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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ________________ to _______________
Commission File Number 0-25131
INFOSPACE, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1718107
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
15375 N.E. 90/th/ Street 98052
Redmond, Washington (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (425) 602-0600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___.
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class April 30, 2000
----- --------------
Common Stock, Par Value $.0001 229,497,029
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INFOSPACE, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - Financial Information
Item 1. -- Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999..................... 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 2000 and 1999............................................................ 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999............................................................ 5
Notes to Consolidated Financial Statements................................................. 6
Item 2. -- Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview.................................................................................. 12
Results of Operations..................................................................... 14
Liquidity and Capital Resources........................................................... 17
Factors Affecting InfoSpace's Operating Results, Business Prospects and
Market Price of Stock................................................................. 21
Item 3. -- Quantitative and Qualitative Disclosures About Market Risk.............................. 27
Part II - Other Information
Items 1 through 5 are not applicable with respect to the current reporting period.
Item 6. -- Exhibits and Reports on Form 8-K......................................................... 28
Signatures.......................................................................................... 29
</TABLE>
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Item 1. - Financial Statements
INFOSPACE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(unaudited)
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 35,561,656 $ 37,985,250
Short-term investments..................................................... 114,459,290 124,720,142
Accounts receivable, net of allowance for doubtful accounts of $705,609 and
$702,960............................................................... 8,273,390 6,663,497
Notes receivable........................................................... 25,578,115 11,580,866
Interest receivable........................................................ 2,771,622 3,333,772
Prepaid expenses and other current assets.................................. 15,142,541 10,304,244
------------- ------------
Total current assets................................................... 201,786,614 194,587,771
Other long-term assets.......................................................... 2,089,664 702,641
Property and equipment, net..................................................... 18,861,989 7,998,957
Long-term investments........................................................... 37,838,717 71,416,776
Other investments............................................................... 63,846,750 17,038,508
Intangible assets, net.......................................................... 385,787,368 73,842,557
------------- ------------
Total........................................................................... $ 710,211,102 $365,587,210
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 3,255,313 $ 2,810,141
Accrued expenses........................................................... 24,096,173 18,501,053
Deferred revenues.......................................................... 3,657,588 2,672,531
Other current liabilities.................................................. 71,766 185,742
Short-term debt............................................................ 692,845 856,695
------------- ------------
Total current liabilities.............................................. 31,773,685 25,026,162
Long-term liabilities and minority interest:
Other long-term liabilities................................................ 71,341 73,125
Long-term debt............................................................. 1,622,556 612,637
Minority interest.......................................................... 29,158,321 --
------------- ------------
Total long-term liabilities and minority interest...................... 30,852,218 685,762
Stockholders' equity
Preferred stock, par value $.0001- authorized, 15,000,000 shares: issued and
outstanding, 1 share....................................................... -- --
Common stock, par value $.0001- authorized, 900,000,000 shares; issued and
outstanding, 227,733,868 and 211,853,372 shares............................ 2,277 2,119
Additional paid-in capital................................................. 829,480,458 439,447,478
Accumulated deficit........................................................ (182,227,743) (98,512,435)
Accumulated other comprehensive income..................................... 3,669,531 1,317,448
Deferred expense-warrants.................................................. (2,080,070) (2,311,159)
Unearned compensation-stock options........................................ (1,259,254) (68,165)
------------- ------------
Total stockholders' equity............................................. 647,585,199 339,875,286
------------- ------------
Total........................................................................... $ 710,211,102 $365,587,210
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
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INFOSPACE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
--------------------------------
2000 1999
--------------- -------------
<S> <C> <C>
Revenues............................................................... $ 19,005,740 $ 5,259,418
Cost of revenues....................................................... 3,118,772 1,308,500
------------- ------------
Gross profit.................................................. 15,886,968 3,950,918
Operating expenses:
Product development............................................... 4,777,280 2,486,604
Sales and marketing............................................... 8,452,028 5,416,649
General and administrative........................................ 6,077,685 2,650,575
Amortization of intangibles....................................... 7,490,751 299,279
Acquisition and other related charges............................. 86,397,306 --
Other - non-recurring charges..................................... 2,887,609 --
------------- ------------
Total operating expenses...................................... 116,082,659 10,853,107
------------- ------------
Loss from operations.......................................... (100,195,691) (6,902,189)
Other income, net...................................................... 3,462,752 1,265,486
Unrealized gain on investments......................................... 23,597,688 --
Minority interest...................................................... (9,843,321) --
------------- ------------
Loss from operations before income tax expense and cumulative
effect of change in accounting principle............................. (82,978,572) (5,636,703)
Income tax expense..................................................... 17,520 --
------------- ------------
Loss from operations before cumulative effect of change in
accounting principle................................................. (82,996,092) (5,636,703)
Cumulative effect of change in accounting principle.................... (719,216) --
------------- ------------
Net loss............................................................... $ (83,715,308) $ (5,636,703)
============= ============
Comprehensive loss..................................................... $ (81,363,225) $ (5,634,912)
============= ============
Basic and diluted net loss per share................................... $ (0.39) $ (0.03)
============= ============
Shares used in computing basic and diluted net loss per share.......... 217,120,107 179,618,040
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
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INFOSPACE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
---------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Operating activities
Net loss.................................................................... $ (83,715,308) $ (5,636,703)
Adjustments to reconcile net loss to net cash provided (used) by operating
activities:
Depreciation and other amortization..................................... 8,650,408 1,522,071
Compensation expense-stock options...................................... 258,888 24,029
Warrants expense........................................................ 3,118,698 203,925
Performance warrant revenue............................................. (3,218,222) --
Noncash services exchanged.............................................. 110,000 --
Bad debt expense........................................................ 29,061 150,437
(Equity) loss from joint venture........................................ (81,025) 55,052
Loss on disposal of fixed assets........................................ 14,099 1,905
Unrealized gain on investments.......................................... (23,597,688) --
Cumulative translation adjustment (4,124) --
Minority interest in venture fund....................................... 9,843,321 --
Business acquisition costs 14,684,574 --
In-process research and development..................................... 74,100,000 --
Cumulative effect of change in accounting principle..................... 505,743 --
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable................................................. (1,057,751) (346,890)
Interest receivable................................................. 562,150 (420,480)
Prepaid expense and other current assets............................ (3,020,563) (933,484)
Other long-term assets.............................................. (14,846) (15,876)
Accounts payable.................................................... 251,204 (2,239,320)
Accrued expenses.................................................... (3,729,167) (2,835,308)
Deferred revenue.................................................... 479,314 87,888
--------------- ---------------
Net cash used by operating activities................................... (5,831,234) (10,382,754)
Investing activities
Capitalized internally developed software............................... (84,493) (214,666)
Purchase of property and equipment...................................... (4,257,509) (1,130,867)
Repayment proceeds of notes receivable.................................. 6,893,826 929
Issuance of notes receivable............................................ (20,873,075) (250,000)
Business acquisitions, net of cash acquired............................. (11,417,506) --
Investment in domain name............................................... -- (100,000)
Minority interest contribution in venture fund.......................... 19,315,000 --
Purchase of other investments........................................... (17,500,000) (500,000)
Short-term investments, net............................................. 10,260,852 68,187,154
Long-term investments, net.............................................. 33,578,059 (45,074,269)
--------------- ---------------
Net cash provided by investing activities............................... 15,915,154 20,918,281
Financing activities:
Proceeds from issuance of ESPP shares................................... 343,126 --
Proceeds from issuance of common stock.................................. -- 1,870,641
Proceeds from exercise of warrants...................................... 91,880 110,966
Proceeds from exercise of stock options................................. 8,480,722 52,784
Short-term and long-term debt, net...................................... (21,423,242) 141,992
--------------- ---------------
Net cash provided (used) by financing activities........................ (12,507,514) 2,176,383
--------------- ---------------
Net increase (decrease) in cash and cash equivalents........................ (2,423,594) 12,711,910
Cash and cash equivalents:
Beginning of period..................................................... 37,985,250 39,986,609
--------------- ---------------
End of period........................................................... $ 35,561,656 $ 52,698,519
=============== ===============
Supplemental disclosure of noncash activities
Stock issued in exchange transaction.................................... 110,000 --
</TABLE>
See accompanying notes to consolidated financial statements.
5
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INFOSPACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and Basis of Presentation
InfoSpace, Inc. (the Company or InfoSpace), previously known as InfoSpace.com,
Inc., a Delaware corporation, was founded in March 1996. The Company is a global
Internet information infrastructure services company that provides enabling
technologies and Internet services to Web sites, merchants and wireless devices.
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. Certain information and note
disclosures normally included in financial statements, prepared in accordance
with generally accepted accounting principles, have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
Results of operations for the three-month period ended March 31, 2000 are not
necessarily indicative of future financial results.
Investors should read these interim statements in conjunction with the audited
financial statements and notes thereto included in our annual report (Commission
File Number 0-25131) filed on Form 10-K for the fiscal year ended December 31,
1999. Prior period balances have been reclassified to conform to current period
presentation.
Stock split: A two-for-one stock split of the Company's common stock was
effected on April 7, 2000. All references in the financial statements to shares,
share prices and per share amounts have been adjusted retroactively for this
stock split.
Other non-recurring charges: Other non-recurring charges in the first quarter of
2000 represent an 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 this warrants was terminated and the
remaining unvested warrants accelerated to full vesting.
Cumulative effect of change in accounting principle: On January 1, 2000, the
Company adopted SAB 101, Revenue Recognition in Financial Statements, which
established certain criteria for net versus gross recording of sales
transactions. Prior to January 1, 2000, 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-lined
basis over the term of the related service agreements, in accordance with SAB
101, the Company would have deferred $719,216 of revenue and recognized in 2000
and 2001. In accordance with SAB 101, the Company recorded a cumulative effect
of change in accounting principle of $719,216 and recorded $213,473 in revenue
in the first quarter of 2000 related to previously recognized
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development, implementation and/or integration fees that would have been
recorded as revenue if the fees were recognized on the straight-lined basis in
prior periods. The remaining balance of $502,743 will be recognized from April
2000 through November 2001.
