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Filing Pursuant to Rule 424(b)(4)
Registration No. 333-72667
[LOGO]MAPQUEST.COM/TM/
4,600,000 Shares
Common Stock
We are offering 4,600,000 shares of our common stock. This is our initial
public offering, and no public market currently exists for our shares. The
shares we are offering have been approved for quotation on the Nasdaq National
Market under the symbol "MQST."
Shares of common stock may be reserved for sale at the initial public
offering price to our employees, directors and other persons with relationships
with us. These employees, directors and other persons may purchase, in the
aggregate, not more than 11% of the common stock in this offering. See
"Underwriting."
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Investing in our common stock involves risks.
See "Risk Factors" beginning on page 8.
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<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Public Offering Price.................................... $15.00 $69,000,000
Underwriting Discounts and Commissions................... $ 1.05 $ 4,830,000
Proceeds to MapQuest..................................... $13.95 $64,170,000
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 690,000 shares of common stock to cover over-allotments.
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BancBoston Robertson Stephens
Thomas Weisel Partners LLC
U.S. Bancorp Piper Jaffray
Volpe Brown Whelan & Company
The date of this prospectus is May 3, 1999
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[Picture of the mapquest.com home page and logos of representative customers]
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[Sequential pictures illustrating MapQuest's Connect Services and logos of
representative customers]
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[Pictures of MapQuest maps on various web portals and third party websites and
logos of representative customers]
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[Back cover--Picture of various Digital Mapping Services products and logos of
representative customers.]
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until May 28, 1999, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Forward-Looking Statements; Market Data.................................. 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 20
Business................................................................. 28
Management............................................................... 38
Optional Grants in Last Fiscal Year...................................... 43
Aggregated Stock Option Exercises in Fiscal 1998 and Fiscal Year-End
Option Values ......................................................... 44
Certain Transactions..................................................... 48
Principal Stockholders................................................... 51
Description of Capital Stock............................................. 53
Shares Eligible for Future Sale.......................................... 55
Underwriting............................................................. 57
Legal Matters............................................................ 59
Experts.................................................................. 59
Where You Can Find More Information...................................... 60
Index to Financial Statements............................................ F-1
</TABLE>
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MapQuest and GeoSystems are registered trademarks and service marks of
MapQuest.com. This prospectus contains other trade names, trademarks and
service marks of MapQuest.com and of other companies.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company, the common stock being sold in this offering
and our financial statements and the notes relating to these financial
statements appearing elsewhere in this prospectus.
MapQuest
We are a leading online provider of mapping and destination information. By
effectively employing over 30 years of traditional and digital mapping
experience together with our proprietary integration and editing of geographic
databases, we provide comprehensive online mapping solutions to businesses and
customized maps, destination information and driving directions to consumers.
During February 1999, we delivered over 76.2 million maps and over 14.2 million
driving directions through our website and through third-party websites.
According to Media Metrix, Inc., in February 1999 mapquest.com had over 2.7
million unique visitors making it the number five travel/tourism Internet
property in terms of audience reach.
Our online products and services enable businesses to:
. Provide customized maps, destination information and driving
directions to potential customers;
. Expand the service offerings of their websites to attract and retain
users;
. Use outside sources to meet their map-generating and destination
information needs, thereby avoiding a significant portion of the
expenses normally associated with establishing and maintaining a map-
generating personnel and technology organization; and
. Provide potential customers with information regarding which of a
business' multiple locations is closest to the potential customer.
Our online products and services enable consumers to:
. Receive maps and destination information on a real-time basis based
on the specific location provided by the consumer;
. Generate detailed door-to-door driving directions at any time; and
. Create and retrieve customized maps based on the consumer's
preferences.
We are also a leading U.S. provider of traditional and digital mapping
products and services to the educational, reference, directory, travel and
governmental markets. In addition, companies that incorporate call centers, CD-
ROMs or driving direction kiosks into their information delivery strategy often
require non-Internet customized mapping solutions. We have developed our map-
generating software to provide mapping applications in these environments.
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Strategy
Our objective is to be the leading online provider of destination solutions
for businesses and consumers. Key elements of our strategy include:
. Building brand awareness by engaging in a number of advertising, public
relations and other marketing programs designed to promote our global
brand and build loyalty among our business and consumer customers;
. Expanding and enhancing our service by providing comprehensive, cost-
effective, accurate and easily accessible destination information and
value-added tools and features;
. Growing sales channels aggressively by building our direct field sales
force and developing strategic value-added reseller channel relationships
to target U.S. and international markets;
. Developing additional advertising opportunities by offering new methods
of targeted advertising based on a consumer's geographic information;
. Effectively employing our integrated geographic data in developing future
services and products; and
. Pursuing international opportunities to expand our access to additional
business customers seeking to improve the service offerings of their
websites and consumers seeking online map-related information.
The Offering
Common stock offered............ 4,600,000 shares
Common stock to be outstanding
after this offering............ 32,166,699 shares
Over-allotment option........... 690,000 shares
Use of proceeds................. We intend to use approximately $8.6 million
of the net proceeds to redeem all outstanding
shares of our series B preferred stock. We
intend to use the remaining net proceeds for
expansion of sales and marketing
capabilities, product development, working
capital and other general corporate purposes.
Proposed Nasdaq National Market MQST
symbol.........................
Additional shares may be issued after this offering upon the exercise of
options and warrants.
You should be aware that we are permitted, and in some cases obligated, to
issue shares of common stock in addition to the common stock to be outstanding
after this offering. If and when we issue these shares, the percentage of
common stock you own may be diluted. The following is a summary of these
additional shares of common stock:
. 4,739,433 shares of common stock issuable upon exercise of outstanding
options, with a weighted average exercise price of $0.26 per share;
. 1,346,160 shares of common stock issuable upon exercise of outstanding
options, with an exercise price of the per share offering price of this
offering;
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. 2,314,611 shares of common stock issuable upon exercise of outstanding
warrants, with a weighted average exercise price of $0.69;
. 10,819 shares of common stock reserved for future issuance under
MapQuest's 1995 stock option plan;
. 3,645,000 shares of common stock that have been reserved for future
issuance under MapQuest's 1999 stock plan; and
. 1,755,000 shares of common stock that have been reserved for future
issuance under MapQuest's employee stock purchase plan.
Unless otherwise indicated, all information in this prospectus:
. reflects a 2.7-for-1 stock split of our common stock was effected on
April 29, 1999. This stock split of our common stock will not impact the
number of shares being offered and will not have any impact on the
purchasers of the shares in this offering;
. reflects the automatic conversion of all outstanding shares of our series
A preferred stock and series C preferred stock into 27,122,455 shares of
our common stock at the same time as the closing of this offering;
. reflects the redemption of all outstanding shares of our series B
preferred stock at the same time as the closing of this offering; and
. assumes that the underwriters do not exercise their option to purchase
additional shares after the closing of this offering.
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Our headquarters are located at 3710 Hempland Road, Mountville,
Pennsylvania 17554. Our telephone number at that location is (717) 285-8500.
Our website address is www.mapquest.com. The information contained on our
website is not part of this prospectus.
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Summary Financial Data
(in thousands, except per share data)
The following table sets forth our summary financial data. You should read
this information together with the financial statements and the notes to those
statements appearing elsewhere in this prospectus and the information under
"Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The pro forma as adjusted data
reflect the automatic conversion of all outstanding shares of our series A
preferred stock and series C preferred stock into 27,122,455 shares of our
common stock upon the closing of this offering. The pro forma as adjusted data
also reflect the sale of the common stock offered by this prospectus, after
deducting underwriting discounts, estimated offering expenses payable by us,
and the redemption of all outstanding shares of our series B preferred stock.
See the financial statements and the notes to those statements appearing
elsewhere in this prospectus for the determination of shares used in computing
basic and diluted loss per share and pro forma basic and diluted loss per
share.
<TABLE>
<CAPTION>
Year Ended December 31,
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1996 1997 1998
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<S> <C> <C> <C>
Statement of Operations Data:
Revenues
Business......................................... $ 7,020 $ 4,763 $ 6,536
Consumer......................................... 140 1,276 1,376
------- -------- -------
Total business and consumer revenues............ 7,160 6,039 7,912
Digital mapping.................................. 12,417 15,377 16,805
------- -------- -------
Total revenues................................. 19,577 21,416 24,717
Cost of revenues:
Business and consumer............................ 4,325 4,535 4,809
Digital mapping.................................. 7,995 10,767 12,837
------- -------- -------
Total costs of revenues........................ 12,320 15,302 17,646
------- -------- -------
Gross profit...................................... 7,257 6,114 7,071
Operating expenses:
Sales and marketing.............................. 4,455 7,257 5,243
Product development.............................. 2,619 5,048 2,955
General and administrative....................... 1,902 1,811 2,326
------- -------- -------
Total operating expenses....................... 8,976 14,116 10,524
------- -------- -------
Operating loss ................................... (1,719) (8,002) (3,453)
Interest income and expense, net.................. 199 136 54
Other income...................................... 244 267 244
------- -------- -------
Loss before provision for income taxes............ (1,276) (7,599) (3,155)
Provision for income taxes........................ -- -- --
------- -------- -------
Net loss.......................................... (1,276) (7,599) (3,155)
Less preferred stock dividends and accretion...... (525) (5,834) (667)
------- -------- -------
Net loss applicable to common stockholders........ $(1,801) $(13,433) $(3,822)
======= ======== =======
Basic and diluted loss per share.................. $ (8.84) $ (64.43) $(12.09)
Shares used to compute basic and diluted loss per
share........................................... 204 208 316
======= ======== =======
Pro forma basic and diluted loss per share........ $ (0.11)
=======
Shares used to compute pro forma basic and diluted
loss per share.................................. 27,994
=======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
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Pro Forma
Actual As Adjusted
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<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................... $ 564 $55,102
Working capital......................................... 4,301 58,839
Total assets............................................ 11,450 65,988
Cumulative redeemable preferred stock................... 8,332 --
Convertible redeemable preferred stock.................. 17,854 --
Stockholders' equity (deficit).......................... (19,768) 60,956
</TABLE>
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. If any of the following risks actually occur, our
business, financial condition and results of operations would likely suffer. In
this case, the market price of our common stock could decline, and you may lose
all or part of the money you paid to buy our common stock.
We have a limited Internet-related operating history
We introduced our first Internet products and services in 1995 and launched
our website in February 1996. Accordingly, we have a limited Internet-related
operating history from which you can evaluate our business and prospects. As a
new entrant to the Internet business, we face risks and uncertainties relating
to our ability to successfully implement our business plan. If we are
unsuccessful in addressing these risks and uncertainties, our business, results
of operations and financial condition will be materially adversely affected.
We have a history of losses and we expect to continue to lose money in the
foreseeable future
We have not generated enough revenues to exceed the substantial amounts we
have spent to grow our business. We expect to continue to lose money for the
foreseeable future because we plan to continue to incur significant expenses.
Moreover, we base current and future expense levels on our operating plans and
our estimates of future revenues. If our revenues grow at a slower rate than we
anticipate, or if our spending levels exceed our expectations or cannot be
adjusted to reflect slower revenue growth, we may not generate sufficient
revenues to achieve profitability. If we do achieve profitability, we may be
unable to sustain or increase profitability on a quarterly or annual basis in
the future.
We are dependent on a limited number of third parties for a significant portion
of our primary geographic data
Our products and services rely on the availability and accuracy of primary
geographic data. We have licensed a significant portion of our primary
geographic data from a limited number of sources through non-exclusive, short-
term contractual arrangements. In particular, we license a substantial portion
of our data from Navigation Technologies Corporation ("NavTech") pursuant to a
short-term data license. Given the short terms of our primary geographic data
licenses, we will have to renegotiate our contracts in the foreseeable future
which may result in contractual terms that are not as favorable to us as the
existing data licenses. If we cannot maintain these data licenses or any other
third-party license arrangement on commercially reasonable terms, the accuracy
of our products and services would suffer. As a result, the marketability of
our products and services would be reduced.
The success of our business depends on the accuracy of our products and
services
The accuracy of our products and services is substantially dependent on the
accuracy of data we license from third parties. We plan to update our
geographic databases periodically. However, in view of the complexity of
updating several databases, revising software and the need to obtain geocoding
for address data from third parties, we may not be able to perform these
updates as planned. This would adversely affect the accuracy of our products
and services.
The development of our brand is essential to our future success
Establishing and maintaining our brand identity is critical to our efforts
to attract users to our website and to build market acceptance of our mapping
and destination information products and services. In order to build our brand
awareness, we must succeed in our brand marketing efforts, provide high-quality
services and increase user traffic on mapquest.com. These efforts have
required, and will continue to require, significant
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expenses. If we do not generate a corresponding increase in revenue as a result
of our branding efforts or otherwise fail to promote our brand successfully,
our business, results of operations and financial condition will be adversely
affected.
Fluctuations in our operating results may negatively impact our stock price
Our quarterly operating results may fluctuate significantly in the future
due to a variety of factors that could affect our revenues or our expenses in
any particular quarter. It is possible that in some future periods our results
of operations may be below the expectations of public market analysts and
investors. In this event, the price of our common stock is likely to fall.
You should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. Factors that may affect our
quarterly results include:
. demand for our products and services from businesses and consumers;
. our relative mix of Internet and traditional and digital mapping
businesses;
. the timing and amount of license and service payments from our business
customers;
. traffic levels on mapquest.com;
. development of competitive websites and businesses;
. the relatively short terms of our advertising agreements;
. advertising budget decisions by our clients; and
. technical difficulties or system downtime affecting the Internet
generally or the operation of our website specifically.
Seasonal factors may affect our operating results
Seasonality of our traffic on mapquest.com and our advertising revenues may
cause our revenues to fluctuate. Traffic levels on websites are typically lower
during the summer and year-end vacation and holiday periods. We believe that
advertising sales in traditional media, such as television and radio, generally
are lower in the first and third calendar quarters of each year. Similar
seasonal or other patterns may develop in the Internet industry. Our limited
Internet-related operating history and the rapid growth of our Internet
products and services makes it difficult to assess the impact of seasonal
factors on the Internet and therefore whether our Internet products and
services are susceptible to cyclical or seasonal economic fluctuations.
We will not be able to execute our business plan if the market for our Internet
products and services does not develop
To date, sales of our traditional and digital mapping products and services
have accounted for a significant portion of our revenues. However, our business
plan assumes that our Internet products and services will account for a
significant and growing portion of our revenues in the foreseeable future.
Given that markets for our Internet products and services have only recently
begun to develop, are rapidly evolving and are characterized by a large number
of entrants, it is difficult to predict what pricing models, if any, for
Internet- related products and service will emerge as the industry standard.
The markets for our Internet products and services may not develop and demand
for our Internet products and services may not emerge or become economically
sustainable or customer turnover rates may be higher than expected.
Our Internet business is dependent on a small number of customers
In 1998, revenues from a limited number of business customers accounted for
a substantial portion of our Internet products and services revenues. The loss,
without replacement, of one or more of these customers could have a material
adverse effect on our revenues.
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We will not be able to execute our business plan if we cannot increase our
direct and indirect sales channels
In order to support our growth, we need to substantially increase our
direct and indirect sales channels. Our business would be harmed if we fail to
maintain an effective internal sales force. Our ability to increase our
internal sales force involves a number of risks, including:
. the competition we face in hiring and retaining qualified sales
personnel;
. the length of time it takes new sales personnel to become productive;
and
. our ability to integrate and motivate additional sales personnel and
sales support personnel.
In addition, we are seeking to develop relationships with partners such as
value-added resellers in order to leverage their sales organizations to
distribute our Internet products and services. Sales through these indirect
sales channels accounted for less than 0.4% of our revenues in 1998. We may be
unsuccessful in our efforts to develop increased indirect sales in the future.
We may be unable to protect our intellectual property rights and we may be
liable for infringing the intellectual property rights of others
If we fail to adequately protect our proprietary rights, third parties may
infringe or misappropriate our ownership of our intellectual property and this
could erode our market position and our operating results.
Currently we are a defendant in two pending litigations involving
allegations of infringements of third-party patents by our technologies. On May
3, 1999, we agreed to settle one of these proceedings and acquire a license
under the claimant's patents. While we intend to defend the other action
vigorously, our efforts may not be successful. In addition, in the ordinary
course of business we have been, and we expect to continue to be, subject to
claims, including claims of alleged infringement of patents, trademarks and
other proprietary rights of third parties. We expect that infringement claims
in our markets will increase in number as more participants enter the market.
These claims and any resultant litigation could subject us to significant
liability for damages and could result in the invalidation of our proprietary
rights. In addition, even if we prevail, litigation could be time-consuming and
expensive to defend, and could result in the diversion of our time and
attention. Any claims from third parties may also result in limitation on our
ability to use the trademarks and other intellectual property subject to claims
unless we enter into agreements with the third parties responsible for claims,
which may be unavailable on commercially reasonable terms. Please see
"Business--Legal Proceedings."
We may not be able to compete successfully
Competition could result in reduced margins on our products and services,
loss of market share or less user traffic to our website. The markets for
MapQuest's products and services are highly competitive. We compete for
customers with companies offering online map-enabling technology, publishers
and distributors of traditional print media that use or license their content
for use on the Internet, commercial publishing companies, corporate materials
and information market companies, and governmental authorities. We expect
competition to continue to increase because these markets, particularly the
markets for Internet-related products and services, pose no substantial
barriers to entry. Competition may also increase as a result of industry
consolidation.
We will only be able to execute our business plan if use of the Internet grows
Our business would be adversely affected if Internet usage does not
continue to grow. Internet usage may be inhibited for any of the following
reasons:
. the Internet infrastructure may not be able to support the demands
placed on it or its performance and reliability may decline as usage
grows;
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. the ability of websites to provide security and authentication of
confidential information contained in transmissions over the Internet;
. the quality of Internet products and services may not continue to
generate user interest; and
. the ability of websites to respond to privacy concerns of potential
users, including concerns related to the placement by websites of
information on a user's hard drive without the user's knowledge or
consent.
The performance of mapquest.com is critical to our business and our reputation
Any system failure, including network, software or hardware failure, that
causes an interruption in the delivery of our products and services or a
decrease in responsiveness of our website service could result in reduced
revenue, and could impair our reputation and brand.
In May 1998, we entered into a one-year Internet hosting agreement with
Qwest to maintain all of our production servers at its Denver data center.
Qwest does not guarantee that our Internet access will be uninterrupted, error
free or secure. Any disruption in the Internet access provided by Qwest could
have a material adverse effect on our business, results of operations and
financial condition.
We have experienced system interruptions in the past and believe that these
interruptions will continue to occur from time to time in the future. Our
insurance may not adequately compensate us for any losses that may occur due to
any failures in our system or interruptions in our service. Our servers and
software must be able to accommodate a high volume of traffic and we have in
the past and may in the future experience slower response times for a variety
of reasons. Any substantial increase in demands on our servers will require us
to expand and adapt our network infrastructure. If we were unable to add
additional software and hardware to accommodate increased demand, this could
cause unanticipated system disruptions and result in slower response times. An
increase in the volume of consumers accessing mapquest.com or the websites of
our business customers could lead to systems failures or slower response times.
Business and consumer customers may become dissatisfied by any system failure
that interrupts our ability to provide our products and services to them or
results in slower response time.
Consumers visiting mapquest.com and other websites depend on Internet
service providers, online service providers and other website operators for
access to particular websites. Many of these providers have experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems.
We may not be able to hire and retain qualified employees
Our future success depends on our ability to attract, train, motivate and
retain highly skilled employees. Competition for employees in our industries is
intense. We may be unable to retain our key employees or attract, assimilate or
retain other highly qualified employees in the future. We have from time to
time in the past experienced, and we expect to continue to experience in the
future, difficulty in hiring and retaining highly skilled employees with
appropriate qualifications.
We may not be able to successfully manage our expansion
In order to execute our business plan, we must grow significantly. As of
January 31, 1996, we had a total of 167 employees and, as of January 31, 1999,
we had a total of 222 employees. We expect that the number of our employees
will continue to increase for the foreseeable future, in particular with
respect to our Internet-related business. This growth has placed, and our
anticipated future growth combined with the requirements we will face as a
public company will continue to place, a significant strain on our management
systems and resources. We expect that we will need to continue to improve our
financial and managerial controls and reporting systems and procedures. We will
also need to continue to expand and maintain close coordination among our
technical, accounting, finance and sales and marketing organizations. Our
inability to manage growth effectively could have a material adverse effect on
our business, financial condition and results of operations.
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We are dependent on our key management personnel for our future success
Our future success depends to a significant extent on the continued service
and coordination of our management team, particularly Michael Mulligan, our
Chief Executive Officer. The departure of any of our officers or key employees
could materially adversely affect our ability to implement our business plan.
In addition, certain members of our management team, including our Chief
Executive Officer, have joined us within the last year. These individuals have
not previously worked together and are becoming integrated into our management
team. They may not be able to work together effectively or successfully manage
our growth. We do not currently have employment agreements with members of
management other than our Chief Executive Officer and William Muenster, our
Senior Vice President of Development and Production.
We may not be able to execute our business plan if we are not able to expand
internationally
In order to execute our business plan, we must expand our business
internationally. To date, we have limited experience in marketing our products
and services internationally, and we cannot predict our success in these
international markets. Our plans to expand internationally are subject to
inherent risks, including:
. the impact of economic fluctuations in economies outside of the United
States;
. greater difficulty in accounts receivable collection and longer
collection periods;
. unexpected changes in regulatory requirements, tariffs and other trade
barriers;
. difficulties and costs of staffing and managing foreign operations;
. political instability;
. currency exchange fluctuations;
. potentially adverse tax consequences; and
. reduced protection for intellectual property rights outside the United
States.
We may not be able to successfully introduce new products and services
We expect to introduce new and enhanced products and services, and in
particular, Internet products and services in order to generate additional
revenues, attract more business customers to our products and services, attract
more consumers to our website and respond to competition. Any new product or
service we introduce that is not favorably received could damage our reputation
and the perception of our brand name. The failure of our new products and
services to achieve market acceptance and generate revenue could result in a
material adverse effect on our business, financial condition and results of
operations.
We may not be able to adapt as Internet technologies and customer demands
continue to evolve
To be successful, we must adapt to our rapidly changing market by
continually enhancing the technologies used in our Internet products and
services, and introducing new technology to address the changing needs of our
business and consumers. If we are unable, for technical, legal, financial or
other reasons, to adapt in a timely manner in response to changing market
conditions or business and consumer customer requirements, our business,
financial condition and results of operations could be materially adversely
affected.
We are susceptible to breaches of online commerce security
Online commerce on our website relies on encryption and authentication
technology licensed from third parties to provide the security and
authentication necessary to effect secure transmission of credit card numbers
and other proprietary information. The misappropriation of credit card numbers
or other proprietary personal information or the purchase of products through
the fraudulent use of credit cards could expose us to a risk of loss or
litigation and possible liability from the vendors of our products or from
cardholders themselves.
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We are susceptible to breaches of database security
A party who is able to circumvent our security measures could
misappropriate proprietary database information or cause interruptions in our
operations. As a result we may be required to expend significant capital and
other resources to protect against such security breaches or to alleviate
problems caused by such breaches, which could have a material adverse effect on
our business, financial condition and results of operations.
Regulatory and legal uncertainties could harm our business
Any new legislation or regulation, or the application or interpretation of
existing laws, may decrease the growth in the use of the Internet, which could
in turn decrease the demand for our products and services, increase our cost of
doing business or otherwise have a material adverse effect on our business,
financial condition and results of operations. There is an increasing number of
laws and regulations pertaining to the Internet. In addition, a number of
legislative and regulatory proposals are under consideration by federal, state,
local and foreign governments and agencies. Laws or regulations may be adopted
with respect to the Internet relating to liability for information retrieved
from or transmitted over the Internet, domain name registration, online content
regulation, user privacy, taxation and quality of products and services.
Moreover, the applicability to the Internet of existing laws governing issues
including intellectual property ownership and infringement, copyright, patent,
trademark, trade secret, obscenity, libel, employment and personal privacy is
uncertain and developing. Please see "Business--Government Regulation and Legal
Uncertainties."
