<PAGE>
As filed with the Securities and Exchange Commission on December 17, 1999
Registration Statement No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
AltaVista Company
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 7379 04-3479713
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
529 Bryant Street
Palo Alto, California 94301
(650) 617-3400
(Address, including zip code, and telephone number
Including area code, of Registrant's principal executive offices)
--------------
Stephanie A. Lucie, Esq.
Vice President, General Counsel and Secretary
AltaVista Company
529 Bryant Street
Palo Alto, California 94301
(650) 617-3400
(Name, Address, Including Zip Code, and Telephone Number
Including Area Code, of Agent for Service)
Copies to:
<TABLE>
<S> <C>
Michael V. Gisser, Esq. Bruce K. Dallas, Esq.
Kenton J. King, Esq. Davis Polk & Wardwell
Skadden, Arps, Slate, Meagher & Flom LLP 1600 El Camino Real
525 University Avenue, Suite 220 Menlo Park, California 94025
Palo Alto, California 94301 (650) 752-2000
(650) 470-4500
</TABLE>
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
--------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Proposed
Title of Each Class of Maximum Aggregate Amount of
Securities to be Registered Offering Price(1) Registration Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, par value $0.01 per share................. $300,000,000 $79,200
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(o).
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file an amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Explanatory Note
This registration statement includes two forms of prospectus, one to be
used in connection with an offering in the United States and Canada and one to
be used in connection with an offering outside of the United States and
Canada. The only difference between the prospectuses is the form of cover
page. The form of cover page for the international prospectus is included in
the registration statement immediately following the prospectus to be used in
United States and Canada.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities and we are not soliciting +
+offers to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued
Shares
[AltaVista Company Logo]
COMMON STOCK
-----------
We are offering shares of our common stock. This is our initial public
offering and no public market currently exists for our shares. We anticipate
that the initial public offering price will be between $ and $ per
share.
-----------
We have applied for quotation of our common stock on the Nasdaq National Market
under the symbol "ALTA."
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting
Price Discounts Proceeds
to and to
Public Commissions AltaVista
------ ------------ ---------
<S> <C> <C> <C>
Per Share......................................... $ $ $
Total............................................. $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to an additional
shares to cover over-allotments.
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.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
HAMBRECHT & QUIST
ROBERTSON STEPHENS
PRUDENTIAL VOLPE TECHNOLOGY
a unit of Prudential Securities
WIT CAPITAL CORPORATION
, 2000
<PAGE>
Our artwork will consist of web page screen shots displaying various pages
of our portal. Descriptive captions will be used for the screen shots. In
addition, we plan to use our corporate logo which contains the words
"AltaVista: Smart Is Beautiful."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Special Note About Forward-Looking
Statements......................... 17
Use of Proceeds..................... 18
Dividend Policy..................... 18
Capitalization...................... 19
Dilution............................ 20
Unaudited Pro Forma Condensed
Combined Statements of Operations.. 21
Selected Historical Combined
Financial Information.............. 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 27
Business............................ 39
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management.......................... 57
Certain Relationships and Related
Transactions....................... 66
Ownership of Principal Stockholders
and Management..................... 72
Description of Capital Stock........ 74
Shares Eligible for Future Sale..... 77
Certain Federal Income Tax
Considerations for Non-United
States Stockholders................ 79
Underwriters........................ 81
Legal Matters....................... 84
Experts............................. 84
Where You Can Find More Information
About AltaVista.................... 85
Index to Financial Statements....... F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from the
information contained in this prospectus. We are offering to sell, and seeking
offers to buy, the 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 when this prospectus is
delivered or when any sale of our common stock occurs.
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade in our common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information in this prospectus, but it may
not contain all of the information that is important to you. To better
understand this offering, and for a more complete description of the offering
and related transactions, you should read this entire prospectus carefully,
including the "Risk Factors" section and the combined financial statements and
the notes to those statements, which are included elsewhere in this prospectus.
AltaVista Company
AltaVista is a leading Internet search, new media and commerce network that
delivers personalized, relevant information and e-commerce services to millions
of users worldwide. With our patented technologies, international presence,
distinct service offerings and strong strategic partners, we seek to provide a
smart, dynamic and thought-provoking knowledge resource for Internet users. Our
goal is to expand our user base by extending our leadership in search and
expanding our content and e-commerce capabilities, thereby increasing the
attractiveness of our Internet properties to advertisers and merchants.
The quality of our services has enabled us to be one of the top web sites in
terms of user reach. We target our services and branding towards Web
enthusiasts. Web enthusiasts, whether experienced Internet users or newly
online, are passionate about the Internet and view it as a powerful tool to
obtain knowledge and to communicate. We believe that the AltaVista user base,
which in November 1999 we estimate consisted of more than 45 million unique
monthly visitors worldwide, is one of the most Web-savvy and brand-loyal on the
Internet. Data from @Plan, a market research company, in the Fall of 1999 shows
that the typical AltaVista user is a more frequent online user and more likely
to buy products online than the typical Internet user. We believe that as
Internet use continues to increase and users become more familiar and
comfortable with using the Internet, the number of Web enthusiasts as a
percentage of total Internet users will increase.
Market research firm International Data Corporation estimates that the
number of Internet users will increase from approximately 142 million at the
end of 1998 to approximately 502 million by the end of 2003, representing a
compound annual growth rate of approximately 29%. Internet advertising revenues
in the United States are expected to increase from $2.1 billion in 1998 to over
$11.5 billion by 2003, according to Jupiter Communications, a market research
company. Forrester Research has estimated that consumer purchases of goods and
services over the Internet in the United States alone will increase from
approximately $20 billion in 1999 to approximately $184 billion in 2004,
representing a compound annual growth rate of over 56%.
We believe that we are well positioned to be the Internet's trusted brand
for highly integrated, personally relevant information and e-commerce
offerings. We combine superior search technology, robust and timely media
content, local content and personalized e-commerce offerings with a broad
network of strategic partners to supply our users with an easy-to-use, engaging
online experience. Our web sites offer users ways to quickly, accurately and
dynamically access the knowledge they seek. During November 1999, we delivered
over 1.6 billion page views to our users. Our portal has the following
capabilities:
Superior Search Platform. AltaVista Search offers advanced search
functionality that enables Internet users to find information on the Internet.
We believe that AltaVista Search is one of the fastest Internet search
services, includes one of the most extensive indices available and produces
highly relevant search results. We also believe that our index, which is
frequently updated and contained over 250 million web pages at December 1999,
includes more web pages than any other Internet search service.
AltaVista Live!. We offer users a comprehensive destination for Internet
navigation, directory services, personalized content and rich local community
information on the AltaVista Live! service. As part of our commitment to
provide our users with high quality financial content as well as to further
broaden the community aspects of AltaVista Live!, in November 1999, we agreed
to acquire Raging Bull, Inc., a finance-oriented community and content Internet
company and an affiliate of CMGI, Inc.
1
<PAGE>
AltaVista Shopping.com. AltaVista Shopping.com is an e-commerce service that
provides customers with the information necessary to make personalized online
buying decisions and gives retailers the ability to reach a large customer
base. AltaVista Shopping.com's goal is to make the shopping experience
informed, quick, interactive and personalized. We leverage our superior search
technology to enhance the shopping experience by increasing the speed and
accuracy of the shopping search, enabling our users to research, compare and
purchase merchandise from among millions of products.
Free Communications Services. We offer a number of free services to help
attract users to the AltaVista portal. We offer e-mail service and dial-up
Internet access through our AltaVista FreeAccess program to our users, and
recently began offering instant messaging services.
History
Historically, we were operated within Digital Equipment Corporation, which
was acquired by Compaq Computer Corporation in June 1998. In January 1999, we
were incorporated and began doing business as a separate business unit within
Compaq. To broaden the capabilities of AltaVista, in February 1999, Compaq
acquired Shopping.com, an e-commerce company, and, in April 1999, acquired Zip2
Corp., a local portal service. In August 1999, CMGI acquired approximately
81.5% of our equity ownership and Compaq retained approximately 18.5% of our
equity ownership. In connection with this acquisition, the AltaVista Search web
site and associated intellectual property, Shopping.com, Zip2 and other assets
were contributed to us. In October 1999, we acquired iAtlas from CMGI to
enhance our search service with iAtlas' filtering technology and distributed a
stock dividend of all Zip2 stock owned by us to our stockholders. In November
1999, we agreed to acquire Raging Bull, a finance-oriented community and
content Internet company and an affiliate of CMGI. We expect this acquisition
to be completed during the first quarter of 2000.
General Information
Our principal executive offices are located at 529 Bryant Street, Palo Alto,
California 94301, and our telephone number is (650) 617-3400. We offer our
complete network through the www.altavista.com Internet portal and also offer
our e-commerce services through the www.shopping.com web site. The information
on these web sites is not incorporated by reference into this prospectus.
In this prospectus, the terms "Company," "AltaVista Company," "AltaVista,"
"we," "us," and "our" refer to AltaVista Company and our subsidiary,
Shopping.com, and "common stock" refers to our common stock, $.01 par value per
share.
AltaVista, Shopping.com, their respective logos and other trademarks of ours
mentioned in this prospectus are the property of AltaVista. All other
trademarks or trade names referred to in this prospectus are the property of
their respective owners.
2
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered:
United States offering............................ shares
International offering............................ shares
Total........................................... shares
Common stock to be outstanding after the offering.. shares
Use of Proceeds.................................... For working capital,
advertising and to fund
other general corporate
purposes, including
potential acquisitions.
Proposed Nasdaq National Market Symbol............. ALTA
</TABLE>
The common stock to be outstanding after the offering is based on shares
outstanding as of , 1999, plus shares of common stock issuable
upon conversion of outstanding convertible notes and convertible preferred
stock as of that date. The shares outstanding exclude:
. 11,574,193 shares of common stock issuable as of October 31, 1999 upon
the exercise of outstanding stock options issued under our stock option
plans at a weighted average exercise price of $11.84 per share
. 2,000,000 shares of common stock initially reserved for issuance under
our employee stock purchase plan
----------------
Unless otherwise specifically stated, information in this prospectus
assumes:
. Conversion of $ of our debt to CMGI and Compaq into shares of
convertible preferred stock prior to the closing of this offering
. Conversion of all outstanding shares of our convertible preferred stock
into an aggregate of shares of common stock upon completion of
this offering
. No exercise of the underwriters' over-allotment option
----------------
This prospectus includes statistical data regarding our company, the
Internet and the industries in which we compete. This data is based on our
records or taken or derived from information published or prepared by various
sources, including International Data Corporation, a provider of market and
strategic information for the information technology industry, and Jupiter
Communications, a market research company. Market data used throughout this
prospectus relating to our relative position in our industry is based upon
industry sources and the good faith estimates of our management, based upon
relevant information known to them. Though we believe those sources are
reliable, the accuracy and completeness of this information is not guaranteed
and has not been independently verified.
3
<PAGE>
SUMMARY COMBINED FINANCIAL DATA
The following table presents our summary pro forma combined financial data.
We have derived this data from "Unaudited Pro Forma Condensed Combined
Statements of Operations," and the combined financial statements and notes that
are included elsewhere in this prospectus. You should read those sections for a
further explanation of the combined financial data summarized here.
The summary pro forma combined financial data may not be indicative of our
future performance and does not reflect what our financial position would have
been had we operated as a separate, stand-alone entity during the periods
presented. The pro forma combined statement of operations data reflect the
acquisition by CMGI of an 81.495% equity interest in us and the acquisition by
us of Shopping.com as if they had occurred as of January 1, 1998. The summary
pro forma combined financial data exclude results of Zip2, which was acquired
on April 1, 1999 and distributed as a stock dividend to our stockholders on
October 20, 1999.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
Year Ended Seven Months Ended March 31, June 30, October 31,
December 31, 1998 July 31, 1999 1999 1999 1999
----------------- ------------------ --------- --------- -----------
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C>
Summary Pro Forma
Combined Statement of
Operations Data:
Advertising and service
revenue, net........... $ 37,139 $ 47,087 $ 16,705 $ 21,601 $ 30,196
Product revenue, net.... 8,122 26,212 4,862 12,397 22,421
--------- --------- --------- --------- ---------
Total revenue......... 45,261 73,299 21,567 33,998 52,617
Gross profit............ 24,730 30,848 10,532 15,396 21,150
Product development..... 15,911 16,728 5,324 7,773 10,630
Sales and marketing..... 39,413 52,048 23,203 20,212 50,348
General and
administrative and
other.................. 26,282 23,690 3,597 5,539 6,471
--------- --------- --------- --------- ---------
Operating loss before
stock-based
compensation and
amortization of
intangibles............ (56,876) (61,618) (21,592) (18,128) (46,299)
Stock-based compensation
and amortization of
intangibles............ 875,067 510,456 218,767 218,767 219,517
--------- --------- --------- --------- ---------
Net loss................ $(939,162) $(572,504) $(240,467) $(236,952) $(267,715)
========= ========= ========= ========= =========
</TABLE>
The summary pro forma combined balance sheet data below reflect the
conversion into common stock of our demand note payable to CMGI. The summary
pro forma as adjusted combined balance sheet data also reflect the receipt of
the net proceeds from the sale of the shares of our common stock in this
offering.
<TABLE>
<CAPTION>
As of October 31, 1999
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------- ---------- -----------
(in thousands)
<S> <C> <C> <C>
Summary Pro Forma Combined Balance Sheet
Data:
Cash and cash equivalents................... $ 1,126 $ 1,126 $ --
Goodwill and other intangibles, net......... 2,473,715 2,473,715 2,473,715
Total assets................................ 2,601,120 2,601,120 --
Demand convertible note payable to CMGI..... 43,455 -- --
Total stockholders' equity.................. $2,458,902 $2,502,357 $ --
</TABLE>
Prior to August 18, 1999, our fiscal year ended on December 31. In August
1999, we retroactively adopted the CMGI fiscal year end of July 31, 1999.