2. Acquisitions
Millet Software: 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 $123,826,169
============
</TABLE>
The $6,000,000 value of purchased technology includes purchased in-process
research and development for future InfoSpace products. Generally accepted
accounting principles 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.: 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 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.
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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 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.
Pro forma information - Saraide acquisition:
The following pro forma information shows the results of the Company for the
quarter ended March 31, 2000 as if the acquisition of Saraide occurred on
January 1, 2000. The unaudited pro forma 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.
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For the quarter ended March 31, 2000:
- -------------------------------------
<TABLE>
<S> <C>
Revenues $ 19,718,361
Loss before cumulative effect of change in accounting principle (89,629,692)
Net loss (90,348,908)
Basic and diluted loss per share $ (0.42)
</TABLE>
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 condensed consolidated balance sheet as
of March 31, 2000 and December 31, 1999 and the statement of operations for the
quarters ended March 31, 2000 and 1999 are presented as if Prio was a
wholly-owned subsidiary since inception.
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
- ----------------------------------------------------------------------------
<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)
============ ===========
</TABLE>
3. Venture Capital Fund
On January 1, 2000, the Company established the InfoSpace Capital Venture Fund
2000 LLC. This fund is an investment vehicle through which the Company will
invest in Internet and technology companies. Investors in this fund are the
Company and its employees. The Company will contribute a total of $30,000,000 to
this fund, $25,450,000 of which had been contributed as of March 31, 2000.
Employees meeting the accredited investor criteria contributed $16,315,000 to
the fund as of March 31, 2000. The Company contributed $3,000,000 of its total
investment on behalf of the employees of the Company employed as of March 31,
2000. The employee contribution vests on March 31, 2003. The Company will
recognize this expense on a straight-lined basis over the three year vesting
term. Amounts forfeited during the vesting term will revert to the Company.
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The funds investments are selected and managed by an investment committee that
includes members of the Company's management. The Company has a majority and
controlling interest in the fund.
All investments held in the fund are recorded at their fair market value and
unrealized gains and losses on the investments are recorded as gains or losses
in the statement of operations of the fund. As of March 31, 2000, the fund had
$16,320,388 in cash and $49,047,687 in investments. The investment balance is
reflected at fair market value and includes $23,597,688 of unrealized gain that
was recorded in Other income on the Company's Statement of Operations. The
Company has recorded minority interest on the Balance Sheet and Statement of
Operations for the employee-owned portion of the fund.
4. Notes Receivable
On February 28, 2000, the Company loaned $10.0 million to an unrelated company
that the Company plans to acquire. This acquisition is expected to close in the
second quarter of 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 the
notes are secured by all of the assets and properties of the borrower and are
considered fully collectible. At March 31, 2000, accrued interest on the notes
was $149,667.
From December 21, 1999 to February 29, 2000, the Company loaned a former Officer
of the Company $10.0 million. The promissory note is due on December 6, 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 March 31, 2000, accrued interest on this note was
$179,603. At March 31, 2000, the Company also had approximately $399,000 in
short-term loans to employees, related and unrelated parties at various interest
rates.
5. Short-Term and Long-Term Debt
As a result of the merger with Prio, Inc. and the acquisitions of Saraide Inc.
and Millet Software, the Company assumed short-term and long-term debt. The
Company's debt as of March 31, 2000 consists of the following:
<TABLE>
<S> <C>
Equipment financing and capital leases $ 1,264,506
Notes payable 1,050,895
Current portion (692,845)
-----------
Long-term portion $ 1,622,556
===========
</TABLE>
$110,216 of the equipment financing and capital lease obligations is due in the
year ending December 31, 2000. In addition, the Company elected to purchase
leased equipment subsequent
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to March 31, 2000, which was comprised of $1,154,290 of the total equipment
financing and capital lease obligations noted above. This obligation pay off
will occur in the second quarter of 2000.
The Company assumed a note payable in the merger with Prio which has $1,000,895
of principal and interest due at March 31, 2000. Monthly payments on this loan
are due through March 2002. The loan bears interest at rates ranging from 15.0%
to 16.4% per annum. Principal and interest repayments are due approximately as
follows: April 1, 2000 through December 31, 2000, $544,000; 2001, $340,000;
2002, $117,000.
The Company assumed a note payable to a former shareholder of Millet Software
for $50,000. This note bears interest at 8% and is due on October 15, 2000.
6. Subsequent Events
On April 6, 2000, the Company signed a definitive agreement to acquire 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, the Company will
exchange common stock for all of IQorder's outstanding shares, warrants and
options. The number of shares to be exchanged will be determined at the close of
the transaction.
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Item 2. -- Management's Discussion and Analysis of Financial Condition and
Results of Operations.
You should read the following discussion and analysis in conjunction with our
Consolidated Financial Statements and Notes to Consolidated Financial Statements
thereto included elsewhere in this report. 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 report as being applicable to all
related forward-looking statements wherever they appear in this report. 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 "Factors Affecting Our Operating Results, Business Prospects and Market
Price of Stock" and in our reports filed with the Securities and Exchange
Commission including our annual report on Form 10-K for the year ended December
31, 1999 (the "Form 10-K"). You should not rely on these forward-looking
statements, which reflect only our opinion as of the date of this report. We do
not assume any obligation to revise forward-looking statements.
Overview
InfoSpace, Inc. is a global Internet information infrastructure services
company. InfoSpace provides enabling technologies and Internet services to
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. Revenue in 1998 was also primarily generated through our
consumer services. Throughout 1999 and the first quarter of 2000, we have
expanded our information infrastructure services to enhance our consumer,
merchant and wireless services. 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.
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
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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, Bell
Atlantic, GTE and USWEST, merchant banks such as American Express and other
local media networks such as newspapers and television and radio stations who
provide our services to millions of local merchants worldwide.
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 anyWeb site directly from a wireless device with a single click;
. Page Express which enables local merchants to create a Web presence;
. StoreBuilder which enables merchants to build on-line stores;
. ActivePromotion which enables merchants to create targeted product promotions
and distribute them across our network;
. ActiveShopper which provides an open marketplace where consumers can find,
research and purchase products from our merchant network.
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.
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 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 three 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.
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
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(privacybank.com). Millet developed secure technology that provides an automated
process for filling in payment forms.
We have incurred losses since our inception and, as of March 31, 2000, we had an
accumulated deficit of approximately $182.2 million. For the quarter ended March
31, 2000, our net loss totaled $83.7 million, including $86.4 million in
acquisition and related charges associated with the acquisitions of Prio,
Saraide and Millet Software and $2.9 million in other non-recurring charges
related to a one-time warrant expense that resulted from the acquisition of
Prio.
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 sales and marketing operations and hire more salespersons;
. increase our advertising and promotional activities;
. develop and upgrade our technology and purchase equipment for our operations
and network infrastructure;
. expand internationally; and
. expand our consumer, merchant and wireless services.
After giving effect to our recent acquisitions and continued global expansion,
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 eleven quarters, we do not
believe that our historical growth rates are necessarily sustainable or
indicative of future growth.
Results of Operations
First Quarter 2000 Compared to First Quarter 1999
Revenues. Revenues increased $13.7 million, or 261%, to $19.0 million in the
three-month period ended March 31, 2000, from $5.3 million for 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 that 3,000 Web sites and wireless devices,
increased traffic to our affiliate network that results in increased page views,
and increased use of our consumer, merchant and wireless services, as well as
larger and longer
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term agreements with advertisers, affiliates and distribution partners. We
entered into 111 new agreements in the first quarter of 2000. A portion of our
revenues represents barter transactions resulting from our exchange with other
companies of banner advertising space for reciprocal banner advertising space,
for content license or for print advertising. Barter revenues for the quarter
ended March 31, 2000 were 4.6% of total revenue. Barter revenues for the quarter
ended March 31, 1999 were 3.5% of total revenue.
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, consultant costs, communication
costs such as high-speed Internet access, server equipment depreciation and
content license fees. Cost of revenues were $3.1 million, or 16% of revenues,
for the three-month period ended March 31, 2000 compared to $1.3 million, or 25%
of revenues, for the three-month period ended March 31, 1999. The absolute
dollar increase is primarily attributable to costs incurred in order to support
greatly increased delivery of consumer, merchant and wireless solutions,
including personnel expenses, communication lines, data licenses and equipment.
We expect the absolute dollars spent on personnel, enhanced content and expanded
communications will continue to increase for 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 increased $2.3 million, or 92%,
to $4.8 million in the three-month period ended March 31, 2000, from $2.5
million for the comparable period in 1999. The increase in absolute dollars is
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 engineering personnel who will develop
and enhance our proprietary technology.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily of
salaries and related benefits for sales and marketing personnel, advertising and
promotion expenses, barter expense, carriage fees, sales office expenses and
travel expenses. Sales and marketing expenses increased $3.0 million, or 56%, to
$8.5 million in the three-month period ended March 31, 2000, from $5.4 million
for the comparable period in 1999. The absolute dollar increase is primarily due
to increased personnel costs and carriage fees paid to certain affiliates to
include our content services on their Web sites and travel expenses.
General and Administrative Expenses. General and administrative expenses consist
primarily of salaries and benefits, fees for professional services, occupancy
and general office expenses. General and administrative expenses were $6.1
million or 32% of revenue for the three-months ended March 31, 2000. This
compares to $2.7 million or 50% of revenue for the comparable period in 1999.
These increases are primarily due to increased staffing levels, office expansion
at our headquarter offices and other North America locations and professional
services.
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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 $7.5 million in the
first quarter of 2000, compared to $299,000 in the first quarter of 1999. The
increases are a result of amortization of intangibles recorded from the
acquisitions of Saraide 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. On March 31, 2000, we
also acquired Millet Software (privacybank.com). Amortization on the goodwill,
core technology and acquired workforce for this acquisition will be over five
years and will begin in April 2000. As a result of these acquisitions, we expect
amortization of intangibles to be higher in future quarters than the first
quarter of 2000 amortization expense. 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 the first quarter of 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 quarter 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 the first quarter of
2000 represent 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.