We would lose revenues and incur significant costs if our systems or material
third-party systems are not Year 2000 compliant
The failure of our internal systems, or any material third-party systems,
to be Year 2000 compliant would have a material adverse effect on our business,
results of operations and financial condition. Although we believe that each of
our material systems is Year 2000 compliant, we do not yet know whether our
internal system, as a whole, is Year 2000 compliant. We are also contacting our
third-party vendors, licensors and providers of hardware, software and services
regarding their Year 2000 readiness. Their failure to be compliant would
adversely affect our ability to deliver our service. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000."
We cannot predict our future capital needs and we may not be able to secure
additional financing
We may need to raise additional funds in the future in order to fund more
aggressive marketing programs or to acquire complementary businesses,
technologies or services. Any required additional financing may be unavailable
on terms favorable to us, or at all. If we raise additional funds by issuing
equity securities, you may experience significant dilution of your ownership
interest and such securities may have rights senior to those of the holders of
our common stock. If additional financing is not available when required or is
not available on acceptable terms, we may be unable to fund our expansion,
successfully promote our brand name, develop or enhance our products and
services, take advantage of business opportunities or respond to competitive
pressures, any of which could have a material adverse effect on our products
and business, financial condition and results of operations. We currently
anticipate that the net proceeds from this offering, together with available
funds, will be sufficient to meet our anticipated needs for at least the next
12 months.
We may not be able to successfully make acquisitions of or investments in other
companies
If we make an acquisition, we could have difficulty assimilating the
acquired company's operations and personnel. If we make other types of
acquisitions, we could have difficulty in assimilating any acquired products,
services, and technologies into our operations. These difficulties could
disrupt our ongoing business, distract our management and employees, increase
our expenses and materially adversely affect our business, financial condition
and results of operations due to increased operating expenses and charges, such
as amortization of goodwill. We have no present understanding or agreement
relating to any acquisition of or investment in another company or its
business.
13
<PAGE>
Future sales of our common stock may negatively affect our stock price
Following the offering, we will have a large number of shares of common
stock outstanding and available for resale beginning at various points in time
in the future. The market price of our common stock could decline as a result
of sales of a large number of shares of our common stock in the market
following this offering, or the perception that such sales could occur. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate. Please see "Shares
Eligible for Future Sale."
Our executive officers, directors and existing stockholders will have the
ability to exercise significant control over us
Our executive officers and directors and entities affiliated with them
will, in the aggregate, beneficially own approximately 82.0% of our common
stock following this offering. These stockholders will be able to exercise
control over all matters requiring approval by our stockholders, including the
election of directors and the approval of significant corporate transactions.
This concentration of ownership may also have the effect of delaying or
preventing a change in control of our company, which could negatively affect
our stock price. Please see "Principal Stockholders."
You will suffer immediate and substantial dilution
The initial public offering price per share will exceed the net tangible
book value per share. Accordingly, investors purchasing shares in this offering
will incur immediate and substantial dilution in their investments. To the
extent outstanding options or warrants to purchase common stock are exercised,
there will be further dilution. Please see "Dilution."
Our management will have broad discretion in use of proceeds
Our management will have broad discretion with respect to the expenditure
of proceeds. Investors will be relying on the judgment of our management
regarding the application of the proceeds of this offering.
14
<PAGE>
FORWARD-LOOKING STATEMENTS; MARKET DATA
Many statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere are forward-
looking statements that are not based on historical facts. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors."
This prospectus contains market data related to MapQuest and the Internet.
This market data includes projections that are based on a number of
assumptions. The assumptions include that:
. no catastrophic failure of the Internet will occur;
. currency exchange fluctuations may occur;
. the number of people online and the total number of hours spent online
will increase significantly over the next five years;
. the value of online advertising dollars spent per online user hour will
increase;
. the download speed of content will increase dramatically; and
. Internet security and privacy concerns will be adequately addressed.
If any one or more of the foregoing assumptions turns out to be incorrect,
actual results may differ from the projections based on these assumptions. The
failure of these markets to grow at these projected rates may have a material
adverse effect on MapQuest's business, results of operations and financial
condition, and the market price of MapQuest's stock.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to MapQuest from the sale of the shares offered by this
prospectus are $62.9 million ($72.5 million if the over-allotment option is
exercised in full) after deducting the underwriting discount and estimated
offering expenses payable by MapQuest. The principal purposes of this offering
are to obtain additional capital, to create a public market for the common
stock and to facilitate future access by MapQuest to public securities markets.
MapQuest intends to use approximately $8.6 million of the net proceeds to
redeem the 1,398,835 outstanding shares of MapQuest's series B preferred stock.
MapQuest intends to use the remaining net proceeds to execute its business
plan. As part of this plan, MapQuest expects to increase its sales and
marketing efforts by hiring additional internal sales personnel and by
increasing its promotional and advertising spending. MapQuest estimates that
its capital expenditures will be approximately $4.0 million in 1999, which is
expected to be used for technical infrastructure improvements and for the
expansion of MapQuest's office space. A portion of the net proceeds also may be
used to acquire or invest in complementary businesses, products or services.
MapQuest has not yet determined the amount of net proceeds to be used
specifically for each of the preceding purposes. Accordingly, management will
have significant flexibility in applying the net proceeds of this offering.
Pending use of the net proceeds for the above purposes, MapQuest intends to
invest such funds in short-term, interest-bearing, investment-grade securities.
See "Description of Capital Stock--Preferred Stock" and Note 5 to the Financial
Statements.
DIVIDEND POLICY
MapQuest has never declared or paid any cash dividends on its common stock.
MapQuest intends to retain any future earnings to support operations and to
finance the growth and development of MapQuest's business and does not
anticipate paying cash dividends for the foreseeable future.
16
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1998, the capitalization
of MapQuest on an actual basis, on a pro forma basis to reflect the automatic
conversion of all outstanding shares of series A preferred stock and series C
preferred stock into 27,122,455 shares of common stock upon the closing of this
offering, and on a pro forma as adjusted basis to reflect the sale of 4,600,000
shares offered by this prospectus, after deducting the underwriting discount
and the estimated offering expenses payable by MapQuest, and the redemption of
the series B preferred stock. This information should be read together with
MapQuest's financial statements and the notes relating to those statements
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Cumulative Redeemable Preferred Stock
Series B Preferred Stock, par value $0.01 per
share, nonvoting, $6.15 per share redemption
value, aggregate liquidation preference of
$8,332,036. 2,000,000 shares authorized;
1,354,802 shares issued and outstanding,
actual and pro forma; no shares issued and
outstanding pro forma as adjusted........... $ 8,332 $ 8,332 $ --
Convertible Redeemable Preferred Stock
Series A Preferred Stock, par value $0.01 per
share voting, $1.00 per share redemption
value, aggregate liquidation preference of
$6,550,000. 6,550,000 shares authorized;
6,550,000 shares issued and outstanding,
actual; no shares issued and outstanding pro
forma and pro forma as adjusted............. 6,550 -- --
Series C Preferred Stock, par value $0.01 per
share voting, $3.51 per share redemption
value, aggregate liquidation preference of
$12,268,292. 3,800,000 shares authorized;
3,495,354 shares issued and outstanding,
actual; no shares issued and outstanding pro
forma and pro forma as adjusted............. 11,595 -- --
Notes receivable for convertible preferred
stock........................................ (291) -- --
Stockholders' Equity (Deficit) --
Preferred stock, par value $0.01 per share.
2,650,000 shares authorized, no shares
issued and outstanding, actual, pro forma
and pro forma as adjusted................... -- -- --
Common stock, par value $0.001 per share.
20,000,000 shares authorized, 336,028 shares
issued and outstanding, actual; 27,458,483
shares issued and outstanding pro forma; and
32,058,483 shares issued and outstanding pro
forma as adjusted........................... -- 27 32
Notes receivable for common stock............. -- (291) (291)
Additional paid-in capital.................... 140 18,258 81,123
Retained deficit.............................. (19,908) (19,908) (19,908)
-------- ------- -------
Total stockholders' equity (deficit).......... (19,768) (1,914) 60,956
-------- ------- -------
Total capitalization........................ $ 6,418 $ 6,418 $60,956
======== ======= =======
</TABLE>
17
<PAGE>
DILUTION
The pro forma net tangible book value of MapQuest as of December 31, 1998,
after giving effect to the conversion of preferred stock, was $6.2 million, or
$0.23 per share of common stock. "Pro forma net tangible book value per share"
is determined by dividing the number of outstanding shares of common stock into
the net tangible book value of MapQuest. Pro forma net tangible book value is
equal to total tangible assets less total liabilities. After giving effect to
the application of the estimated net proceeds from the sale of the shares of
common stock offered by this prospectus, based upon an initial public offering
price of $15.00 per share, after deducting the underwriting discounts,
estimated offering expenses payable by MapQuest, and the redemption of the
series B preferred stock, the pro forma net tangible book value of MapQuest as
of December 31, 1998 would have been $60.8 million, or $1.90 per share. This
represents an immediate increase in net tangible book value of $1.67 per share
to existing stockholders and an immediate dilution of $13.10 per share to new
investors purchasing shares at the initial public offering price. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price.................................... $15.00
Pro forma net tangible book value as of December 31, 1998....... $.23
Pro forma increase in net tangible book value attributable to
new investors................................................. 1.67
----
Pro forma net tangible book value per share after this offering.. 1.90
------
Pro forma dilution per share to new investors.................... $13.10
======
</TABLE>
The following table summarizes on a pro forma basis, the total number of
shares of common stock purchased from MapQuest, the total consideration paid to
MapQuest and the average price per share paid by existing stockholders and by
new investors, based upon the number of shares of common stock outstanding as
of December 31, 1998 and assuming conversion of shares of preferred stock.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ----------------------Price-Per
Number Percent Amount Percent Share
---------- ------- ------------ ------------------
% $ % $
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 27,458,483 85.7 16,449,676 19.3 .60
New Investors................ 4,600,000 14.3 69,000,000 80.7 15.00
---------- ----- ------------ ------- -----
Total...................... 32,058,483 100.0 85,449,676 100.0 2.67
========== ===== ============ ======= =====
</TABLE>
If the underwriters' over-allotment is exercised in full, the number of
shares held by new investors will increase to 5,290,000, or 16.2% of the total
shares of common stock to be outstanding after this offering.
18
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data set forth below should be read
together with the financial statements and the notes relating to those
statements and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this prospectus.
The selected financial data set forth below for each of the years ended
December 31, 1996, 1997 and 1998 and at December 31, 1997 and 1998 are derived
from financial statements of MapQuest, audited by Ernst & Young LLP,
independent auditors, which are included elsewhere in this prospectus. The
selected financial data for the year ended December 31, 1995 and at December
31, 1994, 1995 and 1996 are derived from financial statements of MapQuest
audited by Ernst & Young LLP, which are not included in this prospectus. The
selected financial data for the year ended December 31, 1994 are derived from
the unaudited financial statements of MapQuest, which are not included in this
prospectus. For an explanation of the methods used to determine the number of
shares used to compute historical and pro forma basic and diluted loss per
share see Note 7 to the Financial Statements. Pro forma as adjusted data give
effect to the completion of this offering and the application of the net
proceeds from this offering. Basic and diluted earnings (loss) per share
amounts are not presented for 1994; MapQuest was not an independent entity
until October 31, 1994. In addition, there was no common stock outstanding from
October 31, 1994 to December 31, 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues
Business.............. $ 4,226 $ 3,095 $ 7,020 $ 4,763 $ 6,536
Consumer.............. -- -- 140 1,276 1,376
Digital mapping....... 6,243 10,982 12,417 15,377 16,805
------- ------- ------- -------- --------
Total revenues...... 10,469 14,077 19,577 21,416 24,717
Costs of revenues....... 9,189 8,556 12,320 15,302 17,646
------- ------- ------- -------- --------
Gross profit............ 1,280 5,521 7,257 6,114 7,071
Operating expenses
Sales and marketing... 3,027 2,738 4,455 7,257 5,243
Product development... 642 1,395 2,619 5,048 2,955
General and
administrative...... 1,897 1,373 1,902 1,811 2,326
------- ------- ------- -------- --------
Total operating
expenses.......... 5,566 5,506 8,976 14,116 10,524
------- ------- ------- -------- --------
Operating income
(loss)................ (4,286) 15 (1,719) (8,002) (3,453)
Interest income and
expense, net.......... (72) 271 199 136 54
Other income............ 168 258 244 267 244
------- ------- ------- -------- --------
Income (loss) before
provision for income
taxes................. (4,190) 544 (1,276) (7,599) (3,155)
Provision for income
taxes................. -- 20 -- -- --
------- ------- ------- -------- --------
Net income (loss)....... (4,190) 524 (1,276) (7,599) (3,155)
Less preferred stock
dividends and
accretion............. (10) (458) (525) (5,834) (667)
------- ------- ------- -------- --------
Net income (loss)
applicable to common
stockholders.......... $(4,200) $ 66 $(1,801) $(13,433) $ (3,822)
======= ======= ======= ======== ========
Basic earnings (loss)
per share............. $ -- $ 0.79 $ (8.84) $ (64.43) $ (12.09)
Diluted earnings (loss)
per share............. $ -- $ 0.00 $ (8.84) $ (64.43) $ (12.09)
Shares used to compute
basic earnings (loss)
per share............. -- 84 204 208 316
Shares used to compute
diluted earnings
(loss) per share...... -- 19,313 204 208 316
Pro forma basic and
diluted loss per
share................. $ (0.11)
========
Shares used to compute
pro forma basic and
diluted loss per
share................. 27,994
========
<CAPTION>
December 31,
----------------------------------------------------------
Pro Forma
1994 1995 1996 1997 1998 as adjusted
------- ------- ------- -------- -------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents......... $ 4,646 $ 4,619 $ 1,904 $ 2,482 $ 564 $55,102
Working capital....... 5,687 6,066 4,085 7,460 4,301 58,839
Total assets.......... 9,169 9,601 9,526 13,221 11,450 65,988
Long-term obligations,
less current
portion............. -- -- -- 48 -- --
Redeemable preferred
stock............... 6,486 6,877 7,331 25,711 26,186 --
Stockholders' equity
(deficit)........... 89 213 (1,553) (16,237) (19,768) 60,956
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
MapQuest is a leading online provider of mapping and destination
information. MapQuest provides comprehensive online mapping solutions to
businesses and provides customized maps, destination information and driving
directions to consumers. MapQuest has three lines of business: Internet
business products and services, Internet consumer products and services and
digital mapping products and services.
MapQuest was formed in 1967 as a business unit of R.R. Donnelley & Sons
Company. In 1994, R.R. Donnelley & Sons Company created a subsidiary into which
it transferred the MapQuest business unit. Also in 1994, MapQuest sold shares
to third parties. R.R. Donnelley & Sons Company sold all of its shares of
MapQuest to third parties in 1998. See "Certain Transactions."
Since 1967, MapQuest has provided traditional cartographic products and
services. In 1989, MapQuest began offering digital mapping products and
services. Beginning in 1991, MapQuest introduced map-generating products and
services which evolved into online mapping and routing applications. During the
first quarter of 1996, MapQuest launched mapquest.com and initiated sales and
marketing efforts to build brand awareness and to generate advertising revenues
from its website. In the third quarter of 1996, MapQuest began providing online
mapping and destination information products and services from its website to
companies with an Internet presence and to high-traffic websites offering users
a wide range of information and services on their websites, which are commonly
referred to as portal websites. In 1997, MapQuest increased its focus on its
Internet business and consumer lines of business by devoting significant
resources to mapquest.com and to its other Internet products and services.
During the fourth quarter of 1997 and the first quarter of 1998, MapQuest
decreased its Internet-related sales and marketing activities as it revised its
overall business strategy. During the remainder of 1997, MapQuest continued its
product development efforts and increased its sales and marketing efforts
across all of its lines of business. During the second quarter of 1998,
MapQuest introduced its MapQuest Enterprise Server. MapQuest's Enterprise
Server is designed to provide mapping and routing capability to high volume
websites. As part of its Internet strategy, MapQuest appointed a new chief
executive officer in the second half of 1998.
MapQuest derives its revenues from the following three lines of business:
Business Products and Services. MapQuest provides Internet products and
services to companies with an Internet presence and to portal websites. These
companies typically contract for MapQuest's services on an annual basis in
consideration for a service fee based on usage and an initial set-up fee.
MapQuest recognizes service fees ratably over the period of the service. In
addition, MapQuest recognizes revenues from the set-up fee upon completion of
the related installation services. Typically, MapQuest completes the
installation service in less than a month from the signing of a contract with a
customer. As part of MapQuest's Enterprise Server, MapQuest licenses its data
and sub-licenses third-party data to its business customers. Revenues for
software and data licenses relating to MapQuest Enterprise Server and other
licensed products are recognized upon delivery of the product. In addition,
MapQuest has entered into revenue sharing arrangements for advertising revenues
generated by a MapQuest business customer's website. Any revenues MapQuest
receives from these revenue sharing arrangements are recognized by MapQuest
upon notification by its business customers of advertising revenues on their
websites. However, revenues from these arrangements have not been material to
date. Further, under those agreements where MapQuest has a maintenance or
upgrade obligation, MapQuest recognizes revenue for these obligations over the
period of the obligation. Revenues from systems integration contracts,
typically long-term fixed-price contracts, are recognized on the percentage-of-
completion method. The percentage-of-completion method measures the number of
labor hours incurred to date as a percentage of estimated total labor hours for
each contract. MapQuest has also historically provided business products and
services for non-Internet applications by licensing software and data and by
providing professional services on a time and materials basis or a fixed fee
basis. Revenues from non-Internet applications as a percent of business
products and services revenues has declined over the last three years and, in
1998, they accounted for less than
20
<PAGE>
30.5% of revenues from the business products and services line of business.
Revenues from all other services provided are recognized when the services are
rendered or delivery of the product is made. Revenues from MapQuest's business
products and services line of business accounted for 26.4% of total revenues in
1998.
Consumer Products and Services. Through mapquest.com, MapQuest derives
revenues primarily from the sale of advertising and sponsorships. Advertising
rates vary depending on whether the advertisements are delivered to a general
audience or a targeted audience based on specific geographic location.
Advertising revenues are typically recognized ratably over the period in which
the advertisements are displayed, provided that no significant obligations
remain and the collection of the resulting receivable is likely. The average
term of MapQuest's advertising contracts is between one to two months. MapQuest
may guarantee its advertisers a pre-set level of impressions on mapquest.com.
Impression refers to a delivery of an advertisement to a user. If the
guaranteed impressions are not met, MapQuest defers recognition of the
corresponding revenue until the guaranteed impressions are achieved.
Sponsorship contracts may have longer terms and may allow sponsors to be
exclusive sponsors of portions of mapquest.com or particular advertising
categories. Barter transactions in which MapQuest received advertising or other
goods and services in exchange for content or advertising on mapquest.com
accounted for no more than 2.0% of total revenue in each of 1996, 1997 and
1998. Revenues from MapQuest's consumer products and services business line
accounted for 5.6% of total revenues in 1998.
Digital Mapping Products and Services. In its digital mapping business,
MapQuest derives substantially all of its revenues from providing digital
mapping services to businesses and from the sale of mapping products to
distributors, retailers and corporate customers. MapQuest typically receives
fees and payments on a time and materials basis or a fixed fee basis. Revenues
from these services are recognized when the services are rendered. In addition,
revenues from long-term contracts are recognized on the percentage-of-
completion method, measured by the number of labor hours incurred to date as a
percentage of estimated total labor hours for each contract. MapQuest also
licenses software and data for a license fee and/or royalties. License fees are
recognized upon delivery of the software and data. Royalty revenue is
recognized upon payment received. Revenues from all other services provided are
recognized when the services are rendered. With respect to the sale of mapping
products, MapQuest is paid negotiated amounts, depending on volume, from
retailers and distributors, subject to minimum sales and return arrangements.
Revenues from MapQuest's digital mapping line of business accounted for
approximately 68.0% of total revenues in 1998.
Year ended December 31, 1997 compared to year ended December 31, 1998
Revenues
Total revenues increased by $3.3 million from $21.4 million in 1997 to
$24.7 million in 1998. Revenue for the top 10 customers of MapQuest as a
percent of total revenue decreased from 44.5% in 1997 to 27.2% in 1998.
Business Revenues. Business revenues increased by $1.7 million from $4.8
million in 1997 to $6.5 million in 1998. This increase was primarily due to an
increase in the number of businesses using MapQuest's products and services and
the introduction of additional products and services. In addition, during 1998
MapQuest introduced its Enterprise Server products and services. MapQuest
expects its business products and services revenues to become a greater
percentage of its total revenue in the future. As a percent of total revenues,
business revenues increased from 22.2% in 1997 to 26.4% in 1998.
Consumer Revenues. Consumer revenues increased $0.1 million from $1.3
million in 1997 to $1.4 million in 1998. This increase was due to increased
advertising sales, including advertisements placed on its website and
sponsorship advertisements. During 1998, MapQuest changed its third-party
advertising sales representative organization. Consequently, MapQuest did not
recognize revenues from third-party advertising sales representative
organizations during this transition. MapQuest expects to continue to derive
revenue from selling advertisements on mapquest.com and also expects that
revenues from its consumer business will increase as a percentage of its total
revenue. As a percent of total revenues, consumer revenues decreased from 6.0%
in 1997 to 5.6% in 1998.
21
<PAGE>
Digital Mapping Revenues. Digital mapping revenues increased by $1.4
million from $15.4 million in 1997 to $16.8 million in 1998. This increase was
primarily due to increased sales of printed products, including the National
Geographic Road Atlas and the National Geographic American Road Atlas. MapQuest
expects digital mapping revenues will decrease as a percentage of total revenue
as MapQuest believes the growth in this business line to be slower than that of
the Internet consumer and business lines of business. As a percent of total
revenues, digital mapping revenues decreased from 71.8% in 1997 to 68.0% in
1998.
Cost of Revenues
Cost of revenues consists primarily of compensation for operations
personnel and related operations costs, including depreciation of operating
assets, third-party royalties, print and paper costs for printed products, and
subcontractor costs. Cost of revenues increased by $2.3 million from $15.3
million in 1997 to $17.6 million in 1998. This increase was primarily due to
the increased cost of printed products for distributors, retailers and
corporate customers, including National Geographic, and higher depreciation
costs associated with computer hardware purchases.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, travel related expenses, sales promotion expenses,
public relations expenses and costs of marketing materials. Sales and marketing
expenses decreased by $2.1 million from $7.3 million in 1997 to $5.2 million in
1998. This decrease reflects lower promotional costs and personnel expenses as
MapQuest implemented expense reduction efforts in early 1998. These expense
reductions included a reduction in personnel, decreased travel expenses and
lower spending for sales promotions involving trade shows and public relations.
These expense reduction efforts were undertaken as MapQuest revised its
business strategy. MapQuest expects to incur significant increased sales and
marketing expenses on an absolute dollar basis and as a percentage of revenues
as it hires additional sales and marketing personnel and as it expands its
sales and marketing campaigns.
Product Development. Product development expenses are primarily the costs
of developing new products and services and modifying existing products and
services, including software and data. These expenses consist primarily of
salaries for product development personnel and related expenses, contract labor
expense, and consulting fees. Product development expenses decreased by $2.0
million from $5.0 million in 1997 to $3.0 million in 1998. The decrease from
1997 to 1998 was primarily due to decreases in personnel and related expenses
as MapQuest implemented the expense reduction efforts described in the
preceding paragraph in early 1998. MapQuest plans to increase product
development expenditures significantly for MapQuest's business and consumer
products and services in absolute dollars in future periods.
General and Administrative. General and administrative expenses consist
primarily of payroll and related expenses for MapQuest's executive, accounting
and administrative personnel, professional services and other general corporate
expenses. These expenses increased by $0.5 million from $1.8 million in 1997 to
$2.3 million in 1998. The increase from 1997 to 1998 was primarily due to costs
associated with the hiring of a new Chief Executive Officer and for additional
professional services. MapQuest anticipates hiring additional personnel and
incurring additional costs related to being a publicly held entity, including
directors' and officers' liability insurance, investor relations programs and
professional service fees.