Because the fiscal year end change results in no material effect on reported
trends, and due to the impracticality of preparing comparable seven months or
fiscal quarter historical carve out financial statements, we have presented the
quarters through June 30, 1999 on a calendar quarter basis. Summary pro forma
results for the month ended July 31, 1999 are: advertising and service revenue
of $8.8 million; product revenue of $9.0 million; operating loss before stock-
based compensation and amortization of intangibles of $(21.9) million; and net
loss of $(122.0) million.
4
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. You should consider carefully the risks described below and other
risks before you decide to buy our common stock. If any of the following risks
were to occur, our business, financial condition or results of operations
would likely suffer. In that event, the trading price of our common stock
could decline, and you could lose all or part of your investment.
Risks Related to Our Business
We May Not be Able to Maintain or Improve Our Competitive Position Because
of the Intense Competition Among Internet Portals
The Internet portal market is highly competitive, and we expect competition
will continue to intensify. We may not be able to compete successfully and
competitive pressures may seriously harm our business.
Many companies currently offer directly competitive products or services
addressing Web search and navigation, including America Online, CNET, Direct
Hit, Excite, the Go Network, Google, HotBot, Inktomi, Lycos, Microsoft
Network, Northern Light and Yahoo!. The size of the Web index, the speed with
which search results return and the relevance of results are factors which,
among others, determine a portal's success. Many of our existing competitors,
as well as a number of potential new competitors, have significant financial,
technical, marketing and distribution resources, which may enable them to
increase the speed and relevance of their search results. As the market for
Internet and Intranet search and navigational services develops, other
companies may be expected to offer similar services or directly and indirectly
compete with us for advertising revenues.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand name recognition, greater
access to proprietary content and significantly greater financial, marketing
and other resources. In addition, our competitors may be acquired by, receive
investments from or enter into commercial relationships with larger, well-
established and better financed companies as use of the Internet and other
online services increases. New technologies or the expansion of existing
technologies may increase these competitive pressures. We may not be able to
compete successfully against current and future competitors, and the
competitive pressures we face may seriously harm our business.
We Also Face Competition from E-Commerce Companies Who Offer Products and
Services Similar to Ours
Through our AltaVista Shopping.com retail business, we sell a select number
of products directly to consumers. The e-commerce industry is new, rapidly
evolving and intensely competitive, and we expect competition to intensify
further. Competitors include Amazon.com, Buy.com, DealTime, mySimon, CBS
StoreRunner and Value America. Barriers to entry are minimal, allowing current
and new competitors to launch new web sites at a relatively low cost.
Some of our competitors may be able to obtain merchandise from vendors on
more favorable terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing or inventory availability policies
and devote substantially more resources to web site and systems development
than we can. Increased competition may result in reduced operating margins,
loss of market share and our value may be diminished. Further, as a strategic
response to changes in the competitive environment, we may, at various times,
make pricing, service or marketing decisions that could harm our results of
operations.
We Have Incurred Substantial Operating Losses and Anticipate Continued
Losses
We have incurred significant net operating losses in each fiscal quarter
since our inception, including an operating loss of $272.3 million for the
three months ended October 31, 1999. As of October 31,
5
<PAGE>
1999, we had an accumulated deficit of $492.9 million. We cannot assure you
that we will ever achieve profitability on a quarterly or annual basis or, if
we achieve profitability, that it will be sustainable. We will need to
generate significant additional revenue to achieve profitability. We
anticipate significant increased expenses as we continue to expand and improve
our operating infrastructure, expand our sales and marketing efforts and
pursue additional strategic relationships. As a result, we expect to incur
additional losses and continued negative cash flow from operations for the
foreseeable future.
Our Quarterly Financial Results are Volatile
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside our control.
These factors include:
. the timing and amount of advertising and e-commerce activity on our web
sites
. intense competition from companies that offer services similar to ours
. our ability to retain and attract users
. our need to retain and hire more employees
. our ability to maintain and establish advertising and strategic
relationships
Because our staffing and operating expenses are based on anticipated
revenue levels, and because a high percentage of our costs is fixed, small
variations in the timing of the recognition of specific revenue could cause
significant variations in operating results from quarter to quarter. If we are
unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall, any significant revenue shortfall would likely harm our
business and operating results. Moreover, our operating results in one or more
future quarters may fail to meet our expectations or those of securities
analysts or investors. If this occurs, we would expect to experience an
immediate and significant decline in the trading price of our stock.
Because We Have a Limited Operating History, Evaluation of Our Business is
Difficult
AltaVista as it exists today has not operated as a combined organization at
any time during the period for which historical financial information is
presented in this prospectus. In addition, recent acquisitions and
divestitures have required adjustments and allocations in connection with the
preparation of our historical and pro forma financial statements. As a result,
our historical and pro forma results of operations are unreliable indicators
of our future operating or financial performance. Additional information
regarding these factors and the preparation of our pro forma financial
statements is included in this prospectus under the captions "Selected
Historical Combined Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
If We Cannot Effectively Integrate Our Recent and Potential Future
Acquisitions, We May Experience Increased Costs, Operating Inefficiencies,
System Disruptions and the Loss of Users
The recent acquisition of Shopping.com and the pending acquisition of
Raging Bull create challenges in coordinating business processes and
integrating logistics, marketing, product development, services and
operations. If we do not successfully integrate Shopping.com and Raging Bull,
our future revenue and profitability may be harmed and our value may be
diminished.
The integration of acquired companies into a cohesive business requires the
combination of different business strategies, financial accounting and other
internal systems, varied technologies and personnel who have different
expertise and backgrounds. We may not be able to successfully integrate the
operations, personnel or systems of these acquired companies in a timely
fashion, or at all. If we fail to integrate operations and personnel
effectively, we will experience duplication of costs and operating
inefficiencies. If we are unable to integrate technologies successfully, we
may experience system disruptions or failures that could result in user
dissatisfaction and, potentially, the loss of users. We also cannot be certain
that we will achieve value from our acquisitions commensurate with the
consideration paid.
6
<PAGE>
We Face Risks Connected With Expansion into International Markets and
Development of Country- Specific Web Sites that Could Harm Our Financial
Results
We plan to expand our operations into international markets. Though more
than half of the visitors to our web sites are from outside the United States,
Internet usage and Internet advertising are at an earlier stage of development
internationally than in the United States. We have a limited international
operating presence with few employees or facilities. Our failure to establish
successful operations and sales and marketing efforts in international markets
could seriously harm the financial results of our international operations.
There are certain risks inherent in doing business in international
markets, such as:
. unproven markets for Internet advertising
. less developed distribution and payment mechanisms that may impede the
growth of e-commerce
. unexpected changes in regulatory requirements
. potentially adverse tax environment
. export restrictions, export controls relating to encryption technology,
tariffs and other trade barriers
. difficulties in staffing and managing foreign offices
. burdens of complying with applicable foreign laws and exposures to
different legal standards, particularly with respect to intellectual
property, privacy and distribution of potentially offensive or unlawful
content over the Internet
. fluctuations in currency exchange rates
. seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world
Because We Expect to Derive Significant Revenue from Internet Advertising,
Weaker Than Expected Growth of Internet Advertising Could Harm Our
Operating Results
Advertising revenue comprised approximately 60% of our total revenues for
the seven months ended July 31, 1999. We expect to derive a large portion of
our revenues in the foreseeable future from sales of Internet advertising.
Accordingly, our future success is highly dependent on the continued
development of the Internet as an advertising medium. The market for Internet
advertising has only recently begun to develop, is rapidly evolving and is
characterized by an increasing number of market competitors. Most of our
advertising customers have limited experience with the Internet as an
advertising medium, have not yet devoted a significant portion of their
advertising expenditures to Internet-based advertising and may not find such
advertising to be effective for promoting their products and services relative
to traditional print and broadcast media. If the market fails to continue to
develop, develops more slowly than expected or becomes saturated with
competitors, or if our products and services do not achieve or sustain
acceptance by Internet users or advertisers, our business could be seriously
harmed.
Weaker Than Anticipated Performance by DoubleClick, or Failure of Our New
Internal Sales Strategy, Could Harm Our Operating Results
Substantially all of our advertising revenues to date have been generated
by DoubleClick, an Internet advertising firm. We anticipate that for the
foreseeable future a substantial portion of our advertising revenues will be
derived from ads delivered by DoubleClick. The loss of one or more of the
advertisers that provide ads to us through DoubleClick could seriously harm
our business. We have no assurance that DoubleClick will achieve the
advertising revenue targets that we have set for it and any failure by
DoubleClick to assist us in achieving these targets could seriously harm our
business.
7
<PAGE>
Further, we are increasing the size of our internal sales organization to
improve our ability to earn revenue from our traffic, maintain closer
relationships with our key advertisers and partners and reduce advertising
sales costs. If we fail to develop our internal sales organization or to
manage our advertising sales strategy effectively, our business could be
seriously harmed.
Our Historical Sources of Funding Are Expected to Change and We May Need
Additional Financing in the Future, Which May Not be Available or May
Require Us to Issue Additional Equity Securities That Could Lead to
Substantial Dilution to Our Stockholders
Historically, Compaq has funded our operations as needed. After August 18,
1999, CMGI funded our operations as needed. From time to time, at its
election, Compaq may participate in the funding of our operations, based on
its pro rata ownership interest. We currently owe CMGI and Compaq an aggregate
of $ million, which amount may be converted into an aggregate of
shares of preferred stock at the election of CMGI or Compaq, as the case may
be. Upon the closing of this offering, all outstanding shares of this
preferred stock will be converted into shares of our common stock at a rate of
ten shares of common stock for each share of preferred stock. We will continue
to incur debt through the closing of this offering, which debt may be
converted into preferred stock prior to the closing of this offering, or, with
respect to debt incurred in the fiscal quarter during which the closing of
this offering occurs, may be converted directly into shares of common stock on
a dollar-for-dollar basis at the initial public offering price. All preferred
stock outstanding at the closing of this offering will be converted into
common stock. We do not expect to borrow funds from CMGI or Compaq after
completion of this offering.
We intend to expand our business rapidly and expect to incur significant
operating losses for the foreseeable future. Therefore, we may be required to
raise substantial additional funds through public or private financings,
strategic relationships or other arrangements. We cannot be sure that such
additional funding, if needed, will be available on acceptable terms or at
all. If adequate funds are not available, we may be required to curtail
significantly or defer one or more of our operating goals or programs. If we
succeed in raising additional funds through the issuance of equity securities,
the issuance could result in substantial dilution to existing stockholders. If
we raise additional funds through the issuance of debt securities or preferred
stock, these new securities would have rights, preferences and privileges
senior to those of the holders of our common stock. The terms of these
securities could also impose restrictions on our operations.
Our Brand May Not Achieve the Broad Recognition Necessary to Succeed
We believe that broader recognition and positive perception of the
AltaVista brand are essential to our future success. Accordingly, we intend to
continue to pursue an aggressive brand enhancement strategy, which will
include mass market and multimedia advertising, promotional programs and
public relations activities. These initiatives will require significant
expenditures. We believe that users currently associate our brand primarily
with our search capabilities. To expand our business, we will need to increase
association of our brand with e-commerce, as well as personalized local
content services. If our brand enhancement strategy is unsuccessful, these
expenses may never be recovered and we may be unable to increase future
revenues. Successful positioning of our brand will depend in large part on:
. the success of our advertising and promotional efforts
. an increase in the number of users and page views of our web site
. the ability to continue to provide high quality customer service
Advertising expense was $32.1 million during the three months ended October
31, 1999. To increase awareness of our brand, we expect to spend approximately
$120 million on advertising during the fiscal year ended July 31, 2000. These
expenditures may not result in sufficient increase in revenues to offset these
expenditures. In addition, even if brand recognition increases, the number of
new users or the number of page views of our web sites may not increase. Even
if the number of new users increases, those users may not regularly use our
web sites.
8
<PAGE>
We Face Risks Related to Expanding Into New Services and Business Areas, in
Particular, E-Commerce
To increase our revenues, we will need to expand our operations by
promoting new or complementary products and by expanding the breadth and depth
of our services. Specifically, our future success will depend in part on
obtaining revenues from the facilitation of e-commerce transactions with
online and offline retailers. The market for e-commerce services is extremely
competitive. Because we have limited experience in this market, we may have
limited success. If we expand our operations in this manner, we will require
significant resources for additional development and such expansion may strain
our management, financial and operational resources. Our expansion into new
product and service offerings may not be timely or may not generate sufficient
revenues to offset their cost. If this occurs, our business will be seriously
harmed.
Through our AltaVista Shopping.com retail business, we sell a select number
of products directly to consumers. We have no long-term contracts or
arrangements with any of our vendors or shippers that guarantee the
availability of merchandise, the continuation of particular payment terms, the
extension of credit limits or shipping schedules. Our current vendors may
discontinue selling merchandise to us, shippers may be unable to provide
timely delivery service for us and we may be unable to establish new, or
extend current, vendor and shipper relationships to ensure acquisition and
delivery of merchandise in a timely and efficient manner and on acceptable
commercial terms. If we are unable to develop and maintain relationships with
vendors and shippers that allow us to obtain sufficient quantities of
merchandise on acceptable commercial terms, or in the event of labor disputes,
our business will be seriously harmed.
