Employees relating to any
Parent Plan and any proposed Parent Plan, in each case relating to any
amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules, or other events
which would result in any material liability to Parent or any ERISA
Affiliate.
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(b) Each Parent Plan has been maintained and administered in all material
respects in compliance with its terms and with the requirements prescribed
by any and all statutes, orders, rules and regulations (foreign or
domestic), including but not limited to ERISA and the Code, which are
applicable to such Parent Plans. No suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of Parent
Plan activities) has been brought, or to the knowledge of Parent, is
threatened, against or with respect to any such Parent Plan. There are no
audits, inquiries or proceedings pending or, to the knowledge of Parent,
threatened by the IRS or the DOL with respect to any Parent Plans. All
contributions, reserves or premium payments required to be made or accrued
as of the date hereof to the Parent Plans have been timely made or accrued.
Any Parent Plan intended to be qualified under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code (i) has
either obtained a favorable determination, notification, advisory and/or
opinion letter, as applicable, as to its qualified status from the IRS or
still has a remaining period of time under applicable Treasury Regulations
or IRS pronouncements in which to apply for such letter and to make any
amendments necessary to obtain a favorable determination, and (ii)
incorporates or has been amended to incorporate all provisions required to
comply with the Tax Reform Act of 1986 and subsequent legislation. To the
knowledge of Parent, no condition or circumstance exists giving rise to a
material likelihood that any such Parent Plan would not be treated as
qualified by the IRS. Parent does not have any plan or commitment to
establish any new Parent Plan, to modify any Parent Plan (except to the
extent required by law or to conform any such Parent Plan to the
requirements of any applicable law, in each case as previously disclosed to
Company in writing, or as required by the terms of any Parent Plan or this
Agreement), or to enter into any new Parent Plan. Each Parent Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Company, Parent or any of
its ERISA Affiliates (other than ordinary administration expenses).
(c) Neither Parent, any of its subsidiaries, nor any of their ERISA
Affiliates has at any time ever maintained, established, sponsored,
participated in, or contributed to any plan subject to Title IV of ERISA or
Section 412 of the Code and at no time has Parent contributed to or been
requested to contribute to any "multiemployer plan," as such term is
defined in ERISA. Neither Parent, any of its subsidiaries, nor any officer
or director of Parent or any of its subsidiaries is subject to any material
liability or penalty under Section 4975 through 4980B of the Code or Title
I of ERISA. No "prohibited transaction," within the meaning of Section 4975
of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt
under Section 4975 of the Code and Section 408 of ERISA, has occurred with
respect to any Parent Plan which could subject Parent or its ERISA
Affiliates to material liability.
(d) None of the Parent Plans promises or provides retiree medical or
other retiree welfare benefits to any person except as required by
applicable law, and neither Parent nor any of its subsidiaries has
represented, promised or contracted (whether in oral or written form) to
provide such retiree benefits to any Parent Employee, former employee,
director, consultant or other person, except to the extent required by
statute.
(e) Except as would not have a Material Adverse Effect, Parent is in
compliance in all material respects with all applicable material foreign,
federal, state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and
hours.
(f) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any stockholder, director or Parent
Employee or any of its subsidiaries under any Parent Plan or otherwise,
(ii) materially increase any benefits otherwise payable under any Parent
Plan, or (iii) result in the acceleration of the time of payment or vesting
of any such benefits.
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3.13 Absence of Liens and Encumbrances. Parent and each of its subsidiaries
has good and valid title to, or, in the case of leased properties and assets,
valid leasehold interests in, all of its material tangible properties and
assets, real, personal and mixed, used in its business, free and clear of any
liens or encumbrances except as reflected in the Parent Financials and except
for liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which would not be material to Parent.
3.14 Environmental Matters.
(a) Hazardous Materials Activities. Except as would not reasonably be
likely to result in a material liability to Parent (in any individual case
or in the aggregate), (i) neither Parent nor any of its subsidiaries has
transported, stored, used, manufactured, disposed of, released or exposed
its employees or others to Hazardous Materials in violation of any law in
effect on or before the Closing Date, and (ii) neither Parent nor any of
its subsidiaries has engaged in Hazardous Materials Activities in violation
of any rule, regulation, treaty or statute promulgated by any Governmental
Entity in effect prior to or as of the date hereof to prohibit, regulate or
control Hazardous Materials or any Hazardous Material Activity.
(b) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or
to Parent's knowledge, threatened concerning any Parent Permit relating to
any environmental matter, Hazardous Material or any Hazardous Materials
Activity of Parent or any of its subsidiaries. Parent is not aware of any
fact or circumstance which could involve Parent or any of its subsidiaries
in any environmental litigation or impose upon Parent or any of its
subsidiaries any environmental liability.
3.15 Labor Matters. (i) There are no controversies pending or, to the
knowledge of each of Parent and its respective subsidiaries, threatened,
between Parent or any of its subsidiaries and any of their respective employees
which could reasonably be expected to result in a cash payment obligation by
Parent in excess of $250,000; (ii) as of the date of this Agreement, neither
Parent nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by
Parent or its subsidiaries nor does Parent or its subsidiaries know of any
activities or proceedings of any labor union to organize any such employees;
and (iii) as of the date of this Agreement, neither Parent nor any of its
subsidiaries has any knowledge of any strikes, slowdowns, work stoppages or
lockouts, or threats thereof, by or with respect to any employees of Parent or
any of its subsidiaries.
3.16 Agreements, Contracts and Commitments. Neither Company nor any of its
subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment with
any officer or director or higher level employee or member of Parent's
Board of Directors, other than those that are terminable by Parent or any
of its subsidiaries on no more than thirty (30) days' notice without
liability or financial obligation to Parent;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification or any guaranty other than any
agreement of indemnification entered into in the ordinary course of
business of Parent and substantially in the form provided to Company;
(d) any agreement, contract or commitment containing any covenant
limiting in any material respect the right of Parent or any of its
subsidiaries to engage in any line of business (other than with respect to
limitations on the distribution by Parent of certain content and service
providers), or to compete with any person or granting any exclusive
distribution rights of Parent services;
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(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by Parent or any of its subsidiaries after
the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Parent has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Parent's subsidiaries;
(f) (i) any dealer, distributor, joint marketing or development agreement
currently in force under which Parent or any of its subsidiaries have
continuing material obligations to jointly market any product, technology
or service and which may not be canceled without penalty upon notice of
ninety (90) days or less, or (ii) any material agreement pursuant to which
Parent or any of its subsidiaries have continuing material obligations to
jointly develop any intellectual property that will not be owned, in whole
or in part, by Parent or any of its subsidiaries and which may not be
canceled without penalty upon notice of ninety (90) days or less except for
agreements, contracts or commitments with an annual value of less than
$100,000;
(g) any agreement, contract or commitment currently in force to provide
source code to any third party for any product or technology that is
material to Parent and its subsidiaries taken as a whole;
(h) any agreement, contract or commitment currently in force to license
any third party to manufacture or reproduce any Parent product, service or
technology or any agreement, contract or commitment currently in force to
sell or distribute any Parent products, service or technology except those
agreements with customers, distributors or sales representatives made in
the normal course of business and substantially in the form previously
provided to Company;
(i) any mortgages, indentures, guarantees, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit;
(j) any settlement agreement entered into within five (5) years prior to
the date of this Agreement; or
(k) any other agreement, contract or commitment that involves annual
expenditures or receipts of $2,500,000 or more individually.
Neither Parent nor any of its subsidiaries, nor to Parent's knowledge any
other party to a Parent Contract (as defined below), is in breach, violation or
default under, and neither Parent nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
material terms or conditions of any of the agreements, contracts or commitments
to which Parent or any of its subsidiaries is a party or by which it is bound
that are required to be disclosed in the Parent Schedule (any such agreement,
contract or commitment, a "Parent Contract") in such a manner as would permit
any other party to cancel or terminate any such Parent Contract, or would
permit any other party to seek material damages or other remedies (for any or
all of such breaches, violations or defaults, in the aggregate).
3.17 Statements; Joint Proxy Statement/Prospectus. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by
reference in (i) the S-4 will at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading and (ii) the Joint Proxy
Statement/Prospectus shall not, on the date the Joint Proxy
Statement/Prospectus is first mailed to Parent's stockholders and Company's
stockholders, at the time of the Parent Stockholders' Meeting or the Company
Stockholders' Meeting and at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Parent
Stockholders' Meeting or the Company Stockholders' Meeting which has become
false or misleading. The Joint Proxy Statement/Prospectus will comply as to
form in all material respects with the provisions of the Exchange Act
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and the rules and regulations thereunder. If at any time prior to the Effective
Time, any event relating to Parent or any of its affiliates, officers or
directors should be discovered by Parent which should be set forth in an
amendment to the S-4 or a supplement to the Joint Proxy Statement/Prospectus,
Parent shall promptly inform Company. Notwithstanding the foregoing, Parent
makes no representation or warranty with respect to any information supplied by
Company which is contained in any of the foregoing documents.
3.18 Board Approval. The Board of Directors of Parent has, as of the date of
this Agreement, (i) determined that the Merger is fair to and in the best
interests of Parent and its stockholders, (ii) determined to recommend that the
stockholders of Parent approve the Share Issuance and (iii) duly approved the
Merger, this Agreement and the transactions contemplated hereby.
3.19 State Takeover Statutes. The Board of Directors of Parent has approved
the Company Voting Agreement and the transactions contemplated thereby, and
such approval is sufficient to render inapplicable to the Company Voting
Agreement and the transactions contemplated thereby the provisions of Section
203 of Delaware Law to the extent, if any, such section is applicable to the
Company Voting Agreement and the transactions contemplated thereby. No other
state takeover statute or similar statute or regulation applies to or purports
to apply to the Company Voting Agreement or the transactions contemplated
thereby.
3.20 Fairness Opinion. Parent has received a written opinion from Morgan
Stanley & Co. Incorporated, dated as of the date hereof, to the effect that as
of the date hereof, the Exchange Ratio is fair to Parent from a financial point
of view and has delivered to Company a copy of such opinion.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by Company. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing, carry on its business in the ordinary course in substantially the same
manner as heretofore conducted and in substantial compliance with all
applicable laws and regulations, pay its debts and taxes when due subject to
good faith disputes over such debts or taxes, pay or perform other material
obligations when due subject to good faith disputes over such obligations, and
use its commercially reasonable efforts consistent with past practices and
policies to (i) preserve intact its present business organization, (ii) keep
available the services of its present officers and employees, and (iii)
preserve its relationships with customers, suppliers, distributors, licensors,
licensees and others with which it has business dealings material to Company's
business.
In addition, without the prior written consent of Parent, during the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the Effective Time,
Company shall not do any of the following and shall not permit its subsidiaries
to do any of the following:
(a) Except as required by law or pursuant to the terms of a Plan in
effect as of the date hereof, waive any stock repurchase rights,
accelerate, amend or change the period of exercisability of options or
restricted stock, or reprice options granted under any employee,
consultant, director or other stock plans or authorize cash payments in
exchange for any options granted under any of such plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on
the date hereof and as previously disclosed in writing or made available to
Parent, or adopt any new severance plan, or amend or modify or alter in any
manner any severance plan, agreement or arrangement existing on the date
hereof;
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(c) Other than in the ordinary course of business consistent with past
practices, transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property, or enter
into grants to transfer or license to any person future patent rights;
provided that in no event shall Company license on an exclusive basis or
sell any Company Intellectual Property (other than in connection with the
abandonment of immaterial Company Intellectual Property after at least five
business days' written notice to Parent);
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries, except repurchases
of unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date hereof (or any such agreements
entered into in the ordinary course consistent with past practice by
Company with employees hired after the date hereof);
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing with respect to any shares of capital stock or
any securities convertible into shares of capital stock, or subscriptions,
rights, warrants or options to acquire any shares of capital stock or any
securities convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating it to issue any such
shares or convertible securities, or any equity-based awards (whether
payable in shares, cash or otherwise) other than (x) the issuance, delivery
and/or sale of (i) shares of Company Common Stock pursuant to the exercise
of stock options or warrants outstanding as of the date of this Agreement,
and (ii) shares of Company Common Stock issuable to participants in the
ESPP consistent with the terms thereof, (y) the granting of stock options
in the ordinary course of business in such amounts and in all other
respects and consistent with past practices and with similar vesting terms
except as set forth on Schedule 4.1(f), and (z) shares of Company Common
Stock in connection with acquisition completed prior to the date hereof and
with acquisitions permitted under Section 4.1(h).
(g) Cause, permit or submit to a vote of Company's stockholders any
amendments to the Company Charter Documents (or similar governing
instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to enter into any joint ventures, strategic partnerships or strategic
investments; provided, that Company shall not be prohibited from (i) making
strategic investments with a value of up to $20,000,000 per investment,
provided, that Company gives Parent prior notice of any such strategic
investment with a value of $5,000,000 per investment or more; (ii) making
or agreeing to make any acquisitions the value of which does not exceed
2.5% of Company's market capitalization per acquisition (which value and
market capitalization shall be determined upon the signing of agreements
relating to such transaction); or (iii) entering into business development
deals in the ordinary course of business;
(i) Sell, lease, license, encumber or otherwise dispose of any properties
or assets except in the ordinary course of business consistent with past
practice, except for the sale, lease, licensing, encumbering or disposition
(other than through licensing permitted by clause (c)) of property or
assets which are not material, individually or in the aggregate, to the
business of Company and its subsidiaries;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company, enter into any "keep well" or other agreement to maintain any
financial
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statement condition or enter into any arrangement having the economic
effect of any of the foregoing other than in connection with the financing
of working capital consistent with past practice;
(k) Except as may be required under Section 5.8(b) and (c), adopt or
amend any Company Plan or any employee stock purchase or employee stock
option plan; or enter into any employment contract or collective bargaining
agreement (other than offer letters and letter agreements entered into in
the ordinary course of business consistent with past practice with
employees who are terminable "at will"); pay any special bonus or special
remuneration to any director or employee; or increase the salaries, wage
rates, compensation or other fringe benefits (including rights to severance
or indemnification) of its directors, officers, employees or consultants
except, in each case, as may be required by law and except for (i) salary
increases in the ordinary course of business consistent with past practice
for non-officer employees, (ii) salary increases for officers in an amount
not exceeding 10% of such officer's salary on the date hereof and (iii) as
set forth on Schedule 4.1(k);
(l) (i) Pay, discharge, settle or satisfy any litigation (whether or not
commenced prior to the date of this Agreement) or any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities recognized or
disclosed in the Company Balance Sheet or incurred since the date of such
financial statements or disclosed in Section 2.8 or 2.9 of the Company
Schedule, or (ii) waive the benefits of, agree to modify in any manner,
terminate, release any person from or knowingly fail to enforce the
confidentiality or nondisclosure provisions of any agreement to which
Company or any of its subsidiaries is a party or of which Company or any of
its subsidiaries is a beneficiary, in the case of both (i) and (ii) of this
Section 4.2(l), which payment, discharge, satisfaction, waiver,
termination, modification, release or failure to enforce has a value to
Company in excess of $3,000,000; provided, that Company shall provide prior
notice to Parent of any such action with a value to Company in excess of
$1,000,000;
(m) Except in the ordinary course of business consistent with past
practice, materially modify, amend or terminate any Contract disclosed in
2.16 of the Company Schedule or waive, delay the exercise of, release or
assign any material rights or claims thereunder without providing prior
notice to Parent ;
(n) Except as required by GAAP, revalue any of its assets or make any
change in accounting methods, principles or practices;
(o) Engage in any action that would reasonably be expected to (i) cause
the Merger to fail to qualify as a "reorganization" under Section 368(a) of
the Code or (ii) interfere with Parent's ability to account for the Merger
as a pooling of interests, whether or not (in each case) otherwise
permitted by the provisions of this Article IV;
(p) Make any Tax election or accounting method change (except as required
by GAAP) inconsistent with past practice that, individually or in the
aggregate, is reasonably likely to adversely affect in any material respect
the Tax liability or Tax attributes of Company or any of its subsidiaries,
settle or compromise any material Tax liability or consent to any extension
or waiver of any limitation period with respect to Taxes; or
(q) Agree in writing or otherwise to take any of the actions described in
Section 4.1 (a) through (p) above.
4.2 Conduct of Business by Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Parent and each of its
subsidiaries shall, except to the extent that Company shall otherwise consent
in writing, carry on its business in the ordinary course in substantially the
same manner as heretofore conducted and in substantial compliance with all
applicable laws and regulations, pay its debts and taxes
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when due subject to good faith disputes over such debts or taxes, pay or
perform other material obligations when due subject to good faith disputes over
such obligations, and use its commercially reasonable efforts consistent with
past practices and policies to (i) preserve intact its present business
organization, (ii) keep available the services of its present officers and
employees, and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees and others with which it has business
dealings material to Parent's business.
