<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _________
Commission File Number ________
quepasa.com, inc.
(Exact name of registrant as specified in its charter)
Nevada 86-0879433
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
One Arizona Center
400 East Van Buren 4th Floor
Phoenix, AZ 85004
(Address of principal executive offices)
(602) 716-0100
(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 8, 1999
- ------------------------------------ ---------------------------------------
Common stock, $_.001______ par value 14,652,921
Transitional Small Business Disclosure Format: [ ] Yes [X] No
<PAGE> 2
QUEPASA.COM, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets at September 30, 1999 (unaudited) and December 31, 1998..................................... 3
Statements of Operations for the Three Months Ended September 30,
1999 and 1998 (unaudited) and the Nine Months Ended
September 30, 1999 and 1998 (unaudited)................................................................... 4
Statement of Changes in Stockholders' Equity for the Period from
Inception (June 25, 1997) to the Year Ended December 31,
1998 and the Nine Months Ended September 30, 1999 (unaudited)............................................. 5
Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 (unaudited)................................................................... 7
Notes to Financial Statements (unaudited).................................................................. 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................................ 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................ 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................... 18
Item 2. Changes in Securities and Use of Proceeds................................................................. 18
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 19
Signatures .......................................................................................................... 20
</TABLE>
<PAGE> 3
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 37,411,713 $ 2,199,172
Deposits receivable -- 1,533,632
Stock subscription receivable -- 125,000
Accounts receivable (net of allowance of $2,766) 227,904
Forgivable loans 439,030 396,540
Prepaid expenses 2,502,480 --
------------ ------------
Total current assets 40,581,127 4,254,344
Property and equipment, net of accumulated depreciation of $156,354 (September
30, 1999) and $6,532 (December 31, 1998) 1,880,840 354,620
Deposits and other assets 2,058 2,500
------------ ------------
Total assets $ 42,464,025 $ 4,611,464
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,511,354 $ 71,222
Stock subscription -- 337,500
Allowance for legal disputes 400,000 --
Accrued liabilities 895,508 282,320
------------ ------------
Total current liabilities 3,806,862 691,042
Long-term liabilities
Note payable - Stockholder 2,245,082 --
------------ ------------
Total liabilities 6,051,944 691,042
------------ ------------
Commitments and contingencies
Redeemable common stock (Note 4) 2,000,000 --
Deferred advertising expense (Note 4) (2,000,000) --
Stockholders' equity
Preferred stock, authorized 5,000,000 shares - none issued or outstanding
Common stock, authorized 50,000,000 shares, $.001 par value:
Issued and outstanding 14,375,833 (September 30, 1999) and 9,075,833
shares (December 31, 1998) 14,376 9,076
Additional paid-in capital 69,347,965 10,427,477
Deferred advertising services (Note 4) (5,300,000) --
Deficit accumulated during the development stage (27,650,260) (6,516,131)
------------ ------------
Total stockholders' equity 36,412,081 3,920,422
------------ ------------
$ 42,464,025 $ 4,611,464
============ ============
</TABLE>
See notes to financial statements.
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QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Cumulative
from Inception
Three Months Ended Nine Months Ended (June 25,
September 30, September 30, 1997) to
---------------------------- ---------------------------- September 30,
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Gross revenue $ 153,582 $ -- $ 170,144 $ -- $ 170,144
Less commissions (25,898) -- (34,017) -- (34,017)
------------ ------------ ------------ ------------ ------------
Net revenue 127,684 -- 136,127 -- 136,127
Operating expenses
Product and content development expenses 798,844 75,459 1,264,407 86,149 1,679,280
Advertising and marketing expenses 6,195,737 45,480 11,321,185 50,558 11,571,604
Stock based compensation expenses -- -- 4,770,615 4,986,614 10,035,979
General and administrative expenses 1,879,233 171,387 4,214,380 196,808 4,752,715
------------ ------------ ------------ ------------ ------------
Total operating expenses 8,873,814 292,326 21,570,587 5,320,129 28,039,578
------------ ------------ ------------ ------------ ------------
Loss from operations (8,746,130) (292,326) (21,434,460) (5,320,129) (27,903,451)
Other income (expense)
Interest expense (79,465) -- (212,587) (2,500) (261,581)
Interest income and other 494,972 (28,430) 512,918 (28,430) 514,772
------------ ------------ ------------ ------------ ------------
Net other income (expense) 415,507 (28,430) 300,331 (30,930) 253,191
------------ ------------ ------------ ------------ ------------
Net loss $ (8,330,623) $ (320,756) $(21,134,129) $ (5,351,059) $(27,650,260)
============ ============ ============ ============ ============
Net loss per share, basic and diluted $ (.58) $ (.04) $ (1.91) $ (.59) $ (2.84)
(Note 5) ============ ============ ============ ============ ============
Weighted average number of shares
outstanding, basic and diluted 14,251,920 9,075,833 11,089,569 9,075,833 9,741,390
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
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QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Deferred During the
Common Stock Paid-in Advertising Development
Shares Amount Capital Services Stage Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
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 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 666,666 667 1,039,113 -- -- 1,039,780
Issuance of common stock in
conversion of note payable
($1.00 per share), November 1998 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 1,259,167 1,259 4,080,030 -- -- 4,081,289
Issuance of compensatory
stock options to employees,
October through December 1998 -- -- 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 -- -- 52,500 -- -- 52,500
Issuance of compensatory
stock options and common
stock to officers and
directors, March through
June 1999 50,000 50 4,718,065 -- -- 4,718,115
Issuance of common stock for
advertising services, April
1999 (Note 4) 650,000 650 5,499,350 (5,300,000) -- 200,000
</TABLE>
See notes to financial statements.
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<PAGE> 6
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED
(unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Deferred During the
Common Stock Paid-in Advertising Development
Shares Amount Capital Services Stage Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from initial public
offering, net of $5,631,700
of offering costs, June 1999
(Note 3) 4,000,000 4,000 42,364,300 -- -- 42,368,300
Proceeds from underwriter
overallotment, net of
$913,127 of offering
cost, July 1999 (Note 3) 600,000 600 6,286,273 -- -- 6,286,873
Net loss for the period
(unaudited) -- -- -- -- (21,134,129) (21,134,129)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1999
(unaudited) 14,375,833 $ 14,376 $ 69,347,965 $ (5,300,000) $(27,650,260) $ 36,412,081
============ ============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
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<PAGE> 7
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative from
Inception (June
Nine Months Ended 25, 1997) to
September 30, September 30
1999 1998 1999
------------ ------------ ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(21,134,129) $ (5,351,059) $(27,650,260)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 149,822 -- 156,354
Stock based compensation 4,770,615 4,986,614 10,035,979
Accrued interest on convertible notes payable -- -- 39,780
Change in assets, liabilities and other
Accounts receivable (227,904) -- (227,904)
Deposits receivable 1,533,632 -- --
Forgivable loans (42,490) (109,881) (439,030)
Prepaid expenses (2,502,480) -- (2,502,480)
Deposits and other assets 442 (2,500) (2,058)
Accounts payable 2,440,132 33,500 2,511,354
Provision for legal disputes 400,000 -- 400,000
Accruals 828,421 310 895,508
Deferred advertising services 200,000 -- 200,000
------------ ------------ ------------
7,550,190 4,908,043 11,067,503
------------ ------------ ------------
Net cash used in operating activities (13,583,939) (443,016) (16,582,757)
------------ ------------ ------------
Cash flows from investing activities
Purchase of fixed assets (1,676,042) (42,985) (2,037,194)
------------ ------------ ------------
Net cash used in investing activities (1,676,042) (42,985) (2,037,194)
------------ ------------ ------------
Cash flows from financing activities
Net proceeds from private placements -- -- 4,081,289
Proceeds from convertible note payable -- 1,100,000 1,100,000
Stock subscription receivable 125,000 -- --
Proceeds from issuance of note payable - Stockholder 2,245,082 -- 2,245,082
Accrued commissions (215,233) -- --
Stock subscription (337,500) -- --
Proceeds from initial public offering,
& overallotment, net of offering costs 48,655,173 -- 48,655,173
Proceeds from issuance of common stock -- -- 120
Payments on notes payable -- (50,000) (50,000)
------------ ------------ ------------
Net cash provided by financing activities 50,472,522 1,050,000 56,031,664
------------ ------------ ------------
Net increase in cash and cash equivalents 35,212,541 563,999 37,411,713
Cash and cash equivalents, beginning of period 2,199,172 2,582 --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 37,411,713 $ 566,581 $ 37,411,713
============ ============ ============
</TABLE>
See notes to financial statements.
-7-
<PAGE> 8
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)
Supplemental disclosure of cash flow information:
Cash paid for interest was $212,587, $2,500 and $261,581 for the nine months
ended September 30, 1999 and 1998 and cumulative from inception (June 25,
1997) to September 30, 1999, respectively.
Supplemental schedule of non-cash investing and financing activities:
In 1999, the Company issued a total of 650,000 shares of common stock
and a warrant to purchase 1,000,000 shares of common stock at $14.40 per
share in exchange for advertising credits valued at $5.5 million.