In an effort to provide objective information to our users, we provide
product information and direct users to various online and offline retailers
and manufacturers, including our competitors. We have no control over the
experience that our users will have while visiting these other web sites.
Users who are not satisfied with their experience with these other web sites
may decide not to use our web site. Should this occur, our business will be
harmed. If we fail to select the most relevant additional categories of
interest to users or fail to adequately provide superior content within these
categories, our business may suffer. We rely on market research to determine
what categories are likely to expand in terms of users' interest. Should our
reliance on this research prove to be misguided, we may waste valuable time
and resources in expanding our service in areas that do not add value to our
web site, which in turn will significantly impact our ability to earn more
revenues from merchants and suppliers.
If We Cannot Expand, Train, Retain and Manage Our Workforce Effectively, We
May Not Be Able to Execute Our Growth Strategy
As a result of our rapid growth, our recent acquisition of Shopping.com and
the pending acquisition of Raging Bull, we have experienced, and believe we
will continue to experience, rapid growth in our operations. This growth has
placed, and our anticipated future growth will continue to place, a
significant strain on our managerial, operational and financial resources. Our
future success will depend in part on our ability to expand, train and manage
our workforce. As of November 30, 1999, we had a total of approximately 635
employees. Many of our employees have joined us recently. In addition, we
expect that the number of our employees will continue to increase for the
foreseeable future. We will need to integrate these new employees into our
business successfully. If we are unable to manage our growth effectively, our
business could be seriously harmed.
We also must continue to identify, recruit, hire, train, retain and
motivate other highly skilled technical, managerial, editorial, marketing and
customer service personnel. Competition for these personnel is intense, and we
may not be able to successfully recruit, assimilate or retain sufficiently
qualified personnel. In particular, we may encounter difficulties in
recruiting a sufficient number of qualified software developers, and we may
not be able to retain these developers, which could harm our relationships
with existing and future users at a critical stage of development. The failure
to recruit and retain necessary technical, managerial, editorial,
merchandising, marketing and customer service personnel could harm our
business and our ability to obtain new users and develop new products.
9
<PAGE>
Our future success depends in part on the continued service of our key
management personnel. Competition for these personnel is intense. The loss of
one or more of our key management personnel could harm our business. None of
our key management personnel is bound by an employment agreement for any
specific term.
If We Are Unable to Cope With Significant Spikes in Traffic On Our Web
Sites, We May Lose User Confidence
In the past, we have experienced significant spikes in traffic on our web
sites for a variety of reasons, including the launch of our enhanced web sites
in October 1999. The number of users of our web sites has continued to
increase over time and we are seeking to increase our user base further.
Accordingly, our web sites must accommodate a high volume of traffic, often at
unexpected times. Our web sites have in the past, and may in the future,
experience slower response times than usual or other problems for a variety of
reasons. These events could cause our users to perceive our web sites as not
functioning properly and, therefore, cause them to use other methods for
searches and e-commerce. If this occurs, our business could be seriously
harmed.
System Failures Could Damage Our Reputation and Result in the Loss of Users
The performance, reliability and availability of our web sites and network
infrastructure are critical to our reputation and ability to attract and
retain users, advertisers and content providers. Although we have redundant
and back-up systems and a disaster recovery plan, our systems and operations
may be vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, Internet breakdowns, break-ins, earthquake and
similar events. We do not carry business interruption insurance sufficient to
compensate fully for any or all losses from any or all such occasions. Despite
the implementation of network security measures, including a proprietary
firewall, our servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to
interruptions, delays, loss of data or the inability to accept and fulfill
customer orders. Any system error or failure that causes interruption in
availability of content or an increase in response time could result in a loss
of revenue. In addition, because our Web advertising revenues are directly
related to the number of advertisements we deliver to our users, system
interruptions that result in the unavailability of our web sites or slower
response times for users would reduce the number of advertisements delivered
and reduce revenues and harm user perception of our business.
If We Cannot Adequately Protect Our Intellectual Property, Our
Competitiveness May Be Harmed
Most of our intellectual property has been contributed by Compaq. To
protect our rights to intellectual property, we rely, and we believe the
contributors relied, on a combination of patent, trademark and copyright law,
trade secret protection, misappropriation and anti-piracy laws,
confidentiality agreements and other contractual arrangements with our
employees, affiliates, clients, strategic partners and others. The protective
steps we and the contributors have taken may have been inadequate and may
continue to be inadequate to deter infringement or misappropriation of our
intellectual property and proprietary information. We may also be unable to
detect the unauthorized use of, or take appropriate steps to enforce, our
intellectual property rights.
As of December 1, 1999, we had over 70 patents and pending patent
applications. These patents and patent applications are generally directed at
the search technology that is used on our web sites, as well as related
inventions. We and our predecessors may not have sought protection for
technologies that may be or may become important to our business. In addition,
the technologies we have sought to protect may not be adequately protected by
patents.
We may be unable to obtain or maintain intellectual property protection or
registrations in territories or markets that are important to our success.
Further, we may not have selected the proper intellectual property for which
to seek protection. In addition, effective patent, trademark, copyright and
trade secret protection may not be available in every country in which we
offer or intend to offer our services. The protections we have sought may be
inadequate.
10
<PAGE>
Infringement or Other Intellectual Property Claims Could Adversely Affect
Our Ability to Market Our Services, Limit Our Rights to Certain Technology
and Harm Our Results of Operations
Though we do not believe that the intellectual property we use infringes on
the intellectual property rights of others, other parties may assert
infringement claims against us or claim that we have violated a patent or
infringed a copyright, trademark or other proprietary right belonging to them.
These claims, could result in:
. payment by us of substantial damages
. injunctive or other equitable relief that could block our ability to
market or license our products
. the loss of rights to technologies necessary to operate portions of our
business
Any litigation, regardless of the outcome, could result in the expenditure of
substantial costs and diversion of managerial and other resources.
If We Cannot Adapt to Continuous Change, Our Business Will be Harmed
The market for portal, search, e-commerce and other Internet services is
characterized by rapid ongoing technological change, changes in user
requirements and preferences, frequent new service introductions embodying new
processes and technologies and evolving industry standards and practices that
could render our existing services and methodologies obsolete. As a result,
our future success will depend on our ability to adapt to rapidly changing
technologies, to adapt our services to evolving industry standards and to
continually improve the performance, features and reliability of our services
in response to competitive service offerings and the evolving demands of the
marketplace. In addition, the widespread adoption of new Internet technologies
could require us to incur substantial expenditures to modify or adapt our
services or infrastructure. If we are unable, for technical, financial or
other reasons, to adapt in a timely manner in response to changing market
conditions or these requirements, our business could be seriously harmed.
Online Security Breaches Could Result in a Loss of Consumer Confidence in
E-Commerce, Which Could Hurt Our Ability to Implement Our Business Strategy
We incur substantial expense to protect against and remedy security
breaches and their consequences. A party that is able to circumvent our
security systems could steal proprietary information or cause interruptions in
our operations. Security breaches also could damage our reputation and expose
us to a risk of loss or litigation and possible liability. Our insurance
policies carry low coverage limits, which may not be adequate to reimburse us
for losses caused by security breaches. We cannot guarantee that our security
measures will prevent security breaches.
The secure transmission of confidential information over the Internet is
essential to maintain confidence in our service. We currently require
customers to guarantee their purchases with their credit card, either online
or through our toll-free telephone service. We rely on licensed encryption and
authentication technology to effect secure transmission of confidential
information, including credit card numbers. It is possible that advances in
computer capabilities, new discoveries or other developments could result in a
compromise or breach of the technology used by us to protect customer
transaction data. Any well-publicized compromise of security could deter
people from using the Web or from using it to conduct transactions that
involve the transmission of confidential information. In addition, because
many of our advertisers seek to advertise on our web site to encourage people
to use the Web to purchase goods or services, our business could be seriously
harmed if Internet users reduce their use of the Web because of security
concerns.
11
<PAGE>
Risks Related to Our Relationships with CMGI and Compaq
You Will Not be Able to Control AltaVista Corporate Events Because CMGI
Will Own a Majority of Our Stock After the Offering
Upon completion of this offering, CMGI will beneficially own approximately
% of our outstanding common stock, or % if the underwriters' over-
allotment option is fully exercised. Accordingly, CMGI will have the power,
acting alone, to elect a majority of our board of directors and will have the
ability to determine the outcome of any corporate actions requiring
stockholder approval, regardless of how our other stockholders may vote. Under
Delaware law, CMGI may exercise its voting power by written consent, without
convening a meeting of the stockholders, meaning that CMGI will be able to
effect a sale or merger of AltaVista without prior notice to, or the consent
of, our other stockholders. CMGI's interests could conflict with the interests
of our other stockholders. The possible need of CMGI to maintain control of
AltaVista in order to avoid becoming a registered investment company could
influence decisions by CMGI as to the disposition of any or all of its
ownership position in AltaVista. As a result, CMGI may be motivated to
maintain at least a majority ownership position in AltaVista, even if other
stockholders of AltaVista might consider a sale of control of AltaVista to be
in their best interests. As long as it is a majority stockholder, CMGI has
contractual rights to purchase shares in any future financings of AltaVista,
other than this offering, sufficient to maintain its majority ownership
position. CMGI's ownership may have the effect of delaying, deferring or
preventing a change in control of our company or discouraging a potential
acquirer from attempting to obtain control of us, which in turn could
adversely affect the market price of our common stock.
We Have Directors Who Are Also Directors and/or Executive Officers of CMGI
and an Officer of Compaq, and Who May Face Significant Conflicts of
Interest
Our directors who are also directors or executive officers of CMGI and, in
one case, an officer of Compaq may have conflicts of interest with respect to
matters potentially or actually involving us, such as acquisitions, financings
and other corporate opportunities that may be suitable for us. In addition, a
number of our executive officers own substantial amounts of CMGI stock and
options to purchase CMGI stock. Although we believe that these directors and
officers will be able to fulfill their fiduciary duties to our stockholders
despite their ownership of CMGI stock, this ownership could create, or appear
to create, potential conflicts of interest when directors and officers are
faced with decisions that could have different implications for our company
and CMGI. Additional information regarding arrangements and transactions
between us and CMGI and Compaq is included in this prospectus under the
caption "Certain Relationships and Related Transactions."
Because Compaq Directs Substantial Traffic to Our Web Site, Our Business
Will be Seriously Harmed if Compaq Terminates its Arrangement with CMGI
We intend to drive traffic to our web sites through the instant Internet
keyboard access buttons on some Compaq personal computers and Compaq's
agreement with CMGI to program the browser that is bundled with Compaq
personal computers to default to CMGI-designated web sites. Compaq will,
through May 2002, preprogram up to four instant Internet keyboard buttons,
based on the total number of these buttons, on each Presario-branded,
including successor brands or sub-brands, consumer desktop and portable
personal computer so that, when a user presses the button, the user is
directed to the applicable CMGI-designated web sites. For example, if
designated by CMGI and preprogrammed by Compaq, the search button would direct
the user to the search area of our web site. However, Compaq may terminate
this arrangement if the AltaVista web sites fail to be one of the 12 most
trafficked web sites for four consecutive months, as measured in terms of
unique visitors at home and at work, by Media Metrix. Additionally, users can
reprogram the buttons, or select a proprietary online service provider that
controls the buttons, and the browser to take them to alternative web sites.
We reimburse CMGI for fees CMGI pays to Compaq based on the amount of
redirected user traffic.
Media Metrix estimates the amount of user traffic on web sites by
monitoring the monthly activity of selected user groups and expanding the
results across the number of potential users. Actual usage may differ
12
<PAGE>
materially from statistics provided by Media Metrix. If any inaccuracies in
Media Metrix estimates cause traffic to our web sites to be underestimated
when compared to other web sites, then Compaq's obligations could terminate,
which could seriously harm our business. We are not a party to, or a named
third-party beneficiary of, the agreement between Compaq and CMGI. Therefore,
Compaq and CMGI may amend their agreement, even in ways that could harm our
business, without our consent. If we do not meet our user traffic targets and
Compaq elects to stop pre-programming its keyboards, if Compaq and CMGI amend
their agreement in a manner adverse to us, if CMGI designates web sites other
than ours or if a significant number of users reprogram their keyboards to
discontinue us as their default web site, traffic to our web site could
decline and our business could be seriously harmed.
Risks Related to Our Industry
We May Become Subject to More Restrictive Regulations That Could Adversely
Affect Our Ability to Increase Internet Sales
Although there are currently few laws and regulations directly applicable
to the Internet, new laws and regulations are under consideration in the
United States and internationally, addressing issues such as intellectual
property, personal privacy, pricing, content, advertising, taxation and
characteristics and quality of Internet products and services. The application
of existing laws and regulations governing Internet issues such as
intellectual property ownership and infringement, defamation, obscenity and
personal privacy is also subject to substantial uncertainty. New government
laws and regulations, or the application of existing laws and regulations, may
expose us to significant liabilities, significantly slow Internet growth and
otherwise affect our financial performance.
Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
services providers in a manner similar to the regulation of long distance
telephone carriers and to impose access fees on such companies. If such access
fees are imposed, the costs of communicating on the Internet could increase
substantially, potentially slowing the growth in use of the Internet, which
could in turn decrease demand for our services or increase our cost of doing
business, and, as a result, seriously harm our business.