In addition, without the prior written consent of Company, during the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to its terms or the Effective Time,
Parent shall not do any of the following and shall not permit its subsidiaries
to do any of the following:
(a) Except as required by law or pursuant to the terms of a Plan in
effect as of the date hereof, waive any stock repurchase rights,
accelerate, amend or change the period of exercisability of options or
restricted stock, or reprice options granted under any employee,
consultant, director or other stock plans or authorize cash payments in
exchange for any options granted under any of such plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on
the date hereof and as previously disclosed in writing or made available to
Company, or adopt any new severance plan, or amend or modify or alter in
any manner any severance plan, agreement or arrangement existing on the
date hereof;
(c) Other than in the ordinary course of business consistent with past
practices, transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Parent Intellectual Property, or enter
into grants to transfer or license to any person future patent rights;
provided that in no event shall Parent license on an exclusive basis or
sell any Parent Intellectual Property (other than in connection with the
abandonment of immaterial Parent Intellectual Property after at least five
business days' written notice to Company);
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Parent or its subsidiaries, except repurchases
of unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date hereof (or any such agreements
entered into in the ordinary course consistent with past practice by Parent
with employees hired after the date hereof);
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing with respect to any shares of capital stock or
any securities convertible into shares of capital stock, or subscriptions,
rights, warrants or options to acquire any shares of capital stock or any
securities convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating it to issue any such
shares or convertible securities, other than (x) the issuance, delivery
and/or sale of (i) shares of Parent Common Stock pursuant to the exercise
of stock options or warrants outstanding as of the date of this Agreement,
and (ii) shares of Parent Common Stock issuable to participants in the ESPP
consistent with the terms thereof, (y) the granting of stock options to
employees in the ordinary course of business in such amounts and in all
other respects and consistent with past practices and with similar vesting
terms, and (z) shares of Parent Common Stock in connection with
acquisitions completed prior to the date hereof and with acquisitions
permitted under Section 4.2(f);
(g) Cause, permit or submit to a vote of Parent's stockholders any
amendments to the Parent Charter Documents (or similar governing
instruments of any of its subsidiaries, except as set forth herein);
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(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to enter into any joint ventures, strategic partnerships or strategic
investments; provided, that Parent shall not be prohibited from (i) making
strategic investments with a value of up to $20,000,000, provided, that
Parent gives Company prior notice of any such strategic investment with a
value of $5,000,000 or more; (ii) making or agreeing to make any
acquisitions the value of which does not exceed 2.5% of Parent's market
capitalization per acquisition (which value and market capitalization shall
be determined upon the signing of agreements relating to such transaction);
or (iii) entering into business development deals in the ordinary course of
business;
(i) Sell, lease, license, encumber or otherwise dispose of any properties
or assets except in the ordinary course of business consistent with past
practice, except for the sale, lease, licensing, encumbering or disposition
(other than through licensing permitted by clause (a)) of property or
assets which are not material, individually or in the aggregate, to the
business of Parent and its subsidiaries;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Parent, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing other than in connection with the
financing of working capital consistent with past practice;
(k) Except as may be required under Section 5.8(b) and (c), adopt or
amend any Parent Plan or any employee stock purchase or employee stock
option plan; or enter into any employment contract or collective bargaining
agreement (other than offer letters and letter agreements entered into in
the ordinary course of business consistent with past practice with
employees who are terminable "at will"); pay any special bonus or special
remuneration to any director or employee; or increase the salaries, wage
rates, compensation or other fringe benefits (including rights to severance
or indemnification) of its directors, officers, employees or consultants
except, in each case, as may be required by law and except for (i) salary
increases in the ordinary course of business consistent with past practice
for non-officer employees, (ii) salary increases for officers in an amount
not exceeding 10% of such officer's salary on the date hereof and (iii) as
set forth on Schedule 4.1(k);
(l) (i) Pay, discharge, settle or satisfy any litigation (whether or not
commenced prior to the date of this Agreement) or any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities recognized or
disclosed in the most recent Parent Balance Sheet, or incurred since the
date of such financial statements or disclosed in Section 3.8 or 3.9 of the
Parent Schedule, or (ii) waive the benefits of, agree to modify in any
manner, terminate, release any person from or knowingly fail to enforce the
confidentiality or nondisclosure provisions of any agreement to which
Parent or any of its subsidiaries is a party or of which Parent or any of
its subsidiaries is a beneficiary, in the case of both (i) and (ii) of this
Section 4.2(l), which payment, discharge, satisfaction, waiver,
termination, modification, release or failure to enforce has a value to
Parent in excess of $3,000,000; provided, that Parent shall provide prior
notice to Company of any such action with a value to Parent in excess of
$1,000,000;
(m) Except in the ordinary course of business consistent with past
practice, materially modify, amend or terminate any Contract disclosed in
3.16 of the Parent Schedule or waive, delay the exercise of, release or
assign any material rights or claims thereunder without providing prior
notice to Company;
(n) Except as required by GAAP, revalue any of its assets or make any
change in accounting methods, principles or practices;
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(o) Engage in any action that would reasonably be expected to (i) cause
the Merger to fail to qualify as a "reorganization" under Section 368(a) of
the Code or (ii) interfere with Parent's ability to account for the Merger
as a pooling of interests, whether or not (in each case) otherwise
permitted by the provisions of this Article IV;
(p) Make any Tax election or accounting method change (except as required
by GAAP) inconsistent with past practice that, individually or in the
aggregate, is reasonably likely to adversely affect in any material respect
the Tax liability or Tax attributes of Parent or any of its subsidiaries,
settle or compromise any material Tax liability or consent to any extension
or waiver of any limitation period with respect to Taxes; or
(q) Agree in writing or otherwise to take any of the actions described in
Section 4.2 (a) through (p) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Joint Proxy Statement/Prospectus; S-4; Other Filings; Board
Recommendations.
(a) As promptly as practicable after the execution of this Agreement,
Parent and Company shall jointly prepare and Parent shall file with the SEC
the S-4, which shall include a document or documents that will constitute
(i) the prospectus forming part of the registration statement on the S-4
and (ii) the Joint Proxy Statement/Prospectus. Each of the parties hereto
shall use all commercially reasonable efforts to cause the S-4 to become
effective as promptly as practicable after the date hereof, and, prior to
the effective date of the S- 4, the parties hereto shall take all action
required under any applicable laws in connection with the issuance of
shares of Parent Common Stock pursuant to the Merger. Each of Parent and
Company shall provide promptly to the other such information concerning its
business and financial statements and affairs as, in the reasonable
judgment of the providing party or its counsel, may be required or
appropriate for inclusion in the Joint Proxy Statement/Prospectus and the
S-4, or in any amendments or supplements thereto, and cause its counsel and
auditors to cooperate with the other's counsel and auditors in the
preparation of the Joint Proxy Statement/Prospectus and the S-4. As
promptly as practicable after the effective date of the S-4, the Joint
Proxy Statement/Prospectus shall be mailed to the stockholders of Company
and of Parent. Each of the parties hereto shall cause the Joint Proxy
Statement/Prospectus to comply as to form and substance with respect to
such party in all material respects with the applicable requirements of (i)
the Exchange Act, (ii) the Securities Act, (iii) the rules and regulations
of the Nasdaq. As promptly as practicable after the date of this Agreement,
each of Company and Parent will prepare and file any other filings required
to be filed by it under the Exchange Act, the Securities Act or any other
Federal, foreign or Blue Sky or related laws relating to the Merger and the
transactions contemplated by this Agreement (the "Other Filings"). Prior to
the Effective Time, Parent shall use its commercially reasonable efforts to
obtain all regulatory approvals needed to ensure that the Parent Common
Stock to be issued in the Merger will be registered or qualified under the
securities law of every jurisdiction in the United States in which any
registered holder of Company Common Stock has an address of record on the
record date for determining the stockholders entitled to notice of and to
vote at the Company Stockholders' Meeting; provided that Parent shall not
be required to consent generally to the service of process in any
jurisdiction in which it is not so subject. Each of Company and Parent will
notify the other promptly upon the receipt of any comments from the SEC or
its staff or any other government officials of the receipt of notice that
the S-4 has become effective, of the issuance of any stop order, of the
suspension of the qualification of the Parent Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or of
any request by the SEC or its staff or any other government officials for
amendments or supplements to the S-4, the Joint Proxy Statement/Prospectus
or any Other Filing or for additional information and, except as may be
prohibited by any Governmental Entity or by
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any Legal Requirement, will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC or its staff or any other government officials, on the
other hand, with respect to the S-4, the Joint Proxy Statement/Prospectus,
the Merger or any Other Filing. Each of Company and Parent will cause all
documents that it is responsible for filing with the SEC or other
regulatory authorities under this Section 5.2(a) to comply in all material
respects with all applicable requirements of law and the rules and
regulations promulgated thereunder.
(b) The Joint Proxy Statement/Prospectus shall (i) solicit the approval
of this Agreement and the Merger and include the recommendation of the
Board of Directors of Company to Company's stockholders that they vote in
favor of approval of this Agreement and the Merger, subject to the right of
the Board of Directors of Company to withdraw its recommendation and
recommend a Superior Offer in compliance with Section 5.2(c) of this
Agreement, and (ii) include the opinion of Merrill Lynch & Co. referred to
in Section 2.19; provided, however, that the Board of Directors of Company
shall submit this Agreement to Company's stockholders whether or not at any
time subsequent to the date hereof such board determines that it can no
longer make such recommendation. The Joint Proxy Statement/Prospectus shall
(A) solicit the approval of the Share Issuance and include the
recommendation of the Board of Directors of Parent to Parent's stockholders
that they vote in favor of approval of the Share Issuance, and (B) include
the opinion of Morgan Stanley & Co. Incorporated referred to in Section
3.12. Nothing contained in this Agreement shall prevent the Board of
Directors of Company from complying with Rule 14d-9 and Rule 14e-2 under
the Exchange Act.
(c) Each of Parent and Company shall promptly inform the other of any
event which is required to be set forth in an amendment or supplement to
the Joint Proxy Statement/Prospectus, the S-4 or any Other Filing and each
of Parent and Company shall amend or supplement the Joint Proxy
Statement/Prospectus to the extent required by law to do so. No amendment
or supplement to the Joint Proxy Statement/Prospectus or the S-4 shall be
made without the approval of Parent and Company, which approval shall not
be unreasonably withheld or delayed. Each of the parties hereto shall
advise the other parties hereto, promptly after it receives notice thereof,
of the time when the S-4 has become effective or any supplement or
amendment has been filed, of the issuance of any stop order, of the
suspension of the qualification of the Parent Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or of
any request by the SEC for amendment of the Joint Proxy
Statement/Prospectus or the S-4 or comments thereon and responses thereto
or requests by the SEC for additional information.
5.2 Stockholder Meetings.
(a) Company shall call and hold the Company Stockholders' Meeting and
Parent shall call and hold the Parent Stockholders' Meeting as promptly as
practicable after the date hereof for the purpose of voting upon the
approval of this Agreement and the Merger or the Share Issuance, as the
case may be, pursuant to the Joint Proxy Statement/Prospectus, and Company
and Parent shall use commercially reasonable efforts to hold the Company
Stockholders' Meeting and the Parent Stockholders' Meeting on the same day
and as soon as practicable after the date on which the S-4 becomes
effective. Nothing herein shall prevent Company or Parent from adjourning
or postponing the Company Stockholders' Meeting or the Parent Stockholders'
Meeting, as the case may be, if there are insufficient shares of Company
Common Stock or Parent Common Stock, as the case may be, necessary to
conduct business at their respective meetings of the stockholders. Unless
Company's Board of Directors has withdrawn its recommendation of this
Agreement and the Merger in compliance with Section 5.2(c), Company shall
use commercially reasonable efforts to solicit from its stockholders
proxies in favor of the approval of this Agreement and the Merger pursuant
to the Joint Proxy Statement/Prospectus and shall take all other action
necessary or advisable to secure the vote or consent of stockholders
required by Delaware Law or applicable stock exchange requirements to
obtain such approval. Parent shall use commercially reasonable efforts to
solicit from its stockholders proxies in favor of the Share Issuance
pursuant to the Joint Proxy Statement/Prospectus and shall take all other
action necessary or advisable to secure the
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vote or consent of stockholders required by Delaware Law or applicable
stock exchange requirements to obtain such approval. Unless Company's Board
of Directors has withdrawn its recommendation of this Agreement and the
Merger in compliance with Section 5.2(c), each of the parties hereto shall
take all other action reasonably necessary or advisable to promptly and
expeditiously secure any vote or consent of stockholders required by
applicable Law and such party's Certificate of Incorporation and Bylaws to
effect the Merger. Company's obligation to call, give notice of, convene
and hold the Company Stockholders' Meeting in accordance with this Section
5.2(a) shall not be limited to or otherwise affected by the commencement,
disclosure, announcement or submission to Company of any Acquisition
Proposal or any change in the Board of Directors recommendation regarding
the Merger.
(b) Subject to Section 5.2(c): (i) the Board of Directors of Company
shall recommend that Company's stockholders vote in favor of and adopt and
approve this Agreement and the Merger at the Company Stockholders' Meeting;
(ii) the Joint Proxy Statement/Prospectus shall include a statement to the
effect that the Board of Directors of Company has recommended that
Company's stockholders vote in favor of and adopt and approve this
Agreement and the Merger at the Company Stockholders' Meeting; and (iii)
neither the Board of Directors of Company nor any committee thereof shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or
modify in a manner adverse to Parent, the recommendation of the Board of
Directors of Company that Company's stockholders vote in favor of and adopt
and approve this Agreement and the Merger.
(c) Nothing in this Agreement shall prevent the Board of Directors of
Company from withholding, withdrawing, amending or modifying its
recommendation in favor of adopting and approving this Agreement and the
Merger or from not including its recommendation in favor of adopting and
approving this Agreement and the Merger in the Joint Proxy
Statement/Prospectus if (i) a Superior Offer (as defined below) is made to
Company and not withdrawn, (ii) neither Company nor any of its
representatives shall have violated any of the restrictions set forth in
Section 5.4 and Company is not then in breach of this Agreement, and (iii)
the Board of Directors of Company concludes in good faith, after
consultation with and receiving advice from its outside counsel, that, in
light of such Superior Offer, the withholding, withdrawal, amendment or
modification of such recommendation is necessary in order for the Board of
Directors of Company to comply with its fiduciary obligations to Company's
stockholders under applicable law; provided, however, that prior to any
commencement thereof Company shall have given Parent at least forty eight
(48) hours notice thereof and the opportunity to meet with Company and its
counsel. Nothing contained in this Section 5.2 shall limit Company's
obligation to hold and convene the Company Stockholders' Meeting
(regardless of whether the recommendation of the Board of Directors of
Company shall have been withdrawn, amended or modified). For purposes of
this Agreement, "Superior Offer" shall mean an unsolicited, bona fide
written offer made by a third party to consummate any of the following
transactions: (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Company pursuant to which the stockholders of Company immediately preceding
such transaction hold less than 51% of the equity interest in the surviving
or resulting entity of such transaction; (ii) a sale or other disposition
by Company of assets (excluding inventory and used equipment sold in the
ordinary course of business) representing in excess of 51% of the fair
market value of Company's business immediately prior to such sale, or (iii)
the acquisition by any person or group (including by way of a tender offer
or an exchange offer or issuance by Company), directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of shares
representing in excess of 51% of the voting power of the then outstanding
shares of capital stock of Company, in each case on terms that the Board of
Directors of Company determines, in its reasonable judgment (based on
written advice of a financial advisor of nationally recognized reputation)
to be more favorable to Company stockholders from a financial point of view
than the terms of the Merger; provided, however, that any such offer shall
not be deemed to be a "Superior Offer" if any financing required to
consummate the transaction contemplated by such offer is not committed and
is not likely in the judgment of Company's Board of Directors to be
obtained by such third party on a timely basis.
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5.3 Confidentiality; Access to Information.
(a) Confidentiality Agreement. The parties acknowledge that Company and
Parent have previously executed a Confidentiality Agreement, dated as of
July 12, 2000 (the "Confidentiality Agreement"), which Confidentiality
Agreement will continue in full force and effect in accordance with its
terms.
(b) Access to Information. Company will afford Parent and its
accountants, counsel and other representatives reasonable access during
normal business hours, upon reasonable notice, to the properties, books,
records and personnel of Company during the period prior to the Effective
Time to obtain all information concerning the business, including the
status of product development efforts, properties, results of operations
and personnel of Company, as Parent may reasonably request; provided, that
Parent will conduct any such review in a manner that does not interfere
with the normal business operations of Company. No information or knowledge
obtained by Parent in any investigation pursuant to this Section 5.3 will
affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate
the Merger. Parent will afford Company and its accountants, counsel and
other representatives reasonable access during normal business hours, upon
reasonable notice, to the properties, books, records and personnel of
Parent during the period prior to the Effective Time to obtain all
information concerning the business, including the status of product
development efforts, properties, results of operations and personnel of
Parent, as Company may reasonably request; provided, that Company will
conduct any such review in a manner that does not interfere with the normal
business operations of Parent.
5.4 No Solicitation.
(a) From and after the date of this Agreement until the Effective Time or
termination of this Agreement pursuant to Article VII, Company and its
subsidiaries will not, nor will they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them
to, directly or indirectly (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal (as defined
below), (ii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to, or take
any other action to facilitate any inquiries or the making of any proposal
that constitutes or may reasonably be expected to lead to, any Acquisition
Proposal, (iii) engage in discussions with any person with respect to any
Acquisition Proposal, (iv) subject to Section 5.2(c), approve, endorse or
recommend any Acquisition Proposal or (v) enter into any contract relating
to any Acquisition Transaction (as defined below); provided, however, this
Section 5.4(a) shall not prohibit Company or its Board of Directors from
(A) furnishing information regarding Company and its subsidiaries to,
entering into a confidentiality agreement with or entering into discussions
with, any person or group in response to a Superior Offer submitted by such
person or group (and not withdrawn), (B) taking the actions described in
Section 5.2(c) as permitted thereby, (C) recommending a Superior Offer to
Company's stockholders or (D) terminating this Agreement pursuant to
Section 7.1(b) in order to immediately thereafter enter into a definitive
agreement with respect to such Superior Offer, if, in the case of either
(A), (B), (C) or (D), (1) neither Company nor any representative of Company
and its subsidiaries shall have violated any of the restrictions set forth
in this Section 5.4, (2) the Board of Directors of Company concludes in
good faith, after consultation with its outside legal counsel, that such
action is necessary in order for the Board of Directors of Company to
comply with its fiduciary obligations to Company's stockholders under
applicable law, (3) (x) at least two business days prior to furnishing any
such nonpublic information to, or entering into discussions or negotiations
with, such person or group, Company gives Parent written notice of the
identity of such person or group and of Company's intention to furnish
nonpublic information to, or enter into discussions or negotiations with,
such person or group and (y) Company receives from such person or group an
executed confidentiality agreement containing customary limitations on the
use and disclosure of all written and oral information furnished to such
person or group by or on behalf of Company, and
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(4) contemporaneously with furnishing any such information to such person
or group, Company furnishes such information to Parent (to the extent such
information has not been previously furnished by Company to Parent).
Nothing in this Section 5.4(a) shall prevent Company or its Board of
Directors from complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Acquisition Proposal with respect to which no violation
of this Section 5.4 shall have occurred. Company and its subsidiaries will
immediately cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the preceding two sentences
by any officer or director of Company or any of its subsidiaries or any
investment banker, attorney or other advisor or representative of Company
or any of its subsidiaries shall be deemed to be a breach of this Section
5.4 by Company. In addition to the foregoing, Company shall (i) provide
Parent with at least twenty four (24) hours prior notice (or such lesser
prior notice as provided to the members of Company's Board of Directors) of
any meeting of Company's Board of Directors at which Company's Board of
Directors is reasonably expected to consider a Superior Offer.
For purposes of this Agreement, "Acquisition Proposal" shall mean any offer
or proposal (other than an offer or proposal by Parent) relating to any
Acquisition Transaction. For the purposes of this Agreement, "Acquisition
Transaction" shall mean any transaction or series of related transactions other
than the transactions contemplated by this Agreement involving: (A) any
acquisition or purchase from Company by any person or "group" (as defined under
Section 13(d) of the Exchange Act and the rules and regulations thereunder) of
more than a 15% interest in the total outstanding voting securities of Company
or any of its subsidiaries or any tender offer or exchange offer that if
consummated would result in any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations thereunder)
beneficially owning 15% or more of the total outstanding voting securities of
Company or any of its subsidiaries or any merger, consolidation, business
combination or similar transaction involving Company pursuant to which the
stockholders of Company immediately preceding such transaction hold less than
85% of the equity interests in the surviving or resulting entity of such
transaction; (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 15% of the assets of
Company; or (C) any liquidation or dissolution of Company.
(b) In addition to the obligations of Company set forth in paragraph (a)
of this Section 5.4, Company as promptly as practicable shall advise Parent
orally and in writing of any request received by Company for information
which Company reasonably believes would lead to an Acquisition Proposal or
of any Acquisition Proposal, or any inquiry received by Company with
respect to, or which Company reasonably believes would lead to any
Acquisition Proposal, the material terms and conditions of such request,
Acquisition Proposal or inquiry, and the identity of the person or group
making any such request, Acquisition Proposal or inquiry. Company will keep
Parent informed in all material respects of the status and details
(including material amendments or proposed amendments) of any such request,
Acquisition Proposal or inquiry.
