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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1999.
REGISTRATION NO. 333-74201
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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quepasa.com, inc.
(Exact name of registrant as specified in charter)
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NEVADA 7379 86-0879433
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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ONE ARIZONA CENTER
400 EAST VAN BUREN, FOURTH FLOOR
PHOENIX, ARIZONA 85004
(602) 716-0106
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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JEFFREY S. PETERSON, CHIEF EXECUTIVE OFFICER
quepasa.com, inc.
ONE ARIZONA CENTER
400 EAST VAN BUREN, FOURTH FLOOR
PHOENIX, ARIZONA 85004
(602) 716-0106
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of all communications to:
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JEFFREY M. KNETSCH JOSEPH P. RICHARDSON
BROWNSTEIN HYATT & FARBER, P.C. BRYAN CAVE LLP
410 SEVENTEENTH STREET TWO NORTH CENTRAL AVE., #22000
DENVER, CO 80202 PHOENIX, AZ 85004
(303) 534-6335 (602) 364-7000
(303) 623-1956 (FAX) (602) 364-7070 (FAX)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS AMOUNT PROPOSED PROPOSED MAXIMUM AMOUNT
OF SECURITIES TO BE MAXIMUM PRICE AGGREGATE OF
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $.001 par value.... 4,600,000 shares(2) $12.00 $55,200,000 $16,284
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representative's Warrants........ 400,000 warrants -- $100 --
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Common Stock underlying the
representative's Warrants(3)... 400,000 shares $14.40 $ 5,760,000 $ 1,699
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Total................... $17,983(4)
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(1) Estimated solely for computing the amount of the registration fee pursuant
to Rule 457(a) under the Securities Act.
(2) Includes the overallotment option granted to the representative of 600,000
shares.
(3) Pursuant to Rule 416 of the Securities Act of 1933, as amended, the number
of shares of common stock issuable upon exercise of the representative's
warrants is subject to adjustment in accordance with the anti-dilution
provisions of such warrants.
(4) Previously paid.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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SUBJECT TO COMPLETION DATED , 1999
4,000,000 SHARES OF COMMON STOCK
[QUEPASA.COM LOGO]
Quepasa.com, inc. operates an Internet portal and on-line community that
provides users with information and interactive content centered around the
Spanish language. The quepasa.com community includes a search engine, free
e-mail, Spanish-language news feeds, chat rooms and message boards.
We are offering 4,000,000 shares of common stock at between $10.00 and
$12.00 per share.
We have applied to list our common stock on the Nasdaq National Market
under the symbol "PASA."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PER SHARE TOTAL
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Public offering price:...................................... $ $
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Underwriting discounts and commissions:..................... $ $
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Proceeds to quepasa.com, inc.:.............................. $ $
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We have granted the underwriters an option for 45 days to purchase up to an
additional 600,000 shares at the same price indicated above solely to cover
overallotments.
LOGO
The date of this prospectus is , 1999.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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[INSIDE FRONT COVER PAGE: SCREENSHOT OF QUEPASA.COM HOMEPAGE]
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON
STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE
DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 2
Risk Factors................................................ 5
Use of Proceeds............................................. 9
Dividend Policy............................................. 9
Dilution.................................................... 10
Capitalization.............................................. 11
Selected Financial Data..................................... 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Our Business................................................ 17
Our Management.............................................. 27
Principal Stockholders...................................... 32
Related Party and Other Material Transactions............... 33
Description of Securities................................... 34
Underwriting................................................ 36
Legal Matters............................................... 38
Experts..................................................... 38
Change of Accountants....................................... 38
Additional Information...................................... 38
Financial Statements........................................ F-1
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PROSPECTUS SUMMARY
The following summary includes all material items relating to the offering
and should be read with the more detailed information and financial statements
and notes thereto appearing elsewhere in this prospectus.
OUR BUSINESS
Quepasa.com is a Spanish-language Internet portal and on-line community
focused initially on the U.S. Hispanic market. We provide users with information
and interactive content centered around the Spanish language. Because the
language preference of many acculturated U.S. Hispanics is English, we also
offer our users the ability to access information and services in the English
language. We draw viewers to our Web site by providing a one-stop destination
for identifying, selecting and accessing resources, services, content and
information on the Web. Our on-line community includes a search engine, free
e-mail, Spanish-language news feeds, chat rooms and message boards. We are a
development stage company having launched the quepasa.com Web site in November
1998 and have not yet generated significant revenue. We anticipate that our
principal source of revenue will be fees paid by third parties for advertising
their products and services on our Web site.
OUR MARKET OPPORTUNITY
Our objective is to establish quepasa.com as a leading worldwide
Spanish-language on-line community, offering our services to Spanish-speaking
Internet users residing in the United States, Latin America, Europe and other
regions of the world. We believe that the Spanish-language Internet market is
presently underserved. Our initial focus is the U.S. Hispanic market where we
believe there will continue to be dramatic growth among Internet users. With
respect to the Spanish-language Internet market:
- The U.S. Hispanic population totals 29.6 million people or 11% of the
U.S. population and is expected to grow to 41.1 million or 14% of the
total U.S. population by 2010;
- Total U.S. Hispanic purchasing power is projected to be $383.0 billion in
1999, representing an increase of approximately 84% since 1990;
- Between 1994 and 1998, the percentage of U.S. Hispanic households that
owned computers increased from 13% to 30% which amounted to approximately
130% growth in four years;
- Between 1994 and 1998, the percentage of U.S. Hispanic households with
Internet access grew from 2% to 15%, which amounted to approximately 650%
growth in four years;
- According to International Data Corporation, the number of Internet users
in Latin America, excluding Portuguese-speaking Brazilians, is expected
to increase from 2.5 million at year end 1998 to 11.7 million by year end
2003;
- Spanish is the world's third most spoken language, used by approximately
350 million native speakers; and
- Twenty-one countries consider Spanish their primary language.
OUR STRATEGY
We are establishing quepasa.com as a leading Spanish-language on-line
community by executing a business strategy that includes:
- Developing quepasa.com in the United States and then globally as a
leading brand associated with the Internet for Spanish-language users;
- Acquiring and developing additional content and features for the
quepasa.com community;
- Entering into strategic relationships with business partners who offer
unique media, content, technology and distribution capabilities;
- Expanding into additional Spanish-speaking markets; and
- Generating revenue from the sale of advertising and through electronic
commerce.
OUR STRATEGIC RELATIONSHIPS
We have developed strategic relationships with leading providers of media
and content, including:
- Telemundo Network Group LLC, a U.S. Spanish-language television
network owned by Sony and Liberty Media;
- Miami Herald Online;
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- Fox Sports World Espanol;
- Arizona Diamondbacks;
- Reuters NewMedia;
- UPI; and
- WeatherLabs.
Our search engine is provided by Inktomi, a leader in search technology.
Exodus and GTE, two of the largest companies involved in connecting users to the
Internet, provide high-speed connections between our users, quepasa.com and
Inktomi. We have an agreement with 24/7 Media, Inc., a leading provider of
Internet advertising solutions, to sell advertising on our Web site to customers
solicited by 24/7 Media.
We believe growth in our Web site traffic was the result of advertising
campaigns and the continued development of our Web site content and features.
Our page views, which represent the number of times our server delivers a page
to a user, grew from approximately 103,700 in January 1999 to approximately
2,764,000 in April 1999 and our user session length grew from an average of
approximately 7.0 minutes to approximately 16.1 minutes. Total user sessions
grew from 40,284 in January 1999 to 324,100 in April 1999. Between February and
April 1999 our e-mail users grew from 201 to 13,887.
OUR HISTORY
We were incorporated in Nevada in June 1997 under the name Internet
Century, Inc. and changed our name in December 1998 to quepasa.com, inc. to
reflect our decision to operate a Spanish-language portal and on-line community.
Our corporate offices are located at One Arizona Center, 400 East Van Buren,
Fourth Floor, Phoenix, Arizona 85004, telephone number (602) 716-0106. Our
quepasa.com Web site is located at www.quepasa.com. Information contained in our
Web site should not be considered a part of this prospectus.
THE OFFERING
Unless otherwise indicated, all information in this prospectus assumes (1)
no exercise of the overallotment option granted to the underwriters and (2) an
offering price of $11.00 per share.
Securities Offered(1)...... 4,000,000 shares of common stock.
Common Stock Outstanding
Prior to Offering(2)..... 9,775,833 shares of common stock.
Common Stock to be
Outstanding After
Offering(2).............. 13,775,833 shares of common stock.
Use of Proceeds............ Marketing and advertising expenses; development and
acquisition costs for additional Web site content
and features; general, administrative and other
operating expenses; technology and equipment
purchases; and working capital.
Proposed Nasdaq National
Market Symbol............ PASA
Risk Factors............... Investment in our common stock involves a high
degree of risk and could result in a loss of your
entire investment.
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(1) If the overallotment option granted to the underwriters is exercised in
full, 600,000 additional shares of common stock will be sold, with estimated
net proceeds to be received of $5,940,000 after deducting commissions and
expenses.
(2) Excludes an aggregate of 3,248,000 shares of common stock issuable upon
exercise of outstanding stock options and common stock purchase warrants and
400,000 shares of common stock issuable upon exercise of common stock
purchase warrants to be issued to the representative of the underwriters
upon completion of the offering. See "Management -- Stock Option Plan" and
"Underwriting."
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SUMMARY FINANCIAL DATA
The following tables set forth financial information which has been derived
from our audited financial statements for the period from inception, June 25,
1997, through December 31, 1997, for the year ended December 31, 1998 and
cumulative from inception, June 25, 1997 to December 31, 1998. The tables also
include financial information which has been derived from our unaudited
financial statements as of March 31, 1999, the three months ended March 31, 1999
and 1998 and cumulative from inception (June 25, 1997) through March 31, 1999.
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CUMULATIVE
INCEPTION CUMULATIVE FROM INCEPTION
THREE MONTHS ENDED (JUNE 25, 1997) FROM INCEPTION (JUNE 25, 1997)
MARCH 31, YEAR ENDED TO (JUNE 25, 1997) TO
STATEMENT OF ------------------------ DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
OPERATIONS DATA 1999 1998 1998 1997 MARCH 31, 1999 1998
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Product and content
development
expenses........... $ 186,691 $ 4,330 $ 414,873 $ -- $ 601,564 $ 414,873
Advertising and
marketing
expenses........... 2,062,607 -- 250,419 -- 2,313,026 250,419
Stock-based
compensation
expenses........... 479,000 -- 5,265,364 -- 5,744,364 5,265,364
General and
administrative
expenses........... 950,299 9,137 534,632 3,703 1,488,634 538,335
Net loss............. $(3,683,219) $ (13,467) $(6,513,228) $ (2,903) $(10,199,350) $(6,516,131)
Weighted average
number of shares
outstanding........ 9,075,833 9,075,833 9,075,833 9,075,833 9,075,833 9,075,833
Net loss per share... $ (.41) -- $ (.72) -- $ (1.12) $ (.72)
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DECEMBER 31,
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1997 1998 MARCH 31, 1999
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BALANCE SHEET DATA ACTUAL ACTUAL ACTUAL AS ADJUSTED(1)
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Working capital............................. $ (2,883) $3,563,302 $1,483,843 $40,083,843
Total assets................................ $ 2,582 $4,611,464 $3,290,957 $41,890,957
Total liabilities........................... $ 5,465 $ 691,042 $2,574,754 $ 2,574,754
Stockholders' (deficit) equity.............. $ (2,883) $3,920,422 $ 716,203 $39,316,203
</TABLE>
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(1) As adjusted to reflect the sale of 4,000,000 shares of common stock offered
hereby at an assumed offering price of $11.00 per share and the application
of the net proceeds. See "Use of Proceeds."
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RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in shares of our common stock. If
any of these risks occur, our business, results of operations and financial
condition could be adversely affected. This could cause the trading price of our
common stock to decline, and you might lose part or all of your investment.
OUR OPERATING HISTORY IS EXTREMELY LIMITED; WE EXPECT FUTURE LOSSES AND MAY NEED
MORE CAPITAL
We were incorporated in June 1997 and have generated no significant revenue
from our quepasa.com Web site. Accordingly, we have no operating history upon
which an investor can evaluate us, and our prospects are subject to the risks
and uncertainties encountered by companies that operate in the new and rapidly
evolving Internet market.
As of March 31, 1999, we had an accumulated deficit of approximately $10.6
million. Our limited operating history and the uncertainty of the Internet
market in which we operate our business make any prediction of our future
results of operations difficult or impossible. We expect to increase
considerably our operating expenses in the future, particularly advertising
expenses to develop and extend our quepasa.com brand and expenses relating to
content and features that we intend to develop, purchase or otherwise acquire
and add to our Web site. We do not expect that our revenue will cover those
expenses. As a result, we will continue to incur significant losses and may need
to raise additional capital. We cannot assure that we will be able to raise
additional capital and we do not know what the terms of such capital raising
would be. Any future sale of our equity securities would dilute the ownership
and control of our stockholders and could be at prices substantially below the
offering price.
WE WILL BE UNABLE TO GENERATE SUFFICIENT ADVERTISING REVENUE IF OUR TARGET
AUDIENCE DOES NOT ACCEPT OUR PRODUCTS AND SERVICES
We have only recently begun to promote our site and we cannot give
assurances that the Spanish-speaking population will accept our products and
services or that we will attract repeat users to our Web site. Because the
market for our products and services is new and evolving, it is difficult to
predict the future growth rate, if any, and the size of the market we have
targeted. If the market develops more slowly than we expect or becomes saturated
with competitors, or if our products and services are not accepted by the
market, we will be unable to generate enough advertising revenue to offset our
expenses and to earn profits.
OUR INABILITY TO DEVELOP THE QUEPASA.COM BRAND WILL SIGNIFICANTLY REDUCE OUR
ADVERTISING REVENUE
We intend to spend a significant portion of the net proceeds from this
offering to create and sustain a distinct brand loyalty among our targeted
population of Internet users. We believe that establishing and maintaining the
quepasa.com brand is of critical importance to our efforts to attract and expand
our audience. We also believe that brand recognition will become more important
due to the increasing number of Internet sites. Promotion and enhancement of the
quepasa.com brand will depend largely on our success in providing high quality
products and services and Web site content that is of interest to the worldwide
Spanish-speaking population. We cannot assure that success. Even if our desired
results are achieved, it is likely that we will expend significant additional
amounts in further developing and maintaining brand loyalty. Failure to develop
brand loyalty among our users could result in our being unable to generate
enough advertising revenue to offset our expenses and to earn profits.
IF WEB-BASED ADVERTISING IS NOT ACCEPTED BY ADVERTISERS OUR ADVERTISING REVENUE
MAY NOT BE SUFFICIENT TO OFFSET OUR EXPENSES
We will need revenue from the sale of advertisements on our Web pages to
offset expenses. At the present time, Web advertisers generally enter into only
short-term advertising contracts. Because Web site advertising is a new
phenomenon, few advertisers have significant experience with the Web as an
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advertising medium. Consequently, many advertisers have not devoted a
substantial portion of their advertising expenditures to Web-based advertising,
and may not find Web-based advertising to be effective for promoting their
products and services as compared to traditional print and broadcast media.
No standards have yet been widely accepted for the measurement of the
effectiveness of Web-based advertising, and we can give no assurance that such
standards will be developed or adopted sufficiently to sustain Web-based
advertising as a significant advertising medium. We cannot give assurances that
banner advertising, the predominant revenue producing mode of advertising
currently used on the Web, will be accepted as an effective advertising medium
or that we can effectively transition to any other forms of Web-based
advertising, should they develop. Recently, software programs became available
that limit or remove advertisments from an Internet user's desktop. This
software, if generally adopted by users, may materially and adversely affect
Web-based advertising.
OUR WEB SITE OPERATIONS COULD BE IMPAIRED IF WE LOSE THE SERVICES OF THIRD PARTY
TECHNOLOGY AND CONTENT PROVIDERS
Our business depends upon third parties, including providers of technology,
infrastructure, content and features.
We supplement our Web site directory listings with Web search results
provided by Inktomi under a non-exclusive agreement. We depend upon Inktomi for
ongoing maintenance and technical support to ensure accurate and rapid
presentation of search results to users of our Web site. Termination of our
relationship with Inktomi or Inktomi's failure to renew our agreement upon
expiration could result in substantial additional costs to us in developing or
replacing technology. We also rely upon Exodus and GTE for our Internet and
e-mail connections. Any interruption in the Internet access provided by Exodus
or GTE or any other provider of access could disrupt our Web site operations and
impair relations with our users.
We license content, including technology and related databases, from third
parties for portions of our quepasa.com Web site, including news from Reuters
and UPI, weather from WeatherLabs and chat services from Volano. Any errors,
delays or failures experienced in connection with these third party technologies
and services could have a negative effect on our relationship with users of our
Web site, could materially and adversely affect our brand and our business and
could subject us to liability to third parties for business negligence such as
defamation or libel.
SYSTEM FAILURE COULD DISRUPT OUR WEB SITE OPERATIONS
The continued and uninterrupted performance of our hardware and software is
critical to our reputation and our success in attracting traffic to our Web
site. Users of our site and our services, such as our e-mail services, may
become dissatisfied by system failures that may limit our Web site services.
Sustained or repeated system failures could significantly reduce the traffic on
our Web site and may impair our reputation and brand name. Our operations depend
on our ability to protect our computer systems from damage from fire, power
loss, water damage, telecommunications failures, vandalism and other malicious
acts, and similar unexpected adverse events. We may not carry enough business
interruption insurance to compensate for losses that may occur as a result of
any of these events. We also depend upon Internet browsers and Internet service
providers that provide users with access to the Internet and our Web site. Users
may experience difficulties due to system failures unrelated to our systems. Any
disruption in Internet access by Internet service providers and other third
party access providers, or any failure of such providers to handle higher
volumes of user traffic, could disrupt our Web site operations and impair
relations with our users.
OUR MANAGEMENT IS INEXPERIENCED AND MAY NOT BE ABLE TO MANAGE OUR GROWTH
Several executive officers and members of our board of directors joined us
recently, our management team has worked together for only a short time, and
none of our executive officers has extensive experience managing a rapidly
growing business enterprise. Any growth we experience will place a
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significant strain on our management and financial resources. Any inability of
our management to manage growth effectively could significantly increase our
operating expenses, impair our marketing efforts and limit the development of
our Web site.
GROWTH OF OUR WEB SITE MAY BE LIMITED BY GOVERNMENTAL REGULATIONS
Laws and regulations may be adopted with respect to the Internet covering
issues ranging from user privacy and defamation to taxation and intellectual
property ownership. Any laws or regulations adopted in the future affecting the
Internet could subject us to substantial liability. Such laws or regulations
could also adversely affect the growth of the Internet generally, and decrease
the acceptance of the Internet as a communications and commercial medium. In
addition, the growing use of the Internet has burdened the existing
telecommunications infrastructure. Areas with high Internet use relative to the
existing telecommunications structure have experienced interruptions in phone
service leading local telephone carriers to petition regulators to govern
Internet service providers and impose access fees on them. Such regulations, if
adopted in the United States or other places, could increase significantly the
costs of communicating over the Internet, which could in turn decrease the
demand for our products and services. The adoption of various proposals to
impose additional taxes on the sale of goods and services through the Internet
could also reduce the demand for Web-based commerce.
WE MAY FACE LIABILITY FOR INFORMATION CONTENT AND COMMERCE-RELATED ACTIVITIES
Because materials may be downloaded by the services that we operate or
facilitate and the materials may subsequently be distributed to others, we could
face claims for errors, defamation, negligence, or copyright or trademark
infringement based on the nature and content of such materials. We could also be
exposed to liability because of the listings that we select and make available
through our Web site, or through content and materials posted by users in chat
room and message board services that we provide. Even to the extent that claims
made against us do not result in liability, we may incur substantial costs in
investigating and defending such claims.
COMPETITION FOR INTERNET USERS MAY LIMIT TRAFFIC ON, AND THE VALUE OF, OUR WEB
SITE
The market for Internet products and services and the market for Internet
advertising and electronic commerce arrangements are extremely competitive, and
we expect that competition will continue to intensify. We believe that the
principal competitive factors in these markets are name recognition,
distribution arrangements, functionality, performance, ease of use, the number
of services and features provided and the quality of support. Our primary
competitors are other companies providing portal or other online services,
especially to Spanish-language Internet users such as Yahoo!, America Online,
StarMedia Network, Prodigy, Microsoft, Lycos and Ole. Most of our competitors,
as well as a number of potential new competitors, have significantly greater
financial, technical and marketing resources than we do. Our competitors may
offer Internet products and services that are superior to ours or that achieve
greater market acceptance. There can be no assurance that competition will not
limit traffic on, and the value of, our Website.
TECHNOLOGICAL CHANGES COULD IMPAIR OUR ABILITY TO COMPETE AND SUBJECT US TO
SIGNIFICANT EXPENDITURES
The market for Internet products and services is characterized by rapid
technological developments, frequent new product introductions and evolving
industry standards. The emerging character of these products and services and
their rapid evolution will require that we continually improve the performance,
features and reliability of our Internet content, particularly in response to
competitive offerings. There can be no assurance that we will be successful in
responding quickly, cost effectively and sufficiently to these developments. In
addition, the widespread adoption of new Internet technologies or standards
could require substantial expenditures by us to modify or adapt our Web site and
services and could fundamentally affect the character, viability and frequency
of Web-based advertising, either of which could have a material adverse effect
on our business. In addition, new Internet services or enhancements offered by
us
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may contain design flaws or other defects that could require costly
modifications or result in a loss of consumer confidence.
FAILURE OF OUR COMPUTER SYSTEM OR THE SYSTEMS OF THIRD PARTIES TO ACHIEVE YEAR
2000 COMPLIANCE COULD ADVERSELY AFFECT OUR BUSINESS
Many currently installed computer systems and software products are coded
to accept only two-digit entries to represent years in the date code field.
Computer systems and products that do not accept four-digit entries will need to
be upgraded or replaced to accept four-digit entries to distinguish years
beginning with 2000 from prior years. We are currently evaluating the Year 2000
issue as it relates to our entire internal computer system as well as computer
systems operated by third parties. We are incurring internal staff costs and may
incur consulting and other expenses related to making our computer systems Year
2000 compliant. We will expense these costs as incurred. In addition, computer
systems operated by third parties with which our systems interface may not
continue to properly interface with our systems or be compliant on a timely
basis with Year 2000 requirements. Any failure of our computer system or the
systems of third parties to achieve Year 2000 compliance could adversely affect
our business.
FUTURE SALES OF OUR COMMON STOCK OR SHARES ISSUABLE UPON EXERCISE OF STOCK
OPTIONS COULD ADVERSELY AFFECT OUR STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN
NEW STOCK OFFERINGS
We currently have 9,775,833 shares of common stock outstanding, of which
1,981,886 shares may now be sold, at the rate of at least 13,775 shares by each
of our stockholders every 90 days, under Rule 144 of the Securities Act and of
which 7,793,947 shares may be sold subject to the same volume limitation
commencing May 1999 through April 2000. Sale of substantial amounts of common
stock, or the perception that sales could occur, could reduce the market price
of the common stock. All of our stockholders have agreed not to sell or
otherwise transfer any of their shares until 180 days from the date of this
prospectus without the prior written consent of the representative of the
underwriters. A total of 6,000,000 shares of common stock have been reserved for
issuance upon the exercise of stock options granted under our Stock Option Plan
and 400,000 shares have been reserved upon exercise of common stock purchase
warrants to be issued to the representative of the underwriters. Currently,
there are outstanding stock options or common stock purchase warrants to acquire
3,248,000 shares of common stock at exercise prices ranging from $1.00 to the
greater of $12.00 or 120% of the offering price per share, including 1,400,000
common stock purchase warrants subject to demand and piggy-back registration
rights. See "Management -- Executive Compensation."
FORWARD-LOOKING STATEMENTS MAY BE UNRELIABLE
This prospectus contains forward-looking statements regarding our intent,
belief or current expectations. Discussions in this prospectus under the
headings "Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Our Business," as well as in
other parts of this prospectus include such forward-looking statements. These
statements are subject to a variety of risks and uncertainties, many of which
are beyond our control, which could cause our actual future results to differ
materially from those contemplated in the forward-looking statements. In
particular, the risks and uncertainties described under "Risk Factors" in this
prospectus could cause our actual future results to differ from what we
contemplate. Investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this prospectus.
8
<PAGE> 11
USE OF PROCEEDS
After payment of underwriting commissions and other expenses of the
offering, the net proceeds of the offering are estimated to be $38.6 million, or
$44.5 million if the overallotment option is exercised. We expect to use the net
proceeds approximately as follows:
- $23.5 million for marketing and advertising expenses in order to globally
develop and maintain the quepasa.com brand;
- $8.0 million to further develop and acquire additional content and
features for the quepasa.com Web site;
- $4.0 million for general, administrative and other operating expenses
including the recruitment, training and payment of salaries of new
employees;
- $2.0 million to purchase additional technology and equipment; and
- $1.1 for working capital.
There may be changes in our proposed use of proceeds due to changes in our
business or the Internet industry in general.
Proceeds not immediately needed will be invested in bank certificates of
deposit, treasury bills, insured bank deposits or similar investments.
DIVIDEND POLICY
We have never declared or paid dividends on our common stock and do not
intend to pay dividends on our common stock in the foreseeable future. Instead,
we will retain any earnings to finance the expansion of our business and for
general corporate purposes.
9
<PAGE> 12
DILUTION
At March 31, 1999, the net tangible book value of our outstanding shares of
common stock was a deficit of approximately $1.1 million, or $.13 per common
share. "Net tangible book value" per share represents the total amount of our
tangible assets, less the total amount of our liabilities, divided by the number
of shares of common stock outstanding. Without taking into account any changes
in net tangible book value after March 31, 1999, other than to give effect to
the sale of the shares of common stock offered hereby at an assumed initial
public offering price of $11.00 per share, less underwriting discounts and
commissions and estimated costs of the offering, our net tangible book value at
March 31, 1999 would have been approximately $37.8 million, or $2.89 per share.