We May Become Subject to State, Federal or Foreign Taxes that Could Harm
Our Business
We do not currently collect sales or other similar taxes with respect to
shipments of goods to consumers into states other than California. However,
one or more states may seek to impose sales tax collection obligations on out-
of-state companies, similar to ours, which engage in e-commerce under current
law. Expansion of our operations into states outside California could subject
shipments into these states to state sales taxes under current laws. In
addition, a federal or foreign tax may potentially be imposed on Internet
sales. A successful assertion by one or more states or any foreign country
that we should collect sales or other taxes on the sale of merchandise or the
imposition of federal taxes could seriously harm our business.
On October 21, 1998, The Internet Tax Freedom Act was signed into law
placing a three-year moratorium on new state and local taxes on e-commerce in
the United States. The moratorium is expected to end on October 21, 2001.
Failure to renew this legislation could result in the broad imposition of
state and local taxes on e-commerce, which could seriously harm our business.
Privacy Regulations Could Impair Our Ability to Obtain Information About
Our Users
The ability of us or any of our strategic partners to use cookies to target
users may become subject to laws limiting or prohibiting this practice.
Cookies are information that is stored on a user's hard drive and passed to a
web site's server through the user's browser software. Cookies may be placed
on the user's hard drive without the user's knowledge or consent, but can be
removed by the user at any time through modification of the user's browser
settings. Due to privacy concerns, some Internet commentators, advocates and
governmental bodies in
13
<PAGE>
the United States and internationally have suggested that the use of cookies
and other profiling technologies be limited or eliminated. In addition,
currently available Internet browsers allow a user to prevent cookies from
being stored on the user's hard drive. Any reduction or limitation in the use
of cookies could limit the effectiveness of our, or our partners', user
targeting.
We Face Risks Related to the Continued Growth in Use and Efficient
Operation of the Internet
The Web-based information market is new and rapidly evolving. Our business
would be harmed if Web usage does not continue to increase or increases
slowly. Web usage may be inhibited for a number of reasons, such as:
. inadequate network infrastructure
. security and fraud concerns
. inconsistent quality of service
. unavailability of cost-effective, high-speed access to the Internet
Our users depend on Internet service providers and other web site operators
for access to our web site. Many of these services have experienced
significant service outages in the past and could experience service delays
and other difficulties due to system failures unrelated to our systems. These
occurrences could cause our users to perceive the Web in general or our web
site in particular as an unreliable medium and, therefore, cause them to no
longer use our services. We also depend on certain information providers to
deliver information and data feeds to us on a timely basis. Our web site could
experience disruptions or interruptions in service due to the failure or delay
in the transmission or receipt of this information, which could seriously harm
our business.
We May be Held Liable for Our Services and User Generated Content
As a distributor of content over the Internet, we face potential liability
for negligence, intellectual property infringement, defamation, indecency and
other claims based on the nature and content of the materials that we
distribute. Legal claims have been brought, and sometimes successfully
pressed, against Internet content distributors. Although we maintain general
liability insurance, our insurance may not cover potential claims of this type
or may not be adequate to indemnify us for all liability that may be imposed.
In addition, although we generally require our content providers to indemnify
us from these liabilities, the indemnification may be inadequate. Any
imposition of liability that is not covered by insurance, is in excess of
insurance coverage or is not covered by an indemnification by a content
provider could seriously harm our business.
Although the sections of the Communications Decency Act of 1996 that
proposed to impose criminal penalties on anyone distributing indecent material
to minors over the Internet were held to be unconstitutional by the U.S.
Supreme Court, there can be no assurance that similar laws will not be
proposed and adopted. The nature of the CDA and similar legislation and the
manner in which it may be interpreted and enforced cannot be fully determined,
and legislation similar to the CDA could subject us to potential liability,
which in turn could have an adverse effect on our business, financial
condition and results of operations. These laws could also damage the growth
of the Internet generally and decrease the demand for our services, which
could harm our business.
Risks Related to This Offering
Our Stock Price is Likely to be Highly Volatile
Following this offering, an active trading market may not develop or be
sustained for our common stock. The price at which our common stock will trade
after this offering is likely to be highly volatile and may fluctuate
substantially due to a number of factors, including:
. actual or anticipated fluctuations in our results of operations
14
<PAGE>
. changes in, or our failure to meet, securities analysts' expectations
. technological innovations
. increased competition
. conditions and trends in the Internet and other technology industries
. general market conditions
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
securities of technology companies, particularly Internet companies. These
broad market fluctuations may result in a material decline in the market price
of our common stock, regardless of our operating performance. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
that company. We may become involved in this type of litigation in the future.
Litigation is often expensive and diverts management's attention and
resources, which could harm our business, financial condition and results of
operations.
If Our Existing Stockholders Sell a Substantial Number of Shares of Our
Common Stock in the Public Market, the Market Price of Our Common Stock
Will Likely Fall
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, including shares issuable upon the
exercise of outstanding options, the market price of our common stock will
likely fall. CMGI and Compaq will directly own approximately % and %,
respectively, of the outstanding shares of our common stock upon completion of
this offering and will have registration rights which will permit them to
offer all of these shares in the public market beginning approximately 180
days after completion of this offering. These sales also might make it more
difficult for us to sell equity securities in the future at a time and price
that we deem appropriate. After this offering, we will have outstanding
shares of common stock. Of these shares, the
shares being offered in this offering will be freely tradeable. Our directors,
executive officers and substantially all of our stockholders have agreed that
they will not sell, directly or indirectly, any common stock without the prior
written consent of Morgan Stanley & Co. Incorporated for a period of 180 days
after the completion of this offering. However, Morgan Stanley may, in its
sole discretion and at any time or from time to time without notice, release
all or any portion of the securities subject to the lock-up agreements.
Additional information regarding the market for our common stock is included
in this prospectus under the captions "Shares Eligible for Future Sale" and
"Underwriters."
Our Stock Has Not Been Publicly Traded Before This Offering and You May Not
Be Able to Sell Your Shares Above the Price You Paid
We cannot predict the extent to which investor interest in us will lead to
the development of a trading market or how liquid that market might become.
Before this offering, there has been no public market for our common stock.
You may not be able to resell your shares at or above the initial public
offering price. We may sell a substantial amount of our common stock in this
offering to a limited number of institutional investors, which, together with
the effect of shares subject to lock-up agreements or other restrictions,
could limit the timely development of an active trading market. As a result,
investors may experience greater price volatility and less efficient execution
of buy and sell orders. The initial public offering price for the shares of
our common stock will be determined by negotiations between us and the
representatives of the underwriters and may not be indicative of prices that
will prevail in the trading market. Additional information regarding the
market for our common stock is included in this prospectus under the captions
"Shares Eligible for Future Sale" and "Underwriters."
15
<PAGE>
Our Management Has Broad Discretion as to the Use of Proceeds From This
Offering and May Use the Proceeds in Ways With Which You Do Not Agree
Our management will have broad discretion in how we use the net proceeds of
this offering. Investors will be relying on the judgment of our management
regarding the application of the proceeds of this offering. Additional
information regarding the ways in which we intend to spend the proceeds of
this offering is included in this prospectus under the caption "Use of
Proceeds."
You Will Experience Immediate and Substantial Dilution Upon Completion of
this Offering and May Experience Further Dilution Soon After This Offering
The initial offering price of our common stock will be substantially higher
than the pro forma net tangible book value per share of the outstanding common
stock immediately after the offering. If you purchase common stock in this
offering, you will incur immediate and substantial dilution of $ per
share, at an assumed initial public offering price of $ per share. In
addition, to the extent outstanding stock options are exercised, you will
incur further dilution. Additional information regarding the dilution to
investors in our initial public offering is included in this prospectus under
the caption "Dilution."
16
<PAGE>
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus, including under
the sections "Prospectus Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this prospectus, that are based on our management's beliefs and
assumptions and on information currently available to our management. Forward-
looking statements include the information concerning our possible or assumed
future results of operations, business strategies, financing plans,
competitive position, potential growth opportunities, benefits resulting from
our pending acquisition of Raging Bull, this offering, the effects of future
regulation and the effects of competition. Forward-looking statements include
all statements that are not historical facts and, in some cases, can be
identified by the use of forward-looking terminology such as the words
"believes," "expects," "anticipates," "intends," "plans," "estimates" or
similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these forward-
looking statements. You should not put undue reliance on any forward-looking
statements. We do not have any intention or obligations to update forward-
looking statements after we distribute this prospectus.
You should understand that many important factors, in addition to those
discussed elsewhere in this prospectus, could cause our results to differ
materially from those expressed in forward-looking statements. These factors
include our competitive environment, economic and other conditions in the
markets in which we operate, integration of newly acquired businesses,
government regulations and continuation of strategic relationships with third
parties.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to AltaVista from the sale of shares of common stock in
this offering are estimated to be $ million, or $ million if the
underwriters exercise their over-allotment option in full, based upon an
assumed offering price of $ per share and after deducting estimated
underwriting discounts and commissions and our estimated offering expenses of
$ . The principal purposes of this offering are to obtain additional
capital and to create a public market for our common stock which will
facilitate future access by us to the public capital markets. We expect to use
the net proceeds from this offering for working capital, advertising and other
general corporate purposes. In addition, we may use a portion of the net
proceeds to invest in joint ventures or other collaborative arrangements, or
to invest in or acquire businesses, technologies, products or services.
We will have significant discretion in the use of the net proceeds of this
offering. Investors will be relying on the judgment of our management
regarding the application of the proceeds of this offering. Pending use of the
net proceeds as discussed above, we intend to invest these funds in short-
term, interest-bearing, investment-grade obligations.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and
do not anticipate any cash dividends on our common stock for the foreseeable
future.
18
<PAGE>
CAPITALIZATION
The following table sets forth AltaVista's capitalization as of October 31,
1999:
. on an actual basis
. on a pro forma basis to reflect the conversion of AltaVista's debt to
CMGI into convertible preferred stock and the conversion of all of our
convertible preferred stock into common stock
. on a pro forma basis as adjusted to give effect to the sale of the shares
of common stock offered hereby and receipt and application of the
estimated net proceeds from this offering, assuming an initial public
offering price of $ per share
This table should be read in conjunction with the information included in
this prospectus under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the combined financial
statements and the notes to those statements included elsewhere in this
prospectus.
Prior to August 18, 1999, Compaq funded our operations as needed. Since
August 18, 1999, CMGI has funded our operations as needed, with a
corresponding increase in our related party debt. From time to time, at
Compaq's election, it may participate in the funding of our operations as
needed, based on its pro rata ownership interest. We expect that we will
continue to borrow funds from CMGI and, if it elects to participate, Compaq
until the closing of this offering and that the net obligations incurred after
the end of the fiscal quarter preceding the closing, to the extent
outstanding, will be converted into additional shares of our common stock at
the initial public offering price.
<TABLE>
<CAPTION>
As of October 31, 1999
-----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------- ---------- -----------
(in thousands, except share data)
<S> <C> <C> <C>
Debt to CMGI............................... $ 43,455 $ -- $ --
========== ========== ========
Long-term debt............................. 5,655 5,655 5,655
---------- ---------- --------
Stockholders' equity:
Series A convertible stock, par value
$.01: 5,000,000 shares authorized
(actual); no shares authorized (pro forma
and pro forma as adjusted); no shares
issued or outstanding (actual, pro forma
and pro forma as adjusted)............... -- -- --
Common stock, par value $.01; 200,000,000
shares authorized (actual); 1,500,000,000
shares authorized (pro forma and pro
forma as adjusted); 101,232,221 shares
issued and outstanding (actual);
102,740,028 shares issued and outstanding
(pro forma); shares issued and
outstanding (pro forma as adjusted)...... 1,012 1,027 --
Additional paid-in capital................. 2,955,389 2,998,829 --
Deferred compensation and other............ (4,616) (4,616) (4,616)
Accumulated deficit........................ (492,883) (492,883) (492,883)
---------- ---------- --------
Total stockholders' equity............... 2,458,902 2,502,357
---------- ---------- --------
Total capitalization................... $2,464,557 $2,508,012 $
========== ========== ========
</TABLE>
The shares of common stock outstanding in the actual, pro forma and pro
forma as adjusted columns exclude:
. 11,574,193 shares of common stock issuable as of October 31, 1999 upon
the exercise of outstanding stock options issued under our stock option
plans at a weighted average exercise price of $11.84 per share
. 2,000,000 shares of common stock initially reserved for issuance under
our employee stock purchase plan
19
<PAGE>
DILUTION
The pro forma net tangible book value of AltaVista as of October 31, 1999
was approximately $28.6 million or approximately $.28 per share of common
stock. Pro forma net tangible book value per share represents the amount of
total tangible assets less total liabilities, divided by 102.7 million, the
number of shares of common stock treated as outstanding on a pro forma basis
after giving effect to the conversion of AltaVista's debt to CMGI into
convertible preferred stock and the conversion of all shares of convertible
preferred stock into common stock. After giving effect to the sale by
AltaVista of the shares of common stock offered hereby at an assumed initial
public offering price of $ per share, and after deducting the estimated
underwriting discount and offering expenses payable by AltaVista, AltaVista's
pro forma net tangible book value at October 31, 1999 would have been
approximately $ , or approximately $ per share. This represents an
immediate increase in net tangible book value to existing stockholders of
$ per share and an immediate dilution of $ per share to new investors.
The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Pro forma net tangible book value per share before
this offering as of October 31, 1999............................ $.28
Increase per share attributable to new investors.................
----
Pro forma net tangible book value per share after this offering....
----
Dilution per share to new investors................................ $
====
</TABLE>
The following table summarizes, on a pro forma basis as of October 31,
1999, the differences between existing stockholders and new investors with
respect to the number of shares of common stock issued by AltaVista, the total
consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
Average
Shares Issued Total Consideration Price
---------------------- ------------------------- Per
Number Percentage Amount Percentage Share
----------- ---------- -------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 101,232,221 % $2,956,401,000 % $29.20
New investors...........