In 1999, the Company issued a total of 156,863 shares of redeemable
common stock at $12.75 per share in conjunction with a
spokesperson/marketing agreement. During 1998, convertible notes of $1.1
million were converted into common stock.
See notes to financial statements.
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<PAGE> 9
QUEPASA.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
Quepasa.com, inc. (the Company), a Nevada Corporation, was incorporated in June
1997. The Company is a Spanish-language Internet portal and community. The
Company's web site contains several features including a search engine, news,
maps, free web pages, chat and free e-mail. The Company's portal draws viewers
to its Web site by providing a one-stop destination for identifying, selecting
and accessing resources, services, content and information on the Web. The
Company provides 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.
During 1998, the Company changed its name from Internet Century, Inc. to
quepasa.com, inc.
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments and reclassifications considered
necessary for a fair and comparable presentation have been included and are of a
normal recurring nature. Operating results for the nine months ended September
30, 1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. The enclosed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Registration Statement on Form S-1 including the related
prospectus dated June 24, 1999.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which was originally to be effective for
the Company's financial statements as of January 1, 2000. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of Effective Date of FASB Statement No. 133." The SFAS No.
137 defers the effective date of SFAS No. 133 by one year in order to give
companies more time to study, understand and implement the provisions of SFAS
No. 133 and to complete information system modifications. The SFAS No. 133
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that entities record all derivatives as either
assets or liabilities, measured at fair value, with any change in fair value
recognized in earnings or in other comprehensive income, depending on the use of
the derivative and whether it qualifies for hedge accounting. If certain
conditions are met, a derivative may be specifically designated as (a) a
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, and available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
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Under this Statement, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. Those methods must
be consistent with the entity's approach to managing risk. The Company is in the
process of evaluating the effects that this Statement will have on its financial
reporting and disclosures.
Certain reclassification have been made to the 1998 financial statements and
notes to conform to the statement classifications used in 1999.
NOTE 2 - CASH AND CASH EQUIVALENTS
The Company invests certain of its excess cash in debt instruments of the U.S.
Government, its agencies, and of high quality corporate issuers. All instruments
are highly liquid with an original maturity of three months or less and are
considered cash equivalents.
NOTE 3 - SHAREHOLDERS' EQUITY
On June 24, 1999, the Company completed its initial public offering of 4,000,000
shares of its Common Stock. Net proceeds to the Company aggregated approximately
$42.4 million. In July 1999, the underwriters exercised an overallotment option
and purchased 600,000 shares with net proceeds aggregating approximately $6.3
million.
NOTE 4 - REDEEMABLE COMMON STOCK AND DEFERRED ADVERTISING
In April 1999, the Company issued 650,000 shares of common stock and a warrant
to purchase 1,000,000 shares of common stock at $14.40 per share in exchange for
television advertising and other advertising services valued at $5.5 million.
The amounts are expensed as advertising as the other advertising services are
rendered. As of September 30, 1999, $5.3 million of this amount is included in
stockholders' equity as deferred advertising services. This was previously
classified as prepaid expenses.
In September 1999, the Company paid $2.0 million in cash and an additional $2.0
million of common stock (valued at $12.75 per share) to Estefan Enterprises,
Inc. (Estefan) in connection with an agreement whereby Gloria Estefan will act
as spokesperson for the Company through December 31, 2000 and the Company will
sponsor her United States concert tour. The Company is obligated to pay an
additional $2.0 million in 2000 under this agreement. If the closing price of
the Company's common stock on September 1, 2000 is less than $12.75 per share
Estefan will have the option to return the stock to the Company in exchange for
$2.0 million cash. If Estefan sells its shares of common stock of the Company
for more than $18.75 per share they are obligated to return to the Company a
number of shares which, when multiplied by the sales price, equals 50% of the
difference between the sale price and $18.75 multiplied by the number of shares
being sold on such date (up to a maximum value of $6.0 million). As of September
30, 1999, $2.0 million is reported
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as redeemable common stock and is offset by deferred advertising expense of $2.0
million. The deferred advertising expense will be recognized as an expense over
the term of the contract.
NOTE 5 - NET LOSS PER SHARE - BASIC AND DILUTED
Basic net loss per share is computed on the weighted average number of common
shares outstanding during each period. Diluted net loss per share is computed
based on the weighted average number of common and common stock equivalent
shares outstanding during each period, except in those circumstances where
common equivalent shares would be antidilutive. Common equivalent shares are
antidilutive at September 30, 1999 and 1998 and therefore basic and diluted net
loss per share are the same.
NOTE 6 - LEGAL PROCEEDINGS AND SUBSEQUENT EVENTS
On October 12, 1999, a lawsuit was filed against the Company in the United
States District Court for the Northern District of California in San Francisco
(No. C 99 4530 WHO) by Whatshappenin.com, Inc., the operator of an Internet Web
site titled "whatshappenin.com." The lawsuit alleges, among other things, that
"whatshappenin.com" is a trademark of the plaintiff, that "que pasa" is the
Spanish language equivalent of "what's happening" or "what's happenin'" and that
the Company's use of "quepasa.com" infringes the plaintiff's trademark and
constitutes unfair competition and false advertising. The lawsuit asks the court
to enjoin the Company from using the name "quepasa.com," to order the United
States Commissioner for Patents and Trademarks to refuse any pending application
for the trademark "QuePasa.com" or cancel any existing registration for the
trademark "QuePasa.com," and to order the Company to assign its registration of
the domain name "quepasa.com" to the plaintiff. The lawsuit also seeks
unspecified amounts for compensatory damages, punitive damages, attorneys' fees,
and costs. The Company intends to vigorously defend this lawsuit and believes it
is without merit.
On November 1, 1999, the Company announced the settlement of a lawsuit with
Jeffrey Peterson, the Company's co-founder and former Chief Executive Officer,
and David Hansen, a former employee. In connection with the settlement, Mr.
Peterson has resigned as a Director of the Company, he will retain 37,500 stock
options, exercisable at $1.50 per share, his other stock options have been
canceled and the Company has paid him $200,000. The terms of Mr. Peterson's
lock-up agreement with the Company, entered into at the time of its initial
public offering, remain in effect. Under the lock-up, Mr. Peterson may not sell
any shares, including the shares underlying his options, until June 2001. In
addition, the Company repaid the loan from Mr. Peterson totaling approximately
$2.3 million and has forgiven notes from Mr. Peterson and Mr. Hansen totaling
approximately $50,000. At the same time, the Company also settled a dispute with
MCW Holdings, L.L.C. with respect to office space in Tempe, Arizona. The Company
paid $150,000 in conjunction with the settlement of this dispute.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including, without limitation, statements regarding the Company's
expectations, beliefs, intentions or future strategies that are signified by the
words "Expects", "Anticipates", "Intends", "Believes", or similar language. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. Actual results could
differ materially from those projected in the forward-looking statements. In
evaluating the Company's business, prospective investors should carefully
consider the information set forth below and under the caption "Risk Factors"
contained in the registration statement on Form S-1 as filed on March 10, 1999.
The Company cautions investors that its business and financial performance are
subject to substantial risks and uncertainties.
OVERVIEW
The Company is a development stage company that commenced operations on June 25,
1997. The operations for the period June 25, 1997 through approximately May 1998
were limited to organizing the Company, raising operating capital, hiring
initial employees and drafting a business plan. From May 1998 to present, the
Company was engaged primarily in product development. For these reasons, the
Company believes that period to period comparisons of its operating results are
not meaningful and the results for any period should not be relied upon as an
indication of future performance. The Company currently expects to significantly
increase its operating expenses to expand its advertising and marketing efforts
and to fund greater levels of product development. As a result of these factors,
the Company expects to continue to incur significant losses on a quarterly and
annual basis for the foreseeable future.
RESULTS OF OPERATIONS
REVENUE
Gross and net revenue were $154,000 and $128,000 respectively for the three
months ended September 30, 1999. The Company launched its Web site in the fourth
quarter 1998 and first generated revenue during the second quarter 1999. During
the third quarter 1999 revenue was derived from two sources; 1) banner
advertising arrangements under which we receive revenue based on cost per
thousand ad impressions (CPM) and on cost per clicks and 2) sponsor agreements
which allow advertisers to sponsor an area or receive an exclusivity on an area
within our Web site. Approximately 50% of the gross revenue was generated from
each of these two sources. Banner advertising is sold by an independent agent
who receives a commission, which varies from 30% to 50% of gross banner
advertising depending on the volume of ad impressions during a month. Effective
March 1, 2000, the Company will terminate its agreement with this independent
sales agent. The Company currently plans to hire its own internal sales force to
sell banner advertising
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<PAGE> 13
and generate sponsorship agreements. In addition, the Company plans to
supplement its sales efforts through the use of an independent sales agent for
run of network banner advertising and additional site specific advertising
sales. No single advertiser utilizing banner ads amounted to over 10% of total
gross revenue. Two companies accounted for all the sponsor agreement revenue and
each was over 10% of gross revenue. One of these sponsorships was with Telemundo
and totaled approximately 23% of gross revenue. Telemundo is a shareholder in
the Company and its Chief Operating Officer is on the Company's Board of
Directors. Sponsor revenues are recognized ratably over the term of the
agreement.