Interest Income and Expense, Net
Interest income was $0.1 million in 1997 and 1998.
Other Income
Other income decreased $0.1 million from $0.3 million in 1997 to $0.2
million in 1998. This decrease was primarily due to lower equity in the
earnings of a joint venture that serves a number of automobile clubs with trip
routing services.
22
<PAGE>
Income Taxes
MapQuest paid no income taxes in 1997 or 1998. MapQuest has incurred a net
loss for each period since incorporation, except for 1995. As of December 31,
1998, MapQuest had approximately $11.7 million of net operating loss
carryforwards for federal income tax purposes, which expire beginning in 2009.
Due to the uncertainty of future profitability, a valuation allowance equal to
the deferred tax asset has been recorded. Changes in ownership resulting from
transactions among MapQuest's stockholders and sales of common stock may limit
the future annual realization of the tax net operating loss carryforwards under
Section 382 of the Internal Revenue Code of 1986.
Year ended December 31, 1996 compared to year ended December 31, 1997
Revenues
Total revenues increased $1.8 million from $19.6 million in 1996 to $21.4
million in 1997. Revenue for the top ten customers of MapQuest as a percent of
total revenue declined from 58.3% in 1996 to 44.5% in 1997.
Business Revenues. Business revenues decreased $2.2 million from $7.0
million in 1996 to $4.8 million in 1997 as MapQuest transitioned its focus from
non-Internet client/server based products and services to Internet products and
services.
Consumer Revenues. Consumer revenues increased $1.2 million from $0.1
million in 1996 to $1.3 million in 1997. This increase was primarily due to
increased advertising sales on mapquest.com.
Digital Mapping Revenues. Digital mapping revenues increased $3.0 million
from $12.4 million in 1996 to $15.4 million in 1997. The increase reflects
increased sales from printed products for retail, wholesale and corporate
customers, particularly the introduction of the National Geographic Road Atlas.
Cost of Revenues
Cost of revenues increased $3.0 million from $12.3 million in 1996 to $15.3
million in 1997. The increase was primarily due to the increased costs of
printed products for distributors, retailers and corporate customers and
increased costs for operational personnel and related costs.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by $2.8 million
from $4.5 million in 1996 to $7.3 million in 1997. This increase was primarily
due to increased expenses for the hiring of additional personnel and for
increased promotional expenses.
Product Development. Product development expenses increased $2.4 million
from $2.6 million in 1996 to $5.0 million in 1997. This increase was primarily
the result of the development of the National Geographic Road Atlas and the
hiring of additional personnel for MapQuest Internet products and services.
General and Administrative. General and administrative expenses decreased
$0.1 million from $1.9 million in 1996 to $1.8 million in 1997. This decrease
was primarily due to lower personnel costs resulting from expense reduction
efforts as MapQuest revised its business strategy.
Interest Income and Expense, Net
Interest income decreased by $0.1 million from $0.2 million in 1996 to $0.1
million in 1997. The decrease from 1996 to 1997 was the result of changes in
average cash and cash equivalent balances.
23
<PAGE>
Other Income
Other income remained relatively constant at $0.2 million in 1996 and in
1997.
Income Taxes
MapQuest paid no income taxes in 1997. Income taxes paid in 1996 were less
than $0.1 million.
Selected Unaudited Quarterly
Results of Operations
The following table sets forth selected unaudited quarterly statement of
operations data for each of the eight quarters ended December 31, 1998. The
selected statement of operations data has been prepared substantially on the
same basis as the financial statements appearing elsewhere in this prospectus
and, in the opinion of management, includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
information set forth in the data. The quarterly data should be read together
with the financial statements and the notes to those statements appearing
elsewhere in this prospectus. The results of operations for any quarter are not
necessarily indicative of results to be expected in any future period.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- --------- -------- --------- -------- --------- --------
(Unaudited, in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Business............... $1,192 $ 1,054 $ 1,251 $ 1,266 $1,720 $1,334 $1,834 $ 1,648
Consumer............... 117 180 465 514 292 259 245 580
Digital mapping........ 4,093 3,593 3,758 3,933 3,538 4,729 3,896 4,642
------ ------- ------- ------- ------ ------ ------ -------
Total revenues......... 5,402 4,827 5,474 5,713 5,550 6,322 5,975 6,870
Costs of revenues....... 3,479 3,574 3,994 4,255 3,654 4,618 4,283 5,091
------ ------- ------- ------- ------ ------ ------ -------
Gross profit............ 1,923 1,253 1,480 1,458 1,896 1,704 1,692 1,779
Operating expenses
Sales and marketing.... 1,351 1,718 1,990 2,198 1,483 1,067 1,163 1,530
Product development.... 1,143 1,633 1,138 1,134 877 813 728 537
General and
administrative....... 422 526 440 423 465 527 529 805
------ ------- ------- ------- ------ ------ ------ -------
Total operating
expenses............. 2,916 3,877 3,568 3,755 2,825 2,407 2,420 2,872
------ ------- ------- ------- ------ ------ ------ -------
Operating income loss... (993) (2,624) (2,088) (2,297) (929) (703) (728) (1,093)
Interest income and
expense, net.......... 17 6 61 52 23 14 8 9
Other income............ 49 118 74 26 47 70 117 10
------ ------- ------- ------- ------ ------ ------ -------
Net loss................ $ (927) $(2,500) $(1,953) $(2,219) $ (859) $ (619) $ (603) $(1,074)
====== ======= ======= ======= ====== ====== ====== =======
</TABLE>
MapQuest's total revenues fluctuated on a quarter-to-quarter basis during
the periods presented primarily due to changes in the mix of products and
services sold. During the quarter ended March 31, 1998, MapQuest recognized
business revenues of $0.4 million resulting from the license of its software
and data to a third-party. During the quarter ended March 31, 1998, revenues
from MapQuest's consumer line of business decreased as a result of difficulties
with its then third-party advertising sales organization. During the quarter
ended September 30, 1997, MapQuest began recognizing digital mapping revenues
attributable to an agreement entered into with National Geographic Holdings,
Inc. to develop and publish mapping products for retail distribution with the
National Geographic brand name. During the quarter ended June 30, 1998,
MapQuest began providing the American Road Atlas to National Geographic for
sale to its members. This resulted in increased digital mapping revenues
partially offset by increased cost of revenues relating to print and paper
costs for printed product.
24
<PAGE>
During the quarters ended December 31, 1997 and March 31, 1998, MapQuest
temporarily reduced its sales and marketing and product development activities,
including reducing its number of employees, as it revised its overall business
strategy. As part of its revised Internet strategy, MapQuest reduced its non-
Internet product development activities in the quarter ended December 31, 1998.
During the same quarter, MapQuest incurred additional general and
administrative expenses in connection with hiring its Chief Executive Officer.
As a result of MapQuest's relatively recent focus on the Internet and the
emerging nature of the Internet markets in which it competes, MapQuest is
limited in its ability to accurately forecast its revenue. MapQuest's current
and future expense levels are based largely on its estimates of future revenue
and are to a large extent fixed. Accordingly, MapQuest may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall,
and a shortfall in revenue in relation to MapQuest's expectations could have a
material adverse effect on MapQuest's business, financial condition and results
of operations. In addition, MapQuest currently intends to significantly
increase its operating expenses to develop and enhance its technology, to
create, introduce and enhance its products and services offerings, to fund
increased sales and marketing expenses and to enter into new strategic
agreements. To the extent that these expenses precede or are not subsequently
followed by increased revenue, MapQuest's business, financial condition and
results of operations could be materially adversely affected.
MapQuest's quarterly and annual operating results are likely to fluctuate
significantly in the future due to a variety of factors, many of which are
outside MapQuest's control. See "Risk Factors--Fluctuations in our operating
results may negatively impact our stock price."
Liquidity and Capital Resources
MapQuest has financed its operations to date primarily through the private
placement of equity securities, funds from operations and bank borrowings. As
of December 31, 1998, MapQuest had $0.6 million of cash and cash equivalents.
MapQuest's days sales outstanding in accounts receivable, calculated on a
quarterly basis, were 86 days and 87 days for the fourth quarter ended December
31, 1997 and 1998, respectively. However, due to revenues fluctuating on a
quarter-to-quarter basis, average days sales outstanding in accounts receivable
may periodically exceed 90 days. The average collection period is a result of
the payment practices of some of MapQuest's customers.
Net cash used in operating activities was $9.5 million in 1997 and $0.8
million in 1998. In 1997, cash used by operating activities was primarily a
result of a net loss and increased working capital. In 1998, cash used by
operating activities was primarily a result of a net loss.
Net cash provided by financing activities was $11.4 million in 1997. In
1997, cash provided by financing activities was primarily attributable to net
proceeds from the issuance of convertible preferred stock.
Net cash used in investing activities was $1.5 million in 1996, $1.3
million in 1997 and $1.1 million in 1998. Cash used in investing activities in
each period was primarily related to purchases of property and equipment. In
addition, in 1996 MapQuest acquired the assets of a map specialty supplier.
MapQuest's material capital commitments consisted of obligations under
facilities and operating leases. Management anticipates that it will experience
an increase in its capital expenditures and lease commitments consistent with
its anticipated growth in operations, infrastructure and personnel and
additional resources devoted to building its brand name and building its
marketing and sales force. See Note 10 to Financial Statements.
MapQuest has a revolving demand credit facility with First Union Bank, N.A.
in the amount of $5.0 million which bears interest at First Union Bank's prime
rate or fixed rates as offered by First Union Bank or
25
<PAGE>
LIBOR plus 1.75%. Borrowings are secured by MapQuest's accounts receivable and
are limited to the lesser of $5.0 million or 80% of the net amount of eligible
accounts receivable which are within 90 days of invoice. As of December 31,
1998, there were no borrowings under this credit facility.
MapQuest believes that the net proceeds of this offering, together with its
existing cash and cash equivalents and available borrowings, will be sufficient
to meet its anticipated cash needs for working capital and capital expenditures
for at least the next twelve months. There can be no assurance that the
underlying assumed levels of revenues and expenses will prove to be accurate.
MapQuest may seek additional funding through public or private financings or
other arrangements prior to such time. Adequate funds may not be available when
needed or may not be available on terms favorable to MapQuest. If additional
funds are raised by issuing equity securities, dilution to existing
stockholders will result. If funding is insufficient at any time in the future,
MapQuest may be unable to develop or enhance its products or services, take
advantage of business opportunities or respond to competitive pressures, any of
which could have a material adverse effect on MapQuest's business, financial
condition and results of operations.
Year 2000
The Year 2000 issue is the potential for system and processing failures of
date-related data as a result of computer-controlled systems using two digits
rather than four to define the applicable year. For example, computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, an inability to process transactions, send invoices or engage in
similar normal business activities. MapQuest may be affected by Year 2000
issues related to non-compliant information technology ("IT") systems or non-IT
systems operated by MapQuest or third parties. MapQuest's IT systems consist of
software and data developed either in-house or purchased from third parties,
and hardware purchased from vendors.
State of Readiness. MapQuest has completed a preliminary assessment of its
information technology systems, which includes but is not limited to, the
hardware and software necessary to provide and deliver mapquest.com. MapQuest
is continuing to perform assessments of its non-information technology systems,
which include many of the building and office equipment and systems. To date,
MapQuest's assessment has consisted of the following steps:
. establishing a Year 2000 Committee in the third quarter of 1998
consisting of managers from all relevant functional areas of the
company;
. identifying and evaluating all software and hardware upon which
MapQuest is dependent;
. contacting third-party vendors of hardware, software and services,
including database providers that MapQuest utilizes;
. contacting material non-information technology systems and service
providers;
. developing and formalizing procedures to implement necessary remedial
measures; and
. assessing the need for and developing a business contingency plan.
As of the end of the first quarter of 1999 MapQuest has performed the
following:
. the Committee has reviewed all functional areas of MapQuest and has
identified various systems and software programs that are not Year
2000 compliant;
. MapQuest has performed a Year 2000 simulation on a majority of its
proprietary systems, products and services to test system and product
readiness;
. based on the results of its Year 2000 simulation tests, MapQuest has
revised and continues to revise its code as necessary to improve the
Year 2000 compliance of its proprietary systems;
. MapQuest is continuing to upgrade and test all other hardware and
software used in its operations;
26
<PAGE>
. MapQuest's hosting service provider, Qwest, has stated that it has
established a dedicated Year 2000 Program Office to address the
compliance functions of its affected systems and is actively preparing
its systems for the Year 2000;
. MapQuest has identified all vendors of material hardware and software
components of its IT systems, and has contacted its principal vendors
of hardware, software, and data providers;
. Management is continuing the process of working with its hardware and
software providers to assure that MapQuest is prepared for the Year
2000; and
. MapQuest is currently assessing its non-IT systems.
At this point in its assessment, MapQuest is not currently aware of any
Year 2000 problems relating to these systems which would have a material effect
on its business, financial condition or results of operations, without taking
into account its efforts to avoid such problems. MapQuest plans to complete its
Year 2000 assessment during the summer of 1999.
Cost. To date, MapQuest has not incurred any material costs in connection
with identifying and evaluating Year 2000 compliance issues. Most of its
expenses have been related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters generally. At this time, MapQuest does
not possess the information necessary to estimate the potential costs of the
replacement of third party software, hardware or services that are determined
not to be Year 2000 compliant. Although MapQuest does not anticipate those
amounts will be material, such expenses, if higher than anticipated, could have
a material adverse effect on MapQuest's business, financial condition and
operating results.
Risks. Although MapQuest's assessment may be finalized without identifying
any additional material non-compliant IT or systems operated by MapQuest or by
third parties, a systemic failure beyond the control of MapQuest, such as a
prolonged telecommunications or electrical failure is possible. This type of
failure could prevent MapQuest from operating its business, prevent users from
accessing its website, or change the behavior of advertising customers or
persons accessing its website. MapQuest believes that the primary business
risks, in the event of such systemic failure, would include but not be limited
to, lost advertising revenues, lost business revenues, increased operating
costs, loss of customers or persons accessing its website and servers, or other
business interruptions of a material nature, as well as claims of
mismanagement, misrepresentation, or breach of contract.
Contingency Plan. As discussed above, MapQuest is engaged in an ongoing
Year 2000 assessment. The results of MapQuest's further testing and the
responses received from third-party vendors, service providers and customers
will be taken into account in determining the nature and extent of any
contingency plans.
27
<PAGE>
BUSINESS
Overview
MapQuest is a leading online provider of mapping and destination
information. By effectively employing its over 30 years of traditional and
digital mapping experience together with its proprietary integration and
editing of geographic databases, MapQuest provides comprehensive online mapping
solutions to businesses and provides customized maps, destination information
and driving directions to consumers. During February 1999, MapQuest delivered
over 76.2 million maps and over 14.2 million driving directions through its own
website and through third-party websites. According to Media Metrix, Inc., in
February 1999 mapquest.com had over 2.7 million unique visitors, making it the
number five travel/tourism Internet property in terms of audience reach.
Industry Background
Growth of the Internet
The Internet is an increasingly significant global medium for distributing
and collecting information, conducting commerce and communicating.
International Data Corporation estimates that the number of Internet users
worldwide exceeded 69.0 million in 1997 and will grow to over 320.0 million by
2002, representing a compounded annual growth rate of over 35%. According to
Forrester Research, Inc., by 2002 approximately 50% of U.S. businesses will
have an online presence. The growth of the Internet is being driven by a number
of factors, including:
. increased use of personal computers and modems;
. improvements in network systems and infrastructure;
. more readily available and lower cost access to the Internet;
. increased awareness of the Internet among businesses and consumers;
. increased volume of information and services offered on the Internet;
. more compelling interactive content available on the Internet; and
. increased acceptance of conducting transactions online.
Convergence of the Traditional and Digital Mapping Industries and the
Internet
Geographically-relevant information has traditionally been provided through
a variety of reference materials, including road maps, atlases, travel guides,
telephone directories and textbooks. According to a 1998 International Map
Trade Associations' United States consumer survey, the annual market for
published map, atlas and travel guide products in the United States is
estimated to be in excess of $1.6 billion. The development of technology has
allowed companies to effectively employ their databases of information across a
greater number of platforms such as CD-ROMs, client/server systems and the
Internet. Further, with the development of the Internet, users are able to
easily and cost-effectively access information on a 24-hour basis. MapQuest
believes that the Internet presents a significant opportunity to provide users
with comprehensive and reliable geographically relevant information through the
delivery of highly customized maps, destination information and driving
directions on a real-time basis.
Online Destination Information for Businesses
Businesses must be able to cost-effectively communicate their existence and
physical locations to potential customers. This information has historically
been provided through traditional print media, such as newspapers and the
yellow pages, which generally target only narrow geographic audiences and have
a limited ability to provide updated destination information that is tailored
to the specific routing needs of a potential customer. MapQuest believes that
the Internet presents a significant opportunity for businesses to provide
potential customers with real-time physical location information and customized
driving directions to such locations.
28
<PAGE>
In addition, highly trafficked websites such as portals, which provide
users with a wide range of information and services at a single site, need to
continually enhance and expand their service offerings to promote and extend
usage among existing and new users. Many of these sites have expanded their
websites through the addition of a variety of features such as stock quotes,
news, yellow pages, and mapping and destination information. However, many of
these websites do not have the personnel or technical infrastructure necessary
to provide these expanded service offerings on a cost-effective basis. MapQuest
believes that businesses will increasingly seek to outsource products and
services to expand the service offerings of their websites.
Online Destination Information for Consumers
Consumers and travelers have traditionally located businesses and other
points of interest by using maps, telephone and general information inquiries.
As the availability of travel-related information on the Internet becomes more
available, consumers and travelers are increasingly obtaining location
information online. MapQuest believes there is a significant opportunity to
provide consumers and travelers with easily accessible, reliable and
comprehensive door-to-door driving directions available 24 hours a day.
Geographically Targeted Online Advertising
Forrester Research, Inc. estimates that online advertising revenues will
grow from approximately $1.0 billion in 1998 to approximately $8.1 billion in
2002. Advertisers on the Internet desire cost-effective means of targeting
their advertising and direct marketing efforts. MapQuest believes that specific
location information provided by a consumer on a real-time basis would improve
these efforts.
MapQuest believes there is a significant opportunity to provide accurate
and reliable products and services designed to meet the mapping and destination
information needs of businesses and consumers on the Internet. Businesses must
be able to accurately direct a potential customer to their physical
location(s). Further, to successfully attract and retain users, highly
trafficked websites need to continually and cost-effectively expand the service
offerings of their websites. In addition, consumers using the Internet need a
reliable source of real-time customized destination information available 24
hours a day.
The MapQuest.com Solution
MapQuest is a leading online provider of mapping and destination
information for businesses and consumers.
MapQuest's online products and services enable businesses to:
. Provide customized maps, destination information and driving directions
to potential customers;
. Expand the service offerings of their websites to attract and retain
users;
. Use outside sources to meet their map-generating and destination
information needs, thereby avoiding a significant portion of the
expenses normally associated with establishing and maintaining a map-
generating personnel and technology organization; and
. Provide potential customers with information regarding which of a
business' multiple locations is closest to the potential customer.
MapQuest's online products and services enable consumers to:
. Receive maps and destination information on a real-time basis based on
specific location parameters provided by the customer;
. Generate detailed door-to-door driving directions at anytime; and
. Create and retrieve customized maps based on the consumer's preferences.
29
<PAGE>
MapQuest is also a leading U.S. provider of traditional and digital mapping
products and services to the educational, reference, directory, travel and
governmental markets. In addition, companies that incorporate call centers, CD-
ROMs or driving direction kiosks into their information delivery strategy
require non-Internet customized mapping solutions. MapQuest has developed its
map-generating software to promote the rapid development of mapping
applications in these environments.
Strategy
MapQuest's objective is to be the leading online provider of destination
solutions for businesses and consumers. Key elements of MapQuest's strategy
include:
Build Brand Awareness. MapQuest intends to further its position as an
industry leader for online destination information for businesses and consumers
by enhancing its brand name recognition. In addition to branding on its
website, MapQuest currently co-brands its products and services on each of its
business customer's websites. MapQuest intends to expand its use of
advertising, public relations and other marketing programs designed to promote
its global brand and build loyalty among its business and consumer customers.
In the future, MapQuest intends to expand both its online and offline marketing
programs.
Expand and Enhance the MapQuest Service. MapQuest intends to continue to
broaden and deepen its services by providing comprehensive, cost-effective,
accurate and easily accessible information and value-added tools and features.
MapQuest is developing product and service enhancements aimed at its business
customers, including enhancing their opportunity to offer geographically
targeted advertising programs on their websites. MapQuest's planned
enhancements to its consumer service include introducing greater
personalization features to mapquest.com.
Grow Sales Channels Aggressively. MapQuest intends to build its sales
capabilities in order to broaden penetration of its products and services and
generate increased revenues. MapQuest intends to build its direct field sales
force to target U.S. and international markets. MapQuest also seeks to develop
strategic relationships in the value-added-reseller ("VAR") channels. MapQuest
also intends to build its own advertising sales force in order to augment the
current third-party representative sales force it engages to sell
advertisements on mapquest.com.
Develop Additional Advertising Opportunities. MapQuest intends to increase
and expand its advertising revenue opportunities by offering new methods of
targeted advertising based on a consumer's geographic information. MapQuest
will use consumer-provided information to provide advertisers with the ability
to base their advertising and promotions on a consumer's geographic
information.
Use Existing Integrated Geographic Data as a Platform. MapQuest intends to
develop new products and services by effectively employing the comprehensive
integrated geographic databases it has been developing since 1967. MapQuest has
utilized proprietary editing software tools to create its geographic data from
multiple providers in a variety of data formats.
Pursue International Opportunities. MapQuest believes that significant
opportunities exist to expand MapQuest's products and services internationally.
As of December 1998, approximately 10.8% of the maps that MapQuest generates
from its own website represent international locations. MapQuest intends to
expand its international marketing efforts to gain access to additional
business customers seeking to improve the service offerings of their websites
and consumers seeking online map-related information.
30
<PAGE>
MapQuest Products and Services
Internet Business
<TABLE>
<CAPTION>
Application
Name of and
Product/Service Data Host Description
--------------------- ----------------- -------------------------------------
<C> <C> <S>
MapQuest Connect MapQuest . Enables businesses to display user-
requested maps based on any
combination of city, state, street
address and ZIP code in the United
States.
MapQuest InterConnect MapQuest . Enhances MapQuest Connect.
. Enables consumers who visit a
business' website to find the
closest location to a user's point
of origin.
MapQuest Locator MapQuest . Enhances MapQuest InterConnect.
. Enables more advanced location
searching by integrating MapQuest
with specific geographic search
parameters contained in its
business customer's database, such
as "find closest gas station with a
car wash."
MapQuest TripConnect MapQuest . Enables businesses to provide
consumers with door-to-door driving
instructions, including a route-
highlighted map, trip mileage and
estimated driving time.
MapQuest Enterprise MapQuest . Provides mapping and routing
Service capability designed primarily for
high volume websites.
. Enables business customers to
integrate generated map pages into
their websites.
MapQuest Enterprise Business Customer . Provides mapping and routing
Server capability designed primarily for
high volume websites.
. Enables business customers to
integrate generated map pages into
websites.
MapQuest Server for Business Customer . Provides mapping and routing
Windows NT capability designed primarily for
low volume websites.
. Enables business customers to
customize their own mapping
solutions.
</TABLE>
Internet Consumer
The mapquest.com website offers several menu options for consumers:
. Maps--enables map generation either based on detailed supplied
information or a more general location request;
. Driving Directions--provides the most direct route from a point of
origin to a destination using a variety of options and formats,
including door-to-door, city-to-city, overview map with text, text only
or turn-by-turn;
. Travel Guide--provides access to lodging, dining, city and weather
information for most consumer-requested destinations, all of which can
be tailored by the consumer to fit his or her particular information
needs;
. Buy A Map--provides access to the MapStore to buy U.S. and international
maps, road atlases, travel guides and other map and travel-related
products; and
. Membership--by becoming a member, the consumer is able to save generated
maps, place his or her personalized icons on generated maps that can be
stored for future use, receive advance notice of new MapQuest features
and enhancements and become eligible for promotional offers.