Unrealized Gain on Investments Held: Unrealized gain on investments held
represents the unrealized gain on the investments in the InfoSpace Venture
Capital Fund 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 first quarter of 2000
is not necessarily indicative of future results.
Minority Interest in Venture Capital Fund: As the majority interest 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.
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Other Income, Net. Other income consists primarily of interest income for all
periods. Other income was $3.5 million in the first quarter of 2000, compared to
$1.3 million from the first quarter in 1999. The increase from the prior year is
primarily due to interest earned on higher average cash balances resulting from
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 of 2000 than in prior years. With
these two factors, we anticipate that our interest income from our fixed
securities will decrease in the remainder of 2000, compared with 1999.
Income Taxes Expense. The income tax expense in the first quarter of 2000 is
from our international operations in Europe.
Liquidity and Capital Resources
Our initial public offering in December 1998 yielded net proceeds of $77.8
million and a follow-on public offering in April 1999 yielded net proceeds of
$185.0 million. As of March 31, 2000, we had cash, cash equivalents and
short-term investments of $150.0 million and long-term investments of $101.7
million.
Net cash used by operating activities was $5.8 million in the first quarter of
2000. Cash used in operating activities for the quarter ended March 31, 2000 and
consisted primarily of net operating losses and increases in accounts receivable
and prepaid expenses and the decrease in accrued liabilities. Net cash used by
operating activities was $10.4 million during the quarter ended March 31, 1999
consisted primarily of net operating losses and decreases in accounts payable
and accrued expenses.
Net cash provided by investing activities was $15.9 million in the quarter ended
March 31, 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 provided by investing activities during the quarter ended March 31, 1999
was $20.9 million. This was primarily a result of investing the cash proceeds
from the initial public offering in short and long-term investments.
Cash used in financing activities in the quarter ended March 31, 2000 of $12.5
million was primarily comprised of payments 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 quarter ended March 31, 1999 of
$2.2 was primarily comprised of proceeds from the issuance of common stock. The
proceeds are related to equity financings of Prio and INEX, which have been
accounted for as pooling of interests.
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We plan to use our cash for strategic investments and acquisitions, investments
in internally developed technology and advertising and marketing initiatives. In
addition, we are relocating our headquarter offices from Redmond, Washington to
Bellevue, Washington at the end of May 2000. Included in the costs of this move
is the construction of a new data center, tenant improvements and furniture. We
will also purchase capital equipment for our headquarters and our other
world-wide locations, including Mountain View, California; Dallas, Texas;
Ottawa, Canada; and Pependrecht, Netherlands. We expect these capital
expenditures to be approximately $24 million in the remainder of 2000. These
costs will be capitalized and amortized over their estimated useful lives.
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
"Factors Affecting Our Operating Results, Business Prospects and Market Price of
Stock."
Acquisitions
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 the 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.
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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 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.
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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: (i) asynchronous bridges, (ii) lookup
service/persistent cache services, (iii) transaction services, (iv) open
standards application provider interface ("API"), (v) SS7 signaling
functionality, (vi) security infrastructure, (vii) location enabler, and (viii)
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. Research and development costs were
estimated to be of 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 range 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
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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
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 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
service offerings to our merchant services. The consolidated financial
statements for the three months ended March 31, 2000 and the accompanying notes
reflect our financial position and the results of operations as if Prio was our
wholly-owned subsidiary since inception.
Factors Affecting Our Operating Results, Business Prospects and Market Price of
Stock
In addition to other information in this report, investors evaluating us and our
business should carefully consider the following risk factors. These risks may
impair our operating results and business prospects and the market price of our
stock.
This report contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements include, but are not limited to,
statements regarding our business and growth strategy, the expected demand for
and benefits of our Internet information infrastructure services for our
affiliates, advertisers and content providers, anticipated benefits from the
business and technologies we 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 product development expenditures, increased costs of revenues,
increased product development expenses, increased sales and marketing expenses,
increased general and administrative expenses, anticipated capital equipment
expenditures and anticipated cash needs. We 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. Forward-looking statements are subject
to known and unknown risks, uncertainties and other factors that may cause our
and the strategic 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. The risks
set forth below and elsewhere in this report could cause actual results to
differ materially from those projected.
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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 March 31, 2000. At March 31, 2000, we had an accumulated deficit of
approximately $182.2 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;
. maintain and increase our affiliate, distribution and advertiser base;
. successfully expand into international markets;
. retain and motivate qualified personnel; and
. successfully respond to competitive developments.
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;
. 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;
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. 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 and intend to
continue to significantly increase our sales and marketing, research and
development and general and administrative expenses in 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.
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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;
. impairing relationships with our employees, affiliates, advertisers,
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 471 at March 31, 2000. We now have offices in Redmond,
Washington; San Francisco, San Mateo and Mountain View, California; New York
City and Rochester, New York; Dallas, Texas; Toronto and Ottawa, Canada;
Papendrecht, Netherlands; and London, United Kingdom. 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
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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. We are currently involved in litigation with Internet
Yellow Pages, Inc., a direct marketing company with which we had a cooperative
sales relationship, and have received other claims. 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.
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 unable to manage growth
effectively, our business could suffer.
We Rely on Advertising and Transaction Revenues.
We derive a significant amount of our revenues from the sale of national and
local advertisements, transaction fees and promotions from our affiliates who
use our consumer services, and we expect this to continue into the second or
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;
25
<PAGE>
. 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.
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 64% of our revenues in the first quarter of
2000 and 61% of our revenues for first quarter of 1999. In particular, 800-U.S.
Search, Inc. accounted for approximately 13% of our revenues for the quarter
ended March 31, 2000 and 28% for the quarter ended March 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.
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 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;
26
<PAGE>
. 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.
Item 3. -- 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. Investments 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.
27
<PAGE>
PART II -- OTHER INFORMATION
Items 1 through 5
Not applicable with respect to the current reporting period.
Item 6. -- Exhibits and Reports on Form 8-K:
a. Exhibits
3.1 Amended and Restated Articles of Incorporation
10.1 Employment agreement between InfoSpace, Inc., Saraide Inc.
and Arun Sarin dated April 17, 2000
27.1 Financial Data Schedule
b. Reports on Form 8-K
Form 8-K filed with the SEC on January 6, 2000 with respect to the
acquisition of Zephyr Software, Inc.
Form 8-K filed with the SEC on March 29, 2000 with respect to the
acquisition of Prio, Inc., as subsequently amended by a Form 8-K/A
filed with the SEC on April 24, 2000.
Form 8-K filed with the SEC on March 29, 2000 with respect to the
acquisition of Saraide, Inc.
Form 8-K filed with the SEC on April 20, 2000 with respect to the
acquisition of Millet Software, Inc.
Form 8-K filed with the SEC on May 10, 2000 with respect to the
acquisition of IQorder.com, Inc.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INFOSPACE, INC.
By: /s/ Tammy D. Halstead
---------------------
Tammy D. Halstead
Vice President. Chief Accounting
Officer and Acting Chief Financial
Officer
Dated: May 12, 2000
29
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EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INFOSPACE.COM, INC.
InfoSpace.com, Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify:
1. The original Certificate of Incorporation was filed with the Secretary
of State on April 9, 1996, under the name of InfoSpace, Inc.
2. The following Certificate of Amendment was duly proposed by the
Corporation's Board of Directors and duly adopted pursuant to the applicable
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware. The Certificate of Amendment and the amendments to be made thereby
were duly adopted by the holders of a majority of shares entitled to vote
thereon pursuant to the applicable provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware.
RESLOVED: That Article 1 of the Amended and Restated Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety as
follows:
ARTICLE 1. NAME
The name of the corporation is InfoSpace, Inc.
RESOLVED FURTHER: That Article 4 of the Amended and Restated Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety as
follows:
ARTICLE 4. SHARES
The total authorized stock of the Corporation shall consist of 900,000,000
shares of Common Stock having a par value of $.0001 per share and 15,000,000
shares of Preferred Stock having a par value of $.0001 per share. Authority is
hereby expressly granted to the Board of Directors to fix by resolution or
resolutions any of the designations and the powers, preferences and rights, and
the qualifications, limitations or restrictions which are permitted by Delaware
General Corporation Law in respect of any class or classes of stock or any
series of any class of stock of the Corporation. The Corporation shall from time
to time in
Page 1
<PAGE>
accordance with the laws of the State of Delaware increase the authorized amount
of its Common Stock if at any time the number of shares of Common Stock
remaining unissued and available for issuance shall not be sufficient to permit
the conversion of the Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this Amended Certificate of
Incorporation to be signed by its duly authorized officer this 3rd day of
April, 2000.
INFOSPACE.COM, INC.,
a Delaware corporation
/S/ ELLEN ALBEN
By:________________________________________
Ellen Alben, Senior Vice President,
Legal and Business Affairs, and Secretary
Page 2
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of the 17th day of
April, 2000, by and among Arun Sarin (the "Executive"), InfoSpace.com, Inc.
("InfoSpace"), a Delaware corporation and Saraide Inc., a Delaware corporation
("Saraide") (InfoSpace and Saraide are referred to collectively as "Employer").
R E C I T A L S
A. InfoSpace has acquired a controlling interest in Saraide. InfoSpace
and Saraide desire that Executive join them in various capacities, including
Executive's joining the board of directors of and being appointed Chief
Executive Officer and Vice Chairman of InfoSpace, and joining the board of
directors of and being appointed President and Chief Executive Officer of
Saraide.
B. The parties contemplate that, upon joining InfoSpace, Executive will
spend a majority of his time during the first six months building the business
of Saraide which will acquire and be combined with the business, assets and
technology of the InfoSpace Wireless Division.
C. Executive has extensive experience in the telecommunications industry,
and is willing to leave his present position to join InfoSpace and Saraide on
the terms set forth in this Agreement.