5.5 Public Disclosure. Parent and Company will consult with each other, and
to the extent practicable, agree, before issuing any press release or otherwise
making any public statement with respect to the Merger, this Agreement or an
Acquisition Proposal and will not issue any such press release or make any such
public statement prior to such consultation, except as may be required by law
or any listing agreement with a national securities exchange or Nasdaq, in
which case reasonable efforts to consult with the other party will be made
prior to such release or public statement. The parties have agreed to the text
of the joint press release announcing the signing of this Agreement.
5.6 Commercially Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use reasonable commercially
reasonable efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things
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necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including to accomplish the following: (i)
causing the conditions precedent set forth in Article VI to be satisfied;
(ii) obtaining all necessary actions or nonactions, waivers, consents,
approvals, orders and authorizations from Governmental Entities; (iii)
making all necessary registrations, declarations and filings (including
registrations, declarations and filings with Governmental Entities, if
any); (iv) avoiding any suit, claim, action, investigation or proceeding by
any Governmental Entity challenging the Merger or any other transaction
contemplated by this Agreement; (v) obtaining all consents, approvals or
waivers from third parties required as a result of the transactions
contemplated in this Agreement; (vi) defending any suits, claims, actions,
investigations or proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions
contemplated hereby, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated
or reversed; and (vii) executing or delivering any additional instruments
reasonably necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. In connection with and
without limiting the foregoing, subject to the other terms and conditions
hereof, Company and its Board of Directors shall, if any state takeover
statute or similar statute or regulation is or becomes applicable to the
Merger, this Agreement or any of the transactions contemplated by this
Agreement, use commercially reasonable efforts and take all acts necessary
to ensure that the Merger and the other transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on the Merger, this Agreement and the transactions
contemplated hereby. Notwithstanding anything herein to the contrary,
nothing in this Agreement shall be deemed to require Parent or Company or
any subsidiary or affiliate thereof to agree to any divestiture by itself
or any of its affiliates of shares of capital stock or of any business,
assets or property, or the imposition of any material limitation on the
ability of any of them to conduct their business or to own or exercise
control of such assets, properties and stock.
(b) Company shall give prompt notice to Parent upon becoming aware that
any representation or warranty made by it contained in this Agreement has
become untrue or inaccurate, or of any failure of Company to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement, in each case, where
the conditions set forth in Section 6.3(a) or Section 6.3(b) would not be
satisfied as a result thereof; provided, however, that no such notification
shall affect the representations, warranties, covenants or agreements of
the parties or the conditions to the obligations of the parties under this
Agreement.
(c) Parent shall give prompt notice to Company upon becoming aware that
any representation or warranty made by it or Merger Sub contained in this
Agreement has become untrue or inaccurate, or of any failure of Parent or
Merger Sub to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, in each case, where the conditions set forth in Section 6.2(a)
or Section 6.2(b) would not be satisfied as a result thereof; provided,
however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
5.7 Third Party Consents. As soon as practicable following the date hereof,
Parent and Company will each use its commercially reasonable efforts to obtain
any consents, waivers and approvals under any of its or its subsidiaries'
respective agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
5.8 Stock Options; ESPP and Employee Benefits.
(a) Stock Options. At the Effective Time, each outstanding option to
purchase shares of Company Common Stock (each, a "Company Stock Option")
under the Company Option Plans, whether or not vested, shall be assumed by
Parent. Each Company Stock Option so assumed by Parent
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under this Agreement will continue to have, and be subject to, the same
terms and conditions of such Company Stock Options immediately prior to the
Effective Time (including, without limitation, any repurchase rights or
vesting provisions and provisions regarding the acceleration of vesting on
certain transactions, other than the transactions contemplated by this
Agreement), except that (i) each Company Stock Option will be exercisable
(or will become exercisable in accordance with its terms) for that number
of whole shares of Parent Common Stock equal to the product of the number
of shares of Company Common Stock that were issuable upon exercise of such
Company Stock Option immediately prior to the Effective Time multiplied by
the Exchange Ratio, rounded down to the nearest whole number of shares of
Parent Common Stock and (ii) the per share exercise price for the shares of
Parent Common Stock issuable upon exercise of such assumed Company Stock
Option will be equal to the quotient determined by dividing the exercise
price per share of Company Common Stock at which such Company Stock Option
was exercisable immediately prior to the Effective Time by the Exchange
Ratio, rounded up to the nearest whole cent. Parent shall comply with the
terms of all such Company Stock Options and use its best efforts to ensure,
to the extent required by and subject to the provisions of, the Company
Option Plans, and to the extent permitted under the Code, that any Company
Stock Options that qualified for tax treatment as incentive stock options
under Section 422 of the Code prior to the Effective Time continue to so
qualify after the Effective Time. Parent shall take all corporate actions
necessary to reserve for issuance a sufficient number of shares of Parent
Common Stock for delivery upon exercise of assumed Company Stock Options on
the terms set forth in this Section 5.8 (a).
(b) ESPP. As of the Effective Time, the ESPP shall be terminated. The
rights of participants in the ESPP with respect to any offering period then
underway under the ESPP shall be determined by treating the last business
day prior to the Effective Time as the last day of such offering period and
by making such other pro rata adjustments as may be necessary to reflect
the shortened offering period but otherwise treating such shortened
offering period as a fully effective and completed offering period for all
purposes under the ESPP. Prior to the Effective Time, Company shall take
all commercially reasonable actions (including but not limited to, if
appropriate, amending the ESPP) that are necessary to give effect to the
transaction contemplated by this Section 5.8(b). As of the Effective Time,
participants in the ESPP ("ESPP Participants") shall become participants in
Parent's Employee Stock Purchase Plan ("Parent ESPP"). An offering period
for the ESPP Participant's under the Parent ESPP shall begin as of the
Effective Time and continue through January 31, 2000. As of February 1,
2000, ESPP Participants will proceed with participation in Parent's ESPP
according to the provisions of the Parent ESPP. Prior to the Effective
Time, Parent shall take commercially reasonable efforts (including, but not
limited to, if required, amending the Parent ESPP) that are necessary to
give effect to the transaction contemplated by this Section 5.8(b).
(c) 401(k). Company shall terminate, effective as of the day immediately
preceding the Effective Time, any and all 401(k) plans sponsored or
maintained by Company unless Parent provides written notice to Company
prior to the Effective Time that any such 401(k) plan shall not be
terminated. Parent shall receive from Company evidence that Company's
plan(s) and / or program(s) have been terminated pursuant to resolutions of
Company's Board of Directors (the form and substance of such resolutions
shall be subject to review and approval of Parent), effective as of the day
immediately preceding the Effective Time. Company employees shall be
eligible to participate in a 401(k) plan sponsored by Parent as soon as
administratively practicable after the Effective Time.
(d) Benefits; Prior Service. From and after the Effective Time, Company
employees shall be provided with employee benefits that are the same as
those provided to employees of Parent who are similarly situated. Parent
shall cause employees of Company and its subsidiaries to be credited with
service with Company and each of its subsidiaries for purposes of
eligibility, vesting and accrual of vacation days, personal days and sick
leave under each employee benefit plan maintained by Parent or its
subsidiaries prior to the Effective Time. Parent shall have the absolute
discretion to (i) cash-out Company employees accrued and unused vacation,
personal and sick leave days or to (ii) carry over
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Company employees' accrued but unused vacation, personal and sick leave
days; provided, that, such service shall not be recognized to the extent
that such recognition would result in duplication of benefits.
5.9 Form S-8. Parent agrees to file a registration statement on Form S-8 for
the shares of Parent Common Stock issuable with respect to assumed Company
Stock Options as soon as is reasonably practicable, and in any event within
three (3) business days, after the Effective Time. Prior to Closing, Company
shall use commercially reasonable efforts to provide Parent with all
information required or reasonably requested by Parent to be included in the
Form S-8.
5.10 Indemnification.
(a) From and after the Effective Time, Parent will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of Company
(or any predecessor corporation) pursuant to (i) each indemnification
agreement between Company and its directors or officers in effect
immediately prior to the Effective Time (the "Indemnified Parties") and
(ii) any indemnification provision under the Company Charter Documents as
in effect on the date hereof. The Certificate of Incorporation and Bylaws
of the Surviving Corporation will contain provisions with respect to
exculpation and indemnification that are at least as favorable to the
Indemnified Parties as those contained in the Company Charter Documents as
in effect on the date hereof, which provisions will not be amended,
repealed or otherwise modified for a period of six (6) years from the
Effective Time in any manner that would adversely affect the rights
thereunder of any Indemnified Party or of individuals who, immediately
prior to the Effective Time, were employees or agents of Company, unless
such modification is required by law.
(b) For a period of six (6) years after the Effective Time, Surviving
Corporation shall, and Parent shall cause Surviving Corporation to maintain
in effect policies of directors' and officers' liability insurance with
coverage in amount and scope at least as favorable as Company's existing
policies with respect to claims arising from facts or events that occurred
prior to the Effective Time; provided, however, that during such period,
Surviving Corporation shall in no event be required to expend pursuant to
this Section 5.10(b) more than an amount per year equal to 150% of current
premiums paid by Company for such insurance, which current premium amount
is set forth in Section 5.10(b) of the Company Disclosure Schedule.
(c) In the event Company or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers a material amount
of its properties and assets to any person in a single transaction or a
series of transactions, then, and in each such case, Parent will make or
cause to be made proper provision so that the successors and assigns of
Company or the Surviving Corporation, as the case may be, assume the
indemnification obligations described herein for the benefit of the
Indemnified Parties.
(d) The provisions of this Section 5.10 shall survive the Effective Time
and are (i) intended to be for the benefit of, and will be enforceable by,
each of the Indemnified Parties and their heirs and representatives and
(ii) in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such Indemnified Party may have by
contract or otherwise.
5.11 Affiliate Agreements.
(a) Set forth in Section 5.11(a) of the Company Schedule is a list of
those persons who may be deemed to be, in Company's reasonable judgment,
affiliates of Company within the meaning of Rule 145 promulgated under the
Securities Act or Opinion 16 of the Accounting Principles Board applicable
to SEC rules and regulations (each, a "Company Affiliate"). Company will
provide Parent with such information and documents as Parent reasonably
requests for purposes of reviewing such list. Company will use its
commercially reasonable efforts to deliver or cause to be delivered to
Parent, on
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or as promptly as practicable following the date hereof, from each Company
Affiliate that has not delivered a Company Affiliate Agreement on or prior
to the date hereof, an executed Company Affiliate Agreement. Each Company
Affiliate Agreement will be in full force and effect as of the Effective
Time. Parent will be entitled to place appropriate legends on the
certificates evidencing any Parent Common Stock to be received by a Company
Affiliate pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the Parent Common
Stock, consistent with the terms of the Company Affiliate Agreement.
(b) Set forth in Section 5.11(b) of the Parent Schedule is a list of
those persons who may be deemed to be, in Parent's reasonable judgment,
affiliates of Parent within the meaning of Opinion 16 of the Accounting
Principles Board applicable to SEC rules and regulations (each, a "Parent
Affiliate"). Parent will provide Company with such information and
documents as Company reasonably requests for purposes of reviewing such
list. Parent will use its commercially reasonable efforts to deliver or
cause to be delivered to Company, on or as promptly as practicable
following the date hereof, from each Parent Affiliate that has not
delivered a Parent Affiliate Agreement on or prior to the date hereof, an
executed Parent Affiliate Agreement. Each Parent Affiliate Agreement will
be in full force and effect as of the Effective Time.
5.12 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably
practicable, Company and Parent each shall file with the United States Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") Notification and Report Forms relating to the
transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any other applicable jurisdiction, as agreed to
by the parties. Company and Parent each shall each use all reasonable efforts
to obtain early termination of any waiting period under HSR and Company and
Parent shall each promptly (a) supply the other with any information which may
be required in order to effectuate such filings and (b) supply any additional
information which reasonably may be required by the FTC, the DOJ or the
competition or merger control authorities of any other jurisdiction and which
the parties may reasonably deem appropriate; provided, however, that Parent
shall not be required to agree to any divestiture by Parent or Company or any
of Parent's subsidiaries or affiliates of shares of capital stock or of any
business, assets or property of Parent or its subsidiaries or affiliates or of
Company, its affiliates, or the imposition of any material limitation on the
ability of any of them to conduct their businesses or to own or exercise
control of such assets, properties and stock.
5.13 Action by Board of Directors. Prior to the Effective Time, the Board of
Directors of Parent, or an appropriate committee of non-employee directors
thereof, shall adopt a resolution consistent with the interpretative guidance
of the SEC so that (i) the assumption of Company Stock Options by Company
Insiders (as defined below) pursuant to this Agreement, and (ii) the receipt by
Company Insiders of Parent Common Stock in exchange for Company Common Stock
pursuant to the Merger, shall in each case be an exempt transaction for
purposes of Section 16 of the Exchange Act by any officer or director of
Company who may become a covered person of Parent for purposes of Section 16 of
the Exchange Act (a "Company Insider").
5.14 Parent of Board of Directors. Prior to the Effective Time, the Board of
Directors of Parent, in accordance with applicable law and the Parent Charter
Documents, shall take all necessary action (which action may include the
resignation of existing directors) to cause the Board of Directors of Parent,
as of the Effective Time, to consist of not more than 8 directors including the
following three (3) designees: (i) Russell C. Horowitz as a Class I director
and Vice-Chairman of the Board of Directors of Parent, (ii) William Savoy as a
Class II director and (iii) a third designee to be selected by Messrs. Horowitz
and Savoy and approved by Parent, which approval may be withheld in Parent's
sole discretion, as a Class I director. The Board of Directors of Parent shall
use commercially reasonable efforts to preserve (A) Mr. Horowitz's designation
for so long as he serves as an employee of Parent and (B) Mr. Savoy's
designation (or any replacement designated by Vulcan Ventures Incorporated) for
so long as Vulcan
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Ventures Incorporated continues to beneficially own not less than 80% of the
shares of Parent Common Stock beneficially owned by it as of the Effective
Time.
5.15 Nasdaq Listing. Parent agrees to authorize for listing on Nasdaq the
shares of Parent Common Stock issuable, and those required to be reserved for
issuance, in connection with the transaction contemplated hereby, upon final
notice of issuance.
5.16 Opinion of Accountants.
(a) Company shall use all commercially reasonable efforts to receive from
KPMG LLP, independent auditors for Company, a copy of a letter addressed to
Company dated as of the Closing Date in substance reasonably satisfactory
to Parent (which may contain customary qualifications and assumptions) to
the effect that KPMG LLP concurs with Company management's conclusion that
no conditions exist related to Company that would preclude Company from
being a party to a business combination for which the "pooling-of-interest"
method of accounting is used.
(b) Parent shall use all commercially reasonable efforts to receive from
Deloitte & Touche LLP, independent accountants for Parent, a copy of a
letter addressed to Parent dated as of the Closing Date in substance
reasonably satisfactory to Parent (which may contain customary
qualifications and assumptions) to the effect that Deloitte & Touche LLP
concurs with Parent management's conclusion that the Merger can properly be
accounted for as a "pooling-of-interests."
5.17 Tax-Free Reorganization. Parent and Merger Sub covenant and agree not
(i) to take any action (or to cause the Surviving Company or any Affiliate of
Parent or Merger Sub to take any action), and (ii) to fail to take any action
(or to cause the Surviving Company or any Affiliates of Parent or Merger Sub
not to fail to take any action), which if taken or not taken, as the case may
be, would reasonably be expected to prevent, the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
5.18 Non-Disclosure, Invention Release and Non-Competition Agreements.
(a) Company shall use its commercially reasonable efforts to cause
employees of Company and its subsidiaries who will become employees of
Parent from and after the Effective Time to enter into Parent's standard
form of Non-Disclosure, Invention Release and Non-Competition Agreement
prior to the Closing.
(b) Parent shall use its commercially reasonable efforts to cause
employees of Parent and its subsidiaries who have not already entered into
Parent's standard form of Non-Disclosure, Invention Release and Non-
Competition Agreement to enter into such agreement prior to the Closing.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions, any of which may be waived if waived in writing by both
Parent and Company:
(a) Stockholder Approval. This Agreement shall have been adopted and the
Merger shall have been duly approved by the requisite vote under applicable
law by the stockholders of Company, and the Share Issuance shall have been
adopted by the requisite vote under applicable law by the stockholders of
Parent.
(b) S-4 Effective; Joint Proxy Statement. The SEC shall have declared the
S-4 effective. No stop order suspending the effectiveness of the S-4 or any
part thereof shall have been issued and no
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proceeding for that purpose, and no similar proceeding in respect of the
Joint Proxy Statement/Prospectus, shall have been initiated or threatened
in writing by the SEC.
(c) No Order; HSR Act. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger. All waiting
periods, if any, under the HSR Act relating to the transactions
contemplated hereby will have expired or terminated early and all material
foreign antitrust approvals required to be obtained prior to the Merger in
connection with the transactions contemplated hereby shall have been
obtained.
(d) Tax Opinions. Each of Company and Parent shall have received a
written opinion from its respective tax counsel, in form and substance
reasonably satisfactory to Company or Parent, as the case may be, and based
on customary representations of Parent, Merger Sub and Company and subject
to customary assumptions and qualifications, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of
the Code and such opinion shall not have been withdrawn.
(e) Nasdaq Listing. The shares of Parent Common Stock to be issued in the
Merger shall have been authorized for listing on Nasdaq, subject to notice
of issuance.
6.2 Additional Conditions to Obligations of Company. The obligation of
Company to effect the Merger shall be subject to the satisfaction at or prior
to the Closing Date of each of the following conditions, any of which may be
waived, in writing, exclusively by Company:
(a) Representations and Warranties. Each representation and warranty of
Parent and Merger Sub contained in this Agreement (i) shall have been
accurate in all respects as of the date of this Agreement and (ii) shall be
true and correct in all respects on and as of the Closing Date with the
same force and effect as if made on the Closing Date except, with respect
to clauses (i) and (ii), (A) in each case, or in the aggregate, as does not
constitute a Material Adverse Effect on Parent; provided, however, such
Material Adverse Effect qualifier shall be inapplicable with respect to
representations and warranties contained in Sections 3.4, 3.18, 3.19 and
3.20 (which representations shall have been true and correct in all
material respects as of the date of this Agreement and shall have been
accurate in all material respects as of the Closing Date) and (B) for those
representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct
(subject to the qualification as set forth in the preceding clause (A)) as
of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) all
"Material Adverse Effect" qualifications and other qualifications based on
the word "material" or similar phrases contained in such representations
and warranties shall be disregarded and (ii) any update of or modification
to the Parent Schedule made or purported to have been made after the date
of this Agreement shall be disregarded). Company shall have received a
certificate with respect to the foregoing signed on behalf of Parent by an
authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have performed
or complied with, in all material respects, all agreements and covenants
required by this Agreement to be performed or complied with by them on or
prior to the Closing Date, and Company shall have received a certificate to
such effect signed on behalf of Parent by an authorized officer of Parent.