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<PAGE>
Traditional and Digital Mapping Products and Services
MapQuest publishes or provides the relevant geographic data for printed
road maps, atlases, travel guides, hotel and telephone directories, maps used
in textbooks and reference books, and CD-ROMs. In addition, MapQuest's products
and services include software applications incorporating customized mapping
solutions for publishers and producers of CD-ROMs. MapQuest also provides
extensive cartography, geographic database development, comprehensive map data
maintenance, advanced mapping technology and consultation services to a wide
variety of customers on a fee for service basis. MapQuest's traditional and
digital mapping customers include National Geographic, Galileo International,
Ryder, Exxon, Best Western and the Alamo and National car rental units of
Republic Industries.
MapQuest's product development strategy is to enhance the technology and
features of its Internet, client/server network applications and traditional
and digital mapping applications and to further expand its core geographical
database assets. MapQuest has numerous development projects in process.
MapQuest expects to continue to devote substantial resources to its product
development activities.
Sales and Marketing
MapQuest sells its Internet business products and services in the United
States through a sales organization of 17 employees as of January 31, 1999.
This sales organization consists of 12 direct field salespeople based
throughout the United States and five telemarketers located at MapQuest's
Denver office. In addition, MapQuest sells its Internet products and services
through indirect sales channels, including value-added resellers such as Moore
Data, SABRE BTS and Three-X Communications.
Sales of advertisements on mapquest.com have been generated by third-party
advertising sales representatives and to a lesser extent by MapQuest's internal
advertising sales force, which consisted of two persons as of January 31, 1999.
MapQuest sells its traditional and digital mapping products through a
direct sales force consisting of 11 field salespersons and telemarketers.
MapQuest markets its products and services online by placing advertisements
on third-party websites. In addition, MapQuest advertises through traditional
offline media and utilizes public relations campaigns, trade shows and ongoing
customer communications programs.
32
<PAGE>
Customers
As of January 31, 1999, MapQuest had licensed its products and services to
over 380 business customers. No one customer accounts for over 10% of
MapQuest's overall revenues. The following is a representative list of
customers as of December 31, 1998:
Telecommunications/Directories
Content Providers
Ameritech
Excite APIL Partnership (Don Tech)
Infoseek GTE
Lycos Pacific Bell
Ticketmaster-Citysearch Southwestern Bell
Yahoo! US West
Travel/Entertainment Retail/Services
American Automobile Association Blockbuster
American Express Border's Group
Avis Cybermeals
Bass Hotel and Resorts Home Depot
Best Western Kinko's
Budget Rent-A-Car Sears
Galileo International
Hertz Publishers/Advertising Agencies
Republic Industries
Ryder Transportation Services Classical Atlas
Sabre Group (Travelocity) DDB Needham
Sierra On-Line Harte Hanks
McGraw-Hill
Media Modem Media . Poppe Tyson
R.R. Donnelley
Denver Post
Los Angeles Times Real Estate
National Geographic
Cendant
Other Moore Data
Citgo Petroleum
Exxon
Technology and Infrastructure
Geographic Data
MapQuest has licensed a significant portion of its primary geographic data
from a limited number of sources through non-exclusive, short-term contractual
arrangements. MapQuest currently relies on United States street level data
drawn from the U.S. government and through agreements with NavTech and
Geographical Data Technologies ("GDT"). Data covering Canada is supplied by
Desktop Mapping Technologies Inc. MapQuest obtains Western European street and
major road data from TeleAtlas, NavTech and AND Mapping NV. Major road data for
the rest of the world is obtained from AND Mapping NV. If MapQuest lost access
to these sources of third-party data or should the terms of these contractual
arrangements materially change, MapQuest would need to substitute alternative
sources of data or attempt to develop substitute sources of data internally,
and MapQuest's business, financial condition and results of operations could be
materially and adversely affected.
MapQuest's own proprietary data assets also support its online and
traditional and digital mapping products and services. MapQuest has spent
approximately six years developing a United States major road database.
MapQuest also maintains a graphical image database that contains over 190,000
archived files to serve as an internal reference library. In addition, MapQuest
has developed a suite of international city map data that includes over 300
metropolitan maps and over 500 downtown maps of most major international
tourist and business destinations.
33
<PAGE>
Software and Editing Tools
MapQuest's proprietary software development toolkit, GeoLocate, employs
scalable object-oriented technology and comprises the core tools used to
perform high-speed mapping while maintaining high-quality cartographic display.
Designed with an open architecture, GeoLocate offers platform flexibility in
converting a variety of data formats. GeoLocate has been used in the
development of MapQuest's Internet technology, resulting in the creation of a
scalable platform that is designed to serve millions of maps and driving
directions on a daily basis. An easy-to-use consumer interface overlays
MapQuest's variety of integrated data formats and personalization tools,
enabling consumers to save and display customized maps and driving directions.
MapQuest has also developed numerous software tools and has customized existing
commercial applications to create and maintain its digital map databases.
System Architecture
Maps and driving directions delivered by MapQuest are generated utilizing a
UNIX operating system, Apache web server software and MapQuest's proprietary
mapping applications. User activity is distributed and load-balanced across
multiple servers via our proprietary software and third-party equipment, which
maintain replicated, local storage of underlying software and data, resulting
in minimal interdependencies among servers. Each server has its own local
storage, and all data and software are replicated across all servers. The
system's flexible architecture is designed to be scalable to meet anticipated
future demand. In addition to built-in redundancies, MapQuest operates
automated internal monitoring tools seven days a week/24 hours a day and
independent third parties continuously monitor MapQuest's website from at least
10 different cities on at least eight different national Internet backbone
providers.
MapQuest's network, hosting facilities, internal architecture and
monitoring are deployed to provide high availability, efficiency and
redundancy. MapQuest's Internet map and driving direction applications are
located in Denver, Colorado in a Qwest Communications Cyber Center hosting
facility tied to Qwest's nationwide, dedicated high speed OC-48 IP network.
mapquest.com is connected to Qwest's backbone via Cisco routers and
multiplexers. Qwest does not guarantee that our Internet access will be
uninterrupted, secure, or error free and MapQuest's operations are dependent on
Qwest's ability to protect its and MapQuest's systems against damage from fire,
power loss, water damage, telecommunications failure, vandalism, and other
malicious acts. Any disruption in the Internet access provided by Qwest could
have a material adverse effect on MapQuest's business, financial condition and
results of operations.
Competition
The markets for MapQuest's products and services are highly competitive.
MapQuest competes for customers with companies offering online map-enabling
technology and publishers and distributors of traditional print media that use
or license their content for use on the Internet, commercial publishing
companies, corporate materials and information market companies, and
governmental authorities. In addition, the information supplied by MapQuest on
mapquest.com is available for free through other websites.
MapQuest expects competition to continue to increase because these markets,
particularly the markets for Internet-related products and services, pose no
substantial barriers to entry. Competition may also increase as a result of
industry consolidation. In addition, MapQuest's licensees may develop products
and services that are equal or superior to MapQuest's or that achieve greater
market acceptance than those of MapQuest. Similarly there can be no assurance
that MapQuest's data suppliers will not develop products and services
competitive with those of MapQuest or will continue licensing data to MapQuest.
Increased competition could result in reduced markets, loss of market share or
less traffic to MapQuest's website, any of which could have a material adverse
effect on MapQuest's business, financial condition and results of operations.
MapQuest believes that its ability to compete depends upon many factors,
many of which are beyond its control. These factors include MapQuest's ability
to provide depth and accuracy of destination information, to
34
<PAGE>
increase its sales force and to implement its sales and marketing initiatives,
the introduction and acceptance of new and enhanced products and services
developed either by MapQuest or its competitors and the ease of use of products
and services developed either by MapQuest or its competitors.
Government Regulation
There is an increasing number of laws and regulations pertaining to the
Internet including laws or regulations relating to user privacy, liability for
information retrieved from or transmitted over the Internet, online content
regulation, user privacy, taxation and domain name registration. Moreover, the
applicability to the Internet of existing laws governing issues such as
intellectual property ownership and infringement, copyright, patent, trademark,
trade secret, obscenity, libel, employment and personal privacy is uncertain
and developing.
Privacy Concerns. Government agencies are considering adopting regulations
regarding the collection and use of personal identifying information obtained
from individuals when accessing websites. While MapQuest has implemented and
intends to implement additional programs, designed to enhance the protection of
the privacy of its users, these programs may not conform with any regulations
adopted by these agencies. In addition, these regulatory and enforcement
efforts may adversely affect the ability to collect demographic and personal
information from users, which could have an adverse effect on MapQuest's
ability to provide advertisers with geocentric information. The European Union
(the "EU") has adopted a directive that imposes restrictions on the collection
and use of personal data. The directive could impose restrictions that are more
stringent than current Internet privacy standards in the United States. The
directive may adversely affect the activities of entities such as MapQuest that
plan to engage in data collection from users in EU member countries.
Internet Taxation. A number of legislative proposals would impose
additional taxes on the sale of goods and services over the Internet which may
substantially impair the growth of commerce on the Internet and, as a result,
adversely affect MapQuest's opportunity to derive financial benefit from these
activities.
Domain Names. Domain names are the user's Internet "addresses." The current
system for registering, allocating and managing domain names has been the
subject of litigation and of proposed regulatory reform. Although MapQuest has
applied to register "mapquest.com" as a trademark, third parties may bring
claims for infringement against MapQuest for the use of this trademark. There
can be no assurance that MapQuest's domain name will not lose its value, or
that MapQuest will not have to obtain entirely new domain names in addition to
or in lieu of its current domain names if reform efforts result in a
restructuring in the current system.
Jurisdictions. Due to the global nature of the Internet, it is possible
that, although transmissions by MapQuest over the Internet originate primarily
in Denver, the governments of other states and foreign countries might attempt
to regulate MapQuest's business activities. In addition, as MapQuest's service
is available over the Internet in multiple states and foreign countries, these
jurisdictions may require MapQuest to qualify to do business as a foreign
corporation in each of these states or foreign countries, which could subject
MapQuest to taxes and other regulations.
Liability for Information Retrieved from mapquest.com and from the Internet
Content may be accessed on mapquest.com or on the websites of MapQuest's
business customers, and this content may be downloaded by users and
subsequently transmitted to others over the Internet which could result in
claims against MapQuest based on a variety of theories, including negligence,
copyright, patent or trademark infringement. It is also possible that if any
destination information provided on or through mapquest.com contains errors,
third parties could make claims against MapQuest for losses incurred in
reliance on such information. Any imposition of liability that is not covered
by insurance or is in excess of insurance coverage could have a material
adverse effect on MapQuest's business, financial condition and results of
operations.
35
<PAGE>
Intellectual Property
We rely upon a combination of patent, trademark, copyright law, trade
secret protection and contractual restrictions with employees, customers,
partners and others to protect our proprietary rights. We do not currently hold
any patents, but we have filed one patent application with the United States
Patent and Trademark Office, and intend to file a second patent application in
the near future. There can be no assurance that our patent applications will be
approved and, if approved, that they will not be successfully challenged by
others or invalidated through administrative process or litigation. Patent,
trademark, copyright and trade secret protection may not be available in every
country in which our products and services are distributed or made available.
If we fail to adequately protect our proprietary rights, our business,
financial condition and results of operations could be materially and adversely
affected.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related industries are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any of our proprietary rights or those of other companies
within the industry. Despite our efforts to protect our proprietary rights,
third parties may infringe or misappropriate these rights, which could result
in a material adverse effect on our business, financial condition and results
of operation.
Currently we are a defendant in two pending litigations involving
allegations of infringements of third-party patents by our technologies. Both
litigations are in the early stages. While we intend to defend these actions
vigorously, our efforts may not be successful. In addition, in the ordinary
course of business we have been, and we expect to continue to be, subject to
claims, including claims of alleged infringement of the patents, trademarks and
other proprietary rights of third parties. We expect that infringement claims
in our markets will increase in number as more participants enter the market.
These claims and any resultant litigation could subject us to significant
liability for damages and could result in the invalidation of our proprietary
rights. In addition, even if we prevail, such litigation could be time-
consuming and expensive to defend, and could result in the diversion of our
time and attention, any of which could materially adversely affect our
business, financial condition and results of operations. Any claims from third
parties may also result in limitation on our ability to use the trademarks,
patents, copyrights and other intellectual property subject to such claims
unless we enter into agreements with the third parties responsible for such
claims, which may be unavailable on commercially reasonable terms.
Employees
As of January 31, 1999, MapQuest employed 222 persons, including 63
cartographers, 16 GIS/database analysts, 59 software/systems/Internet
engineers, 46 persons in sales, marketing and customer-support, and 38 persons
in general and administrative areas. None of MapQuest's employees is
represented by a labor union and MapQuest believes it has good employee
relations.
MapQuest believes that its future success will depend in part on its
continued ability to attract, integrate, retain and motivate highly qualified
sales, technical, and managerial personnel, and upon the continued service of
MapQuest's senior management and key sales and technical personnel. MapQuest
may not successfully attract, integrate, retain and motivate a sufficient
number of qualified personnel to conduct its business in the future. Please see
"Risk Factors--We may not be able to successfully manage our expansion."
Facilities
MapQuest's headquarters are located in Mountville, Pennsylvania, where
MapQuest currently leases approximately 62,000 square feet under a ten-year
lease expiring in March 2007. MapQuest also leases approximately 7,200 square
feet in Columbia, Maryland under a two-year lease expiring in June 2000,
approximately 11,000 square feet in Denver, Colorado under a three-year lease
expiring in October 1999, approximately 11,600 square feet in Mount Joy,
Pennsylvania under a three-year lease expiring December 2000, and approximately
4,200 square feet in New York, New York under a seven-year lease expiring
January 2006. MapQuest intends to expand its sales and marketing staff and
therefore may require additional facilities in the foreseeable future.
36
<PAGE>
Legal Proceedings
On December 14, 1998, Mark Tornetta filed a lawsuit against Moore U.S.A.,
Inc. in the United States District Court for the Eastern District of
Pennsylvania. MapQuest is defending this matter pursuant to an indemnity
provision in its contract with Moore U.S.A., Inc. Mr. Tornetta's patent
describes a specific method for searching real estate properties, which Mr.
Tornetta alleges is infringed by Moore U.S.A., Inc.'s online real estate
service. MapQuest believes that the claims of the patent are not infringed by
MapQuest, and/or the patent is invalid. While the litigation is in the early
stage, and its outcome cannot be predicted, MapQuest believes that this
litigation is without merit, and intends to defend this action vigorously.
On January 26, 1999, Civix-DDI, LLC filed a lawsuit in the United States
District Court for the District of Colorado against twenty different
defendants, including MapQuest. Seven of these defendants are licensees of
MapQuest technology and may have rights to indemnification under their
respective agreements or at law. The complaint alleges infringement by MapQuest
of two patents, by manufacture, use, sale, and offers to sell MapQuest
electronic yellow page services, systems and products. MapQuest believes that
the claims of the patents are not infringed by MapQuest, and/or the patents are
invalid. While the litigation is in the early stage, and its outcome cannot be
predicted, MapQuest believes that this litigation is without merit, and intends
to defend this action vigorously.
MapQuest is not party to any other material legal proceedings.
37
<PAGE>
MANAGEMENT
Executive Officers and Directors and Key Employees
The following table sets forth certain information with respect to the
executive officers, key employees and directors of MapQuest as of the date of
this prospectus.
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<C> <C> <S>
*Michael Mulligan................ 48 Chief Executive Officer, Chairman and
Director
*James Thomas.................... 48 Chief Operating Officer, Chief
Financial Officer, Chief Accounting
Officer, Treasurer and Secretary
*William Muenster................ 46 Senior Vice President of Development
and Production
James Hilliard................... 47 Vice President of Digital Mapping
Services
James Killick.................... 36 Vice President of Product Management
Michael Nappi.................... 44 Vice President of Business Solutions
David Ingerman................... 36 Vice President of Marketing
Michael Crosson.................. 46 Vice President of Advertising Sales
Robert Binford................... 44 Corporate Controller, Assistant
Treasurer and Assistant Secretary
Robert McCormack (1)............. 59 Director
John Moragne (2)................. 42 Director
Daniel Nova (2).................. 37 Director
Carlo von Schroeter (1).......... 35 Director
C. Richard Allen................. 45 Director
</TABLE>
- --------
* Denotes executive officer.
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Michael Mulligan has served as Chief Executive Officer and Chairman of
MapQuest since August 1998. From May 1995 to June 1998, Mr. Mulligan was Senior
Vice President and General Manager of Corporate Services Interactive at
American Express Travel Related Services, where he was responsible for
developing and implementing American Express' interactive travel strategy. Mr.
Mulligan was an independent consultant to various companies from October 1994
to April 1995. From September 1993 to October 1994, Mr. Mulligan served as
Chief Operating Officer of Official Airline Guide, an airline information
publishing company. Mr. Mulligan holds a B.A. from Wheeling College and an
M.B.A. from Harvard Business School.
James Thomas has served as Chief Financial Officer of MapQuest since July
1995 and as Chief Operating Officer of MapQuest since June 1997. From September
1994 to June 1995, Mr. Thomas was an independent consultant. From July 1993 to
August 1994, Mr. Thomas was President of the publishing division of Sierra On-
Line, Inc., a multimedia entertainment publisher and developer. Mr. Thomas
holds a B.S. from the Florida Institute of Technology and an M.B.A. from the
University of Virginia.
William Muenster has served as Senior Vice President of Development and
Production of MapQuest since September 1997. From February 1995 to August 1997,
Mr. Muenster served as Unit President of MapQuest's Mapping Products and
Services Group. From November 1993 to February 1995, Mr. Muenster served as
MapQuest's Vice President of Operations. Mr. Muenster holds a B.A. from the
University of Virginia and an M.I.M. from the American Graduate School.
James Hilliard has served as Vice President of Digital Mapping Services of
MapQuest since October 1998. From June 1996 to October 1998, Mr. Hilliard
served as MapQuest's Vice President of Sales and Marketing for Mapping Products
and Services. From July 1993 to June 1996, Mr. Hilliard served as MapQuest's
Director of Publisher Services. Mr. Hilliard holds a B.B.A. and an M.S. from
the University of Wisconsin.
38
<PAGE>
James Killick has served as Vice President of Product Management of
MapQuest since January 1998. From January 1997 to January 1998, Mr. Killick was
MapQuest's Director of Product Management. From January 1996 to January 1997,
Mr. Killick served as MapQuest's Director of Data Products. From January 1995
to January 1996, Mr. Killick was Director of Product Marketing at Etak, Inc., a
mapping database company. From January 1994 to January 1995, Mr. Killick served
as Director of Map Data Products at Etak, Inc. Mr. Killick holds a B.Sc. from
the University of York, England.
Michael Nappi has served as Vice President of Business Solutions of
MapQuest since October 1997. From September 1995 to October 1997, Mr. Nappi
served as MapQuest's Director of Business Development. Mr. Nappi held various
sales positions with MapQuest from May 1992 to September 1995. Mr. Nappi holds
a B.A. and a B.S. from Kent State University.
David Ingerman has served as Vice President of Marketing of MapQuest since
January 1999. From June 1998 to December 1998, Mr. Ingerman was President of
Internet Marketing Associates Consulting, a consulting firm focusing on
applying direct marketing disciplines to the Internet. From August 1984 to May
1998, Mr. Ingerman held various marketing positions at American Express. Mr.
Ingerman holds a B.A. from the University of Pennsylvania and an M.B.A. from
Columbia Business School.
Michael Crosson has served as Vice President of Advertising Sales of
MapQuest since January 1999. From March 1998 to January 1999, Mr. Crosson
served as the Managing Director of Eastern Sales for NetRatings, a web audience
measurement company. From January 1993 to March 1998, Mr. Crosson operated his
own consulting business, developing strategic advertising and partnerships for
websites. From April 1992 to August 1996, Mr. Crosson served as Director of
Online Publishing at Scholastic, Inc., a publishing company. Mr. Crosson holds
a B.A. from the University of Arizona.
Robert Binford has served as Corporate Controller of MapQuest since January
1995. From February 1991 to January 1995, Mr. Binford served as a Financial
Manager of MapQuest. Mr. Binford holds a B.S. from the University of Kentucky.
Robert McCormack has served as a director of MapQuest since May 1998 and
previously served as a director of MapQuest from November 1994 to July 1997.
Since 1993, Mr. McCormack has been a managing director of Trident Capital,
Inc., the general partner of Trident Capital, L.P., a private equity investment
firm. Mr. McCormack serves on the boards of directors of Illinois Tool Works,
Inc. and DeVry, Inc. Mr. McCormack holds a B.A. from the University of North
Carolina and an M.B.A. from the University of Chicago. Mr. McCormack was
elected to the board of directors pursuant to a voting agreement between
MapQuest and some of MapQuest's stockholders which will be terminated upon the
closing of this offering.
John Moragne has served as a director of MapQuest since November 1994 and
was Chairman of the board of directors of MapQuest from November 1994 until
July 1997. Since 1993, Mr. Moragne has been a managing director of Trident
Capital, Inc., the general partner of Trident Capital, L.P., a private equity
investment firm. Mr. Moragne serves on the boards of directors of Daou Systems,
Inc. Mr. Moragne holds a B.A. from Dartmouth College, an M.S. from Stanford
University and an M.B.A. from Stanford Business School. Mr. Moragne was elected
to the board of directors pursuant to a voting agreement between MapQuest and
some of MapQuest's stockholders which will be terminated upon the closing of
this offering.
Daniel Nova has served as a director of MapQuest since July 1997. Since
August 1996, Mr. Nova has served as a general partner of Highland Capital
Partners, a venture capital firm. Previously, he was a general partner of
CMG@Ventures from January 1995 to August 1996 and a Senior Associate at Summit
Partners from June 1991 to January 1995. Mr. Nova is a director of eToys, an
online retailer of toys, Lycos, Inc., an online portal and several private
companies. Mr. Nova received a Bachelor of Science in Computer Science and
Marketing with honors from Boston College and a Masters in Business
Administration from Harvard Business School. Mr. Nova was elected to the board
of directors pursuant to a voting agreement between MapQuest and some of
MapQuest's stockholders which will be terminated upon the closing of this
offering.
39
<PAGE>
Carlo von Schroeter has served as a director of MapQuest since July 1997.
Mr. von Schroeter is a General Partner of Weston Presidio Capital, a private
equity partnership with over $900 million under management. Prior to joining
Weston Presidio Capital at its inception in September 1992, Mr. von Schroeter
was a Vice President with Security Pacific Capital. Mr. von Schroeter serves on
the boards of directors of NOVA Pb, U.S. Netting, Star International Holdings,
and The Lion Brewery. Mr. von Schroeter holds a B.S. from Queen's University,
Canada and an M.B.A. from Harvard Business School. Mr. von Schroeter was
elected to the board of directors pursuant to a voting agreement between
MapQuest and some of MapQuest's stockholders which will be terminated upon the
closing of this offering.
C. Richard Allen has served as a director of MapQuest since May 1998. Since
December 1997, Mr. Allen has served as the President and Chief Executive
Officer of National Geographic Holdings, Inc. Mr. Allen is also the Chief
Executive Officer of National Geographic Ventures, a position he has held since
October 1997. From December 1995 to October 1997, Mr. Allen was a Senior Vice
President of Discovery Communications, Inc., and from February 1993 to December
1995, Mr. Allen was Deputy Assistant to the President of the United States. Mr.
Allen serves on the boards of directors of National Geographic Ventures,
National Geographic Television, National Geographic Holdings, Inc., National
Geographic Channel and Destination Cinema, Inc. Mr. Allen holds a B.A. from
Dartmouth College and a J.D. from the University of Chicago. Mr. Allen is the
nominee of the National Geographic Society to the board of directors pursuant
to an agreement between MapQuest and the National Geographic Society which will
be modified upon the closing of this offering so as to terminate the National
Geographic Society's right to nominate a director to the board of directors.
Please see "Certain Transactions--National Geographic Alliance" for a
description of this agreement.
Each officer serves at the discretion of MapQuest's board of directors.
Within 90 days following this offering, MapQuest expects to nominate and
elect an additional independent director.