PRODUCT AND CONTENT DEVELOPMENT
Product and content development expenses were $799,000 for the quarter ended
September 30, 1999 as compared to $75,000 for the quarter ended September 30,
1998. For the nine months ended September 30, 1999 product and content
development expenses totaled $1.3 million compared to $86,000 for the nine
months ended September 30, 1998. For the nine months ended September 30, 1999,
this amount was comprised of approximately $530,000 of salaries and $560,000 of
Internet connection charges and payments under the terms of the Company's search
technology licensing agreement.
ADVERTISING AND MARKETING
Advertising and marketing expenses were $6.2 million for the quarter ended
September 30, 1999 compared to $45,000 for the quarter ended September 30, 1998.
For the nine months ended September 30, 1999, advertising and marketing expenses
totaled $11.3 million compared to $51,000 for the nine months ended September
30, 1998. For the nine months ended September 30, 1999 advertising and marketing
expenses were primarily comprised of the following; 1) $3.3 million paid in
connection with a nationwide advertising campaign with a Spanish-language radio
broadcaster, 2) $1.8 million for an outdoor advertising campaign (billboards,
buses, etc.), 3) $1.6 million for television advertising ($980,000 of which was
paid to Telemundo), 4) $1.5 million paid to the Arizona Diamondbacks under a
marketing, promotions and sports information plan for the 1999 major league
baseball season (a member of the Company's Board of Directors is Chief Executive
Officer of the Arizona Diamondbacks), 5) $1.3 million for advertising services
paid to an entity partially owned by a former director of the Company and 6)
$1.2 million for promotional items and other miscellaneous advertising.
STOCK BASED COMPENSATION
Stock based compensation for the quarters ended September 30, 1999 and 1998 were
zero. For the nine months ended September 30, 1999 stock based compensation
totaled $4.8 million compared to $5.0 million for the nine months ended
September 30, 1998.
During the second quarter 1999 the Company issued a total of 350,000 options to
the President and 50,000 common shares to an entity owned by the President. As a
result of this transaction approximately $2.5 million of compensation expense
was recognized. Additionally, during the first
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<PAGE> 14
and second quarters of 1999, the Company recognized $2.3 million for the
issuance of options to employees and directors. In May 1998, 1,420,000 of shares
of common stock were issued to a former officer of the Company. As a result of
these issuances, approximately $5.0 million of stock based compensation was
recognized during the nine months ended September 30, 1998.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $1.9 million for the quarter ended
September 30, 1999 compared to $171,000 for the quarter ended September 30,
1998. For the nine months ended September 30, 1999, general and administrative
expenses totaled $4.2 million compared to $197,000 for the nine months ended
September 30, 1998. The expense for the nine months ended September 30, 1999
consists primarily of $2.7 million for salaries, benefits and recruiting,
$400,000 provision for settlement of certain legal disputes, $320,000 for
facilities rent and utilities, $250,000 for professional fees and $150,000 for
depreciation.
INTEREST EXPENSE
Interest expense was $79,000 for the quarter ended September 30, 1999 compared
to zero for the quarter ended September 30, 1998. For the nine months ended
September 30, 1999, interest expense totaled $213,000 compared to $2,500 for the
nine months ended September 30, 1998. Interest expense is from a note payable to
stockholder and was paid off in conjunction with the settlement of legal
disputes described in Note 6.
INTEREST INCOME AND OTHER
Interest income and other was $495,000 for the quarter ended September 30, 1999
compared to $(28,000) for the quarter ended September 30, 1998. For the nine
months ended September 30, 1999, interest income and other totaled $513,000
compared to $(28,000) for the nine months ended September 30, 1998. For the nine
months ended September 30, 1999 interest income and other consists primarily of
interest income from investments of certain of the Company's excess cash in debt
instruments of the U.S. Government, its agencies, and of high quality corporate
issuers.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had $37.4 million in cash and cash
equivalents. On June 24, 1999, the Company raised approximately $42.4 million,
net of offering costs, through an initial public offering (IPO) of its common
stock and during July 1999 the Company raised an additional $6.3 million, net of
offering costs, from the exercise of an option granted to its underwriters to
cover overallotments from the IPO. Prior to the IPO, the Company primarily
financed its operations through private placements of common stock and
convertible debt which totaled approximately $5.2 million, a $2.0 loan advanced
by a former principal stockholder (repaid from proceeds of the IPO) and
approximately $2.7 million advanced from the Company's co-founder and former
Chief Executive Officer (which has been repaid).
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<PAGE> 15
Net cash used in operating activities was $13.6 million for the nine months
ended September 30, 1999 and $443,000 for the comparable period in 1998. Net
cash used by operations for the 1999 period consisted of the net loss of $21.1
million and an increase in prepaid expenses of $2.5 million offset by a non-cash
expense for stock based compensation of $4.8 million and changes in assets and
liabilities, primarily from a decrease in deposits receivable of $1.5 million
and an increase in accounts payable of $2.4 million. Net cash used in operations
for the 1998 period primarily resulted from a $5.4 million loss offset by a $5.0
million non-cash expense for stock based compensation.
Net cash used in investing activities was $1.7 million for the nine months ended
September 30, 1999 and $43,000 for the comparable period in 1998. For the 1999
and 1998 period the amounts were used for the purchase of fixed assets.
Net cash provided by financing activities was $50.5 million for the nine months
ended September 30, 1999 and $1.1 million for the comparable 1998 period. In the
nine months ended June 30, 1999 the cash provided was comprised of $48.7 million
of net proceeds from the IPO (including the exercise of an option granted to the
underwriters to cover overallotments), and from the issuance of a note payable
to its co-founder and former Chief Executive Officer for $2.3 million. The
amount provided during the 1998 period was from the issuance of convertible
notes payable, which have since been converted to common stock.
Currently, the Company has commitments under non-cancelable operating leases for
office facilities and office equipment requiring payments of approximately
$80,000 through December 1999 and $889,000 thereafter. The Company is obligated
to pay $2.0 million in 2000 under an agreement with Estefan Enterprises, Inc.
(Estefan). In addition, if the closing price of the Company's common stock on
September 1, 2000 is less than $12.75 per share Estefan will have the option to
return 156,863 shares of the Company's common stock (issued to Estefan in
September, 1999) to the Company in exchange for $2.0 million cash. The Company
is required to pay $500,000 pursuant to the terms of its search technology
licensing agreement with Inktomi through September 2001. The Inktomi agreement
may require additional payments based upon the level of use; however, the
Company believes the additional payments, if any, will not be material. The
Company is also obligated to pay approximately $145,000 in 1999 and $435,000
through 2001 for technology and content used on its Web site portal provided by
Reuters, GTE, Zacks, Associated Press, Screaming Media and Exodus. The Company
is required to pay approximately $750,000 under an advertising agreement with
Telemundo for broadcasts over 26 weeks commencing in August 1999, $215,000 under
an agreement with the Miami Herald paid monthly through June 2000 and $160,000
under an agreement with Fox Sports Espanol for advertising through December
1999. The Company is also obligated under an agreement with a company owned by a
former Director to provide advertising and marketing advisory services through
July 2000. The total remaining commitment under this agreement is $450,000 in
1999 and $1.1 million in 2000. The Company will recognize the expense related to
advertising, content and technology agreements in a manner consistent with the
timing of the services provided for under the terms of the respective
agreements. Generally, the services are received evenly over the terms of the
agreements.
The Company currently believes that cash and cash equivalents will be sufficient
to meet its current operating, development, capital improvement and any other
needs for the next fifteen months. There
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<PAGE> 16
can be no assurance, however, that the Company will not require additional
financing in the future. Although the Company does not believe it will be
necessary to raise additional funds in the next three months, it may need
additional funds at a later date to respond to competitive pressures or to
acquire complimentary products, features, businesses or technology. If the
Company were required to obtain additional financing in the future, there can be
no assurance that such sources of capital will be available on terms favorable
to the Company, if at all.
YEAR 2000 ISSUE
The Company depends 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 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.
The Company depends on information contained primarily in electronic format, in
databases and computer systems maintained by third parties and the Company. The
disruption of third-party systems or the Company's systems interacting with
these third party systems could prevent the Company from delivering search
results or other services in a timely manner which could materially adversely
affect the Company's business and results of operations.
The Company has assessed its information technology equipment and systems, which
includes its development servers and workstations and production server
monitoring software. The Company also uses multiple software systems for
internal business purposes, including accounting, e-mail, human resources and
development. Most of this equipment and software has been purchased within the
last 18 months. The Company has obtained Year 2000 compliance information from
the vendors of this equipment and software. Based on this research the Company's
management does not believe that these systems contain Year 2000 deficiencies.
However, the Company has not conducted its own tests to determine to what extent
software running on any of our hardware platforms fails to properly recognize
Year 2000 dates.
The Company has reviewed the current version of its internally developed free
e-mail application to determine Year 2000 compliance. The Company's management
has searched through the software code for this application and has determined
that it correctly recognizes Year 2000 date codes. The Company has identified
and has begun assessing non-information technology embedded systems such as
voice mail, office security, fire prevention and other systems. Management
generally believes that the Company's non-information technology embedded
systems do not present Year 2000 issues.