(c) Material Adverse Change. There shall not have occurred any Material
Adverse Effect with respect to Parent since the date hereof.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger shall be subject to
the satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. Each representation and warranty of
Company contained in this Agreement (i) shall have been true and correct in
all respects as of the date of this Agreement and
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(ii) shall be accurate in all respects on and as of the Closing Date with
the same force and effect as if made on and as of the Closing Date except,
with respect to clauses (i) and (ii), (A) in each case, or in the
aggregate, as does not constitute a Material Adverse Effect on Company;
provided, however, such Material Adverse Effect qualifier shall be
inapplicable with respect to representations and warranties contained in
Sections 2.4, 2.18, 2.19 and 2.20 (which representations shall have been
true and correct in all material respects as of the date of this Agreement
and shall be accurate in all material respects as of the Closing Date) and
(B) for those representations and warranties which address matters only as
of a particular date (which representations shall have been accurate
(subject to the qualification as set forth in the preceding clause (A)) as
of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) all
"Material Adverse Effect" qualifications and other qualifications based on
the word "material" or similar phrases contained in such representations
and warranties shall be disregarded and (ii) any update of or modification
to the Company Schedule made or purported to have been made after the date
of this Agreement shall be disregarded). Parent shall have received a
certificate with respect to the foregoing signed on behalf of Company by an
authorized officer of Company.
(b) Agreements and Covenants. Company shall have performed or complied
with, in all material respects, all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the
Closing Date, and Parent shall have received a certificate to such effect
signed on behalf of Company by an authorized officer of Company.
(c) Material Adverse Change. There shall not have occurred any Material
Adverse Effect with respect to Company since the date hereof.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approval of the
stockholders of Company and Parent:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and Company;
(b) by either Company or Parent if the Merger shall not have been
consummated by January 31, 2001 (such date, or such other date that may be
agreed by mutual written consent, being the "Outside Date") for any reason;
provided, however, that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose action or failure
to act has been a principal cause of or resulted in the failure of the
Merger to occur on or before such date if such action or failure to act
constitutes a breach of this Agreement;
(c) by either Company or Parent if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree, ruling or other action shall
have become final and nonappealable;
(d) by either Company or Parent if either: (i)(A) the Company
Stockholders' Meeting (including any adjournments thereof) shall have been
held and completed and the stockholders of Company shall have taken a final
vote on a proposal to adopt this Agreement and (B) the required approval of
the stockholders of Company contemplated by this Agreement shall not have
been obtained or (ii) (A) the Parent Stockholders' Meeting (including any
adjournments thereof) shall have been held and completed and the
stockholders of Parent shall have taken a final vote on a proposal to
approve the Share Issuance and (B) the required approval of the
stockholders of Parent contemplated by this Agreement shall not have been
obtained; provided, however, that the right to terminate this Agreement
under this Section 7.1(d) shall not be available to Company or Parent where
the failure to obtain Company or Parent stockholder approval shall have
been caused by the action or failure to act of
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Company or Parent, respectively, and such action or failure to act
constitutes a breach by Company or Parent, respectively, of this Agreement;
(e) by Company, upon a breach of any covenant or agreement on the part of
Parent set forth in this Agreement, or if any representation or warranty of
Parent shall have been untrue when made or shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) or
Section 6.2(b) would not be satisfied as of the time of such breach or as
of the time such representation or warranty shall have become untrue,
provided, that if such inaccuracy in Parent's representations and
warranties or breach by Parent is curable by Parent through exercise of its
commercially reasonable efforts, then Company may not terminate this
Agreement pursuant to this Section 7.1(e) for thirty (30) days after
delivery of written notice from Company to Parent of such breach ,
provided, that Parent continues to exercise commercially reasonable efforts
to cure such breach (it being understood that Company may not terminate
this Agreement pursuant to this Section 7.1(e) if such breach by Parent is
cured during such thirty-day period);
(f) by Parent, upon a breach of any covenant or agreement on the part of
Company set forth in this Agreement, or if any representation or warranty
of Company shall have been untrue when made or shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or
Section 6.3(b) would not be satisfied as of the time of such breach or as
of the time such representation or warranty shall have become untrue,
provided, that if such inaccuracy in Company's representations and
warranties or breach by Company is curable by Company through exercise of
its commercially reasonable efforts, then Parent may not terminate this
Agreement pursuant to this Section 7.1(f) for thirty (30) days after
delivery of written notice from Parent to Company of such breach, provided,
that Company continues to exercise commercially reasonable efforts to cure
such breach (it being understood that Parent may not terminate this
Agreement pursuant to this Section 7.1(f) if such breach by Company is
cured during such thirty-day period);
(g) by Parent if a Triggering Event (as defined below) shall have
occurred.; and
For the purposes of this Agreement, a "Triggering Event" shall be deemed to
have occurred if: (i) the Board of Directors of Company or any committee
thereof shall for any reason have withheld, withdrawn or refrained from making
or shall have modified, amended or changed in a manner adverse to Parent its
recommendation in favor of the adoption of this Agreement or the approval of
the Merger; (ii) Company shall have failed to include in the Joint Proxy
Statement/Prospectus the recommendation of the Board of Directors of Company in
favor of the adoption of this Agreement and the approval of the Merger; (iii)
the Board of Directors of Company fails to reaffirm its recommendation in favor
of the adoption of this Agreement within ten (10) business days after Parent
requests in writing that such recommendation be reaffirmed at any time
following the public announcement and during the pendency of an Acquisition
Proposal; (iv) the Board of Directors of Company or any committee thereof shall
have recommended to the stockholders of Company or approved any Acquisition
Proposal; (v) Company shall have entered into any agreement or contract
accepting any Acquisition Proposal; (vi) Company shall have breached any of the
provisions of Section 5.4 of this Agreement or (vii) a tender or exchange offer
relating to not less than 15% of the then outstanding shares of capital stock
of Company shall have been commenced by a person unaffiliated with Parent and
Company shall not have sent to its securityholders pursuant to Rule 14e-2
promulgated under the Securities Act, within ten (10) business days after such
tender or exchange offer is first published sent or given, a statement
disclosing that Company recommends rejection of such tender or exchange offer.
(h) by Company prior to the vote of the stockholders of Company on the
Agreement, if, after receiving a Superior Offer and in the absence of any
prior breach of the provisions of Section 5.4 of this Agreement, the Board
of Directors of Company determines in good faith, after consulting with
outside legal counsel, that such action is necessary to comply with the
fiduciary duties of the Board of Directors of Company under applicable law;
provided, however, that Company may not terminate this Agreement pursuant
to this subsection (h) until two (2) business days have elapsed following
delivery to
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Parent of written notice of such determination of Company (which written
notice will inform Parent of the material terms and conditions of the
Superior Offer); provided, further, that such termination under this
Section 7.1(h) shall not be effective until Company has made payment to
Parent of the amounts required to be paid pursuant to Section 7.3(b)(i).
7.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 7.1 will be effective immediately upon (or if the
termination is pursuant to Section 7.1(e) or 7.1(f) and the proviso therein is
applicable, thirty (30) days after) the delivery of written notice thereof by
the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in Section 7.1, this Agreement shall
be of no further force or effect, with no liability of either party to the
other, except (i) as set forth in this Section 7.2, Section 7.3 and Article 8
(General Provisions), each of which shall survive the termination of this
Agreement, and (ii) nothing herein shall relieve any party from liability for
any intentional or willful breach of this Agreement. No termination of this
Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations shall survive termination
of this Agreement in accordance with their terms.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such fees and
expenses whether or not the Merger is consummated; provided, however, that
Parent and Company shall share equally all fees and expenses, other than
attorneys' and accountants fees and expenses, incurred in connection with
the printing and filing (with the SEC) of the Joint Proxy
Statement/Prospectus (including any preliminary materials related thereto)
and the S-4 (including financial statements and exhibits) and any
amendments or supplements thereto and any fees required to be paid under
the HSR Act.
(b) Company Payments.
(i) Company shall pay to Parent in immediately available funds,
within one (1) business day after demand by Parent (or prior to, and a
condition to the effectiveness of, termination of this Agreement
pursuant to Section 7.1(h)), an amount equal to $120,000,000 (the
"Termination Fee") if this Agreement is terminated by Parent pursuant
to Section 7.1(g) or by Company pursuant to Section 7.1(h).
(ii) If (A) this Agreement is terminated by Parent or Company, as
applicable, pursuant to Sections 7.1(b) or (d)(i), (B) prior to such
termination a third party shall have announced an Acquisition Proposal
and (C) within twelve (12) months following the termination of this
Agreement a Company Acquisition (as defined below) is consummated or
Company enters into an agreement or binding letter of intent providing
for a Company Acquisition, then Company shall pay Parent in immediately
available funds at or prior to consummating such Company Acquisition an
amount equal to the Termination Fee.
(iii) Company acknowledges that the agreements contained in this
Section 7.3(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent would not
enter into this Agreement; accordingly, if Company fails to pay in a
timely manner the amounts due pursuant to this Section 7.3(b) and, in
order to obtain such payment, Parent makes a claim that results in a
judgment against Company for the amounts set forth in this Section
7.3(b), Company shall pay to Parent its reasonable costs and expenses
(including reasonable attorneys' fees and expenses) in connection with
such suit, together with interest on the amounts set forth in this
Section 7.3(b) at the prime rate of Citibank, N.A. in effect on the
date such payment was required to be made. Payment of the fees
described in this Section 7.3(b) shall not be in lieu of damages
incurred in the event of breach of this Agreement. For the purposes of
this Agreement, "Company Acquisition" shall mean any of the following
transactions (other than the transactions contemplated by this
Agreement): (i) a merger,
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consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Company pursuant to which
the stockholders of Company immediately preceding such transaction hold
less than 60% of the aggregate equity interests in the surviving or
resulting entity of such transaction, (ii) a sale or other disposition
by Company of assets representing in excess of 60% of the aggregate
fair market value of Company's business immediately prior to such sale
or (iii) the acquisition by any person or group (including by way of a
tender offer or an exchange offer or issuance by Company), directly or
indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of 50% of the voting power
of the then outstanding shares of capital stock of Company.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent and Company.
7.5 Extension; Waiver. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. Delay in exercising any right under
this Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations and
warranties of Company, Parent and Merger Sub contained in this Agreement or in
any certificate or instrument delivered pursuant to Article VI shall terminate
at the Effective Time, and only the covenants that by their terms survive the
Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given on the day of delivery if delivered
personally or sent via telecopy (receipt confirmed) or on the second business
day after being sent if delivered by commercial delivery service, to the
parties at the following addresses or telecopy numbers (or at such other
address or telecopy numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
InfoSpace, Inc.
601 108th Avenue NE
Suite 1200
Bellevue, WA 98004
Attention: General Counsel
Telecopy No.: (425) 201-6170
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
Attention: Barry Taylor, Esq.
Lawrence Steele, Esq.
Steve Camahort, Esq.
Telecopy No.: (650) 493-9300
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(b) if to Company, to:
Go2Net, Inc.
999 Third Avenue
Suite 4700
Seattle, WA 98014
Attention: Chief Executive Officer
Telecopy No.: (206) 447-1625
with a copy to:
Hutchins, Wheeler & Dittmar, A Professional Corporation
101 Federal Street
Boston, MA 02110
Attention: Francis J. Feeney, Esq.
Telecopy No.: (617) 951-1295
8.3 Interpretation.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise
indicated. When a reference is made in this Agreement to a Section, such
reference shall be to a Section of this Agreement. Unless otherwise
indicated the words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. When reference is made herein to "the
business of" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference
to the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "knowledge" means with
respect to a party hereto, with respect to any matter in question, that any
of the officers of such party has actual knowledge of such matter.
(c) For purposes of this Agreement, the term "person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization,
entity or Governmental Entity.
(d) For purposes of this Agreement, the term "Material Adverse Effect"
when used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or effect, individually or when aggregated with
other changes, events, violations, inaccuracies, circumstances or effects,
that is materially adverse to the business, assets (including intangible
assets), capitalization, financial condition or results of operations of
such entity and its subsidiaries taken as a whole; provided, however that
(i) no change, event, violation, inaccuracy, circumstance or effect
directly attributable to (A) changes in general economic conditions or
changes affecting the Internet industry generally or (B) (x) the loss of
current or prospective customers that such entity successfully bears the
burden of proving arose from such entity entering into this Agreement or
(y) any other adverse effect that such entity shall have demonstrated is
substantially attributable to the transactions contemplated by this
Agreement or the announcement of the transactions contemplated by this
Agreement shall constitute a Material Adverse Effect and (ii) in no event
shall a decrease in the trading price of such entity's common stock in and
of itself constitute a Material Adverse Effect.
(e) For purposes of this Agreement, an "agreement," "arrangement,"
"contract," "commitment" or "plan" shall mean a legally binding, written
agreement, arrangement, contract, commitment or plan, as the case may be.
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<PAGE>
8.4 Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Schedule and the
Parent Schedule (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood, however, that the Confidentiality
Agreement shall continue in full force and effect until the Closing and shall
survive any termination of this Agreement; and (b) except with respect to the
Indemnified Parties under Section 5.10, are not intended to confer upon any
other person any rights or remedies hereunder.
8.6 Severability. In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity. In any action at law or suit in equity to enforce this Agreement or the
rights of any of the parties hereunder, the prevailing party in such action or
suit shall be entitled to receive a reasonable sum for its attorneys' fees and
all other reasonable costs and expenses incurred in such action or suit.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 Waiver of Jury Trial. EACH OF PARENT, COMPANY AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR
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MERGER SUB IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT
HEREOF.
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
INFOSPACE, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
GIANTS ACQUISITION CORP.
By: _________________________________
Name: _______________________________
Title: ______________________________
GO2NET, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
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<PAGE>
EXHIBIT A-1
COMPANY VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of July
26, 2000, among INFOSPACE, INC., a Delaware corporation ("Parent"), and the
undersigned stockholder (the "Stockholder") of Go2Net, INC., a Delaware
corporation ("Company").
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered into an
Agreement and Plan of Reorganization of even date herewith (the "Reorganization
Agreement"), which provides for the merger (the "Merger") of Giants Acquisition
Corp., a wholly-owned subsidiary of Parent ("Merger Sub"), with and into the
Company. Pursuant to the Merger, all outstanding capital stock of the Company
shall be converted into common stock of Parent, as set forth in the
Reorganization Agreement;
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such
number of shares of the outstanding capital stock of the Company and shares
subject to outstanding options as is indicated on the signature page of this
Agreement; and
C. In consideration of the execution of the Reorganization Agreement by
Parent, Stockholder (in his or her capacity as such) agrees to vote the Shares
(as defined below) and other such shares of capital stock of the Company over
which Stockholder has voting power so as to facilitate consummation of the
Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Certain Definitions. Capitalized terms not defined herein shall have the
meanings ascribed to them in the Reorganization Agreement. For purposes of this
Agreement:
(a) "Expiration Date" shall mean the earlier to occur of (i) such date
and time as the Reorganization Agreement shall have been terminated
pursuant to Article VII thereof, or (ii) such date and time as the Merger
shall become effective in accordance with the terms and provisions of the
Reorganization Agreement.
(b) "Person" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental
authority.
(c) "Shares" shall mean: (i) all securities of the Company (including all
shares of Company Common Stock, Company Preferred Stock and all options,
warrants and other rights to acquire shares of Company Common Stock and
Company Preferred Stock) owned by Stockholder as of the date of this
Agreement; and (ii) all additional securities of the Company (including all
additional shares of Company Common Stock and Company Preferred Stock and
all additional options, warrants and other rights to acquire shares of
Company Common Stock and Company Preferred Stock) of which Stockholder
acquires ownership during the period from the date of this Agreement
through the Expiration Date.
(d) Transfer. A Person shall be deemed to have effected a "Transfer" of a
security if such person directly or indirectly: (i) sells, pledges,
encumbers, grants an option with respect to, transfers or disposes of such
security or any interest in such security; or (ii) enters into an agreement
or commitment providing for the sale of, pledge of, encumbrance of, grant
of an option with respect to, transfer of or disposition of such security
or any interest therein.
2. Transfer of Shares.
(a) Transferee of Shares to be Bound by this Agreement. Stockholder
agrees that, during the period from the date of this Agreement through the
Expiration Date, Stockholder shall not cause or
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permit any Transfer of any of the Shares to be effected unless each Person
to which any of such Shares, or any interest in any of such Shares, is or
may be transferred shall have: (a) executed a counterpart of this Agreement
and a proxy in the form attached hereto as Exhibit A (with such
modifications as Parent may reasonably request); and (b) agreed in writing
to hold such Shares (or interest in such Shares) subject to all of the
terms and provisions of this Agreement.
(b) Transfer of Voting Rights. Stockholder agrees that, during the period
from the date of this Agreement through the Expiration Date, Stockholder
shall not deposit (or permit the deposit of) any Shares in a voting trust
or grant any proxy or enter into any voting agreement or similar agreement
in contravention of the obligations of Stockholder under this Agreement
with respect to any of the Shares.
3. Agreement to Vote Shares. At every meeting of the stockholders of the
Company called, and at every adjournment thereof, and on every action or
approval by written consent of the stockholders of the Company, Stockholder (in
his or her capacity as such) shall cause the Shares to be voted in favor of
adoption of the Reorganization Agreement. Notwithstanding any provision of this
Agreement to the contrary, nothing in this Agreement shall limit or restrict
Stockholder from acting in Stockholder's capacity as a director or officer of
Company (it being understood that this Agreement shall apply to Stockholder
solely in Stockholder's capacity as a stockholder of Company) or voting in
Stockholder's sole discretion on any matter other than those matters referred
to in the preceding sentence.
4. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Parent a proxy in the form attached hereto as
Exhibit A (the "Proxy"), which shall be irrevocable to the fullest extent
permissible by law, with respect to the Shares.
5. Representations and Warranties of the Stockholder. Stockholder (i) is the
beneficial owner of the shares of Company Common Stock and Company Preferred
Stock and the options to purchase shares of Company Common Stock indicated on
the signature page of this Agreement, which are free and clear of any liens,
adverse claims, charges or other encumbrances (except any such encumbrances
arising under securities laws); (ii) does not beneficially own any securities
of the Company other than the shares of Company Common Stock, shares of Company
Preferred Stock and options to purchase shares of Company Common Stock
indicated on the signature page of this Agreement; and (iii) has full power and
authority to make, enter into and carry out the terms of this Agreement and the
Proxy.
6. Additional Documents. Stockholder (in his or her capacity as such) and
Parent hereby covenant and agree to execute and deliver any additional
documents necessary or desirable, in the reasonable opinion of Parent, to carry
out the intent of this Agreement.
7. Legending of Shares. If so requested by Parent, Stockholder agrees that
the Shares shall bear a legend stating that they are subject to this Agreement
and to an irrevocable proxy.
8. Termination. This Agreement and the Proxy delivered in connection herewith
shall terminate and shall have no further force or effect as of the Expiration
Date.
9. Miscellaneous.
(a) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect
and shall in no way be affected, impaired or invalidated.
(b) Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and
A-A-1-2
<PAGE>
permitted assigns, but, except as otherwise specifically provided herein,
neither this Agreement nor any of the rights, interests or obligations of
the parties hereto may be assigned by either of the parties without prior
written consent of the other.