Director Terms and Compensation
The members of the board of directors of MapQuest are divided into three
classes, each of whose members will serve for a staggered three-year term. Upon
the expiration of the term of a class of directors, directors in that class
will be elected for three-year terms at the annual meeting of stockholders in
the year in which their term expires. Independent, non-institutional investor
directors are paid an annual retainer and will be granted stock options
exercisable for shares of common stock. Directors who are also employees of
MapQuest or who are affiliated with institutional investors do not receive any
additional compensation for serving on the board of directors.
Compensation Committee Interlocks and Insider Participation
Pursuant to a voting agreement which will be terminated upon the closing of
this offering, MapQuest's compensation committee is comprised of one director
designated by Highland Capital Partners and Weston Presidio Capital, one
director designated by Trident Capital Partners Fund - I, L.P. and Trident
Capital Partners Fund - I, C.V. and one director designated by all of the
directors other than those nominated by members of management. MapQuest's
compensation committee currently has two members. In the past, compensation of
executive officers of MapQuest has been determined by directors of MapQuest who
were not officers of MapQuest. No interlocking relationship exists between
MapQuest's board of directors and the board of directors or compensation
committee of any other company, nor has any interlocking relationship existed
in the past.
40
<PAGE>
Limitation of Liability and Indemnification Matters
MapQuest's certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. The Delaware General
Corporation Law provides that the personal liability of a director for monetary
damages for breach of his or her fiduciary duties as a director may be
eliminated, except for liability for:
. any failure to act in good faith in the best interests of the
corporation or its stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derives an improper personal
benefit.
MapQuest's bylaws provide that MapQuest will indemnify its directors and
officers and may indemnify its employees and agents to the fullest extent
permitted by Delaware law.
In addition to the indemnification provided for in its certificate of
incorporation and bylaws, MapQuest intends to enter into agreements to
indemnify its directors and officers. Under these agreements, MapQuest will be
obligated to indemnify its directors and officers for expenses, attorneys'
fees, judgments, fines and settlement amounts incurred by any director or
officer in any action or proceeding arising out of the director's or officer's
services as a director or officer of:
. MapQuest;
. any subsidiary of MapQuest; or
. any other company or enterprise to which the person provides services
at the request of MapQuest.
MapQuest believes that these provisions and agreements are necessary to attract
and retain qualified individuals to serve as directors and officers.
41
<PAGE>
Executive Compensation and Employment Agreements
The following table sets forth information concerning the compensation
received for services rendered to MapQuest by its current Chief Executive
Officer and each of the other four most highly-compensated executive officers
of MapQuest for the year ended December 31, 1998, whose total compensation in
1998 equaled or exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
--------------- Securities
Salary Bonus Underlying All Other
Name and Principal Position ($) ($) Options Compensation
--------------------------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Michael Mulligan,
Chief Executive Officer (1).... 94,769 100,000 1,944,000 --
James Thomas, Chief Operating
Officer and Chief Financial
Officer........................ 150,000 -- -- --
William Muenster, Senior Vice
President of Development and
Production..................... 140,004 -- -- --
James Hilliard, Vice President of
Digital Mapping Services....... 115,008 28,177(2) 94,500 --
Michael Nappi, Vice President of
Business Solutions............. 107,508 69,814(3) 243,000 --
Barry Glick, Former Chief
Executive Officer (4).......... 131,256 -- -- 56,041(5)
</TABLE>
- --------
(1) Mr. Mulligan was appointed Chief Executive Officer and Chairman of MapQuest
on August 10, 1998. He received salary payments for the period August 10,
1998 through December 31, 1998.
(2) Consists of a $23,177 bonus accrued in 1997 and paid in 1998 and a $5,000
sales bonus earned and paid in 1998.
(3) Reflects sales commissions paid to Mr. Nappi.
(4) Mr. Glick served as MapQuest's Chief Executive Officer prior to Mr.
Mulligan's appointment and received salary payments for the period January
1, 1998 through September 30, 1998.
(5) Represents payments made in connection with Mr. Glick's voluntary
termination of employment. See "Certain Transactions--Other Transactions."
David Ingerman was hired by MapQuest on January 15, 1999 to serve as Vice
President of Marketing. His base salary is $130,008 and he may earn a bonus of
up to 50% of his base salary upon the attainment of performance goals set by
the board of directors. Mr. Ingerman also received options to purchase 270,000
shares of common stock at an exercise price of the per share price of this
offering. These options vest over four years and expire on January 15, 2009.
Michael Crosson was hired by MapQuest on January 20, 1999 to serve as Vice
President of Advertising. His base salary is $125,004 and he received a bonus
of $10,000 upon commencing his employment with MapQuest. Mr. Crosson is also
entitled to sales commissions equal to 5% of any recognized personal sales,
1.5% of any sales made for MapQuest through third-party advertising sales
representatives and 1.5% of any recognized sales made by Mr. Crosson's sales
staff. Mr. Crosson also received options to purchase 160,000 shares of common
stock at an exercise price of the per share price of this offering. These
options vest over four years and expire on January 20, 2009.
42
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information as to options granted to the
named executive officers during the year ended December 31, 1998. MapQuest has
not granted any stock appreciation rights.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term (1)
------------------------------------------- -----------------------
Percent of
Total
Number of Options
Securities Granted to Exercise
Underlying Employees Price
Options in Fiscal Per Expiration
Name Granted Year (2) Share Date 5% 10%
---- ---------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Mulligan (3).... 1,944,000 67.9% $0.37 8/10/08 $452,351 $1,146,347
James Thomas............ -- -- -- -- -- --
William Muenster........ -- -- -- -- -- --
James Hilliard.......... 54,000 1.9 0.37 2/1/08 12,565 31,843
40,500 1.4 15.00(4) 12/31/08 382,053(4) 968,199(4)
Michael Nappi........... 81,000 2.8 0.37 2/1/08 18,848 47,764
162,000 5.7 15.00(4) 12/31/08 1,528,214(4) 3,872,794(4)
Barry Glick............. -- -- -- -- -- --
</TABLE>
- --------
(1) Potential realizable values are net of exercise price, but before the
payment of taxes associated with exercise. Amounts represent hypothetical
gains that could be achieved for the respective options if exercised at the
end of the option term. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by rules of the Securities and
Exchange Commission and do not represent MapQuest's estimate or projection
of MapQuest's future common stock prices. These amounts represent certain
assumed rates of appreciation in the value of the common stock from the
fair market value on the date of grant. Actual gains, if any, on stock
option exercises are dependent on the future performance of the common
stock and overall stock market conditions. The amounts reflected in the
table may not necessarily be achieved.
(2) Based on options to purchase an aggregate of 2,863,620 shares of common
stock granted to MapQuest employees during the year ended December 31,
1998.
(3) These options vest over four years as follows: 16.67% on August 10, 1998,
16.67% on the date of this offering, and 16.67% on each of August 10, 1999,
August 10, 2000, August 10, 2001 and August 10, 2002.
(4) The exercise price of these options is the initial public offering price in
this offering. For purposes of calculating the potential realizable value,
the exercise price is assumed to be $15.00 per share.
43
<PAGE>
AGGREGATED STOCK OPTION EXERCISES IN FISCAL 1998
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to unexercised
options held by the named executive officers as of December 31, 1998. No
options were exercised by the named executive officers during 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at December 31, 1998 at December 31, 1998(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael Mulligan............ 324,064 1,619,936 $4,740,948 $23,699,052
James Thomas................ 202,769 312,905 3,019,358 4,634,580
William Muenster............ 224,940 287,977 3,351,114 4,261,567
James Hilliard.............. 47,250 155,250 702,050 1,685,950
Michael Nappi............... 16,200 253,800 242,400 1,346,600
Barry Glick................. 508,914 -- 7,603,042 --
</TABLE>
- --------
(1) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of the
initial public offering price of $15.00 per share, less the applicable
exercise price per share, multiplied by the number of shares underlying
such options.
Employment Agreements
William Muenster Employment Agreement. In October 1994, MapQuest entered
into an employment agreement with Mr. Muenster providing for:
. an initial base salary of $82,500, subject to annual increases at the
discretion of MapQuest's board of directors;
. incentive compensation of an immediately payable bonus of $10,000 and
the right to participate in MapQuest's annual bonus program;
. an annual bonus of 15% of his base salary if MapQuest achieves its
annual budget; and
. an additional bonus of up to 15% of his base salary for any other
target that the board of directors establishes.
If MapQuest terminates Mr. Muenster's employment without cause or if he
voluntarily terminates his employment, he is entitled to receive severance
benefits equal to:
. any salary and bonus earned through the date of his termination;
. base salary for the six-month period after the date of his
termination; and
. health plan benefits for one year following the date of his
termination.
If Mr. Muenster is terminated by MapQuest for cause, he is entitled to
receive:
. his base compensation;
. all earned and unpaid bonus compensation through the termination date
of his employment; and
. health plan benefits for one year following the date of his
termination.
In addition, Mr. Muenster has agreed to confidentiality, non-competition and
non-solicitation provisions.
Michael Mulligan Employment Agreement. On August 10, 1998, MapQuest entered
into an employment agreement with Mr. Mulligan providing for:
. an initial base salary of $240,000, subject to annual increases at the
discretion of MapQuest's board of directors; and
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<PAGE>
. incentive compensation of an immediately payable bonus of $145,000 per
year, based on objectives and according to a plan to be agreed by Mr.
Mulligan and MapQuest's board of directors.
If MapQuest terminates Mr. Mulligan's employment without cause, he is
entitled to receive severance benefits equal to:
. any salary and bonus earned through the date of his termination; and
. health insurance benefits for one year following the date of is
termination.
If Mr. Mulligan is terminated by MapQuest for cause or if he resigns
following the first anniversary of his employment, he is entitled to receive:
. his base salary; and
. all earned and unpaid bonus compensation through his termination date.
In addition, Mr. Mulligan has agreed to confidentiality, non-competition and
non-solicitation provisions.
In addition, MapQuest granted Mr. Mulligan options to purchase 1,944,000
shares of common stock at an exercise price of $0.37 per share. The options
granted under the employment agreement, subject to certain contingencies, vest
over four years as follows: 16.67% on August 10, 1998, 16.67% on the date of
this offering, 16.67% on each of August 10, 1999, August 10, 2000, August 10,
2001 and August 10, 2002. All of Mr. Mulligan's options will vest immediately
in the event of the takeover of MapQuest by another person or corporation.
Employee Benefit Plans
1995 Stock Option Plan
An aggregate of 6,233,627 shares are reserved for issuance under the 1995
stock option plan. MapQuest may grant stock options under the 1995 stock option
plan to its employees and officers and consultants. The board of directors
selects the individuals to whom options are granted and specifies the terms of
the options. Stock options granted under the 1995 stock option plan may either
be incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986 or stock options that do not qualify as incentive stock
options. As of December 31, 1998, options to purchase an aggregate of 4,847,650
shares of common stock had been granted, at a weighted average exercise price
of $0.26 per share and options to purchase an aggregate of 645,570 shares of
common stock had been granted, at an exercise price equal to the price per
share in this offering. Since December 31, 1998, MapQuest has granted options
to purchase an aggregate of 700,590 shares of common stock at an exercise price
equal to the price per share of this offering. Options to purchase 1,484,954
shares of common stock will vest and become exercisable on the closing of this
offering.
Incentive stock options granted under the 1995 stock option plan may not be
exercised more than 10 years after the date of grant. If an optionee leaves
MapQuest, the optionee generally may exercise only those options vested as of
the date of termination of service. Unless otherwise specified in the option
agreement, if an optionee desires to exercise an option, the optionee must
exercise within 90 days of termination of service for any reason other than
death or disability, and within one year after termination due to death or
disability. The exercise price of incentive stock options granted under the
stock option plan cannot be less than the fair market value of the common stock
of MapQuest on the date of grant. The exercise price of nonqualified stock
options cannot be less than the lesser of $0.04 per share or the fair market
value of the common stock as of the date of the stock option grant. An optionee
may pay the exercise price in cash or in shares of MapQuest's common stock
having a total fair market value equal to the aggregate exercise price.
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The 1995 stock option plan provides for adjustments if a recapitalization
or other change in the common stock of MapQuest dilutes the rights of stock
option plan participants. If any person, directly or indirectly, acquires
securities of MapQuest representing 50% or more of the voting power of MapQuest
or other specified events constituting a change of control, each outstanding
option automatically vests and becomes fully exercisable.
Employee Stock Purchase Plan
Concurrently with this offering, MapQuest established an employee stock
purchase plan under which a total of 1,755,000 shares of common stock are
available for sale. The purchase plan, which is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Internal
Revenue Code of 1986 is administered by the board of directors or by a
committee appointed by the Board. All employees of MapQuest or any present or
future subsidiary of MapQuest designated by the Board of Directors may
participate in the purchase plan. The purchase plan permits eligible employees
to purchase common stock through payroll deductions, which may not exceed 10%
of an employee's compensation, subject to certain limitations. The purchase
plan will be implemented in a series of consecutive, overlapping offering
periods, each approximately six months in duration. The purchase price of each
share of common stock under the purchase plan will be equal to the lesser of
85% of the closing price per share of the common stock on the NASDAQ National
Market System on the start date of that offering period or on the date of
termination of the offering period. Employees may modify or end their
participation in the purchase plan at any time prior to the termination date of
an offering period. An employee's participation ends on the employee's
termination of employment with MapQuest. The purchase plan will terminate in
2009 unless sooner terminated by MapQuest's Board of Directors.
1999 Stock Plan
MapQuest has adopted a 1999 stock plan concurrently with this Offering.
MapQuest has reserved 3,645,000 shares of common stock for the 1999 stock plan.
Pursuant to the 1999 stock plan, MapQuest may grant any combination of the
following to employees, officers and directors of MapQuest and its
subsidiaries:
. stock options;
. stock appreciation rights;
. restricted or unrestricted share awards;
. phantom stock; and
. performance awards.
However, incentive stock options may only be granted to employees of
MapQuest. The plan is administered by a committee appointed by the board of
directors. The committee will select the individuals to whom options are
granted and will specify the terms of the options.
. Incentive Stock Options. These options may not be exercised more than 10
years after the date of grant. The exercise price must be at least equal
to the fair market value of MapQuest's common stock on the date of grant.
The purchase price of the shares issued upon exercise of these options
may be paid in cash or shares of common stock having a total fair market
value equal to the aggregate purchase price.
. Non-Qualified Stock Options. These options may not be exercised more than
10 years after the date of grant. The exercise price will be determined
by the stock option plan committee. The purchase price of shares issued
upon exercise of these options may be paid in cash or shares of common
stock having a total fair market value equal to the aggregate purchase
price.
. Stock Appreciation Rights. These rights may be granted on a free-standing
or tandem basis. The term of exercise will be determined by the board of
directors, but in no event will be more than 10 years
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<PAGE>
from the date of grant. These rights entitle the holder to receive a
payment having an aggregate value equal to the product of the excess of
the fair market value over the exercise price per share specified in the
grant multiplied by the number of shares specified in the award. Payment
by MapQuest of the amount receivable in respect of the stock appreciation
right may be paid in any combination of cash and common stock.
. Phantom Stock, Restricted Shares and Performance Awards. These grants and
awards may be made at the discretion of the committee. The method of
payment of the exercise price will be determined by the committee and may
include a combination of cash and common stock having a fair market value
equal to the aggregate exercise price.
The 1999 stock plan provides for adjustments if a recapitalization or other
change in the common stock of MapQuest which dilutes the rights of 1999 stock
plan participants.
401(k) Plan
MapQuest has a tax-qualified employee savings plan which covers all of
MapQuest's full-time employees who are at least 21 years of age and who have
been employed with MapQuest for at least one month. Eligible employees may
defer up to 15% of their pre-tax earnings, subject to the Internal Revenue
Service's annual contribution limit. The MapQuest 401(k) plan permits
additional discretionary matching contributions by MapQuest on behalf of all
participants in the MapQuest 401(k) plan in an amount determined by MapQuest.
The MapQuest 401(k) plan is intended to qualify under Section 401 of the
Internal Revenue Code of 1986 so that contributions by employees or by MapQuest
to the MapQuest 401(k) plan, and income earned on plan contributions, are not
taxable to employees until withdrawn from the plan, and so that contributions
by MapQuest, if any, will be deductible by MapQuest when made.
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CERTAIN TRANSACTIONS
Equity Transactions
Equity Sale by R.R. Donnelley & Sons Company and 77 Capital Corporation
On May 8, 1998, R.R. Donnelley & Sons Company and 77 Capital Corporation
sold their respective equity positions in MapQuest to Highland Capital Partners
III Limited Partnership, Highland Entrepreneurs' Fund III Limited Partnership,
Weston Presidio Capital II, L.P., Trident Capital Partners Fund-I, L.P. and
Trident Capital Partners Fund-I, C.V. R.R. Donnelley & Sons Company sold
3,000,000 shares of series A preferred stock and 1,321,033 shares of series B
preferred stock, which included accrued Series B preferred stock dividends. 77
Capital Corporation sold 220,798 shares of series C preferred stock. The
aggregate sale price for the shares sold in these transactions was $7 million
and the aggregate redemption value of all of the shares of series A preferred
stock, series B preferred stock and series C preferred stock sold was
$11,899,354, which included accrued series B preferred stock dividends.
Series C Preferred Stock. In July 1997, MapQuest sold an aggregate of
3,431,498 shares of series C preferred stock for an aggregate purchase price of
$12,044,558, or $3.51 per share, to various investors, including Highland
Capital Partners III Limited Partnership, Highland Entrepreneurs' Fund III
Limited Partnership, Weston Presidio Capital II, L.P., Trident Capital Partners
Fund-I, L.P., Trident Capital Partners Fund-I, C.V., The Roman Arch Fund, L.P.,
the Roman Arch Fund II, L.P., and Stet & Query, L.P.
Rights Agreement. Series A preferred stock investors and series C preferred
stock investors entered into a rights agreement concurrent with the sale of the
series C preferred stock. Pursuant to the rights agreement, holders of not less
than 35% of either the outstanding series A preferred stock or outstanding
series C preferred stock or any common stock issued or issuable upon conversion
of series A preferred stock or series C preferred stock may request that
MapQuest cause their shares of common stock to be registered under the
Securities Act. See "Description of Capital Stock--Registration Rights of
Certain Holders."
In November 1997, James Thomas, MapQuest's Chief Financial Officer, and
William Muenster, its Senior Vice President of Development and Production, each
purchased 31,928 shares of series C preferred stock from MapQuest for
$112,067.28, or $3.51 per share, paid in each case by delivery to MapQuest of a
non-recourse promissory note. Each promissory note bears interest at 7.0%
accruing as and from November 1, 1999. Payments under the promissory notes are
due beginning November 1, 2000 in an amount that is the lesser of one-fifth of
the principal balance together with any accrued interest or 50% of any bonus to
which such person is entitled while an employee of MapQuest. Each of these
promissory notes is payable in full on November 1, 2004. The promissory notes
are secured by the shares purchased, with shares released to the extent each
promissory note is paid. At December 31, 1998, $112,067.28 remained outstanding
on Mr. Thomas's promissory note and $112,067.28 remained outstanding on Mr.
Muenster's promissory note. Each of Mr. Thomas and Mr. Muenster have the right
to cause MapQuest to purchase their series C preferred stock at the fair market
value upon the earlier of each person's death or disability or November 1,
2007.
Other Transactions
Related Party Transactions. During 1998, MapQuest paid $16,597 to R.R.
Donnelley & Sons Company, a then stockholder. MapQuest recorded sales to
R.R. Donnelley & Sons Company of $513,626 during 1998. Also, MapQuest recorded
sales to an affiliate, the National Geographic Society, of $2,022,000 during
1998.
Evans 1996 Stock Purchase. In March 1996, pursuant to the terms of an
employment agreement dated October 31, 1994, MapQuest sold an aggregate of
35,000 shares of series A preferred stock at an aggregate purchase price of
$35,000, or $1.00 per share, to Perry Evans, MapQuest's then Vice President of
Sales and Marketing. The purchase price was paid as $3,500 in cash and $31,500
as a promissory note due October 31, 2000. The promissory note bears interest
at a rate of 7.5% per annum. The promissory note is secured by the shares
purchased with shares released to the extent the promissory note is paid. At
December 31, 1998, $31,500 in principal amount remained outstanding under this
promissory note.
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Evans Separation Agreement. In September 1997, upon the voluntary
termination of Mr. Evans' employment as Vice President of Sales and Marketing,
MapQuest agreed to engage Mr. Evans as an independent consultant and paid him a
separation fee of approximately $93,656, forgave him $27,000 in respect of
unearned bonus payments he had received and agreed to provide him with his then
current medical and certain other benefits until November 7, 1997.
Glick Separation Agreement. In June 1998, upon the voluntary termination of
Mr. Glick's employment as Chief Executive Officer and pursuant to a transition
agreement and general release, MapQuest agreed to pay Mr. Glick a total of
approximately $43,752, representing separation and salary payments for the
period between July 1, 1998 and September 30, 1998, inclusive.
National Geographic Alliance
MapQuest, the National Geographic Society, and a subsidiary of the National
Geographic Society, National Geographic Holdings, Inc. ("National Geographic"),
entered into a Cartographic Product Development, Publishing, Marketing and
Distribution Agreement in April 1997 (the "National Geographic Agreement")
which established a five-year alliance, commencing May 1997, to pursue
commercial opportunities involving mapping products and services using
trademarks and copyrighted materials of National Geographic. MapQuest is
authorized to be the primary, and in limited cases, exclusive, commercial
publisher of National Geographic mapping products and services, including
products such as maps, globes, road atlases, reference atlases, historical
atlases, and map guide products which are distributed other than by National
Geographic to its members or in promotion to prospective members. Pursuant to
its rights under the National Geographic Agreement, National Geographic has
designated C. Richard Allen to serve as its nominee director on MapQuest's
Board of Directors. As part of this arrangement, National Geographic Holdings,
Inc. received warrants to purchase 954,147 shares of common stock with an
exercise price of $1.04 per share. The warrants were valued at $0 on the date
of grant using the "Black Scholes" option pricing model.
Under the National Geographic Agreement, MapQuest has guaranteed minimum
annual royalty payments to National Geographic for each year of the initial
five-year term of the agreement. MapQuest must pay additional royalties on the
net revenues derived by MapQuest from the sale of National Geographic related
products and services. The National Geographic Agreement's initial five-year
term automatically extends provided that:
.MapQuest has not elected to terminate;
.MapQuest has not breached the National Geographic Agreement;
. National Geographic has received a minimum aggregate royalty payment of
$2.0 million from MapQuest in each of the last three years of the
initial term; and
.minimum royalties have been negotiated in accordance with the National
Geographic Agreement.
Warrants
As of December 31, 1998, warrants to purchase 2,314,611 shares of common
stock were outstanding at a weighted-average exercise price of $0.69 per share.
Generally, each warrant contains provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon the exercise of the
warrant in the event of stock dividends, stock splits, reorganizations,
reclassifications, consolidations and dilutive issuances of securities at
prices below the then existing warrant exercise price. Set forth below is a
summary of the outstanding warrants.
Prudential Warrant. In connection with the sale of the series C preferred
stock, MapQuest issued to Prudential Securities Incorporated a warrant for an
aggregate purchase price of $1,000 to purchase 406,709 shares of MapQuest's
common stock at an exercise price of $1.30 per share. The warrant is
exercisable prior to July 2002.
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National Geographic Warrant. In April 1997, in connection with the National
Geographic Agreement, MapQuest issued National Geographic warrants (the
"National Geographic Warrants") to purchase 954,147 shares of common stock at
an exercise price of $1.04 per share. The warrants were valued at $0 on the
date of grant using the "Black Scholes" option pricing model. The National
Geographic Warrant expires on April 22, 2002, or earlier in the event of a
termination of the National Geographic Agreement without cause by National
Geographic or termination by MapQuest for material breach by National
Geographic. If National Geographic has exercised the National Geographic
Warrant prior to MapQuest terminating the National Geographic Agreement due to
a breach of the agreement by National Geographic, MapQuest has the option to
purchase the shares of common stock issued upon exercise of the warrant for a
period of 60 days after the termination of the National Geographic Agreement at
a purchase price equal to the lesser of $1.77 or the then fair market value of
such shares.