This represents an immediate increase in net tangible book value of $3.02 per
share of common stock to our existing stockholders and an immediate dilution of
$8.11 per share to new investors. "Dilution" per share represents the difference
between the price to be paid by the new stockholders and the net tangible book
value per share of common stock immediately after this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Net tangible book value per share before the offering..... $(.13)
Increase in net tangible book value per share attributable
to new investors purchasing in the offering............ $3.02
-----
Net tangible book value per share after the offering........ $ 2.89
------
Dilution per share to new investors......................... $ 8.11
======
</TABLE>
The following table sets forth the number of shares of common stock
purchased, the total consideration paid and the average price per share paid by
our existing stockholders as of March 31, 1999 and new investors purchasing the
shares of common stock offered hereby:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------ PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
New investors............ 4,000,000 30.6% $44,000,000 88.3% $11.00
Existing
stockholders(1)........ 9,075,833 69.4% $ 5,811,776 11.7% $ .64
---------- ----- ----------- -----
TOTALS................... 13,075,833 100.0% $49,811,776 100.0%
</TABLE>
- ---------------
(1) Excludes 700,000 shares issued subsequent to March 31, 1999 and shares of
common stock issuable upon exercise of stock options and common stock
purchase warrants. See "Management -- Stock Option Plan" and "Underwriting."
10
<PAGE> 13
CAPITALIZATION
The following table sets forth our historical and as adjusted
capitalization as of March 31, 1999, after deducting underwriting discounts and
commissions and estimated offering expenses. As adjusted capitalization reflects
the sale of the 4,000,000 shares of common stock offered hereby at an assumed
offering price of $11.00 per share and the application of the net proceeds.
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1999
ACTUAL AS ADJUSTED
-------------- --------------
<S> <C> <C>
Long-term liabilities(1).................................... $ 2,000,000 $ 2,000,000
Stockholders' equity
Preferred stock, 5,000,000 no par value shares authorized,
no shares issued....................................... -- --
Common stock, 50,000,000, $.001 par value shares
authorized, 9,075,833 shares outstanding, 13,075,833
shares outstanding as adjusted(2)...................... 9,076 13,076
Additional paid-in capital................................ 10,906,477 49,502,477
Retained (deficit)........................................ (10,199,350) (10,199,350)
------------ ------------
Total stockholders' equity........................ $ 716,203 $ 39,316,203
============ ============
Total capitalization.............................. $ 2,716,203 $ 41,316,203
============ ============
</TABLE>
- ---------------
(1) Excludes approximately $2.3 million loaned to us subsequent to March 31,
1999 by our Chief Executive Officer. See "Related Party and Other Material
Transactions."
(2) Excludes 700,000 shares issued subsequent to March 31, 1999 and shares of
common stock issuable upon exercise of stock options and common stock
purchase warrants. See "Management -- Stock Option Plan" and "Underwriting."
11
<PAGE> 14
SELECTED FINANCIAL DATA
The following tables set forth financial information which has been derived
from our audited financial statements for the period from inception, June 25,
1997, through December 31, 1997, for the year ended December 31, 1998 and
cumulative from inception, June 25, 1997 to December 31, 1998. The tables also
include financial information derived from our unaudited financial statements as
of March 31, 1999, the three months ended March 31, 1999 and 1998 and cumulative
from inception (June 25, 1997) through March 31, 1999.
<TABLE>
<CAPTION>
CUMULATIVE
INCEPTION CUMULATIVE FROM INCEPTION
THREE MONTHS ENDED (JUNE 25, 1997) FROM INCEPTION (JUNE 25, 1997)
MARCH 31, YEAR ENDED TO (JUNE 25, 1997) TO
STATEMENT OF ------------------------ DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
OPERATIONS DATA 1999 1998 1998 1997 MARCH 31, 1999 1998
--------------- ----------- ---------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Product and content
development
expenses........... $ 186,691 $ 4,330 $ 414,873 $ -- $ 601,564 $ 414,873
Advertising and
marketing
expenses........... 2,062,607 -- 250,419 -- 2,313,026 250,419
Stock-based
compensation
expense............ 479,000 -- 5,265,364 -- 5,744,364 5,265,364
General and
administrative
expenses........... 950,299 9,137 534,632 3,703 1,488,634 538,335
Other -- net......... 4,622 -- 47,940 (800) 51,762 47,140
----------- ---------- ----------- ---------- ------------ -----------
Net loss............. $(3,683,219) $ (13,467) $(6,513,228) $ (2,903) $(10,199,350) $(6,516,131)
=========== ========== =========== ========== ============ ===========
Weighted average
number of shares
outstanding........ 9,075,833 9,075,833 9,075,833 9,075,833 9,075,833 9,075,833
=========== ========== =========== ========== ============ ===========
Net loss per share... $ (.41) -- $ (.72) -- $ (1.12) $ (.72)
=========== ========== =========== ========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998 MARCH 31, 1999
---------- ---------- ---------------------------
BALANCE SHEET DATA ACTUAL ACTUAL ACTUAL AS ADJUSTED(1)
- ------------------ ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Working capital............................. $ (2,883) $3,563,302 $1,483,843 $40,083,843
Total assets................................ $ 2,582 $4,611,464 $3,290,957 $41,890,957
Total liabilities........................... $ 5,465 $ 691,042 $2,574,754 $ 2,574,754
Stockholders' (deficit) equity.............. $ (2,883) $3,920,422 $ 716,203 $39,316,203
</TABLE>
- ---------------
(1) As adjusted to reflect the sale of 4,000,000 shares of common stock offered
hereby at an assumed offering price of $11.00 per share and the application
of the net proceeds. See "Use of Proceeds."
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations for the three months ended March 31, 1999 and 1998 and the year ended
December 31, 1998 and the period from June 25, 1997 (inception) through December
31, 1997 should be read in conjunction with our financial statements, the notes
related thereto, and the other financial data included elsewhere in this
prospectus.
RESULTS OF OPERATIONS
We are a development stage company and commenced operations on June 25,
1997. Our operations for the period June 25, 1997 through approximately May 1998
were limited to organizing our company, raising operating capital, hiring
initial employees and drafting our business plan. For this reason our results of
operations for the three months ended March 31, 1998 and the period ended
December 31, 1997 are not comparable to the results of operations for the three
months ended March 31, 1999 and the year ended December 31, 1998, respectively.
In 1998 we hired many of our current management and employees, raised
working capital for development and operations and launched the quepasa.com Web
site. We have had no significant revenue to date, but incurred $3.7 million and
$6.9 million of operating losses during the three months ended March 31, 1999
and the year ended December 31, 1998, respectively.
During the three months ended March 31, 1999, our $3.7 million operating
loss was comprised primarily of the following:
- $2.1 million for advertising and marketing expenses that primarily
included $1.2 million for our radio broadcast agreement with Heftel,
$300,000 for our advertising agreement with Garcia/LKS and $123,000 for
our television broadcast agreement with Telemundo;
- $950,000 for general and administrative expenses which primarily included
$600,000 of salaries and related expenses, professional fees of $150,000
and other office and related expenses of $200,000;
- $479,000 for stock-based compensation; and
- $187,000 for product and content development expenses which primarily
included $119,000 for Internet service costs and our Inktomi license
agreement.
During the three months ended March 31, 1999, interest expense was incurred
on a $2.0 million loan from The Monolith Limited Partnership, a principal
stockholder.
During the year ended December 31, 1998, our $6.5 million operating loss
was comprised primarily of the following:
- $5.3 million for stock-based compensation;
- $535,000 for general and administrative expenses which primarily included
$260,000 of salaries and related expenses, professional fees of $75,000,
rent of $27,000 and other office and related expenses of $173,000;
- $415,000 for product and content development expenses which primarily
included $187,000 for Internet service costs and our Inktomi license
agreement; and
- $250,000 for advertising and marketing.
During the year ended December 31, 1998, interest expense was related to
interest incurred on convertible notes payable.
We expect in the near term to incur significant continuing losses due to
ongoing substantial operating expenses offset by negligible revenue.
13
<PAGE> 16
Details of the stock option grants and common stock issuances, discussed
above which resulted in stock based compensation for the three months ended
March 31, 1999 and the year ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF STOCK BASED VESTING
THREE MONTHS ENDED MARCH 31, 1999 SHARES/OPTIONS EXERCISE PRICE COMPENSATION(1) PERIOD
--------------------------------- -------------- -------------- --------------- -------
<S> <C> <C> <C> <C>
STOCK OPTION GRANTS
Directors............................ 50,000 $1.50 to $8.00 $426,500 (2)
Employees............................ 35,000 $1.00 $ 52,500 3 years
YEAR ENDED DECEMBER 31, 1998
STOCK OPTION GRANTS
Officer.............................. 50,000 $1.50 $113,000 (2)
Employees............................ 65,000 $1.00 to $1.50 $166,000 (2)
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF FAIR STOCK BASED
YEAR ENDED DECEMBER 31, 1998 SHARES/OPTIONS VALUE(3) COMPENSATION
---------------------------- -------------- -------- ------------
<S> <C> <C> <C>
COMMON STOCK ISSUANCE
Officer.................................................. 1,420,000 $1.00 $1,420,000
COMMON STOCK TRANSFER BY EXISTING STOCKHOLDERS
Officers and Directors................................... 297,621 1.00 298,000
Consultants.............................................. 1,607,151 1.00 1,607,000
Employees................................................ 1,661,942 1.00 1,662,000
</TABLE>
- ---------------
(1) The fair value of the options granted to directors is estimated on the date
of grant utilizing the Black-Scholes option pricing model based upon an
expected life of ten years, no volatility, risk free interest rates of 6%
and zero dividend yield. Stock-based compensation for employees is
determined using the intrinsic value of the option.
(2) These options became exercisable on their date of grant.
(3) The fair value of the common stock on the date of these issuances was based
on the cash price paid for common stock and the conversion rate on debt
issued at the approximate times of the above transactions.
LIQUIDITY AND CAPITAL RESOURCES
Inception to March 31, 1999
Net cash used in operations was approximately $5.4 million from inception
to March 31, 1999, which resulted from $10.2 million in losses from inception
reduced by $5.7 million of stock-based compensation.
Net cash used in investing activities from inception was related to the
purchase of approximately $870,000 in fixed assets. Net cash provided by
financing activities from inception to March 31, 1999 of approximately $6.8
million resulted from $4.1 million from private placements, $1.1 million from
the issuance of convertible notes payable and $2.0 million from the issuance of
a note payable.
Since inception, we have received approximately $5.2 million to fund our
operations from private placements of common stock and convertible debt and $2.0
million from a loan advanced by Monolith. Additionally, our Chief Executive
Officer has agreed to lend us up to $3.0 million as needed for operations of
which approximately $2.3 million was advanced through May 12, 1999. There are no
conversion features associated with these loans and the loans are due 24 months
from the date funds are advanced.
14
<PAGE> 17
Three Months Ended March 31, 1999
Net cash used in operations was approximately $2.4 million for the three
months ended March 31, 1999. This resulted from an approximately $3.7 million
loss offset by receipt of a $1.5 million refundable deposit, an increase of
approximately $317,000 in accounts payable and other operating activities.
Additionally, we used approximately $1.1 million for prepaid broadcast
advertising.
Net cash used in investing activities was approximately $570,000 for the
three months ended March 31, 1999, consisting of $510,000 of fixed asset
purchases which primarily included technology products, furniture and fixtures
and $60,000 paid under the Inktomi licensing agreement.
Net cash provided by financing activities was approximately $1.3 million
for the three months ended March 31, 1999 and consisted of a $2.0 million loan
from Monolith, one of our principal stockholders. This loan was offset by
deferred initial public offering costs of approximately $340,000 and the payment
of accrued commissions and stock subscriptions refundable of approximately
$191,000 and $338,000, respectively.
Year Ended December 31, 1998
Net cash used in operations was approximately $3.0 million for the year
ended December 31, 1998. This resulted from the approximately $6.5 million net
loss of which approximately $5.3 million was a non-cash charge for stock-based
compensation and the timing of receipt of an approximately $1.5 million deposit
receivable.
Net cash used in investing activities for the year ended December 31, 1998
was related to purchases of approximately $360,000 of fixed assets.
Net cash provided by financing activities was approximately $5.6 million
for the year ended December 31, 1998 and consisted of approximately $4.1 million
in proceeds from private placements, approximately $1.1 million from the
issuance of convertible notes payable and approximately $550,000 from accrued
commissions and stock subscriptions refundable.
Currently, we have commitments under non-cancelable operating leases for
office facilities and office equipment requiring payments of $168,000 through
December, 1999 and $734,000 thereafter. We are required to pay $650,000 pursuant
to the terms of the Inktomi licensing agreement through September 2001,
approximately $246,000 in 1999 and $129,000 in 2000 for technology and content
used on our Web site portal and provided by UPI, Reuters, WeatherLabs, GTE and
Exodus. The Inktomi agreement may require additional payments based upon our
level of use; however, we believe the additional payments, if any, will not be
material. We are required to pay an additional $1.0 million under our
sponsorship agreement with the Arizona Diamondbacks, $1.0 million under our
advertising agreement with Telemundo, and $400,000 under our agreement with the
Miami Herald. These agreements are described under "Our Business -- Marketing
and Advertising of the Quepasa.com site" and "Our Business -- Our Strategic
Relationships."
We expect to incur significantly higher costs, particularly marketing and
advertising costs, product content and development costs, general and
administrative costs and additional technology and equipment purchase costs
during the remainder of our calendar year in order to expand our business. We
expect to expend the largest portion of our existing capital and offering
proceeds on marketing and advertising expenses and do not expect significant
revenue to be realized, if at all, in 1999. Nevertheless, we believe that the
proceeds from this offering, together with our cash on hand and the $3.0 million
line of credit provided by our Chief Executive Officer will be sufficient to
meet our working capital and capital expenditure needs for two years. Although
we do not believe it will be necessary for us to raise additional funds in the
next six months, we may need additional funds at a later date to respond to
competitive pressures or to acquire complementary products, features, businesses
or technologies.
YEAR 2000 ISSUE
We depend on the delivery of information over the Internet, a medium which
is susceptible to the Year 2000 Issue. The "Year 2000 Issue" is typically the
result of limitations of certain software written
15
<PAGE> 18
using two digits rather than four to define the applicable year. If software
with date-sensitive functions is not Year 2000 compliant, it may recognize a
date using "00" as the year 1900 rather than the year 2000. The Year 2000 Issue
could result in a system failure or miscalculations causing significant
disruption of our operations, including, among other things, interruptions in
Internet traffic, accessibility of our Web site, delivery of our service,
transaction processing or searching and other features of our services. It is
possible that this disruption will continue for an extended period of time.
We depend on information contained primarily in electronic format in
databases and computer systems maintained by third parties and us. The
disruption of third-party systems or our systems interacting with these third
party systems could prevent us from delivering search results or other services
in a timely manner which could materially adversely affect our business and
results of operations.
We have assessed our information technology equipment and systems, which
includes our development servers and workstations and production server
monitoring software. We also use multiple software systems for internal business
purposes, including accounting, e-mail, human resources and development. All of
this equipment and software has been purchased within the last 18 months. We
have obtained Year 2000 compliance information from the vendors of this
equipment and software. Based on this research we do not believe that these
systems contain Year 2000 deficiencies. However, we have not conducted our own
tests to determine to what extent software running on any of our hardware
platforms fails to properly recognize Year 2000 dates.
We have reviewed the current version of our internally developed free
e-mail application to determine Year 2000 compliance. We have searched through
the software code for this application and we have determined that it correctly
recognizes Year 2000 date codes.
We have identified and have begun assessing non-information technology
embedded systems such as voice mail, office security, fire prevention and other
systems. We generally believe that our non-information technology embedded
systems do not present Year 2000 issues.
Although we believe that we will be Year 2000 compliant, we use third party
equipment and software that may not be Year 2000 compliant. We have contacted
the majority of our critical third party service suppliers by telephone asking
about the status of their Year 2000 program. We have received responses from
approximately 72% of our third party suppliers. We have received a written
response from GTE and have been referred to information made publicly available
by Reuters, Exodus, Microsoft and Dell Computer. We intend to send letters to
the remaining third party service suppliers regarding their Year 2000 readiness.
All suppliers responding to date have asserted that their products will be Year
2000 compliant. In the event we do not receive satisfactory commitments from a
key supplier, we will make plans for continuing availability of service through
alternate channels. We expect to have certification that all key vendors and
suppliers are Year 2000 compliant during the third quarter of 1999.
To date we have not incurred any material expenditures in connection with
evaluating Year 2000 issues. All of our expenses have related to the opportunity
cost of time spent by one of our employees identifying and evaluating Year 2000
compliance matters.
We have not developed a Year 2000-specific contingency plan. If Year 2000
compliance issues are discovered, we then will evaluate the need for contingency
plans relating to such issues. We intend to actively work with our suppliers to
minimize the risks of business disruptions resulting from Year 2000 issues and
develop contingency plans where necessary. Such plans may include using
alternative suppliers and service providers. We expect to have such plans in
place by the fourth quarter of 1999.
The worst case scenario related to Year 2000 issues would involve a major
shutdown of the Internet, which would result in a total loss of revenue to us
until it was resolved.
16
<PAGE> 19
OUR BUSINESS
INTRODUCTION
Quepasa.com is a Spanish-language Internet portal and on-line community
focused initially on the U.S. Hispanic market. We provide users with information
and interactive content centered around the Spanish language. Because the
language preference of many acculturated U.S. Hispanics is English, we also
offer our users the ability to access information and services in the English
language. We draw viewers to our Web site by providing a one-stop destination
for identifying, selecting and accessing resources, services, content and
information on the Web. Our on-line community includes a search engine, free
e-mail, Spanish-language news feeds, chat rooms and message boards. We are a
development stage company having launched the quepasa.com Web site in November
1998 and have not yet generated significant revenue. We anticipate that our
principal source of revenue will be fees paid by third parties for advertising
their products and services on our Web site. However, we do not expect any
significant revenue in 1999.
INDUSTRY BACKGROUND
Growth of the Internet and the World Wide Web
The Internet is evolving into a global medium, allowing millions of
individuals throughout the world to communicate, share information and engage in
commerce electronically. The Web is an interactive environment which facilitates
the exchange of information and entertainment among users worldwide. According
to International Data Corporation, the number of people worldwide accessing the
Web will grow from approximately 100 million at year end 1998 to 320 million by
2002. This growth is expected to be driven by the large and growing number of
personal computers installed in homes and offices, the declining prices of
personal computers, the improvements in network infrastructure, the availability
of faster and cheaper Internet access, and the increasing familiarity with and
acceptance of the Internet by businesses and consumers. Web usage is also
expected to continue to grow rapidly due to unique characteristics that
differentiate it from traditional media, such as real-time access to interactive
content, real-time communication capabilities and the absence of geographic or
temporal limitations.
Growth of Internet Advertising and Internet Commerce
With the growth in the number of Internet users and content providers, the
Internet is developing the attributes of a conventional mass medium, where
advertising subsidizes content delivered to users. In fact, technological
advances and the acceptance of the medium by businesses have led to rapid growth
in Internet advertising spending. Tools not available in traditional advertising
media, such as real-time measurement of consumers accessing an advertiser's Web
site through an advertising banner, further increase the attractiveness of Web
advertising by giving advertisers real-time feedback on advertising campaigns.
Forrester Research, Inc. estimates that spending on Web-based advertising will
increase from $1.5 billion in 1998 to more than $15.0 billion in 2003.
The growing acceptance and use of the Web has created an opportunity for
businesses to conduct commerce over the Internet. International Data Corporation
estimates that transactions on the Internet are expected to increase from
approximately $32.0 billion in 1998 to more than $425.0 billion in 2002.
Businesses typically use the Internet to offer standard products and services
that can be easily described with graphics and text and that do not necessarily
require a physical presence for purchase of items, such as airline tickets,
books and investment securities. The focus of electronic commerce transactions
evolved from companies facilitating Internet transactions between businesses to,
more recently, companies targeting business-to-consumer transactions. Internet
commerce enables these companies to develop relationships with customers on a
global basis without making significant investments in traditional sales and
distribution infrastructure.
17
<PAGE> 20
OUR MARKET IN THE UNITED STATES
We believe that the Spanish-language Internet market in the United States
is characterized by a growing Hispanic population, increasing Hispanic
purchasing power, greater advertising spending on Spanish-language media,
continuing use of the Spanish language by U.S. Hispanics and increasing computer
ownership and Internet usage by Hispanic households.
Hispanic Population Growth and Concentration
A large number of our users are Hispanics, one of the most rapidly growing
segments of the U.S. population. According to the U.S. Census Bureau and
published sources, the Hispanic population:
- Is estimated to be 29.6 million or 11% of the total U.S. population in
1998, an increase of approximately 31% from 22.5 million or 9% of the
total U.S. population in 1990;
- Is expected to account for 40% of the total U.S. population growth
between 1995 and 2010 and is expected to grow to 41.1 million or 14% of
the total U.S. population by 2010; and
- Is relatively young, with almost 70% of U.S. Hispanics under 35, compared
with less than 50% of non-Hispanics, and with a median age of 26,
compared to 35 for the rest of the population.
We believe the relative youth of the Hispanic population will furnish
growth opportunities for products and services that appeal to a younger market,
such as that found on the Internet. In addition, 70% of all U.S. Hispanics live
in 12 metropolitan areas, which makes U.S. Hispanics an attractive demographic
group for advertisers, enabling them to cost effectively deliver messages to a
highly targeted audience.
Increasing Hispanic Purchasing Power
Total U.S. Hispanic purchasing power:
- Has risen at a compound annual growth rate of 7.5%, compared with 5% for
the rest of the population from 1993 to 1998.
- Is projected to be $383.0 billion in 1999, an increase of approximately
84% since 1990.
- Is expected to account for $443.0 billion or 7% of U.S. consumer
expenditures by 2000, and $938.0 billion or 9% of U.S. consumer
expenditures by 2010.
Greater Spanish-language Advertising Spending
According to Hispanic Business Magazine, $1.7 billion of total advertising
expenditures in the U.S. were directed toward Spanish-language media in 1998,
representing a 21% increase over 1997's total, and the highest year-to-year
percentage increase since 1993. In only five years, total advertising
expenditures in the Hispanic market have more than doubled from $829.7 million.
Continuing Use of the Spanish-language by U.S. Hispanics
According to published sources, approximately 90% of U.S. Hispanic adults
speak Spanish at home. Moreover, U.S. Hispanics are expected to continue to
speak Spanish because:
- Approximately two-thirds of U.S. Hispanic adults were born outside the
U.S.;
- Hispanic immigration into the U.S. is continuing;
- Hispanics generally seek to preserve their cultural identity; and
- Population concentration encourages communication in Spanish.
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<PAGE> 21
Increasing Computer Ownership and Internet Usage by Hispanics
A February 1998 study by The Tomas Rivera Policy Institute estimates that
between 1994 and 1998 the percentage of U.S. Hispanic households that owned
computers increased from 13% to 30%, while U.S. Hispanic households with
Internet access grew from 2% to 15%, which amounted to approximately 650%
Internet access growth in four years. In addition, an independent study
indicated that as of 1998 approximately 2.4 million Hispanics owned personal
home computers in the top seven U.S. Hispanic markets, an increase of 58% from
1996.
OUR MARKET OUTSIDE THE UNITED STATES
Spanish is the world's third most spoken language, used by approximately
350 million native speakers. In addition, twenty-one countries consider Spanish
their primary language. Internet usage in Spain is increasing rapidly. For
example, a recent study by the Spanish Internet Users Association indicated that
approximately 2.3 million Spaniards accessed the Internet in 1998 and the number
is projected to grow to 8.7 million by 2001.
The Spanish-speaking Latin American market is comprised of Mexico, Central
America, parts of South America and the Spanish-speaking countries of the
Caribbean. Factors such as growing competition in telecommunications markets,
declining prices for personal computers and Internet access and favorable
demographics position Latin America as a strong potential growth market for
Internet products and services. According to International Data Corporation, the
number of Internet users in Latin America, excluding Portuguese-speaking
Brazilians, is expected to increase from 2.5 million at year end 1998 to 11.7
million at year end 2003. In particular, the number of Internet users in Mexico
is expected to increase from approximately 700,000 at year end 1998 to
approximately 3.9 million by the end of 2003, which represents a 43% compounded
annual growth rate.
THE QUEPASA.COM STRATEGY
We believe that a branded, multi-featured, Spanish-language Internet
community that focuses primarily on the needs of the Spanish-language market
would be uniquely positioned to capitalize on the growth of this market segment.
Therefore, our strategy is to establish quepasa.com as a leading worldwide
Spanish-language on-line community offering the quepasa.com services to
Spanish-speaking Internet users residing in the United States, Latin America,
Europe and other regions of the world. In order to accomplish this objective, we
intend to continue to focus on developing content, a high volume of traffic and
strong brand recognition of the quepasa.com name. The basis of our strategy is
to provide Spanish-language Internet users with an innovative,
technologically-advanced, content-rich Web community that creates value for the
user and establishes our platform as an attractive medium for advertisers,
marketers and companies engaged in electronic commerce.
We are establishing quepasa.com as a leading Spanish-language Web community
by executing a business strategy that includes:
Developing quepasa.com in the United States and then globally as a leading
brand associated with the Internet for Spanish-language users
Our short range goal is to establish quepasa.com as the leading brand among
U.S. Spanish-speaking Internet users. We believe that establishing and then
promoting the quepasa.com brand is critical to our ability to attract users and
advertisers to our Web site. We also believe that branding and consumer loyalty
on the Internet are dependent upon our ability to differentiate our services and
to enhance our users' experience by continually offering innovative technology
and appealing features and effectively marketing these features to existing and
potential users of our Web site. We intend to improve our technical expertise
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to develop innovative new services, as well as enhance and expand existing
services. We also intend to continue our brand development through:
- Network television and national cable advertising;
- Network radio advertising;
- National print, outdoor and Internet advertising;
- Additional strategic partnerships;
- Additional marketing and distribution arrangements;
- Special event sponsorships; and
- Public and community relations programs.
Acquiring and Developing Additional Content and Features for the quepasa.com
Community
In addition to its search engine, quepasa.com provides content and
community features for the Spanish-speaking Internet user, including free
e-mail, Spanish-language news feeds, worldwide weather information, chat rooms
and message boards. In order to provide some of this content, we have entered
into agreements with content providers such as Reuters and UPI for
Spanish-language news, and WeatherLabs for worldwide weather information. These
arrangements allow us to increase our Web site content in order to attract and
retain Spanish-speaking Internet users and to solidify our position as an
easy-to-use interface for Spanish-language Web services and information. We have
also internally developed other content such as our e-mail and message boards
and have begun development of our own chat services. We recently entered into
relationships with Telemundo, Miami Herald Online and Fox Sports World Espanol
that will provide us with unique content. We intend to add additional content
and features through acquisition, licensing and internal development.