THE PARTIES AGREE AS FOLLOWS:
1. Term. Executive's employment under this Agreement shall commence on
----
the 31/st/ day after the closing of the joint venture between Bell Atlantic
Corp. and Vodafone Airtouch PLC, or earlier upon notification by Executive to
Employer that he is free to commence employment with Employer (the "Effective
Date"). If Executive does not commence employment with the Employer on or before
July 1, 2000, then this Agreement is null and void and of no effect. The
employment relationship between Executive and the Employer shall be governed by
the general employment policies and procedures of InfoSpace, except that when
the terms of this Agreement differ from or are in conflict with InfoSpace's
general employment policies or procedures, this Agreement shall control.
2. Duties.
------
(a) InfoSpace. Subject to terms set forth herein, InfoSpace agrees to
employ Executive in the position of Chief Executive Officer and Vice Chairman,
and Executive hereby accepts such employment effective as of the Effective Date.
Executive shall perform such duties as are customarily associated with his
position, subject to direction of InfoSpace's Board of Directors (the "InfoSpace
Board"). Executive shall be elected a member of the Board of Directors of
InfoSpace on the Effective Date. Upon Executive becoming a member of the
InfoSpace Board, Executive shall be appointed a member of the InfoSpace
Executive Committee.
1.
<PAGE>
InfoSpace shall use its best efforts to cause Executive to be elected to the
InfoSpace Board for as long as Executive is employed by InfoSpace.
(b) Saraide. Subject to terms set forth herein, Saraide agrees to
employ Executive in the position of President and Chief Executive Officer, and
Executive hereby accepts such employment effective as of the Effective Date.
Executive shall perform such duties as are customarily associated with his
position, subject to direction of Saraide's Board of Directors (the "Saraide
Board"). Executive shall be elected a member of the Board of Directors of
Saraide on the Effective Date. Saraide shall use its best efforts to cause
Executive to be elected to the Saraide Board for as long as Executive is
employed by Saraide.
(c) Full-Time Commitment. During his employment with the Employer,
Executive will devote his best efforts and substantially all of his business
time and attention (except for vacation periods and reasonable periods of
illness or other incapacity permitted by InfoSpace's general employment
policies) to the business of the Employer. Notwithstanding the foregoing,
Employer has been advised that Executive is a member of the respective boards of
directors of Charles Schwab Corporation, Cisco Systems, Inc. and Vodafone
Airtouch PLC. Employer agrees that Executive may at any time serve as a member
of up to four boards of directors of public companies other than InfoSpace and
Saraide, and agrees that Executive may continue to hold such directorships and
perform all duties associated therewith, including attendance at board and
committee meetings. Executive agrees that, during his employment with the
Employer, he shall not serve as a member of more than four outside boards of
directors without the prior consent of the InfoSpace Board. Executive shall
maintain his residence in the San Francisco Bay Area, but shall travel as
necessary to perform his duties. During the first six months of his employment
Executive will devote a majority of his time to building the business of
Saraide.
3. Compensation. InfoSpace shall pay Executive an annual base salary
------------
("Base Salary"), fixed at $200,000, payable by the Employer in accordance with
the Employers' standard payroll procedures. Base Salary shall be subject to
review and may be increased (but not decreased) by Employer.
4. Bonus. Any bonus payable by Employer to Executive shall be at the
-----
discretion of the Boards.
5. Equity Incentives. Upon the Effective Date, Executive shall receive
-----------------
equity incentives described as follows:
(a) From InfoSpace Executive shall be granted two non-qualified stock
options to purchase an aggregate of 3,500,000 shares of the common stock of
InfoSpace, such number of shares to be adjusted pursuant to the terms of the
March 15, 2000 stock split (or any subsequent stock split). One of the stock
options shall be in the amount of 1,000,000 (pre-split) shares of the common
stock of InfoSpace (the "InfoSpace Option"). The other stock option shall be in
the amount of 2,500,000 (pre-split) shares of the common stock of InfoSpace (the
"InfoSpace Tandem Option"). Both the InfoSpace Option and the InfoSpace Tandem
Option shall vest 25% upon the date of grant and at the rate of 1.5625% per
month over the four years from the Effective Date; provided, however that
Executive has been continuously providing services to
2.
<PAGE>
Employer from the Effective Date to the relevant vesting date. Both the
InfoSpace Option and InfoSpace Tandem Option shall have an exercise price per
share equal to 100% of the fair market value of InfoSpace's common stock on the
Effective Date. Except as otherwise specified herein, the terms of the InfoSpace
Option and the InfoSpace Tandem Option shall be the same as those set forth in
InfoSpace's standard form of non-qualified stock option agreement.
(b) From Saraide Executive shall be granted a non-qualified stock
option to acquire shares of Saraide's common stock in an amount equal to 7% of
the outstanding shares of Saraide's equity securities plus that number of shares
of Saraide common stock subject to vested stock options on the Effective Date
(the "Total Outstanding Shares") (the "Saraide Option"). The Saraide Option
shall be immediately exercisable in whole or in part by Executive delivering to
Saraide a full-recourse, four-year promissory note for the purchase price with
interest payable at least annually at the minimum Federal rate applicable at the
date of the note to avoid imputation of interest (the "Early Exercise Note").
If the Saraide Option is exercised in whole or in part prior to the time such
exercised shares are vested, then such unvested exercised shares are subject to
a repurchase right at the Executive's exercise price as stated on the stock
option grant notice in favor of Saraide upon the termination of Executive's
service with the Employer, but only as to those shares remaining unvested on the
date of termination. The Saraide Option shall have an exercise price per share
equal to 100% of the fair market value of Saraide's common stock on the
Effective Date which price shall not exceed the lowest exercise price of any
option granted by Saraide to any employee on or after the effective date of the
acquisition of Saraide by InfoSpace and prior to the Effective Date; provided,
however, that the exercise price per share of the Saraide Option shall not be
less than 85% of the fair market value of the Saraide common stock on the
Effective Date. Except as otherwise specified herein, the terms of the Saraide
Option shall be the same as those set forth in Saraide's standard form of non-
qualified stock option agreement.
(i) That portion of the Saraide Option equal to 4.25% of the
Total Outstanding Shares will be a 10-year non-qualified stock option, of
which 1.06% (approximately 25% of this portion of the Saraide Option) will
vest upon the date of grant and 3.19% (approximately 75% of this portion of
the Saraide Option) will vest over the four years from the Effective Date
at the rate of .06645% (i.e., 1/48/th/ of 3.19%) per month; provided,
however that Executive has been continuously providing services to Employer
from the Effective Date to the relevant vesting date.
(ii) That portion of the Saraide Option equal to 2.75% of the
Total Outstanding Shares will be a 10-year non-qualified stock option which
will vest in any event on the sixth anniversary of the Effective Date and
otherwise will vest (A) as to 1% (approximately 36% of this portion of the
Saraide Option) when the total market capitalization of Saraide (for a
continuous period of 10 business days and on a fully-diluted basis,
adjusted to exclude unutilized portions of share reserves of compensatory
stock plans, the unvested portion of outstanding stock options, and
unvested shares of Saraide's stock) is $5.0 billion or more, (B) as to 1%
(approximately 36% of this portion of the Saraide Option) when the total
market capitalization of Saraide is $7.0 billion or more (calculated as
described above), and (C) as to .75% (approximately 28% of this portion of
the Saraide Option) when the total market capitalization of Saraide is
$10.0
3.
<PAGE>
billion or more (calculated as described above); provided, however that
Executive has been continuously providing services to Employer from the
Effective Date to the relevant vesting date. Total market capitalization
shall be determined by the closing market prices of Saraide common stock if
publicly traded. If Saraide is not publicly traded, total market
capitalization shall be determined by the Saraide Board in its sole
discretion based upon relevant factors such as (x) an independent
valuation, (y) one or more arms-length transactions, or (z) an offer to
acquire, or a transaction involving the acquisition of, the minority
interests in Saraide by InfoSpace.
(c) Immediately upon the exercise, including early exercise, of any
portion of either the Saraide Option or the InfoSpace Tandem Option by
Executive, the stock option which Executive did not exercise automatically shall
be cancelled and have no further force or effect. It is not intended that
Executive be entitled to the benefits of both the Saraide stock incentives and
the InfoSpace Tandem Option, but, ultimately, one or the other.
(d) Notwithstanding anything to the contrary herein, Executive and
Employer acknowledge that they would prefer (i) to permit Executive to early
exercise the Saraide Option without thereby electing to take the benefits of the
Saraide Option in lieu of the InfoSpace Tandem Option; and (ii) to agree that,
upon repurchase of unvested shares that were issued to Executive upon early
exercise of the Saraide Option, Employer would repay to Executive any interest
that Executive paid on the Early Exercise Note (together, the "Intended
Provisions"). However, Executive and Employer further acknowledge that Employer
has been advised by its public accountants that neither of the Intended
Provisions described herein can be accomplished without adverse accounting
consequences to Employer. Employer and Executive shall continue to explore
possible solutions for accomplishing the Intended Provisions without resulting
in the adverse accounting consequences. If any such solution can be identified,
avoiding this result, for either or both of the Intended Provisions, then the
parties will execute an amendment to this Agreement incorporating the solution
or solutions. If no such solution can be identified for either Intended
Provision, then Employer and Executive shall negotiate in good faith to reach
agreement on an arrangement to enable Executive to realize the economic benefits
of the Intended Provisions.
(e) The initial grants of stock options provided in Sections 5(a) and
5(b) of this Agreement ("Initial Grants") may be supplemented, at the discretion
of the Boards, by additional grants based upon individual performance.
(f) Notwithstanding the basic vesting provisions, further vesting of
the stock incentives subject to the Initial Grants will occur as follows:
(i) in the event of a Change of Control, 37 1/2% of the unvested
portion of such stock incentives shall become immediately vested
immediately prior to the effective date of the Change of Control
transaction;
(ii) in the event Executive's employment is terminated upon or
within 13 months following a Change of Control either (A) by Employer
without Cause or (B) by Executive for Good Reason, an additional 37 1/2% of
the unvested portion of such stock incentives shall become immediately
vested;
4.