----------- --- -------------- ---
Total............... % $ %
=========== === ============== ===
</TABLE>
Our sale of additional shares of common stock upon exercise in full of the
underwriters' over-allotment option would reduce the percentage of common
stock held by existing stockholders to % of the total number of shares of
common stock to be outstanding upon completion of this offering and will
increase the number of shares of common stock held by new investors to
shares or % of the total number of shares of common stock to be outstanding
upon completion of this offering.
The foregoing discussions and tables assume no exercise of any stock
options outstanding at October 31, 1999. As of October 31, 1999, there were
options outstanding to purchase 11,574,193 shares of common stock at a
weighted average exercise price of $11.84 per share. To the extent that any of
these options are exercised, there will be further dilution to new investors.
20
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
We derived the following unaudited pro forma condensed combined statements
of operations for the year ended December 31, 1998, and the seven months ended
July 31, 1999 from our historical combined statements of operations for the
period from January 1, 1998 through June 11, 1998 and the period June 12, 1998
through December 31, 1998 and the historical combined statement of operations
for the seven months ended July 31, 1999, adjusted to give effect to the
following events, as if those events had occurred on the first day of the
period presented:
. Inclusion of the results of operations of Shopping.com for its fiscal
year ended January 31, 1999 in the pro forma condensed combined results
of operations for the year ended December 31, 1998. For the pro forma
condensed combined results of operations for the seven months ended July
31, 1999
. Elimination of the results of operations of Zip2 from its acquisition
date, April 2, 1999, to its disposition date, October 20, 1999
. The acquisitions by CMGI of AltaVista and Shopping.com on August 18, 1999
accounted for under the purchase method as if the acquisition had
occurred on the first day of the period presented. The fair value of the
consideration paid has been allocated to the assets acquired and
liabilities assumed based upon the fair values. Preliminary estimates and
assumptions on the value of the assets and liabilities is based upon
information available at the date of preparation of these unaudited pro
forma condensed combined financial statements, and will be adjusted upon
final allocation of purchase price within one year from the acquisition
date. We anticipate, however, that the final allocation of the purchase
price will not differ materially from the preliminary allocation. The
fair value of the consideration paid for Zip2 is excluded from the pro
forma adjustment as Zip2 was acquired on April 2, 1999 and was disposed
of on October 20, 1999
The unaudited pro forma condensed combined financial statements do not
purport to represent what our results of operations or financial condition
would have actually been or what operations would be if the transactions that
give rise to the pro forma adjustments had occurred on the dates assumed, and
are not indicative of future results. The unaudited pro forma condensed
combined financial statements below should be read in conjunction with the
historical combined financial statements and related notes included in this
prospectus.
21
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
AltaVista
---------------------------
Period from Period from
Jan. 1, 1998 June 12, 1998
through through Pro Forma Pro Forma
June 11, 1998 Dec. 31, 1998 Shopping.com Adjustments Combined
------------- ------------- ------------ ----------- ---------
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C>
Advertising and service
revenue, net........... $13,622 $ 23,517 $ -- $ -- $ 37,139
Product revenue, net.... -- -- 8,122 -- 8,122
------- --------- --------- --------- ---------
Total revenue......... 13,622 23,517 8,122 -- 45,261
Cost of advertising and
service revenue........ 3,445 6,964 -- -- 10,409
Cost of product
revenue................ -- -- 10,122 -- 10,122
------- --------- --------- --------- ---------
Total cost of sales... 3,445 6,964 10,122 -- 20,531
------- --------- --------- --------- ---------
Gross profit (loss)..... 10,177 16,553 (2,000) -- 24,730
------- --------- --------- --------- ---------
Operating expenses:
Product development.... 5,413 7,210 3,288 -- 15,911
Sales and marketing.... 5,426 23,900 10,087 -- 39,413
General and
administrative........ 1,744 3,806 19,193 -- 24,743
Loss on disposal of
assets................ -- -- 1,539 -- 1,539
------- --------- --------- --------- ---------
Operating loss before
stock-based
compensation and
amortization of
intangibles............ (2,406) (18,363) (36,107) -- (56,876)
Stock-based
compensation......... -- -- 6,696 (6,696) --
Amortization of
intangibles(a)....... 8 50,982 -- 824,077 875,067
------- --------- --------- --------- ---------
Loss from operations.... (2,414) (69,345) (42,803) (817,381) (931,943)
Other expense:
Interest expense,
net.................. 79 221 5,748 -- 6,048
------- --------- --------- --------- ---------
Loss before
extraordinary loss..... (2,493) (69,566) (48,551) (817,381) (937,991)
Extraordinary loss...... -- -- 1,171 -- 1,171
------- --------- --------- --------- ---------
Net loss................ $(2,493) $(69,566) $ (49,722) $(817,381) $(939,162)
======= ========= ========= ========= =========
Pro forma net loss per
share--basic and
diluted................ $ (9.39)
Shares used in computing
pro forma net loss per
share amount--basic and
diluted ............... 100,000
</TABLE>
- --------
(a) Reflects the incremental increase in amortization of intangible assets,
resulting from CMGI's acquisition of approximately 81.5% of our equity
ownership as if the acquisition had occurred as of the beginning of the
period presented. Amortization of identifiable intangibles and goodwill is
calculated on an estimated useful life of three years using the straight
line method.
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SEVEN MONTHS ENDED JULY 31, 1999
<TABLE>
<CAPTION>
Historical Shopping.com
Combined January 1, 1999 - Zip2 Pro Forma Pro Forma
AltaVista February 15, 1999 Disposition Adjustments Combined
---------- ----------------- ----------- ----------- ---------
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C>
Advertising and service
revenue, net........... $ 49,812 $ -- $(2,725) $ -- $ 47,087
Product revenue, net.... 23,781 2,431 -- -- 26,212
--------- ------- ------- --------- ---------
Total revenue......... 73,593 2,431 (2,725) 73,299
Cost of advertising and
service revenue........ 17,446 -- (3,315) -- 14,131
Cost of product
revenue................ 25,402 2,918 -- -- 28,320
--------- ------- ------- --------- ---------
Total cost of sales... 42,848 2,918 (3,315) -- 42,451
--------- ------- ------- --------- ---------
Gross profit (loss)..... 30,745 (487) 590 -- 30,848
--------- ------- ------- --------- ---------
Operating expenses:
Product development... 17,478 697 (1,447) -- 16,728
Sales and marketing... 51,151 3,531 (2,634) -- 52,048
General and
administrative....... 23,939 952 (1,201) -- 23,690
--------- ------- ------- --------- ---------
Operating loss before
stock-based
compensation and
amortization of
intangibles............ (61,823) (5,667) 5,872 -- (61,618)
Stock-based
compensation......... 35,782 -- -- (35,782) --
Amortization of
intangibles (a)...... 133,976 -- (37,806) 414,286 510,456
--------- ------- ------- --------- ---------
Loss from operations.... (231,581) (5,667) 43,678 (378,504) (572,074)
Other expense:
Interest expense,
net.................. 159 10 24 -- 193
Other nonoperating
loss................. 237 -- -- -- 237
--------- ------- ------- --------- ---------
Total............... 396 10 24 -- 430
Loss before income
taxes.................. (231,977) (5,677) 43,654 (378,504) (572,504)
--------- ------- ------- --------- ---------
Net loss................ $(231,977) $(5,677) $43,654 $(378,504) $(572,504)
========= ======= ======= ========= =========
Pro forma net loss per
share--basic and
diluted................ $ (5.73)
Shares used in computing
pro forma net loss per
share--basic and
diluted................ 100,000
</TABLE>
- --------
(a) Reflects the incremental increase in amortization of intangible assets,
resulting from CMGI's acquisition of approximately 81.5% of our equity
ownership as if the acquisition had occurred as of the beginning of the
period presented. Amortization of identifiable intangibles and goodwill is
calculated on an estimated useful life of three years using the straight-
line method.
23
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENTS OF OPERATIONS
Summary of CMGI transaction
On August 18, 1999, CMGI acquired an 81.495% equity stake in the AltaVista
operations of Compaq for consideration preliminarily valued at approximately
$2.4 billion. The AltaVista business includes the assets and liabilities
constituting the AltaVista Internet search service, Zip2 Corp. and
Shopping.com. In consideration for the acquisition, CMGI issued shares of its
common stock valued at approximately $1.8 billion, 18,090 shares of its
Series D Preferred Stock, which were converted into shares of CMGI common
stock on October 28, 1999, valued at approximately $173 million, and
promissory notes for an aggregate original principal amount of $220 million.
Additionally, outstanding AltaVista and Zip2 stock options were valued at an
aggregate of approximately $213 million.
The purchase price of $2.4 billion for the 81.495% equity stake was
increased to $2.9 billion to reflect a 100% step up in purchase accounting for
the AltaVista business' assets acquired and liabilities assumed.
The allocation of the purchase price was as follows (in millions):
<TABLE>
<CAPTION>
AltaVista
and AltaVista
Shopping.com Zip2 Total
------------ ------ ---------
<S> <C> <C> <C>
Net tangible assets (liabilities)............. $ 34.8 $ (7.3) $ 27.5
Patents, trademarks and domain names.......... 33.4 1.5 34.9
Completed technology.......................... 150.9 4.0 154.9
Assembled workforce........................... 7.0 3.0 10.0
Goodwill...................................... 2,433.9 266.3 2,700.2
-------- ------ --------
Total purchase price.......................... $2,660.0 $267.5 $2,927.5
======== ====== ========
</TABLE>
The table above separates the portion of the purchase price allocated to
the fair value of the Zip2 operations for the presentation of the pro forma
condensed combined statements of operations as Zip2 was distributed to our
stockholders on October 20, 1999 and will not be included in our continuing
operations.
24
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL INFORMATION
We have derived the following selected historical combined financial
information from our audited and unaudited historical combined financial
statements and you should read it in conjunction with those combined financial
statements and notes. We have derived the selected historical financial data
as of December 31, 1996, 1997 and 1998, for each of the years ended December
31, 1996 and 1997, and for the periods from January 1, 1998 to June 11, 1998
and from June 12, 1998 to December 31, 1998 from our financial statements,
which have been audited by PricewaterhouseCoopers LLP, independent
accountants. We have derived the selected historical financial data as of July
31, 1999 and for the seven months then ended from our combined financial
statements, which have been audited by KPMG LLP, independent certified public
accountants. We have derived the selected historical financial data as of
December 31, 1995 and for the period from inception, July, 1995, through
December 31, 1995, from our unaudited financial statements as of and for those
periods which are not included elsewhere in this prospectus. Our financial
statements and the accompanying selected historical combined financial
information for periods prior to August 18, 1999 do not reflect the accounting
effects of CMGI's acquisition of its ownership interest on that date. We have
derived the selected historical financial data as of October 31, 1999, and for
the three months ended September 30, 1998 and October 31, 1999 from our
unaudited combined financial statements as of and for those periods which are
included elsewhere in this prospectus, and which, in our opinion, reflect all
adjustments, consisting only of normal recurring adjustments, necessary for
the fair presentation of this unaudited interim financial information.
The selected combined financial data set forth below is qualified in its
entirety by, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," our combined
financial statements and notes, and the unaudited pro forma condensed combined
financial statements and notes included elsewhere in this prospectus. The
operating results for the periods presented are not necessarily indicative of
the results to be expected for any full fiscal year or any other period.
25
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Period from Period from
Inception January 1, Period from Seven Three
July, 1995 1998 June 12, Months Three Months Months
through Year ended Year ended through 1998 through ended Ended Ended
December 31, December 31, December 31, June 11, December 31, July 31, September 30, October 31,
1995 1996 1997 1998 1998 1999 1998 1999
------------ ------------ ------------ ----------- ------------ -------- ------------- -----------
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Combined
Statement of
Operations Data:
Advertising and
service revenue,
net................ $-- $ 900 $13,813 $13,622 $23,517 $ 49,812 $ 8,842 $ 32,414
Product revenue,
net(a)............. -- -- -- -- -- 23,781 -- 22,421
---- ------ ------- ------- ------- -------- ------- --------
Total Revenue..... -- 900 13,813 13,622 23,517 73,593 8,842 54,835
Cost of advertising
and service
revenue............ -- 1,963 5,008 3,445 6,964 17,446 3,008 10,508
Cost of product
revenue............ -- -- -- -- -- 25,402 -- 23,269
Gross profit
(loss)............. -- (1,063) 8,805 10,177 16,553 30,745 5,834 21,058
Product
development........ 713 3,475 6,000 5,413 7,210 17,478 3,187 10,783
Sales and
marketing.......... -- 941 5,615 5,426 23,900 51,151 6,714 51,886
General and
administrative..... 181 1,784 2,785 1,744 3,806 23,939 1,909 7,705
Operating loss
before stock-based
compensation and
amortization of
intangibles........ (894) (7,263) (5,595) (2,406) (18,363) (61,823) (5,976) (49,316)
Stock-based
compensation(b).... -- -- -- -- -- 35,782 -- 15,828
Amortization of
intangibles(c)..... -- 19 25 8 50,982 133,976 23,030 207,110
Net loss............ (895) (7,314) (5,734) (2,493) (69,566) (231,977) (29,110) (274,159)
Pro forma loss per
share--basic and
diluted............ $(2.74)
Shares used in
computing pro forma
loss per share--
basic and diluted.. 100,134
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, July 31, October
1995 1996 1997 1998 1999 31, 1999
------------ ------------ ------------ ------------ -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Combined
Balance Sheet Data
(at period end):
Cash and cash
equivalents............ $-- $ -- $ -- $ -- $ 7,482 $ 1,126
Goodwill and other
intangibles, net(c).... -- 56 31 226,488 709,185 2,473,715
Total assets............ 383 5,540 17,220 264,330 828,405 2,601,120
Notes payable to CMGI... -- -- -- -- -- 43,455
Long-term obligations... -- -- -- 1,656 3,344 5,655
Net stockholders'
equity................. $379 $5,120 $14,615 $252,290 $743,853 $2,458,902
</TABLE>
- --------
(a) Reflects product revenue in the periods ended July 31, 1999 and October 31,
1999 due to the acquisition of Shopping.com on February 15, 1999.