Entering Into Strategic Relationships with Business Partners Who Offer Unique
Media, Content, Technology and Distribution Capabilities
We intend to continue to establish strategic relationships with companies
that will enhance our services and increase our user base. We have strategic
relationships with companies such as Telemundo, Miami Herald Online, Inktomi,
Arizona Diamondbacks, GTE, Reuters and Exodus. These and other relationships are
summarized under "Our Business -- Our Strategic Relationships."
Expanding Into Additional Spanish-speaking Markets
We seek to establish quepasa.com as a leading destination site for
Spanish-speaking Internet users throughout the world. At the present time, the
majority of our users reside in the United States. As Internet access improves
and usage increases, we intend to allocate future resources to develop our brand
in non-U.S. Spanish-speaking markets, such as Latin America and Spain.
Generating Revenue from the Sale of Advertising and Through Electronic Commerce
We have an agreement with 24/7 Media, Inc., a leading provider of Internet
advertising solutions, to sell advertising on our Web site to customers
solicited by 24/7 Media. We intend to generate revenue from other electronic
commerce retailers that sell products or services to users through our Web site.
These products and services will be targeted toward the distinct tastes and
preferences of Spanish-speaking consumers and may include recorded music,
educational software and books.
THE QUEPASA.COM COMMUNITY
Services and Content. In November 1998, we launched the quepasa.com Web
site which allows individuals to quickly access content and features which
appeal to Spanish-language Internet users. Although our content is directed
toward Spanish-speaking users, to better serve the U.S. Hispanic
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population, quepasa.com is also offered in English. By combining existing
services with specialized information from leading content providers,
quepasa.com provides subject or category specific content including topical
news, worldwide weather information, free e-mail, chat, message boards and
search capabilities.
The quepasa.com Web site currently offers a number of categories of topical
interest, including the following:
Arte y Cultura (Art and Culture)
Ciencia y Tecnologia (Science and Technology)
Ciencias Sociales (Social Sciences)
Computadoras y Internet (Computers and Internet)
Deportes y Recreacion (Sports and Recreation)
Economia y Negocios (Economy and Business)
Educacion (Education)
Empleos (Jobs)
Entretenimiento (Entertainment)
Noticias y Medios (News and Media)
Politica y Gobierno (Politics and Government)
Regional (Regional)
Salud (Health)
Temas de Sociedad (People and Society)
Viajes y Turismo (Travel and Tourism)
Search Engine. The quepasa.com search engine helps users find information
on the Web by searching through quepasa.com's index of Web documents. Our search
technology is provided by Inktomi which enables us to provide customers with a
variety of on-line search services.
Personalization Feature. We offer our users the ability to personalize
their quepasa.com home page. Quepasa.com users can create a personal profile to
select and update information of interest by category, such as news headlines,
business, sports scores, weather information and horoscopes. Users can also
arrange the position and location of the content on their quepasa.com home page
to suit their specific tastes and preferences.
Free E-Mail, Chat and Message Board Features. Quepasa.com offers free
e-mail and free Web community services that consist of chat services and message
boards. These features enable users to discuss topics of mutual interest by
participating in ongoing discussions or by creating their own topics for
discussion.
24 Hour Real-time News and Weather. Quepasa.com offers worldwide news
coverage from Reuters and UPI. Reuters provides us with worldwide editorialized,
topical news covering areas of special interest to Spanish-speaking users (in
Spanish and English), as well as a Spanish-language news feed that we intend to
format and edit internally to provide broad coverage of news that will be of
special interest to Spanish-speaking users. UPI provides real-time, news stories
written in Spanish by pool reporters from around the world. These pool stories
will enable us to supply a broad range of region-specific news items of interest
to Spanish-speaking Internet users. Our users are also able to search a database
of archived news stories published by Reuters over the prior 30-day period and
published by UPI over the prior two-year period but not earlier than December
1998. We have also arranged with the Miami Herald Online to obtain Spanish and
English language news content in the near future. Through an agreement with
WeatherLabs, we also offer worldwide weather information, including real time
weather reports and forecasts, for 5,000 U.S. and 2,400 international cities.
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OUR STRATEGIC RELATIONSHIPS
We have established strategic relationships with leading providers of
media, content and technology designed to:
- provide access to unique content;
- enhance our services;
- extend our audience reach;
- increase user traffic on our Web site;
- provide enhanced Web site functionality; and
- provide us with additional revenues.
These relationships include:
Telemundo. In April 1999, we entered into a strategic agreement with
Telemundo, a leading Spanish-language television broadcaster that has served the
U.S. Hispanic market for over 11 years. Under this agreement, we issued
Telemundo 600,000 shares of our common stock and warrants to purchase 1,000,000
shares of our common stock exercisable for two years from the date of this
prospectus at 120% of the public offering price per share. In exchange, we
received a $5.0 million advertising credit on the Telemundo television network
at the rate of $1.0 million for each of the next five years. We also agreed to
purchase an additional $1.0 million of advertising from Telemundo to be
broadcast over 26 weeks commencing in August 1999. This agreement also provides
that we will collaborate regarding online content development, co-branded
marketing promotions and other complementary aspects of our businesses. The
agreement may be cancelled by either party if we do not complete the offering of
our common stock by June 27, 1999 at a price of at least $10.00 per share.
Miami Herald Online. In April 1999, we entered into an agreement with
Miami Herald Online regarding content development and management. Under our
agreement, we will pay $720,000 to Miami Herald Online over a one year period
for its editorial staff to produce a Spanish and an English news channel for us,
in addition to providing us with news from El Nuevo Herald, a Spanish-language
daily newspaper, The Miami Herald, the Knight Ridder national reporting staff
and other Knight Ridder newspapers. Additionally, Miami Herald Online will
designate us as the preferred search engine of El Nuevo Herald Digital and will
provide us with 200,000 banner impressions per month on its network of sites.
Fox Sports World Espanol. In April 1999, we entered into a one season
sponsorship and content agreement with Fox Sports World Espanol involving the
Copa America 1999 soccer tournament scheduled to take place June 29 - July 18,
1999. Fox Sports World Espanol holds the exclusive U.S. television rights for
the tournament. Our agreement calls for us to pay Fox Sports World Espanol
$425,000 and for the parties to collaborate on the development of a co-branded
"copaamerica1999.com" event Web site. We will operate the event Web site that
will feature content such as match previews, summary articles, Copa America
updates, wire service news coverage and real-time scoring updates. The
arrangement also involves numerous media elements and joint marketing
promotions.
Other Strategic Relationships. We have entered into agreements to purchase
marketing, technology and content with:
- Arizona Diamondbacks -- a $1.5 million marketing, promotions and sports
information plan for the 1999 major league baseball season;
- Inktomi -- a three year, $750,000 search technology agreement;
- GTE Internetworking -- a one year, $168,000 networking technology
agreement;
- Exodus Communications -- a one year networking technology services
agreement which we estimate will require us to pay less than $10,000 per
year;
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- Reuters NewMedia -- a 26 month, $120,000 per year agreement under which
we obtain news, business and sports information;
- UPI -- a $9,000 per year news information agreement;
- WeatherLabs -- a one year, $36,000 weather information agreement; and
- 24/7 Media -- a four month commission-based Internet advertising sales
services agreement.
MARKETING AND ADVERTISING OF THE QUEPASA.COM SITE
Our marketing goal is to increase traffic on the quepasa.com Web site and
to develop the quepasa.com brand in the United States and then globally as a
leading brand associated with the Internet for Spanish-speaking users. Our
marketing plan includes the use of multiple advertising media, such as national
network and cable television, network radio, national print, outdoor and
Web-based advertising.
In February 1999, we chose Garcia/ LKS advertising agency as our global
marketing partner because of its strong track record in building brands and
launching products in the Hispanic market. Garcia/ LKS is led by principals
Lionel Sosa and Luis Garcia. The agency has represented Fortune 500 companies,
including Coca Cola, Levi-Strauss, Proctor & Gamble and Sprint. The agency has
also provided demographic specific marketing expertise for the political
campaigns of President Ronald Reagan, President George Bush and Texas Governor
George W. Bush.
In March 1999, we launched an approximately $800,000 26-week nationwide
advertising campaign with the Telemundo Network Group. Telemundo, which is owned
by Sony and Liberty Media, is a leading Spanish-language television broadcaster
that has served the U.S. Hispanic market for over 11 years. Telemundo's
affiliate base, covering 63 television markets, reaches approximately 85% of all
U.S. Hispanic households. Sony and Liberty Media provide Telemundo with
substantial financial resources, strong management and a vast programming
library. Telemundo intends to draw on this library in order to target a younger,
bilingual Hispanic audience. Telemundo's programming includes shows such as
"Cinemundo Primer," a primetime program featuring popular U.S. and Latin
American movies, many appearing for the first time on Spanish-language
television, "Ocurrio Asi de Noche," an Emmy award-winning investigative news
magazine, and "Discovery" offering nature, science, technology and history
programming from the Discovery Channel.
In February 1999, we initiated a nationwide radio advertising campaign with
Heftel Broadcasting Corporation, the largest Spanish radio broadcaster in the
United States, with approximately 19 million Spanish-speaking listeners. Heftel
owns and operates 39 stations in 11 of the top 15 Hispanic markets, including
the most-listened to Spanish-language stations in nine markets. We believe the
sponsorship with Heftel will provide us with an effective platform to
communicate our message to our target audience, because approximately 65% of
U.S. Hispanics reside in Heftel's top 15 markets. The quepasa.com sponsorship
with Heftel includes the purchase of air time in the top Hispanic radio markets,
"on-air promos" by radio personalities and prominent sponsorships of Hispanic
community festivals and events involving Heftel radio stations, such as the
Calle Ocho Festival in the Little Havana area of Miami. Calle Ocho is the
largest street festival in the U.S., attended by more than one million people in
1998.
Our Copa America sponsorship with Fox Sports World Espanol provides that we
will be the only Internet search engine and portal to advertise on the network
in the United States. As a major sponsor of this event we are entitled to the
following advertising and promotional elements:
- Commercial announcements during Copa America soccer matches;
- On-air mentions and graphics directing viewers to our event Web site;
- On-screen displays of our logo next to the soccer game clock;
- Title sponsorship of two Copa America consumer promotions; and
- An exclusive promotional partnership with Fox Sports World Espanol which
places our logo on at least 600,000 printed promotional pieces;
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- Commercial announcements and on-screen displays of our logo during Fox
Sports World's weekly telecasts of South American Soccer for 39 weeks
beginning on April 19, 1999.
We also intend to increase our Web site traffic by increasing the number
and visibility of entry points to the quepasa.com Web site through co-branding
and other marketing arrangements with content providers and high-traffic
Spanish-language Web sites. For instance, we have arranged with the Miami Herald
Online to develop news channels for our Web site and to promote our Web site on
the Miami Herald Online network of sites.
In an effort to increase hits, Web site operators are increasingly adding
content and other features to their sites to encourage users to spend more time
there. We intend to regularly enhance our technological features and services
and update our content in order to encourage consumers to use our Web site more
frequently. To this end, we have launched a flexible, subject-based format for
our services and content to provide consumers with ease of use and flexibility
to customize their quepasa.com site to fit their specific tastes and
preferences. Because customizing these services typically requires some effort
and time on the part of the consumer, we believe that consumers who use these
personalized services are more likely to continue to use quepasa.com and not
change to a competitive service.
Our page views, which represent the number of times our server delivers a
page to a user, grew from approximately 103,700 in January 1999 to approximately
2,764,000 in April 1999 and our user session length grew from an average of
approximately 7.0 minutes to approximately 16.1 minutes. Total user sessions
grew from 40,284 in January 1999 to 324,100 in April 1999. Between February and
April 1999 our e-mail users grew from 201 to 13,887. We believe that this growth
in our Web site traffic was a result of our advertising campaigns with Heftel
and Telemundo and the continued development of our Web site content and
features.
We intend to use approximately $24.0 million of the proceeds of the
offering to further advertise and market the quepasa.com Web site. See "Use of
Proceeds."
OUR PLAN TO SELL ADVERTISING ON THE QUEPASA.COM SITE
We have had nominal advertising revenue to date, but we expect to earn a
significant portion of our future revenue from the sale of advertisements placed
on our Web site. In exchange for up to 50% of our advertising revenue, we have
entered into an agreement with 24/7 Media, Inc. to use its best efforts to sell
advertising on our Web site to customers solicited by 24/7 Media. The agreement
may be terminated by either party by giving the other at least four months'
written notice. 24/7 Media is a leading provider of Internet advertising and
online direct marketing solutions with one of the largest Internet sales forces
in the industry. 24/7 Media's clients include AT&T WorldNet, EarthLink and the
Associated Press. In the future, we may elect to develop an internal advertising
staff. We do not expect significant revenue from advertising in 1999.
We expect advertisements on the quepasa.com site to be of the banner or
billboard style, which are designed to display additional advertisements as the
consumer selects various topics on the Web site. From each advertisement screen,
users can proceed directly to an advertiser's own Web site, thus enabling the
advertiser to directly interact with a user who has expressed interest in the
advertisement. We believe that since users view advertisements only after they
request a new page, the focus of the user's attention to the advertisement is
likely to be higher than it is in other forms of media. With our subject-based
format, growing number of services and ability to target user interest from an
attractive demographic group with appropriate advertising, we believe we can
increase the effectiveness of advertisements placed on the quepasa.com Web site.
We hope this will permit us to command higher advertising returns than many
other Web sites.
We also intend to develop innovative approaches for advertisers through
advancements by others in demographic trending and consumer tracking. We seek to
attract the largest possible Web audience in the Spanish-speaking Internet
market, in order to give advertisers the most efficient and effective
advertising placements. We are developing services that encourage consumers to
provide demographic and interest
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information that can be used to more effectively target our advertising. Our
recently launched membership registration system requires users to create a
quepasa.com account in order to access our chat, e-mail and message board
services. At the time of registration, users are assigned a unique user
identification and password after providing us with personal information that
will allow advertisers to target users with a specific demographic profile.
Users can access their quepasa.com account and personalized settings from any
Internet access device.
OUR DEVELOPMENT AND ACQUISITION OF WEB SITE TECHNOLOGIES
We believe we can differentiate our services and promote the quepasa.com
brand by developing innovative proprietary technology and integrating technology
licensed from third parties where appropriate. Our strategy is to develop or
obtain technologies that are able to expand with the growth in content of the
Internet. For instance, we recently developed our own e-mail service which we
believe provides functionality, message volume, data storage and incoming and
outgoing file attachment capabilities that is superior to most other free e-mail
services.
In July 1998, we entered into a three-year agreement with Inktomi to
provide search engine capability for our quepasa.com Web site. Under the terms
of the agreement, we will pay Inktomi a minimum fee of $750,000 over the
three-year period for Inktomi's search engine services. The fee could increase
based upon the number of searches performed by Inktomi for our users.
Inktomi's search engine technology enables us to provide a variety of
on-line search services to our customers. Inktomi provides and manages all
hardware, software and operational aspects of its search engine and the
associated database of Internet content. Inktomi also provides us with a
programming interface and software tools to enable us to custom design our
search service user interface. Separating the user interface enables this
portion of the service to reside in a different physical location from the
Inktomi search engine and to run on our choice of computer equipment. In
addition, we can customize our user interface as to look, feel and functionality
and can change the user interface at any time without affecting the operation of
the Inktomi search engine.
Inktomi's search engine consists of a crawler, an indexer and search engine
servers. The crawler and indexer are software programs that collect and organize
information and store that information on the cluster of search engine servers.
The search engine servers are a collection of workstations that are linked
together as a coupled cluster through the use of Inktomi's software. The search
engine servers provide powerful full-text query operations, including full
Boolean support, phrase and adjacency searching, date restrictions and the
recognition of multimedia files and other embedded objects. Search results are
relevance-ranked using state-of-the-art text indexing methods.
Services which link our users to our Web site and to Inktomi's search
engine are provided to us by Exodus and GTE. Exodus is one of the largest
companies involved in connecting users to the Internet, with a client list that
includes Microsoft Hotmail, Ebay, GeoCities, HotBot and Inktomi. GTE delivers
complete network solutions, dedicated Internet access, high performance Internet
hosting, managed Internet security, network management, systems integration and
Web-based applications development for integrating the Internet into business
operations.
COMPETITORS AND COMPETITIVE FACTORS AFFECTING OUR BUSINESS
The market for Internet products, services, advertising and commerce is
intensely competitive, and we expect that competition will continue to
intensify. We believe that the principal competitive factors in these markets
are name recognition, distribution arrangements, functionality, performance,
ease of use, the number of value-added services and features, and quality of
support. Our primary competitors are other companies providing portal and
on-line community services, especially to the Spanish-language Internet users,
such as Yahoo!, America Online, StarMedia Network, Prodigy, Microsoft networks
in LatinAmerica, Mexico and Spain, Lycos and Ole.
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Other portal competitors include AltaVista, Excite and Infoseek. In
addition, a number of companies offering Internet products and services,
including our direct competitors, recently began integrating multiple features
within the products and services they offer to users. Integration of Internet
products and services is occurring through development of competing products and
through acquisitions of, or entering into joint ventures and/or licensing
arrangements involving, competitors. For example, the Web browsers offered by
Netscape and Microsoft, which are the two most widely-used browsers and
substantial sources of traffic for us, may incorporate and promote information,
search and retrieval capabilities in future releases or upgrades that could make
it more difficult for Internet viewers to find and use our products and
services.
Microsoft recently announced it intended to license products and services
from AltaVista and that it will feature and promote AltaVista services on the
Microsoft Network and other Microsoft on-line properties. We expect that such
search services may be tightly integrated into the Microsoft operating system,
the Internet Explorer browser, and other software applications, and that
Microsoft will promote such services within the Microsoft Network or through
other Microsoft-affiliated end-user services such as MSNBC or WebTV Networks,
Inc.
Many large media companies have announced that they are contemplating
developing Internet navigation services and are attempting to become "gateway"
sites for Web users. In the event these companies develop such portal or
community sites, we could lose a substantial portion of our user traffic.
Further, entities that sponsor or maintain high-traffic Web sites or that
provide an initial point of entry for Internet viewers, such as the Regional
Bell Operating Companies or Internet service providers, such as Microsoft and
America Online, currently offer and can be expected to consider further
development, acquisition or licensing of Internet search and navigation
functions. These functions may be competitive with those offered by us. Our
competitors could also take actions that could make it more difficult for
viewers to find and use our products and services. Consolidations, integration
and strategic relationships involving competitors could have a material adverse
effect on our business.
In addition to the larger portals and on-line communities, we compete with
a number of smaller portals and communities that provide region-specific
information to users or market to users with specific interests.
Most of our existing competitors, as well as new competitors such as
Spanish-language media companies, other portals, communities and Internet
industry consolidators, have significantly greater financial, technical and
marketing resources than we do. As a development stage company, we need to hire
a number of additional employees, especially in the areas of business
development and marketing. There can be no assurance that our competitors will
not offer Internet products and services that are superior to ours or that
achieve greater market acceptance. There can be no assurance that we will be
able to compete successfully against current or future competitors or that
competition will not have a material adverse effect on our business.
EMPLOYEES
At May 10, 1999, we had 45 employees, including our seven executive
officers.
FACILITIES
We lease approximately 13,277 square feet of space for our executive
offices in Phoenix, Arizona for $24,341 per month pursuant to a lease which
expires in October 2002.
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OUR MANAGEMENT
OFFICERS AND DIRECTORS
Information concerning each of our executive officers and directors is set
forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jeffrey S. Peterson......... 26 Chairman of the Board of Directors and Chief Executive
Officer
Gary L. Trujillo............ 38 President and Director
Michael A. Hubert........... 33 Chief Operating Officer and Director
Bryan L. Ross............... 25 Chief Technical Officer
Juan C. Galan............... 33 Chief Financial Officer
Robert J. Taylor............ 30 Vice President -- Strategy and Operations
Victor H. Roldan............ 31 Vice President
Jerry J. Colangelo.......... 59 Director
Jose Maria Figueres-Olsen... 44 Director
Gregory J. Kolanek.......... 29 Director
Edwin C. Lynch.............. 63 Director
Alan J. Sokol............... 40 Director
Lionel Sosa................. 59 Director
</TABLE>
Directors hold office for a period of one year from their election at the
annual meeting of stockholders or until their successors are duly elected and
qualified. Officers are elected by, and serve at the discretion of, the board of
directors. Our audit committee consists of Messrs. Hubert and Sosa. We intend to
add at least one independent director to the audit committee as soon as
practicable following the offering, but in no event later than 90 days from this
date.
JEFFREY S. PETERSON has served as Chairman of the board of directors and
Chief Executive Officer since May 1998 and was our Chief Technology Officer from
July 1997 until May 1998. From January 1997 to June 1997, Mr. Peterson served as
co-owner of NetCentury, an Internet design firm he founded. From July 1995 until
December 1996, Mr. Peterson was a general securities principal and registered
representative with West America Securities Corporation. From February 1995 to
May 1995, he was a general securities principal and registered representative
with Kensington Securities, Inc. From August 1993 to April 1995, Mr. Peterson
was a self-employed computer consultant for JP Consulting, a computer-based
consulting company he founded. Mr. Peterson is an experienced Modula, Java, and
C++ programmer, who has been involved in the programming and operations of
computers and digital communications for over 15 years. He has developed
software applications for operating systems and digital platforms, beginning
with Cp/M based systems in the early 1980s to Unix (Sun Solaris, BSD, Linux,
Irix) and Windows NT. Mr. Peterson is bilingual in English and Spanish.
GARY L. TRUJILLO joined us in April 1999 as President and was appointed a
director at that time. In 1990, Mr. Trujillo founded Southwest Harvard Group, a
Hispanic-owned and operated business consulting firm, and has served as its
President and Chief Executive Officer from inception to present. Mr. Trujillo is
a director of Southwest Harvard Group, Blue Cross and Blue Shield of Arizona,
Wells Fargo & Co., Arizona (Advisory Board), Corella Electric Wire & Cable, The
Arizona Community Foundation and South Mountain Community College ACE
Entrepreneur Program. Mr. Trujillo is a member of the Greater Phoenix Leadership
and The Young Presidents Organization. In 1998, Mr. Trujillo received the
Individual Business Minority Advocate Award and was voted by Arizona Business
Journal as the second most influential member of the Arizona Hispanic business
community. Mr. Trujillo started his career as an investment banker with Salomon
Brothers, Inc. in New York City. Mr. Trujillo holds a B.S. degree in Accounting
from Arizona State University and an M.B.A. degree from Harvard Business School.
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MICHAEL A. HUBERT joined us in December 1998, became our Chief Operating
Officer in January 1999 and was appointed a director in February 1999. From May
1998 to November 1998, Mr. Hubert was employed by WGM Corporation, the General
Partner of The Monolith Limited Partnership, a venture capital fund which is one
of our principal stockholders. At Monolith he assisted early stage businesses in
strategy and organizational development. From May 1992 to April 1998, Mr. Hubert
was employed by The Barrington Consulting Group, a national business advisory
consulting firm, where he last served as Senior Manager. Mr. Hubert holds a B.S.
degree in Finance from Arizona State University and an M.B.A. degree from
Southern Methodist University.
BRYAN L. ROSS joined us in November 1998 as Chief Technology Officer. From
July 1998 to November 1998, he was Director of Software Development for
Today.com, Inc., a Web design firm. From July 1997 to June 1998, he was lead
computer programmer for the Kemtah Group, an Internet consulting firm. From 1994
to 1997, he was a Web Master first at Bethany College and subsequently at
MicroAge, a computer distributor, where he designed and maintained Interactive
Web sites. From 1991 to July 1996, Mr. Ross was an independent computer
consultant in Scotts Valley, California.
JUAN C. GALAN joined us in January 1999 as our Chief Financial Officer.
From April 1997 to January 1999, he was employed by Vistoso Partners LLC, a
Phoenix, Arizona real estate development company, as Controller. From June 1993
to April 1997, Mr. Galan was employed by Nielsen Media Research, formerly a Dun
& Bradstreet company, as Administration Manager-Technology and Business
Services, having joined the company initially as a Senior Financial Analyst.
From March 1992 to June 1993, Mr. Galan was the Controller and Project Manager
for Newport Realty, Inc. in Tampa, Florida. Mr. Galan holds a B.S. degree in
Finance from Western Kentucky University.
ROBERT J. TAYLOR joined us in March 1999 as Vice President of Strategy and
Operations. From August 1997 to March 1999, he was a Senior Consultant for CSC
Index, the management consulting division of Computer Sciences Corporation.
During his tenure with CSC, Mr. Taylor focused his business consulting on
large-scale change initiatives, strategy implementation, new business start-ups
and organizational design for Fortune 500 organizations. From January 1992 to
August 1995, Mr. Taylor held the positions of Production Supervisor and Senior
Industrial Engineer with Michelin Tire Corporation. Mr. Taylor received a
Bachelor of Science degree in Industrial and Systems Engineering from Virginia
Tech University and an M.M.M. degree from the J.L. Kellogg Graduate School of
Management at Northwestern University in 1995.
VICTOR H. ROLDAN joined us in January 1999 as a Vice President. From
October 1997 to January 1999, Mr. Roldan founded and operated Roldan &
Associates, a business consulting firm. From January 1995 to October 1997 he
practiced law in Costa Rica, first for Montero Bejarano & Associates and then
for Alfredo Fournier & Associates. Mr. Roldan holds a B.A. and a degree of Law
from the Francisco Marroquin University, Guatemala and a degree of Law from the
University of Costa Rica, San Jose.
JERRY J. COLANGELO joined us as a director in April 1999. He has been the
President and Chief Executive Officer of the Phoenix Suns professional
basketball team since 1987 and was the Suns' General Manager from 1968 to 1987.
He has also served as Chief Executive Officer and Managing General Partner of
the Arizona Diamondbacks professional baseball team since 1995. He is a director
of US West, Inc. and Stratford American Corporation, a holding company for real
estate property.
JOSE MARIA FIGUERES-OLSEN joined us as a director in May 1999. He served as
the elected President of Costa Rica from 1994 to 1998, and has served since 1998
as president of the Costa Rican Foundation for Sustainable Development. He also
serves in executive positions with numerous charities in Costa Rica and
elsewhere. Mr. Figueres-Olsen studied industrial engineering at the United
States Military Academy at West Point and earned a Masters Degree in public
administration at Harvard University.
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<PAGE> 31
GREGORY J. KOLANEK joined us as a director in February 1999. He was
employed by Cisco Systems, Inc. from January 1995 to November 1998, first as a
sales application support engineer, then as a Web Project Production Manager.