Although management believes that the Company will be Year 2000 compliant, the
Company uses third party equipment and software that may not be Year 2000
compliant. Management has
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<PAGE> 17
contacted substantially all of the Company's critical third party service
suppliers regarding the status of their Year 2000 program. The Company has
received responses from substantially all of its third party suppliers. The
Company has received a written response from GTE and has been referred to
information made publicly available by Reuters, Exodus, Microsoft, Dell
Computer, Sun Microsystems and Oracle. Management intends to contact the
remaining third party service suppliers regarding their Year 2000 readiness. All
suppliers who have responded have asserted that their products will be or are
Year 2000 compliant. In the event the Company does not receive satisfactory
commitments from a key supplier, management will make plans for continuing
availability of service through alternate channels
To date, the Company has not incurred any material expenditures in connection
with evaluating Year 2000 issues. All of the Company's expenditures have related
to the opportunity cost of time spent by the employees identifying and
evaluating Year 2000 compliance matters.
The Company has not developed a Year 2000 specific contingency plan. If Year
2000 compliance issues are discovered, management will evaluate the need for
contingency plans relating to such issues. The Company intends to actively work
with its 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. The Company expects
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 the
Company until it was resolved.
SYSTEM CONVERSION
The Company intends to migrate its production system from Microsoft Windows NT
to Sun Solaris in the fourth quarter of 1999. While the Company may experience
interruptions in service in the course of this migration, it is taking all
reasonable steps to minimize such interruptions. The Company estimates it will
spend $1.5 million on this migration in 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to the increase or decrease in the amount of interest income it can
earn on its investment portfolio. The Company does not plan to use derivative
financial instruments in its investment portfolio. Management plans to ensure
the safety and preservation of our invested principal funds by limiting default
risks, market risk and reinvestment risk. Management plans to mitigate default
risk by investing in high-credit quality securities.
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<PAGE> 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See description of legal proceedings in Note 6 to the Notes to
Financial Statements contained herein.
Item 2. Changes in Securities and use of proceeds
On June 24, 1999 the Company completed a public offering of
4,000,000 shares of Common Stock at an initial public offering
price of $12.00 per share, resulting in net proceeds to the
Company of $42.4 million. The gross proceeds of the offering
were $48.0 million and the expenses incurred were $4.3 million
for underwriting discounts and commissions and $1.3 for other
expenses including legal, accounting and printing costs. In
July 1999 the Company sold an additional 600,000 shares of
Common Stock at an offering price of $12.00 per share, from
the exercise of an option granted to its underwriter to cover
overallotments from its initial public offering. The gross
proceeds of the offering were $7.2 million and the expenses
incurred were $650,000 for underwriting discounts and
commissions and $250,000 for other expenses including legal,
accounting and other offering costs. The Company used the net
proceeds of the offering as follows: (1) $2.5 million
repayment of a working capital loan and a bridge loan, (2)
$6.9 million for marketing and advertising expenses, (3) $2.3
million for general and administrative expenses, (4) $496,000
for development and acquisition of additional content and
features for the Company's Website and (5) $412,000 to
purchase equipment. In addition, $36.1 million is expected to
be used for marketing and advertising, to develop and acquire
additional content and features, for general and
administrative expenses, to purchase additional technology and
equipment and for working capital. As of the date of the
Quarterly Report, the balance of the net proceeds was invested
in short-term, investment grade, interest-bearing securities.
In September 1999, the Company issued 156,863 shares of
redeemable common stock to Estefan Enterprises, Inc. (Estefan)
in connection with an agreement whereby Gloria Estefan will
act as spokesperson for the Company through December 31, 2000
and the Company will sponsor Ms. Estefan's concert tour. The
securities were issued to Estefan in a transaction not
involving a public offering that was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933. In
addition to the terms described in Note 4 to the accompanying
notes to financial statements, after the first anniversary of
this agreement Estefan will have demand and piggyback
registration rights.
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<PAGE> 19
Item 6. Exhibits and Reports on Form 8K
a. The exhibits listed in the accompanying Index to Exhibits are filed as
part of this Report on Form 10-Q.
b. Reports on Form 8-K:
1) On August 2, 1999, the Company filed a report on Form 8-K
announcing (i) termination of employment of the Chief
Technology Officer.
2) On August 9, 1999, the Company filed a report on Form 8-K
announcing that it had hired three vice presidents.
3) On September 3, 1999, the Company filed a report on Form 8-K
announcing that it had replaced Ehrhardt Keefe Steiner &
Hottman, P.C. with Deloitte & Touche LLP as its independent
accountants.
4) On November 1, 1999, the Company filed a report on Form 8-K
announcing the settlement of its lawsuit against Jeffrey
Peterson, the Company's co-founder and former Chief Executive
Officer.
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<PAGE> 20
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNATURES
Date November 14, 1999 Signature /s/ Gary L. Trujillo
----------------------------
Gary L. Trujillo
President
Date November 14, 1999 Signature /s/ Allen R. Dunaway
----------------------------
Allen R. Dunaway
Chief Financial Officer
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<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.1 Agreement with Estefan Enterprises, Inc.
10.2 Registration Rights Agreement with Estefan Enterprises, Inc.
27.1 Financial Data Schedule
</TABLE>
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<PAGE> 1
Exhibit 10.1
September 1, 1999
Mr. Frank J. Amadeo
President
Estefan Enterprises, Inc.
420 Jefferson and 5th Street
Miami Beach, Florida 33139
This letter agreement (the "Agreement") between quepasa.com, inc.
("quepasa"), Estefan Enterprises, Inc. ("EEI") fso Gloria Estefan and Gloria
Estefan ("Gloria") sets forth the terms and conditions upon which Gloria will
act as spokesperson for quepasa through December 31, 2000 and quepasa will
sponsor Gloria's upcoming United States concert tour ("Tour 2000").
1. Spokesperson Relationship and Sponsorship. Upon execution of this
Agreement, Gloria shall act as quepasa's spokesperson and quepasa shall sponsor
Tour 2000 as follows:
A. ADVERTISING AND BRANDING
Gloria will act as quepasa's spokesperson for all electronic
media to include but not limited to:
- Eight unique 30-second TV spots (to be
produced in both Spanish and English for a
total of sixteen spots)
- Eight unique 30-second radio spots (to be
produced in both Spanish and English for a
total of sixteen spots)
These spots will be produced around Gloria's songs and music.
The TV spots will be based on your existing videos as follows:
- One imaging spot using the song "Reach"
- Two imaging spots using other mutually
approved uplifting and inspirational Gloria
songs
- One spot exclusively promoting Gloria's Tour
2000 o One spot exclusively promoting the
New Year's Eve Gala (the "Millenium
Concert")
- Three imaging spots incorporating newly
recorded music from Gloria's upcoming
Spanish-language album
1
<PAGE> 2
The radio spots would be equivalent to the TV spots. Each
30-second spot will be edited to contain a five second tag
promoting Tour 2000. These spots will be produced throughout
the contract term. The use of Gloria's name, image, likeness,
voice or music in each spot shall be subject to EEI's prior
written approval (subject to the use of the music described
above).
Quepasa will use its best efforts to promote Tour 2000,
including the Millennium Concert in Miami on New Year's Eve
1999 (the "Millennium Concert"), through a portion of its
existing Spanish and English-language media plan.
EEI will cause Foreign Imported Productions & Publishing, Inc.
and Estefan Music Publishing, Inc. to waive all mechanical,
sychronization or fixed fees to the musical compositions owned
or controlled by these entities, except that quepasa agrees to
pay a one-time fee of $5,000 to The 1992 Diane Warren Trust
dba Realsongs for the use of the song "Reach". Quepasa agrees
that if any musical compositions not owned or controlled by
these two companies are used in any of the television spots,
quepasa will be responsible for payment of any such fees,
provided that EEI will use its best efforts to negotiate
favorable fees for quepasa. There will be no license or other
fees required for the use of the videos used in the spots.
Gloria will be quepasa's spokesperson for all types of print
and online media to include but not limited to:
- Magazine, newspaper, direct mail, outdoor
billboards
- All out-of-home media to include buses, bus
shelters, benches, subways, subway shelters,
in-store point-of-purchase in record, video
and computer stores
- Online advertising
All magazine, newspaper, direct mail, outdoor billboards,
buses, bus shelters, benchs, etc. will use the likeness of
Gloria when it relates solely to the advertising campaign as
described above. All media that contains Gloria's name, image
or likeness will be striped with panels promoting Tour 2000.
The image of Gloria as quepasa's spokesperson shall be tacit.
The use of Gloria's name, image, likeness, voice or music in
all print and online advertising shall be subject to EEI's
prior written approval.
2
<PAGE> 3
Quepasa has provided EEI with its current media plan, which is
subject to change through the term of the agreement. Quepasa
agrees to consult with EEI about the location of its
advertising that uses Gloria's name, image, likeness, voice or
music, but quepasa maintains the sole right to make final
determinations on media mix, location and spending.