(b) Reflects stock-based compensation for options granted in May and June 1999.
(c) Goodwill and other intangibles increased by $274.1 million when Compaq
purchased Digital Equipment Corporation in June 1998, by $616.7 million
when Compaq acquired Shopping.com in February 1999 and Zip2 in April 1999
and by $1.8 billion when CMGI acquired its interest in us in August 1999.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the combined
financial statements and notes included elsewhere in this prospectus. This
discussion contains forward-looking statements reflecting our current
expectations that involve risk and uncertainties. Actual results and the
timing of events may differ significantly from those projected in such forward
looking statements due to a number of factors, including those set forth in
the section entitled "Risk Factors" and elsewhere in this prospectus.
Our combined financial statements presented elsewhere in this prospectus
reflect the results of operations of the business while part of Digital
Equipment Corporation, Compaq or CMGI. Prior to August 18, 1999, our results
have been carved out from the historical financial statements of Digital and
Compaq. Thereafter, our results have been carved out from the historical
financial statements of CMGI. In all instances, the results reflect the
appropriate push-down accounting adjustments. See Note 1 to the Combined
Financial Statements.
Prior to August 18, 1999, our fiscal year ended on December 31. We have
since retroactively adopted the CMGI fiscal year end of July 31. The most
current financial period presented is for the three months ended October 31,
1999. This stub period is compared with the three months ended September 30,
1998. Because the fiscal year end change results in no material effect on
reported trends, and due to the impracticality of preparing comparable seven
month or fiscal quarter historical carve out financial statements, we believe
that these comparison periods are reasonable for purposes of comparing and
analyzing our results of operations and financial condition.
Overview
AltaVista is a leading Internet search, new media and commerce network that
delivers personalized, relevant information and e-commerce services to
millions of users worldwide. With our patented technologies, international
presence, distinct service offerings and strong strategic partners, we seek to
provide a smart, dynamic and thought-provoking knowledge resource for Internet
users. Our goal is to expand our user base by extending our leadership in
search and expanding our content and e-commerce capabilities, thereby
increasing the attractiveness of our Internet properties to advertisers and
merchants.
Advertising and service revenue. Through December 31, 1998, we derived
substantially all of our revenue from sales of advertising and sponsorships
and fees for search services. Advertising revenue results from advertising
delivered on a web page, at an agreed rate per thousand of impressions of the
advertising. Sponsorship revenue is generally an exclusive or significant
agreement with a partner to provide specific types of user services or content
where we deliver in return a number of impressions. Fees for search services
are derived from third parties' use of our search technology. Fees for search
services are generally charged based on a fixed fee basis with a variable
component based on the number of search queries to which we deliver responses.
Occasionally, we will enter into barter transactions which are a component of
advertising revenue. Barter transactions are the exchange of advertising space
on our web site for reciprocal space or traffic on other web sites. To date
these revenues have not been significant and are not expected to be
significant in the future. From January 1, 1999 through October 31, 1999, we
derived our revenue primarily from sales of advertising and, sponsorships and,
subsequent to the acquisition of Shopping.com, from sales of products on the
Internet. Although we have experienced revenue growth in recent periods, we
cannot predict whether we will achieve continued growth in the future.
We derive a substantial portion of our revenues from short-term advertising
contracts negotiated by DoubleClick in accordance with the terms of the
Procurement and Trafficking Agreement between AltaVista and DoubleClick.
Effective January 1, 1999, we renegotiated the agreement so that we may now
form an internal sales force to sell advertisements directly to advertisers.
DoubleClick only retains the exclusive right to deliver through its
proprietary computer systems the advertisements negotiated either by
DoubleClick or by us and also retains the exclusive right to sell advertising
to select customers. Under the agreement as in effect January 1, 1999, we bear
the economic risk associated with the sale of advertisements, whether by
DoubleClick or
27
<PAGE>
AltaVista. Prior to the January 1, 1999 amendments, we recorded revenues net
of DoubleClick's selling commission, and recorded no corresponding sales and
marketing expenses. Effective January 1, 1999, we record gross revenues from
sales of advertisements by DoubleClick, and record DoubleClick's commission
and service fees as sales and marketing expense. Historically, we have
recorded all revenues from DoubleClick as domestic revenues. In the future, we
intend to record as international revenues those revenues derived from
advertising and sponsorships sold on our international sites.
Product revenue. As a result of the Shopping.com acquisition on February
15, 1999, we began recording product revenue derived from sales of products on
the Internet and associated freight and handling fees. Products sold on the
Shopping.com site have historically included consumer electronics, computer
products, books, videos and other items. When Shopping.com earns commissions
on sales of product on other web sites, only the commissions are recorded as
revenue. Shopping.com earns revenue through a combination of fixed fees and
variable charges per click-through when its traffic is directed to one of its
partners sites. When Shopping.com sells products directly, the revenue is
recorded at the gross sales amount, net of allowances for returns, and the
cost of goods sold is recorded in cost of revenue. Shopping.com records
revenue at the gross sales amount on direct sales since it bears full customer
credit risk and merchandise return risk following vendor shipment, and is the
merchant of record on these transactions.
In October 1999, we changed Shopping.com's business strategy and we
launched a new web site emphasizing shopping services. The new web site
utilizes our proprietary search technology to allow users to find, compare and
evaluate merchandise, and choose vendors. In addition, Shopping.com continues
to market and sell products on the web site. Because of the change in
Shopping.com's business strategy, we anticipate that revenues derived from
advertising and fee-based shopping services will increase as a percentage of
Shopping.com's overall revenues. We cannot predict whether the new shopping
services strategy will result in higher revenues or improved operating
results.
Changes in the competitive environment or changing market conditions may
cause us to make pricing, marketing or acquisition decisions that could
materially harm our combined financial results. Because of the highly
competitive and rapidly changing nature of the business, we believe period-to-
period comparisons of our revenue and operating results are not necessarily
meaningful and should not be relied upon as indicators of our future
performance.
Cost of advertising, service and product revenue. Cost of advertising and
service revenue consists of expenses associated with operation of our web
sites including depreciation, compensation, network and related costs and fees
paid to third parties for content. For product revenue, cost of revenues
consists of cost of goods sold, freight and handling.
Operating expenses. Operating expenses comprise product development, sales
and marketing, and general and administrative expenses as described below.
These expenses have increased significantly since our inception due to
investments in new or enhanced technology, increases in advertising
expenditures, and increased infrastructure costs associated with the rapid
growth of our organization. We expect that operating expenses will continue to
increase in the foreseeable future, particularly in the areas of product
development and advertising, and planned investments in international
operations.
Product development consists primarily of compensation, consulting and
equipment depreciation incurred in the development of search, new media and e-
commerce technology. After February 15, 1999, product development also
includes AltaVista Shopping.com's web site development expenses, primarily
compensation, consulting and equipment depreciation and cost of computer
operations.
Sales and marketing expenses consist of compensation, advertising,
commissions, fees for traffic, marketing and promotional expenses, barter
costs and allowances for bad debts. Beginning January 1999, our contract
change with DoubleClick resulted in the recognition of commissions and service
fees paid to DoubleClick as
28
<PAGE>
sales and marketing expenses. In the future, we expect to increase
significantly our advertising and promotion expenses. For fiscal year 2000, we
anticipate that advertising expense alone will be approximately $120 million.
General and administrative expenses consist of compensation and related
expenses of executive and administrative personnel, fees for professional
services such as legal, accounting and consulting and allocation of corporate
services. Through 1998, direct general and administrative spending was related
to a small division headquarters staff, and all corporate services, such as
accounting, legal, human resources and information systems were provided by
Digital or Compaq and charged via corporate allocations utilizing our relative
percentage of headcount, space or other appropriate factor. In January 1999,
when Compaq established AltaVista as a separate subsidiary we began building
local capability for the provision of these corporate services, and direct
general and administrative spending increased. Subsequent to the CMGI
acquisition on August 18, 1999, we incurred all general and administrative
spending directly.
For the seven months ended July 31, 1999, we recorded amortization of
stock-based compensation of $35.8 million in connection with the grant of
stock options to our employees and officers. The stock-based compensation
charges account for the difference between the exercise price and the deemed
fair value of the stock options on their date of grant.
Compaq's purchase of AltaVista, as part of its Digital acquisition, and its
acquisitions of Shopping.com and Zip2 were accounted for using the purchase
method and resulted in intangible assets of $890.7 million. CMGI's acquisition
of iAtlas in September 1999 was accounted for using the purchase method and
resulted in intangible assets of $23.0 million. Our distribution of Zip2 to
our stockholders included the distribution of $259.0 million of intangible
assets. CMGI's acquisition of approximately 81.5% of our equity ownership
resulted in incremental intangible assets of $2.2 billion. We intend to
amortize our total intangibles of $2.7 billion as of October 31, 1999 using
the straight-line method over a three-year period.
Seasonality. We expect to experience seasonality in our business, with user
traffic lower during the summer and year-end vacation and holiday periods when
overall usage of the Internet is lower. Because Internet-based commerce and
advertising is an emerging market, additional seasonal and other patterns may
develop in the future as the market matures. Any seasonality is likely to
cause quarterly fluctuations in our operating results, and these patterns
could harm our business, results of operations and financial condition.
History
In 1995, Digital developed technology to rapidly search the Internet to
retrieve web pages in response to a user's request for information. This
capability, called the AltaVista search engine, became one of the first
Internet search engines to provide extensive coverage of the Web along with
advanced search functionality. This search engine, in addition to other
information services, resides on our web site portal: www.altavista.com.
On June 11, 1998, Compaq acquired Digital for an aggregate purchase price
of $9.1 billion. In January 1999, Compaq established AltaVista as a separate
business unit. To broaden the capabilities of AltaVista, on February 15, 1999,
Compaq acquired Shopping.com for an aggregate purchase price of $256.9
million, and on April 2, 1999, Compaq purchased Zip2 for an aggregate purchase
price of $340.9 million.
On June 29, 1999, Compaq, through its wholly-owned subsidiary Digital,
announced an agreement with CMGI whereby CMGI would acquire approximately
81.5% of our equity ownership. In connection with this acquisition, the
AltaVista Search web site and associated intellectual property, Shopping.com,
Zip2 and other assets were contributed to us. These transactions were
completed on August 18, 1999.
On October 20, 1999, we distributed the net assets of Zip2 to our
stockholders in the form of a dividend. Accordingly, Zip2's results of
operations are not included in our financial statements after the date of
disposition.
Our combined financial results may not be indicative of our results of
operations, financial position and cash flow in the future, nor do they
reflect the results which we would have attained had the enterprises been
operated
29
<PAGE>
as stand-alone businesses in the past. Our business and prospects must be
considered in light of the risks involved in operating in a highly competitive
and rapidly changing business area. The business has incurred substantial
losses in past reporting periods. We expect to continue to incur operating
losses for the foreseeable future due to higher investment in more advanced
search technology, improved functionality and expanded content of the web
sites, and in extensive advertising and public relations activities to promote
our brand.
Results of Operations
Three Months Ended September 30, 1998 Compared to the Three Months Ended
October 31, 1999
Operating results for the AltaVista business reflect the operations
included within Compaq based on its allocated acquisition cost of the
AltaVista business. Operating results of Shopping.com are combined with
AltaVista beginning February 15, 1999, the date on which it was effectively
acquired and became part of the AltaVista business. Operating results of Zip2
were combined with AltaVista beginning April 2, 1999, the date on which it was
acquired, through October 20, 1999, the date on which it was distributed to
our stockholders. Operating results of iAtlas were combined with AltaVista
beginning September 28, 1999, the date on which it was acquired by CMGI.
Revenues. For the three months ended September 30, 1998 and the three
months ended October 31, 1999, advertising and service revenue increased 267%
from $8.8 million to $32.4 million. The increased revenue was primarily
attributable to increased sales of advertising resulting from increased page
views on the web site. Revenue also increased due to the change in the
DoubleClick contract from recording revenue on a net to gross basis.
Revenues derived from the DoubleClick agreement for the three months ended
September 30, 1998 and the three months ended October 31, 1999 were $6.6
million and $24.7 million and represented 75% and 76% of advertising and
services revenues.
Product revenue for the three months ended October 31, 1999 was $22.4
million, compared to no revenues in the prior period, as a result of
Shopping.com operating results being included in the combined results since
its acquisition on February 15, 1999. For the three months ended October 31,
1999, Shopping.com revenues included $12.2 million, approximately 54% of
product revenue, from sales of computer equipment purchased from Compaq and
sold to FreePC. Shopping.com recognized a nominal gross profit on such
revenues.
Cost of Revenues and Gross Profit. Cost of advertising and service revenue
for the three months ended September 30, 1998 and the three months ended
October 31, 1999 increased 249% from $3.0 million to $10.5 million. This
increase was attributable to increases in equipment and other costs associated
with web site operations, increases in number of personnel and associated
costs and increases in content fees paid to third parties. Gross profit (loss)
improved during these periods as a result of revenue increases thereby better
leveraging infrastructure fixed costs. In 1999, gross profit on advertising
and service revenue also increased as a result of the change in reporting
revenues derived from the DoubleClick agreement from a net to gross basis.