(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of
a written agreement executed by the parties hereto.
(d) Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent shall be irreparably harmed and that there shall be
no adequate remedy at law for a violation of any of the covenants or
agreements of Stockholder set forth herein. Therefore, it is agreed that,
in addition to any other remedies that may be available to Parent upon any
such violation, Parent shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to Parent at law or in equity.
(e) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid,
to the parties at the following address (or at such other address for a
party as shall be specified by like notice):
If to Parent:
InfoSpace, Inc.
601 108th Avenue NE
Suite 1200
Bellevue, WA 98004
Attention: General Counsel
Telecopy No.: (425) 201-6170
with a copy to:
Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Barry Taylor, Esq.
Lawrence Steele, Esq.
Steve Camahort, Esq.
Telecopy No.: (650) 493-9300
If to Stockholder: To the address for notice set forth on the signature
page hereof.
(f) Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without reference to rules of conflicts of law.
(g) Entire Agreement. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties
with respect to such subject matter.
(h) Effect of Headings. The section headings are for convenience only and
shall not affect the construction or interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall
constitute one and the same agreement.
(j) No Obligation to Exercise Options. Notwithstanding any provision of
this Agreement to the contrary, nothing in this Agreement shall obligate
Stockholder to exercise any option, warrant or other right to acquire
shares of Company Common Stock.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
INFOSPACE, INC. STOCKHOLDER
By: __________________________________ By: __________________________________
Signature of Authorized Signatory Signature
Name: Arun Sarin Name: ________________________________
Title: Chief Executive Officer Title: _______________________________
--------------------------------------
--------------------------------------
Print Address
--------------------------------------
Telephone
--------------------------------------
Facsimile No.
Share beneficially owned:
___ shares of Parent Common Stock
___ shares of Parent Common Stock
issuable upon exercise of
outstanding options
[Signature Page to Company Voting Agreement]
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<PAGE>
IRREVOCABLE PROXY
The undersigned stockholder (the "Stockholder") of Go2Net, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent
permitted by law) appoints the directors on the Board of Directors of
InfoSpace, Inc., a Delaware corporation ("Parent"), and each of them, as the
sole and exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Shares") in accordance with the terms
of this Proxy until the Expiration Date (as defined below). Upon the
undersigned's execution of this Proxy, any and all prior proxies given by the
undersigned with respect to any Shares are hereby revoked and the undersigned
agrees not to grant any subsequent proxies with respect to the Shares until
after the Expiration Date.
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among Parent and the undersigned
stockholder (the "Voting Agreement"), and is granted in consideration of Parent
entering into that certain Agreement and Plan of Reorganization of even date
herewith (the "Reorganization Agreement"), among Parent, Giants Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger
Sub"), and the Company. The Reorganization Agreement provides for the merger of
Merger Sub with and into the Company in accordance with its terms (the
"Merger"). As used herein, the term "Expiration Date" shall mean the earlier to
occur of (i) such date and time as the Reorganization Agreement shall have been
validly terminated pursuant to Article VII thereof or (ii) such date and time
as the Merger shall become effective in accordance with the terms and
provisions of the Reorganization Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares, and to exercise all voting, consent and similar rights of the
undersigned with respect to the Shares (including, without limitation, the
power to execute and deliver written consents) at every annual, special or
adjourned meeting of stockholders of the Company and in every written consent
in lieu of such meeting in favor of adoption of the Reorganization Agreement.
The attorneys and proxies named above may not exercise this Proxy on any
other matter. The undersigned stockholder may vote the Shares on all other
matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically
upon the Expiration Date.
Dated: July 26, 2000
Signature of Stockholder:
--------------------------------------
Print Name of Stockholder:
--------------------------------------
[Signature Page to Irrevocable Proxy]
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<PAGE>
EXHIBIT A-2
PARENT VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of July
26, 2000, among GO2NET, INC., a Delaware corporation ("Company"), and the
undersigned stockholder (the "Stockholder") of InfoSpace, INC., a Delaware
corporation ("Parent").
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered into an
Agreement and Plan of Reorganization of even date herewith (the "Reorganization
Agreement"), which provides for the merger (the "Merger") of Giants Acquisition
Corp., a wholly-owned subsidiary of Parent ("Merger Sub"), with and into the
Company. Pursuant to the Merger, all outstanding capital stock of the Company
shall be converted into common stock of Parent, as set forth in the
Reorganization Agreement;
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such
number of shares of the outstanding capital stock of the Parent and shares
subject to outstanding options as is indicated on the signature page of this
Agreement; and
C. In consideration of the execution of the Reorganization Agreement by
Company, Stockholder (in his or her capacity as such) agrees to vote the Shares
(as defined below) and other such shares of capital stock of Parent over which
Stockholder has voting power so as to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Certain Definitions. Capitalized terms not defined herein shall have the
meanings ascribed to them in the Reorganization Agreement. For purposes of this
Agreement:
(a) "Expiration Date" shall mean the earlier to occur of (i) such date
and time as the Reorganization Agreement shall have been terminated
pursuant to Article VII thereof, or (ii) such date and time as the Merger
shall become effective in accordance with the terms and provisions of the
Reorganization Agreement.
(b) "Person" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental
authority.
(c) "Shares" shall mean: (i) all securities of Parent (including all
shares of Parent Common Stock and all options, warrants and other rights to
acquire shares of Parent Common Stock) owned by Stockholder as of the date
of this Agreement; and (ii) all additional securities of the Parent
(including all additional shares of Parent Common Stock and all additional
options, warrants and other rights to acquire shares of Parent Common
Stock) of which Stockholder acquires ownership during the period from the
date of this Agreement through the Expiration Date.
(d) Transfer. A Person shall be deemed to have effected a "Transfer" of a
security if such person directly or indirectly: (i) sells, pledges,
encumbers, grants an option with respect to, transfers or disposes of such
security or any interest in such security; or (ii) enters into an agreement
or commitment providing for the sale of, pledge of, encumbrance of, grant
of an option with respect to, transfer of or disposition of such security
or any interest therein.
2. Transfer of Shares.
(a) Transferee of Shares to be Bound by this Agreement. Stockholder
agrees that, during the period from the date of this Agreement through the
Expiration Date, Stockholder shall not cause or permit any Transfer of any
of the Shares to be effected unless each Person to which any of such
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<PAGE>
Shares, or any interest in any of such Shares, is or may be transferred
shall have: (a) executed a counterpart of this Agreement and a proxy in the
form attached hereto as Exhibit A (with such modifications as Company may
reasonably request); and (b) agreed in writing to hold such Shares (or
interest in such Shares) subject to all of the terms and provisions of this
Agreement.
(b) Transfer of Voting Rights. Stockholder agrees that, during the period
from the date of this Agreement through the Expiration Date, Stockholder
shall not deposit (or permit the deposit of) any Shares in a voting trust
or grant any proxy or enter into any voting agreement or similar agreement
in contravention of the obligations of Stockholder under this Agreement
with respect to any of the Shares.
3. Agreement to Vote Shares. At every meeting of the stockholders of Parent
called, and at every adjournment thereof, and on every action or approval by
written consent of the stockholders of Parent, Stockholder (in his or her
capacity as such) shall cause the Shares to be voted in favor of the Share
Issuance. Notwithstanding any provision of this Agreement to the contrary,
nothing in this Agreement shall limit or restrict Stockholder from acting in
Stockholder's capacity as a director or officer of Parent (it being understood
that this Agreement shall apply to Stockholder solely in Stockholder's capacity
as a stockholder of Parent) or voting in Stockholder's sole discretion on any
matter other than those matters referred to in the preceding sentence.
4. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Company a proxy in the form attached hereto as
Exhibit A (the "Proxy"), which shall be irrevocable to the fullest extent
permissible by law, with respect to the Shares.
5. Representations and Warranties of the Stockholder. Stockholder (i) is the
beneficial owner of the shares of Parent Common Stock and the options to
purchase shares of Parent Common Stock indicated on the signature page of this
Agreement, which are free and clear of any liens, adverse claims, charges or
other encumbrances (except any such encumbrances arising under securities
laws); (ii) does not beneficially own any securities of the Parent other than
the shares of Parent Common Stock and options to purchase shares of Parent
Common Stock indicated on the signature page of this Agreement; and (iii) has
full power and authority to make, enter into and carry out the terms of this
Agreement and the Proxy.
6. Additional Documents. Stockholder (in his or her capacity as such) and
Company hereby covenant and agree to execute and deliver any additional
documents necessary or desirable, in the reasonable opinion of Company, to
carry out the intent of this Agreement.
7. Legending of Shares. If so requested by Company, Stockholder agrees that
the Shares shall bear a legend stating that they are subject to this Agreement
and to an irrevocable proxy.
8. Termination. This Agreement and the Proxy delivered in connection herewith
shall terminate and shall have no further force or effect as of the Expiration
Date.
9. Miscellaneous.
(a) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect
and shall in no way be affected, impaired or invalidated.
(b) Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement
nor any of the rights, interests or obligations of the parties hereto may
be assigned by either of the parties without prior written consent of the
other.
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<PAGE>
(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of
a written agreement executed by the parties hereto.
(d) Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Company shall be irreparably harmed and that there shall
be no adequate remedy at law for a violation of any of the covenants or
agreements of Stockholder set forth herein. Therefore, it is agreed that,
in addition to any other remedies that may be available to Company upon any
such violation, Company shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to Company at law or in equity.
(e) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid,
to the parties at the following address (or at such other address for a
party as shall be specified by like notice):
If to Company:
Go2Net, Inc.
999 Third Avenue
Suite 4700
Seattle, WA 98104
Attention: Chief Executive Officer
Telecopy No.:
with a copy to:
Hutchins, Wheeler & Dittmar, A Professional Corporation
101 Federal Street
Boston, MA 02109
Attention: Francis J. Feeney, Esq.
Telecopy No.: (617) 951-1295
If to Stockholder: To the address for notice set forth on the signature
page hereof.
(f) Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without reference to rules of conflicts of law.
(g) Entire Agreement. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties
with respect to such subject matter.
(h) Effect of Headings. he section headings are for convenience only and
shall not affect the construction or interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall
constitute one and the same agreement.
(j) No Obligation to Exercise Options. Notwithstanding any provision of
this Agreement to the contrary, nothing in this Agreement shall obligate
Stockholder to exercise any option, warrant or other right to acquire
shares of Parent Common Stock.
[The remainder of this page has been intentionally left blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
GO2NET, INC. STOCKHOLDER
By: __________________________________ By: __________________________________
Signature of Authorized Signatory Signature
Name: Russell C. Horowitz Name: ________________________________
Title: Chairman and Chief Executive Title: _______________________________
Officer
--------------------------------------
--------------------------------------
Print Address
--------------------------------------
Telephone
--------------------------------------
Facsimile No.
Share beneficially owned:
___ shares of Parent Common Stock
___ shares of Parent Common Stock
issuable upon exercise of
outstanding options
[Signature Page to Parent Voting Agreement]
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<PAGE>
IRREVOCABLE PROXY
The undersigned stockholder (the "Stockholder") of InfoSpace, Inc., a
Delaware corporation ("Parent"), hereby irrevocably (to the fullest extent
permitted by law) appoints the directors on the Board of Directors of Go2Net,
Inc., a Delaware corporation ("Company"), and each of them, as the sole and
exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of Parent that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of Parent issued or issuable in respect thereof on or
after the date hereof (collectively, the "Shares") in accordance with the terms
of this Proxy until the Expiration Date (as defined below). Upon the
undersigned's execution of this Proxy, any and all prior proxies given by the
undersigned with respect to any Shares are hereby revoked and the undersigned
agrees not to grant any subsequent proxies with respect to the Shares until
after the Expiration Date.
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among Company and the undersigned
stockholder (the "Voting Agreement"), and is granted in consideration of
Company entering into that certain Agreement and Plan of Reorganization of even
date herewith (the "Reorganization Agreement"), among Parent, Giants
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Merger Sub"), and the Company. The Reorganization Agreement provides
for (i) the merger of Merger Sub with and into the Company in accordance with
its terms (the "Merger") and (ii) the issuance of shares of common stock of
Parent, par value $.0001 per share, pursuant to the Merger (the "Share
Issuance"). As used herein, the term "Expiration Date" shall mean the earlier
to occur of (i) such date and time as the Reorganization Agreement shall have
been validly terminated pursuant to Article VII thereof or (ii) such date and
time as the Merger shall become effective in accordance with the terms and
provisions of the Reorganization Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares, and to exercise all voting, consent and similar rights of the
undersigned with respect to the Shares (including, without limitation, the
power to execute and deliver written consents) at every annual, special or
adjourned meeting of stockholders of Parent and in every written consent in
lieu of such meeting in favor of the Share Issuance.
The attorneys and proxies named above may not exercise this Proxy on any
other matter. The undersigned stockholder may vote the Shares on all other
matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically
upon the Expiration Date.
Dated: July 26, 2000
Signature of Stockholder:
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Print Name of Stockholder:
--------------------------------------
[Signature Page to Irrevocable Proxy]
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<PAGE>
EXHIBIT B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into as of
July 26, 2000, among InfoSpace, Inc., a Delaware corporation ("Parent"), and
Go2Net, Inc., a Delaware corporation (the "Company"). Capitalized terms used
but not otherwise defined herein will have the meanings ascribed to them in the
Reorganization Agreement (as defined below).
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered into an
Agreement and Plan of Reorganization (the "Reorganization Agreement") which
provides for the merger (the "Merger") of a wholly-owned subsidiary of Parent
("Merger Sub") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company will be converted into the right to
receive Parent Common Stock.
B. As a condition to Parent's willingness to enter into the Reorganization
Agreement, Parent has requested that Company agree, and Company has so agreed,
to grant to Parent an option to acquire shares of Company's Common Stock, $.01
par value per share (the "Company Shares"), upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements set forth herein and in the Reorganization Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Parent an irrevocable option
(the "Option") to acquire up to a number of Company Shares equal to 19.9% of
the issued and outstanding shares as of the date of this Agreement (the "Option
Shares"), in the manner set forth below by paying cash at a price per share
equal to the product of the Exchange Ratio and the closing price of one share
of Parent Common Stock on the last completed Nasdaq trading day prior to
execution of this Agreement (the "Exercise Price").
2. Exercise of Option.
(a) The Option may be exercised by Parent, in whole or in part, at any
time or from time to time (i) after termination of the Reorganization
Agreement pursuant to Section 7.1(g) or 7.1(h) thereof or (ii) upon the
occurrence of any event causing the Termination Fee to become payable
pursuant to Section 7.3(b)(ii) of the Reorganization Agreement (any of the
events described in clause (i) and (ii) of this sentence being referred to
herein as an "Exercise Event"). In the event Parent wishes to exercise the
Option, Parent will deliver to the Company a written notice (each an
"Exercise Notice") specifying the total number of Option Shares it wishes
to acquire. Each closing of a purchase of Option Shares (a "Closing") will
occur on a date and at a time prior to the termination of the Option
designated by Parent in an Exercise Notice delivered at least two (2)
business days prior to the date of such Closing, which Closing will be held
at the principal offices of the Company.
(b) The Option will terminate upon the earliest of (i) the Effective
Time, (ii) twelve (12) months following the date on which the
Reorganization Agreement is terminated pursuant to Section 7.1(b) or
7.1(d)(i) thereof, if no event causing the Termination Fee to become
payable pursuant to Section 7.3(b)(ii) of the Reorganization Agreement has
occurred, (iii) twelve (12) months following the date on which the
Reorganization Agreement is terminated pursuant to Section 7.1(g) or 7.1(h)
thereof, (iv) in the event the Reorganization Agreement has been terminated
pursuant to Section 7.1(b) or 7.1(d)(i) thereof and the Termination Fee
became payable pursuant to Section 7.3(b)(ii) thereof, twelve (12) months
after payment of the Termination Fee; and (v) the date on which the
Reorganization Agreement is terminated other than pursuant to Sections
7.1(b), 7.1(d)(i), 7.1(g) or 7.1(h); provided, however, that if the Option
cannot be exercised by reason of any applicable government order or because
the waiting period related to the issuance of the Option Shares under the
HSR Act will not
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<PAGE>
have expired or been terminated, then the Option will not terminate until
the tenth business day after such impediment to exercise will have been
removed or will have become final and not subject to appeal.
3. Conditions to Closing. The obligation of Company to issue Option Shares to
Parent hereunder is subject to the conditions that (A) any waiting period under
the HSR Act applicable to the issuance of the Option Shares hereunder will have
expired or been terminated; (B) all material consents, approvals, orders or
authorizations of, or registrations, declarations or filings with, any Federal,
state or local administrative agency or commission or other Federal state or
local governmental authority or instrumentality, if any, required in connection
with the issuance of the Option Shares hereunder will have been obtained or
made, as the case may be; and (C) no preliminary or permanent injunction or
other order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance will be in effect. It is understood and agreed that
at any time during which the Option is exercisable, the parties will use their
respective best efforts to satisfy all conditions to Closing, so that a Closing
may take place as promptly as practicable.
4. Closing. At any Closing, (A) the Company will deliver to Parent a single
certificate in definitive form representing the number of Company Shares
designated by Parent in its Exercise Notice, such certificate to be registered
in the name of Parent and to bear the legend set forth in Section 12 hereof,
against delivery of (B) payment by Parent to the Company of the aggregate
purchase price for the Company Shares so designated and being purchased by
delivery of a certified check or bank check.
5. Representations and Warranties of the Company. Company represents and
warrants to Parent that (A) Company 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 enter into this Agreement and to carry out
its obligations hereunder; (B) the execution and delivery of this Agreement by
the Company and consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or any of the transactions
contemplated hereby; (C) this Agreement has been duly executed and delivered by
the Company and constitutes a legal, valid and binding obligation of the
Company and, assuming this Agreement constitutes a legal, valid and binding
obligation of Parent, is enforceable against the Company in accordance with its
terms; (D) except for any filings required under the HSR Act, the Company has
taken all necessary corporate and other action to authorize and reserve for
issuance and to permit it to issue upon exercise of the Option, and at all
times from the date hereof until the termination of the Option will have
reserved for issuance, a sufficient number of unissued Company Shares for
Parent to exercise the Option in full and will take all necessary corporate or
other action to authorize and reserve for issuance all additional Company
Shares or other securities which may be issuable pursuant to Section 11(a) upon
exercise of the Option, all of which, upon their issuance and delivery in
accordance with the terms of this Agreement, will be validly issued, fully paid
and nonassessable; (E) upon delivery of the Company Shares and any other
securities to Parent upon exercise of the Option, Parent will acquire such
Company Shares or other securities free and clear of all material claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever, excluding those imposed by Parent; (F) the execution and delivery
of this Agreement by the Company do not, and the performance of this Agreement
by the Company will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws or equivalent organizational documents of the Company
or any of its subsidiaries, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Company or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
impair the Company's or any of its subsidiaries' rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Company or any of its subsidiaries pursuant to, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties are
A-B-2
<PAGE>
bound or affected; and (G) the execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will
not, require any consent, approval, authorization or permit of, or filing with,
or notification to, any Governmental Entity except pursuant to the HSR Act.