<PAGE>
(iii) if Executive's service with Employer is terminated by
reason of his death or Disability (as defined in Section 8(b)), then
vesting of such stock incentives shall be accelerated by one year;
(iv) if Executive's service with Employer is terminated by
Employer without Cause, then additional vesting of such stock incentives
shall occur as follows:
(A) if such termination occurs during the first year after
the Effective Date, then Executive shall be credited with an
additional 12 months of vesting;
(B) if such termination occurs during the second year from
the Effective Date, then Executive shall be credited with an
additional six months of vesting;
(C) if such termination occurs after the second year from
the Effective Date, then Executive shall be credited with an
additional three months of vesting.
(v) if Executive's service with Employer is terminated by
Employee for Good Reason, then Executive shall be credited with an additional
six months of vesting.
(g) The stock incentives subject to the Initial Grants shall be
exercisable after Executive's termination of service with Employer as follows:
(i) if termination is by reason of death, Disability,
termination by Employer without Cause, or termination by Executive for Good
Reason, the stock incentives shall be exercisable (A) 18 months after the
date of termination if at such date the common stock of Saraide is publicly
traded or (B) three years from the date of termination if at such date the
common stock of Saraide is not publicly traded;
(ii) if termination of service is by Employer for Cause, the
stock incentives shall be exercisable within 14 days after the date of
termination;
(iii) if termination of service is by Executive, other than for
Good Reason, the stock incentives shall be exercisable until 90 days after
the date of termination.
(iv) if termination of service is by Executive voluntarily
within 12 months of the Effective Date and is not by reason of death,
Disability, termination by Employer without Cause, or termination by
Executive for Good Reason, the 25% of such stock incentives which vested
immediately on the Effective Date shall be reduced by one-twelfth (2.083%)
for each full month by which the duration of Executive's employment from
the Effective Date is fewer than 12 months, notwithstanding any other
provision of the stock incentives.
(h) In the event that the acceleration of the vesting and
exercisability of the stock incentives and/or the lapse of reacquisition or
repurchase rights with respect to the stock
5.
<PAGE>
incentives provided for in subsection 5(f)(i) and (ii) and benefits otherwise
payable to Executive, but determined without regard to any additional payments
required under this subsection 5(h) (a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any comparable federal, state, or local excise tax
(such excise tax, together with any interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then Executive shall be entitled
to receive an additional payment (a "Gross-Up Payment") in such an amount that
after the payment of all taxes (including without limitation, any interest and
penalties on such taxes and the excise tax) on the Payment and on the Gross-Up
Payment, Executive shall retain an amount equal to the Payment minus all
applicable income and individual employment taxes on the Payment. The intent of
the parties is that the Company shall be solely responsible for, and shall pay,
any Excise Tax on the Payment and Gross-Up Payment and any income, employment
and other taxes (including, without limitation, penalties and interest) imposed
on any Gross-Up Payment, as well as any loss of tax deduction caused by the
Gross-Up Payment or applicable provisions of the Code. All determinations
required to be made under this subsection 5(h), including without limitation,
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determinations,
shall be made by a nationally recognized accounting firm that is the Company's
outside auditor at the time of such determinations, which firm must be
reasonably acceptable to Executive (the "Accounting Firm"). All fees and
expenses of the Accounting Firm shall be borne solely by the Company.
6. Benefits. Executive shall be entitled to four weeks vacation time per
--------
calendar year, which vacation time shall be scheduled at the mutual convenience
of Executive and Employer. Executive shall be entitled to all rights and
benefits for which he is eligible under the terms and conditions of the standard
InfoSpace benefits and compensation plans which may be in effect from time to
time and provided by InfoSpace to its executive level employees generally.
Notwithstanding the foregoing, Employer may, in its discretion, at any time and
from time to time, change or revoke any of its employee benefits plans, programs
or policies, and Executive shall not be deemed, by virtue of this Agreement, to
have any vested interest in any such plans, programs or policies.
7. Expenses. The Employer shall reimburse Executive for all reasonable
--------
travel, entertainment or other expenses incurred by him in furtherance of or in
connection with the performance of his duties hereunder, in accordance with the
Employer's expense reimbursement policy as in effect from time to time.
Executive shall also be entitled to reimbursement by Employer for the reasonable
cost of a car and driver between his residence and Saraide's offices.
8. Termination. Executive's employment hereunder may be terminated
-----------
without any breach of this Agreement only under the following circumstances:
(a) Death. Executive's employment hereunder shall terminate upon his
death.
(b) Disability. Executive's employment with the Employer will be
terminated in the event of Executive's illness, disability or other incapacity
that renders Executive physically and/or mentally unable regularly to perform
the essential duties of his positions hereunder for a period in excess of 120
consecutive days, or in excess of 180 days in any consecutive 12 month
6.
<PAGE>
period ("Disability"). The determination regarding whether Executive has reached
Disability status shall be made by the Boards in good faith.
(c) Cause. Employer may terminate Executive's employment hereunder
for Cause. For purposes of this Agreement, Employer shall have "Cause" to
terminate Executive's employment hereunder upon Executive's:
(i) conviction of a felony or any crime involving moral
turpitude or dishonesty; or
(ii) gross neglect or refusal to substantially perform his
duties hereunder (other than that resulting from Executive's Disability)
after demand for substantial performance is delivered by either Board in
writing that specifically identifies the manner in which the Board believes
Executive has not substantially performed his duties and Executive does not
remedy such neglect or refusal within 30 days following receipt of such
written notice;
(iii) participation in a fraud or act of dishonesty against
Employer; or
(iv) intentional and material damage to the Employer's property;
(v) material breach of this Agreement, InfoSpace's written
policies, or either [Proprietary Information and Inventions Agreement],
that is not remedied by Executive within 14 days of written notice of such
breach from either Board;
(vi) serious misconduct or conduct by Executive which
demonstrates Executive's gross unfitness to serve the Employer, as
determined by either Board.
Cause shall not exist unless and until Employer has delivered to Executive
a copy of a resolution duly adopted by a majority of the Board or Boards at a
meeting or meetings called and held for such purpose (after reasonable notice to
the Executive and an opportunity for Executive, together with his counsel, to be
heard before the Board or Boards), finding that in the good faith opinion of
either Board, the conduct set forth in this Section 8(c) occurred, and
specifying the particulars thereof.
(d) Good Reason. Executive may establish "Good Reason" for
termination of his employment by notifying the Employer in writing, within 10
days after the occurrence of one of the following events, that Executive intends
to terminate his employment for Good Reason in 30 days if the circumstance has
not been cured before then, and then if the circumstance has not been cured
within 30 days, by submitting his resignation effective within 10 days after the
30-day period. The events or circumstances upon which termination for Good
Reason can be based are as follows:
(i) the reassignment of Executive by Employer, without
Executive's express written consent, to a position with Employer other than
those set forth in Section 2 hereof;
7.
<PAGE>
(ii) a significant adverse change in Executive's title,
authority, powers, functions, duties or responsibilities, provided that
change resulting from the acquisition of the Employer by another company,
where Executive's titles and authority remain unchanged, and the Employer
remains essentially intact, will not constitute "Good Reason";
(iii) a reduction in Executive's Base Salary without Executive's
consent;
(iv) the relocation of Executive's work location outside of the
San Francisco Bay Area without the Executive's consent;
(v) Employer's failure to perform its obligations under this
Agreement in any material respect; or
(vi) the failure of a successor to the Employer in a Change of
Control to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that Employer would be required to perform it
if no such Change of Control had taken place. Failure of Employer to
obtain such assumption and agreement prior to the effectiveness of any such
succession, without regard to the 30-day notice provision above, shall be a
material breach of this Agreement.
(e) Termination Without Cause. Employer may terminate Executive's
employment without Cause at any time upon 30 days' written notice.
(f) Termination Without Good Reason. Executive may terminate
employment without Good Reason at any time upon 30 days' written notice.
9. Compensation Upon Termination.
------------------------------
(a) Death or Disability. If Executive's employment is terminated by
his death or his Disability, then Employer shall pay to Executive (or his legal
representatives or estate or as may be directed by the legal representatives of
his estate, as the case may be) any accrued and unpaid Base Salary and vacation
pay immediately, and expense reimbursements within thirty 30 days of
termination.
(b) Termination by Employer (Without Cause); or By Executive for Good
Reason After Change of Control. If Executive's employment is terminated by the
Employer without Cause, or upon or within six months following a Change of
Control, by Executive for Good Reason, then upon Executive's providing the
Employer a general release and waiver of all claims in a form acceptable to the
Employer, Employer shall continue to pay Executive's Base Salary for six months
following the termination, in accordance with InfoSpace's standard payroll
procedures.
(c) Termination By the Employer for Cause; or By Executive Other Than
for Good Reason After Change of Control. If Executive's employment is
terminated by Employer for Cause, or by Executive other than for Good Reason
upon or within six months following a Change of Control, then:
8.
<PAGE>
(i) Employer shall immediately pay Executive his accrued but
unpaid Base Salary and vacation pay, and within 30 days of termination, his
unpaid expense reimbursements;
(ii) notwithstanding anything contained herein to the contrary,
none of the stock incentives granted pursuant to Section 5 shall vest after
the date of termination and all unvested options shall immediately
terminate;
(iii) except as specifically provided herein, Executive shall
receive no further compensation or benefits, and Employer shall have no
additional obligation to Executive under this Agreement.
10. Other Agreements.
----------------
(a) Proprietary Information and Inventions Agreements. Executive
shall execute and comply with both the InfoSpace and Saraide forms of Employee
Proprietary Information and Inventions Agreement attached as Exhibits A and B
hereto and incorporated herein by reference. Executive's duties under the
Proprietary Information and Inventions Agreements shall survive termination of
Executive's employment with the Employer. Executive acknowledges that a remedy
at law for any breach or threatened breach by Executive of the provisions of the
Proprietary Information and Inventions Agreements would be inadequate and
Executive therefore agrees that the Employer shall be entitled to injunctive
relief in case of any such breach or threatened breach. If Executive breaches
any of the provisions of either of the Proprietary Information and Inventions
Agreements, then Employer, in addition to all other rights and remedies
thereunder, may cease making payments to Executive under subsection 9(b) of this
Agreement and require Executive to repay to Employer any payments previously
made under such subsections.