Since November 1998 he has been a private investor. From October 1992 to January
1995, he was a Desktop Publishing Specialist for Delco Systems and from July
1990 to July 1994, he was co-founder and keyboardist for the band Dishwalla.
EDWIN C. LYNCH joined us as a director in April 1999. Since 1969 Mr. Lynch
has been the General Partner of Westcor Partners, a Phoenix, Arizona based real
estate development company. Westcor presently owns or manages in excess of 15
million square feet of retail property and in excess of one million square feet
of Class A office property in metropolitan Phoenix, Arizona. Mr. Lynch is a
director of Sentinel Savings & Loan, the Phoenix Chamber of Commerce, the
Arizona Bankers Association, and the University of Arizona Foundation. He is
also a General Partner of the Phoenix Suns professional basketball team.
ALAN J. SOKOL joined us as a director in April 1999 in connection with our
strategic relationship agreement with Telemundo. He has been the Chief Operating
Officer of Telemundo since August 1998. He served as Senior Vice President,
Corporate Development of Sony Pictures Entertainment from June 1996 to August
1998. From April 1995 to June 1996 he was a Senior Vice President of Savoy
Pictures, Inc., a motion picture production and distribution company. Prior to
that time he was a partner in the Los Angeles law firm of Jeffer, Mangels,
Butler & Marmaro.
LIONEL SOSA joined us as a director in February 1999 and has been Chief
Executive Officer of Garcia/LKS Advertising Agency since January 1996. From
January 1994 to December 1995 Mr. Sosa was Chairman of DMB&B/Americas, a network
of 23 advertising agencies in the U.S. and Latin America. From June 1980 to
December 1993, he founded and was Chief Executive Officer of Sosa, Bromley,
Aguilar & Associates, an advertising agency. Mr. Sosa is the author of The
Americano Dream: How Latinos Can Achieve Success in Business and Life. He was
named one of the 100 most influential Hispanics in the U.S. for 1998-99 by
Hispanic Business magazine and was chosen as Adweek magazine's
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<PAGE> 32
Advertising Executive of the Year in 1993 and its Marketing Executive of the
Year in 1994. Mr. Sosa is a director of Taco Cabana.
KEY EMPLOYEES
MICHAEL J. OFFENBECHER has served as our Vice President -- Technology since
November 1998. He was the Chief Engineer for software development of InfoPak,
Incorporated, a Web design firm, from 1993 to 1997 where he was responsible for
software development projects. From 1997 until November 1998, he was a Senior
Software Engineer for Cyclone Software Corporation in Scottsdale, Arizona. Mr.
Offenbecher earned a Bachelor of Science degree and Electrical Engineering
degree from Kansas State University.
LUIS GARCIA has served as our Vice President -- Design and Content since
February 1999. He was a Web developer, Software Engineer and subsequently, Vice
President of Operations for Cybertoons Digital of Milwaukee, Wisconsin from
September 1996 until February 1999. From April 1996 until September 1996, he was
a Web developer for Platinum Creative in Winter Park, Florida. Mr. Garcia
received a B.S. degree in Systems Engineering from the Universidad Metropolitana
in Caracas, Venezuela and subsequently was a programming instructor there from
October 1994 to April 1996.
We have employment agreements with Michael J. Offenbecher and Luis Garcia
terminating in October 2000 and February 2001, respectively.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid to our Chief Executive Officer since we were formed in June
1997. No officer has been paid compensation for services in excess of $100,000
per year through December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
--------------------------------------- --------------------------------------
OTHER RESTRICTED SHARES ALL
NAME AND ANNUAL STOCK UNDERLYING OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
- ------------------ ---- ------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeffrey S. Peterson 1998 $31,500 -- -- -- 50,000 $81,500
Chief Executive 1997 -- -- -- -- -- --
Officer
</TABLE>
The following executive officers are expected to receive total compensation
in excess of $100,000 during 1999. Each of these executive officers has executed
employment agreements that contain non-competition and confidentiality
agreements, expire on the dates indicated and provide for the payment of annual
salaries and the forgivable loans indicated below.
<TABLE>
<CAPTION>
FORGIVABLE TOTAL EXPIRATION
NAME ANNUAL SALARY LOAN(3) COMPENSATION(4) DATE
- ---- ------------- ----------- --------------- ----------
<S> <C> <C> <C> <C>
Jeffrey S. Peterson(1)...................... $150,000 $100,000 $250,000 11/02
Gary L. Trujillo............................ $125,000 $100,000 $225,000 4/03
Michael A. Hubert(2)........................ $120,000 $ 35,000 $155,000 12/00
Bryan L. Ross(2)............................ $ 75,000 $ 40,000 $115,000 11/00
Juan C. Galan(2)............................ $100,000 $ 20,000 $120,000 1/02
Victor H. Roldan(2)......................... $ 60,000 $ 5,000 $ 65,000 1/02
Robert J. Taylor(2)......................... $ 80,000 $ 20,000 $100,000 3/02
</TABLE>
- ---------------
(1) Mr. Peterson's employment agreement also provides for:
- The issuance of 200,000 stock options exercisable at $12.00 per share,
500,000 stock options exercisable at $8.00 per share and 50,000 stock
options exercisable at $1.50 per share; and
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<PAGE> 33
- The payment of $500,000 plus salary for the remainder of the term of the
employment agreement if Mr. Peterson's services are terminated for any
reason other than cause or if we materially change his duties as defined
by his employment agreement.
(2) Messrs. Trujillo, Hubert, Ross, Galan, Roldan and Taylor have been granted
stock options to purchase, respectively, 350,000 shares at $10.00 per share,
75,000 shares at $8.00 per share, 115,000 shares at $8.00 per share, 100,000
shares at $8.00 per share, 20,000 shares at $1.00 per share and 100,000
shares, of which 60,000 shares are exercisable at $8.00 per share and 40,000
shares are exercisable at $10.00 per share.
(3) We have made loans to each of the executive officers in the amounts shown.
50% of each loan will be forgiven on the six month anniversary of employment
and the balance of the loan will be forgiven on the one year anniversary of
employment, except that 100% of Mr. Hubert's loan will be forgiven on his
six month anniversary of employment. All loans bear interest at 10% per
annum until paid or forgiven.
(4) Does not include car allowances, health insurance, housing allowances and
other non-material compensation.
Our outside directors do not receive any cash compensation for services as
directors, although they are reimbursed for out-of-pocket expenses in attending
board of directors' meetings and we intend to issue them stock options in the
future.
STOCK OPTION PLAN
We have a stock option plan (the "Plan") which provides for the grant of
options intended to qualify as "incentive stock options" or "nonqualified stock
options" within the meaning of Section 422 of the United States Internal Revenue
Code of 1986 (the "Code"). Incentive stock options are issuable only to
employees.
The purposes of the Plan are to attract and retain the best available
personnel, to provide additional incentives to our employees and to promote the
success of our business.
We have reserved 6,000,000 shares of common stock for issuance under the
Plan, which is administered by the compensation committee of our board of
directors. Under the Plan, the compensation committee determines which
individuals will receive options, the time period during which the options may
be partially or fully exercised, the number of shares of common stock that may
be purchased under each option and the option price. As of the date hereof,
options to purchase 2,248,000 shares of common stock at a weighted average
exercise price of $8.16 per share were outstanding under the Plan and 3,752,000
shares remained available for future option grants. Of these options, 2,710,000
have been issued to executive officers and directors at an average exercise
price of $8.71 per share.
The per share exercise price of the common stock subject to options must
not be less than the fair market value of the common stock on the date the
option is granted. In the case of incentive stock options, the aggregate fair
market value (determined as of the date the option is granted) of the common
stock that any person may purchase in any calendar year pursuant to the exercise
of incentive stock options must not exceed $100,000. No person who owns,
directly or indirectly, at the time of the granting of an incentive stock
option, more than 10% of the total combined voting power of all classes of our
stock is eligible to receive incentive stock options under the Plan unless the
option price is at least 110% of the fair market value of the common stock
subject to the option on the date of grant. The stock options are subject to
anti-dilution provisions in the event of stock splits, stock dividends and the
like.
No incentive stock options are transferable by an optionee other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee, the option is only exercisable by the optionee. The exercise date of
an option granted under the Plan must not be later than ten years from the date
of grant. Any options that expire unexercised or that terminate upon an
optionee's ceasing to be employed by us will become available once again for
issuance. Shares issued upon exercise of an option rank equally with other
shares then outstanding. No options have been exercised under the Plan.
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<PAGE> 34
The following table sets forth certain information regarding grants of
stock options to Jeffrey S. Peterson, the only executive officer who received
stock options during 1998. The fair value of the option grant has been estimated
on the date of the grant utilizing the Black-Scholes option pricing model with
the following assumptions: no volatility, ten year life, risk free rate of
return of 6% and a 0% dividend yield.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS EXERCISE
OPTIONS/SARS GRANTED TO OR BASE GRANT DATE
GRANTED EMPLOYEES PRICE GRANT DATE PRESENT VALUE
------------ ------------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Jeffrey Peterson.................... 50,000 23% $1.50 November 1998 $146,000
</TABLE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the holdings
of common stock (1) by each person who, as of May 10, 1999, holds of record or
is known by us to hold beneficially or of record, more than 5% of our common
stock, (2) by each executive officer and director, and (3) by all officers and
directors as a group. The address of each person is our address at One Arizona
Center, 400 E. Van Buren, Fourth Floor, Phoenix, Arizona 85004.
<TABLE>
<CAPTION>
PERCENT PERCENT
SHARES OF CLASS OF CLASS
NAME OWNED(1) PRIOR TO OFFERING(1) AFTER OFFERING
- ---- --------- -------------------- --------------
<S> <C> <C> <C>
Jeffrey S. Peterson................................. 1,636,083 15.8% 11.4%
Gary L. Trujillo(2)................................. 450,000 4.4% 3.2%
Michael A. Hubert................................... 347,621 3.5% 2.5%
Bryan L. Ross....................................... 115,000 1.2% *
Juan C. Galan....................................... 50,000 * *
Robert J. Taylor.................................... 25,000 * *
Victor H. Roldan.................................... 20,000 * *
Jerry J. Colangelo.................................. 75,000 * *
Jose Maria Figueres-Olsen........................... 50,000 * *
Gregory J. Kolanek.................................. 25,000 * *
Edwin C. Lynch...................................... 50,000 * *
Alan J. Sokol(3).................................... 1,600,000 14.8% 10.8%
Lionel Sosa(4)...................................... 75,000 * *
Michael D. Silberman................................ 829,508 8.5% 6.0%
Kevin Dieball....................................... 1,071,434 11.0% 7.8%
The Monolith Limited Partnership.................... 1,390,715 14.2% 10.1%
Telemundo Network Group LLC(5)...................... 1,600,000 14.8% 10.8%
Keith Fredriksen.................................... 574,950 5.9% 4.2%
All executive officers and directors as a group (13
persons).......................................... 4,563,704 37.5% 28.2%
</TABLE>
- ---------------
* Less than 1.0%.
(1) Includes shares of common stock subject to stock options which are presently
exercisable or which may be exercisable within 60 days following the date of
this prospectus.
(2) Includes 50,000 shares owned by Southwest Harvard Group, a company owned by
Mr. Trujillo.
(3) Represents 600,000 shares of common stock owned by Telemundo Network Group
LLC, and warrants to purchase 1,000,000 shares of common stock. Mr. Sokol is
the Chief Operating Officer of Telemundo. He disclaims beneficial ownership
of all shares of our common stock owned beneficially by Telemundo.
(4) Includes 50,000 shares of common stock owned by Garcia/LKS, a company owned
in part by Mr. Sosa.
(5) Includes 1,000,000 shares of common stock underlying currently exercisable
warrants to purchase common stock.
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<PAGE> 35
RELATED PARTY AND OTHER MATERIAL TRANSACTIONS
In May 1998 Jeffrey S. Peterson, our Chairman, Chief Executive Officer and
President, and Michael D. Silberman, a principal stockholder, conveyed an
aggregate of 3,863,106 shares of their common stock to five persons for $.00035
per share. The shares were conveyed at that time to induce these five persons to
provide strategic planning and business development services to us.
In order to raise working capital, we have issued the following securities
to investors:
- In May 1998 we issued a $100,000 convertible promissory note to Enver
Zaky for working capital, $50,000 of which was subsequently converted by
Mr. Zaky into our common stock at $1.00 per share.
- In July 1998 we issued a $1.0 million promissory note to Mitchell Price
and Tim Pring which they subsequently converted into our common stock at
$1.56 per share.
- In November and December 1998 we sold 1,259,167 shares of our common
stock to a group of investors for $3.75 per share.
In July 1998 we loaned Mr. Peterson $100,000 pursuant to his employment
agreement. We agreed that if Mr. Peterson was employed by us on April 1, 1999
the loan would be forgiven. The loan bears interest at 10% per annum. Similar
loans were made to several other of our officers including our President, Gary
L. Trujillo, to whom we loaned $100,000. Mr. Trujillo's loan bears interest at
10% per annum with 50% of the loan to be forgiven in October 1999 and the
remaining 50% in April 2000. See "Management -- Executive Compensation."
In February 1999 we agreed to pay Garcia/LKS, an advertising agency owned
in part by Lionel Sosa, one of our directors, for advertising services a monthly
retainer fee of $78,000. We intend to sign an agreement with Garcia/LKS on these
terms, cancelable by either party on 30 days notice. In April 1999 we issued
Garcia/LKS, 50,000 shares of our common stock in exchange for $500,000 of
advertising and marketing services to be credited against our monthly retainer
fee.
In March 1999 The Monolith Limited Partnership, a principal stockholder,
sold 216,436 shares of our common stock at $7.00 per share and loaned us $2.0
million for working capital. The loan bears interest at 12% per annum through
June 1999 and then 14% per annum through March 2001 and is payable monthly when
the loan is due.
In March 1999 Jeffrey S. Peterson, our Chief Executive Officer, sold
446,000 shares of our common stock, comprised of 396,000 shares at $7.00 per
share and 50,000 shares at $6.00 per share, to a group of investors, including
25,000 shares sold to each of Jerry J. Colangelo and Edwin C. Lynch both of whom
subsequently became directors. Mr. Peterson agreed to loan us up to $3.0 million
of the proceeds from the sale of his common stock at any time prior to the
completion of the offering to be used by us for working capital. The loans bear
monthly interest of 12% per annum for four months and then 14% per annum for the
next 20 months, at which time each loan will become due. At April 30, 1999 Mr.
Peterson had loaned us a total of $2.3 million.
In April 1999 we issued 50,000 shares of our common stock to Southwest
Harvard Group, a company owned by Gary L. Trujillo who subsequently became our
President. Later in April 1999 Mr. Peterson transferred an additional 50,000
shares of our common stock to Mr. Trujillo, in connection with Mr. Trujillo's
employment agreement.
In April 1999 we entered into a $1.5 million sponsorship agreement with the
Arizona Diamondbacks, a major league baseball team. Jerry J. Colangelo, who
subsequently became one of our directors, is the Chief Executive Officer and
Managing General Partner of the Arizona Diamondbacks. See "Our Business -- Our
Strategic Relationships."
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<PAGE> 36
In April 1999 we entered into a sponsorship agreement with Telemundo.
Subsequently, Telemundo became a principal stockholder of our company and Alan
J. Sokol its Chief Operating Officer became one of our directors. See "Our
Business -- Our Strategic Relationships."
In our opinion, the transactions described above were on terms no less
favorable than those which could have been obtained from unaffiliated third
parties.
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 50,000,000 shares of $.001 par value common
stock, of which 9,775,833 shares are outstanding as of the date of this
prospectus. Each share of common stock is entitled to one vote on all matters
submitted to a vote of the stockholders, and cumulative voting is not permitted.
Upon issuance, shares of common stock are not subject to further assessment or
call. Subject to the prior rights of any series of preferred stock that may be
issued by us in the future, holders of common stock are entitled to receive
ratably such dividends that may be declared by the board of directors out of
funds legally available therefor and are entitled to share ratably in all assets
remaining after payment of liabilities in the event of our liquidation,
dissolution or winding up. Holders of common stock have no preemptive rights or
rights to convert their common stock into any other securities. The outstanding
common stock is fully paid and nonassessable.
We have not paid dividends on our common stock since inception and do not
plan to pay dividends in the foreseeable future. Any earnings will be retained
to finance growth.
PREFERRED STOCK
Our articles of incorporation authorize the issuance of up to 5,000,000
shares of preferred stock with such rights and preferences as may be determined
from time to time by our board of directors. Accordingly, under the articles of
incorporation, the board of directors may, without stockholder approval, issue
preferred stock with dividend, liquidation, conversion, voting, redemption or
other rights which could adversely affect the voting power or other rights of
the holders of the common stock. The issuance of any shares of preferred stock
having rights superior to those of the common stock may result in a decrease of
the value or market price of the common stock and could further be used by the
board of directors as a device to prevent a change in our control. We have no
other anti-takeover provisions in our articles of incorporation or Bylaws.
Holders of the preferred stock may have the right to receive dividends, certain
preferences in liquidation and conversion rights.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public market
could adversely affect prevailing market prices. Furthermore, since only a
limited number of shares will be available for sale shortly after this offering
because of certain contractual and legal restrictions on resale (as described
below), sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 13,775,833
shares of common stock. Of these shares, all 4,000,000 shares sold in the
offering (plus any shares issued upon exercise of the underwriters'
overallotment option) will be freely tradable without restriction under the
Securities Act, unless purchased by our "affiliates" as that term is defined in
Rule 144 under the Securities Act (generally, our officers, directors or 10%
stockholders).
The remaining 9,775,833 shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act. Restricted securities
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 of the Securities Act. Sales of
restricted
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<PAGE> 37
securities in the public market, or the availability of such securities for
sale, could adversely affect the market price of the common stock.
Our existing stockholders have entered into lock-up agreements providing
that they will not offer, sell, contract to sell, pledge, hypothecate or grant
any option to purchase or otherwise dispose of our common stock or any
securities exercisable for or convertible into our common stock for a period of
180 days after the effective date of the offering without the prior written
consent of the representative of the underwriters. As a result of these
contractual restrictions, notwithstanding possible earlier eligibility for sale
under the provisions of Rule 144, shares subject to lock-up agreements will not
be salable until such agreements expire or are waived by the representative of
the underwriters. Notwithstanding the lock-up agreements, 1,981,886 shares may
be sold, subject to the volume limitations set forth below under Rule 144 of the
Securities Act and the remaining 7,793,947 shares may be sold commencing from
May 1999 through December 1999.
In general, under Rule 144 as currently in effect, and beginning after the
180 day lock-up period, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of one
percent of the number of shares of common stock then outstanding, which will
amount to 13,775 shares immediately after the offering, or the average weekly
trading volume of the common stock during the four calendar weeks preceding the
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been our
affiliate at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
We have granted demand and piggy-back registration rights covering:
- 400,000 shares of common stock underlying the common stock purchase
warrants to be issued to the representative of the underwriters
- 1,000,000 common stock purchase warrants issued to Telemundo.
We also intend to register the shares of common stock underlying our Stock
Option Plan, which means that common stock issued upon exercise of stock options
will generally be freely tradeable without restriction under the Securities Act.
We have agreed with the underwriters that we will not file a registration
statement covering our Stock Option Plan shares until at least 180 days after
this offering.
TRANSFER AGENT
Corporate Stock Transfer, Inc., Denver, Colorado, is our transfer agent.
The transfer agent's address is 370-17th Street, Suite 2350, Denver, Colorado
80202-4614, and its telephone number is (303)595-3300.
LIMITATION ON LIABILITY
Our Bylaws provide our directors, officers, employees and agents
substantial protection against personal liability related to actions taken in
their capacity as representatives of the Company. The effect of this provision
is that we may be required to pay reasonably incurred expenses such as
attorney's fees, judgments, penalties, fines and amounts paid in settlements
associated with work related actions, suits or proceedings. We shall pay these
expenses if an independent group, as defined in our Bylaws, determines that the
individuals conducted themselves in good faith, and that they reasonably
believed:
- In the case of conduct in their official capacity with us, that their
conduct was in our best interest, or
- In all other cases, except criminal cases, that their conduct was at
least not opposed to our best interest, or
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<PAGE> 38
- In the case of any criminal proceeding, that they had no reason to
believe their conduct was unlawful.
Our Bylaws specifically limit the payment of expenses in connection with a
proceeding brought by or in the right of the Company to reasonable expenses,
including attorney's fees.
UNDERWRITING
Subject to the terms and conditions of our underwriting agreement, the
underwriters named below, for whom Cruttenden Roth Incorporated is acting as
representative, have severally agreed to purchase from us and we have agreed to
sell to the underwriters, the respective number of shares of common stock set
forth opposite each underwriter's name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Cruttenden Roth Incorporated................................
---------
Total............................................. 4,000,000
---------
</TABLE>
Our underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in our business, the receipt of certificates,
opinions and letters from our counsel and independent public accountants. The
nature of the underwriters' obligation is such that they are committed to
purchase and pay for all the shares of common stock if any are purchased.
We have been advised by the representative that the underwriters propose to
offer the shares of common stock directly to the public on the terms set forth
on the cover page of this prospectus. The underwriters may allow selected
dealers a concession of not more than $ per share, and the underwriters may
allow, and such selected dealers may reallow, a concession of not more than
$ per share, to other dealers. After the initial public offering of the
shares, the public offering price and other selling terms may be changed by the
representative. No change in such terms shall change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus.
We have granted an option to the underwriters, exercisable for a period of
45 days after the date of this prospectus, to purchase up to an additional
600,000 shares of common stock at the same price per share as the initial shares
to be purchased by the underwriters to cover overallotments, if any. To the
extent that the underwriters exercise this option, each of the underwriters will
be committed, subject to certain conditions, to purchase such additional shares
of common stock in approximately the same proportion as set forth in the above
table.
The representative of the underwriters has advised us that it does not
expect any sales of the shares of common stock offered hereby to be made to
discretionary accounts controlled by the underwriters.
We have agreed to pay the representative a nonaccountable expense allowance
equal to 2% of the aggregate price of the shares of common stock offered hereby
(including with respect to shares of common stock underlying the overallotment
option, if and to the extent it is exercised) set forth on the front cover of
this prospectus. The representative's expenses in excess of the nonaccountable
expense allowance, including its legal expenses, will be borne by the
representative.
We have agreed to issue to the representative at the closing of the
offering warrants to purchase up to 400,000 shares of common stock at an
exercise price per share equal to 120% of the initial per share public offering
price. The representative's warrants are exercisable for a period of four years
beginning one year from the date of this prospectus.
The holders of the representative's warrants will have no voting, dividend
or other shareholder rights until the representative's warrants are exercised.
The terms of the representative's warrants were
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<PAGE> 39
established as the result of negotiations between the representative and us. If
the representative's warrants are exercised, the representative may realize
additional compensation. By their terms, the representative's warrants will be
restricted from sale, transfer, assignment or hypothecation, except to persons
that are officers of the representative. The number of shares covered by the
representative's warrants and the exercise price are subject to adjustment to
prevent dilution. In addition, we have granted certain rights to the holders of
the representative's warrants to register the representative's warrants and the
common stock underlying the representative's warrants under the Securities Act.
Total compensation to the representative and the underwriters is as
follows:
- Commissions -- $ per share of common stock sold;
- Nonaccountable expense allowance -- $ per share of common stock
sold; and
- Warrants to purchase up to 400,000 shares of common stock at 120% of
the per share offering price.
All of our stockholders have entered into lock-up agreements with the
representative which provide that they will not offer, sell or otherwise dispose
of any common stock for a period of 180 days after the commencement of the
offering without the prior written consent of Cruttenden Roth. Cruttenden Roth
has no present intention to release the locked-up shares prior to expiration of
the 180-day period although Cruttenden Roth may release the locked-up shares
prior to expiration of such period. The granting of any release would be
conditioned, in the judgment of Cruttenden Roth, on such sale not materially
adversely impacting the prevailing trading market for the common stock on the
Nasdaq National Market. Specifically, factors such as average trading volume,
recent price trends, and the need for additional public float in the market for
the common stock would be considered in evaluating such a request.
Prior to the offering, there has been no established trading market for the
common stock. Consequently, the initial public offering price for the common
stock offered hereby has been determined by negotiations between the
representative and us. Among the factors considered in such negotiations were
the preliminary demand for the common stock, the prevailing market and economic
conditions, our results of operations, estimates of our business potential and
prospects, the present state of our business operations, an assessment of our
management, the consideration of these factors in relation to the market
valuation of comparable companies in related businesses, the current condition
of the markets in which we operate, and other factors deemed relevant. There can
be no assurance that an active trading market will develop for the common stock
or that the common stock will trade in the public market after the offering at
or above the initial public offering price.
The representative has advised us that, pursuant to Regulation M under the
Securities Act, some persons participating in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the shares of common stock at a level above that
which might otherwise prevail in the open market. A "stabilizing bid" is a bid
for or the purchase of shares of common stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of the common stock. A "syndicate
covering transaction" is the bid for or purchase of common stock on behalf of
the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representative to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by such underwriter or syndicate member purchased by the
representative in a syndicate covering transaction and has therefore not been
effectively placed by such underwriter or syndicate member. The representative
has advised us that such transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
The underwriting agreement provides that we will indemnify the underwriters
and their controlling persons against liabilities under the Securities Act or
will contribute to payments the underwriters and their controlling persons may
be required to make in respect thereof.
37
<PAGE> 40
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Kummer Kaempfer Bonner & Renshaw, Las Vegas, Nevada. Certain legal matters in
connection with the offering will be passed upon for us by Brownstein Hyatt &
Farber, P.C., Denver, Colorado and the Law Office of Gary A. Agron, Englewood,
Colorado and for the underwriters by Bryan Cave LLP, Phoenix, Arizona.
EXPERTS
Our financial statements for the year ended December 31, 1998 and for the
period from inception (June 25, 1997) to December 31, 1997, have been included
in this prospectus in reliance on the report of Ehrhardt Keefe Steiner & Hottman
PC, independent public accountants, as given upon the authority of said firm as
experts in accounting and auditing. With respect to the unaudited interim
financial information for the three months ended March 31, 1999 and 1998 and the
March 31, 1999 information included in the period cumulative from inception
(June 25, 1997) to March 31, 1999, the independent public accountants have not
audited or reviewed such financial information and have not expressed an opinion
or any other form of assurance with respect to such financial information.