6. Representations and Warranties of Parent. Parent represents and warrants
to Company that (A) Parent 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 enter into this Agreement and to carry out its
obligations hereunder; (B) the execution and delivery of this Agreement by
Parent and consummation by Parent of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Parent
and no other corporate proceedings on the part of Parent are necessary to
authorize this Agreement or any of the transactions contemplated hereby; (C)
this Agreement has been duly executed and delivered by Parent and constitutes a
legal, valid and binding obligation of Parent and, assuming this Agreement
constitutes a legal, valid and binding obligation of the Company, is
enforceable against Parent in accordance with its terms; (D) the execution and
delivery of this Agreement by Parent do not, and the performance of this
Agreement by Parent will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws or equivalent organizational documents of Parent or any
of its subsidiaries, (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Parent or any of its subsidiaries or by
which its or any of their respective properties is bound or affected or (iii)
result in any breach of or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or impair Parent's or
any of its subsidiaries' rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of Parent or any of its
subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or any of its subsidiaries is a party or by which
Parent or any of its subsidiaries or its or any of their respective properties
are bound or affected; and (E) the execution and delivery of this Agreement by
Parent does not, and the performance of this Agreement by Parent will not,
require any consent, approval, authorization or permit of, or filing with, or
notification to, any Governmental Entity except pursuant to the HSR Act.
7. Certain Rights.
(a) Parent Put. At the request of and upon notice by Parent (the "Put
Notice"), at any time during the period during which the Option is
exercisable pursuant to Section 2 (the "Purchase Period"), the Company (or
any successor entity thereof) will purchase from Parent all or any portion
of the Option, to the extent not previously exercised, at the price set
forth in subparagraph (i) below, and all or any portion of the Option
Shares, if any, acquired by Parent pursuant thereto, at the price set forth
in subparagraph (ii) below:
(i) The difference between the "Market/Tender Offer Price" for the
Company Shares as of the date Parent gives notice of its intent to
exercise its rights under this Section 7(a) (defined as the higher of
(A) the highest price per share offered as of such date pursuant to any
Acquisition Proposal which was made prior to such date and (B) the
highest closing sale price of Company Shares then on the Nasdaq
National Market during the twenty (20) trading days ending on the
trading day immediately preceding such date) and the Exercise Price,
multiplied by the number of Company Shares purchasable pursuant to the
Option, but only if the Market/Tender Offer Price is greater than the
Exercise Price. For purposes of determining the highest price offered
pursuant to any Acquisition Proposal which involves consideration other
than cash, the value of such consideration will be equal to the higher
of (x) if securities of the same class of the proponent as such
consideration are traded on any national securities exchange or by any
registered securities association, a value based on the closing sale
price or asked price for such securities on their principal trading
market on such date and (y) the value ascribed to such consideration by
the proponent of such Acquisition Proposal, or if no such value is
ascribed, a value determined in good faith by the Board of Directors of
the Company.
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(ii) The Exercise Price paid by Parent for Company Shares acquired
pursuant to the Option plus the difference between the Market/Tender
Offer Price and such Exercise Price (but only if the Market/Tender
Offer Price is greater than the Exercise Price) multiplied by the
number of Company Shares so purchased.
8. Payment and Redelivery of Option or Shares. In the event Parent exercises
its rights under Section 7(a) by delivery of a Put Notice, the Company will,
within five (5) business days after Parent delivers such notice, pay the
required amount to Parent in immediately available funds and Parent will
surrender to the Company all or such portion of the Option with respect to
which the Put Notice relates and the certificates evidencing the Company Shares
purchased by Parent pursuant to such Put Notice.
9. Registration Rights.
(a) Following the termination of the Reorganization Agreement, Parent
(sometimes referred to herein as the "Holder") may by written notice (a
"Registration Notice") to the Company (the "Registrant") request the
Registrant to register under the Securities Act all or any part of the
shares acquired by the Holder pursuant to this Agreement (such shares
requested to be registered, the "Registrable Securities") in order to
permit the sale or other disposition of any or all shares of the
Registrable Securities that have been acquired by or are issuable to Holder
upon exercise of the Option in accordance with the intended method of sale
or other disposition stated by Holder, including a "shelf" registration
statement under Rule 415 under the Securities Act or any successor
provision. Holder agrees to cause, and to cause any underwriters of any
sale or other disposition to cause, any sale or other disposition pursuant
to such registration statement to be effected on a widely distributed basis
so that upon consummation thereof no purchaser or transferee will own
beneficially more than 5.0% of the then-outstanding voting power of
Registrant. Upon a request for registration, the Registrant will have the
option exercisable by written notice delivered to the Holder within ten
(10) business days after the receipt of the Registration Notice,
irrevocably to agree to purchase all or any part of the Registrable
Securities for cash at a price (the "Option Price") equal to the product of
(i) the number of Registrable Securities so purchased and (ii) the per
share average of the closing sale prices of the Registrant's Common Stock
on the Nasdaq National Market for the ten (10) trading days immediately
preceding the date of the Registration Notice. Any such purchase of
Registrable Securities by the Registrant hereunder will take place at a
closing to be held at the principle executive offices of the Registrant or
its counsel at any reasonable date and time designated by the Registrant in
such notice within ten business days after delivery of such notice. The
payment for the shares to be purchased will be made by delivery at the time
of such closing of the Option Price in immediately available funds.
(b) If the Registrant does not elect to exercise its option to purchase
pursuant to Section 7(a) with respect to all Registrable Securities, the
Registrant will use all reasonable efforts to effect, as promptly as
practicable, the registration under the Securities Act of the unpurchased
Registrable Securities requested to be registered in the Registration
Notice and to keep such registration statement effective for such period
not in excess of 120 calendar days from the day such registration statement
first becomes effective as may be reasonably necessary to effect such sale
or other disposition; provided, however, that the Holder will not be
entitled to more than an aggregate of two (2) effective registration
statements hereunder. The obligations of Registrant hereunder to file a
registration statement and to maintain its effectiveness may be suspended
for up to 120 calendar days in the aggregate if the Board of Directors of
Registrant shall have determined that the filing of such registration
statement or the maintenance of its effectiveness would require premature
disclosure of material nonpublic information that would materially and
adversely affect Registrant or otherwise interfere with or adversely affect
any pending or proposed offering of securities of Registrant or any other
material transaction involving Registrant. If consummation of the sale of
any Registrable Securities pursuant to a registration hereunder does not
occur within 120 days after the filing with the SEC of the initial
registration statement therefor, the provisions of this Section 9 will
again be applicable to any proposed
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registration. The Registrant will use all reasonable efforts to cause any
Registrable Securities registered pursuant to this Section 9 to be
qualified for sale under the securities or blue sky laws of such
jurisdictions as the Holder may reasonably request and will continue such
registration or qualification in effect in such jurisdictions; provided,
however, that the Registrant will not be required to qualify to do business
in, or consent to general service of process in, any jurisdiction by reason
of this provision. If Registrant effects a registration under the
Securities Act of Company Common Stock for its own account or for any other
stockholders of Registrant (other than on Form S-4 or Form S-8, or any
successor form), it will allow Holder the right to participate in such
registration by selling its Registrable Securities, and such participation
will not affect the obligation of Registrant to effect demand registration
statements for Holder under this Section 9; provided that, if the managing
underwriters of such offering advise Registrant in writing that in their
opinion the number of shares of Company Common Stock requested to be
included in such registration exceeds the number which can be sold in such
offering, Registrant will include the shares requested to be included
therein by Holder pro rata with the shares intended to be included therein
by Registrant.
(c) The registration rights set forth in this Section 9 are subject to
the condition that the Holder will provide the Registrant with such
information with respect to the Holder's Registrable Securities, the plan
for distribution thereof, and such other information with respect to the
Holder as, in the reasonable judgment of counsel for the Registrant, is
necessary to enable the Registrant to include in a registration statement
all facts required to be disclosed with respect to a registration
thereunder.
(d) A registration effected under this Section 9 will be effected at the
Registrant's expense, except for underwriting discounts and commissions and
the fees and expenses of counsel to the Holder, and the Registrant will
provide to the underwriters such documentation (including certificates,
opinions of counsel and "comfort" letters from auditors) as are customary
in connection with underwritten public offerings and as such underwriters
may reasonably require. In connection with any registration, the Holder and
the Registrant agree to enter into an underwriting agreement reasonably
acceptable to each such party, in form and substance customary for
transactions of this type with the underwriters participating in such
offering.
(e) Indemnification.
(i) The Registrant will indemnify the Holder, each of its directors
and officers and each person who controls the Holder within the meaning
of Section 15 of the Securities Act, and each underwriter of the
Registrant's securities, with respect to any registration,
qualification or compliance which has been effected pursuant to this
Agreement, against all expenses, claims, losses, damages or 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 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 or necessary to
make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Registrant of
any rule or regulation promulgated under the Securities Act applicable
to the Registrant in connection with any such registration,
qualification or compliance, and the Registrant will reimburse the
Holder and, each of its directors and officers and each person who
controls the Holder within the meaning of Section 15 of the Securities
Act, and each underwriter for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action; provided,
that the Registrant 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
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information furnished to the Registrant by such Holder or director or
officer or controlling person or underwriter seeking indemnification.
(ii) The Holder will indemnify the Registrant, each of its directors
and officers and each underwriter of the Registrant's securities
covered by such registration statement and each person who controls the
Registrant within the meaning of Section 15 of the Securities Act,
against all 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 omission (or alleged
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
any violation by the Holder of any rule or regulation promulgated under
the Securities Act applicable to the Holder in connection with any such
registration, qualification or compliance, and will reimburse the
Registrant, such directors, officers or control persons or underwriters
for any legal or any other expenses reasonably incurred in connection
with investigating, preparing or defending any such claim, loss,
damage, liability or action, 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 Registrant by the
Holder for use therein; provided, that in no event will any indemnity
under this Section 9(e) exceed the net proceeds of the offering
received by the Holder.
(iii) Each party entitled to indemnification under this Section 9(e)
(the "Indemnified Party") will 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 will 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 will
conduct the defense of such claim or litigation, will be approved by
the Indemnified Party (whose approval will not unreasonably be
withheld), and the Indemnified Party may participate in such defense at
such party's expense; provided, however, that the Indemnifying Party
will pay such expense if representation of the Indemnified Party by
counsel retained by the Indemnifying Party would be inappropriate due
to actual or potential differing interests between the Indemnified
Party and any other party represented by such counsel in such
proceeding, and provided further, however, that the failure of any
Indemnified Party to give notice as provided herein will not relieve
the Indemnifying Party of its obligations under this Section 9(e)
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 will, except with
the consent of each Indemnified Party, 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. No Indemnifying Party will be required to
indemnify any Indemnified Party with respect to any settlement entered
into without such Indemnifying Party's prior consent (which will not be
unreasonably withheld).
10. Profit Limitation.
(a) Notwithstanding any other provision in this Agreement or the
Reorganization Agreement, in no event shall Parent's Total Profit (as
defined below) exceed $120,000,000 (the "Maximum Profit") and, if Parent's
Total Profit otherwise would exceed the Maximum Profit, Parent, at its sole
discretion shall either (i) reduce the number of Option Shares subject to
the Option, (ii) deliver to the Company for cancellation Option Shares (or
other securities into which such Option Shares are converted or exchanged)
previously purchased by Parent, (iii) pay cash to the Company, or (iv) any
combination of
A-B-6
<PAGE>
the foregoing, so that Parent's actual realized Total Profit shall not
exceed the Maximum Profit after taking into account the foregoing actions;
provided, however, that to the extent the payment by the Company of cash to
Parent in satisfaction of the Termination Fee pursuant to Section 7.3 of
the Reorganization Agreement would cause Parent's Total Profit to exceed
the Maximum Profit (after Parent has had an opportunity to reduce Parent's
Total Profit pursuant to this Section 10(a)), then the Company need not pay
such cash portion of the Termination Fee.
(b) For purposes of this Agreement, "Total Profit" shall mean: (i) the
aggregate amount of (A) any excess of (x) the net cash amounts or fair
market value of any property received by Parent pursuant to a sale of
Option Shares (or securities into which such shares are converted or
exchanged) over (y) Parent's aggregate purchase price for such Option
Shares (or other securities), plus (B) any amounts received by Parent on
the repurchase of the Option by the Company pursuant to Section 7, plus
(C) any Termination Fee paid by the Company and received by Parent pursuant
to the Reorganization Agreement, minus (ii) the amounts of any cash
previously paid by Parent to the Company pursuant to this Section 10 plus
the value of the Option Shares (or other securities) previously delivered
to the Company for cancellation pursuant to this Section 10.
(c) For purposes of Section 10(a) and clause (i) of Section 10(b), the
value of any Option Shares delivered by Parent to the Company shall be the
Market/Tender Offer Price of such Options Shares.
11. Adjustment Upon Changes in Capitalization.
(a) In the event of any change in the Company Shares by reason of stock
dividends, stock splits, reverse stock splits, mergers (other than the
Merger), recapitalizations, combinations, exchanges of shares and the like,
the type and number of shares or securities subject to the Option, and the
Exercise Price will be adjusted appropriately, and proper provision will be
made in the agreements governing such transaction so that Parent will
receive, upon exercise of the Option, the number and class of shares or
other securities or property that Parent would have received in respect of
the Company Shares if the Option had been exercised immediately prior to
such event or the record date therefor, as applicable.
(b) Without limiting the parties' relative rights and obligations under
the Reorganization Agreement if the number of outstanding shares of Company
Common Stock increases after the date of this Agreement (other than
pursuant to an event described in Section 11(a)), the number of shares of
Company Common Stock subject to the Option (including those Option Shares
which may have already been exercised) will be adjusted so that it equals
19.9% of the number of shares of Company Common Stock then issued and
outstanding, without giving effect to any Option Shares.
12. Restrictive Legends. Each certificate representing Option Shares issued
to Parent hereunder will include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS
ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF JULY
26, 2000, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have
been registered pursuant to the Securities Act, such Option Shares have been
sold in reliance on and in accordance with Rule 144 under the Securities Act or
Holder has delivered to Registrant a copy of a letter from the staff of the
SEC, or an opinion of counsel in form and substance reasonably satisfactory to
Registrant and its counsel, to the effect that such legend is not required for
purposes of the Securities Act
A-B-7
<PAGE>
and (ii) the reference to restrictions pursuant to this Agreement in the above
legend will be removed by delivery of substitute certificate(s) without such
reference if the Option Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance with the provisions of
this Agreement under circumstances that do not require the retention of such
reference.
13. Listing and HSR Filing. The Company, upon the request of Parent, will
promptly file an application to list the Company Shares to be acquired upon
exercise of the Option for quotation on the Nasdaq National Market and will use
its best efforts to obtain approval of such listing as soon as practicable.
Promptly after the date hereof, each of the parties hereto will promptly file
with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice all required premerger notification and report
forms and other documents and exhibits required to be filed under the HSR Act
to permit the acquisition of the Company Shares subject to the Option at the
earliest possible date.
14. Binding Effect. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature
whatsoever by reason of this Agreement. Any shares sold by a party in
compliance with the provisions of Section 9 will, upon consummation of such
sale, be free of the restrictions imposed with respect to such shares by this
Agreement and any transferee of such shares will not be entitled to the rights
of such party. Certificates representing shares sold in a registered public
offering pursuant to Section 9 will not be required to bear the legend set
forth in Section 12.
15. Specific Performance. The parties hereto recognize and agree that if for
any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party hereto agrees that in addition to
other remedies the other party hereto will be entitled to an injunction
restraining any violation or threatened violation of the provisions of this
Agreement or the right to enforce any of the covenants or agreements set forth
herein by specific performance. In the event that any action will be brought in
equity to enforce the provisions of the Agreement, neither party hereto will
allege, and each party hereto hereby waives the defense, that there is an
adequate remedy at law.
16. Entire Agreement. This Agreement and the Reorganization Agreement
(including the appendices thereto) constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all
other prior agreements and understandings, both written and oral, between the
parties hereto with respect to the subject matter hereof.
17. Further Assurances. Each party hereto will execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
18. Validity. The invalidity or unenforceability of any provision of this
Agreement will not affect the validity or enforceability of the other
provisions of this Agreement, which will remain in full force and effect. In
the event any Governmental Entity of competent jurisdiction holds any provision
of this Agreement to be null, void or unenforceable, the parties hereto will
negotiate in good faith and will execute and deliver an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision.
19. Notices. All notices and other communications hereunder will be in
writing and will be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to
A-B-8
<PAGE>
the parties at the following addresses or telecopy numbers (or at such other
address or telecopy numbers for a party as will be specified by like notice):
(a)if to Parent, to:
InfoSpace, Inc.
601 108th Avenue NE
Suite 1200
Bellevue, WA 98004
Attention: General Counsel
Telecopy No.: (425) 201-6170
with a copy to:
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Barry Taylor, Esq.
Lawrence Steele, Esq.
Steve Camahort, Esq.
Telecopy No.: (650) 493-9300
(b)if to the Company, to:
Go2Net, Inc.
999 Third Avenue
Suite 4700
Seattle, WA 98104
Attention: Chief Executive Officer
Telecopy No.: (206) 447-1625
with a copy to:
Hutchins, Wheeler & Dittmar, a Professional Corporation
101 Federal Street
Boston, Massachusetts 02110
Attention: Francis J. Feeney, Esq.
Telecopy No.: (617) 951-1295
20. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State.
21. Expenses. Except as otherwise expressly provided herein or in the
Reorganization Agreement, all costs and expenses incurred in connection with
the transactions contemplated by this Agreement will be paid by the party
incurring such expenses.
22. Amendments; Waiver. This Agreement may be amended by the parties hereto
and the terms and conditions hereof may be waived only by an instrument in
writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
23. Assignment. Neither of the parties hereto may sell, transfer, assign or
otherwise dispose of any of its rights or obligations under this Agreement or
the Option created hereunder to any other person, without the express written
consent of the other party, except that the rights and obligations hereunder
will inure to the benefit of and be binding upon any successor of a party
hereto.
24. Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed to be an original, but both of which, taken together, will
constitute one and the same instrument.
A-B-9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written.
INFOSPACE, INC.
By:__________________________________
Name: Arun Sarin
Title: Chief Executive Officer
GO2NET, INC.
By:__________________________________
Name: Russel C. Horowitz
Title: Chairman and Chief
Executive Officer
A-B-10
<PAGE>
EXHIBIT C-1
COMPANY AFFILIATE AGREEMENT
THIS COMPANY AFFILIATE AGREEMENT (this "Agreement") is made and entered into
as of July 26, 2000, between InfoSpace, Inc., a Delaware corporation
("Parent"), and the undersigned stockholder of Go2Net, Inc., a Delaware
corporation ("Company"), who may be deemed an affiliate ("Affiliate") of
Company. Capitalized terms used but not otherwise defined herein shall have
the meanings ascribed to them in the Reorganization Agreement (as defined
below).