Warrants to Series C Investors. In May 1998, MapQuest and some of the
series C preferred stock investors entered into an agreement to preserve these
investors' fully diluted ownership percentage in MapQuest as a result of the
increase in the number of options to purchase shares of common stock eligible
for award under the 1995 stock option plan and the appointment of Mr. Michael
Mulligan as Chief Executive Officer of MapQuest. Pursuant to this agreement,
the series C preferred stock investors were issued an aggregate of 522,231
warrants to purchase common stock at an exercise price of $0.004 per share. The
warrants are exercisable prior to April 30, 2008.
Executive Search Firm Warrants. Effective September 22, 1998, MapQuest
issued to Ramsey/Beirne Associates a warrant to purchase 41,266 shares of
MapQuest common stock in partial consideration for executive search firm
services Ramsey/Beirne Associates performed. The warrant is exercisable at any
time prior to September 22, 2003 at an exercise price of $1.30 per share.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of MapQuest's common stock as of December 31, 1998:
. each person or entity who is known by MapQuest to beneficially own five
percent or more of the outstanding shares of MapQuest's common stock;
. each director;
. each named executive officer; and
. all directors and executive officers of MapQuest as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options and warrants held by that person that
are currently exercisable or exercisable within 60 days of April 7, 1999, are
treated as outstanding. These shares, however, are not treated as outstanding
for the purpose of computing the percentage ownership of any other person.
Except as indicated in the footnotes to this table the following individuals
have sole voting and investment power with respect to the shares they
beneficially own.
<TABLE>
<CAPTION>
Beneficially Owned Securities
-----------------------------------------------------------------------
Number of Shares Percentage of Shares
Beneficially Owned Includes Beneficially Owned
Total --------------------------- ------------------------
Number of Shares Securities Securities
Beneficially Underlying Underlying Before After
Name (1) Owned Warrants Options Offering Offering
- -------- ---------------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Trident Capital Partners
Fund - I, L.P.(1)..... 9,684,802 352,755 34.7% 29.8%
Trident Capital Partners
Fund - I, C.V.(1)..... 1,915,844 69,781 6.9 5.9
Robert
McCormack(2)(3)..... 11,600,646 422,536 41.4 35.6
John Moragne(2)(3).... 11,600,646 422,536 41.4 35.6
Rockwell Schnabel(3).. 11,600,646 422,536 41.4 35.6
Stephen Hall(3)....... 11,600,646 422,536 41.4 35.6
Donald Dixon(3)....... 11,600,646 422,536 41.4 35.6
Weston Presidio Capital
II, L.P.(4)........... 6,844,479 223,827 24.6 21.1
Carlo von
Schroeter(2)(5)..... 6,844,479 223,827 24.6 21.1
Michael Cronin(5)..... 6,844,479 223,827 24.6 21.1
Michael Lazarus(5).... 6,844,479 223,827 24.6 21.1
James McElwee(5)...... 6,844,479 223,827 24.6 21.1
Philip Halperin(5).... 6,844,479 223,827 24.6 21.1
Highland Capital
Partners III Limited
Partnership(5)........ 6,570,698 214,874 23.7 20.3
Highland Entrepreneurs'
Fund III, L.P.(5)..... 273,779 8,953 1.0 0.9
Daniel Nova(2)(7)..... 6,844,476 223,827 24.6 21.1
Robert Higgins(7)..... 6,844,476 223,827 24.6 21.1
Paul Maeder(7)........ 6,844,476 223,827 24.6 21.1
Wycliffe
Grousbeck(7)........ 6,844,476 223,827 24.6 21.1
Michael Mulligan ....... 958,608 648,064 3.4 2.9
James Thomas ........... 803,767 4,770 515,675 2.9 2.6
William Muenster ....... 806,393 4,770 512,915 2.9 2.6
James Hilliard ......... 162,000 162,000 0.6 0.5
Michael Nappi .......... 108,000 108,000 0.4 0.3
C. Richard Allen(2)(8).. 954,147 954,147 3.3 2.8
Barry Glick ............ 778,912 508,912 2.8 2.4
Directors & Executive
Officers as a group
(fifteen persons) .... 30,084,185 1,833,877 2,678,317 94.4 82.0
</TABLE>
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- --------
(1) The address of each of Trident Capital Partners Fund - I, L.P. and Trident
Capital Partners Fund - I, C.V. is 2480 Sand Hill Road, Suite 100, Menlo
Park, California 94025.
(2) Director of MapQuest.
(3) Includes 9,684,802 shares held by Trident Capital Partners and 1,915,844
shares held by Trident Capital Partners Fund--I, C. V. Messrs. McCormack,
Moragne, Schnabel, Hall and Dixon are officers of Trident Capital, Inc.,
the general partner of Trident Capital, L.P., which is the general partner
of Trident Capital Partners Fund-I, L.P. and the investment general partner
of Trident Capital Partners Fund-I, C.V., and therefore may be considered
to share beneficial ownership of the shares held by each of Trident Capital
Partner Fund-I, L.P. and Trident Capital Partners Fund-I, C.V. Messrs.
McCormack, Moragne, Schnabel, Hall and Dixon disclaim beneficial ownership
of shares held by Trident Capital, Inc. and its affiliates, except to the
extent of their pecuniary interests, if any.
(4) The address of Weston Presidio Capital II, L.P. is One Federal Street, 21st
Floor, Boston, Massachusetts 02110.
(5) Includes 6,844,480 shares held by Weston Presidio Capital II, L.P. Messrs.
Cronin, Lazarus, McElwee, von Schroeter and Halperin are the general
partners of Weston Presidio Capital Management II, L.P. the general partner
of Weston Presidio Capital II, L.P. and therefore may be considered to
share the beneficial ownership of the shares held by Weston Presidio
Capital II, L.P. Messrs. Cronin, Lazarus, McElwee, von Schroeter and
Halperin disclaim beneficial ownership of these shares, except to the
extent of their pecuniary interests, if any.
(6) The address of each of Highland Capital Partners III, L.P. and Highland
Entrepreneurs' Fund III, L.P. is Two International Place, Boston,
Massachusetts 02110.
(7) Includes 6,570,698 shares held by Highland Capital Partners III Limited
Partnership and 273,780 shares held by Highland Entrepreneur's Fund III,
L.P. Messrs. Higgins, Maeder, Nova and Grousbeck are the general partners
of Highland Management Partners III, L.P., the general partner of Highland
Capital Partners III Limited Partnership, and the members of HEF III,
L.L.C., the general partner of Highland Entrepreneurs' Fund III, L.P. and
therefore may be considered to share the beneficial ownership of the shares
held by each of Highland Capital Partners III, Limited Partnership and
Highland Entrepreneurs' Fund III, L.P. Messrs. Higgins, Maeder, Nova and
Grousbeck disclaim beneficial ownership of these shares, except to the
extent of their pecuniary interests if any.
(8) Includes 954,147 shares held by National Geographic Holdings, Inc., a
wholly-owned indirect subsidiary of National Geographic Society. Mr. Allen
disclaims beneficial ownership of these shares, except to the extent of his
pecuniary interest, if any. The address of National Geographic Holdings,
Inc. is 1145 17th Street, N.W., Washington, DC 20036.
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DESCRIPTION OF CAPITAL STOCK
Following this offering, MapQuest will have the authority to issue an
aggregate of 105,000,000 shares of capital stock, consisting of 100,000,000
shares of common stock, par value $0.001 per share, and 5,000,000 shares of
preferred stock, par value $0.01 per share.
Common Stock
Voting Rights. Each outstanding share of common stock is entitled to one
vote on all matters submitted to a vote of MapQuest's stockholders, including
the election of directors. There is no cumulative voting in the election of
directors.
Dividends. Holders of common stock are entitled to receive dividends if and
when declared by MapQuest's board of directors out of assets legally available
for the payment of dividends, subject to the preferential rights of shares of
preferred stock, if any.
Liquidation. In the event of any dissolution, liquidation, or winding up of
the affairs of MapQuest, whether voluntary or involuntary, after payment of the
debts and other liabilities of MapQuest and after making provision for the
holders of preferred stock, if any, the remaining assets of MapQuest will be
distributed ratably among the holders of the common stock.
Preferred Stock
Following this offering, the board of directors will have the authority,
without further action by the stockholders, to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the designations, powers,
preferences, privileges, and relative participating, options, or special rights
and the qualifications, limitations, or restrictions of the preferred stock,
including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the common stock. Preferred stock could thus be issued with terms
that may delay or prevent a change in control of MapQuest or make removal of
management more difficult. Additionally, the issuance of preferred stock may
have the effect of decreasing the market price of the common stock. Upon the
completion of this offering, there will be no shares of preferred stock
outstanding and MapQuest has no current plans to issue any preferred stock.
Registration Rights
After this offering, the holders of approximately 27,122,455 shares of
common stock and the holders of 954,147 warrants to purchase shares of common
stock will be entitled to have their shares registered under the Securities Act
of 1933. If MapQuest proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other
securities holders exercising registration rights, these holders are entitled
to notice of the registration and are entitled to include their shares as part
of that registration. Holders of registration rights may also require MapQuest
to file a registration statement under the Securities Act at MapQuest's expense
with respect to their shares of common stock. Further, holders may require
MapQuest to file registration statements on Form S-3 at MapQuest's expense when
MapQuest is eligible to use the form. All registration rights are subject to
conditions and limitations, including the right of the underwriters of an
offering to limit the number of shares to be included in the registration.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
MapQuest is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute
prohibits a publicly-held Delaware corporation, which MapQuest will be after
the offering, from engaging in a business combination with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes a merger, asset
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sale or other transaction resulting in a financial benefit to the stockholder.
For purposes of Section 203, an "interested stockholder" is defined to include
any person that is:
. the owner of 15% or more of the outstanding voting stock of the
corporation;
. an affiliate or associate of the corporation and was the owner of 15% or
more of the voting stock outstanding of the corporation, at any time
within three years immediately prior to the relevant date; and
. an affiliate or associate of the persons described in the foregoing
bullet points.
Stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or bylaws, elect for the corporation not to be governed by
Section 203, effective 12 months after adoption.
Annual meetings of stockholders will be held to elect the board of
directors of MapQuest and transact such other business as may be properly
brought before the meeting. Special meetings of stockholders may be called by
the Chairman or the Chief Executive Officer or by a majority of the board of
directors.
MapQuest's certificate of incorporation may be amended with the approval of
a majority of the board and the holders of a majority of MapQuest's outstanding
voting securities.
The number of directors is determined by the board of directors. The size
of the board of directors is currently six members and is divided into three
classes of directors serving staggered three-year terms. The directors will be
elected at the annual meeting of the stockholders, except for filling
vacancies. Directors may be removed with the approval of the holders of a
majority of MapQuest's voting power present and entitled to vote at a meeting
of stockholders. Vacancies and newly-created directorships resulting from any
increase in the number of directors may be filled by (1) a majority of the
directors then in office, (2) a sole remaining director, or (3) the holders of
a majority of the voting power present and entitled to vote at a meeting of
stockholders.
The presence, in person or by proxy, of the holders of a majority of the
votes entitled to be cast by the stockholders entitled to vote generally shall
constitute a quorum for stockholder action at any meeting.
Limitation of Liability and Indemnification Matters
MapQuest's certificate of incorporation contains provisions permitted under
the Delaware General Corporation Law relating to the liability of directors.
These provisions eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except for liability for:
. any failure to act in good faith in the best interests of MapQuest or
its stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate the rights of MapQuest or any
stockholder to seek non- monetary relief, such as an injunction or rescission,
in the event of a breach of a director's fiduciary duty. These provisions will
not alter a director's liability under federal securities laws. MapQuest's
bylaws also contain provisions indemnifying the directors and officers of
MapQuest to the fullest extent permitted by the Delaware General Corporation
Law. MapQuest believes that these provisions are necessary to attract and
retain qualified individuals to serve as directors and officers.
Listing
The common stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "MQST."
Transfer Agent and Registrar
The transfer agent and registrar for the common stock will be American
Securities Transfer & Trust Company, Denver, Colorado.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the common
stock, and MapQuest cannot predict the effect, if any, that market sales of
shares of common stock or the availability of shares of common stock for sale
will have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of common stock in the public
market, or the perception that such sales could occur, could adversely affect
the market price of the common stock and could impair MapQuest's future ability
to raise capital through the sale of its equity securities.
Upon completion of this offering, MapQuest will have an aggregate of
32,166,699 shares of common stock outstanding, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options or
warrants. Of the outstanding shares, the 4,600,000 shares sold in this offering
will be freely tradeable, except that any shares held by "affiliates" of
MapQuest, as that term is defined in Rule 144 promulgated under the Securities
Act of 1933, may only be sold in compliance with the limitations described
below. The remaining 27,566,699 shares of common stock will be deemed
"restricted securities" as defined under Rule 144. Restricted securities may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under
the Securities Act, which rules are summarized below. Subject to the lock-up
agreements described below and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number of
Shares Date
---------- ----
<S> <C>
566,770 After the date of this prospectus
322,974 After 90 days from the date of this prospectus
26,676,955 After 180 days from the date of this prospectus
(subject, in some cases, to volume limitations)
</TABLE>
In general, under Rule 144, as currently in effect, a person, including an
affiliate, who has beneficially owned shares for at least one year is entitled
to sell, within any three-month period commencing 90 days after the date of
this prospectus, a number of shares that does not exceed the greater of (1) 1%
of the then outstanding shares of common stock (approximately 321,667 shares
immediately after this offering) or (2) the average weekly trading volume in
the common stock during the four calendar weeks preceding the date on which
notice of such sale is filed, subject to certain restrictions. In addition, a
person who is not deemed to have been an affiliate of MapQuest at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years would be entitled to sell such
shares under Rule 144(k) without regard to the requirements described above. To
the extent that shares were acquired from an affiliate of MapQuest, that
person's holding period for the purpose of selling under Rule 144 commences on
the date of transfer from the affiliate. Notwithstanding the foregoing, to the
extent the shares were acquired through the cashless exercise of a stock option
or a warrant, that person's holding period for effecting a sale under Rule 144
commences on the date of the option or warrant grant. In general, under Rule
701 of the Securities Act as currently in effect, any employee, consultant or
advisor of MapQuest who purchased shares from MapQuest in connection with a
compensatory stock or option plan or other written agreement is eligible to
resell such shares after the effective date of this offering in reliance on
Rule 144, but without compliance with certain restrictions, including the
holding period, contained in Rule 144.
As of the date of this prospectus, options to purchase a total of 6,085,593
shares of common stock are outstanding, of which 3,443,438 will be exercisable
concurrent with this offering (without regard to the 180-day lock up period).
Not sooner than 180 days after the closing of this offering, MapQuest intends
to file a registration statement to register for resale all shares of common
stock issued or issuable under its 1995 stock option plan, the 1999 stock plan,
and the employee stock purchase plan and not otherwise freely transferable.
Accordingly, shares covered by that registration statement will be eligible for
sale in the public markets, unless those options are subject to vesting
restrictions. Upon the closing of this offering, 2,314,611 shares of common
stock will be issuable upon the exercise of outstanding warrants.
55
<PAGE>
MapQuest's directors and officers and certain stockholders who hold
30,363,386 shares and options in the aggregate, and the holders of warrants to
purchase 2,273,346 shares of common stock, have agreed that they will not sell,
directly or indirectly, any shares of common stock (other than shares of common
stock purchased as part of the directed share program in connection with this
offering) without the prior written consent of BancBoston Robertson Stephens,
Inc. for a period of 180 days from the date of this prospectus. See
"Underwriting."
MapQuest has agreed not to sell or otherwise dispose of any shares of
common stock during the 180-day period following the date of the prospectus,
except MapQuest may issue, and grant options to purchase, shares of common
stock under its stock option plan.
Following this offering, under certain circumstances and subject to certain
conditions, holders of 27,122,455 shares of MapQuest's outstanding common stock
and the holders of 954,147 warrants to purchase shares of common stock will
have certain demand registration rights with respect to their shares of common
stock (subject, in certain cases, to the 180-day lock-up arrangement described
above) to require MapQuest to register their shares of common stock under the
Securities Act, and they will have certain rights to participate in any future
registration of securities by MapQuest. MapQuest is not required to effect more
than an aggregate of four demand registrations on behalf of such holders. See
"Description of Capital Stock--Registration Rights."
56
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Thomas Weisel Partners LLC, U.S. Bancorp
Piper Jaffray Inc. and Volpe Brown Whelan & Company, LLC have severally agreed
with MapQuest, subject to the terms and conditions of the underwriting
agreement, to purchase from MapQuest the number of shares of common stock set
forth opposite their names below. The underwriters are committed to purchase
and pay for all of the shares if any are purchased.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. ................................ 1,732,000
Thomas Weisel Partners LLC......................................... 866,000
U.S. Bancorp Piper Jaffray Inc. ................................... 866,000
Volpe Brown Whelan & Company, LLC.................................. 866,000
Dain Rauscher Wessels.............................................. 90,000
First Albany Corporation........................................... 90,000
Wit Capital Corporation............................................ 90,000
---------
Total............................................................ 4,600,000
=========
</TABLE>
The representatives have advised MapQuest that the underwriters propose to
offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to dealers at such
price less a concession of not in excess of $0.63 per share, of which $0.10 may
be reallowed to other dealers. After this offering, the public offering price,
concession, and reallowance to dealers may be reduced by the representatives.
No reduction shall change the amount of proceeds to be received by MapQuest as
set forth on the cover page of this prospectus. The common stock is offered by
the underwriters as stated in this prospectus, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or
in part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-allotment Option
MapQuest has granted to the underwriters an option, exercisable during the
30-day period after the date of this prospectus, to purchase up to 690,000
additional shares of common stock at the same price per share as MapQuest will
receive for the 4,600,000 shares that the underwriters have agreed to purchase.
To the extent that the underwriters exercise this option, each of the
underwriters will have a firm commitment to purchase approximately the same
percentage of the additional shares that the number of shares of common stock
to be purchased by it shown in the above table represents as a percentage of
the 4,600,000 shares offered in this prospectus. If purchased, these additional
shares will be sold by the underwriters on the same terms as those on which the
4,600,000 shares are being sold. MapQuest will be obligated, pursuant to the
option, to sell shares to the extent the option is exercised. The underwriters
may exercise this option only to cover over-allotments made in connection with
the sale of the shares of common stock offered by this prospectus. If the
option is exercised in full, the total public offering price, underwriting
discounts and commissions and net proceeds to MapQuest will be approximately
$79,350,000 million, $5,554,500 million and $73,795,500 million, respectively.
Directed Share Program
At the request of MapQuest, the underwriters have reserved up to 493,333
shares of common stock to be issued by MapQuest and offered by this prospectus
for sale, at the initial public offering price, to directors, officers,
employees, business associates and related persons of MapQuest. The number of
shares of common stock available for sale to the general public will be reduced
to the extent these individuals purchase such reserved shares. Any reserved
shares which are not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered by this
prospectus.
57
<PAGE>
Thomas Weisel Partners LLC
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has co-managed six public offerings of
equity securities and has acted as an underwriter in an additional seven public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with MapQuest or any of MapQuest's officers, directors or
controlling persons, except with respect to its contractual relationship with
MapQuest pursuant to the underwriting agreement entered into in connection with
this offering.
Indemnity
The Underwriting Agreement contains covenants of indemnity among the
underwriters and MapQuest against civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements
Each officer and director of MapQuest and substantially all other holders
of shares of common stock, including those issuable upon the exercise of
outstanding options or warrants, have agreed, during the period ending 180 days
after the date of this prospectus ("the lock-up period"), subject to limited
exceptions, not to engage in particular activities without the prior written
consent of BancBoston Robertson Stephens Inc. Specifically they have agreed not
to offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge
or grant any rights with respect to any shares of common stock, any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned as of the date of this
prospectus or acquired after the date of this prospectus directly by such
holders or with respect to which they have the power of disposition. However,
BancBoston Robertson Stephens Inc. may, in its sole discretion and at any time
without notice, release all or any portion of securities subject to the lock-up
agreement. There are no existing agreements between the representatives of the
underwriters and any of MapQuest's stockholders providing consent to the sale
of shares prior to the expiration of the lock-up period.
Future Sales. In addition, MapQuest has agreed that during the lock-up
period MapQuest will not, without the prior written consent of BancBoston
Robertson Stephens Inc., subject to limited exceptions:
. consent to the disposition of any shares held by stockholders or option
holders subject to lock-up agreements prior to the expiration of the
lock-up period;
. issue, sell, contract to sell, or otherwise dispose of, any shares of
common stock, any options to purchase any shares of common stock or any
securities convertible into or exercisable for or exchangeable for
shares of common stock other than MapQuest's sale of shares in this
offering, the issuance of common stock upon the exercise of outstanding
options and the issuance of options under existing stock option and
incentive plans, provided the options do not vest prior to the
expiration of the lock-up period; or
. file a Form S-8 registration statement.
See "Shares Eligible for Future Sale."
No Prior Public Market. Prior to this offering, there has been no public
market for MapQuest's common stock. Consequently, the public offering price for
the common stock offered by this prospectus was determined through negotiations
among MapQuest and the representatives of the underwriters. Among the factors
considered in such negotiations were the prevailing market conditions,
financial information of MapQuest, market valuations of other companies that
MapQuest and the representatives believe to be comparable to MapQuest,
estimates of the business potential of MapQuest, the present state of
MapQuest's development and other factors deemed relevant.
58
<PAGE>
Stabilization. The representatives of the underwriters have advised
MapQuest that, pursuant to Regulation M under the Securities Act of 1933,
particular persons participating in this offering may engage in transactions,
including stabilizing bids, syndicate covering transactions or the imposition
of penalty bids, that may have the effect of stabilizing or maintaining the
market price of the common stock at a level above that which might otherwise
prevail in the open market. A "stabilizing bid" is a bid for or the purchase of
common stock on behalf of the underwriters for the purpose of fixing or
maintaining the price of the common stock. A "syndicate covering transaction"
is the bid for or the purchase of common stock on behalf of the underwriters to
reduce a short position incurred by the underwriters in connection with this
offering. A "penalty bid" is an arrangement permitting the representatives to
reclaim the selling concession otherwise accruing to an underwriter or
syndicate member in connection with this offering if the common stock
originally sold by such underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has not been
effectively placed by such underwriter or syndicate member. The representatives
have advised MapQuest that these transactions may be effected on the Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any
time.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for MapQuest by Mayer, Brown & Platt, New York, New York, and for the
underwriters by Brobeck, Phleger & Harrison LLP, New York, New York. Certain
other legal matters will be passed upon for MapQuest by Venable, Baetjer &
Howard, LLP.
EXPERTS
The financial statements of MapQuest.com, Inc. at December 31, 1997 and
1998, and for each of the three years in the period ended December 31, 1998,
appearing in this prospectus and Registration Statement of which it forms a
part, and the related financial statement schedule included elsewhere in this
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
59
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
MapQuest has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act of 1933 with
respect to the shares of common stock offered by this prospectus. This
prospectus does not contain all of the information set forth in the
registration statement and its exhibits and schedules. Particular items are
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission. For further information with respect to MapQuest and the
common stock offered by this prospectus, reference is made to the registration
statement and its exhibits and schedules. A copy of the registration statement,
and the exhibits and schedules to the registration statement, may be inspected
without charge at the public reference facilities maintained by the Securities
and Exchange Commission in Room 1024, 450 Fifth Street., N.W., Washington, D.C.
20549, and at the Securities and Exchange Commission's regional offices located
at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and Seven World Trade Center, 13th Floor, New York, New York 10048, and
copies of all or any part of the registration statement may be obtained from
such offices upon the payment of the fees prescribed by the Securities and
Exchange Commission. The Securities and Exchange Commission maintains a website
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission. The address of the site is http://www.sec.gov.