Cost of product revenue for the three months ended October 31, 1999 was
$23.3 million, compared to no costs in prior periods, as a result of
Shopping.com operating results being included in the combined results since
its acquisition on February 15, 1999. Shopping.com experienced negative gross
margins in the periods reported due to its low pricing strategy that was aimed
at aggressively increasing its customer base and web site traffic.
Product Development Expenses. Product development expenses for the three
months ended September 30, 1998 and the three months ended October 31, 1999
increased 238% from $3.2 million to $10.8 million. This increase was
attributable to an increased number of development personnel and related costs
primarily directed to development of search technology. In addition, product
development expenses increased as a result of Shopping.com and Zip2
development costs being included following their acquisition dates.
Sales and Marketing Expense. Sales and marketing expense for the three
months ended September 30, 1998 and the three months ended October 31, 1999,
increased 673% from $6.7 million to $51.9 million. The
30
<PAGE>
increase was primarily due to the inclusion of $8.0 million of DoubleClick
fees and commissions in sales and marketing expense during the three months
ended October 31, 1999, increases in advertising and promotion expenses, and
increases in compensation and related expenses associated with an increased
number of sales personnel. In addition, sales and marketing expense increased
as a result of Shopping.com and Zip2 sales and marketing costs being included
following their acquisition dates. These increases were offset, in part, by a
reduction in fees paid to other Internet sites for traffic directed to
AltaVista.
General and Administrative Expense. General and administrative expense for
the three months ended September 30, 1998 and the three months ended October
31, 1999 increased 304% from $1.9 million to $7.7 million. This increase was
primarily attributable to compensation and related expenses associated with a
higher number of personnel, increased legal and consulting fees and the
inclusion of the results of Shopping.com and Zip2 for the period subsequent to
their acquisition dates. In addition, in 1999 AltaVista completed the
transition to a standalone company, which resulted in increased investment in
administrative services and infrastructure that had previously been allocated
from Digital and Compaq.
Stock-based Compensation Expenses. For the three months ended October 31,
1999, we recorded amortization of stock-based compensation of $15.8 million in
connection with the grant of stock options to our employees and officers. The
stock-based compensation charges represent the amortization of the difference
between the exercise price and the deemed fair value of the stock options
pursuant to CMGI's acquisition of approximately 81.5% of our equity ownership.
Effective with this acquisition on August 18, 1999, 25% of all AltaVista's
then outstanding stock options vested as a result of an accelerated vesting
clause relating to a change in control provision that was included in the
stock option plan, and we recorded the related stock-based compensation
expense associated with the accelerated vesting during the period June 29,
1999 through August 18, 1999. The remaining stock-based compensation charges
would be amortized over the remaining four-year vesting term of the options;
however, deferred compensation expense recorded prior to August 18, 1999 was
eliminated in the course of applying purchase accounting. Accordingly, this
stock-based compensation was recorded only for the period from June 29, 1999
through August 18, 1999. In addition, for the three months ended October 31,
1999, we recorded $.3 million stock-based compensation for iAtlas.
Amortization of Intangibles. Amortization of intangibles for the three
months ended September 30, 1998 and the three months ended October 31, 1999
were $23.0 million and $207.1 million. The increase was due to amortization of
intangibles recorded in connection with CMGI's acquisition of approximately
81.5% of our equity ownership, as well as the acquisitions of Shopping.com and
iAtlas.
Other Income (Expense), Net. For the three months ended September 30, 1998
and the three months ended October 31, 1999, interest expense was $104,000 and
$399,000. For the three months ended September 30, 1998, most of interest
expense corresponded to an allocation of Digital's or Compaq's worldwide
interest expense based on our proportionate share of total assets. We believe
this method provides a reasonable basis for allocation within our historical
statement of operations. Subsequent to August 18, 1999, the interest expense
relates to advances of funds from CMGI that are reflected in notes payable to
CMGI. The balance due to CMGI on October 31, 1999 is $43.5 million, and these
notes bear interest at a rate of 7% per year.
For the three months ended October 31, 1999, interest income was $104,000
which is the interest on AltaVista's cash bank balances. Other non-operating
expenses of $1.6 million for the three months ended October 31, 1999 related
to the non-recoverable cost of the write off of fixed assets that are being
taken out of service.
Net Loss. Net loss for the three months ended September 30, 1998 and the
three months ended October 31, 1999 was $29.1 million and $274.2 million. The
net loss increased due to the amortization of intangibles associated with
CMGI's acquisition of approximately 81.5% of our equity ownership, and the
acquisitions of Shopping.com, Zip2 and iAtlas. Net loss also increased due to
substantial increases in operating expenses and stock-based compensation.
31
<PAGE>
Comparison of Fiscal Years Ended December 31, 1996, 1997 and 1998 and the
Seven Months Ended July 31, 1999
Financial information and financial statements for AltaVista are derived
from the historic books and records of Digital through June 11, 1998. Upon
Compaq's acquisition of Digital, Compaq's basis in AltaVista became Compaq's
acquisition cost of the business. In accordance with the purchase accounting
method, Compaq recorded the individual assets and liabilities of AltaVista at
estimated fair values thereby creating new bases in such assets and
liabilities. Financial information and financial statements for AltaVista
beginning June 12, 1998 are derived from the historic books and records of
Compaq which are prepared using this new basis. AltaVista is not permitted to
combine asset and liability amounts in comparative financial tables or
financial statements when the accounting bases are different. Therefore, in
the financial information and financial statements for AltaVista which appear
in this prospectus, a bold vertical line is inserted to distinguish financial
information presented using the old and new bases. Prior to 1996, AltaVista
had no revenue and its operating activities related primarily to development
of search technology.
Revenues. Advertising and service revenue for 1996, 1997 and 1998 was $.9
million, $13.8 million and $37.1 million. For the seven months ended July 31,
1999, advertising and service revenue was $49.8 million. The increased revenue
in all periods was primarily attributable to increased sales of advertising
and sponsorships resulting from increased page views. Revenues for barter
transactions represented 7% and 5% of revenues reported in 1997 and the period
ended June 11, 1998. In all other periods, revenue from barter transactions
was not significant. We do not expect significant revenue from barter
transactions in the future. Fees for search services have remained essentially
flat in absolute dollars in the periods reported, and are not expected to grow
at the rate of advertising and sponsorship revenue. For the seven months ended
July 31, 1999 revenue also increased due to the change in the DoubleClick
contract from recording revenue on a net to gross basis.
Revenue derived from the DoubleClick agreement for 1996, 1997 and 1998 was
$.3 million, $9.3 million and $27.9 million. For the seven months ended July
31, 1999, revenue derived from the DoubleClick agreement was $41.2 million.
Net revenues derived from the agreement represented approximately 28%, 67% and
75% of the our total net revenues for 1996, 1997, and 1998. For the seven
months ended July 31, 1999, revenues derived from the agreement represented
approximately 83% of advertising and service revenue.
Product revenue for the seven months ended July 31, 1999 was $23.8 million
as a result of Shopping.com operating results being included in the combined
results since its acquisition on February 15, 1999. For the seven months ended
July 31, 1999, Shopping.com revenue included $8.1 million, approximately 34%
of product revenue, from sales of computer equipment purchased from Compaq and
sold to FreePC. Shopping.com recognized a nominal gross profit on those
revenues.
Cost of Revenues and Gross Profit. Cost of advertising and service revenue
for 1996, 1997 and 1998 was $2.0 million, $5.0 million and $10.4 million. For
the seven months ended July 31, 1999, cost of advertising and service revenue
was $17.4 million. These increases were attributable to increases in equipment
and other costs associated with web-site operations, increases in number of
personnel and associated costs, and increases in content fees paid to third
parties. Gross profit (loss) improved during these periods as a result of
revenue offset in part by limited increases in infrastructure fixed costs.
Beginning January 1999, gross profit on advertising and services revenue also
increased as a result of the change in reporting revenues derived from the
DoubleClick agreement from a net to gross basis.
Cost of product revenue for the seven months ended July 31, 1999 was $25.4
million, as a result of Shopping.com operating results being included in the
combined results since its acquisition on February 15, 1999. Shopping.com
experienced negative gross margins in the periods reported due to its low
pricing strategy that was aimed at aggressively increasing its customer base
and web-site traffic.
Product Development Expenses. Product development expenses for 1996, 1997
and 1998 were $3.5 million, $6.0 million and $12.6 million. For the seven
months ended July 31, 1999, development expenses were $17.5 million. These
increases were attributable to an increased number of development personnel
and related costs primarily directed to development of search technology. In
addition, the 1999 product development
32
<PAGE>
expenses were higher as a result of Shopping.com and Zip2 development costs
being included following their acquisition dates.
Sales and Marketing Expenses. Sales and marketing expenses for 1996, 1997
and 1998 were $.9 million, $5.6 million and $29.3 million. For the seven
months ended July 31, 1999, sales and marketing expenses were $51.2 million.
Results for the seven months ended July 31, 1999 included $14.0 million of
DoubleClick commissions and fees.
The increase from 1996 to 1997 was primarily attributable to expenses
associated with compensation and expenses related to a higher number of sales
and marketing personnel and higher barter costs. The increases from 1997 to
1998 were primarily attributable to increases in fees paid to other Internet
sites for traffic directed to AltaVista, and to a lesser extent expenses
associated with increased headcount. Sales and marketing expenses continued to
increase in 1999, primarily due to the inclusion of DoubleClick fees in sales
and marketing expenses, increases in advertising and promotion expenses, and
increases in compensation and related expenses associated with an increased
number of personnel. In addition, the 1999 sales and marketing expenses were
higher as a result of Shopping.com and Zip2 sales and marketing costs being
included following their acquisition dates.
General and Administrative Expenses. General and administrative expenses
for 1996, 1997 and 1998 were $1.8 million, $2.8 million and $5.6 million. For
the seven months ended July 31, 1999, general and administrative expenses were
$23.9 million. These increases were primarily attributable to compensation and
related expenses associated with a higher number of personnel, increased legal
and consulting fees and, for the 1999 periods, inclusion of the results of
Shopping.com and Zip2 for the period subsequent to their acquisition dates.
The seven months ended July 31, 1999 included an $11.5 million charge related
to a litigation settlement with One Zero Media, Inc. For additional
information concerning this settlement, see note 14 of the Combined Financial
Statements. In addition, in 1999 we completed the transition to a stand-alone
company, which resulted in the investment in administrative services and
infrastucture that had previously been allocated from Digital and Compaq.
Stock-based Compensation Expenses. For the seven months ended July 31,
1999, we recorded amortization of stock-based compensation of $35.8 million in
connection with the grant of stock options to our employees and officers. The
stock-based compensation charges represent the amortization of the difference
between the exercise price and the deemed fair value of the stock options
pursuant to CMGI's acquisition of approximately 81.5% of our equity ownership.
Effective with this acquisition on August 18, 1999, 25% of all AltaVista's
then outstanding stock options vested as a result of an accelerated vesting
clause relating to a change in control provision that was included in the
stock option plan, and we recorded the related stock-based compensation
expense associated with the accelerated vesting during the period from
June 29, 1999 through August 18, 1999. The remaining stock-based compensation
charges would be amortized over the remaining four-year vesting term of the
options; however, deferred compensation expense recorded prior to August 18,
1999 was eliminated in the course of applying purchase accounting.
Accordingly, this stock-based compensation was recorded only for the period
from June 29, 1999 through August 18, 1999.
Amortization of Intangibles. Amortization of intangibles for the years
ended 1996 and 1997 was not significant. Amortization of intangibles for 1998
was $51.0 million. The increase from 1997 to 1998 was a result of Compaq's
acquisition of Digital, and reflects the increased amortization associated
with the push down of Compaq's basis in the intangibles. Amortization of
intangibles for the seven months ended July 31, 1999 was $134.0 million.
Other Income (Expense), Net. For the years ended 1996, 1997, and 1998,
interest expense was approximately $32,000, $114,000 and $300,000. For the
seven months ended July 31, 1999, interest expense was approximately $159,000.
We incurred no direct interest expense until the purchase of the
www.altavista.com domain name in July 1998, which was financed with a note
payable to the seller. Prior to that date, all interest expense represented an
allocation of Digital's or Compaq's worldwide interest expense based on our
proportionate share of total assets. We believe this method provides a
reasonable basis for allocation within our historical statement of operations.
For the seven months ended July 31, 1999, other loss was approximately
$237,000, related to fixed assets dispositions.
33
<PAGE>
Net Loss. Net loss for the years ended 1996, 1997 and 1998 was $7.3
million, $5.7 million, $72.0 million. Net loss for the seven months ended July
31, 1999 was $232.0 million. In 1997, the net loss decreased over 1996 because
revenue growth exceeded the growth in operating expenses. In 1998, the net
loss increased due to substantial increases in operating expenses. For the
seven months ended July 31, 1999, the net loss included amortization of
intangibles resulting from the acquisitions of Shopping.com and Zip2, as well
as stock-based compensation.
Liquidity and Capital Resources. From inception through August 18, 1998, we
financed our working capital through capital contributions from Digital and
Compaq. All cash generated from and required to support our operations was
deposited and received through Digital and Compaq's corporate operating cash
accounts. As a result, there were no separate bank accounts for AltaVista, and
the amounts recorded as net contribution from owner in our combined statement
of cash flows represent the net effect of all cash transactions between
Digital or Compaq and AltaVista. From August 19 through October 31, 1999, we
financed our working capital through cash received from CMGI. In return, we
have issued demand notes payable to CMGI that are convertible into preferred
stock. From time to time, at Compaq's election, it may participate in the
funding of our working capital needs, based on its pro rata ownership
interest.