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered into
an Agreement and Plan of Reorganization (the "Reorganization Agreement") which
provides for the merger (the "Merger") of Giants Acquisition Corp., a wholly-
owned subsidiary of Parent ("Merger Sub"), with and into the Company. Pursuant
to the Merger, all issued and outstanding capital stock of the Company (the
"Company Capital Stock") as of the Effective Time (as defined in the
Reorganization Agreement) will be converted into Common Stock of Parent as set
forth in the Reorganization Agreement;
B. The execution and delivery of this Agreement by Affiliate is a material
inducement to Parent to enter into the Reorganization Agreement; and
C. Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of Parent after the Merger as the term "affiliate" is used (i) for
purposes of Rule 144 of the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") and
(ii) in Accounting Series Releases 130 and 135, as amended, although nothing
contained herein shall be construed as an admission by Affiliate that
Affiliate is in fact an "affiliate" of Parent.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Acknowledgments by Affiliate. Affiliate acknowledges and understands that
the representations, warranties and covenants by Affiliate set forth herein
will be relied upon by Parent, the Company and their respective affiliates,
counsel and accounting firms for purposes of determining Parent's eligibility
to account for the Merger as a "pooling of interests." Affiliate has carefully
read this Agreement and the Reorganization Agreement and has had the
opportunity to discuss the requirements of this Agreement with Affiliate's
professional advisors, who Affiliate believes are qualified to advise
Affiliate with regard to such matters.
2. Beneficial Ownership of Company Capital Stock. The Affiliate is the sole
beneficial owner of the number of shares of Company Capital Stock set forth
next to its name on the signature page hereto (the "Shares"). There are no
options, warrants, calls, rights, commitments or agreements of any character,
written or oral, to which the Affiliate is party or by which it is bound
obligating the Affiliate to issue, deliver, sell or redeem prior to the end of
the Restricted Period (as defined in Section 3 below), or cause to be issued,
delivered, sold or redeemed prior to the end of the Restricted Period, any
Shares or obligating the Affiliate to grant or enter into any such option,
warrant, call, right, commitment or agreement prior to the end of the
Restricted Period. The Affiliate has the sole right to transfer such Shares.
The Shares constitute all shares of Company Capital Stock owned, beneficially
or of record, by the Affiliate. The Affiliate has not engaged in any sale or
other transfer of the Shares in contemplation of the Merger. All shares of
Company Capital Stock and common stock of Parent ("Parent Common Stock")
acquired by Affiliate subsequent to the date hereof (including shares of
Parent Common Stock acquired in the Merger) shall be subject to the provisions
of this Agreement, to the extent such provisions are then still applicable, as
if held by Affiliate as of the date hereof.
3. Covenants Related to Pooling of Interests. In accordance with Staff
Accounting Bulletin No. 65, during the period from the date 30 days prior to
the Effective Time until the day Parent publicly announces
A-C-1-1
<PAGE>
financial results covering at least 30 days of combined operations of Parent
and the Company (the "Restricted Period"), Affiliate shall not sell, exchange,
transfer, pledge, distribute, make any gift or otherwise dispose of or grant
any option, establish any "short" or put-equivalent position with respect to or
enter into any similar transaction (through derivatives or otherwise) intended
or having the effect, directly or indirectly, to reduce Affiliate's risk
relative to any shares of Parent Common Stock or Company Capital Stock
(including the Shares). Parent may, at its discretion, place a stock transfer
notice consistent with the foregoing, with respect to Affiliate's shares of
Parent Common Stock provided that such notice shall be countermanded as soon as
practicable upon expiration of the necessity therefor.
4. Compliance with Rule 145 and the Securities Act.
(a) Affiliate has been advised that (i) the issuance of shares of Parent
Common Stock in connection with the Merger is expected to be effected
pursuant to a registration statement on Form S-4 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and the resale
of such shares shall be subject to restrictions set forth in Rule 145 under
the Securities Act, and (ii) Affiliate may be deemed to be an affiliate of
the Company. Affiliate accordingly agrees not to sell, transfer or
otherwise dispose of any Parent Common Stock issued to Affiliate in the
Merger unless (i) such sale, transfer or other disposition is made in
conformity with the requirements of Rule 145(d) promulgated under the
Securities Act, (ii) such sale, transfer or other disposition is made
pursuant to an effective registration statement under the Securities Act or
an appropriate exemption from registration, (iii) Affiliate delivers to
Parent a written opinion of counsel, reasonably acceptable to Parent in
form and substance, that such sale, transfer or other disposition is
otherwise exempt from registration under the Securities Act or (iv) an
authorized representative of the Commission shall have rendered written
advice to Affiliate to the effect that the Commission would take no action,
or that the staff of the Commission would not recommend that the Commission
take any action, with respect to the proposed disposition if consummated
(the "No Action Correspondence").
(b) Parent shall give stop transfer instructions to its transfer agent
with respect to any Parent Common Stock received by Affiliate in the Merger
and there shall be placed on the certificates representing such Common
Stock, or any substitutions therefor issued prior to the end of the
Restricted Period, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 APPLIES AND MAY ONLY BE TRANSFERRED (A)
IN CONFORMITY WITH RULE 145(d), OR (B) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(C) IN ACCORDANCE WITH A WRITTEN OPINION OF COUNSEL, REASONABLY
ACCEPTABLE TO THE ISSUER IN FORM AND SUBSTANCE, THAT SUCH TRANSFER IS
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and Parent shall instruct its transfer agent
to remove such legend, if Affiliate delivers to Parent (i) satisfactory written
evidence that the shares have been sold in compliance with Rule 145 (in which
case, the substitute certificate shall be issued in the name of the
transferee), (ii) the No Action Correspondence, (iii) an opinion of counsel, in
form and substance reasonably satisfactory to Parent, to the effect that public
sale of the shares by the holder thereof is no longer subject to Rule 145, or
(iv) a written request for removal of such legend after the first anniversary
of the Effective Time.
5. Termination.
(a) This Agreement shall be terminated and shall be of no further force
and effect in the event of the termination of the Reorganization Agreement
pursuant to Article VII of the Reorganization Agreement.
A-C-1-2
<PAGE>
(b) If at any time prior to the effective time, Parent determines in its
sole discretion that the Merger may not be accounted for as a "pooling of
interests," or, if at any time after the Effective Time, the Merger is not
be accounted for as a "pooling of interests," then the restrictions set
forth in Section 3 of this Agreement shall terminate and shall be of no
further force and effect.
6. Miscellaneous.
(a) Waiver; Severability. No waiver by any party hereto of any condition
or of any breach of any provision of this Agreement shall be effective
unless in writing and signed by each party hereto. In the event that any
provision of this Agreement, or the application of any such provision to
any person, entity or set of circumstances, shall be determined to be
invalid, unlawful, void or unenforceable to any extent, the remainder of
this Agreement, and the application of such provision to persons, entities
or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or
otherwise affected and shall continue to be valid and enforceable to the
fullest extent permitted by law.
(b) Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement
nor any of the rights, interests or obligations of the parties hereto may
be assigned by either of the parties without prior written consent of the
other party hereto.
(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of
a written agreement executed by the parties hereto.
(d) Injunctive Relief. Each of the parties acknowledge that (i) the
covenants and the restrictions contained in this Agreement are necessary,
fundamental, and required for the protection of Parent and the Company and
to preserve for Parent the benefits of the Merger; (ii) such covenants
relate to matters which are of a special, unique, and extraordinary
character that gives each of such covenants a special, unique, and
extraordinary value; and (iii) a breach of any such covenants or any other
provision of this Agreement shall result in irreparable harm and damages to
Parent and the Company which cannot be adequately compensated by a monetary
award. Accordingly, it is expressly agreed that in addition to all other
remedies available at law or in equity, Parent and the Company shall be
entitled to the immediate remedy of a temporary restraining order,
preliminary injunction, or such other form of injunctive or equitable
relief as may be used by any court of competent jurisdiction to restrain or
enjoin any of the parties hereto from breaching any such covenant or
provision or to specifically enforce the provisions hereof.
(e) Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State
of Delaware without giving effect to any choice or conflict of law
provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
(f) Entire Agreement. This Agreement sets forth the entire understanding
of Affiliate and Parent relating to the subject matter hereof and
supersedes all prior agreements and understandings between Affiliate and
Parent relating to the subject matter hereof.
(g) Attorneys' Fees. In the event of any legal actions or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding
results in a final judgment.
(h) Further Assurances. Affiliate shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take
such other actions as Parent may reasonably request to effectuate the
intent and purposes of this Agreement.
A-C-1-3
<PAGE>
(i) Third Party Reliance. Counsel to and independent auditors for Parent
and the Company shall be entitled to rely upon this Affiliate Agreement.
(j) Survival. The representations, warranties, covenants and other
provisions contained in this Agreement shall survive the Merger.
(k) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid,
to the parties at the following address (or at such other address for a
party as shall be specified by like notice):
If to Parent:
InfoSpace, Inc.
601 108th Avenue NE
Suite 1200
Bellevue, WA 98004
Attention: General Counsel
Telecopy No.: (425) 201-6170
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Barry Taylor, Esq.
Lawrence Steele, Esq.
Steve Camahort, Esq.
Telecopy No.: (650) 493-6811
If to Affiliate: To the address for notice set forth on the signature
page hereof.
(l) Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
A-C-1-4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
INFOSPACE, INC. AFFILIATE
By: __________________________________ By: __________________________________
Name: Arun Sarin Affiliate's Address for Notice:
Title: Chief Executive Officer --------------------------------------
--------------------------------------
--------------------------------------
Share beneficially owned:
____ shares of Company Common Stock
____ shares of Company Preferred Stock
____ shares of Company Common Stock
issuable upon exercise of outstanding
options
____ shares of Parent Common Stock
[Signature Page to Company Affiliate Agreement]
A-C-1-5
<PAGE>
EXHIBIT C-2
PARENT AFFILIATE AGREEMENT
THIS PARENT AFFILIATE AGREEMENT (this "Agreement") is made and entered into
as of July 26, 2000, between InfoSpace, Inc., a Delaware corporation
("Parent"), and the undersigned stockholder of Parent who may be deemed an
affiliate ("Affiliate") of Parent. Capitalized terms used but not otherwise
defined herein shall have the meanings ascribed to them in the Reorganization
Agreement (as defined below).
RECITALS
A. Go2Net, Inc. (the "Company"), Merger Sub (as defined below) and Parent
have entered into an Agreement and Plan of Reorganization (the "Reorganization
Agreement") which provides for the merger (the "Merger") of Giants Acquisition
Corp., a wholly-owned subsidiary of Parent ("Merger Sub"), with and into the
Company. Pursuant to the Merger, all issued and outstanding capital stock of
the Company (the "Company Capital Stock") as of the Effective Time (as defined
in the Reorganization Agreement) will be converted into common stock of
Parent, par value $0.0001 per share (the "Parent Common Stock") as set forth
in the Reorganization Agreement;
B. The execution and delivery of this Agreement by Affiliate is a material
inducement to Parent to enter into the Reorganization Agreement; and
C. Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of Parent as the term "affiliate" is used in Accounting Series
Releases 130 and 135, as amended, although nothing contained herein shall be
construed as an admission by Affiliate that Affiliate is in fact an
"affiliate" of Parent.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Acknowledgments by Affiliate. Affiliate acknowledges and understands that
the representations, warranties and covenants by Affiliate set forth herein
will be relied upon by Parent, the Company and their respective affiliates,
counsel and accounting firms for purposes of determining Parent's eligibility
to account for the Merger as a "pooling of interests." Affiliate has carefully
read this Agreement and the Reorganization Agreement and has had the
opportunity to discuss the requirements of this Agreement with Affiliate's
professional advisors, who Affiliate believes are qualified to advise
Affiliate with regard to such matters.
2. Beneficial Ownership of Company Capital Stock. The Affiliate is the sole
beneficial owner of the number of shares of Parent Common Stock set forth next
to its name on the signature page hereto (the "Shares"). There are no options,
warrants, calls, rights, commitments or agreements of any character, written
or oral, to which the Affiliate is party or by which it is bound obligating
the Affiliate to issue, deliver, sell or redeem prior to the end of the
Restricted Period (as defined in Section 3 below), or cause to be issued,
delivered, sold or redeemed prior to the end of the Restricted Period, any
Shares or obligating the Affiliate to grant or enter into any such option,
warrant, call, right, commitment or agreement prior to the end of the
Restricted Period. The Affiliate has the sole right to transfer such Shares.
The Shares constitute all shares of Parent Common Stock owned, beneficially or
of record, by the Affiliate. The Affiliate has not engaged in any sale or
other transfer of the Shares in contemplation of the Merger. All shares of
Parent Common Stock acquired by Affiliate subsequent to the date hereof shall
be subject to the provisions of this Agreement, to the extent such provisions
are then still applicable, as if held by Affiliate as of the date hereof.
3. Covenants Related to Pooling of Interests. In accordance with Staff
Accounting Bulletin No. 65, during the period from the date 30 days prior to
the Effective Time until the day Parent publicly announces financial results
covering at least 30 days of combined operations of Parent and the Company
(the "Restricted Period"), Affiliate shall not sell, exchange, transfer,
pledge, distribute, make any gift or otherwise
A-C-2-1
<PAGE>
dispose of or grant any option, establish any "short" or put-equivalent
position with respect to or enter into any similar transaction (through
derivatives or otherwise) intended or having the effect, directly or
indirectly, to reduce Affiliate's risk relative to any shares of Parent Common
Stock (including the Shares). Parent may, at its discretion, place a stock
transfer notice consistent with the foregoing, with respect to Affiliate's
shares of Parent Common Stock provided that such notice shall be countermanded
as soon as practicable upon expiration of the necessity therefor.
4. Termination.
(a) This Agreement shall be terminated and shall be of no further force
and effect in the event of the termination of the Reorganization Agreement
pursuant to Article VII of the Reorganization Agreement.
(b) If at any time prior to the effective time, Parent determines in its
sole discretion that the Merger may not be accounted for as a "pooling of
interests," or, if at any time after the Effective Time, the Merger is not
be accounted for as a "pooling of interests," then the restrictions set
forth in Section 3 of this Agreement shall terminate and shall be of no
further force and effect.
5. Miscellaneous.
(a) Waiver; Severability. No waiver by any party hereto of any condition
or of any breach of any provision of this Agreement shall be effective
unless in writing and signed by each party hereto. In the event that any
provision of this Agreement, or the application of any such provision to
any person, entity or set of circumstances, shall be determined to be
invalid, unlawful, void or unenforceable to any extent, the remainder of
this Agreement, and the application of such provision to persons, entities
or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or
otherwise affected and shall continue to be valid and enforceable to the
fullest extent permitted by law.
(b) Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement
nor any of the rights, interests or obligations of the parties hereto may
be assigned by either of the parties without prior written consent of the
other party hereto.
(c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of
a written agreement executed by the parties hereto.
(d) Injunctive Relief. Each of the parties acknowledge that (i) the
covenants and the restrictions contained in this Agreement are necessary,
fundamental, and required for the protection of Parent and the Company and
to preserve for Parent the benefits of the Merger; (ii) such covenants
relate to matters which are of a special, unique, and extraordinary
character that gives each of such covenants a special, unique, and
extraordinary value; and (iii) a breach of any such covenants or any other
provision of this Agreement shall result in irreparable harm and damages to
Parent and the Company which cannot be adequately compensated by a monetary
award. Accordingly, it is expressly agreed that in addition to all other
remedies available at law or in equity, Parent and the Company shall be
entitled to the immediate remedy of a temporary restraining order,
preliminary injunction, or such other form of injunctive or equitable
relief as may be used by any court of competent jurisdiction to restrain or
enjoin any of the parties hereto from breaching any such covenant or
provision or to specifically enforce the provisions hereof.
(e) Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State
of Delaware without giving effect to any choice or conflict of law
provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
A-C-2-2
<PAGE>
(f) Entire Agreement. This Agreement sets forth the entire understanding
of Affiliate and Parent relating to the subject matter hereof and
supersedes all prior agreements and understandings between Affiliate and
Parent relating to the subject matter hereof.
(g) Attorneys' Fees. In the event of any legal actions or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding
results in a final judgment.
(h) Further Assurances. Affiliate shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take
such other actions as Parent may reasonably request to effectuate the
intent and purposes of this Agreement.
(i) Third Party Reliance. Counsel to and independent auditors for Parent
and the Company shall be entitled to rely upon this Affiliate Agreement.
(j) Survival. The representations, warranties, covenants and other
provisions contained in this Agreement shall survive the Merger.
(k) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid,
to the parties at the following address (or at such other address for a
party as shall be specified by like notice):
If to Parent:
InfoSpace, Inc.
601 108th Avenue, NE
Suite 1200
Bellevue, WA 98004
Attention: General Counsel
Telecopy No.: (425) 201-6170
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Barry Taylor, Esq.
Lawrence Steele, Esq.
Steve Camahort, Esq.
Telecopy No.: (650) 493-9300
If to Affiliate: To the address for notice set forth on the signature
page hereof.
(l) Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
A-C-2-3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
INFOSPACE, INC. AFFILIATE
By: __________________________________ By: __________________________________
Name: Arun Sarin Affiliate's Address for Notice:
Title: Chief Executive Officer --------------------------------------
--------------------------------------
--------------------------------------
Share beneficially owned:
___ shares of Parent Common Stock
___ shares of Parent Common Stock
issuable upon exercise of outstanding
options
[Signature Page to Parent Affiliate Agreement]
A-C-2-4
<PAGE>
ANNEX B
[MORGAN STANLEY & CO. INCORPORATED letterhead]
July 26, 2000
Board of Directors
Infospace, Inc.
601-108th Avenue NE
Suite 1200
Bellevue, WA 98004
Members of the Board:
We understand that Go2Net, Inc. ("Go2Net" or the "Company"), Infospace, Inc.
("Infospace") and Giants Acquisition Corp., a wholly-owned subsidiary of
Infospace ("Merger Sub"), propose to enter into an Agreement and Plan of
Reorganization, substantially in the form of the draft dated July 26, 2000
(the "Merger Agreement"), which provides, among other things, for the merger
(the "Merger") of Merger Sub with and into the Company. Pursuant to the
Merger, the Company will become a wholly-owned subsidiary of Infospace and
each issued and outstanding share of common stock, par value $0.01 per share,
of Go2Net ("Go2Net Common Stock"), other than shares held in treasury or held
by Infospace, Merger Sub or any direct or indirect wholly-owned subsidiary of
the Company or Infospace, together with any associated rights to purchase
Go2Net Common Stock will be converted into the right to receive 1.820 shares
(the "Exchange Ratio") of common stock, par value $0.0001 per share, of
Infospace ("Infospace Common Stock"). The terms and conditions of the Merger
are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to Infospace.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company and Infospace;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management of the
Company;
(iii) reviewed certain financial projections prepared by the management
of the Company;
(iv) reviewed certain internal financial statements and other financial
and operating data concerning Infospace prepared by the management of
Infospace;
(v) reviewed certain financial projections prepared by the management of
Infospace;
(vi) reviewed the past and current operations and financial condition and
the prospects of the Company and Infospace, including information relating
to certain strategic, financial and operational benefits anticipated from
the Merger, with senior executives of the Company and Infospace,
respectively;
(vii) reviewed the pro forma impact of the Merger on Infospace's
financial performance, including revenue per share and earnings per share;
(viii) reviewed the reported prices and trading activity for Go2Net
Common Stock and Infospace Common Stock;
(ix) compared the financial performance of the Company and Infospace and
the prices and trading activity of Go2Net Common Stock and Infospace Common
Stock with that of certain other publicly-traded companies comparable with
the Company and Infospace, respectively, and their securities;
(x) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
B-1
<PAGE>
(xi) participated in discussions and negotiations among representatives
of the Company and Infospace and their financial and legal advisors;
(xii) reviewed a draft of the Merger Agreement dated July 26, 2000, and
certain related documents; and
(xiii) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, including information
relating to certain strategic, financial and operational benefits anticipated
from the Merger, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of the Company and Infospace, respectively. In
addition, we have assumed that the Merger will be consummated in accordance
with the terms set forth in the draft Merger Agreement dated July 26, 2000,
including that the Merger will be treated as a tax-free reorganization and/or
exchange, each pursuant to the Internal Revenue Code of 1986. We have relied
upon, without independent verification, the assessment by the management of the
Company and Infospace of the strategic benefits expected to result from the
transaction. We have also relied upon, without independent verification, the
assessment by the management of the Company and Infospace of the technologies
and products of the Company and Infospace, the timing and risks associated with
the integration of the Company and Infospace and the validity of, and risks
associated with, the Company's and Infospace's existing and future products and
technologies.