(b) Indemnification. InfoSpace and Saraide shall, to the fullest
extent permitted by applicable Delaware law, and in accordance with their
respective Bylaws and Charters, indemnify Executive and hold him harmless from
any cost, expense or liability arising out of or relating to any acts or
decisions made by him within the course and scope of his duties hereunder.
Employee shall be added as an additional named insured under all appropriate
insurance policies now in force or hereinafter obtained by Employer. Any
termination of Executive's employment or of this Agreement shall have no effect
on the continuing operation of this Section.
(c) No Conflicting Agreements. Executive represents and warrants that
his employment by the Employer will not conflict with and will not be
constrained by any prior agreement or relationship with any third party.
Executive represents and warrants that he will not disclose to the Employer or
use on behalf of the Employer any confidential information governed by any
agreement with any third party except in accordance with an agreement between
the Employer and any such third party. During Executive's employment by the
Employer, Executive may use, in the performance of his duties, all information
generally known and used by persons with training and experience comparable to
his own and all information which is common knowledge in the industry or
otherwise legally in the public domain.
9.
<PAGE>
(d) Outside Activities.
(i) Investments and Interests. Except as permitted by Section
10(d)(ii), Executive agrees, during his employment by the Employer, not to
acquire, assume or participate in, directly or indirectly, any position,
investment or interest known by him to be adverse or antagonistic to the
Employer, its business or prospects, financial or otherwise.
(ii) Non-Competition. During his employment by the Employer
except on behalf of the Employer, Executive will not directly or
indirectly, whether as an officer, director, founder, stockholder, partner,
proprietor, associate, representative, consultant, employee, or in any
capacity whatsoever engage in, become financially interested in, be
employed by or have any business connection with any other person,
corporation, firm, partnership or other entity whatsoever known by him to
compete directly with the Employer, anywhere in the world, in any line of
business engaged in (or planned to be engaged in) by the Employer;
provided, however, that anything above to the contrary notwithstanding,
Executive may own, as a passive investor, securities of any competitor
corporation, so long as Executive's direct holdings in any one such
corporation shall not in the aggregate constitute more than 1% of the
voting stock of such corporation.
(e) Upon its acquisition of Saraide InfoSpace shall transfer to
Saraide all of the business, assets and technology in wireless
telecommunications to Saraide.
11. Change of Control. For purposes of this Agreement, a "Change of
-----------------
Control" shall be deemed to occur if:
(a) any "person" (as such term is utilized in Section 13(d) and
Section 14(d)(2) of the Exchange Act), including without limitation any "group"
(as such term is utilized in Section 13(d)(3) of the Exchange Act), shall become
the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange
Act) of securities of InfoSpace or Saraide (other than InfoSpace, a controlled
affiliate of InfoSpace, or an employee benefit plan sponsored by InfoSpace or
such controlled affiliate) representing more than 50% of the votes that may be
cast for the election of directors of InfoSpace or Saraide as the case may be;
or
(b) a merger or consolidation involving InfoSpace or Saraide
("Involved Entity") in which the Involved Entity is not the surviving entity,
except for (i) a transaction the principal purpose of which is to change the
state of the Involved Entity's incorporation, or (ii) a transaction in which the
Involved Entity's stockholders immediately prior to such merger or consolidation
hold (by virtue of securities received in exchange for their shares in the
Involved Entity) securities of the surviving entity representing more than 50%
of the total voting power of such entity immediately after such transaction;
(c) the sale, transfer or other disposition of all or substantially
all of the assets of the Involved Entity unless the Involved Entity's
stockholders immediately prior to such sale, transfer or other disposition hold
(by virtue of securities received in exchange for their shares in the Involved
Entity) securities of the purchaser or other transferee representing more than
50% of the total voting power of such entity immediately after such transaction;
or
10.
<PAGE>
(d) any reverse merger in which the Involved Entity is the surviving
entity but in which the Involved Entity's stockholders immediately prior to such
merger do not hold (by virtue of their shares in the Involved Entity held
immediately prior to such transaction) securities of the Involved Entity
representing more than 50% of the total voting power of the Involved Entity
immediately after such transaction.
12. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be in writing, and shall be given by hand-delivery to the
addressee, or by email or fax together with deposit in the U.S. mail, postage
prepaid, certified mail, return receipt requested, as follows:
If to InfoSpace, to:
InfoSpace.com, Inc.
15375 NE 90/th/ Street
Redmond, Washington 98052
Attention: Naveen Jain
Facsimile: 425-883-9110
email: [email protected]
With a copy to InfoSpace's General Counsel at the same address.
If to Saraide, to:
Saraide Inc.
1500 Fashion Island Blvd., Suite 200
San Mateo, California 94404
Attention: Hatim Tyabji
Facsimile: 650-522-1501
email: [email protected]
With a copy to Saraide's General Counsel at the same address.
If to Executive, to:
Arun Sarin
2 Glen Alpine Road
Piedmont, California 94611
or such other address as a party may specify by notice hereunder to the others.
Any notice sent in accordance with the foregoing provisions shall be deemed
given on the date of receipt if personally delivered, or on the date faxed or
emailed if receipt is confirmed, or three days after being deposited in the mail
as prescribed. Refusal to accept certified mail upon notice will nevertheless
constitute receipt.
13. Assignment. This Agreement is personal to Executive, and he shall not
----------
assign any of his rights or delegate any of his duties hereunder without the
prior written consent of Employer.
11.
<PAGE>
Employer shall have the right to assign this Agreement to a successor in
interest in connection with a Change of Control.
14. Survival. The provisions of Sections 9, 10, 16, 17, 18, 19 and 22 of
--------
this Agreement shall survive the termination of Executive's employment hereunder
in accordance with their terms.
15. Governing Law. This Agreement shall be governed by, and construed and
-------------
enforced in accordance with, the laws of the State of California.
16. Binding Upon Successors. This Agreement shall be binding upon, and
-----------------------
shall inure to the benefit of, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns. All rights of the
Executive hereunder shall inure to the benefit of and be enforceable by the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
17. Entire Agreement; Amendment. This Agreement together with Exhibits A
---------------------------
and B hereto, and the stock option agreements between Executive and Saraide and
InfoSpace, respectively, constitutes the entire agreement between Employer and
Executive with respect to the subject matter hereof and supersedes any prior
agreement, promise, representation, or statement written or otherwise between
Executive and the Employer with regard to this subject matter. It is entered
into without reliance on any promise, representation, statement or agreement
other than those expressly contained or incorporated herein, and it cannot be
modified or amended except in a writing signed by Executive and the Chairman of
InfoSpace.
18. Waiver; Cumulative Rights and Remedies.
--------------------------------------
(a) The waiver by either party of a breach of any provision of this
Agreement shall not operate as a waiver of any subsequent breach.
(b) No failure on the part of any party to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or remedy by such party
preclude any other or further exercise thereof or the exercise of any other
right or remedy. All rights and remedies hereunder are cumulative and are in
addition to all other rights and remedies provided by law, agreement or
otherwise.
19. Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but such invalid, illegal or
unenforceable provision will be reformed, construed and enforced in such
jurisdiction so as to render it valid, legal, and enforceable consistent with
the intent of the parties insofar as possible.
20. Counterparts. This Agreement may be executed in one or more
------------
counterparts each of which shall be an original but all of which taken together
shall constitute one and the same instrument.
12.
<PAGE>
21. Confidentiality. The Employer may not make any announcement or public
---------------
disclosure of this Agreement until the Effective Date without the prior written
consent of Executive. In no event will Employer make any announcement or public
disclosure of this Agreement or the subject matter of this Agreement until the
day after the Effective Date.
22. Attorneys' Fees. In the event of litigation between Executive and
---------------
Employer in connection with this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees.
23. Investment in Venture Fund. Executive may, but shall not be obligated
--------------------------
to, invest up to $5.0 million in a venture fund in which other executives and
employees of InfoSpace are or will be investors.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement effective as of the date first above written.
INFOSPACE.COM, INC.
By: /s/ Naveen Jain
---------------------------------------
Naveen Jain, Chief Executive Officer
SARAIDE INC.
By: /s/ Hatin Tyabji
---------------------------------------
Hatim Tyabji, Chief Executive Officer
EXECUTIVE:
/s/ Arun Sarin
------------------------------------------
Arun Sarin
Address:
2 Glen Alpine Road
Piedmont, California 94611
13.
<PAGE>
EXHIBITS
14.
<PAGE>
SARAIDE, INC.
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
As an employee of SARAIDE, INC., any of its subsidiary or affiliates (together,
the "Company") and as a condition of my employment by the Company and in
consideration of the compensation now and hereafter paid to me, I agree to the
following.
1. MAINTAINING CONFIDENTIAL INFORMATION
1.1 Company Information - I agree at all times during the term of my
employment and thereafter to hold in strictest confidence, and not to use,
except as required in connection with my work for the Company, or to disclose to
any person, firm or corporation, without the written authorization of an officer
of the Company, any trade secrets, confidential knowledge, data or other
proprietary information of the Company. By way of illustration and not
limitation, such shall include information relating to products, processes,
know-how, designs, formulas, source code, object code, programs, methods,
samples, developmental or experimental work, improvements, discoveries, plans
for research, new products, marketing and selling, business plans, budgets and
unpublished financial statements, licenses, prices and costs, suppliers and
customers, and information regarding the skills and compensation of other
employees of the Company. I further agree to obtain the Company's written
approval before publishing or submitting for publication any material (written,
verbal or otherwise) that relates to my work at the Company and/or incorporates
any confidential or proprietary information of the Company.
1.2 Former Employer Information - I agree that I will not, during my
employment with the Company, improperly use or disclose any proprietary
information or trade secrets of my former or concurrent employers or companies,
if any, and that I will not bring onto the premises of the Company any
unpublished documents or any property belonging to my former or concurrent
employers or companies unless consented to in writing by said employers or
companies. I will use in the performance of my duties only information which is
generally known and used by persons with training and experience comparable to
my own, which is common knowledge in the industry or otherwise legally in the
public domain, or which is otherwise provided or developed by the Company.