On-line advertising that contains Gloria's name, image,
likeness, voice or music shall be subject to EEI's prior
written approval and shall be limited to advertising either
supporting the quepasa sponsorship ads or promoting Tour 2000.
B. CO-BRANDED WEB PAGE AND ONLINE STORE
- Quepasa will create a co-branded web page
and online store ("web-page"), hosted by
quepasa, which will be devoted exclusively
to the Gloria/quepasa relationship and will
contain pertinent information and purchasing
opportunities including the items set forth
below
- Gloria's name, image, likeness, voice or
music will not be used on the co-branded web
page to endorse any other products; however,
quepasa will be entitled to sell routine
banner advertising on the page consistent
with other run-of-site advertising
- EEI will grant quepasa certain exclusive
rights, including but not limited to the
following:
- Premiering Gloria videos from her
forthcoming album prior to
broadcast airing , subject to the
approval of Sony Music/Epic
Records, which approval may not be
unreasonably withheld; EEI will use
its best efforts to obtain this
approval of Sony Music/Epic Records
- Announcement of Tour 2000 dates
- Preferred seating by ordering Tour
2000 tickets online through quepasa
3
<PAGE> 4
- Purchase of co-branded merchandise
(specific items to be mutually
agreed upon) from [name of
merchandising company]; EEI will
use its best efforts to negotiate
favorable purchasing 1terms from
[name of merchandising company];
two items will be created and sold
on the web-page where profits will
be split 50/50 between quepasa and
EEI
- Links between quepasa's web-site
and Gloria's website
(gloriafan.com) and up to four
additional websites designated by
EEI, but not to include any website
in direct competition with quepasa
(including, but not limited to,
starmedia.com, yupi.com and
elsitio.com)
- All on-line contesting for Tour
2000 tickets, backstage passes,
etc. will be conducted exclusively
on quepasa.com or gloriafan.com;
EEI is not required to provide any
tickets to quepasa for such
contests other than those tickets
mentioned elsewhere in this
Agreement (and all front-row
tickets mentioned in this Agreement
must be contested), although EEI
will use its best efforts to enable
quepasa to purchase additional
tickets at favorable prices for
contesting; any user registering
for a contest on gloriafan.com will
be required to enroll with
quepasa.com in order to enter the
contest (there will be no charge to
the user to enroll with
quepasa.com)
- Purchase of Gloria's CD's,
including the new "Millennium CD",
if one is recorded, and new Spanish
CD, to be purchased through Sony
Music/Epic Records; EEI will use
its best efforts to have Sony
Music/Epic Records make these CD's
available
- Lyrics to all songs on the new
"Millennium CD"
- Online promotion of Gloria's
Educational Foundation in
conjunction with Quepasa.com
Foundation
4
<PAGE> 5
C. THE ANNOUNCEMENT AND TOUR 2000
- The press release in the form of Exhibit A
hereto will be distributed on the date of
execution of this Agreement, or another
business day selected by quepasa and
reasonably acceptable to EEI but in no event
later than five days after the signing of
this Agreement, provided that the initial
cash payment of $2 million and the issuance
of the stock, each as described in Section H
below, has occurred.
- Gloria will appear at a press conference to
announce that she is a spokesperson for,
partner with, and investor in quepasa in New
York City on or about September 14, 1999,
but no later than September 15, 1999.
- The exclusive sponsorship of Tour 2000 will
be billed as "quepasa.com proudly presents"
on all media material produced in connection
with Tour 2000 (including but not limited to
concert tickets, print ads, posters, and
radio and television spots); except that
where this phrase cannot reasonably be
placed on concert tickets or other media,
EEI will use its best efforts to place a
shorter sponsorship phrase on such media
that is reasonably satisfactory to quepasa;
Tour 2000 will appear in at least 20 U.S.
cities, and California, Texas, New York,
Florida, Illinois and Arizona will be
included in the tour
- Kick-off for the tour will be the Millenium
Concert; Quepasa will receive 50 tickets to
the Millenium Concert, two of which will be
front row seats (EEI will use its best
efforts to provide two additional front row
seats), and EEI will use its best efforts to
provide the remainder in the best seats
available; quepasa will receive backstage
passes for 20 people and, if Gloria holds a
Millenium party, 10 invitations (each for
two people) to the party.
5
<PAGE> 6
Other Tour Commitments:
- Quepasa will receive visual sponsorship
presence at each concert on video screens
prior to and at the end of the concerts
- Quepasa to receive 50 tickets for each
concert, four of which will be front row
seating, the remainder in the best 10% of
the house excluding the first 15 rows
- Quepasa will be granted the exclusive right
to webcast one song in its entirety from the
Millenium Concert and one song from the
first concert performance of Tour 2000
following the Millenium Concert, provided
that the webcast songs, or any components of
the songs, including but not limited to
sound bytes, may not be saved or stored to
any user's hard-drive directly from the
webcast and neither quepasa nor any of its
internet partners may create a master
recording or MP3 from the webcasts.
- National contest with up-front concert
tickets and a "meet and greet " for
quepasa.com contest winners and quepasa
employees and guests with Gloria on December
30, 1999 for the Millenium Concert and each
other concert on the tour (only applies to
contest winners of the tickets provided to
quepasa under this Agreement); EEI will use
its best efforts to have Gloria attend these
"meet and greet" sessions; however, if she
is unable to attend for a legitimate reason
outside of her control (such as serious
illness or unavoidable travel delays), a
substitute session will be arranged.
- Quepasa will have an exclusive right of
first negotiation for 15 business days to
negotiate with EEI the financial terms (in
equivalent detail to those set forth in
paragraph H below) for any Gloria Latin
American tour sponsorship.
6
<PAGE> 7
D. ONLINE CHAT SESSIONS
- Gloria will appear on three chat sessions
hosted by quepasa:
- To announce the partnership
- To announce the release of her
Spanish Language album in early
2000
- To announce the commencement of
Tour 2000
E. PERSONAL APPEARANCES BY GLORIA
- In addition to the personal appearance in
New York described in paragraph C above,
Gloria will make at least two personal
community appearances to promote the
Internet, Tour 2000, her music and
educational opportunities for Hispanics; one
of these appearances will be in Phoenix at
the Roosevelt School District and EEI will
use its best efforts to arrange for the
other appearance to be in Los Angeles and to
coordinate Tour 2000 around these
appearances; however, if Gloria is unable to
attend for a legitimate reason outside of
her control (such as serious illness or
unavoidable travel delays), a substitute
appearance will be arranged by mutual
agreement.
- These appearances would be filmed and
webcast on the quepasa website; EEI may also
use this footage provided that it is not
edited in any way without quepasa's consent.
- Gloria and EEI will use their best efforts
to have Gloria do an additional "meet and
greet" appearance at quepasa's headquarters
in Phoenix, or at another mutually agreed
upon location in Phoenix.
F. TERM
- Quepasa would have the rights to use
Gloria's name, image and likeness as
described in this Agreement through
midnight, December 31, 2000
7
<PAGE> 8
G. EXCLUSIVITY
- Quepasa will be the exclusive primary
sponsor for Tour 2000 (including the
Millennium Concert) and EEI will use its
best efforts to include quepasa in all local
advertising by various promoters and
identified as "quepasa.com proudly
presents"; an isolated, inadvertent failure
by EEI to secure this advertising shall not
constitute a breach of this Agreement.
- Quepasa will permit secondary sponsorships
as long as they appear below Gloria's name
on all printed advertising and are not
competitive with quepasa.
- Gloria and EEI will not agree for Gloria to
be a spokesperson for any other Internet
company for the term of this Agreement and
will not enter into any agreement of any
nature that involves Gloria with any
Internet company that is in competition with
quepasa; provided that this limitation does
not apply to any other EEI artists or
businesses.
H. REMUNERATION
- Quepasa will pay EEI $6.0 million ($4.0
million in cash and $2.0 million in
unregistered common stock of quepasa) for
the terms and conditions of this contract to
be paid as follows:
- $2 million in cash and $2 million
in stock to be paid upon the
signing of this Agreement
- $1 million in cash (or certified or
bank check) to be paid no later
than 1:00 am (east coast time) on
January 1, 2000
- $0.5 million in cash to be paid by
wire transfer or certified or bank
check on April 1, 2000
- $0.5 million in cash to be paid by
wire transfer or certified or bank
check on the day after the final
concert tour performance
8
<PAGE> 9
- The $2 million payable in quepasa common
stock will equal 156,863 shares (the Shares)
of unregistered common stock issued in the
name "Estefan Enterprises, Inc. fso Gloria
Estefan" (determined by dividing $2 million
by the lowest common stock closing price as
reported on Nasdaq on August 5, 1999
($12.75) or August 6, 1999 ($12.8125); thus
the lowest price is $12.75 (the "Stock
Price"))
- The shares must be held by EEI or an
affiliate of EEI for one year from the date
of this Agreement
- If quepasa's common stock's closing price as
reported on Nasdaq on the one year
anniversary of this Agreement is below the
Stock Price, you may "put" the entire amount
of the Shares back to quepasa for $2 million
to be paid by wire transfer or certified or
bank check within five business days of
delivery to quepasa of your put notice and
upon surrender of your stock certificate(s)
representing the Shares; provided that if
quepasa merges with or is acquired by
another company or effects a "going private"
transaction and as a result quepasa is not
the surviving corporation or quepasa's
common stock is no longer traded on Nasdaq
(the "Transaction"), and the consideration
you receive for the Shares has a fair market
value below $2 million (such differential,
the "Shortfall"), you will receive the
Shortfall at the same time you receive the
consideration payable in the Transaction and
quepasa will use its best efforts to ensure
that the surviving corporation satisfies
this obligation.