CHANGE OF ACCOUNTANTS
On December 11, 1998 we engaged BDO Seidman, LLP as our independent public
accountant. BDO Seidman, LLP resigned as our independent public accountant on
February 4, 1999 because they were unwilling to be associated with our financial
statements due to the background of one of our employees. This employee's
background included fines and other sanctions imposed by the NASD and the
Arizona Corporation Commission and a pending public order of investigation
instituted by the Securities and Exchange Commission. We employed this employee
from January 1, 1999 through February 15, 1999 at which time he resigned. This
employee was never appointed as an officer or director of quepasa.com, inc. He
owns 443,450 shares of our common stock and remains an employee of WGM
Corporation, the general partner of The Monolith Limited Partnership, one of our
principal stockholders.
Prior to their resignation, BDO Seidman, LLC had not completed their audits
of any of our financial statements for any period. There were no disagreements
between us and BDO Seidman, LLC on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures
which, if not resolved to the satisfaction of BDO Seidman, LLC would have caused
them to make reference to the matter in their report. We allowed BDO Seidman,
LLC to read and make comment on this disclosure.
On February 10, 1999, we engaged Ehrhardt Keefe Steiner & Hottman, PC as
our independent public accountants. Prior to their appointment, we did not
consult with them on issues relating to our accounting principles or the type of
audit opinion with respect to our financial statements to be issued by them.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement under the Securities Act of 1933, as amended, covering the common
stock. As permitted by the rules and regulations of the Commission, this
prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits. For further information with respect to our company
and the common stock, reference is made to the Registration Statement and the
exhibits, which may be examined without charge at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street
N.W., Washington, D.C. 20549, copies of which may be obtained from the
Commission upon payment of the prescribed fees.
We will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and will file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be inspected at the public reference facilities of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of these
38
<PAGE> 41
materials may be obtained at prescribed rates from the Commission at that
address. The reports, proxy statements and other information can also be
inspected at the Commission's regional offices at 7 World Trade Center, Suite
300, New York, New York 10048 and at Northwestern Atrium Center, 500 West
Madison, Chicago, Illinois 60621 and on the Commission's Web site at
www.sec.gov.
We will furnish to our stockholders annual reports which will include
audited financial statements. We may also furnish to our stockholders quarterly
financial statements and other reports that may be authorized by our board of
directors.
39
<PAGE> 42
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Financial Statements
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statement of Changes in Stockholders' Equity (Deficit).... F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................... F-8
</TABLE>
F-1
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
quepasa.com, inc.
Phoenix, Arizona
We have audited the accompanying balance sheets of quepasa.com, inc. (a
development stage company) as of December 31, 1998 and 1997 and the related
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the year ended December 31, 1998 and from Inception (June 25, 1997) to
December 31, 1997 and cumulative from Inception to December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of quepasa.com, inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the year ended December 31, 1998 and from Inception (June 25, 1997) to
December 31, 1997 and cumulative from Inception to December 31, 1998 in
conformity with generally accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
February 17, 1999
Denver, Colorado
F-2
<PAGE> 44
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------
1999 1998 1997
------------ ----------- -------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents............................. $ 549,974 $ 2,199,172 $ 2,582
Deposits receivable................................... -- 1,533,632 --
Stock subscription receivable (Note 7)................ -- 125,000 --
Forgivable loans (Note 6)............................. 431,705 396,540 --
Prepaid advertising (Note 6).......................... 1,076,918 -- --
------------ ----------- -------
Total current assets.......................... 2,058,597 4,254,344 2,582
------------ ----------- -------
Property and equipment, net of accumulated depreciation
of $35,226 (March 31, 1999) and $6,532 (December 31,
1998) (Note 2)........................................ 836,227 354,620 --
Other assets
Deferred offering costs (Note 6)...................... 342,441 -- --
Deposits and other assets............................. 53,692 2,500 --
------------ ----------- -------
Total other assets............................ 396,133 2,500 --
------------ ----------- -------
Total assets............................................ $ 3,290,957 $ 4,611,464 $ 2,582
============ =========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable........................................ $ 388,436 $ 71,222 $ 5,465
Accrued commissions (Note 7).......................... 24,089 215,233 --
Stock subscription (Note 7)........................... -- 337,500 --
Deferred license fees (Note 3)........................ 66,665 64,165 --
Accrued interest...................................... 20,000 -- --
Accrued payroll and related taxes..................... 75,564 2,922 --
------------ ----------- -------
Total current liabilities..................... 574,754 691,042 5,465
Long-term liabilities
Note payable (Note 4)................................. 2,000,000 -- --
------------ ----------- -------
Total liabilities............................. 2,574,754 691,042 5,465
------------ ----------- -------
Commitments and contingencies (Notes 3, 6 and 8)
Stockholders' equity (deficit) (Notes 4 and 7)
Preferred stock, authorized 5,000,000 shares -- none
issued or outstanding.............................. -- -- --
Common stock, authorized 50,000,000 shares, $0.001 par
value; issued and outstanding 9,075,833 shares
(March 31, 1999 and December 31, 1998) and
5,680,000 shares (December 31, 1997)............... 9,076 9,076 5,680
Additional paid-in capital............................ 10,906,477 10,427,477 (5,660)
Deficit accumulated during the development stage...... (10,199,350) (6,516,131) (2,903)
------------ ----------- -------
Total stockholders' equity (deficit).......... 716,203 3,920,422 (2,883)
------------ ----------- -------
Total liabilities and stockholders' equity (deficit).... $ 3,290,957 $ 4,611,464 $ 2,582
============ =========== =======
</TABLE>
See notes to financial statements.
F-3
<PAGE> 45
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE FROM CUMULATIVE FROM
INCEPTION INCEPTION INCEPTION
THREE MONTHS ENDED (JUNE 25, 1997) (JUNE 25, 1997) (JUNE 25, 1997)
MARCH 31, YEAR ENDED TO TO TO
------------------------ DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1999 1998 1998 1997 1999 1998
----------- ---------- ------------ --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Product and content
development
expenses........... $ 186,691 $ 4,330 $ 414,873 $ -- $ 601,564 $ 414,873
Advertising and
marketing
expenses........... 2,062,607 -- 250,419 -- 2,313,026 250,419
Stock based
compensation
expenses........... 479,000 -- 5,265,364 -- 5,744,364 5,265,364
General and
administrative
expenses........... 950,299 9,137 534,632 3,703 1,488,634 538,335
----------- ---------- ----------- ---------- ------------ -----------
Total
operating
expenses... 3,678,597 13,467 6,465,288 3,703 10,147,588 6,468,991
----------- ---------- ----------- ---------- ------------ -----------
Loss from
operations......... (3,678,597) (13,467) (6,465,288) (3,703) (10,147,588) (6,468,991)
Other income
(expense)
Interest expense... (20,000) -- (48,994) -- (68,994) (48,994)
Other.............. 15,378 -- 1,054 800 17,232 1,854
----------- ---------- ----------- ---------- ------------ -----------
Net other income
(expenses)......... (4,622) -- (47,940) 800 (51,762) (47,140)
----------- ---------- ----------- ---------- ------------ -----------
Net loss............. $(3,683,219) $ (13,467) $(6,513,228) $ (2,903) $(10,199,350) $(6,516,131)
=========== ========== =========== ========== ============ ===========
Net loss per share,
basic and
diluted............ $ (.41) $ -- $ (.72) $ -- $ (1.12) $ (.72)
=========== ========== =========== ========== ============ ===========
Weighted average
number of shares
outstanding, basic
and diluted........ 9,075,833 9,075,833 9,075,833 9,075,833 9,075,833 9,075,833
=========== ========== =========== ========== ============ ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 46
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (JUNE 25, 1997) TO
DECEMBER 31, 1997, THE YEAR ENDED DECEMBER 31, 1998 AND
THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
------------------ PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
--------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for cash
from initial capitalization, June
1997 (Note 7)...................... 5,680,000 $5,680 $ (5,660) $ -- $ 20
Net loss for the period.............. -- -- -- (2,903) (2,903)
--------- ------ ----------- ------------ -----------
Balance, December 31, 1997........... 5,680,000 5,680 (5,660) (2,903) (2,883)
Issuance of common stock and stock
based compensation May 1998 (Note
7)................................. 1,420,000 1,420 4,985,294 -- 4,986,714
Issuance of common stock in
conversion of note payable $1.56
per share) November 1998 (Note
4)................................. 666,666 667 1,039,113 -- 1,039,780
Issuance of common stock in
conversion of note payable ($1.00
per share), November 1998 (Note
4)................................. 50,000 50 49,950 -- 50,000
Issuance of common stock for cash at
$3.75 per share, net of $640,587 of
offering costs November and
December 1998 (Note 7)............. 1,259,167 1,259 4,080,030 -- 4,081,289
Issuance of compensatory stock
options to employees October
through December 1998 (Note 7)..... -- -- 278,750 -- 278,750
Net loss for the year................ -- -- -- (6,513,228) (6,513,228)
--------- ------ ----------- ------------ -----------
Balance, December 31, 1998........... 9,075,833 9,076 10,427,477 (6,516,131) 3,920,422
Issuance of compensatory stock
options to employees, January 1999
(Note 7)........................... -- -- 52,500 -- 52,500
Issuance of compensatory stock
options to officers and directors,
March 1999 (Note 7)................ -- -- 426,500 -- 426,500
Net loss for the period
(unaudited)........................ -- -- -- (3,683,219) (3,683,219)
--------- ------ ----------- ------------ -----------
Balance, March 31, 1999
(unaudited)........................ 9,075,833 $9,076 $10,906,477 $(10,199,350) $ 716,203
========= ====== =========== ============ ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 47
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
FROM FROM
INCEPTION INCEPTION INCEPTION
THREE MONTHS ENDED (JUNE 25, 1997) (JUNE 25, 1997) (JUNE 25, 1997)
MARCH 31, YEAR ENDED TO TO TO
---------------------- DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1999 1998 1998 1997 1999 1998
----------- -------- ------------ --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss....................... $(3,683,219) $(13,467) $(6,513,228) $(2,903) $(10,199,350) $(6,516,131)
Adjustments to reconcile net
loss to net cash (used in)
provided by operating
activities
Depreciation and
amortization.............. 28,694 -- 6,532 -- 35,226 6,532
Stock based compensation.... 479,000 -- 5,265,364 -- 5,744,364 5,265,364
Accrued interest on
convertible notes
payable................... -- -- 39,780 -- 39,780 39,780
Change in assets and
liabilities
Deposits receivable....... 1,533,632 -- (1,533,632) -- -- (1,533,632)
Forgivable loans.......... (35,165) -- (396,540) -- (431,705) (396,540)
Prepaid advertising....... (1,076,918) -- -- -- (1,076,918) --
Deposits and other
assets................. (51,192) -- (2,500) -- (53,692) (2,500)
Accounts payable.......... 317,214 10,325 65,757 5,465 388,436 71,222
Accrued payroll and
related taxes.......... 72,642 -- 2,922 -- 75,564 2,922
Deferred license fees..... 2,500 -- 64,165 -- 66,665 64,165
----------- -------- ----------- ------- ------------ -----------
1,270,407 10,325 3,511,848 5,465 4,787,720 3,517,313
----------- -------- ----------- ------- ------------ -----------
Net cash (used in)
provided by operating
activities........... (2,412,812) (3,142) (3,001,380) 2,562 (5,411,630) (2,998,818)
----------- -------- ----------- ------- ------------ -----------
Cash flows from investing
activities
Purchase of fixed assets....... (510,301) -- (361,152) -- (871,453) (361,152)
----------- -------- ----------- ------- ------------ -----------
Net cash used in
investing
activities........... (510,301) -- (361,152) -- (871,453) (361,152)
----------- -------- ----------- ------- ------------ -----------
Cash flows from financing
activities
Checks in excess of bank
balance..................... -- 560 -- -- -- --
Stock subscription
receivable.................. 125,000 -- (125,000) -- -- (125,000)
Net proceeds from private
placements.................. -- -- 4,081,289 -- 4,081,289 4,081,289
Proceeds from issuance of note
payable..................... 2,000,000 -- -- -- 2,000,000 --
Proceeds from convertible note
payable..................... -- -- 1,100,000 -- 1,100,000 1,100,000
Accrued interest............... 20,000 -- -- -- 20,000 --
Deferred initial public
offering costs.............. (342,441) -- -- -- (342,441) --
Accrued commissions............ (191,144) -- 215,233 -- 24,089 215,233
Stock subscription............. (337,500) -- 337,500 -- -- 337,500
Proceeds from issuance of
common stock................ -- -- 100 20 120 120
Payments on notes payable...... -- -- (50,000) -- (50,000) (50,000)
----------- -------- ----------- ------- ------------ -----------
Net cash provided by
financing
activities........... 1,273,915 560 5,559,122 20 6,833,057 5,559,142
----------- -------- ----------- ------- ------------ -----------
</TABLE>
F-6
<PAGE> 48
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
FROM FROM
INCEPTION INCEPTION INCEPTION
THREE MONTHS ENDED (JUNE 25, 1997) (JUNE 25, 1997) (JUNE 25, 1997)
MARCH 31, YEAR ENDED TO TO TO
---------------------- DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1999 1998 1998 1997 1999 1998
----------- -------- ------------ --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net (decrease) increase in cash
and cash equivalents........... (1,649,198) (2,582) 2,196,590 2,582 549,974 2,199,172
Cash and cash equivalents,
beginning of period............ 2,199,172 2,582 2,582 -- -- --
----------- -------- ----------- ------- ------------ -----------
Cash and cash equivalents, end of
period......................... $ 549,974 $ -- $ 2,199,172 $ 2,582 $ 549,974 $ 2,199,172
=========== ======== =========== ======= ============ ===========
</TABLE>
Supplemental disclosure of cash flow information:
Cash paid for interest was $48,994 for the year ended December 31,
1998 and $0 from Inception (June 25, 1997) to December 31, 1997.
Supplemental schedule of non-cash investing and financing activities:
During 1998, convertible notes of $1,050,000 were converted into
common stock.
F-7
<PAGE> 49
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Quepasa.com, inc. (the Company), a Nevada Corporation, was incorporated in
June 1997. The Company is a Spanish-language Internet portal and community.
Quepasa.com offers a number of services such as news, chat and free e-mail. The
Company's portal draws viewers to their Web sites by providing a one-stop
destination for identifying, selecting and accessing resources, services,
content and information on the Web. The Company is targeted to provide users
with information and interactive content centered around the Spanish language.
The Company is a development stage company that has not had any significant
revenue since inception. The Company realized a net loss of approximately $6.9
million including a $5.3 million non-cash charge for stock based compensation
during the year ended December 31, 1998 and there is no assurance that the
Company will generate revenue or earn profit in the future.
During 1998, the Company changed its name from Internet Century, Inc. to
quepasa.com, inc.
Interim Financial Statements (Unaudited)
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Company at
March 31, 1999 and the results of its operations and changes in cash flows for
the three months ended March 31, 1999 and 1998 and the three months ended March
31, 1999 included in the period cumulative from inception to March 31, 1999. The
results of operations for the three months ended March 31, 1999 and 1998 are not
necessarily indicative of the results to be expected for a full year.
Stock Split
In October 1998, the Company's board of directors authorized a 284 for one
stock split. The financial statements have been presented as if the split had
occurred at inception.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and investments with
original maturities of three months or less.
Deposits Receivable
Accounts receivable at December 31, 1998 represents refunds due from a
media company for advances paid by the Company under an advertising agreement
which was canceled prior to advertising services being rendered. The amount was
received subsequent to December 31, 1998.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
expense is generally provided on a straight-line basis using estimated useful
lives of three to five years.
Deferred Offering Costs
Deferred offering costs represents cost incurred in conjunction with the
Company's proposed public offering. Deferred offering costs will be offset
against net proceeds, if successful, or expensed in operations if the offering
is unsuccessful.
F-8
<PAGE> 50
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED)
License Agreement
The Company entered into a licensing agreement pursuant to which the
Company licenses an internet-based search engine. The minimum annual royalty has
been capitalized and is being amortized over three years, which is the minimum
term of the agreement (Note 3).
Revenue Recognition
Advertising revenues are expected to be derived principally from short-term
advertising contracts. Revenues are generally recognized ratably over the period
in which the advertisement is displayed, provided that the Company does not have
any significant remaining obligations and collection of the resulting receivable
is probable. To the extent that web site impression deliveries are falling short
of the guarantees, the Company would defer recognition of the corresponding
revenues.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statements
and tax basis of assets and liabilities using the enacted tax rates in effect
for the year in which the differences are expected to reverse. The measurement
of deferred tax assets is reduced, if necessary, by the amount of any tax
benefits that, based on available evidence, are not expected to be realized.
Basic and Diluted Net Loss Per Share
The Company computes net loss per share in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the
provisions of SFAS 128 and SAB 98, basic and diluted net loss per share is
computed by dividing the net loss available to common stockholders for the
period by the weighted average number of common shares outstanding for the
period. The calculation of basic and diluted net loss per share excludes shares
of common stock issuable upon exercise of employee stock options as the effect
of the exercise would be antidilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Advertising Costs
Advertising costs are expensed as incurred in accordance with Statement of
Position 93-7, "Reporting on Advertising Costs". Advertising costs for the year
ended December 31, 1998 and for the period from Inception (June 25, 1997) to
December 31, 1997 totaled $132,377 and $0, respectively.
Product and Content Development
Costs incurred in the classification and organization of listings within
the Company's Web site and the development of new products and enhancements to
existing products are charged to expense as incurred. Material software
development costs incurred during the application development stage are
capitalized.
F-9
<PAGE> 51
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED)
Based upon the Company's product development process, and the constant
modification of the Company's Web site, costs incurred by the Company during the
application development stage have been insignificant.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, which
principally include cash, deposit receivable, accounts payable, accrued expenses
and a note payable, approximate fair value due to the relatively short maturity
of the financial instruments.
The fair value of the Company's debt instruments are based on the amount of
future cash flows associated with cash instrument using the Company's borrowing
rate. At March 31, 1999 and December 31, 1998 and 1997, the carrying value of
all financial instruments was not materially different from fair value.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities", which is
effective for financial statements issued for all fiscal quarters of fiscal
years beginning after June 15, 1999. This statement requires companies to
recognize all derivative contracts at either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are not a
derivative may be specifically designated as a hedge, the objective of which is
to match the timing of gain or loss recognition on the hedging derivative with
the recognition (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. Historically, the Company has not entered into derivative contracts to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standards on January 1, 2000 to effect its
financial statements.
NOTE 2 -- PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------
1999 1998 1997
----------- -------- ----
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software........................ $449,430 $344,948 $ --
Furniture, fixtures and equipment...................... 337,228 16,204 --
Leasehold improvements................................. 84,795 -- --
-------- -------- ----
871,453 361,152 --
Less accumulated depreciation and amortization......... (35,226) (6,532) --
-------- -------- ----
Property and equipment................................. $836,227 $354,620 $ --
</TABLE>
NOTE 3 -- LICENSE AGREEMENT
On July 21, 1998, the Company entered an Information Services Agreement
(the "Agreement") with Inktomi Corporation ("Inktomi") whereby Inktomi will
provide certain services, including but not limited to, search services enabling
the Company to access Inktomi database of Internet Web sites. The agreement
requires quarterly payments ranging from $60,000 to $75,000 and expires in
August 2001. While the agreement provides for certain additional payments based
upon actual use of Inktomi's services,
F-10
<PAGE> 52
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED)
the Company believes additional payments, if any, will not be material. The
license will be expensed on a straight-line basis over the term of the agreement
of three years.
Minimum payments under the licensing agreement are as follows as of March
31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1999........................................................ $212,500
2000........................................................ 250,000
2001........................................................ 187,500
--------
$650,000
========
</TABLE>
The license fee expense was $104,165 for the year ended December 31, 1998
and $62,500 for the three months ended March 31, 1999.
In addition to the Inktomi agreement described above, the Company has
various other agreements for technology and content presented on the Company's
portal. These agreements are for one to two years and require payments totaling
$246,000 in 1999 and $129,000 in 2000. See note 8 (unaudited) for additional
commitments.
NOTE 4 -- NOTES PAYABLE
Convertible Note Payable
In May 1998, the Company issued $100,000 of convertible debt. The
convertible debt accrued interest at 12% per annum and was scheduled to mature
on the earlier of May 31, 2000 or the closing date of the Company's initial
public offering, if any. The Company had the right to convert unpaid note
principal plus any accrued interest into 100,000 shares of common stock at any
time during the term of the Note.
In November 1998, the Company converted $50,000 of the Note into 50,000
shares of the Company's common stock and repaid the balance of $50,000.
In July 1998, the Company issued $1,000,000 of convertible debt. The
convertible debt accrued interest at 12% per annum and was payable on the
earlier of May 31, 2000 or at the closing date of the Company's initial public
offering, if any. The Company had the right to convert unpaid principal plus any
accrued interest into 666,666 shares of common stock at any time during the term
of the notes. The Company believes this conversion feature was based on the fair
market value of the common stock on the date of issuance.
In November 1998, the notes and accrued interest of $39,780 were converted
into 666,666 shares of the Company's common stock.
Loans from Related Parties (Unaudited)
In March of 1999, the Company received a $2 million loan from a stockholder
of the Company. The note bears interest at 12% per annum through June 1999 and
then 14% per annum through maturity, March, 2001.
The Chief Executive Officer has agreed to lend the Company up to $3 million
as needed for operations. Any amounts loaned will bear interest at 12% per annum
for four months and 14% per annum for the next 20 months and mature 24 months
from issuance. In April and May of 1999, the Company was advanced $2,300,000
under the terms of this agreement.
F-11
<PAGE> 53
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED)
NOTE 5 -- INCOME TAXES
No provision for federal and state income taxes has been recorded as the
Company has incurred net operating losses through March 31, 1999. The following
table sets forth the primary components of deferred tax assets:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------
1999 1998 1997
----------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C>
Net operating loss carryforwards.................. $10,631,000 $ 6,910,000 $ 3,000
Nondeductible expenses............................ (5,744,000) (5,265,000) --
----------- ----------- -------
Gross deferred tax assets......................... 4,887,000 1,645,000 3,000
Valuation allowance............................... (4,887,000) (1,645,000) (3,000)
----------- ----------- -------
$ -- $ -- $ --
=========== =========== =======
</TABLE>
At March 31, 1999 (unaudited) and December 31, 1998 and 1997, the Company
fully reserved its deferred tax assets. The Company believes sufficient
uncertainty exists regarding the reliability of tax assets such that a full
valuation allowance is appropriate.
At December 31, 1998, the Company had approximately $1,645,000 of federal
net operating loss carryforwards for tax reporting purposes available to offset
future taxable income. These carryforwards expire in 2013. The Company has
approximately $1,645,000 of state net operating loss carryforwards for tax
reporting purposes which expire in 2003.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company signed a three year lease agreement for an office located in
Las Vegas, Nevada commencing August 15, 1998. The monthly lease payments range
from $1,670 to $1,770. The lease expires August 14, 2001.
The Company signed a three year lease agreement for office equipment
commencing in August 1998. The monthly rent payment is $328 and the lease
expires in September of 2001.
Future minimum rental payments under non-cancelable operating and equipment
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1999........................................................ $20,240
2000........................................................ 20,847
2001........................................................ 14,168
-------
$55,255
=======
</TABLE>
Facilities and equipment leases expense for the three months ended March
31, 1999 and 1998 and the year ended December 31, 1998 and for the period from
Inception (June 25, 1997) to December 31, 1997 was $47,000, $0, $45,068 and $0,
respectively.
F-12
<PAGE> 54
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED)
Employment Agreements
The Company has employment agreements with many of its employees and all of
its executive officers. The agreements provide for base salary, forgivable loans
and bonus provisions. The forgivable loans are recognized ratably as expense
over the service period, or upon termination of the employee if the loan is
forgiven at that time. The chief executive officer's agreement provides for a
$500,000 payment upon termination without cause. The forgivable loans have been
expensed as compensation when made to the employees.
Proposed Public Offering
On January 15, 1999, the Company entered into a letter-of-intent with an
investment banker relating to a proposed initial public offering of shares of
common stock of the Company.
The initial public offering is expected to consist of the sale of 4,000,000
shares of common stock, plus an option for the underwriters to sell an
additional 600,000 shares to cover overallotments. The Company has also
authorized the issuance of 400,000 warrants to purchase common stock to the
underwriters at an exercise price equal to 120% of the initial per share public
offering price. These warrants are exercisable for a period of 4 years beginning
one year from the effective date of the offering. Upon issuance of the warrants,
the Company will record offering costs as an offset to stockholders equity equal
to the fair value of the warrants on the date of grant using the Black-Scholes
option pricing method.
Advertising Contracts
In January 1999, the Company entered a 26-week sponsorship agreement with a
Spanish language television broadcaster. Based on the terms of the agreement,
the Company will receive media spots for approximately $800,000. Prepayments
made under this agreement were capitalized and are being amortized over the
period in which the advertisement is broadcasted. As of March 31, 1999
(unaudited), approximately $677,000 is included in prepaid advertising and
$123,000 was expensed as a result of this agreement.
In February 1999, the Company entered a contract for an 8-week nationwide
advertising campaign with a Spanish language radio broadcaster located in the
United States. The contract calls for an initial payment of $1.6 million and
subsequent monthly payments for broadcasting as incurred. The initial payment
made under this agreement was capitalized and is being amortized over the period
in which the advertisement is broadcasted. As of March 31, 1999 (unaudited),
approximately $400,000 is included in prepaid advertising and $1,200,000 was
expensed as a result of this agreement.
In February 1999, the Company entered into an advertising agreement with an
entity partially owned by a Director of the Company. The agreement provides for
advertising services for a flat fee of $78,000 per month and is cancelable by
either party with 30 days written notice. During the three months ended March
31, 1999 $78,833 was paid under the terms of this agreement. In addition,
approximately $210,000 was paid to the related party in exchange for other
promotional items. All payments made were included in advertising expense during
the three months ended March 31, 1999.
NOTE 7 -- STOCKHOLDERS' EQUITY
Upon incorporation on June 25, 1997, the Company issued 5,680,000 shares of
common stock for $20.00 to the Chief Executive Officer and the other founder of
the Company.
F-13
<PAGE> 55
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED)
Private Placement
During November and December of 1998, the Company issued 1,259,167 shares
of common stock in a private placement for cash at $3.75 per share. The Company
received proceeds of $4,081,289 net of related costs of $640,587. In January
1999, $125,000 of the proceeds were received and are reflected as stock
subscription receivable. Of the related costs, $24,089 and $215,233 were unpaid
as of March 31, 1999 and December 31, 1998, respectively.