This prospectus includes statistical data regarding Internet usage and the
advertising and marketing industry that were obtained from industry
publications, including reports generated by Forrester Research Inc.,
International Data Corporation and Media Metrix, Inc. These industry
publications generally indicate that they have obtained information from
sources believed to be reliable, but do not guarantee the accuracy and
completeness of their information. While MapQuest believes these industry
publications to be reliable, MapQuest has not independently verified their
data. MapQuest also has not sought the consent of any of these organizations to
refer to their reports in this prospectus.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................. F-2
Balance Sheets at December 31, 1997 and 1998............................... F-3
Statements of Operations for the Years ended December 31, 1996, 1997 and
1998..................................................................... F-4
Statements of Changes in Redeemable Preferred Stock, Common Stock, and
Other Stockholders' Equity (Deficit) for the Years ended December 31,
1996, 1997 and 1998...................................................... F-5
Statements of Cash Flows for the Years ended December 31, 1996, 1997 and
1998..................................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
MapQuest.com, Inc.
We have audited the accompanying balance sheets of MapQuest.com, Inc.
(formerly GeoSystems Global Corporation) as of December 31, 1997 and 1998, and
the related statements of operations, changes in redeemable preferred stock,
common stock, and other stockholders' equity (deficit), and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MapQuest.com, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Harrisburg, Pennsylvania
February 18, 1999,
except for the
matters discussed
in the next to last
paragraph of Note
14 and all of
Note 15, as to
which the date is
May 3, 1999
F-2
<PAGE>
MAPQUEST.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 Pro Forma
-------------------------- December 31
1997 1998 1998
------------ ------------ ------------
(Unaudited)
(Note 15)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 2,482,090 $ 564,087 $ 564,087
Accounts receivable, net of
allowance for doubtful accounts
(1997--$407,136; 1998--
$469,726)........................ 5,468,654 6,646,882 6,646,882
Accounts receivable--affiliates.... 57,500 127,989 127,989
Inventories........................ 1,686,117 1,364,608 1,364,608
Contract work in progress.......... 385,778 147,317 147,317
Prepaid expenses and other current
assets........................... 1,079,347 481,921 481,921
------------ ------------ ------------
Total current assets........... 11,159,486 9,332,804 9,332,804
Property and equipment, net of
accumulated depreciation (1997--
$2,420,561; 1998--$3,433,368)...... 1,830,324 1,844,324 1,844,324
Goodwill, net........................ 208,763 178,212 178,212
Other assets......................... 22,650 94,901 94,901
------------ ------------ ------------
Total assets................... $ 13,221,223 $ 11,450,241 $ 11,450,241
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................... $ 1,332,656 $ 1,715,133 $ 1,715,133
Current portion of note payable.... 51,716 48,108 48,108
Accrued personnel costs............ 450,287 561,714 561,714
Advance billings on contracts...... 346,383 498,108 498,108
Deferred revenue................... 505,238 1,207,867 1,207,867
Other accrued liabilities.......... 1,012,809 1,000,940 1,000,940
------------ ------------ ------------
Total current liabilities...... 3,699,089 5,031,870 5,031,870
------------ ------------ ------------
Note payable, less current portion... 48,108 -- --
Convertible Redeemable Preferred
Stock--Series A, voting, $1.00 per
share redemption value, aggregate
liquidation preference of
$6,550,000:
Issued and outstanding shares--
actual, 6,550,000 in 1997 and
1998; pro forma, none............ 6,550,000 6,550,000 --
Cumulative Redeemable Preferred
Stock--Series B, nonvoting, $6.15
per share redemption value,
aggregate liquidation preference of
$7,815,737 in 1997 and $8,332,036
in 1998:
Issued and outstanding shares--
actual, 1,270,851 in 1997 and
1,354,802 in 1998; pro forma,
1,354,802 ....................... 7,815,737 8,332,036 8,332,036
Convertible Redeemable Preferred
Stock--Series C, voting, $3.51 per
share redemption value, aggregate
liquidation preference of
$12,268,292:
Issued and outstanding shares--
actual, 3,495,354 in 1997 and
1998; pro forma, none............ 11,636,252 11,595,176 --
Notes receivable arising from
issuance of preferred stock........ (290,835) (290,835) --
Stockholders' deficit:
Common Stock--$.001 par value:
Authorized shares--20,000,000
Issued and outstanding shares--
actual, 216,419 in 1997 and
336,028 in 1998; pro forma,
27,458,483 216 336 27,458
Notes receivable for common
stock............................ -- -- (290,835)
Additional paid-in capital......... -- 140,170 18,258,224
Retained deficit................... (16,237,344) (19,908,512) (19,908,512)
------------ ------------ ------------
Total stockholders' deficit.... (16,237,128) (19,768,006) (1,913,665)
------------ ------------ ------------
Total liabilities and
stockholders' deficit........ $ 13,221,223 $ 11,450,241 $ 11,450,241
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
MAPQUEST.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Revenues
Business............................ $ 7,019,461 $ 4,762,627 $ 6,536,153
Consumer............................ 140,200 1,275,900 1,375,900
----------- ------------ -----------
Total business and consumer
revenues.......................... 7,159,661 6,038,527 7,912,053
Digital mapping..................... 12,417,232 15,377,141 16,805,149
----------- ------------ -----------
Total revenues................... 19,576,893 21,415,668 24,717,202
Cost of Revenues
Business and consumer............... 4,325,166 4,535,153 4,808,764
Digital mapping..................... 7,994,347 10,767,256 12,837,036
----------- ------------ -----------
Total cost of revenues........... 12,319,513 15,302,409 17,645,800
----------- ------------ -----------
Gross profit.......................... 7,257,380 6,113,259 7,071,402
Operating expenses
Sales and marketing................. 4,454,791 7,256,519 5,243,377
Product development................. 2,619,443 5,047,744 2,954,510
General and administrative.......... 1,901,857 1,811,391 2,326,191
----------- ------------ -----------
Total operating expenses......... 8,976,091 14,115,654 10,524,078
Operating loss........................ (1,718,711) (8,002,395) (3,452,676)
Interest income and expense, net...... 198,632 135,888 53,916
Other income.......................... 243,900 267,384 243,891
----------- ------------ -----------
Loss before provision for income
taxes............................... (1,276,179) (7,599,123) (3,154,869)
Provision for income taxes............ -- -- --
----------- ------------ -----------
Net loss......................... (1,276,179) (7,599,123) (3,154,869)
Less preferred stock dividends and
accretion........................... (525,320) (5,833,651) (667,223)
----------- ------------ -----------
Net loss applicable to common
stockholders........................ $(1,801,499) $(13,432,774) $(3,822,092)
=========== ============ ===========
Basic and diluted loss per share...... $ (8.84) $ (64.43) $ (12.09)
===========
Shares used to compute basic and
diluted loss per share.............. 203,779 208,499 316,202
=========== ============ ===========
Pro forma basic and diluted loss per
share............................... $ (0.11)
===========
Shares used to compute pro forma basic
and diluted loss per share.......... 27,994,126
</TABLE>
See accompanying notes.
F-4
<PAGE>
MAPQUEST.COM, INC.
STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK, COMMON STOCK,
AND OTHER STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Notes
Convertible Cumulative Convertible Receivable
Redeemable Redeemable Redeemable Arising from Convertible
Preferred Preferred Preferred Issuance of Preferred Additional
Stock-- Stock-- Stock-- Preferred Stock-- Common Paid Retained
Series A Series B Series C Stock Series A Stock in Capital Deficit
----------- ----------- ------------ ------------ ----------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................. $ -- $ 6,877,136 $ -- $ (87,500) $ 65,150 $ 199 $ 1,238,435 $ (1,003,071)
Net loss............... -- -- -- -- -- -- -- (1,276,179)
Payment on notes
receivable........... -- -- -- 31,168 -- -- -- --
Dividends.............. -- 454,295 -- -- -- -- -- (525,320)
Issuance of 35,000
shares convertible
preferred stock--
Series A............. -- -- -- (31,500) 350 -- 34,650 --
Exercise of 7,074
options.............. -- -- -- -- -- 7 255 --
----------- ----------- ------------ ---------- -------- ----- ----------- -------------
Balance at December 31,
1996.................. -- 7,331,431 -- (87,832) 65,500 206 1,273,340 (2,804,570)
Net loss............... -- -- -- -- -- -- -- (7,599,123)
Payment on notes
receivable........... -- -- -- 21,132 -- -- -- --
Dividends.............. -- 484,306 -- -- -- -- -- (560,025)
Exercise of 10,314
options.............. -- -- -- -- -- 10 775 --
Addition of redemption
feature to Series A
preferred stock...... 6,550,000 -- -- -- (65,500) -- (1,274,115) (5,210,383)
Issuance of 3,495,354
shares convertible
preferred stock--
Series C, net........ -- -- 11,573,009 (224,135) -- -- -- --
Accretion of redeemable
preferred stock to
redemption value..... -- -- 63,243 -- -- -- -- (63,243)
----------- ----------- ------------ ---------- -------- ----- ----------- -------------
Balance at December 31,
1997.................. $ 6,550,000 $ 7,815,737 $ 11,636,252 $ (290,835) $ -- $ 216 $ -- $ (16,237,344)
Net loss............... -- -- -- -- -- -- -- (3,154,869)
Dividends.............. -- 516,299 -- -- -- -- -- (516,299)
Exercise of 119,610
options.............. -- -- -- -- -- 120 7,444 --
Issuance of 522,234
warrants............. -- -- (192,000) -- -- -- 192,000 --
Issuance of 41,266
warrants for
services............. -- -- -- -- -- -- 53,650 --
Accretion of redeemable
preferred stock to
redemption value..... -- -- 150,924 -- -- -- (150,924) --
Compensation related to
stock options........ -- -- -- -- -- -- 38,000 --
----------- ----------- ------------ ---------- -------- ----- ----------- -------------
Balance at December 31,
1998.................. $ 6,550,000 $ 8,332,036 $ 11,595,176 $ (290,835) $ -- $ 336 $ 140,170 $ (19,908,512)
=========== =========== ============ ========== ======== ===== =========== =============
</TABLE>
See accompanying notes.
F-5
<PAGE>
MAPQUEST.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net loss................................ $(1,276,179) $(7,599,123) $(3,154,869)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation........................... 527,990 816,369 1,074,875
Amortization........................... 30,550 30,550 30,551
Provision for doubtful accounts........ 232,500 262,388 271,598
Issuance of warrants for services...... -- -- 53,650
Compensation expense related to
options.............................. -- -- 38,000
Equity in earnings of joint venture.... (282,461) (256,068) (291,558)
Dividends received from joint venture.. 285,273 288,556 285,976
Loss (gain) on disposal of property and
equipment............................ -- 59,758 (3,089)
Changes in operating assets and
liabilities, net of effects from
acquisition of a business:
Accounts receivable................... (1,505,806) (1,115,351) (1,449,823)
Accounts receivable--affiliates....... 10,154 72,400 (70,489)
Inventories........................... (20,778) (1,182,649) 321,509
Contract work in progress............. (151,563) (60,575) 238,461
Prepaid expenses...................... (231,318) (724,940) 597,426
Other assets.......................... (16,694) 14,659 (94,638)
Accounts payable...................... 448,974 448,374 382,447
Advance billings on contracts......... 471,473 (688,387) 151,726
Deferred revenue...................... -- 396,807 702,629
Accrued personnel costs and other
liabilities......................... 316,892 (257,500) 99,557
----------- ----------- -----------
Net cash used in operating activities... (1,160,993) (9,494,732) (816,061)
Investing activities
Property and equipment purchases........ (1,190,210) (1,354,690) (1,062,126)
Proceeds from disposal of property and
equipment............................. -- 32,264 4,340
Purchase of Interarts' assets........... (328,600) -- --
----------- ----------- -----------
Net cash used in investing activities... (1,518,810) (1,322,426) (1,057,786)
Financing activities
Proceeds from note payable.............. -- 131,468 --
Principal payments on debt.............. -- (32,499) (51,716)
Proceeds from issuance of Series A
convertible preferred stock........... 3,500 -- --
Net proceeds from issuance of Series C
convertible preferred stock........... -- 11,348,874 --
Exercise of common stock options........ 262 785 7,560
Principal payments received on notes
receivable arising from issuance of
preferred stock....................... 31,168 21,132 --
Cash dividends paid..................... (69,889) (74,506) --
----------- ----------- -----------
Net cash provided by (used in) financing
activities............................ (34,959) 11,395,254 (44,156)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents........................... (2,714,762) 578,096 (1,918,003)
Cash and cash equivalents at the
beginning of the year................. 4,618,756 1,903,994 2,482,090
----------- ----------- -----------
Cash and cash equivalents at the end of
the year.............................. $ 1,903,994 $ 2,482,090 $ 564,087
=========== =========== ===========
Supplemental cash flow information
Stock dividends paid on Preferred Stock
Series B.............................. $ 454,294 $ 484,306 $ 516,299
=========== =========== ===========
Dividends accrued on Preferred Stock
Series B.............................. $ 18,329 $ 19,540 $ --
=========== =========== ===========
Notes receivable received for stock..... $ 31,500 $ 224,135 $ --
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Business and Accounting Policies
Business
In February 1999, GeoSystems Global Corporation changed its name to
MapQuest.com, Inc. MapQuest.com, Inc. ("MapQuest" or the "Company") is an
online provider of mapping and destination information through its Web site,
mapquest.com. MapQuest's proprietary integration and editing of geographic
databases enable it to provide comprehensive mapping solutions to businesses
and provide customized maps, destination information and driving directions to
consumers. Consumers can also purchase maps and cartography information from
MapQuest's MapStore located on mapquest.com.
MapQuest is also a United States provider of traditional digital mapping
products and services to the educational, reference, directory, travel and
governmental markets. In addition, companies that incorporate call centers, CD-
ROMs or stand-alone driving direction kiosks into their information delivery
strategy require non-Internet customized mapping solutions. MapQuest has
developed its map-enabling software to promote the rapid development of mapping
applications in these environments.
Revenue Recognition
Contracts with businesses for Internet products and services are generally
on an annual basis and consist of a one-time setup fee and annual service or
license fee. The one-time setup fee is based on costs incurred to initially
integrate the Web site connection and is recognized upon installation of the
connection. The remaining service or license fee is recognized ratably over the
contract period. Revenues recognized under this method are included in the
statements of operations as business revenues.
Royalty revenues are recognized when earned based on the revenues generated
by the sale of a licensed product or based on the minimum royalty provisions in
the related contract. Revenue from the sale of licenses to its customers for
the use of MapQuest's geographic systems or products are generally recognized
upon delivery of the licensed systems or products if no significant obligations
exist. If a maintenance or upgrade obligation exists, revenues are recognized
ratably over the obligation period. MapQuest's license agreements have terms
generally ranging from one to three years. Substantially all revenues
recognized under this method are included in the statements of operations as
business revenues.
Revenues from long-term fixed price contracts for the development of
customized geographic and cartographic data are recognized on the percentage of
completion method, measured by the percentage of labor hours incurred to date
to estimated total labor hours for each contract. Revenues recognized in excess
of amounts billed are classified as contract work in progress. Amounts billed
to clients for contracts in excess of revenues recognized to date are
classified as advance billings on contracts. Revenues recognized under this
method are included in the statements of operations as digital mapping
revenues.
Advertising revenue is recognized ratably over the period in which the
advertisements are displayed, provided that no significant obligations remain
and collection of the resulting receivable is probable. The average duration of
MapQuest's advertising arrangements is one to two months. MapQuest may
guarantee its advertisers a pre-set level of impressions during the contract
period. To the extent minimum guaranteed impression levels are not met ratably
over the contract period, MapQuest defers recognition of the corresponding pro-
rata portion of the revenues relating to such unfulfilled obligations until the
guaranteed impression levels are achieved. Revenues recognized under this
method are included in the statements of operations as consumer revenues.
Barter revenues are recognized in connection with agreements in which
MapQuest receives advertising or other goods and services in exchange for
content or advertising on mapquest.com. Barter transactions are
F-7
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
recorded at the lower of estimated fair value of the goods or services received
or the estimated fair value of the content or advertisements given. Barter
transactions accounted for approximately 0%, 1% and 2% of revenues during 1996,
1997 and 1998, respectively. Revenues recognized under this method are included
in the statements of operations as consumer revenues.
Revenues from all other services provided and products sold or licensed are
recognized when the services are rendered or delivery of the product is made
and no significant MapQuest obligations remain outstanding. Revenues recognized
under this method are included in the statements of operations as digital
mapping and business revenues.
Product Development
Product development expenses in the accompanying statements of operations
include the costs to develop new products and services and to modify existing
products and services, including software and data. These costs consist
primarily of salaries for product development personnel and related expenses,
contract labor expense, and consulting fees. Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed," requires capitalization of certain
software development costs subsequent to the establishment of technological
feasibility. Based upon MapQuest's product development process, technological
feasibility is established upon completion of a working model. Costs incurred
by MapQuest between completion of the working model and the point at which the
product is ready for general release have been insignificant. As a result,
MapQuest has expensed software development costs.
Statements of Cash Flows
For purposes of the statements of cash flows, MapQuest considers all cash
and highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.
Fair Values of Financial Instruments
The carrying amounts of cash and cash equivalents, notes receivable and
notes payable approximate fair value because of the short-term maturity of
these instruments.
Inventories
Inventories are carried at the lower of cost or market using the first-in,
first-out (FIFO) method.
Property and Equipment
Property and equipment consisting primarily of computer hardware are stated
at historical cost. Depreciation is computed principally using the straight-
line method over the estimated useful life of assets ranging from 3 to 5 years.
Goodwill
Goodwill, principally from the acquisition of Maryland Cartographics, Inc.
in July 1994, represents the excess of cost over fair value of net assets
acquired and is being amortized over 10 years using the straight-line method.
As of December 31, 1997 and 1998, accumulated amortization was $96,744 and
$127,295, respectively.
Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including
F-8
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
employee stock options, restricted stock, employee stock purchase plans and
stock appreciation rights. SFAS No. 123 requires compensation expense to be
recorded (i) using the new fair value method or (ii) using existing accounting
rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", ("APB 25") and related interpretations with pro
forma disclosure of what net income and earnings per share would have been had
the Company adopted the fair value method. The Company accounts for its stock-
based compensation plans in accordance with the provisions of APB 25.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs for 1996,
1997 and 1998 amounted to $332,300, $779,000 and $741,600, respectively, and
include barter advertising costs for 1997 and 1998 of $148,000 and $538,000,
respectively.
Investment in Joint Venture
The Company's 50 percent-owned joint venture, Donnelly Spatial Data
Partnership, is accounted for by the equity method. The joint venture is
engaged in providing, among other things, highway trip routing products and
services.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31
---------------------
1997 1998
---------- ----------
<S> <C> <C>
Materials.............................................. $ 240,000 $ 96,006
Work-in-process........................................ 207,838 336,123
Finished goods......................................... 1,238,279 932,479
---------- ----------
$1,686,117 $1,364,608
========== ==========
</TABLE>
3. Asset Purchase--Interarts
Effective April 1, 1996, MapQuest acquired certain assets, primarily
inventory, of Interarts, Ltd. (Interarts) for $328,600. Interarts is an upscale
niche publisher of reference maps, atlases and products that use map images.
This transaction was accounted for in accordance with the purchase method of
accounting for business combinations. No goodwill has been recognized by
MapQuest in connection with this transaction. The operating results of
Interarts are included in MapQuest's results of operations from the effective
date of the acquisition. Pro forma information about operating results assuming
Interarts was acquired at the beginning of 1996 is not presented because it
would not differ materially from reported results.
4. Debt Arrangements
MapQuest has a $5,000,000 secured line of credit payable on demand with a
financial institution. Borrowings under the line of credit are limited to 80%
of MapQuest's qualified accounts receivable that are within 90 days of invoice.
Under the agreement, MapQuest may choose an interest rate based on the
following options: prime rate, a fixed rate as offered by the Bank from time to
time for varying periods up to 180 days or at the LIBOR Rate plus 1.75% for
periods of 30, 60, 90 or 180 days. No amount was drawn on the line at December
31, 1997 or 1998.
F-9
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
MapQuest entered into a promissory note during 1997. Terms of repayment
require thirty consecutive monthly payments of principal and interest. Interest
on the outstanding principal is fixed at a rate of 9%.
5. Preferred Stock and Stockholders' Equity
Restated Certificate of Incorporation
On July 17, 1997, MapQuest filed a Restated Certificate of Incorporation
with the State of Delaware in conjunction with the purchase and sale of Series
C Preferred Stock. The Restated Certificate of Incorporation authorizes
MapQuest to issue 35,000,000 shares, of which 20,000,000 shares are designated
Common Stock and 15,000,000 shares are designated Preferred Stock. Of the
Preferred Stock, 6,550,000 shares are designated Series A Preferred, 2,000,000
shares are designated Series B Preferred, 3,800,000 shares are designated
Series C Preferred and 2,650,000 shares are undesignated as to series.
Series A Preferred Stock
MapQuest is authorized to issue 6,550,000 shares (10,000,000 shares as of
December 31, 1996) of noncumulative, convertible, voting Series A Preferred
Stock. Effective July 17, 1997, a redemption feature was added and the issued
and outstanding shares were reclassified outside of stockholders' equity. At
the option of the Holder, each share of Series A Preferred Stock is convertible
into Common Stock at a conversion rate of 2.7 shares of Common Stock for each
share of Series A Preferred Stock. Each share of Series A Preferred Stock
automatically converts into shares of Common Stock, either (i) immediately
prior to the closing of MapQuest's initial underwritten public offering
pursuant to a Registration Statement filed with and declared effective by the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, and having an aggregate offering to the public of not less than
$15,000,000 or (ii) upon the affirmative vote of the holders of at least two-
thirds of the then outstanding shares of Series A Preferred Stock, whichever is
earlier. The Series A Preferred Stock ranks senior to the Common Stock as to
dividend, liquidation, and redemption rights. The Series A Preferred Stock
ranks junior to the Series B Preferred Stock and the Series C Preferred Stock
as to dividend, liquidation and redemption rights. Each share of Series A
Preferred Stock issued and outstanding has a number of votes equal to the
number of shares into which such share of Series A Preferred Stock is then
convertible. Subject to the prior and superior rights of the holders of the
shares of Series B Preferred Stock and shares of Series C Preferred Stock, upon
written notice at least 120 days prior to December 31 of any calendar year
from, and including, the year 2002, by the holders of at least two-thirds of
the then outstanding shares of Series A Preferred Stock, MapQuest shall be
required to redeem all of the issued, outstanding and nonredeemed shares of
Series A Preferred Stock held by each holder of Series A Preferred Stock at a
redemption price per share of $1.00 plus an amount equal to all declared but
unpaid dividends on the Series A Preferred Stock. The redemption would be
payable in three annual installments. No dividends may be paid on the Series A
Preferred Stock unless MapQuest has fulfilled its dividend obligations on the
Series B Preferred Stock and Series C Preferred Stock. The Series A Preferred
Stock has an annual cash dividend rate of $.075 per share when and as declared
by the Board of Directors. MapQuest has reserved 17,685,000 shares of Common
Stock for issuance upon conversion of Series A Preferred Stock.
Pursuant to the terms of the stock purchase agreement dated October 31,
1994, MapQuest sold 215,000 shares of its Series A Preferred Stock at a
purchase price of $1 per share to MapQuest's then existing management. The
aggregate purchase price of $215,000 was paid $127,500 in cash and $87,500 in
notes due October 31, 1999. The notes bear interest at a rate of 7.5%
compounded annually. Payments are due annually in an amount that is the lesser
of one-fifth of the principal balance or 50% of any bonus to which each
employee is entitled. The notes are secured by the shares purchased, with
shares released to the extent each note is paid. At December 31, 1997 and 1998,
outstanding notes receivable in conjunction with this stock purchase was
$35,200.
F-10
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
On March 26, 1996, pursuant to the terms of an Employment Agreement dated
October 31, 1994, the Company sold 35,000 shares of its Series A Preferred
Stock at a purchase price of $1 per share to a member of MapQuest's then
existing management. The aggregate purchase price of $35,000 was paid $3,500 in
cash and $31,500 in a note due October 31, 2000. The note bears interest at a
rate of 7.5% compounded annually. The repayment terms were modified pursuant to
a severance agreement in 1997. The payment of the note, inclusive of interest,
is due on the earlier of September 30, 2000 or the date on which the severed
employee transfers all shares of the employee's Series A Preferred Stock. The
note is secured by the shares purchased with shares released to the extent the
note is paid. At December 31, 1997 and 1998, outstanding notes receivable in
conjunction with this stock purchase was $31,500.