9
<PAGE> 10
- Upon the actual sale date of any of the
Shares (including in connection with a
merger or acquisition of quepasa), if the
gross price per share received for such
Shares (whether in cash or other
consideration)(the "Sale Price") is more
than $18.75, EEI must return to quepasa a
number of whole Shares which, when
multiplied by the Sale Price, equals 50% of
the difference between the Sale Price and
$18.75 multiplied by the number of Shares
being sold on such date; provided, that EEI
will have no further obligation to return
Shares to quepasa pursuant to this paragraph
upon the earlier to occur of: (i) quepasa
receiving shares from EEI having an
aggregate value as calculated under this
paragraph at each sale date of Shares equal
to $6 million or (ii) EEI shall have sold
all of the Shares and complied with the
provisions of this paragraph with respect to
each sale of Shares. o Simultaneously with
the signing of this Agreement, quepasa and
EEI will sign the Registration Rights
Agreement in the form of Exhibit B hereto.
2. Representations and Warranties of Quepasa.
- Quepasa has full corporate authority and has
taken all necessary corporate action to
authorize this Agreement and the
Registration Rights Agreement, and when
executed and delivered they will constitute
valid and binding obligations of quepasa,
enforceable against quepasa in accordance
with their terms.
- This Agreement and the Registration Rights
Agreement do not violate the terms of, or
cause a default under, any other agreement
or instrument binding on quepasa or any of
its property, and no consent is required of
any person that has not been obtained for
the execution and delivery of, and
performance by, quepasa under the Agreement
and the Registration Rights Agreement.
- The Shares have been duly authorized, and
when issued in accordance with the terms of
this Agreement, will be validly issued,
fully-paid and non-assessable.
- Quepasa's relationship with Telemundo
Network Group, LLC ("Telemundo"), an
investor in and strategic partner of
quepasa, will not limit quepasa's
responsibilities and obligations hereunder,
and quepasa will not permit Telemundo to
assert any relationship or "tie-in" to EEI
or Gloria.
10
<PAGE> 11
- Quepasa will defend and indemnify EEI and
Gloria against all claims, losses, damages
and liabilities (or actions in respect
thereto) ("Losses") arising under federal or
state securities laws arising from Gloria's
identification as a "spokesperson",
"partner", and/or "investor" in quepasa;
provided that quepasa will not be liable for
any Losses suffered by EEI or Gloria upon
its or her sale of the Shares (except as
specifically provided for elsewhere in this
Agreement) or for any Losses arising from
EEI's or Gloria's knowing fraudulent or
grossly negligent conduct. Quepasa will use
its best efforts to cause the coverage under
its now or hereafter existing directors' and
officers' liability insurance policy to
include Gloria as an additional named
insured, for federal and/or state securities
laws, for losses suffered by Gloria arising
from Gloria's indemnification as a
"spokesperson", "partner", and/or "investor"
in quepasa.
3. Representations and Warranties of EEI and Gloria.
- EEI has full corporate authority and has
taken all necessary corporate action, and
Gloria has taken all action, to authorize
this Agreement and the Registration Rights
Agreement, and when executed and delivered
they will constitute valid and binding
obligations of each of EEI and Gloria,
enforceable against each of them in
accordance with their terms.
- This Agreement and the Registration Rights
Agreement do not violate the terms of, or
cause a default under, any other agreement
or instrument binding on EEI, Gloria or any
of their respective property and no consent
is required of any person that has not been
obtained for the execution and delivery of,
and performance by EEI and Gloria under, the
Agreement and the Registration Rights
Agreement.
- Each of EEI and Gloria is an "accredited
investor" as defined in Regulation 501 under
the Securities Act of 1933, as amended, and
the Shares are being acquired by EEI for its
own account and for investment purposes only
and not with a view to any resale or
distribution thereof, in whole or in part,
to others.
- EEI has reviewed a copy of quepasa's
prospectus dated June 24, 1999 and its
Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on August
16, 1999, and has had an opportunity to ask
questions of, and receive satisfactory
answers from, duly designated
representatives of quepasa concerning
quepasa.
11
<PAGE> 12
4. Public Announcements; Confidentiality. All press releases,
trade releases or other public announcements with respect to the
transactions contemplated herein shall be jointly prepared by
quepasa and EEI, to the extent required by law and except that the
parties hereby agree to the press release attached hereto as Exhibit
A. Except for the information contained in the press release
attached hereto as Exhibit A and except as required by law,
including the disclosure requirements of applicable securities laws,
the terms of this Agreement shall not be disclosed to any other
person without the consent of each of the parties hereto; provided,
if such disclosure is so required by law, the party producing or
directing the production of such information will use all reasonable
efforts to provide the other parties hereto with notice of such
disclosure and a reasonable opportunity to comment upon, limit or
contest such disclosure.
5. Expenses. Each of the parties hereto shall pay its own
expenses in connection with the transactions contemplated herein,
including travel and other related expenses associated with the
execution and fulfillment of this Agreement.
6 Notices. Either party may give notice to the other in writing
at the addresses set forth below or by facsimile at the facsimile
number set forth below, unless a change of address or facsimile
number has been provided in writing to the other party; notices in
writing shall be deemed delivered upon actual receipt and by
facsimile upon generation of a standard transmission confirmation:
If to EEI or Gloria:
Estefan Enterprises, Inc.
420 Jefferson and 5th Street
Miami Beach, FL 33139
Attention: Frank J. Amadeo
Facsimile No.: 305-695-7108
If to quepasa:
One Arizona Center
400 East Van Buren
Fourth Floor
Phoenix, AZ 85004
Attention: Gary L. Trujillo
Facsimile No.: 602-716-0200
7. Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Arizona. If any
portion of this Agreement is held to be invalid or unenforceable, the
remainder of this Agreement shall remain in full force and effect and
shall be valid and enforceable according to its terms.
12
<PAGE> 13
8. Entire Agreement. This Agreement and the Registration
Rights Agreement contain the full and final understanding between the
parties hereto and are intended as an integration of all prior
negotiations and understandings unless otherwise provided for herein.
No change or modification to this Agreement shall be valid unless in
writing and signed by all parties hereto. No waiver of any provision of
this Agreement shall be valid unless in writing and signed by the party
granting such waiver.
9. Non-Waiver. No waiver of any default shall constitute a
waiver of default on a future occasion, and no delay or omission shall
preclude the exercise of any remedy provided herein, or exercise of any
other right or remedy.
10. Binding Effect; No Assignment. The terms, conditions,
representations and warranties of this Agreement shall survive the
execution hereof and shall be binding upon the parties, their
respective successors and assigns, heirs and personal representatives.
This Agreement may not be assigned, in whole or in part, to any other
person without the express written consent of the other parties hereto.
11. Attorney's Fees. If either party breaches any provision of
this Agreement, or the representations, warranties or covenants
contained herein or the performance required herein does not occur, or
legal action is require to enforce a party's rights hereunder, then the
prevailing party in such action shall be entitled to reimbursement from
the non-prevailing party for the prevailing party's attorney's fees
incurred in connection with such breach, or the enforcement or
protection of rights herein, whether such attorney's fees are incurred
in or out of court, on appeal, in arbitration, in bankruptcy court or
otherwise.
12. Arbitration. Any controversy or claim arising out of or
relating to this Agreement that arises after the full execution of the
Agreement shall be settled by binding arbitration conducted in Phoenix,
Arizona in accordance with, and by three arbitrators appointed pursuant
to, the Rules of the American Arbitration Association then in effect,
unless the parties otherwise agree, and judgment upon the award
rendered pursuant thereto may be entered in any court having
jurisdiction hereof, and all rights or remedies of the parties hereto,
or any of them, to the contrary are hereby expressly waived.
13. Counterparts. This Agreement may be signed in multiple
counterparts, and when signed by all parties, all counterparts shall be
considered as a single document.
13
<PAGE> 14
If the foregoing correctly sets forth our understanding please
sign and return a copy of this Letter of Intent to the undersigned.
Very truly yours,
quepasa.com, inc.
/s/ Gary L. Trujillo
--------------------------------
By: Gary L. Trujillo
Its: Chairman/CEO
Estefan Enterprises, Inc.
/s/ Frank J. Amadeo
--------------------------------
By: Frank J. Amadeo
Its: President
/s/ Gloria Estefan
--------------------------------
Gloria Estefan
14
<PAGE> 1
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of August __,
1999, by and between QUEPASA.COM, INC., a Nevada corporation (the "Company"),
and ESTEFAN ENTERPRISES, INC., a _______________ corporation ("EEI").