During December 1998, the Company received excess proceeds of $337,500 with
respect to these private placements. These amounts were refunded upon the
investors request in January 1999.
Stock Option Plan
In October 1998 and later amended, the Company adopted a Stock Option Plan
(the "Plan") which provides for the granting of options to officers, directors,
and consultants. The plan permits the granting of "incentive stock options"
meeting the requirements of Section 422A of the Internal Revenue Code as well as
"nonqualified" which do not satisfy the requirements of that section. 6,000,000
shares of common stock have been restricted under the plan for the granting of
options. The Plan will be in effect until November 1, 2009, unless extended by
the Company's stockholders. The options are exercisable to purchase stock for a
period of ten years from the date of grant.
Incentive Stock Options granted pursuant to this Plan may not have an
option price that is less than the fair market value of the stock on the date
the option is granted. Incentive stock options granted to significant
stockholder shall have an option price of not less than 110% of the fair market
value of the stock on the date of the grant. Options granted under the plan vest
one third at the end of each of the three years of service following the grant
date. The board of directors of the Company may waive the vesting requirements
at its discretion. All stock options issued under the Plan are exercisable for a
period of 10 years from the date of grant.
Employee Compensatory Stock and Stock Options
Stock-based Compensation. The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board No. 25, Accounting for Stock Issued to Employees; and complies
with the disclosure requirements of SFAS No. 123, Accounting for Stock-Based
Compensation. Under APB No. 25, compensation cost, if any, is recognized over
the respective vesting period based on the difference, on the date of grant,
between the fair value of the Company's common stock and the grant price.
During May of 1998, the Company issued 1,420,000 shares of common stock to
a former officer of the Company and the original stockholders of the Company
transferred 3,566,714 existing shares to several employees and one advisor. The
fair market value of the common stock on the date of these issuances was
determined to be $1.00 based on the issuance of convertible debt in May of 1998
which was convertible into common stock at $1.00 per share. Approximately $5
million in compensation expense is reflected in the December 31, 1998 financial
statements as a result of these transactions.
Throughout 1998, the Company issued "nonqualified" options to purchase
common stock to several employees under the stock option plan. Compensation
expense of approximately $279,000 was recognized based on the difference between
the exercise price and fair value of the stock.
In November 1998, the Company granted 50,000 stock options to purchase
common stock to the Chief Executive Officer. The options are exercisable at
$1.50, vest immediately and have a term of 10
F-14
<PAGE> 56
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED)
years. Approximately $113,000 (based on the intrinsic value of the option) of
compensation expense was recorded during the year ended December 31, 1998 as a
result of this transaction.
In January 1999, the Company granted 500,000 stock options to purchase
common stock to the Chief Executive Officer. The options are exercisable at
$8.00, vest immediately and have a term of 10 years. As the exercise price was
determined to be equal to fair value on the date of grant no compensation
expense was recorded as a result of this transaction.
In April 1999, the Chief Executive Officer was also granted options to
purchase up to 200,000 shares of common stock exercisable at $12.00 per share
that vest over a three year period. As the exercise price was determined to be
equal to fair value on the date of grant no compensation expense was recorded as
a result of this transaction.
In January 1999, the Company granted 35,000 options to employees with an
exercise price of $1.00. These options vest over a period of three years.
Approximately $52,500 of compensation expense was recognized during the three
months ended March 31, 1999 based on the fair market value on the date of grant
and in consideration of vesting period. Additionally, the Company granted a
total of 50,000 options to two directors. The options, 25,000 at an exercise
price of $1.50 and 25,000 at an exercise price of $8.00 all vested immediately.
The Company recognized approximately $426,500 of compensation expense which was
determined to be the fair value of the options or the date of grant utilizing
the Black-Scholes option pricing method with the following assumptions: expected
life of 10 years, no volatility, risk free interest rates of 6% and a 0%
dividend yield. Additionally, 2,163,000 options were granted to employees with
an exercise price of $8. The exercise price of the options were equal to or
greater than the fair value of the common stock on the date of grant. As the
Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation," no
compensation expense has been recognized related to these options.
Had compensation cost for stock-based compensation been determined based on
the fair value or the grant date consistent with the method of SFAS 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts presented below:
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
INCEPTION FROM INCEPTION FROM INCEPTION
THREE MONTHS (JUNE 25, 1997) (JUNE 25, 1997) (JUNE 25, 1997)
ENDED YEAR ENDED TO TO TO
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1999 1998 1998 1997 1999 1998
------------ --------- ------------ --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net loss
As reported........ $ (3,683,219) $(13,467) $(6,513,228) $2,903 $(10,199,350) $(6,516,131)
Pro forma.......... $ (7,362,091) $(13,467) $(6,728,228) $2,903 $(14,093,222) $(6,731,131)
Basic and diluted
loss per share
As reported........ $ (.41) $ -- $ (.72) $ -- $ (1.12) $ (.72)
Pro forma.......... $ (.81) $ -- $ (.74) $ -- $ (1.55) $ (.74)
</TABLE>
The fair value of option grants is estimated on the date of grants
utilizing the Black-Scholes option pricing model with the following assumptions
for 1998: expected life of 10 years, no volatility, risk-free interest rates of
6%, and a 0% dividend yield.
F-15
<PAGE> 57
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED)
At March 31, 1999 (unaudited) and December 31, 1998, 2,463,000 and 215,000
of common stock options were outstanding, respectively. All of these potential
common shares were excluded from the computation of diluted earnings per share
because their inclusion would be antidilutive.
Summarized information relating to stock options is as follows:
<TABLE>
<CAPTION>
WEIGHTED
COMMON AVERAGE
STOCK EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding, December 31, 1997.............................. -- --
Issued...................................................... 215,000 2.45
--------- -----
Outstanding, December 31, 1998.............................. 215,000 2.45
Issued...................................................... 1,248,000 7.82
--------- -----
Outstanding, March 31, 1999 (unaudited)..................... 1,463,000 7.35
========= =====
Exercisable, December 31, 1998.............................. 120,000 1.89
========= =====
Exercisable, March 31, 1999................................. 1,226,500 7.91
========= =====
</TABLE>
The weighted average exercise prices for the options outstanding at March
31, 1999 (unaudited) are as follows:
<TABLE>
<CAPTION>
WEIGHTED
COMMON AVERAGE
STOCK EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
175,000 $1.22
100,000 3.75
1,188,000 8.00
---------
Outstanding March 31, 1999.................................. 1,463,000
=========
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
COMMON AVERAGE
STOCK EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
125,000 $1.40
25,000 $3.75
1,056,300 $8.00
---------
Exercisable at March 31, 1999............................... 1,226,500
=========
</TABLE>
F-16
<PAGE> 58
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED)
The weighted average contractual life is ten years. The weighted average
grant date fair value for all options granted during the year ended December 31,
1998 and the three months ended March 31, 1999 are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF GRANT DATE
OPTIONS FAIR VALUE
--------- ----------
<S> <C> <C>
Granted during year ended December 31, 1998 at
Less than fair value...................................... 115,000 $3.04
Equal to fair value....................................... 100,000 1.67
Greater than fair value................................... --
---------
215,000
=========
Granted during 3 months ended March 31, 1999 at
Less than fair value...................................... 85,000 $9.22
Equal to fair value....................................... 1,163,000 3.57
Greater than fair value................................... --
---------
1,248,000
=========
</TABLE>
NOTE 8 SUBSEQUENT EVENTS (UNAUDITED)
In April 1999, the Company's Sponsorship Agreement with the Spanish
language television broadcaster (note 6) was expanded under a separate
agreement. Under the terms of the expanded agreement, the Company issued 600,000
shares of common stock and 1,000,000 warrants to purchase common stock. The
warrants are exercisable for a period of 2 years at 120% of the public offering
price per share. In exchange for the common stock issued, the Company received a
$5 million advertising credit to be utilized ratably over 5 years. Additionally,
the Company agreed to purchase an additional $1 million of advertising to be
broadcast over 26 weeks commencing August, 1999. As a result of the common stock
issued approximately $2,200,000 of expense will be recognized during the year
ended December 31, 1999 for stock based compensation determined by the
difference between the fair value of the stock on the date of issuance, or $11
and the fair value of the advertising received. The warrants have no significant
value as determined using the Black Scholes option pricing model. The following
assumptions were used in the option pricing model: stock price of $11, exercise
price of $13.20, option term of two years, risk free interest rate of 6%, no
volatility and a dividend yield of 0%. The fair value of the shares issued was
based on the fair market value of the stock on the date of issuance or $11. The
agreement may be cancelled by either party if the proposed initial public
offering is not successful.
In April 1999, the Company issued 50,000 shares of its Common Stock to an
entity partially owned by a director of the Company for advertising and
marketing services valued at $550,000. The fair value of the shares issued was
based on the fair market value of the stock on the date of issuance or $11 which
approximates the value of the advertising and marketing services received. The
expense for advertising and marketing services will be recognized as the
services are performed and should be complete by December 31, 1999.
In April 1999, the Company entered into a sponsorship agreement with the
Arizona Diamondbacks. A director of the Company serves as the Arizona
Diamondbacks' Chief Executive Officer and General
F-17
<PAGE> 59
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1999 AND 1998 IS UNAUDITED)
Manager who subsequently became a Director of the Company. Under this agreement,
the Company will receive English and Spanish television and radio broadcast
time, ballpark signage, and Internet and print promotions for a sponsorship fee
of $1.5 million, $500,000 of which was paid in April 1999 with the remaining $1
million payable over the 1999 baseball season. The $1.5 million sponsorship fee
will be recognized as expense ratably over the 1999 baseball season.
In April 1999, the Company entered into an agreement with the Miami Herald,
providing for Spanish language news features on the Company's web site and other
promotional item. The agreement requires approximately $720,000 to be paid over
the remainder of 1999. The $720,000 will be recognized as expense over the term
of the agreement.
In April 1999, the Company's President received options to purchase 350,000
shares of common stock. The options are exercisable at $10.00 per share, vest
immediately and have a term of 10 years. In addition, the Company's Chief
Executive Officer transferred 50,000 shares to the new president and the Company
issued 50,000 shares to an entity owned by the president. As a result of these
transactions, the Company will record an approximate $1,500,000 charge to
earnings in April 1999 for stock based compensation. The fair value of the
shares issued was based on the fair market value of the stock on the date of
issuance of $11. The charge to earnings as a result of the options issued was
based on the intrinsic value as determined by APB 25.
As a result of the above transactions, the issuance of 200,000 options to
the Chief Executive Officer in April 1999, and various other subsequent events,
a total of 3,248,000 options and warrants are outstanding as of April 27, 1999
with the weighted average exercise price (assuming an $11.00 IPO price) of
$9.71.
F-18
<PAGE> 60
[INSIDE BACK COVER PAGE -- SCREEN SHOT OF MAP REFLECTING
TOTAL U.S. HISPANIC POPULATION BREAKDOWN]
<PAGE> 61
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[QUEPASA.COM LOGO]
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 62
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)
<TABLE>
<S> <C>
SEC Registration Statement.................................. $ 17,983
NASD Filing Fee............................................. $ 6,596
Blue Sky Filing Fees........................................ $ 2,500
Blue Sky Legal Fees......................................... $ 5,000
Printing Expenses........................................... $ 150,600
Legal Fees and Expenses..................................... $ 375,000
Accounting Fees............................................. $ 125,000
Transfer Agent Fees......................................... $ 5,000
Nasdaq Application Fee...................................... $ 25,000
Miscellaneous Expenses...................................... $ 287,921
----------
Total............................................. $1,000,000
==========
</TABLE>
- ---------------
(1) All expenses, except the SEC registration fee and NASD filing fee, are
estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article twelfth of the Registrant's amended articles of incorporation
provides as follows:
"The liability of the directors of the Corporation for monetary
damages for breach of fiduciary duty is eliminated to the fullest extent
provided by Nevada law.
Directors and officers of the Corporation shall be indemnified by the
Corporation against any liability to the fullest extent provided by Nevada
law."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the Registrant sold the following securities
which were not registered under the Securities Act, as amended.
<TABLE>
<CAPTION>
NAME DATE NUMBER OF SHARES PRICE PER SHARE
- ---- ------ ---------------- ---------------
<S> <C> <C> <C>
Jeffrey Peterson...................................... Jun-97 2,840,000 $.0000035
Jennifer Ferlaino..................................... Jun-97 2,840,000 $.0000035
Michael Silberman..................................... May-98 1,420,000 $ 0.0001
Enver Zaky(1)......................................... Nov-98 50,000 $ 1.00
Mitchell Pierce(2).................................... Nov-98 333,333 $ 1.56
Tim Pring(2).......................................... Nov-98 333,333 $ 1.56
Louis Grubb........................................... Nov-98 66,667 $ 3.75
Daniel Louis Grubb.................................... Nov-98 66,667 $ 3.75
Bradley T. Pring...................................... Nov-98 106,667 $ 3.75
Marshall Chesrown..................................... Nov-98 100,000 $ 3.75
John Pring............................................ Nov-98 26,667 $ 3.75
John Elway............................................ Nov-98 133,333 $ 3.75
Felix Sabates......................................... Nov-98 66,666 $ 3.75
Mayer Shirazipour..................................... Nov-98 100,000 $ 3.75
Mitchell Pierce....................................... Dec-98 103,333 $ 3.75
Al Monjazeb........................................... Dec-98 30,000 $ 3.75
Anthony Bily.......................................... Dec-98 53,333 $ 3.75
Laurence R. Davis..................................... Dec-98 20,000 $ 3.75
</TABLE>
II-1
<PAGE> 63
<TABLE>
<CAPTION>
NAME DATE NUMBER OF SHARES PRICE PER SHARE
- ---- ------ ---------------- ---------------
<S> <C> <C> <C>
D.A. Huschke.......................................... Dec-98 26,667 $ 3.75
Fredrick Kaefer....................................... Dec-98 27,000 $ 3.75
Michael Maynard....................................... Dec-98 40,000 $ 3.75
John McGrath.......................................... Dec-98 20,000 $ 3.75
James Peterson........................................ Dec-98 20,000 $ 3.75
Peter A. Pfer......................................... Dec-99 27,000 $ 3.75
Lyle Reigel........................................... Dec-98 52,700 $ 3.75
Chester Sawko......................................... Dec-98 20,000 $ 3.75
Rick Scheer........................................... Dec-98 31,800 $ 3.75
Joe Seiwert III....................................... Dec-98 20,000 $ 3.75
David Solana.......................................... Dec-98 26,667 $ 3.75
Miartin Sousa......................................... Dec-98 20,000 $ 3.75
Keith Stone........................................... Dec-98 27,000 $ 3.75
Donald Strate......................................... Dec-98 27,000 $ 3.75
---------
Total....................................... 9,075,833
</TABLE>
- ---------------
(1) Conversion of a promissory note issued by the Registrant in May 1998.
(2) Conversion of a promissory note issued by the Registrant in July 1998.
In April 1999 the Registrant issued (a) 600,000 shares of its common stock
and warrants to purchase 1,000,000 additional shares to Telemundo Network Group
LLC in exchange for, among other things, $5 million of prepaid advertising
credit on the Telemundo Network, (b) 50,000 shares of its common stock to
Garcia/LKS in exchange for $500,000 of prepaid marketing and advertising
services and (c) 50,000 shares of its common stock to Southwest Harvard Group, a
company owned by Gary L. Trujillo who became the Registrant's President later in
April, pursuant to a consulting agreement.
With respect to the sales made, the Registrant relied on Section 4(2) and
Regulation D Rule 506 of the Securities Act of 1933, as amended (the "Securities
Act"). No advertising or general solicitation was employed in offering the
securities. The securities were offered to a limited number of persons all of
whom were business associates of the Registrant or its executive officers and
directors, and the transfer thereof was appropriately restricted by the
Registrant. All persons were accredited investors as that term is defined in
Rule 501 of Regulation D under the Securities Act and were capable of analyzing
the merits and risks of their investment and who acknowledged in writing that
they were acquiring the securities for investment and not with a view toward
distribution or resale and understood the speculative nature of their
investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
----------- -----
<C> <S>
1.01 -- Form of Underwriting Agreement(1)
1.02 -- Form of Representative's Warrant(1)
3.01 -- Articles of Incorporation of the Registrant, as
amended(1)
3.02 -- Bylaws of the Registrant(1)
3.03 -- Amended and Restated Bylaws of the Registrant(1)
3.04 -- Amended and Restated Bylaws of the Registrant
5.01 -- Opinion of Kummer Kaempfer Bonner & Renshaw, regarding
legality of the common stock and warrants (includes
consent)(1)
5.02 -- Opinion of Kummer Kaempfer Bonner & Renshaw, regarding
legality of the common stock and warrants (includes
consent)
10.01 -- Agreement with Inktomi Corporation(1)
10.02 -- Agreement with UPI(1)
10.03 -- Agreement with Reuters NewMedia, Inc., as amended(1)
</TABLE>
II-2
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
----------- -----
<C> <S>
10.04 -- Office Lease (Arizona)(1)
10.05 -- Employment Agreement with Mr. Peterson, as amended(1)
10.06 -- Employment Agreement with Mr. Silberman, as amended(1)
10.07 -- Employment Agreement with Mr. Galan(1)
10.08 -- Employment Agreement with Mr. Ross(1)
10.09 -- Employment Agreement with Mr. Offenbecher(1)
10.10 -- Employment Agreement with Mr. Roldan(1)
10.11 -- Employment Agreement with Mr. Garcia (Luis)(1)
10.12 -- Agreement with WeatherLabs, Inc.(1)
10.13 -- Agreement with Heftel Broadcasting Company(1)
10.14 -- Agreement with GTE Internetworking, Inc.(1)
10.15 -- Agreement with Exodus Communications, Inc.(1)
10.16 -- Agreement with Telemundo Network Group LLC(1)
10.17 -- Agreement with 24/7 Media, Inc.(1)
10.18 -- Employment Agreement with Mr. Hubert, as amended(1)
10.19 -- Office Lease (Nevada)(1)
10.20 -- 1998 Stock Option Plan, as amended and forms of Option
Agreements(1)
10.21 -- Monolith Promissory Notes(1)
10.22 -- Agreement with Garcia/LKS(1)
10.23 -- Employment Agreement with Mr. Taylor(1)
10.24 -- Form of Voting Trust Agreement(1)
10.25 -- Jeffrey S. Peterson Loan Agreement(1)
10.26 -- Agreement with Telemundo Network Group LLC(1)
10.27 -- Telemundo Warrant(1)
10.28 -- Agreement with Arizona Diamondbacks(1)
10.29 -- Agreement with Miami Herald Online(1)
10.30 -- Amended and Restated Employment Agreement with Mr.
Peterson(1)
10.31 -- Agreement with Fox Sports World Espanol Agreement(1)
10.32 -- Amendment of Employment Agreement with Mr. Galan(1)
10.33 -- Amended and Restated 1998 Stock Option Plan(1)
10.34 -- Employment Agreement with Mr. Trujillo(1)
16.01 -- Letter from BDO Seidman, LLP(1)
23.05 -- Consent of Kummer Kaempfer Bonner & Renshaw (Included in
Exhibits 5.01 and 5.02 above)(1)
23.06 -- Consent of Ehrhardt Keefe Steiner & Hottman, PC(1)
23.07 -- Consent of Ehrhardt Keefe Steiner & Hottman, PC(1)
23.08 -- Consent of Ehrhardt Keefe Stein & Hottman, PC
</TABLE>
- ---------------
(1) Previously filed.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
II-3
<PAGE> 65
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) That subject to the terms and conditions of Section 13(a) of the
Securities Exchange Act of 1934, it will file with the Securities and
Exchange Commission such supplementary and periodic information, documents
and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority
conferred in that section.
(c) That any post-effective amendment filed will comply with the
applicable forms, rules and regulations of the Commission in effect at the
time such post-effective amendment is filed.
(d) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(e) That:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(f) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(g) To provide to the underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II-4
<PAGE> 66
SIGNATURES
Pursuant to the requirements of the Securities Act, as amended, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Phoenix,
state of Arizona, on May 11, 1999.
quepasa.com, inc.
By: /s/ JEFFREY S. PETERSON
----------------------------------
Jeffrey S. Peterson
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Jeffrey S.
Peterson and Michael A. Hubert, and each of them, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, as amended, this
registration statement has been signed below by the following persons on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JEFFREY S. PETERSON Chief Executive Officer and May 12, 1999
- ----------------------------------------------------- Chairman of the board of
Jeffrey S. Peterson directors
President and Director May 12, 1999
- -----------------------------------------------------
Gary L. Trujillo
Chief Operating Officer and May 12, 1999
- ----------------------------------------------------- Director
Michael A. Hubert
Chief Financial Officer May 12, 1999
- ----------------------------------------------------- (Principal Accounting Officer)
Juan C. Galan
Director May 12, 1999
- -----------------------------------------------------
Lionel Sosa
</TABLE>
II-5
<PAGE> 67
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director May 12, 1999
- -----------------------------------------------------
Gregory J. Kolanek
Director May 12, 1999
- -----------------------------------------------------
Jerry J. Colangelo
Director May 12, 1999
- -----------------------------------------------------
Alan J. Sokol
Director May 12, 1999
- -----------------------------------------------------
Edwin C. Lynch
Director
- -----------------------------------------------------
Jose Maria Figueres-Olsen
/s/ JEFFREY S. PETERSON attorney-in-fact
- -----------------------------------------------------
Jeffrey S. Peterson
</TABLE>
II-6
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
----------- -----
<C> <S>
1.01 -- Form of Underwriting Agreement(1)
1.02 -- Form of Representative's Warrant(1)
3.01 -- Articles of Incorporation of the Registrant, as
amended(1)
3.02 -- Bylaws of the Registrant(1)
3.03 -- Amended and Restated Bylaws of the Registrant(1)
3.04 -- Amended and Restated Bylaws of the Registrant
5.01 -- Opinion of Kummer Kaempfer Bonner & Renshaw, regarding
legality of the common stock (includes consent)(1)
5.02 -- Opinion of Kummer Kaempfer Bonner & Renshaw, regarding
legality of the common stock and warrants (includes
consent)
10.01 -- Agreement with Inktomi Corporation(1)
10.02 -- Agreement with UPI(1)
10.03 -- Agreement with Reuters NewMedia, Inc., as amended(1)
10.04 -- Office Lease (Arizona)(1)
10.05 -- Employment Agreement with Mr. Peterson, as amended(1)
10.06 -- Employment Agreement with Mr. Silberman, as amended(1)
10.07 -- Employment Agreement with Mr. Galan(1)
10.08 -- Employment Agreement with Mr. Ross(1)
10.09 -- Employment Agreement with Mr. Offenbecher(1)
10.10 -- Employment Agreement with Mr. Roldan(1)
10.11 -- Employment Agreement with Mr. Garcia (Luis)(1)
10.12 -- Agreement with WeatherLabs, Inc.(1)
10.13 -- Agreement with Heftel Broadcasting Company(1)
10.14 -- Agreement with GTE Internetworking, Inc.(1)
10.15 -- Agreement with Exodus Communications, Inc.(1)
10.16 -- Agreement with Telemundo Network Group LLC(1)
10.17 -- Agreement with 24/7 Media, Inc.(1)
10.18 -- Employment Agreement with Mr. Hubert, as amended(1)
10.19 -- Office Lease (Nevada)(1)
10.20 -- 1998 Stock Option Plan, as amended and forms of Option
Agreements(1)
10.21 -- Monolith Promissory Notes(1)
10.22 -- Agreement with Garcia/LKS
10.23 -- Employment Agreement with Mr. Taylor(1)
10.24 -- Form of Voting Trust Agreement(1)
10.25 -- Jeffrey S. Peterson Loan Agreement(1)
10.26 -- Agreement with Telemundo Network Group LLC
10.27 -- Telemundo Warrant(1)
10.28 -- Agreement with Arizona Diamondbacks(1)
10.29 -- Agreement with Miami Herald Online(1)
10.30 -- Amended and Restated Employment Agreement with Mr.
Peterson(1)
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
----------- -----
<C> <S>
10.31 -- Agreement with Fox Sports World Espanol Agreement(1)
10.32 -- Amendment of Employment Agreement with Mr. Galan(1)
10.33 -- Amended and Restated 1998 Stock Option Plan(1)
10.34 -- Employment Agreement with Mr. Trujillo(1)
10.35 -- Employment Agreement with Mr. Trujillo
10.36 -- Consulting Agreement with Mr. Trujillo
10.37 -- Amended Employment Agreement with Mr. Taylor
16.01 -- Letter from BDO Seidman, LLP(1)
23.05 -- Consent of Kummer, Kaempfer, Bonner & Renshaw (Included
in Exhibits 5.01 and 5.02 above)(1)
23.06 -- Consent of Ehrhardt Keefe Steiner & Hottman, PC(1)
23.07 -- Consent of Ehrhardt Keefe Steiner & Hottman, PC(1)
23.08 -- Consent of Ehrhardt Keefe Steiner & Hottman, PC
</TABLE>
- ---------------
(1) Previously filed.
<PAGE> 1
Exhibit 5.02
KUMMER KAEMPFER BONNER & RENSHAW
ATTORNEYS AT LAW
[Letterhead]
May 11, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: quepasa.com,inc.
REGISTRATION STATEMENT ON FORM S-1
REGISTRATION NO. 333-74201
Ladies and Gentlemen:
As special Nevada counsel to quepasa.com, inc., a Nevada corporation
(the "Company"), we are rendering this opinion in connection with the
registration by the Company of warrants (the "Warrants") to purchase 400,000
shares of the Company's common stock, $.001 par value ("Common Stock"),
4,600,000 shares of Common Stock including 600,000 shares subject to an
over-allotment option and an additional 400,000 shares of Common Stock
underlying the Warrants (collectively, the "Shares") and the proposed issuance
and sale of the Warrants and Shares under the above-referenced registration
statement.
We have examined all instruments, documents and records which we deemed
relevant and necessary for the basis of our opinion hereinafter expressed. In
such examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
Based on such examination and subject to the completion of all
conditions to closing provided under the relevant underwriting agreement, and
subject to such other limitations hereinabove provided, we are of the opinion
that the Share are validly authorized shares of Common Stock, and when issued,
will be legally issued, fully paid and nonassessable, and that the Warrants are
validly authorized Warrants to purchase shares of Common Stock and when issued
will be legal, binding obligations of the Company, legally issued, fully paid
and nonassessable.
<PAGE> 2
Securities and Exchange Commission
May 11, 1999
Page 2
We hereby consent to the filing of the foregoing opinion as an Exhibit
to the above-referenced registration statement to be filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, and to the
use of our name in such registration statement and in the related Prospectus
under the heading "Legal Matters."