1.3 Third Party Information - I recognize that the Company has received
and in the future will receive confidential or proprietary information from
third parties subject to a duty on the Company's part to maintain the
confidentiality of such information and, in some cases, to use it only for
certain limited purposes. I agree that I owe the Company and such third
parties, both during the term of my employment and thereafter, a duty to hold
and will so hold all such confidential or proprietary information in the
strictest confidence and not to disclose it to any person, firm or corporation
(except in a manner that is consistent with the Company's agreement with the
third party) or use it for the benefit of anyone other than the Company or such
third party (consistent with the Company's agreement with the third party),
unless expressly authorized to act otherwise by an officer of the Company.
2. ASSIGNMENT OF INVENTIONS AND ORIGINAL WORKS
2.1 Inventions and Original Works Retained by Me - I have attached hereto
as Exhibit A a complete list of all inventions, original works of authorship,
developments, improvements, and trade secrets that I have, alone or jointly with
others, conceived, developed or reduced to practice or caused to be conceived,
developed or reduced to practice prior to the commencement of my employment with
the Company and which I consider to be my property or the property of third
parties and that I wish to have excluded from the scope of this Agreement
(collectively referred to as "Prior Inventions"). If disclosure of an item on
Exhibit A would cause me to violate any prior confidentiality agreement, I
understand that I am not to list such in Exhibit A but I am to inform the
Company that items have not been listed for that reason. A space is provided on
Exhibit A for such purpose. If no list is attached, I represent that there are
no such items. If, in the course of my employment with the Company, I
incorporate a Prior Invention into a Company product, process or machine, the
Company is hereby granted and shall have a nonexclusive, royalty-free,
irrevocable, perpetual, worldwide license (with rights to sublicense through
multiple tiers of sublicensees) to make, have made, modify, use and sell such
Prior Invention. Notwithstanding the
(1)
<PAGE>
foregoing, I agree that I will not incorporate, or permit to be incorporated,
Prior Inventions in any work done for the Company without the Company's prior
written consent.
2.2 Inventions and Original Works Assigned to the Company - I agree that I
will make prompt written disclosure to the Company, will hold in trust for the
sole right and benefit of the Company, and hereby assign to the Company all my
rights, title and interest in and to any ideas, inventions, original works of
authorship, developments, improvements or trade secrets which I may solely or
jointly conceive or reduce to practice, or cause to be conceived or reduced to
practice, during the period of my employment with the Company.
2.2.1 I recognize that this Agreement does not require assignment of
any invention which I have developed entirely on my own time without using
the Company's equipment, supplies, facilities, or trade secret information
except for those inventions that either:
(a) relate at the time of conception or reduction to practice
of the invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company; or,
(b) result from any work performed by myself for the Company.
2.2.2 I acknowledge that all original works of authorship which are
made by me (solely or jointly with others) within the scope of my
employment and which are protectable by copyright are "works made for
hire," as that term is defined in the United States Copyright Act (17
U.S.C., Section 101) or the "in the course of employment" within the
meaning of the Copyright Act of Canada (Section 13 (3))and belong to the
Company. I hereby further waive any moral rights I may otherwise claim on
such works of authorship and copyright.
2.2.3 This Agreement may not apply to an invention, improvement,
discovery or development which qualifies fully as nonassignable under
Section 2870 of the California Labor Code (hereinafter "Section 2870"). I
have reviewed the notification on Exhibit B (Limited Exclusion
Notification) and agree that my signature acknowledges receipt of the
notification.
2.3 Obtaining Letters Patent, Copyright Registrations and Other
Protections - I will assist the Company in every proper way to obtain and
enforce Canadian, United States and foreign proprietary rights relating to any
and all inventions, original works of authorship, developments, improvements or
trade secrets of the Company in any and all countries. To that end I will
execute, verify and deliver such documents and perform such other acts
(including appearing as a witness) as the Company may reasonably request for use
in applying for, obtaining, evidencing, sustaining and enforcing or to perfect
such proprietary rights and the assignment thereof. In addition, I will execute,
verify and deliver assignments of such proprietary rights to the Company or its
designee. My obligation to assist the Company with respect to proprietary
rights in any and all countries shall continue beyond the termination of my
employment, but the Company shall compensate me at a reasonable rate after my
termination for the time actually spent by me at the Company's request on such
assistance.
In the event the Company is unable for any reason, after reasonable effort, to
secure my signature on any document needed in connection with the actions
specified in the preceding paragraph, I hereby irrevocably designate and appoint
the Company and its officers and agents as my agent and attorney-in-fact, to act
for and in my behalf to execute, verify and file any such documents and to do
all other lawfully permitted acts to further the purposes of the preceding
paragraph with the same legal force and effect as if executed by me. I hereby
waive and quitclaim to the Company any and all claims of any nature whatsoever
which I now or may hereafter have for infringement of any proprietary rights
assigned to the Company.
2.4 Obligation to Keep the Company Informed - In addition to my
obligations under paragraph 2 above, during the period of my employment and for
one (1) year after termination of my employment for any reason, I will promptly
disclose to the Company fully and in writing all patent applications filed by me
or on my behalf. At the time of each such disclosure, I will advise the Company
in writing of any inventions that I believe are
(2)
<PAGE>
not inventions and original works assigned to the Company and I will at that
time provide to the Company in writing all evidence necessary to substantiate
that belief. I understand that the Company will keep in confidence and will not
disclose to third parties without my consent any proprietary information
disclosed in writing to the Company pursuant to this Agreement relating to
inventions that are not inventions and original works assigned to the Company. I
will preserve the confidentiality of any invention that is an invention and
original work assigned to the Company. I agree to keep and maintain adequate and
current records (in the form of notes, sketches, drawings and in any other form
that may be required by the Company) of all proprietary information developed by
me and all inventions made by me during the period of my employment at the
Company, which records shall be available to and remain the sole property of the
Company at all times.
3. NO CONFLICTING EMPLOYMENT, NO INDUCEMENT OF OTHER EMPLOYEES OR SOLICITATION
OF CUSTOMERS
3.1 I agree that during the period of my employment by the Company I will
not, without the Company's express written consent, engage in any employment or
business activity which is competitive with or would otherwise conflict with the
business in which the Company is now involved or becomes involved nor will I
engage in any other activities which conflict with my obligations to the
Company. For the period of my employment by the Company and for one (1) year
after the date of termination of my employment by the Company I will not induce
any employee of the Company to leave the employ of the Company.
If any restriction set forth in this agreement is found by any court of
competent jurisdiction to be unenforceable because it extends for too long a
period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.
4. NO CONFLICTING OBLIGATIONS
4.1 I represent that my performance of all the terms of this Agreement and
as an employee of the Company does not and will not breach any agreement to keep
in confidence information acquired by me in confidence or in trust prior to my
employment by the Company. I have not entered into, and I agree I will not
enter into, any agreement either written or oral in conflict herewith.
5. RETURN OF COMPANY DOCUMENTS
5.1 When I leave the employ of the Company, I will deliver to the Company
(and will not keep in my possession, recreate or deliver to anyone else) any and
all devices, records data, notes, reports, proposals, lists, correspondence,
specifications, drawings, blueprints, sketches, materials, equipment, electronic
mail, other documents or property, together with all copies thereof (in whatever
medium recorded) belonging to the Company, its successors or assigns. I agree
that any property situated on the Company's premises and owned by the Company,
including disks and other storage media, filing cabinets or other work areas, is
subject to inspection by Company personnel at any time with or without notice.
Prior to leaving, I will cooperate with the Company in completing and signing
the Company's termination statement.
6. NOTIFICATION OF NEW EMPLOYER
6.1 In the event that I leave the employ of the Company, I hereby consent
to the notification of my new employer of my rights and obligations under this
Agreement.
7. LEGAL AND EQUITABLE REMEDIES
7.1 Because my services are personal and unique and because I may have
access to and become acquainted with the proprietary information of the Company,
the Company shall have the right to enforce this
(3)
<PAGE>
Agreement and any of its provisions by injunction, specific performance or other
equitable relief, without bond and without prejudice to any other rights and
remedies that the Company may have for a breach of this Agreement.
8. GENERAL PROVISIONS
8.1 Not an Employment Contract - I agree and understand that nothing in
this Agreement shall confer any right with respect to continuation of employment
by the Company, nor shall it interfere in any way with my right or the Company's
right to terminate my employment at any time, with or without cause.
8.2 Governing Law - This Agreement will be governed by and construed
according to the laws of the State of California in the United States of America
excluding conflicts of laws principles. I hereby expressly consent to the venue
and personal jurisdiction of the state and federal courts located in San Mateo
County, California for any lawsuit filed there against me by the Company arising
from or relating to this Agreement.
8.3 Severability - In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, it shall be construed
by limiting and reducing it, so as to be enforceable to the extent compatible
with the applicable law then appear.
8.4 Successors and Assigns - This Agreement will be binding upon my heirs,
executors, administrators and other legal representatives and will be for the
benefit of the Company, its successors and its assigns.
8.5 Survival - The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the Company
to any successor in interest or other assignee.
8.6 Waiver - No waiver by the Company of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of any
other right. The Company shall not be required to give notice to enforce strict
adherence to all terms of this Agreement.
8.7 Notice - Any notice required or permitted hereunder shall be given to
the appropriate party at the address specified below or at such other address as
the party shall specify in writing. Such notice shall be deemed given upon
personal delivery, or sent by certified or registered mail, postage prepaid,
three (3) days after the date of mailing.
8.8 Entire Agreement - This Agreement and its exhibits, attached hereto
and hereby incorporated herein, set forth the final, entire and exclusive
agreement and understanding between the Company and me relating to the subject
matter hereof and supersedes all prior and contemporaneous understandings and
agreements relating to its subject matter. No modification of or amendment to
this Agreement, nor any waiver of any rights under this Agreement, will be
effective unless in writing signed by both the Company and me. Any subsequent
change or changes in my duties, salary or compensation will not affect the
validity or scope of this Agreement.