WHEREAS, pursuant to the terms of the Agreement (the "EEI Agreement"),
dated as of the date hereof, between the Company, EEI and Gloria Estefan, the
Company issued to EEI 156,863 shares (the "Shares") of the Company's common
stock, $.001 par value per share ("Common Stock"); and
WHEREAS, in order to induce EEI to enter into the EEI Agreement, the
Company agreed to provide EEI with certain registration rights relating to the
Shares.
NOW THEREFORE, in consideration of the promises and mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. As used herein, the following defined terms shall have
the following respective meanings:
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Act Registration Statement" means a registration
statement filed with the SEC pursuant to the Exchange Act.
"Indemnified Party" has the meaning set forth in subparagraph
6(c).
"Indemnifying Party" has the meaning set forth in subparagraph
6(c).
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act or the Exchange Act and the declaration or
ordering of the effectiveness of such registration statement.
"Registrable Securities" means the Shares and all other
securities issued or issuable with respect to the Shares by way of a stock
dividend or stock
<PAGE> 2
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Registrable
Securities, such Registrable Securities shall cease to be Registrable Securities
when (i) a registration statement registering such Registrable Securities under
the Securities Act has been declared effective and such Registrable Securities
have been sold or otherwise transferred by a Shareholder pursuant to such
effective registration statement or (ii) such Registrable Securities are sold to
the public in accordance with Rule 144.
"Rule 144" means Rule 144 under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholder(s)" means EEI and any affiliates thereof who agree
to become bound by the provisions of this Agreement in accordance with paragraph
9 hereof.
2. Demand Registrations.
(a) If at any time following the first anniversary of the date
hereof, the Company receives a written request that the Company
effect a registration under the Securities Act with respect to
the Registrable Securities from Shareholders holding at least a
majority of the Registrable Securities, the Company will use its
diligent best efforts to effect such registration, which
registration may be under any form of registration statement
eligible for use by the Company for such purpose, and as would
permit or facilitate the sale and distribution of all or such
portion of the Registrable Securities as are specified in such
request; provided, however, that the Company shall not be
obligated to take any action to effect such registration
pursuant to this subparagraph 2(a): (i) after the Company has
effected two such registrations pursuant to this subparagraph
2(a) and such registrations have been declared or ordered
effective or (ii) to effect a registration for less than 500,000
shares. The Company shall not be required to cause a
registration statement requested pursuant to this subparagraph
2(a) to become effective prior to 120 days following the
effective date of a registration statement initiated by the
Company or a Shareholder. The Company shall have the right to
include in a registration statement filed pursuant to this
subparagraph 2(a) shares of Common Stock to be offered and sold
for the account of the Company or any other security holders of
the Company.
<PAGE> 3
(b) Subject to subparagraph 2(a) above and the other terms and
conditions contained herein, the Company shall file a
registration statement covering the Registrable Securities so
requested to be registered as soon as practical, but in any
event within 120 days after receipt of the request or requests
of the Shareholder or Shareholders; provided, however, that the
Company may postpone for up to 180 days, the filing or the
effectiveness (which may include the withdrawal of an effective
registration statement) of such a registration statement if the
Company's Board of Directors reasonably determines in its good
faith judgment that it would be materially disadvantageous to
the Company for such a registration statement to be filed and
become effective, or be maintained effective; and, provided
further, that in such event, the Shareholders will be entitled
to withdraw such demand for registration and, if such demand is
withdrawn, such registration will not count as one of the demand
registrations the Shareholders are entitled to hereunder.
(c) The Company shall have the right to select the investment
banker(s) and manager(s) to administer and underwrite the
offering, subject to the approval of a majority of the
Shareholders proposing to distribute their securities through
such underwriting, which will not be unreasonably withheld. In
connection with any registration statement that pertains to
Registrable Securities, all Shareholders proposing to distribute
their securities through such underwriting shall (i) enter into
any reasonable underwriting agreement required by the proposed
underwriter for the registration of Registrable Securities and
(ii) immediately notify the Company, at any time when a
prospectus relating to the Registrable Securities is required to
be delivered under the Securities Act, of the occurrence of any
event relating to information respecting such Shareholders as a
result of which the prospectus which forms a part of such
registration statement contains an untrue statement of a
material fact or omits to state any material fact necessary to
make the statement therein not misleading.
<PAGE> 4
2. Piggyback Registrations.
(a) If at any time following the first anniversary of the date
hereof, the Company shall determine to register any of its
securities (other than pursuant to a demand registration in
accordance with Paragraph 2 hereof), either for its own account
or the account of a security holder or holders, in a
registration statement covering the sale of Common Stock to the
general public pursuant to an underwritten public offering
(except with respect to any registration filed on Form S-8, Form
S-4 or any successor forms thereto), the Company will: (i) give
to each Shareholder written notice thereof at least 15 days
before the initial filing of such registration statement; and
(ii) use its best efforts to include in such registration (and
any related qualification under blue sky laws) and in any
underwriting involved therein all the Registrable Securities
specified in a written request or requests, made within 10 days
after receipt of such written notice from the Company, except as
set forth in subparagraph 3(b) below.
<PAGE> 5
(b) The right of any Shareholder to registration pursuant to
this Paragraph 3 shall be conditioned upon such Shareholder's
participation in the underwriting, to the extent provided
herein. All Shareholders proposing to distribute their
securities through such underwriting shall (together with the
Company) enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such
underwriting by the Company. If requested by the underwriter,
the Shareholders will agree, for themselves and their
affiliates, not to sell or offer to sell any shares of their
Common Stock for a reasonable period of time (not to exceed 180
days) after the effective date of the registration statement.
Notwithstanding any other provision of this Paragraph 3, if the
underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the
Company shall so advise all holders of Registrable Securities
that would otherwise be registered and underwritten pursuant
hereto and the Company shall include in such registration, prior
to the inclusion of any securities that are not Registrable
Securities (other than the securities the registration of which
gave rise to the right of any Shareholder to include Registrable
Securities in such registration), the number of shares of
Registrable Securities requested to be included in the
registration which in the opinion of such underwriter can be
sold, pro rata among all Shareholders in proportion, as nearly
as practicable, to the respective amounts of Registrable
Securities held by such Shareholder at the time of filing the
registration statement, with further proportional allocations
among the Shareholders and if any such Shareholder has requested
less than all such Registrable Securities it is entitled to
register.
3. Expenses of Registration. All expenses incurred in connection
with any registration or qualification pursuant to this Agreement, including,
without limitation, all registration, filing and qualification fees, printing
expenses, fees and disbursements of counsel for the Company, and expenses and
fees of any special audits incidental to or required by such registration, shall
be borne by the Company; provided, however, that the Company shall not be
required to pay fees of legal counsel of the Shareholders, or underwriters'
discounts or commissions relating to Registrable Securities (such underwriters'
fees, discounts or commissions to be borne by the Shareholders, on a pro rata
basis, based upon the number of shares of Registrable Securities sold by each
Shareholder).
<PAGE> 6
4. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
promptly as practicable:
(a) prepare and file with the Securities and Exchange Commission
a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration
statement to become effective;
(b) prepare and file with the Securities and Exchange Commission
such amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a
period of not less than six months and comply with the
provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during
such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such
registration statement;
(c) furnish to each seller of Registrable Securities such number
of copies of such registration statement, each amendment and
supplement thereto, the prospectus included in such registration
statement (including each preliminary prospectus) and such other
documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned
by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and
all other acts and things that may be reasonably necessary or
advisable to enable such seller to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this
Subsection, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in
any such jurisdiction);
<PAGE> 7
(e) promptly notify each seller of such Registrable Securities,
at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such
registration statement contains an untrue statement of a
material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of any such seller,
the Company will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus will not contain an
untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the
Company are then listed and, if not so listed, to be listed on
the NASD automated quotation system if the Common Stock so
qualifies;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being
sold or the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of such Registrable
Securities (including, without limitation, effecting a stock
split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities any underwriter participating in any disposition
pursuant to such registration statement and any attorney,
accountant or other agent retained by any such seller or
underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
<PAGE> 8
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months
beginning with the first day of the Company's first full
calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder;
and
(k) obtain a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters
of the type customarily covered by cold comfort letters.
5. Indemnification. The Company will indemnify each Shareholder,
each of the Shareholder's officers, directors, partners and employees, and each
person controlling such Shareholder, with respect to such registration or
qualification effected pursuant to this Agreement and in which Registrable
Securities are included, against all claims, losses, damages, and liabilities
(or actions in respect thereto) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
registration statement or other document incident to any such registration or
qualification, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of any rule or
regulation promulgated pursuant to any Federal, state or common law rule or
regulation including' without limitation, the Securities Act, applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration qualification or compliance and will reimburse each
such Shareholder, each of the Shareholder's officers, directors, partners and
employees, and each person controlling such Shareholder, for any legal and any
other reasonable expenses incurred in connection with investigating, or
defending any such claim, loss, damage, liability or action, including
reasonable attorneys' fees and expenses; provided, however, that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage or liability arises out of or is based on any untrue statement or
omission based upon and in conformity with written information furnished to the
Company by such Shareholder in a signed document. Such indemnity shall be
effective notwithstanding any investigation made by or on behalf of any
Shareholder or any such officer, director, partner, employee, or controlling
person and shall survive any transfer by the same of the Registrable Securities.