Sincerely,
/s/ Kummer Kaempfer Bonner & Renshaw
--------------------------------------
KUMMER KAEMPFER BONNER & RENSHAW
<PAGE> 1
[Spark KJS Letterhead]
Exhibit 10.22
TO: Victor Roldan
FROM: Luis Garcia
DATE: February 12, 1999
SUBJECT: Partnership
cc: Lionel Sosa, Kathy Sosa, Michele Ockenfais
Gracias por tu confianza en nosotros. We are very excited about our new
partnership most of all because we will be a part of building a modern day
success story. Thank you for having such confidence in us, we will not
disappoint you.
As we discussed, the following will recap the services we will provide and
attached is the first invoice that will continue on a month to month basis until
you are ready to commit to our long term contract:
- Consult on Brand positioning
- Assist in the development of a marketing plan
- Work in concert with the quepasa.com creative team on the development
of all communication messages and design of printed materials
- Develop and manage the production of TV, radio, direct mail and outdoor
advertising
- Provide guidance and supervision of qualitative and quantitative research
- Develop and implement sales promotions programs including special events,
i.e. Carnaval Miami
- Provide ongoing account management to ensure efficient and effective
management of all marketing projects, including budget management
- Provide Public Relations support on matters of corporate or marketing
initiatives
<PAGE> 2
The Agency will not mark-up production, media or other out-of-pocket expenses.
We will bill you at cost for all expenses including travel approved by you in
connection with services rendered on your behalf.
Our billing procedures will include a bill for the fee on the 1st of the month
payable by the 10th, media is billed and payable prior to the air date,
production is billed 50% upfront and 50% upon completion and all other expenses
will be billed as incurred. We will be responsible for compensating any third
party suppliers we bring in as part of our fee unless otherwise agreed.
We commit that it is our duty not to discuss any confidential information
entrusted to us by you without authorization.
This will serve as our letter of agreement until we are able to execute a
long-term contract. Thank again Victor for the opportunity to work with you
guys, this is going to be fun.
<PAGE> 3
INVOICE
Garcia Sosa, LTD
719 S. Flores
San Antonio, Tx. 78204
210-222-1591
Victor Roldan Number 1000
QUEPASA.COM Date 2/12/99
400 E. Vanburen #545 Job Number QPC99-100
Phoenix, AZ 85004 PO#
<PAGE> 4
JOB NAME: AGENCY FEE
AGENCY CONTACT: Michele Ockenfels
<TABLE>
<CAPTION>
Description AMOUNT
- -------------------------------------------------------------------------------
<S> <C>
Agency fee for the month of February, 1999 Pro-rated 2/10/99-2/28/99 $50,678
- -------------------------------------------------------------------------------
TOTAL: $50,678
</TABLE>
PAYMENT TERMS: On Receipt
28 days = 2,815.48/day
/s/ JUAN GULAN
<PAGE> 5
quepasa.com, inc.
One Arizona Center
400 E. Van Buren, Fourth Floor
Phoenix, AZ 85004
April 28, 1999
Luis Garcia
Garcia/LKS
719 South Flores
San Antonio, TX 78204
Dear Luis:
This letter confirms the agreement among quepasa.com, inc. (the "Company")
and Garcia/LKS ("Garcia") whereby the Company agrees to issue Garcia 50,000
shares of the Company's authorized but unissued common stock with a value of
$10.00 per share in exchange for a $500,000 credit from Garcia towards
advertising and marketing expenses to be applied on a pro rata basis over 24
months.
Sincerely,
quepasa.com, inc.
By: /s/ Michael A. Hubert
---------------------
Michael A. Hubert, Chief Operating Officer
<PAGE> 1
Exhibit 10.26
MEMORANDUM OF AGREEMENT
This Memorandum of Agreement (the "Agreement") is entered into
this 27th day of April, 1999 by and between Telemundo Network Group LLC, a
California limited liability company, ("Telemundo") and quepasa.com, inc., a
Nevada corporation ("quepasa"), with reference to the following:
WHEREAS, quepasa is a Spanish-language computer internet
portal and search engine with unique capabilities relating to the creation and
maintenance of web sites directed to the Hispanic population; and
WHEREAS, Telemundo is one of the largest U.S. Spanish-language
television networks and creators of content designed to appeal to the Hispanic
population, and Telemundo desires to create and maintain its own web site.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties agree as follows:
1. Upon execution of this Agreement, quepasa agrees to issue
Telemundo 600,000 of its authorized but unissued shares of Common Stock (the
"Shares") equal to 6.2 percent (6.2%) of its currently outstanding shares of
Common Stock. For purposes of this Agreement, the parties agree that the Shares
are being valued at $10 each. The certificate representing the Shares shall
contain a customary legend reflecting that the Shares have been acquired for
investment purposes and that transfer is restricted under the Securities Act of
1933, as amended, (the "Act").
2. Upon execution of this Agreement, quepasa agrees to issue
Telemundo a Common Stock Purchase Warrant (the "Warrant") to purchase 1,000,000
of its authorized but unissued shares of Common Stock (the "Warrant Shares")
equal to 10.3 percent (10.3%) of its currently outstanding shares of Common
Stock. The Warrant shall be exercisable, in whole or in part, beginning
immediately following the effectiveness of the proposed initial public offering
of quepasa Common Stock (the "IPO") and the Warrant shall expire two (2) years
from the date it first becomes exercisable. The Warrant exercise price shall be
<PAGE> 2
equal to 120 percent (120%) of the IPO offering price to the public. The Warrant
agreement and the certificate representing the Warrant Shares shall contain a
customary legend reflecting that the securities have been acquired for
investment purposes and that transfer is restricted under the Act. Beginning six
(6) months after the IPO, Telemundo shall be entitled to registration rights to
have the Warrant and the Warrant Shares registered for sale under the Act within
thirty (30) days after giving written notice to quepasa on two (2) separate
occasions, and shall be entitled to unlimited piggyback registration rights with
respect to the Warrant and the Warrant Shares. Upon issuance hereunder, the
Warrant shall contain customary proportionate antidilution protection with
respect to all issuances by quepasa of Common Stock or securities convertible
into Common Stock except with respect to (i) the IPO, including any warrants
issued to an underwriter, and (ii) issuances of options under quepasa's 1998
Stock Option Plan, as amended. In addition upon exercise of the Warrant,
Telemundo may elect to (a) pay the exercise price in cash, (b) pay the exercise
price by having Warrant Shares otherwise deliverable upon exercise of the
Warrant withheld based upon the trading price of quepasa Common Stock, or (c)
deliver to quepasa previously acquired shares of quepasa Common Stock having a
value (without regard to whether the transfer of such shares is restricted under
the Act) equal to the exercise price.
3. Upon the latter to occur of (a) completion of the IPO or (b)
expiration of the 26-week advertising campaign which will commence on or about
August 1999, Telemundo shall make available to quepasa a $5 million credit for
advertising on the Telemundo network. Such credit may be expended at the rate of
$1 million per year spread over a 5 year term. The placement of such advertising
shall be determined by Telemundo in the exercise of its good faith business
judgment and in consultation with quepasa, provided that no more than 60% shall
be placed on a run of the schedule basis and no less than 40% shall be placed on
a program specific or product integration/program content basis. The value of
all placed advertising or equivalent shall be determined at Telemundo's then
prevailing rates.
4. The parties acknowledge that quepasa has heretofore
purchased advertising in conjunction with a 26-week advertising campaign which
will expire on or about August 1999. Promptly upon expiration of that campaign,
quepasa will purchase an additional $1 million of advertising time spread per
industry
2
<PAGE> 3
custom over the following 26-week period at then prevailing rates on the
Telemundo network, payment on commencement of the campaign.
5. Telemundo has advised quepasa of its intent to develop a
web site and quepasa agrees to provide its resources to the extent required in
order to design, develop and build Telemundo's website according to
specifications to be provided by Telemundo. This undertaking to develop and
build such website and in order to complete same on or before July 1, 1999 is
additional consideration for the securities issued to Telemundo under Sections 1
and 2 above. The parties shall agree on milestone deliverables and schedules for
the development of the website, and quepasa shall exercise best efforts in order
to comply with same. quepasa shall maintain and provide technical support and
enhance and refresh the site from time to time as requested by Telemundo for a
term of five (5) years commencing on the date of launch of the website.
Any materials not provided by Telemundo and utilized by
quepasa shall be owned by quepasa and utilized for the benefit of Telemundo,
subject to a perpetual license for use to Telemundo and free access thereto;
provided, however, any materials which are created uniquely for Telemundo shall
be owned by Telemundo. Telemundo will have the right to approve any
sub-contractors to be engaged by quepasa in connection with the design and
development of the Telemundo website.
6. The parties agree that they shall each link and cross
promote the other's website on their own websites, and each shall be considered
an anchor tenant on the other's website. For purposes hereof, an anchor tenant
shall mean that each party shall receive banner advertising on the home page of
the other party's website. Each party shall be exclusive in its class for a
period of six (6) months from the date of the IPO, i.e., quepasa shall not
accept any banner advertising from any other Spanish-language television
broadcaster and Telemundo shall not accept banner advertising from any other
Spanish language search engine, provided, in the event of a breach of this
exclusivity by either party, the other party's sole remedy shall be to elect to
terminate the exclusivity granted pursuant to this sentence. Banners for the
other party are to appear on each home page and, in addition, ads and pointers
will appear across other related website areas; premier placement shall appear
in each party's internet print ad campaigns, if any, and front screen pop-up
advertising for all advertisers will appear
3
<PAGE> 4
immediately upon logging on to the respective parties home page.
7. Telemundo will provide to quepasa and quepasa shall include
in its website certain content determined by Telemundo, which may include
programming information, news and sports. Responsibility for the incorporation
of the content on the website shall be with quepasa. Such content will, however,
be the property of Telemundo, and to the extent that same is provided to
quepasa, it will be provided pursuant to a gratis license, the details of which
shall be specified in the more detailed agreements contemplated hereby.
8. Immediately upon execution of this Agreement, quepasa
agrees to elect Alan Sokol as a member of its Board of Directors and in that
regard agrees to maintain director and officer liability insurance in amounts
reasonably satisfactory to Telemundo.
9. In the event the IPO is not completed within sixty (60)
days of the date of this Agreement at an initial offering price (based upon the
current capital structure of quepasa) of at least $10.00 per share, Telemundo
shall have an option during the thirty (30) days following the sixty (60) day
period to rescind this Agreement and return the Shares and the Warrant to
quepasa and thereafter, neither party to this Agreement shall have any rights or
obligations hereunder, except that quepasa's obligations under Sections 4 and 11
shall remain in full force and effect, notwithstanding the rescission.
10. quepasa agrees that prior to any filings with the
Securities and Exchange Commission (the "SEC") relating to the IPO, Telemundo
and its attorneys shall be entitled to review all disclosures relating to
Telemundo and this Agreement, and quepasa agrees to reflect any modifications to
such disclosures reasonably requested by Telemundo. quepasa agrees, however,
that Telemundo shall have no responsibility for any disclosures made in any of
said filings.
11. quepasa agrees to indemnify and hold harmless Telemundo,
its officers,directors, agents and attorneys and any persons controlling
Telemundo within the meaning of Section 15 of the Act against any and all
losses,claims, damages or liabilities, joint or several, to which they or any of
them may become subject under the Act or any other statute or at common law and
to reimburse persons indemnified as above for any legal or other expenses
(including the cost of
4
<PAGE> 5
any investigation and preparation) incurred by them in connection with any
litigation, whether or not resulting in any liability, but only insofar as such
losses, claims, damages, liabilities and litigation arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereto with respect to
the IPO or any application or other document filed by quepasa or its
underwriters in order to qualify share of Common Stock under the securities laws
of the states where filings were made, if any, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, all as of the date when
the Registration Statement or such amendment, as the case may be, becomes
effective, or any untrue statement or alleged untrue statement of a material
fact contained in the Prospectus (as amended or supplemented if quepasa shall
have filed with the Securities and Exchange Commission any amendments thereof or
supplements thereto), or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
12. Upon a default, as defined below, by either party to this
Agreement, without prejudice to its rights and remedies at law and in equity,
the non-defaulting party shall have no further obligations or liability under
this Agreement. A default is defined as (i) a breach of this Agreement by a
party which is not remedied by the defaulting party within ten (10) business
days after receiving written notice from the non-defaulting party setting forth
the specific default or (ii) the filing of a voluntary petition in bankruptcy,
the consent to the filing of a bankruptcy petition, the filing of a petition by
or against a party under the Federal Bankruptcy Code, any assignment for the
benefit of creditors, application for, or consent to, the appointment of any
receiver, trustee or custodian or similar officer or the entry into an agreement
of composition with its creditors.
13. All press releases, trade releases or other public
announcements with respect to the transactions contemplated herein shall be
jointly prepared by quepasa and Telemundo. Other than with respect to press
releases announcing the entering into of this Agreement and in filings with the
SEC, each party agrees that it will not, and its employees, agents or
representatives will not, discuss or otherwise disclose the terms of this
Agreement (including its existence) or any arrangement or other understanding
with any other party other than representatives
5
<PAGE> 6
of the other party required to know such information in connection with the
transactions contemplated herein, except to the extent such disclosure is
required by law; provided, however, that prior to disclosing any confidential
information as may be required by law, the party producing or directing the
production of such information will use all reasonable efforts to provide the
other party hereto with notice of such disclosure and a reasonable opportunity
to limit or contest such disclosure.
14. Each party hereto shall pay its own expenses in connection
with the transaction contemplated herein.
15. Upon execution of this Agreement, the parties agree to use
their best efforts to prepare and enter into more detailed agreements in
customary form reflecting the contents of this Memorandum of Agreement. In the
event that the parties are unable to agree on any terms or conditions not
specifically set forth herein, the parties agree to negotiate in good faith to
seek resolution consistent with the customs and practices of the industry.
Failure to reach agreement shall not invalidate this Agreement, and either party
may seek resolution by submitting all open issues to arbitration before the
American Arbitration Association in Los Angeles, California. Costs of such
arbitration are to be shared equally between the parties.
16. Notices required or permitted to be given hereunder shall
be sufficient if in writing and delivered or deposited in the mail, postage
prepaid, certified mail, return receipt requested, addressed to quepasa or
Telemundo, at their respective principal places of business. All notices
hereunder shall be effective: (a) five (5) days after deposit in the mail; or
(b) upon delivery, if delivered in person, by commercial express service or by
facsimile transmission.
17. This Agreement contains the entire agreement and
understanding by and between the parties hereto with respect to the subject
matter of this Agreement, and no representations, promises, agreements or
understandings, written or oral, not contained herein shall be of any force or
effect. No change or modification of this Agreement shall be valid or binding
unless it is in writing and signed by the parties intended to be bound.
18. In the event any dispute or controversy arising out of
this
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<PAGE> 7
Agreement (other than as covered under Section 15 above) cannot be settled
by the parties hereto, such controversy or dispute, at the election of either
party hereto, by written notice to the other, shall be submitted to arbitration
before the American Arbitration Association in Los Angeles, California, and for
this purpose the parties each hereby expressly consent to such arbitration and
such place. The costs of the arbitration and the arbitrators, including
attorneys' fees of the parties, shall be borne by the non-prevailing party, as
determined by the arbitrators.
19. This Agreement shall be governed in all respects whether
as to validity, construction, capacity, performance or otherwise by the laws of
the State of California applicable to agreements to be entered into and
performed therein.
Telemundo Network Group LLC
By: /s/ Cary Meadow
----------------------------
SVP
quepasa.com, inc.
By: /s/ Jeffrey Peterson
-----------------------------
CEO
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<PAGE> 1
Exhibit 10.35
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT entered into as of the 26th day of April, 1999, by
and among quepasa.com, INC., a Nevada corporation (the "Company") and GARY L.
TRUJILLO ("Trujillo").
1. EMPLOYMENT. The company hereby employs Trujillo and Trujillo hereby
accepts employment with the Company as its President upon the terms and
conditions hereinafter set forth. Trujillo's employment shall not be deemed an
"at will" employment.
2. DUTIES. Trujillo will serve the Company as its President and will
faithfully and diligently perform the services and functions as mutually agreed
to in writing, relating to such office and position or otherwise reasonably
incident to such office and position, provided that all such services and
functions will be reasonable and within Trujillo's areas of expertise.
Trujillo's specific duties shall include those related to (i) coordination of
the company's operations and planning, (ii) development of the Company's
strategic relationships and (iii) such other duties as the Company may
reasonably direct. Trujillo will, during the term of this Agreement (or any
extension thereof), devote his time, attention, skills, and best efforts as a
full-time employee to the promotion of the business of the Company. For purposes
of this agreement, full-time is defined as an average of forty hours per week.
3. Term. This Agreement and Trujillo's employment shall commence on
April 26, 1999 (the "Effective Date"), and shall continue for a term of four
years ("Initial Term") unless terminated earlier in accordance with this
Agreement. The term of this Agreement may be extended by agreement among the
Company and Trujillo.
4. COMPENSATION. As compensation for the services rendered to the
Company under this Agreement commencing on the Effective Date, Trujillo will be
paid a base salary of $125,000 per year payable in accordance with the then
current payroll policies of the Company or as otherwise agreed to by the parties
(the "Salary"). At any time and from time to time, the Salary may be increased
or decreased if so determined by the Board of Directors of the Company (the
"Board") after a review of Trujillo's performance of his duties hereunder.
Trujillo will also receive as compensation under this Agreement 50,000 shares
(the "Shares") of the Company's $.001 par value common stock ("Common Stock") to
be transferred directly from Jeffrey S. Peterson, Company's Chief Executive
Officer. In the event Trujillo's employment with the Company is terminated on or
before April 26, 2000 for "Cause" (as hereinafter defined) or by voluntary
termination of this Agreement by Trujillo, then the 50,000 Shares shall be sold
by Trujillo to the Company at the greater of $10.00 per share or fair market
value at the time of termination.
5. TERMINATION. This Agreement will terminate upon the occurrence of
any of the following events:
a. The death of Trujillo;
b. The "Total Disability" (as hereinafter defined) of Trujillo;
<PAGE> 2
c. Written notice to Trujillo from the Company of termination for
"Cause" (as hereinafter defined);
d. The voluntary termination of this Agreement by Trujillo upon
thirty (30) days prior written notice; or
e. The later of four (4) years from the Effective Date of this
Agreement or the date to which this Agreement is extended in
accordance with Section 3 above.
"Total Disability" means physical or mental disability, or both,
determined to be (or reasonably expected to be, based upon then available
medical information) of not less than twelve (12) months duration or more where
Trujillo is unable to reasonably perform the duties he was performing for the
Company immediately prior to such disability. The determination shall rest upon
the opinion of the physician regularly attending Trujillo. If the Company
disagrees with said physician's opinion, the Company may engage at their own
expense a physician to examine Trujillo, and Trujillo hereby consents to such
examination and to waive, if applicable, any privilege between the physician and
Trujillo that may arise as a result of said examination. If after conferring,
the two physicians cannot concur on a final opinion, they shall choose a third
consulting physician whose opinion shall control. The expense of the third
consulting physician shall be borne equally by Trujillo and the Company.
"Cause" means (i) Trujillo has failed to substantially perform his
duties as reasonably determined by the Board, (ii) Trujillo has failed to comply
with the reasonable directives and policies of the Board that is not cured
within thirty (30) days after counseling by the Company, or (iii) Trujillo
breaches his fiduciary duty to the Company or commits any dishonest, unethical,
fraudulent, or felonious act in respect to Trujillo's duties to the Company.
6. STOCK OPTIONS. Trujillo shall be granted "incentive stock options"
meeting the requirements of Section 422A of the Internal Revenue Code to
purchase up to 350,000 shares of Common Stock (the "Options") Pursuant to the
Company's Amended and Restated 1998 Stock Option Plan (the "Plan") At $10.00 per
share, all of which Options shall vest and be exercisable on the Effective Date.
Notwithstanding anything to the contrary contained herein, the Options shall be
subject to the terms and conditions of the Plan.
Trujillo acknowledges that the Company is in the process of completing
an initial public offering of its securities (an "IPO") and that as part of the
IPO Trujillo may be required to lock up the Shares and the Common Stock
underlying the Options for a period not to exceed six (6) months from the
effective date of the IPO. Accordingly, Trujillo agrees to execute any agreement
necessary to lock up the Shares and the Common Stock underlying the Options.
7. LOAN. The Company will loan Trujillo $100,000 (the "Loan") on the
Effective Date. The Loan shall be evidenced by a promissory note (the "Note")
with interest payable at 10% per annum and with all principal and accrued but
unpaid interest due one year from the Effective Date, if not sooner paid. The
Company agrees that if
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<PAGE> 3
Trujillo has been employed by the Company for six (6) continuous months from the
Effective Date, 50% of the principal balance and accrued but unpaid interest
shall be forgiven by Company, and if Trujillo has been employed by the Company
for twelve (12) continuous months from the Effective Date, the remaining 50% of
the principal balance and accrued but unpaid interest shall be forgiven by the
Company, and the Note evidence the Loan shall be canceled and deemed paid in
full.
8. BENEFITS. Trujillo shall be entitled to receive any benefits,
including health insurance, life insurance, vacation time, etc., which are
offered to other Company executives.
9. EXPENSES. Trujillo is authorized to incur reasonable expenses as he
deems necessary and appropriate for promoting the business of the company,
including expenses for entertainment, travel, and similar items. The company
shall reimburse Trujillo for all such expenses on the presentation by Trujillo
of itemized accounts of such expenditures in accordance with the guidelines set
forth by the Company and the Internal Revenue Service.
10. NON-COMPETITION AND CONFIDENTIALITY.
a. Non-Competition. The company and Trujillo acknowledge and
agree that Trujillo's services are of a special and unusual character which have
a unique value to the Company, the loss of which cannot be adequately
compensated by damages in an action at law and if used in competition with the
Company, could cause serious harm to the Company. Accordingly, Trujillo agrees
that for a period of two years after the termination of this employment by the
Company, irrespective of the reason for such termination, Trujillo will not (1)
enter into any agreement with or directly or indirectly solicit or attempt to
solicit any employee or other representatives of the Company, with the exception
of Michele Vahsen, for the purpose of causing them to leave the Company to take
employment with any other business entity, or (2) compete, directly or
indirectly, with the Company in any way and that Trujillo will not act as an
officer, director, employee, consultant, lender or agent of any entity engaged
in any business of the same nature as, or in competition with, the business in
which the Company is now engaged at the effective date of this Agreement.
b. Confidentiality.
1. Trujillo acknowledges that in Trujillo's employment
hereunder, Trujillo will be making use of, acquiring and adding to the Company's
trade secrets and its confidential and proprietary information of a special and
unique nature and value relating to such matters as, but not limited to, the
Company's business operations, internal structure, financial affairs, programs,
software systems, procedures, manuals, confidential reports, lists of clients
and prospective clients and sales and marketing methods, as well as the amount,
nature and type of services, equipment and methods used and preferred by the
Company's clients and the fees paid by such clients, all of which shall be
deemed to be confidential information. Trujillo acknowledges that such
confidential information has been and will continue to be of central importance
to the business of the Company and that disclosure of it to or its use by others
could cause substantial loss to the Company. In consideration of employment by
the Company, Trujillo agrees that during the Initial Term
- 3 -
<PAGE> 4
and any renewal term of this Agreement and upon and after leaving the employ of
the company for any reason whatsoever, Trujillo shall not, for any purpose
whatsoever, directly or indirectly, divulge or disclose to any person or entity
any of such confidential information which was obtained by Trujillo as a result
of Trujillo's employment with the Company or any trade secrets of the Company,
but shall hold all of the same confidential and inviolate.
2. All contracts, agreements, financial books, records, instruments,
and documents; client lists; memoranda; data; reports; programs; software,
tapes; Rolodexes; telephone and address books; letters; research; card decks;
listings; programming; and any other instruments, records or documents relating
or pertaining to clients serviced by the Company or Trujillo, the services
rendered by Trujillo, or the business of the Company (collectively, the
"Records") shall at all times be and remain the property of the Company. Upon
termination of this Agreement and Trujillo's employment under this Agreement for
any reason whatsoever, Trujillo shall return to the Company all Records (whether
furnished by the Company or prepared by Trujillo), and Trujillo shall neither
make nor retain any copies of any of such Records after such termination.
Company acknowledges and agrees that Trujillo has in his possession and
extensive contact list and that this list will remain Trujillo's personal
property and will not become property of the Company.
3. All inventions and other creations, whether or not patentable or
copyrightable, and all ideas, reports, and other creative works, including,
without limitation, computer programs, manuals and related materials, made or
conceived in whole or in part by Trujillo while employed by the Company and
within one year thereafter, which relate in any manner whatsoever to the
business, existing or proposed, of the Company or any other business or research
or development effort in which the Company or any of its subsidiaries or
affiliates engages during Trujillo's employment by the Company will be
disclosed promptly by Trujillo to the Company and shall be the sole and
exclusive property of the company. All copyrightable works created by Trujillo
and covered by this Section 10b(3) shall be deemed to be works for hire.
Trujillo shall cooperate with the Company in patenting or copyrighting all such
inventions, ideas, report, and other creative works, shall execute, acknowledge,
seal, and deliver all documents tendered by the Company to evidence its
ownership thereof through the world, and shall cooperate with the Company
obtaining, defending, and enforcing its rights therein.
c. Enforceability. In the event of the breach of the covenants
contained in this Section 10, it is understood that damages will be difficult to
ascertain and the Company may petition a court of law or equity for injunctive
relief in addition to any other relief which the Company may have under the law,
this Agreement or any other agreement executed in connection herewith. In
connection with the bringing of any legal or equitable action for the
enforcement of this Agreement, the Company shall be entitled to recover, whether
the Company seeks equitable relief, and regardless of what relief is afforded,
such reasonable attorneys' fees and expenses as the Company may incur in
prosecution of the Company's claim for breach hereof.
It is hereby agreed that the provisions of this Section 10 are separate
and independent from the other provisions of this Agreement, that these
provisions are
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<PAGE> 5
specifically enforceable by the Company notwithstanding any claim by Trujillo
that the Company has violated or breached this Agreement or any claim that
Trujillo is entitled to any offset or compensation.
To induce the Company to enter into this Agreement, Trujillo represents
and warrants to the Company that Section 10 of this Agreement is enforceable by
the company in accordance with its terms.
11. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
subsequent breach by any party.