Series B Preferred Stock
MapQuest is authorized to issue 2,000,000 shares of cumulative, redeemable,
nonvoting Series B Preferred Stock. Holders of shares of Series B Preferred
Stock are entitled to a cumulative dividend, payable semiannually, at the
annual rate of $.46125 per share with respect to dividends payable on or prior
to December 31, 1997 and $.39975 per share with respect to dividends payable
after December 31, 1997. The dividend may be paid in cash or a combination of
cash and additional shares of Series B Preferred Stock; however, at least
13.33% of the dividend payable in any period on or prior to December 31, 1997
shall be payable in cash. As of December 31, 1997 and 1998, there were no
dividends in arrears. Subject to the prior written consent of the holders of a
majority of the shares of Series C Preferred Stock then issued and outstanding,
the Series B Preferred Stock is redeemable at the option of MapQuest at any
time at a price of $6.15 per share, payable in cash or a combination of cash
and subordinated convertible debentures. Subject to the prior and superior
rights of holders of Series C Preferred Stock, the Series B Preferred Stock is
also redeemable at the option of the holders upon written notice at least 120
days prior to December 31 of any calendar year from and including the year
2002, by the holders of at least two-thirds of the then outstanding shares of
Series B Preferred Stock, at a price of $6.15 per share payable in cash, plus
an amount equal to all dividends accrued and unpaid thereon to the redemption
date. The redemption would be payable in three annual installments. The Series
B Preferred Stock ranks senior to the Series A Preferred Stock and the common
stock as to dividend, liquidation and redemption rights. The Series B Preferred
Stock ranks senior to the Series C Preferred Stock as to dividend rights and
junior to the Series C Preferred Stock as to liquidation and redemption rights.
During 1996, 1997 and 1998 MapQuest recorded dividends totaling $524,183,
$558,812 and $516,299, respectively, on Series B Preferred Stock. These
dividends included cash dividends of $69,889, $74,506 and -0- and stock
dividends of $454,295, $484,306 and $516,299, during 1996, 1997 and 1998,
respectively. The stock dividends were based on the issuance of additional
shares of Series B Preferred Stock of 73,869, 78,749 and 83,951 shares during
1996, 1997 and 1998, respectively, using a value of $6.15 per share.
Series C Preferred Stock
MapQuest is authorized to issue 3,800,000 shares (0 shares as of December
31, 1996) of noncumulative, redeemable, convertible, voting Series C Preferred
Stock. At the option of the holder, each share of Series C Preferred Stock is
convertible into Common Stock at a conversion rate of 2.7 shares of Common
Stock for each share of Series C Preferred Stock. Each share of Series C
Preferred Stock automatically converts into shares of Common Stock, immediately
prior to the closing of MapQuest's initial underwritten public offering
pursuant to a Registration Statement filed with and declared effective by the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, in which the aggregate proceeds to MapQuest equal at least $15,000,000
and in which the price per share of Common Stock equals or exceeds $2.60 per
share (as adjusted for stock splits, stock dividends, recapitalizations and
similar events). Each share of Series C Preferred Stock
F-11
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
issued and outstanding has a number of votes equal to the number of shares into
which such share of Series C Preferred Stock is then convertible. The Series C
Preferred Stock ranks senior to the Common Stock, the Series A Preferred Stock
and the Series B Preferred Stock as to liquidation and redemption rights and
ranks senior to the Common Stock and the Series A Preferred Stock with respect
to the payment of dividends. The Series C Preferred Stock ranks junior to the
Series B Preferred Stock with respect to the payment of dividends. The Series C
Preferred Stock has an annual cash dividend rate of $.26325 per share when and
as declared by the Board of Directors. Upon written notice at least 120 days
prior to December 31 of any calendar year from, and including, the year 2002,
by the holders of at least two-thirds of the then outstanding shares of Series
C Preferred Stock, the Company shall be required to redeem all of the issued,
outstanding and nonredeemed shares of Series C Preferred Stock held by each
holder of Series C Preferred Stock at a redemption price per share of $3.51
plus an amount equal to all declared but unpaid dividends on the Series C
Preferred Stock. The redemption would be payable in three annual installments.
The Company has reserved 9,437,456 shares of Common Stock for issuance upon
conversion of Series C Preferred Stock.
Pursuant to the terms of the stock purchase agreement dated July 17, 1997,
MapQuest sold 3,431,498 shares of its Series C Preferred Stock at a purchase
price of $3.51 per share. The aggregate purchase price of $12,044,558 was paid
in cash. The difference between the aggregate purchase price net of the
warrants issued during 1998 is being accreted to the redemption value through
2002. Accretion totaled $63,243 and $150,924 during 1997 and 1998,
respectively.
On November 1, 1997, MapQuest sold 63,856 shares of its Series C Preferred
Stock at a purchase price of $3.51 per share to members of the Company's then
existing management. The aggregate purchase price of $224,135 was paid by
$224,135 in notes due November 1, 2004. The notes bear interest at a rate of
7.0% compounded annually. Payments are due annually, commencing in the year
2000, in an amount that is the lesser of one-fifth of the principal balance or
50% of any bonus to which each employee is entitled. The note is secured by the
shares purchased with shares released to the extent the note is paid. At
December 31, 1997 and 1998, outstanding notes receivable in connection with
this stock purchase were $224,135.
Common Stock
As of December 31, 1998, MapQuest has a total of 35,778,701 shares of
Common Stock reserved for future issuance.
6. Stock Options and Warrants
1995 Stock Option Plan
As of December 31, 1998, 6,233,627 shares of MapQuest's Common Stock were
reserved for issuance under the GeoSystems Global Corporation 1995 Stock Option
Plan (the Plan), under which the Company may grant stock options to key
employees and consultants. Each option entitles the holder to purchase from
MapQuest one share of Common Stock at an exercise price which shall not be less
than the fair market value of one share of stock on the date of grant. These
options vest generally over five years and expire ten years from the date of
grant.
F-12
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Changes during the years ended December 31, 1996, 1997 and 1998 in options
outstanding were as follows:
<TABLE>
<CAPTION>
Number of Exercise Price
Options Per Option
--------- --------------
<S> <C> <C>
Balance at January 1, 1996......................... 1,375,515 $ 0.04
Granted during 1996................................ 1,071,179 $ 0.04
Granted during 1996................................ 365,310 $ 0.06
Granted during 1996................................ 429,300 $ 0.37
Exercised.......................................... (7,074) $ 0.04
Forfeited.......................................... (27,216) $ 0.04
--------- -----------
Outstanding at December 31, 1996................... 3,207,014 $ .04-$0.37
Granted during 1997................................ 933,678 $ 0.37
Exercised.......................................... (3,240) $ 0.04
Exercised.......................................... (6,210) $ 0.06
Exercised.......................................... (864) $ 0.37
Forfeited.......................................... (268,855) $ 0.04
Forfeited.......................................... (24,840) $ 0.06
Forfeited.......................................... (80,022) $ 0.37
--------- -----------
Outstanding at December 31, 1997................... 3,756,661 $ .04-$0.37
Granted during 1998................................ 2,218,050 $ 0.37
Exercised.......................................... (78,570) $ 0.04
Exercised.......................................... (33,750) $ 0.06
Exercised.......................................... (7,290) $ 0.37
Forfeited.......................................... (551,855) $ 0.04
Forfeited.......................................... (135,000) $ 0.06
Forfeited.......................................... (320,596) $ 0.37
--------- -----------
Outstanding at December 31, 1998................... 4,847,650 $0.04-$0.37
========= ===========
</TABLE>
During June, 1998 MapQuest accelerated the vesting and extended the
exercise period of options in connection with a severance agreement for the
former President and recorded compensation expense of $38,000.
Pro forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if MapQuest had accounted for its
employee stock options under the fair value method of that statement. As
permitted under the provisions of SFAS No. 123, and based on the historical
lack of a public market for MapQuest.com, Inc. options, no factor for
volatility has been reflected in the option pricing calculation. The fair value
of the options was estimated at date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Assumptions
Volatility factor of the expected market price of
MapQuest's common stock........................... 0% 0% 0%
Average risk free interest rate.................... 6.1% 6.1% 5.24%
Dividend yield..................................... 0.0% 0.0% 0.0%
Average life....................................... 5 years 5 years 5 years
</TABLE>
F-13
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because MapQuest stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. MapQuest's
pro forma information is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Pro forma net loss applicable to
common stockholders.............. $(1,801,499) $(13,432,774) $(3,822,092)
Pro forma basic and diluted loss
per share........................ $ (8.84) $ (64.43) $ (12.09)
</TABLE>
Additional information with respect to outstanding options as of December
31, 1998 is as follows:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
----------------------- -----------
Weighted
Average
Remaining
Number of Contractual Number of
Exercise Prices Options Life Options
--------------- ---------- ----------- -----------
<S> <C> <C> <C>
$0.04.................................... 1,509,883 6.7 1,043,163
$0.06.................................... 165,510 7.5 89,640
$0.37.................................... 3,172,257 8.5 669,394
---------- ---------
$0.04 - $0.37............................ 4,847,650 1,802,197
========== =========
</TABLE>
The weighted average fair value of options granted during 1996, 1997 and
1998 was $0 in each year.
On December 31, 1998 MapQuest granted 645,570 options for which the
exercise price per share will be the initial public offering price determined
upon completion of the offering MapQuest intends to make (see Note 15). These
options are excluded from the disclosures in this Note 6.
Warrants
As of December 31, 1998, there were 390,258 warrants outstanding under
which each warrant entitles the holder to purchase one share of MapQuest's
Common Stock for $.04 per share. The warrants were issued for $.004 per
warrant in connection with the original Series A Preferred Stock Purchase
Agreement dated October 31, 1994. The warrants expire upon the earlier of
October 31, 2004 or the fifth anniversary of an initial public offering.
MapQuest has reserved 390,258 shares of common stock for issuance upon
exercise of the warrants.
As of December 31, 1998, there were 406,709 warrants outstanding under
which each warrant entitles the holder to purchase one share of MapQuest's
common stock for $1.30. The warrants were issued for $1,000 in connection with
the Purchase and Sale of Series C Preferred Stock Agreement. The warrants
expire on July 18, 2002. MapQuest has reserved 406,709 shares of common stock
for issuance upon exercise of the warrants.
F-14
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 1998, there were 954,147 warrants outstanding under
which each warrant entitles the holder to purchase one share of MapQuest's
common stock for $1.04 per share. The warrants were issued in connection with a
distribution agreement MapQuest executed in 1997. These warrants were valued at
$0 on the date of grant using the "Black Scholes" option pricing model. The
warrants expire on the earlier of April 22, 2002 or upon termination of the
agreement. In the event that the holder shall have exercised the warrants prior
to the Company terminating the distribution agreement due to a breach of the
agreement by the holder, the Company shall have the option to purchase these
shares of common stock for a period of 60 days after the termination of the
distribution agreement at a purchase price which is the lesser of $1.77 or the
then fair market value of such shares. The Company has reserved 954,147 shares
of common stock for issuance upon exercise of the warrants.
As of December 31, 1998, there were 522,231 warrants outstanding under
which each warrant entitles the holder to purchase one share of MapQuest's
common stock for $.004 per share. The warrants were issued during May 1998 to
certain holders of Series C Preferred Stock in connection with the original
issuance of the Series C Preferred Stock. The warrants expire on April 30,
2008. MapQuest has reserved 522,231 shares of common stock for issuance upon
exercise of the warrants.
As of December 31, 1998, there were 41,266 warrants outstanding under which
each warrant entitles the holder to purchase one share of MapQuest's common
stock for $1.30. The warrants were issued for services rendered by an outside
party. The warrants expire in September 2003.
7. Loss Per Share
The following table sets forth the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ -----------
<S> <C> <C> <C>
Numerator:
Net loss......................... $(1,276,179) $ (7,599,123) $(3,154,869)
Preferred stock dividends........ (525,320) (560,025) (516,299)
Accretion of redeemable preferred
stock........................... -- (63,243) (150,924)
Addition of redemption feature to
preferred stock................. -- (5,210,383) --
----------- ------------ -----------
Numerator for loss per share ap-
plicable to common stockhold-
ers............................. $(1,801,499) $(13,432,774) $(3,822,092)
=========== ============ ===========
Denominator:
Denominator for basic and diluted
loss per share--weighted-average
shares.......................... 203,779 208,499 316,202
Basic and diluted loss per common
share............................. $ (8.84) $ (64.43) $ (12.09)
=========== ============ ===========
</TABLE>
The following securities and number of shares have been excluded from the
diluted per share computation as they are antidilutive:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Convertible redeemable preferred stock Se-
ries A..................................... -- 6,550,000 6,550,000
Convertible redeemable preferred stock Se-
ries C..................................... 3,495,354 3,495,354
Convertible preferred stock Series A........ 6,550,000 -- --
Stock options............................... 3,207,014 3,756,661 4,847,650
Stock warrants.............................. 390,258 1,751,114 2,314,611
</TABLE>
F-15
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of pro forma basic and
diluted loss per share, assuming conversion of the shares of Series A Preferred
Stock and Series C Preferred Stock to shares of common stock and the redemption
of the shares of Series B Preferred Stock outstanding at December 31, 1998
using an initial public offering price of $15 per share at the beginning of the
year ended December 31, 1998.
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Numerator:
Net loss applicable to common stockholders.................. $(3,822,092)
Redeemable preferred stock--Series C accretion.............. 150,924
Preferred stock dividends on cumulative preferred stock--Se-
ries B..................................................... 516,299
-----------
Numerator for pro forma basic and diluted loss per share.... $(3,154,869)
Denominator:
Weighted average number of common shares.................... 316,202
Assumed conversion of preferred shares to common shares..... 27,122,455
Assumed issuance of common shares to redeem Series B Pre-
ferred Stock............................................... 555,469
-----------
Denominator for pro forma basic and diluted loss per share.. 27,994,126
Pro forma basic and diluted loss per share.................. $ (.11)
</TABLE>
8. Income Taxes
No provision for income taxes has been recorded as MapQuest has incurred
net operating losses during 1996, 1997 and 1998.
The tax effects of temporary differences and net operating loss and credit
carryforwards that give rise to MapQuest's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
December 31
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation................................... $ (385,093) $ (347,306)
Deferred tax assets:
Allowance for doubtful accounts................ 84,040 146,324
Other.......................................... 481,607 496,126
Net operating loss and credit carryforwards.... 3,486,589 4,746,255
----------- -----------
Total deferred tax assets........................ 4,052,236 5,388,705
----------- -----------
Net deferred tax assets.......................... 3,667,143 5,041,399
Valuation allowances for deferred tax assets..... (3,667,143) (5,041,399)
----------- -----------
Net deferred taxes............................. $ -- $ --
=========== ===========
</TABLE>
Due to the uncertainty of the realization of the assets, a valuation
allowance has been provided. The valuation allowance was increased by
$1,239,780, $2,618,565 and $1,374,256 for the years ended December 31, 1996,
1997 and 1998, respectively.
As of December 31, 1998, MapQuest has net operating loss carryforwards of
approximately $11,680,000, which expire between 2009 and 2018, and research and
development tax credit carryforwards of approximately $623,000, which expire
during 2010 and 2013. The utilization of approximately $10,035,000 of such net
operating loss carryforwards and $561,000 of such research and development tax
credit carryforwards is subject to an annual limitation of approximately
$1,300,000, pursuant to Section 382 of the Internal Revenue Code.
F-16
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Segment Information
MapQuest has two reportable segments: MapQuest Business/Consumer and
Digital Mapping Services. The MapQuest Business/Consumer segment provides
products and services to address the web-based destination information needs of
both businesses and consumers. Business and Consumer revenues and costs are
combined for this segment because a significant portion of the costs, primarily
compensation for operations personnel and related operations costs, are common
to both Business and Consumer revenues and are not allocated. The Digital
Mapping Services segment provides non-internet mapping products and services to
the education, reference, directory, travel and governmental markets as well as
providing customized mapping solutions to various other customers. Revenues are
derived principally from the United States.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. MapQuest evaluates performance
based on gross profit and does not allocate assets to the reportable segments
since management does not evaluate segment performance based on asset
information and common assets are used in the segments. Accordingly,
depreciation expense is not included in the information set forth below.
MapQuest's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------
1996 1997 1998
--------- --------- ---------
In thousands
<S> <C> <C> <C>
Business segment revenues:
MapQuest consumer/business-trade......... $ 7,159.7 $ 6,038.6 $ 7,912.0
Digital mapping services-trade........... 12,417.2 15,377.1 16,805.1
--------- --------- ---------
Total...................................... $19,576.9 $21,415.7 $24,717.1
========= ========= =========
Business segment profit:
MapQuest consumer/business............... 2,834.5 1,503.4 3,103.2
Digital mapping services................. 4,422.9 4,609.9 3,968.1
--------- --------- ---------
Total segment profit....................... 7,257.4 6,113.3 7,071.3
Reconciling items:
Operating expenses....................... (8,976.1) (14,115.7) (10,524.1)
Other and interest income................ 442.5 403.3 297.9
--------- --------- ---------
Pre-tax loss............................... $(1,267.2) $(7,599.1) $(3,154.9)
========= ========= =========
</TABLE>
10. Leases
MapQuest leases certain office and warehouse space from one of its
stockholders under operating leases. MapQuest also leases other office space
and office equipment from unrelated parties under operating leases. Future
lease commitments are as follows:
<TABLE>
<S> <C>
1999........................................................... $1,039,000
2000........................................................... 848,000
2001........................................................... 754,000
2002........................................................... 758,000
2003........................................................... 762,000
Thereafter..................................................... 2,351,000
----------
$6,512,000
==========
</TABLE>
F-17
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Rental expense for the years ended December 31, 1996, 1997 and 1998, was
$683,000, $1,131,000 and $1,033,000, respectively.
11. Retirement Savings Plan
MapQuest sponsors a defined contribution retirement savings plan for
substantially all of its employees. Employees may elect to defer up to 15% of
their salary. MapQuest has the option to match up to 100% of the employees'
contribution up to 2% of their salary. The expense incurred related to this
plan was $161,549, $209,235 and $189,512 during the years ended December 31,
1996, 1997 and 1998, respectively.
12. Related Party Transactions
MapQuest paid a management fee of $75,000 to a stockholder during 1996 and
1997, respectively. In connection with the Purchase and Sale of Series C
Preferred Stock Agreement, the $75,000 annual management fee arrangement was
terminated effective July 17, 1997. MapQuest incurred rent expense of $112,000,
$35,591 and $16,597 related to leases with one of its stockholders during 1996,
1997 and 1998, respectively. MapQuest recorded sales to its stockholders of
$475,000, $432,320 and $513,626 during 1996, 1997 and 1998, respectively. Also,
MapQuest recorded sales to other affiliates of $181,000, $1,290,900 and
$2,022,000 during 1996, 1997 and 1998, respectively. As of December 31, 1998,
MapQuest's accounts receivable - affiliates was $127,989.
13. Concentration of Credit Risk
For the years ended December 31, 1996, 1997 and 1998, sales to MapQuest's
top four customers represented 38%, 25% and 18% of total sales, respectively.
During 1996, one customer represented 16% of total sales.
14. Commitments and Contingencies
Minimum Annual Royalties
MapQuest has guaranteed payment of the following minimum annual royalties
under a distribution agreement for each of the following years:
<TABLE>
<CAPTION>
Minimum
Year ended December 31 Annual Royalty
---------------------- --------------
<S> <C>
1997...................................................... $ 166,667
1998...................................................... 345,833
1999...................................................... 462,500
2000...................................................... 500,000
2001...................................................... 500,000
2002...................................................... 125,000
----------
Total................................................... $2,100,000
==========
</TABLE>
Contingencies
On December 14, 1998, Mark Tornetta filed a lawsuit against Moore U.S.A.,
Inc. in the United States District Court for the Eastern District of
Pennsylvania. The Company is defending this matter pursuant to an indemnity
provision in its contract with Moore U.S.A., Inc. Mr. Tornetta's patent
describes a specific method for searching real estate properties, which Mr.
Tornetta alleges is infringed by Moore U.S.A., Inc.'s online and other real
estate services. The Company believes that the claims of the patent are not
infringed by Moore U.S.A. and the patent is invalid. While the litigation is in
the early stage, and its outcome cannot be predicted, MapQuest believes that
this litigation is without merit, and intends to defend this action vigorously.
F-18
<PAGE>
MAPQUEST.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
On January 26, 1999, Civix-DDI, LLC filed a lawsuit in the United States
District Court for the District of Colorado against twenty different
defendants, including MapQuest. Eight of these defendants are licensees of
MapQuest's technology and may have rights to indemnification under their
respective agreements or at law. The complaint alleges infringement by MapQuest
of two patents, through, for example, the manufacture, use, sale, and offer to
sell MapQuest's Electronic Yellow Page Services systems and products. On May 3,
1999, MapQuest and Civix entered into a license agreement, dated May 3, 1999,
pursuant to which MapQuest acquired a license under the Civix patents. The
license agreement also provides certain rights to customers and end users of
MapQuest products and services. The license agreement provides for MapQuest to
pay a license fee of $500,000. In connection with the acquisition of the
license, MapQuest and Civix agreed to settle the lawsuit and to jointly seek
entry in the lawsuit of an agreed-upon order dismissing MapQuest from the
lawsuit and dismissing certain claims against MapQuest's co-defendant customers
relating to their use and sale of MapQuest products and services.
MapQuest periodically receives notices of claims arising out of the normal
course of business. In the opinion of management, these matters will not have a
material effect on MapQuest's financial position, results of operations, or
liquidity.
15. Subsequent Events and Unaudited Pro Forma Adjustments
During February 1999, the Board of Directors authorized MapQuest to file a
registration statement with the Securities and Exchange Commission for an
initial public offering of shares of its common stock. In connection with the
above, in April 1999, the Board of Directors authorized MapQuest to do the
following: (1) amend its Certificate of Incorporation such that it will have
the authority to issue an aggregate of 105,000,000 shares of capital stock,
consisting of 90,000,000 shares of common stock, par value $0.001 per share,
and 15,000,000 shares of preferred stock, par value $0.01 per share; (2) effect
a 2.7 for 1 common stock split; (3) adopt the 1999 Stock Plan for which
3,645,000 shares of common stock will be reserved for future issuances; and (4)
establish an employee stock purchase plan under which a total of 1,755,000
shares of common stock will be made available for sale. The above items were
approved by the stockholders during April 1999. The change to authorized shares
and the stock split became effective on April 29, 1999. The 1999 Stock Plan and
employee stock purchase plan take effect upon and subject to the effectiveness
of the registration statement. All references to common shares, per common
share and par value per common share, except for references to authorized
common shares, in the financial statements have been restated to give effect to
the common stock split and change in par value per common share.
In addition, during April 1999, the Board of Directors authorized and the
stockholders approved MapQuest to amend and restate its Certificate of
Incorporation such that it will have the authority to issue an aggregate of
105,000,000 shares of capital stock, consisting of 100,000,000 shares of common
stock, par value $0.001 per share and 5,000,000 shares of preferred stock, par
value $0.01 per share. This amended and restated Certificate of Incorporation
is to only be adopted and filed upon and subject to the effectiveness of
MapQuest's registration statement.
MapQuest intends to use a portion of the proceeds of the offering to redeem
the outstanding shares of Series B Preferred Stock. Also, upon the completion
of an initial public offering in which the gross proceeds paid by the public
are at least $15,000,000 and, with respect to the Series C Preferred Stock at a
per share price to the public of not less than $2.60, all outstanding
redeemable preferred shares of Series A Preferred Stock and Series C Preferred
Stock will automatically be converted into shares of common stock in the manner
described in Note 5. The pro forma balance sheet at December 31, 1998 gives
effect to such conversion as if it occurred on that date. The pro forma loss
per share (Note 7) for the year ended December 31, 1998 gives effect to the
conversion of such shares and the redemption of the outstanding shares of
Series B Preferred Stock as if the conversion and redemption occurred at the
beginning of 1998.
F-19
<PAGE>
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