<PAGE> 9
(a) Each Shareholder will, if Registrable Securities held by or
issuable to such Shareholder are included in the securities as
to which such registration or qualification is being effected,
indemnify the Company, each of its directors, officers and
employees, each person who controls the Company, and each other
such Shareholder, each of such Shareholder's officers,
directors, partners and employees, and each person controlling
such other Shareholder, against all claims, losses, damages and
liabilities (or actions in respect thereto) arising out of or
based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement,
prospectus or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such other
Shareholders, each such Shareholder's directors, officers,
partners, employees or persons for any legal or any other
reasonable expenses incurred in connection with investigating or
defending any such claim, loss, damage, liability or action,
including reasonable attorneys' fees and expenses, in each case
to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus or
other document in reliance upon and in conformity with written
information furnished to the Company by such Shareholder.
Notwithstanding the foregoing, the liability of any such
Shareholder shall not exceed an amount equal to the net proceeds
realized by each such Shareholder sold as contemplated herein.
Such indemnity shall be effective notwithstanding any
investigation made by or on behalf of the Company, any such
director, officer, partner, employee, or controlling person and
shall survive the transfer of such securities by such
Shareholder.
<PAGE> 10
(b) Each party entitled to indemnification under this Paragraph
6 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of
any claim as to which indemnity may be sought. Unless in the
reasonable judgment of the Indemnified Party a conflict of
interest may exist between the Indemnifying Party and the
Indemnified Party, the Indemnifying Party shall be permitted to
assume the defense of any such claim or any litigation resulting
therefrom; provided, however, that in any event counsel for the
Indemnifying Party or Indemnified Party who shall conduct the
defense of such claim or litigation as provided above shall be
approved by the other Party (which approval shall not be
unreasonably withheld), and such other Party may participate in
such defense at such Party's expense; provided, further, that
the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying party of its
obligations under this Paragraph 6 unless such failure shall
have had a material adverse effect on the Indemnifying Party's
ability to defend such claim.
<PAGE> 11
(c) The Indemnified Party shall make no settlement of any claim
or litigation which would give rise to liability on the part of
the Indemnifying Party under any indemnity contained in this
Paragraph 6 without the written consent of the Indemnifying
Party, which consent shall not be unreasonably withheld or
delayed, and no Indemnifying Party shall make any settlement of
any such claim or litigation without the consent of the
Indemnified Party, which consent shall not be unreasonably
withheld or delayed. If a firm offer is made to settle a claim
or litigation defended by the Indemnified Party and the
Indemnified Party notifies the Indemnifying Party in writing
that the Indemnified Party desires to accept and agree to such
offer, but the Indemnifying Party elects not to accept or agree
to such offer within ten days after receipt of written notice
from the Indemnified Party of the terms of such offer, then, in
such event, the Indemnified Party shall continue to contest or
defend such claim or litigation and, if such claim or litigation
is within the scope of the Indemnifying Party's indemnity
contained in this Paragraph 6, the Indemnified Party shall be
indemnified pursuant to the terms hereof. If a firm offer is
made to settle a claim or litigation defended by the
Indemnifying Party and the Indemnifying Party notifies the
Indemnified Party in writing that the Indemnifying Party desires
to accept and agree to such offer, but the Indemnified Party
elects not to accept or agree to such offer within ten days
after receipt of written notice from the Indemnifying Party of
the terms of such offer, then, in such event, the Indemnified
Party may continue to contest or defend such claim or litigation
and, in such event, the total maximum liability of the
Indemnifying Party to indemnify or otherwise reimburse the
Indemnified Party in accordance with this Agreement with respect
to such claim or litigation shall be limited to and shall not
exceed the amount of such settlement offer, plus reasonable
out-of-pocket costs and expenses (including reasonably fees and
disbursements of counsel) to the date of notice that the
Indemnifying Party desired to accept such settlement offer.
(d) The indemnification payments required pursuant to this
Paragraph 6 for expenses of the investigation or defense of a
claim or lawsuit shall be made from time to time during the
course of the investigation or defense, as the case may be, upon
submission of reasonably sufficient documentation that any such
expenses have been incurred.
<PAGE> 12
6. Information to be Provided by Shareholders. The Shareholders
whose securities are included in any registration shall furnish to the Company
such written information regarding such Shareholder or Shareholders and the
distribution proposed by such Shareholder or Shareholders as the Company may
reasonably request and as shall be required in connection with any registration
or qualification referred to in this Agreement. The Company agrees to include in
any such registration statement all information concerning the Shareholders and
their distribution which the Shareholders shall reasonably request.
7. Rule 144 Reporting. With a view to making available to the
Shareholders benefits of certain rules and regulations of the SEC which may
permit the sale of the Shares to the public without registration, after the
completion of any registration pursuant to Paragraph 2 or 3 above, the Company
agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, or any successor
provision thereto, at all times;
(b) use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Company under
the Securities Act and the Exchange Act;
(c) so long as a Shareholder owns any Registrable Securities, to
furnish to such Shareholder forthwith upon its request a written
statement by the Company as to the Company's compliance with the
reporting requirements of Rule 144 and of the Securities Act and
the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so
filed by the Company as such Shareholder may reasonably request
in availing itself of any rule or regulation of the SEC allowing
such Shareholder to sell any such securities without
registration; and
(d) take any further action reasonably requested by a
Shareholder to enable such Shareholder to sell its Registrable
Securities without registration under Rule 144, under any
successor provision, or any similar rule or regulation
promulgated by the SEC from time to time.
<PAGE> 13
8. Transfer of Registration Rights. The rights to cause the Company
to register Registrable Securities that are granted by the Company under
Paragraphs 2 and 3 may be assigned by a Shareholder to an affiliate of EEI upon
transfer of such Registrable Securities to such affiliate other than pursuant to
a registration statement, Rule 144 or Rule 145; provided, however, that (i) at
or before the time of the transfer the transferee or assignee agrees in writing
for the benefit of the Company to be bound by all of the provisions contained in
this Agreement and (ii) the Company is given written notice by the Shareholder
at the time of or within a reasonable time after the transfer, stating the name
and address of the transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned.
Subject to the foregoing provision, this Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and
assigns.
9. Changes. The terms and provisions of this Agreement may only be
modified, amended or waived with the written consent of the Company and EEI.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF ARIZONA WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF ARIZONA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF ARIZONA.
11. Notice. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, one
business day after being sent via a nationally recognized overnight courier, or
when sent, when sent via facsimile promptly confirmed in writing to the
recipient. Such notices, demands and other communications will be sent to the
address indicated below:
(i) If to the Company, to:
quepasa.com, inc.
One Arizona Center
400 E. Van Buren, 4th Floor
Phoenix, Arizona 85004
Attention: Gary L. Trujillo
Telecopy No.: (602) 716-0200
<PAGE> 14
with copies to:
Brownstein, Hyatt & Farber, P.C.
410 Seventeenth Street, 22nd Floor
Denver, Colorado 80202
Attention: Jeffrey M. Knetsch, Esq.
Telecopy No.: (303) 223-1111
(ii) If to EEI, to:
Estefan Enterprises, Inc.
420 Jefferson and Fifth Street
Miami Beach, Florida
Attention: Frank J. Amadeo
Telecopy No.: (___) ___-____
with a copy to:
_________________________
_________________________
_________________________
_________________________
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
12. Termination. This Agreement shall terminate on the first day
that all the Shares cease to be Registrable Securities.
13. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and which together shall constitute a
single agreement.
14. Headings. The headings of the Paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
hereof.
15. Severability. If any provision or any portion of any provision
of this Agreement shall be held to be void or unenforceable, the remaining
portions of this Agreement shall continue in full force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 15
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their authorized officers as of the date first above written.
QUEPASA.COM, INC.
By: /s/ Gary L. Trujillo
Gary L. Trujillo
Chairman and Chief Executive
Officer
ESTEFAN ENTERPRISES, INC.
By: /s/ Frank J. Amadeo
Frank J. Amadeo
President
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 37,411,713
<SECURITIES> 0
<RECEIVABLES> 230,670
<ALLOWANCES> 2,766
<INVENTORY> 0
<CURRENT-ASSETS> 40,581,127
<PP&E> 2,037,194
<DEPRECIATION> 156,354
<TOTAL-ASSETS> 42,464,025
<CURRENT-LIABILITIES> 3,806,862
<BONDS> 0
0
0
<COMMON> 14,376
<OTHER-SE> 36,397,705
<TOTAL-LIABILITY-AND-EQUITY> 42,464,025
<SALES> 136,127
<TOTAL-REVENUES> 136,127
<CGS> 0
<TOTAL-COSTS> 21,570,587
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212,587
<INCOME-PRETAX> (21,134,129)
<INCOME-TAX> 0
<INCOME-CONTINUING> (21,434,461)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,134,129)
<EPS-BASIC> (1.91)
<EPS-DILUTED> (1.91)
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