This Agreement shall be effective as of the first day of my employment with the
Company, namely:________________, 2000.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I MAKE DURING
MY EMPLOYMENT, AND RESTRICTS MY RIGHT TO DISCLOSE OR USE THE COMPANY'S
PROPRIETARY INFORMATION DURING AND SUBSEQUENT TO MY EMPLOYMENT.
(4)
<PAGE>
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT A AND EXHIBIT B TO THIS AGREEMENT.
Date: ___________________, 2000 /s/ Arun Sarin
--------------------------------
Signature
ARUN SARIN
- ----------------------------
Name of Employee
2 GLEN ALPINE
- ----------------------------
Address
PIEDMONT, CA 94611
- ----------------------------
ACCEPTED AND AGREED TO
on this ___th day of ___________, 2000.
SARAIDE
By:___________________________
Authorized Signatory
(5)
<PAGE>
EXHIBIT A
SARAIDE
The following is a complete list of all inventions or improvements relevant to
the subject matter of my employment by SARAIDE, INC., its subsidiary or its
affiliate (together the "Company") that have been made or conceived or first
reduced to practice by me alone or jointly with others prior to my engagement by
the Company:
[_] No inventions or improvements
[_] See below.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
[_] Due to confidentiality agreements with prior employer, I cannot disclose
certain inventions that would otherwise be included on the above-described
list.
[_] Additional sheets attached.
I propose to bring to my employment toe following devices, materials and
documents of a former employer or other person to whom I have obligation of
confidentiality that are not generally available to the public, which materials
and documents may be used in my employment pursuant to the express written
authorization of my former employer or such other person (a copy of which is
attached hereto):
[_] No materials.
[_] See below.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
[_] Additional sheets attached.
Date: ___________________, 1999
_______________________________
Employee
(6)
<PAGE>
EXHIBIT B
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and the Company does not
require you to assign or offer to assign to the Company any invention that you
developed entirely on your own time without using the Company's equipment,
supplies, facilities or trade secret information except for those inventions
that either:
1. Relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company;
2. Result from any work performed by you for the Company.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered by
a contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By: /s/ Arun Sarin
-------------------------------
(PRINTED NAME OF EMPLOYEE)
Date:
WITNESSED BY:
_______________________________
(PRINTED NAME OF REPRESENTATIVE)
(7)
<PAGE>
InfoSpace.com Employee Non-Disclosure, Invention Release and Non-competition
Agreement
1. As an employee of InfoSpace.com, a Delaware Corporation (InfoSpace.com), and
in consideration of the compensation now and hereafter paid to me, I will devote
my best efforts to furthering the best interest of InfoSpace.com. During my
employment by InfoSpace.com, I will not engage in any business activities or
ventures outside of the business activities of InfoSpace.com without the express
prior written consent of InfoSpace.com. Also, during my employment, I will not
engage in any activity or investment (other than an investment of less than .01%
of the shares of a company traded on registered stock exchange), that (a)
conflicts with InfoSpace.com's business interest, including without limitation,
any business activity not contemplated by this agreement, (b) occupies my
attention so as to interfere with the proper and efficient performance of my
duties at InfoSpace.com, or (c) interferes with the independent exercise of my
judgment in InfoSpace.com's best interest. As used herein, InfoSpace.com's
"business" means the development, marketing and support of software for
Internet.
2. At all times during my employment and thereafter I will not disclose to
anyone outside InfoSpace.com nor use for any purpose other than my work for
InfoSpace.com (a) any confidential or proprietary technical, financial,
marketing or distribution of other technical or business information or trade
secrets of InfoSpace.com, including without limitation, concepts, techniques,
processes, methods, systems, designs, cost data, computer programs, formulas,
development or experimental work, work in progress, customer and suppliers, (b)
any information InfoSpace.com has received from others which InfoSpace.com is
obligated to treat as confidential or proprietary or (c) any confidential or
proprietary information which is circulated within InfoSpace.com via its
internal email system or otherwise. I will also not disclose any confidential
information inside InfoSpace.com except on "need to know" basis. If I have any
questions as to what comprises such confidential proprietary information or
trade secrets, or to whom, if anyone, inside InfoSpace.com, it may be disclosed,
I will consult my manager at InfoSpace.com
3. I will make prompt and full disclosure to InfoSpace.com, will hold in trust
for the sole benefit of InfoSpace.com, and will assign exclusively to
InfoSpace.com all my rights, title and interest in and to any and all
inventions, discoveries, designs, developments, improvements, copyrightable
material, and trade secrets (collectively herein "inventions") that I, solely or
jointly, may conceive, develop, or reduce to practice during the period of time
I am in the employ of InfoSpace.com. I hereby waive and quitclaim to
InfoSpace.com any and all claims of any nature whatsoever that I now or
hereafter may have for infringement of any patent resulting from any patent
applications for any inventions so assigned to InfoSpace.com.
My obligation to assign shall not apply to any Invention about which I can prove
that:
It was developed entirely on my own time; and
(a) No equipment, supplies, facility, or trade secret information of
InfoSpace.com was used in it development; and
(b) It does not relate 1) directly to the business of InfoSpace.com or
2) to the actual or demonstrably anticipated research or development of
InfoSpace.com; and
(c) It does not result from any work performed by me for InfoSpace.com
I will assign to InfoSpace.com or its designee all my rights, title and interest
in and to any and all inventions full title to which may be required to be in
the United States by any contract between InfoSpace.com and the United States or
any of its agencies.
<PAGE>
4. I have attached hereto a list describing all inventions belonging to me and
made by me prior to my employment at InfoSpace.com that I wish to have excluded
from this agreement. If no such list is attached, I represent that there are no
such inventions. If in the course of my employment at InfoSpace.com, I use in or
incorporate into an InfoSpace.com product, process, or machine, an invention
owned by me or in which I have an interest. InfoSpace.com is hereby granted and
shall have an exclusive royalty-free, irrevocable, worldwide license to make,
have made, use and sell that invention without restriction as to the extent of
my ownership or interest.
5. I will execute any proper oath or verify and proper document in connection
with carrying out the terms of this agreement. If, because of my mental or
physical incapacity or for any other reason whatsoever, InfoSpace.com is unable
to secure my signature to apply for or to pursue any application for any United
States or foreign patent or copyright covering Inventions assigned to
InfoSpace.com as stated above, I hereby irrevocably designate and appoint
InfoSpace.com and its duly authorized officers and agents as my agent and
attorney in fact, to act for me and in my behalf and stead to execute and file
any such applications and to all other lawfully permitted acts to further the
prosecution and issuance of U.S. and foreign patents and copyrights thereon with
the same legal force and effect as if executed by me. I will testify at
InfoSpace.com's request and expense in any interference, litigation, or other
legal proceeding that may arise during or after my employment.
6. I recognize that InfoSpace.com has received and will receive confidential and
proprietary information from third parties subject to a duty on InfoSpace.com's
part to maintain the confidentiality of such information and to use it only for
certain limited purposes. During the term of my employment and thereafter I owe
InfoSpace.com and such third parties a duty not to disclose such confidential or
proprietary information to anyone except as necessary in carrying out my work
for InfoSpace.com and consistent with InfoSpace.com's agreement with such third
party. I will not use such information for the benefit of anyone other than
InfoSpace.com or such third party, or in any manner inconsistent with any
agreement between InfoSpace.com and such third party of which I am made aware.
7. During my employment at InfoSpace.com I will not improperly or disclose any
confidential or proprietary information or trade secrets of my former or current
employers, principals, partners, co-ventures, clients customers or suppliers or
the vendors or customers of such persons or entities or their vendors or
customers unless such persons or entities have given verbal consent. I will not
violate any non-disclosure or proprietary rights agreement I might have signed
in connection with any such person or entity.
8. I acknowledge that my employment will be of indefinite duration and that
either InfoSpace.com or I will be free to terminate this employment relationship
at will at any time with or without cause. I also acknowledge that any
representation to the contrary are unauthorized and void, unless contained in a
formal written employment contract signed by an officer of InfoSpace.com. I
further acknowledge that the terms and conditions of this agreement shall
survive termination of my employment.
9. At the time I leave the employ of InfoSpace.com, I will return to
InfoSpace.com all papers, drawings, notes, memoranda, manuals, specifications,
designs, devices, documents, diskettes and tapes, and any other material on any
media containing or disclosing any confidential or proprietary technical or
business information. I will also return any keys, pass cards, identification
cards or any other property belonging to InfoSpace.com.
10. [Deleted]
11. While employed at InfoSpace.com and for a period of one year from the
termination of my employment I will not induce or attempt to influence directly
or indirectly any employee of InfoSpace.com to terminate his/her employment with
InfoSpace.com or to work for me or any other person or entity.
12. I acknowledge that any violation of this agreement by me will cause
irreparable injury to InfoSpace.com, and InfoSpace.com shall be entitled to
extraordinary relief in court, including, but not limited to, temporary
restraining orders, preliminary injunctions, and permanent injunctions, without
the necessity of posting bond or security.
<PAGE>
13. If court proceedings are required to enforce any provision or to remedy any
breach of this Agreement, the prevailing party shall be entitled to an award of
reasonable and necessary expenses of litigation, including reasonable attorney
fees.
14. I agree that this agreement shall be governed for all purposes by the laws
of the state of Washington as such laws applies to contracts to be performed
within Washington by residents of Washington and that venue for any action
arising out of this Agreement shall be property laid in King County, Washington
or in the Federal District Court of the Western District of Washington. If any
provision of this Agreement shall be declared excessively broad, it shall be
construed so as to afford InfoSpace.com the maximum protection permissible by
law. If any provision of this Agreement is void or so declared, such provision
shall be severed from this Agreement, which shall otherwise remain in full force
and effect. This Agreement sets forth the entire Agreement of the parties as to
employment at InfoSpace.com and any representations promises, or conditions in
connection therewith not in writing and signed by both parties shall not be
binding upon either party.
HAVING READ AND FULLY UNDERSTOOD THIS AGREEMENT, I have signed my name this date
/s/ Arun Sarin
- -------------------------- __________________
Signature Date
Arun Sarin
__________________________
Employee (please print)
Inventions listed on attached: ____Yes ____No
____________________________________
InfoSpace.com Witness
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