12. NOTICES. Any notices, consents, demands, request, approvals and
other communications to be given under this Agreement by either party to the
other will be deemed to have been duly given if given in writing and personally
delivered, faxed, or if sent by mail, registered or certified, postage prepaid
with return receipt requested, as follows:
If to the Company: quepasa.com, inc.
One Arizona Center
400 E. Van Buren, Suite 400
Phoenix, AZ 85004
If to Trujillo: Gary L. Trujillo
One Arizona Center
400 E. Van Buren, Suite 400
Phoenix, AZ 85004
Notices delivered personally will be deemed communicated as of actual
receipt, notices by fax shall be deemed delivered when such notices are faxed to
recipient's fax number and notices by mail shall be deemed delivered when
mailed.
13. ENTIRE AGREEMENT. This Agreement and the agreements contemplated
hereby constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understanding, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
14. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
this Agreement, such provision will be fully severable and this Agreement will
be construed and enforced as if such illegal, invalid, or unenforceable
provision never comprised a part hereof; and the remaining provisions hereof
will remain in full force and effect and will not be affected by the illegal,
invalid, or unenforceable provision or by its severance herefrom. Furthermore,
in lieu of such illegal, invalid or unenforceable provision, there will be added
automatically, as part of this Agreement, a provision as similar in its terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
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<PAGE> 6
15. GOVERNING LAW. To the extent permitted by applicable law, this
Agreement and the rights and obligations of the parties will be governed by and
construed and enforced exclusively in accordance with the substantive laws (but
not the rules governing conflicts of laws) of the State of Arizona, and the
State of Arizona shall have exclusive jurisdiction regarding any legal actions
relating to this Agreement.
16. CAPTIONS. The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms of
provisions hereof.
17. GENDER AND NUMBER. When the context requires, the gender of all
words used herein will include the masculine, feminine and neuter, and the
number of all words will include the singular and plural.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument.
19. ACKNOWLEDGEMENT OF VENTURE CAPITAL ACTIVITIES AND OUTSIDE
INVESTMENT INTERESTS. Company acknowledges Trujillo has venture capital
activities and outside investment interests and will continue to have the right
to invest in outside ventures that are not in direct competition with the
Company. Company also acknowledges that Trujillo is a major investor and/or on
the board of directors of the following companies: Blue Cross & Blue Shield of
Arizona, Wells Fargo & Co. AZ (Advisory Board), Corella Electric Wire & Cable
Inc., Corella-Trujillo Group, Southwest Harvard Group Companies, JOSE LLC,
SERI Construction LLC, SERI/HighPoint LLC, World Wide Wireless LLC, and Pennoyer
Asset Management. Company also acknowledges that the following investment
opportunities and outside activities are in process and will not detract from
Trujillo's abilities to perform his duties as defined in Section 2:
--Hispanic direct mail media advertising
--Hispanic recording studios
--Hispanic telephone communication company
--Hispanic Parking Company of America
--State of Arizona School Facilities Board
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
THE COMPANY:
quepasa.com, inc., a Nevada
corporation
Date: 4/26/99 by: /s/ Jeffrey Peterson
Jeffrey Peterson
Chief Executive Officer
TRUJILLO:
Date: 4/26/99
/s/ Gary L. Trujillo
Gary L. Trujillo
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<PAGE> 1
Exhibit 10.36
Consulting Agreement
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is entered into as of the 2nd day of April, 1999,
("Effective Date"), to memorialize the oral agreement between quepasa!com, inc.,
a Nevada corporation (the "Company"), and Southwest Harvard Group Venture
Capital, L.L.C., an Arizona limited liability company (the "Consultant").
RECITALS
A. Consultant is a limited liability company involved in the business
of venture capital, and providing general management and consulting services
including but not limited to financial analysis including equity infusion
strategies, i.e. private placements and initial public offerings (IPO's), and
debt structuring (long and short-term), Board of Directors and Executive
Management evaluation, strategic planning, organizational analysis, financial
analysis, and business systems evaluation.
B. Company engaged the services of Consultant, and Consultant rendered
services to Company, on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, for the reasons set forth above and in consideration of the
mutual promises and agreements hereinafter set forth, Company and Consultant
agree as follows:
1. Engagement of Services. Company retained the services of Consultant,
and Consultant rendered services to Company.
2. Term. This Agreement was effective as of the date above, and
terminated on a date mutually agreed by both parties.
3. Nature of Services Performed. During the term of this Agreement,
Consultant served Company as a Consultant with a jointly-defined scope of work
and performed all or part of the services as defined within this paragraph.
Services included the services of all consultants and agents as deemed
appropriate and necessary to successfully complete the services. It is
understood and agreed that the Consultant's services included advice and
recommendations, but all decisions in connection with the implementation of
such advice and recommendations has been the sole responsibility of, and made
by, the Company and its Board of Directors.
4. Compensation. As full compensation for services performed, Company
agrees to pay Consultant exactly 50,000 shares of par value (.001 per share)
common stock. These shares will be transferred directly from Company to
Southwest Harvard Group Venture Capital, LLC. Transfer date is defined as the
date immediately following the Effective Date of this Agreement.
5. Relationship Between Parties. The services of Consultant were
retained by Company only for the purposes and to the extent set forth in this
Agreement. Consultant's relationship to
1
<PAGE> 2
Consulting Agreement
Company, during the term of this Agreement, was that of an independent
contractor, and Consultant was free to dispose of his time, energy, and skill as
he deemed appropriate unless otherwise restricted by any other agreement between
Consultant and Company. Neither Consultant nor any employee or agent of
Consultant was considered, as a result of this Agreement, as having an agency or
employee status. Furthermore, Consultant retained the sole and absolute
discretion and judgment in the manner and means of rendering the consulting
services detailed by this Agreement.
6. Taxes, Workmen's Compensation, Fringe Benefits, Etc. Consultant will
pay all applicable federal and state income taxes and self-employment taxes with
respect to any amounts received by it under the terms of this Agreement. Unless
otherwise required by applicable law, Company shall not withhold from the
amounts paid to Consultant any amounts for federal or state income taxes or
social security taxes. Company did not provide any fringe benefits for
Consultant, including, but not limited to, vacation or sick pay, bonuses, life
insurance, health insurance or retirement benefits. Company did not cover
Consultant under any state unemployment compensation or workmen's compensation
laws.
7. Non Disclosure and Confidentiality. Consultant agrees not to
disclose, and to keep fully and strictly confidential, all trade secrets,
proprietary information, confidential information, and other business sensitive
information relating to the Company. Confidential information may take the form
of but is not necessarily limited to financial data, sales figures, projections,
estimates, customer lists, contractual data, teaming agreements, strategic
alliance agreements, tax records, personnel history, accounting procedures,
methods of business, and any other information not made public by the Company.
8. Limitation on Warranties. This is a services Agreement. The
Consultant warrants that it performed services hereunder in good faith. The
Consultant disclaims all other warranties, either express or implied, including,
without limitation, warranties or merchantability and fitness for a particular
purpose.
9. Limitation on Damages. Company agrees that Consultant and its
personnel shall not be liable to Company for any claims, liabilities or expenses
relating to this Agreement for an aggregate amount in excess of the fees paid by
Consultant pursuant to this Agreement, except to the extent finally judicially
determined to have resulted from the bad faith or intentional misconduct of
Consultant. In no event shall Consultant or its personnel be liable for
consequential, special, indirect, incidental, punitive or exemplary loss, damage
or expense relating to this Agreement. In furtherance and not in limitation of
the foregoing, Company will not be liable in respect of any decisions made by
Consultant as a result of the performance by Consultant of its services
hereunder. The foregoing provisions shall apply to the fullest extent of the
law, whether in contract, statute, tort (such as negligence) or otherwise.
10. Force Majeure. Consultant shall not be liable for any delays
resulting from circumstances or causes beyond its reasonable control, including,
without limitation, fire or other casualty, act of God, strike or labor dispute,
war or other violence, or any law, order or requirement of any governmental
agency or authority.
2
<PAGE> 3
Consulting Agreement
12 Notices. All notices, demands and other communications hereunder
shall be deemed have been duly give if delivered by hand or mailed, certified or
registered mail, with postage prepared, as follows:
To: quepasa!com
One Arizona Center
400 E. Van Buren, 4th Floor
Phoenix, AZ 85004
Attention: Mr. Jeffrey S. Peterson
To: Southwest Harvard Group Venture Capital L.L.C.
3200 N. Central Avenue, Suite 2550
Phoenix, Arizona 85012
Attention: Mr. Gary L. Trujillo
13. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors and assigns.
14. Limitation of Actions. No action, regardless of form, arising under
or relating to this Agreement, may be brought by either party more than one year
after the cause of action has accrued, except that an action for non-payment may
be brought by a party not later than one year following the date of the last
payment due to such party hereunder.
3
<PAGE> 4
Consulting Agreement
15. Arbitration. Any disputes associated with the performance of this
Agreement shall be subject to binding arbitration between and among both
parties. Therefore, the Company and Consultant agree to submit to binding
arbitration any and all claims, disputes and controversies between or among
them, whether in tort, contract or otherwise (and their respective employees,
officers, directors, attorneys and other agents) arising out of or relating to
in any way this Agreement. Such arbitration shall proceed in Phoenix, Arizona,
shall be governed by the Federal Arbitration Act (Title 9 of the United States
Code), and shall be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"). The arbitrator shall give
effect to statutes of limitation in determining any claim. Any controversy
concerning whether an issue is arbitable shall be determined by the arbitrator.
16. Attorneys' Fees. The prevailing party in any arbitration or other
proceedings arising out of this Agreement shall be reimbursed by the other party
for all costs and expenses incurred in such proceeding, including reasonable
attorneys' fees.
17. Severability. The invalidity of any portion of this Agreement shall
not affect the validity of the remaining portions which shall remain in full
force and effect.
18. Governing Law. This Agreement may not be amended or modified except
in writing signed by both the parties. This Agreement shall be construed under
and in accordance with the laws of the State of Arizona. Venue shall be in
Maricopa County, Arizona.
19. Amendments. This Agreement may not be amended or modified except in
writing signed by both the parties.
20. Entire Agreement. This Agreement contains the entire understanding
of the parties and supercedes any prior understandings and agreements, written
or oral, respecting the subjects discussed herein.
21. Time of the Essence. This is of the essence of this Agreement.
22. Counterparts. This Agreement may be executed in counterparts, each
of which, when executed, shall be deemed an original.
4
<PAGE> 5
Consulting Agreement
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
as of the date first written above.
COMPANY
QUEPASA!COM
By: /s/ Jeffrey S. Peterson
------------------------
Jeffrey S. Peterson
Its: Chairman and CEO
CONSULTANT
SOUTHWEST HARVARD GROUP VENTURE CAPITAL L.L.C.
By: /s/ Gary L. Trujillo
--------------------------
Gary L. Trujillo
Its: President
<PAGE> 1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT entered into as of the ___
day of May, 1999, by and among QUEPASA.COM, INC., a Nevada corporation (the
"Company") and ROBERT J.
TAYLOR ("Taylor").
RECITALS
A. The Company and Taylor entered into an Employment Agreement dated
February 23, 1999 (the "Employment Agreement") whereby the Company agreed to
employ Taylor and Taylor accepted employment with the Company.
B. The Company is contemplating an initial public offering of its
common stock and the Company and Taylor desire to amend and restate the
Employment Agreement in connection therewith.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree that the Employment Agreement is hereby amended and restated as follows:
1. EMPLOYMENT. The Company hereby employs Taylor and Taylor hereby
accepts employment with the Company as its Vice President of Strategy and
Operations upon the terms and conditions hereinafter set forth. Taylor's
employment shall not be deemed an "at will" employment.
2. DUTIES. Taylor will serve the Company as its Vice President of
Strategy and Operations and will faithfully and diligently perform the services
and functions relating to such office and position or otherwise reasonably
incident to such office and position, provided that all such services and
functions will be reasonable and within Taylor's areas of expertise. Taylor's
specific duties shall include those related to (i) organizational development
and growth management, (ii) strategic operations planning and execution, (iii)
strategy review and execution and (iv) such other duties as the Company may
reasonably direct. Taylor will, during the term of this Agreement (or any
extension thereof), devote his time, attention, skills and best efforts as a
full-time employee to the promotion of the business of the Company.
3. TERM. This Agreement and Taylor's employment shall commence on the
8th day of March, 1999 (the "Effective Date"), and shall continue for a term of
three years (the "Initial Term") unless terminated earlier in accordance with
this Agreement. The term of this Agreement may be extended by mutual agreement
among the Company and Taylor.
4. COMPENSATION. As compensation for the services rendered to the
Company under this Agreement commencing on the Effective Date, Taylor will be
paid a base salary of $80,000 per year, payable in accordance with the then
current payroll policies of the Company or as otherwise agreed to by the parties
(the "Salary"). At any time and from time to time, the Salary may be increased
if so determined by the Board of Directors of the Company (the "Board") after a
review of Taylor's performance of his duties hereunder.
<PAGE> 2
5. TERMINATION. This Agreement shall terminate upon the occurrence of
any of the following events:
a. The death of Taylor;
b. The "Total Disability" (as hereinafter defined) of
Taylor;
c. Written notice to Taylor from the Company of
termination for "Cause" (as hereinafter defined);
d. The voluntary termination of this Agreement by Taylor
upon 30 days prior written notice; or
e. The later of three years from the Effective Date of
this Agreement or the date to which this Agreement is
extended in accordance with Section 3 above.
"Total Disability" means physical or mental disability, or both,
determined to be (or reasonably expected to be, based upon then available
medical information) of not less than twelve months duration or more where
Taylor is unable to reasonably perform the duties he was performing for the
Company immediately prior to such disability. The determination shall rest upon
the opinion of the physician regularly attending Taylor. If the Company
disagrees with said physician's opinion, the Company may engage at their own
expense a physician to examine the Taylor, and Taylor hereby consents to such
examination and to waive, if applicable any privilege between the physician and
Taylor that may arise as a result of said examination. If after conferring, the
two physicians cannot concur on a final opinion, they shall choose a third
consulting physician whose opinion shall control. The expense of the third
consulting physician shall be borne equally by the Taylor and the Company.
"Cause" means (i) Taylor has failed to substantially perform his duties
as reasonably determined by the Board, (ii) Taylor engages in poor performance
that is not cured within thirty days after counseling by the Company, (iii)
Taylor has failed to comply with the reasonable directives and policies of the
Board, or (iv) Taylor breaches his fiduciary duty to the Company or commits any
dishonest, unethical, fraudulent, or felonious act in respect to Taylor's duties
to the Company.
6. STOCK OPTIONS. Subject to the approval of the Board, Taylor shall be
granted options to purchase 100,000 shares of the Company's common stock (the
"Options") pursuant to the Company's Amended and Restated 1998 Stock Option Plan
(the "Plan"), 60,000 of which Options shall be exercisable at $8.00 per share
(the "$8.00 Options") and 40,000 of which Options shall be exercisable at $10.00
per share (the "$10.00 Options"). The Options shall vest according to the
following schedule:
a. 50,000 of the $8.00 Options shall vest and be
exercisable on the Effective Date.
b. The remaining 10,000 of the $8.00 Options and all of
the $10.00 Options shall vest and be exercisable in
accordance with the Plan.
In the event Taylor's employment is terminated for any reason other for "Cause,"
then all unexercised Options shall vest immediately upon such termination and
shall be exercisable for a period of ten years from
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<PAGE> 3
March 8, 1999. Notwithstanding anything to the contrary contained herein, the
Options shall be subject to the terms and conditions of the Plan.
Taylor acknowledges that the Company is in the process of completing an
initial public offering of its securities (the "IPO") and that as part of the
IPO Taylor may be required to lock up the shares of common stock underlying the
Options for a period not to exceed six months from the effective date of the
IPO. Accordingly, Taylor agrees to execute any agreement necessary to lock up
the shares of common stock underlying the Options.
7. LOAN. The Company will loan to Taylor $20,000 (the "Loan"), to be
disbursed on the Effective Date. The Loan shall be evidenced by a promissory
note (the "Note") with interest payable at 10% per annum and with all principal
and accrued but unpaid interest due one year from the Effective Date, if not
sooner paid. The Company agrees that if Taylor has been employed by the Company
for six continuous months from the Effective Date, 50% of the principal balance
and accrued but unpaid interest shall be forgiven and, if Taylor has been
employed by the Company for twelve continuous months, 100% of the remaining
principal and accrued but unpaid interest shall be forgiven by the Company and
the Note evidencing the Loan shall be canceled and deemed paid in full.
8. BENEFITS. Taylor shall be entitled to participate in any Company
benefits as they become available, if at all, and which are normal and customary
Company benefits for executives of the Company. In addition, Taylor shall be
entitled to the following benefits:
(a) full coverage health insurance to be paid by the
Company with a maximum premium not to exceed $350 per
month;
(b) at reasonable times and upon prior Company approval,
Taylor shall be entitled to three weeks paid vacation
per annum for each year employed during the term of
this Agreement;
(c) the Company will provide Taylor with a moving allowance
of $15,000 to cover moving and related expenses in
conjunction with relocation from his current residence
to Phoenix, Arizona;
(d) the Company will pay the temporary housing incurred by
Taylor for a term not to exceed 90 days from the
Effective Date; and
(e) the Company will reimburse Taylor for airfare and
ground transportation costs incurred by either Taylor
or his spouse (if Taylor remains in Phoenix over the
weekend) in commuting from Chicago to Phoenix for a
period not to exceed 90 days from the Effective Date.
9. EXPENSES. Taylor is authorized to incur reasonable expenses for
promoting the business of the Company, including expenses for entertainment,
travel and similar items. The Company shall reimburse Taylor for all such
expenses on the presentation by Taylor of itemized accounts of such expenditures
in accordance with guidelines set forth by the Company and the Internal Revenue
Service.
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<PAGE> 4
10. NON-COMPETITION AND CONFIDENTIALITY.
a. Non-Competition. The Company and Taylor acknowledge and
agree that Taylor's services are of a special and unusual character which have a
unique value to the Company, the loss of which cannot be adequately compensated
by damages in an action at law and if used in competition with the Company,
could cause serious harm to the Company. Accordingly, Taylor agrees that during
the term of this Agreement and either (a) for a period of two years in the event
Taylor's employment is terminated for "Cause" or (b) for a period of six months
in the event Taylor's employment is terminated without "Cause," Taylor will not
(i) enter into any agreement with or directly or indirectly solicit or attempt
to solicit any employee or other representatives of the Company for the purpose
of causing them to leave the Company to take employment with any other business
entity, or (ii) compete, directly or indirectly, with the Company in any way and
that Taylor will not act as an officer, director, employee, consultant,
shareholder, lender or agent of any entity engaged in any business of the same
nature as, or in competition with, the business in which the Company is now
engaged, was engaged during Taylor's employment or is engaged at the time of
Taylor's termination of employment, except for the ownership of less than 5% of
the outstanding capital stock of a publicly traded company.
b. Confidentiality.
(1) Taylor acknowledges that in Taylor's employment
hereunder, Taylor will be making use of, acquiring and adding to the Company's
trade secrets and its confidential and proprietary information of a special and
unique nature and value relating to such matters as, but not limited to, the
Company's business operations, internal structure, financial affairs, programs,
software systems, procedures, manuals, confidential reports, lists of clients
and prospective clients and sales and marketing methods, as well as the amount,
nature and type of services, equipment and methods used and preferred by the
Company's clients and the fees paid by such clients, all of which shall be
deemed to be confidential information. Taylor acknowledges that such
confidential information has been and will continue to be of central importance
to the business of the Company and that disclosure of it to or its use by others
could cause substantial loss to the Company. In consideration of employment by
the Company, Taylor agrees that during the Initial Term and any renewal term of
this Agreement and upon and after leaving the employ of the Company for any
reason whatsoever, Taylor shall not, for any purpose whatsoever, directly or
indirectly, divulge or disclose to any person or entity any of such confidential
information which was obtained by Taylor as a result of the Taylor's employment
with the Company or any trade secrets of the Company, but shall hold all of the
same confidential and inviolate.
(2) All contracts, agreements, financial books,
records, instruments and documents; client lists; memoranda; data; reports;
programs; software, tapes; Rolodexes; telephone and address books; letters;
research; card decks; listings; programming; and any other instruments, records
or documents relating or pertaining to clients serviced by the Company or
Taylor, the services rendered by Taylor, or the business of the Company
(collectively, the "Records") shall at all times be and remain the property of
the Company. Upon termination of this Agreement and Taylor's employment under
this Agreement for any reason whatsoever, Taylor shall return to the Company all
Records (whether furnished by the Company or prepared by Taylor), and Taylor
shall neither make nor retain any copies of any of such Records after such
termination.
(3) All inventions and other creations, whether or not
patentable or copyrightable, and all ideas, reports and other creative works,
including, without limitation, computer
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<PAGE> 5
programs, manuals and related materials, made or conceived in whole or in part
by Taylor while employed by the Company and within one year thereafter, which
relate in any manner whatsoever to the business, existing or proposed, of the
Company or any other business or research or development effort in which the
Company or any of its subsidiaries or affiliates engages during Taylor's
employment by the Company will be disclosed promptly by Taylor to the Company
and shall be the sole and exclusive property of the Company. All copyrightable
works created by Taylor and covered by this Section 10b(3) shall be deemed to be
works for hire. Taylor shall cooperate with the Company in patenting or
copyrighting all such inventions, ideas, reports and other creative works, shall
execute, acknowledge, seal and deliver all documents tendered by the Company to
evidence its ownership thereof through the world, and shall cooperate with the
Company obtaining, defending and enforcing its rights therein.
c. Certain Claims Upon Termination. Taylor understands that if
within one year prior to the termination of Taylor's employment with the
Company, Taylor has either (i) committed an act of theft, dishonesty, gross
dereliction of duty, fraud, embezzlement, misappropriation, or breach of
fiduciary duty against the Company or any other act of comparable misconduct
against the Company; or (ii) breached any of his obligations under this
Agreement, then the Company shall have the right to purchase any or all shares
of Common Stock of the Company owned by Taylor at the time of such termination
for a purchase price equal to the amount that Taylor paid for such shares,
together with interest thereon at a rate of 10% per annum. If the Company
desires to exercise such right, it shall notify Taylor within 60 days after the
date of such termination and Taylor shall tender the shares being purchased by
the Company at the time and place designated in such notice from the Company
upon receipt of the purchase price for such shares. If Taylor fails to tender
such shares, the shares shall be deemed to be canceled as of the date the
Company tenders payment of the purchase price thereof.
d. Enforceability. In the event of the breach of the covenants
contained in this Section 10, it is understood that damages will be difficult to
ascertain and the Company may petition a court of law or equity for injunctive
relief in addition to any other relief which the Company may have under the law,
this Agreement or any other agreement executed in connection herewith. In
connection with the bringing of any legal or equitable action for the
enforcement of this Agreement, the Company shall be entitled to recover, whether
the Company seeks equitable relief, and regardless of what relief is afforded,
such reasonable attorneys' fees and expenses as the Company may incur in
prosecution of the Company's claim for breach hereof.
It is hereby agreed that the provisions of this Section 10 are separate
and independent from the other provisions of this Agreement, that these
provisions are specifically enforceable by the Company notwithstanding any claim
by Taylor that the Company has violated or breached this Agreement or any claim
that Taylor is entitled to any offset or compensation.
To induce the Company to enter into this Agreement, Taylor represents
and warrants to the Company that Section 10 of this Agreement is enforceable by
the Company in accordance with its terms.
The parties hereto agree that to the extent that any provision or
portion of Section 10 of this Agreement shall be held, found or deemed to be
unreasonable, unlawful or unenforceable by a court of competent jurisdiction,
then any such provision or portion thereof shall be deemed to be modified to the
extent necessary in order that any such provision or portion thereof shall be
legally enforceable to the fullest extent permitted by applicable law; and the
parties hereto do further agree that any court of competent jurisdiction shall,
and the parties hereto do hereby expressly authorize, request and empower any
court of
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<PAGE> 6
competent jurisdiction to, enforce any such provision or portion thereof or to
modify any such provision or portion thereof in order that any such provision or
portion thereof shall be enforced by such court to the fullest extent permitted
by applicable law.
11. WAIVER OF BREACH. The waiver by any party hereto of a breach of any
provision of this Agreement will not operate or be construed as a waiver of any
subsequent breach by any party.
12. NOTICES. Any notices, consents, demands, request, approvals and
other communications to be given under this Agreement by either party to the
other will be deemed to have been duly given if given in writing and personally
delivered, faxed or if sent by mail, registered or certified, postage prepaid
with return receipt requested, as follows:
If to the Company: quepasa.com, inc.
One Arizona Center
400 E. Van Buren, Suite 400
Phoenix, AZ 85004
If to Taylor: Robert J. Taylor
One Arizona Center
400 E. Van Buren, Suite 400
Phoenix, AZ 85004
Notices delivered personally will be deemed communicated as of actual
receipt, notices by fax shall be deemed delivered when such notices are faxed to
recipient's fax number and notices by mail shall be deemed delivered when
mailed.
13. ENTIRE AGREEMENT. This Agreement and the agreements contemplated
hereby constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understanding, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof.
14. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
this Agreement, such provision will be fully severable and this Agreement will
be construed and enforced as if such illegal, invalid or unenforceable provision
never comprised a part hereof; and the remaining provisions hereof will remain
in full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid or unenforceable provision, there will be added
automatically, as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
15. GOVERNING LAW. To the extent permitted by applicable law, this
Agreement and the rights and obligations of the parties will be governed by and
construed and enforced exclusively in accordance with the substantive laws (but
not the rules governing conflicts of laws) of the State of Arizona and the State
of Arizona shall have exclusive jurisdiction regarding any legal actions
relating to this Agreement.
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<PAGE> 7
16. CAPTIONS. The captions in this Agreement are for convenience of
reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
17. GENDER AND NUMBER. When the context requires, the gender of all
words used herein will include the masculine, feminine and neuter, and the
number of all words will include the singular and plural.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
THE COMPANY:
quepasa.com, inc.
By:
------------------------------------------
Michael A. Hubert, Chief Operating Officer
TAYLOR:
----------------------------------------------
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<PAGE> 1
Exhibit 23.08
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-74201 of quepasa.com, inc. of our report dated February 17, 1999 appearing
in the Prospectus, which is part of such Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
/s/ Ehrhardt Keefe Steiner & Hottman, PC
----------------------------------------
Ehrhardt Keefe Steiner & Hottman, PC
Denver, Colorado
May 12, 1999