We have not made any independent valuation or appraisal of the assets or
liabilities of the Company or Infospace, nor have we been furnished with any
such appraisals. Our opinion is necessarily based on financial, economic,
market and other conditions as in effect on, and the information made available
to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Infospace in
connection with this transaction and will receive a fee for our services. In
addition, in the ordinary course of our business we may actively trade the
securities of Infospace for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this letter is for the information of the Board of
Directors of Infospace and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by Infospace in respect of the transaction with the
Securities and Exchange Commission. In addition, this opinion does not in any
manner address the prices at which Infospace Common Stock will trade following
the consummation of the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to Infospace.
Very truly yours,
Morgan Stanley & Co. Incorporated
/s/ Drago S. Rajkovic
By: _________________________________
Drago S. Rajkovic
Vice President
B-2
<PAGE>
ANNEX C
[LETTERHEAD OF MERRILL LYNCH & CO.]
July 26, 2000
Board of Directors
Go2Net, Inc.
999 Third Avenue, Suite 4700
Seattle, WA 98104
Ladies and Gentlemen:
Go2Net, Inc. (the "Company") , InfoSpace, Inc. (the "Parent") and Giants
Acquisition Corp., a wholly owned subsidiary of the Parent (the "Merger Sub"),
propose to enter into an agreement (the "Agreement") pursuant to which the
Merger Sub will be merged with and into the Company in a transaction (the
"Merger") in which each outstanding share of the Company's common stock, par
value $0.01 per share (the "Shares"), will be converted into the right to
receive 1.82 shares (the "Exchange Ratio") of the common stock of the Parent,
par value $0.0001 per share (the "Parent Shares"). The Merger is expected to
be considered by the shareholders of the Company at a special meeting of
shareholders to be held on or before November 15, 2000 and consummated on or
shortly after the date of such meeting.
You have asked us whether, in our opinion, the Exchange Ratio is fair to the
holders of Shares (other than the Parent and its affiliates) from a financial
point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and the Parent that we deemed to be
relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and liabilities and prospects
of the Company and the Parent, furnished to us or discussed with us by the
Company and the Parent;
(3) Conducted discussions with members of senior management of the
Company and the Parent concerning their respective businesses and
prospects, and potential financial benefits of the Merger;
(4) Reviewed the historical market prices and trading activity for the
Shares and the Parent Shares and compared them with that of certain
publicly traded companies which we deemed to be reasonably similar to the
Company and the Parent, respectively;
(5) Compared the results of operations of the Company and the Parent with
those of certain companies which we deemed to be reasonably similar to the
Company and the Parent, respectively;
(6) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
(7) Reviewed the Agreement; and
(8) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we deemed
necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by the Company and
the Parent, and we have not independently verified such information or
undertaken an independent appraisal of the assets of the Company or the
Parent. With respect to the financial forecasts furnished by the Company and
the Parent, we have assumed that they have
C-1
<PAGE>
been reasonably prepared and reflect the best currently available estimates and
judgment of the Company's or the Parent's management as to the expected future
financial performance of the Company or the Parent, as the case may be. For the
purposes of this opinion, we have assumed that neither the Company nor the
Parent is a party to any pending transactions, including external financings,
recapitalizations or material merger discussions other than the Agreement and
those activities undertaken in the ordinary course of conducting their
respective businesses.
Our opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date of this letter and
any change in such conditions would require a reevaluation of this opinion. In
rendering this opinion, we have assumed that the Merger will be consummated
substantially on the terms set forth in the Agreement, without any waiver of
any material terms or conditions by any party thereto.
We have, in the past, provided financial advisory and/or financing services
to the Company and/or its affiliates and the Parent and may continue to do so.
We are acting as financial advisor to the Company in connection with the Merger
and will receive a fee for our services, substantially all of which is
contingent upon the consummation of the Merger. In addition, the Company has
agreed to indemnify us for certain liabilities arising out of our engagement.
In the ordinary course of business, we may actively trade in the securities of
the Company and the Parent for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
On the basis of, and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Exchange Ratio is fair to the holders of the Shares
(other than the Parent and its affiliates) from a financial point of view.
Very truly yours,
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
/s/ Karl Will
By: _________________________________
Managing Director
Investment Banking Group
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by such section.
The Registrant's restated certificate of incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law.
The Registrant's bylaws provides for the indemnification of officers,
directors and third parties acting on behalf of the Registrant if such person
acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its directors
and executive officers and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
The Registrant has director and officer liability insurance that covers
matters, including matters arising under the Securities Act.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1(1) Agreement and Plan of Reorganization, dated as of July 26, 2000, by
and among InfoSpace, Inc., Go2Net, Inc. and Giants Acquisition Corp.
3.1(2) Restated certificate of incorporation of InfoSpace
3.2(6) Certificate of amendment to restated certificate of incorporation of
InfoSpace
3.3(2) Restated bylaws of InfoSpace
4.1(1) Form of Stock Option Agreement dated July 26, 2000
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
8.1** Form of Tax Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
8.2** Form of Tax Opinion of Hutchins, Wheeler & Dittmar, A Professional
Corporation
9.1(1) Form of InfoSpace Voting Agreement dated July 26, 2000
9.2(1) Form of Go2Net Voting Agreement dated July 26, 2000
10.1(2) Form of Indemnification Agreement between InfoSpace and each of its
Directors and Executive Officers
10.2(3) Restated 1996 Flexible Stock Incentive Plan and Terms of Stock Option
Grant Program for Nonemployee Directors under the Restated 1996
Flexible Stock Incentive Plan
10.3(2) 1998 Employee Stock Purchase Plan
10.4(2) Lease, dated May 14, 1998, between InfoSpace and TIAA Realty, Inc.
10.5(2) Registration Rights Agreement, dated May 1, 1997, among InfoSpace,
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 InfoSpace, John E. Richards, Peter S. Richards,
John Enger and Alexander Hutton Capital, L.L.C.
10.6(2) Agreement, dated January 2, 1998, among InfoSpace, John E. Richards,
Peter S. Richards, John Enger and Alexander Hutton Capital, L.L.C.
10.7(2) Form of Common Stock and Common Stock Warrant Purchase Agreements,
dated May 21, 1998, between InfoSpace and each of Acorn Ventures-IS,
LLC, Kellett Partners, LLP and John and Carolyn Cunningham
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.8(2) Form of Investor Rights Agreements, dated as of May 21, 1998, between
InfoSpace and each of Acorn Ventures-IS, LLC, Kellett Partners, LLP
and John and Carolyn Cunningham
10.9(2) Form of Co-Sale Agreements, dated as of May 21, 1998, among
InfoSpace, Naveen Jain and each of Acorn Ventures-IS, LLC, Kellett
Partners, LLP and John and Carolyn Cunningham
10.10(2) Form of Common Stock Warrant, dated May 21, 1998, between InfoSpace
and each of Acorn Ventures-IS, LLC, Kellett Partners, LLP and John
and Carolyn Cunningham
10.11(2) Common Stock Purchase Agreement, dated as of August 6, 1998, by and
among InfoSpace and the investors named therein
10.12(2) Stockholder Rights Agreement, dated as of August 6, 1998, by and
among InfoSpace and the investors named therein
10.13(2) Form of Amendment to Common Stock and Common Stock Warrant Purchase
Agreements, dated August 6, 1998, between InfoSpace and each of Acorn
Ventures-IS, LLC, Kellett Partners, LLP and John and Carolyn
Cunningham
10.14(2) License Agreement, dated July 28, 1998, between InfoSpace and
American Business Information, Inc. (now known as infoUSA, Inc.)
10.15(2) Amended and Restated Content Provider Agreement, made as of August
24, 1996, effective as of April 25, 1998, between InfoSpace and 800-
U.S. Search
10.16(2) Letter Agreement with Bernee D. L. Strom, dated November 22, 1998
10.17(5) Lease, dated February 2000, between InfoSpace and Three Bellevue
Center, LLC.
10.18(5) Letter Agreement with Bernee D. L. Strom, dated December 16, 1999
10.19(5) Letter Agreement with Naveen Jain, dated February 10, 2000
10.20(6) Employment Agreement between InfoSpace, Inc., Saraide Inc. and Arun
Sarin
10.21(7) InfoSpace, Inc. and Saraide Inc. 2000 Stock Plan
21.1(4) Subsidiaries of InfoSpace
23.1 Consent of Deloitte & Touche LLP, Independent Auditors (relating to
financial statements of InfoSpace, Inc.)
23.2 Consent of KPMG LLP, Independent Auditors (relating to financial
statements of Go2Net, Inc.)
23.3** Consent of Morgan Stanley & Co. Incorporated
23.4** Consent of Merrill Lynch & Co.
23.5** Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in opinions filed as Exhibits 5.1 and 8.1)
23.6** Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation
(included in opinion filed as Exhibit 8.2)
23.7 Consent of KPMG LLP, Independent Auditors (relating to financial
statements of Prio, Inc.)
23.8 Consent of Deloitte & Touche LLP, Independent Auditors (relating to
financial statements of Saraide Inc.)
24.1** Power of Attorney
99.1** Form of InfoSpace, Inc. proxy card
99.2** Form of Go2Net, Inc. proxy card
99.3 Consent of Person About to Become a Director--Russell C. Horowitz
99.4 Consent of Person About to Become a Director--William C. Savoy
</TABLE>
--------
** Previously filed.
(1) Filed as an annex to the joint proxy statement/prospectus constituting a
part of this registration statement and incorporated by reference herein.
(2) Incorporated by reference to the Registration Statement on Form S-1 (No.
333-62323) filed by InfoSpace on August 27, 1998, as amended.
(3) Incorporated by reference to the Registration Statement on Form S-8 (No.
333-81593) filed by InfoSpace on June 25, 1999.
(4) Incorporated by reference to the Registration Statement on Form S-1 (No.
333-86313) filed by InfoSpace on September 1, 1999, as amended.
II-2
<PAGE>
(5) Incorporated by reference to the Annual Report on Form 10-K filed by
InfoSpace for the year ended December 31, 1999.
(6) Incorporated by reference to the Quarterly Report on From 10-Q filed by
InfoSpace for the quarter ended March 31, 2000.
(7) Incorporated by reference to the Registration Statement on Form S-3 (No.
333-93167) filed by InfoSpace on December 21, 1999, as amended.
(b) Financial statement schedules
Not applicable.
(c) Reports, opinions or appraisals
Opinions of Morgan Stanley & Co. Incorporated and Merrill Lynch & Co.
(attached as Annexes B and C, respectively, to the joint proxy
statement/prospectus filed as part of this registration statement).
Item 22. Undertakings
(1) The undersigned Registrant hereby undertakes as follows: that prior to
any public offering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
undersigned Registrant undertakes that such offering prospectus will contain
the information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.
(3) Insofar as the indemnification for liabilities arising under the
Securities Act of 1933 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 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(4) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(5) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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<PAGE>
(6) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
InfoSpace, Inc. has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bellevue,
State of Washington, on the 8th day of September, 2000.
InfoSpace, Inc.
/s/ Ellen B. Alben
By: _________________________________
Ellen B. Alben,
Senior Vice President, Legal and
Business Affairs
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 8th day of September, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Chief Executive Officer and Vice Chairman
____________________________________________ (Principal Executive Officer)
Arun Sarin
* Chief Financial Officer and Senior Vice
____________________________________________ President, Finance and Corporate
Rand L. Rosenberg Development (Principal Financial Officer)
* Senior Vice President and Chief Accounting
____________________________________________ Officer (Principal Accounting Officer)
Tammy D. Halstead
* Chairman of the Board
____________________________________________
Naveen Jain
* Director
____________________________________________
John E. Cunningham, IV
* Director
____________________________________________
Peter L. S. Currie
* Director
____________________________________________
David C. House
* Director
____________________________________________
Rufus W. Lumry, III
Director
____________________________________________
Ashok Narasimhan
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Director
____________________________________________
Carl Stork
/s/ Ellen B. Alben
*By: _______________________________________
Ellen B. Alben
Attorney-in-fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<C> <S>
2.1(1) Agreement and Plan of Reorganization, dated as of July 26, 2000, by
and among InfoSpace, Inc., Go2Net, Inc. and Giants Acquisition Corp.
3.1(2) Restated certificate of incorporation of InfoSpace
3.2(6) Certificate of amendment to restated certificate of incorporation of
InfoSpace
3.3(2) Restated bylaws of InfoSpace
4.1(1) Form of Stock Option Agreement dated July 26, 2000
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
8.1** Form of Tax Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
8.2** Form of Tax Opinion of Hutchins, Wheeler & Dittmar, A Professional
Corporation
9.1(1) Form of InfoSpace Voting Agreement dated July 26, 2000
9.2(1) Form of Go2Net Voting Agreement dated July 26, 2000
10.1(2) Form of Indemnification Agreement between InfoSpace and each of its
Directors and Executive Officers
10.2(3) Restated 1996 Flexible Stock Incentive Plan and Terms of Stock Option
Grant Program for Nonemployee Directors under the Restated 1996
Flexible Stock Incentive Plan
10.3(2) 1998 Employee Stock Purchase Plan
10.4(2) Lease, dated May 14, 1998, between InfoSpace and TIAA Realty, Inc.
10.5(2) Registration Rights Agreement, dated May 1, 1997, among InfoSpace,
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 InfoSpace, John E. Richards, Peter S.
Richards, John Enger and Alexander Hutton Capital, L.L.C.
10.6(2) Agreement, dated January 2, 1998, among InfoSpace, John E. Richards,
Peter S. Richards, John Enger and Alexander Hutton Capital, L.L.C.
10.7(2) Form of Common Stock and Common Stock Warrant Purchase Agreements,
dated May 21, 1998, between InfoSpace and each of Acorn Ventures-IS,
LLC, Kellett Partners, LLP and John and Carolyn Cunningham
10.8(2) Form of Investor Rights Agreements, dated as of May 21, 1998, between
InfoSpace and each of Acorn Ventures-IS, LLC, Kellett Partners, LLP
and John and Carolyn Cunningham
10.9(2) Form of Co-Sale Agreements, dated as of May 21, 1998, among
InfoSpace, Naveen Jain and each of Acorn Ventures-IS, LLC, Kellett
Partners, LLP and John and Carolyn Cunningham
10.10(2) Form of Common Stock Warrant, dated May 21, 1998, between InfoSpace
and each of Acorn Ventures-IS, LLC, Kellett Partners, LLP and John
and Carolyn Cunningham
10.11(2) Common Stock Purchase Agreement, dated as of August 6, 1998, by and
among InfoSpace and the investors named therein
10.12(2) Stockholder Rights Agreement, dated as of August 6, 1998, by and
among InfoSpace and the investors named therein
10.13(2) Form of Amendment to Common Stock and Common Stock Warrant Purchase
Agreements, dated August 6, 1998, between InfoSpace and each of Acorn
Ventures-IS, LLC, Kellett Partners, LLP and John and Carolyn
Cunningham
10.14(2) License Agreement, dated July 28, 1998, between InfoSpace and
American Business Information, Inc. (now known as infoUSA, Inc.)
10.15(2) Amended and Restated Content Provider Agreement, made as of August
24, 1996, effective as of April 25, 1998, between InfoSpace and 800-
U.S. Search
10.16(2) Letter Agreement with Bernee D. L. Strom, dated November 22, 1998
10.17(5) Lease, dated February 2000, between InfoSpace and Three Bellevue
Center, LLC.
10.18(5) Letter Agreement with Bernee D. L. Strom, dated December 16, 1999
10.19(5) Letter Agreement with Naveen Jain, dated February 10, 2000
10.20(6) Employment Agreement between InfoSpace, Inc., Saraide Inc. and Arun
Sarin
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.21(7) InfoSpace, Inc. and Saraide Inc. 2000 Stock Plan
21.1(4) Subsidiaries of InfoSpace
23.1 Consent of Deloitte & Touche LLP, Independent Auditors (relating to
financial statements of InfoSpace, Inc.)
23.2 Consent of KPMG LLP, Independent Auditors (relating to financial
statements of Go2Net, Inc.)
23.3** Consent of Morgan Stanley & Co. Incorporated
23.4** Consent of Merrill Lynch & Co.
23.5** Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in opinions filed as Exhibits 5.1 and 8.1)
23.6** Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation
(included in opinion filed as Exhibit 8.2)
23.7 Consent of KPMG LLP, Independent Auditors (relating to financial
statements of Prio, Inc.)
23.8 Consent of Deloitte & Touche LLP, Independent Auditors (relating to
financial statements of Saraide Inc.)
24.1** Power of Attorney
99.1** Form of InfoSpace, Inc. proxy card
99.2** Form of Go2Net, Inc. proxy card
99.3 Consent of Person About to Become a Director--Russell C. Horowitz
99.4 Consent of Person About to Become a Director--William C. Savoy
</TABLE>
--------
** Previously filed.
(1) Filed as an annex to the joint proxy statement/prospectus constituting a
part of this registration statement and incorporated by reference herein.
(2) Incorporated by reference to the Registration Statement on Form S-1 (No.
333-62323) filed by InfoSpace on August 27, 1998, as amended.
(3) Incorporated by reference to the Registration Statement on Form S-8 (No.
333-81593) filed by InfoSpace on June 25, 1999.
(4) Incorporated by reference to the Registration Statement on Form S-1 (No.
333-86313) filed by InfoSpace on September 1, 1999, as amended.
(5) Incorporated by reference to the Annual Report on Form 10-K filed by
InfoSpace for the year ended December 31, 1999.
(6) Incorporated by reference to the Quarterly Report on From 10-Q filed by
InfoSpace for the quarter ended March 31, 2000.
(7) Incorporated by reference to the Registration Statement on Form S-3 (No.
333-93167) filed by InfoSpace on December 21, 1999, as amended.