At July 31, 1999 and October 31, 1999, we had cash and cash equivalents of
$7.5 million and $1.1 million.
Net cash used in operating activities for the years ended 1996, 1997, and
1998 was $6.8 million, $6.9 million and $15.2 million. Cash used in 1996 was
primarily the result of net operating losses. Cash used in 1997 was primarily
the result of net operating losses and changes in operating assets and
liabilities, partially offset by depreciation and provision for bad debts.
Cash used in 1998 was primarily the result of net operating losses, partially
offset by depreciation and amortization and net change in operating assets and
liabilities.
Net cash used in operating activities for the seven months ended July 31,
1999 and the three months ended October 31, 1999 was $38.4 million and $28.9
million. Cash used in both periods was primarily the result of net operating
losses, partially offset by amortization, depreciation, and stock based
compensation, and net change in operating assets and liabilities.
Net cash used in investing activities for the years 1996, 1997 and 1998 was
$5.3 million, $8.3 million, and $9.3 million. Net cash used in investing
activities was $554.0 million for the seven months ended July 31, 1999 and
$23.7 million for the three months ended October 31, 1999. Cash used in
investing in 1996 , 1997 and 1998 and the three months ended October 31, 1999
was primarily related to investment in fixed assets. Cash used in investing
for the seven months ended July 31, 1999 was primarily related to the
acquisitions of Shopping.com and Zip2, investment in fixed assets and purchase
of investments.
Net cash provided by financing for the years 1996, 1997 and 1998 was $12.1
million, $15.2 million, and $24.5 million, which was essentially all related
to funding received from Digital and Compaq. Net cash provided by financing
for the seven months ended July 31, 1999 and the three months ended October
31, 1999 was $599.9 million and $46.2 million which was primarily funding
received from Compaq and CMGI.
Noncash investing activities were $311.3 million in 1998 and consisted of
the push down of net assets resulting from the accounting basis change that
occurred when Compaq acquired Digital on June 12, 1998, and $2.9 million
related to the purchase of the AltaVista domain name that was funded by a note
payable.
Noncash investing activities were $61.5 million for the seven months ended
July 31, 1999, and consisted primarily of Compaq stock options issued for
acquisitions. Noncash investing activities were $2.2 billion for the three
months ended October 31, 1999, and consisted primarily of the change in basis
attributable to the CMGI transaction.
Future capital requirements will depend upon many factors, including the
rate of growth in user traffic on our site, rate of international expansion,
the timing and magnitude of our development efforts, and investments or
acquisition opportunities. We expect to continue to expend significant amounts
on advertising, expansion of facilities and computer operations
infrastructure, as well as personnel. We believe funding from CMGI, as well as
the proceeds of this offering, will be sufficient to satisfy our cash
requirements for the fiscal year ended July 31, 2000. We intend to invest our
excess cash in high quality, interest-bearing securities.
34
<PAGE>
Unaudited Pro Forma Quarterly Results of Operations
The following table sets forth our pro forma combined statement of income
data for the five quarters ended October 31, 1999. This information gives
effect to the acquisition by CMGI of an 81.495% equity interest in us and the
acquisition by us of Shopping.com as if they had occurred as of July 1, 1998.
The pro forma combined results exclude Zip2 which was acquired on April 2,
1999 and distributed to CMGI and Compaq on October 20, 1999. This data has
been prepared on the same basis and includes the same adjustments as the
unaudited Pro Forma Combined Condensed Statements of Operations for the fiscal
year ended December 31, 1998 and the seven months ended July 31, 1999 and the
notes included elsewhere in this prospectus. Because of the application of
purchase accounting, we believe our historical operating results are not
indicative of our future operating results. We believe the information
presented below is the most concise and efficient presentation possible for
the operating results of the combined entities. The pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the results of operations that would have been reported if the Shopping.com
acquisition had been consummated at the beginning of the earliest period or
that we may report in the future.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------
September 30, December 31, March 31, June 30, October 31,
1998 1998 1999 1999 1999
------------- ------------ --------- --------- -----------
(unaudited)
Unaudited Pro Forma
Quarterly Results of
Operations (in thousands)
<S> <C> <C> <C> <C> <C>
Advertising and service
revenue, net........... $ 8,842 $ 12,228 $ 16,705 $ 21,601 $ 30,196
Product revenue, net.... 2,015 4,176 4,862 12,397 22,421
--------- --------- --------- --------- ---------
Total revenue........ 10,857 16,404 21,567 33,998 52,617
Cost of advertising and
service revenue........ 3,008 3,408 5,200 5,971 8,198
Cost of product
revenue................ 2,266 5,888 5,835 12,631 23,269
--------- --------- --------- --------- ---------
Cost of revenue...... 5,274 9,296 11,035 18,602 31,467
--------- --------- --------- --------- ---------
Gross profit............ 5,583 7,108 10,532 15,396 21,150
--------- --------- --------- --------- ---------
Product development.... 3,940 4,193 5,324 7,773 10,630
Sales and marketing.... 9,282 18,900 23,203 20,212 50,348
General and
administrative........ 3,584 12,880 3,597 5,539 6,471
Loss on disposal of
assets................ 338 1 -- -- --
--------- --------- --------- --------- ---------
Operating loss before
stock-based
compensation and
amortization of
intangibles............ (11,561) (28,866) (21,592) (18,128) (46,299)
Stock based
compensation.......... -- -- -- -- --
Amortization of
intangibles........... 218,767 218,767 218,767 218,767 219,517
--------- --------- --------- --------- ---------
Loss from operations.... (230,328) (247,633) (240,359) (236,895) (265,816)
Other income/expense
Interest, net.......... 1,499 3,985 108 76 289
Other non-operating
loss.................. -- -- -- (19) 1,610
--------- --------- --------- --------- ---------
Total................ 1,499 3,985 108 57 1,899
Loss before income
taxes.................. (231,827) (251,618) (240,467) (236,952) (267,715)
Extraordinary loss...... -- 1,171 -- -- --
--------- --------- --------- --------- ---------
Net loss................ $(231,827) $(252,789) $(240,467) $(236,952) $(267,715)
========= ========= ========= ========= =========
<CAPTION>
Three Months Ended
------------------------------------------------------------
September 30, December 31, March 31, June 30, October 31,
1998 1998 1999 1999 1999
------------- ------------ --------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Advertising and service
revenue, net........... 81% 75% 77% 64% 57%
Product revenue, net.... 19 25 23 36 43
--------- --------- --------- --------- ---------
Total revenue........ 100 100 100 100 100
Cost of advertising and
service revenue........ 28 21 24 18 16
Cost of product
revenue................ 21 36 27 37 44
--------- --------- --------- --------- ---------
Cost of revenue...... 49 57 51 55 60
--------- --------- --------- --------- ---------
Gross profit............ 51% 43% 49% 45% 40%
--------- --------- --------- --------- ---------
</TABLE>
Prior to August 18, 1999, our fiscal year ended on December 31. In August
1999, we retroactively adopted the CMGI fiscal year end of July 31, 1999.
Because the fiscal year end change results in no material effect on reported
trends and due to the impracticality of preparing comparable seven months or
fiscal quarter historical carve out financial statements, we have presented
the quarters through June 30, 1999 on a calender quarter basis. Pro forma
results for the month ended July 31, 1999 are: advertising and service revenue
of $8.8 million; product revenue of $9.0 million; operating loss before stock-
based compensation and amortization of intangibles of $(21.9) million; and net
loss of $(122.0) million.
35
<PAGE>
Unaudited Historical Quarterly Results of Operations
The following table sets forth our unaudited combined statement of
operations data for the five quarters ended October 31, 1999. This data should
be read in conjunction with our combined financial statements for the fiscal
year ended December 31, 1998 and the seven months ended July 31, 1999 and the
notes included elsewhere in this prospectus. Prior to August 18, 1999, we
operated on a calendar year end. Because of the acquisition of Shopping.com,
and the acquisition and subsequent disposition of Zip2, the information set
forth below is not indicative of the results of operations that we may report
in the future.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------
September 30, December 31, March 31, June 30, October 31,
1998 1998 1999 1999 1999
------------- ------------ --------- --------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Unaudited Historical
Quarterly Results of
Operations
Advertising and services
revenue, net........... $ 8,842 $ 12,228 $ 16,705 $ 24,289 $ 32,414
Product revenue, net.... -- -- 2,431 12,397 22,421
-------- -------- -------- --------- ---------
Total revenue.......... 8,842 12,228 19,136 36,686 54,835
Cost of advertising and
service revenue........ 3,008 3,408 5,200 8,949 10,508
Cost of product
revenue................ -- -- 2,917 12,631 23,269
-------- -------- -------- --------- ---------
Cost of revenue........ 3,008 3,408 8,117 21,580 33,777
Gross profit............ 5,834 8,820 11,019 15,106 21,058
-------- -------- -------- --------- ---------
Product development..... 3,187 3,358 4,627 9,171 10,783
Sales and marketing..... 6,714 15,681 19,672 22,069 51,886
General and
administrative......... 1,909 1,598 2,645 6,488 7,705
-------- -------- -------- --------- ---------
Operating loss before
stock-based
compensation and
amortization of
intangibles............ (5,976) (11,817) (15,925) (22,622) (49,316)
Stock-based compensation
and amortization of
intangibles............ 23,030 23,130 34,667 83,410 222,938
-------- -------- -------- --------- ---------
Loss from operations.... (29,006) (34,947) (50,592) (106,032) (272,254)
Interest income......... -- -- -- -- (104)
Interest expense........ 104 106 98 47 399
Other non-operating
(income) loss.......... -- -- -- -- 1,610
-------- -------- -------- --------- ---------
Loss before income
taxes.................. (29,110) (35,053) (50,690) (106,079) (274,159)
Net loss................ $(29,110) $(35,053) $(50,690) $(106,079) $(274,159)
======== ======== ======== ========= =========
<CAPTION>
Three Months Ended
------------------------------------------------------------
September 30, December 31, March 31, June 30, October 31,
1998 1998 1999 1999 1999
------------- ------------ --------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Advertising and services
revenue, net........... 100% 100% 87% 66% 59%
Product revenue, net.... -- -- 13 34 41
-------- -------- -------- --------- ---------
Total revenue.......... 100 100 100 100 100
Cost of advertising and
service revenue........ 34 28 27 24 19
Cost of product
revenue................ -- -- 15 34 42
-------- -------- -------- --------- ---------
Cost of revenue........ 34 28 42 59 61
Gross profit............ 66% 72% 58% 41% 38%
======== ======== ======== ========= =========
</TABLE>
Prior to August 18, 1999, our fiscal year ended on December 31. In August
1999, we retroactively adopted the CMGI fiscal year end of July 31, 1999.
Because the fiscal year end change results in no material effect on reported
trends, and due to the impracticality of preparing comparable seven months or
fiscal quarter historical carve out financial statements, we have presented
the quarters through June 30, 1999 on a calendar quarter basis. Results for
the month ended July 31, 1999 are: advertising and service revenue of $8.9
million; product revenue of $9.0 million; operating loss before stock-based
compensation and amortization of intangibles of $(23.3) million; and net loss
of $(75.2) million.
Market Risk
AltaVista's exposure to market risk is principally confined to its short-
term available-for-sale securities, which have short maturities and,
therefore, minimal and immaterial market risk.
36
<PAGE>
Effect of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. SFA No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. We do not expect SFAS No. 133 to have a
material effect on its combined financial position or results of operations.
In February 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. We do not expect SOP 98-
1, which is effective for AltaVista beginning January 1, 1999, to have a
material effect on its combined financial position or results of operations.
In April 1998, the Accounting Standards Executive Committee issued SOP 98-
5, "Reporting on the Costs of Start-Up Activities." Start-up activities are
defined broadly as those one-time activities related to opening a new
facility, introducing a new product or service, commencing some new operation
or organizing a new entity. Under SOP 98-5, the cost of start-up activities
should be expensed as incurred. SOP 98-5 is effective for us beginning January
1, 1999 and AltaVista does not expect its adoption to have a material effect
on its combined financial position or results of operations.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process or transmit data or engage in
normal business activities. Our ability to operate is dependent upon the
delivery of accurate, electronic information via the Internet. To the extent
that Year 2000 issues result in the long-term inoperability of the Internet or
any portion of the AltaVista network, our results of operations and financial
condition would be materially and adversely affected.
We have completed our assessment of our Year 2000 readiness. This
assessment included an inventory and review of our internal information
technology systems, non-information technology systems and the systems of
third parties upon which we may rely. We have completed additional
comprehensive testing to ensure Year 2000 compliance and implemented action
plans to correct and upgrade our software code. For our proprietary computer
systems, we conduct Year 2000 compliance verification and validation with
internal resources. No internal information technology projects have been
deferred due to our Year 2000 remediation program. We believe that the
remediation program will have no material adverse effect on current or
anticipated internal information technology projects. Although we have
developed our proprietary computer systems to specifically address Year 2000
issues, there can be no assurance that our systems, as a whole, are Year 2000
compliant.
We utilize third-party equipment and software that may or may not be Year
2000 compliant. Consequently, our ability to address Year 2000 issues is, to a
large extent, dependent upon the remediation activities of third parties. We
have requested statements of Year 2000 compliance from third party technology
providers associated with our core information systems infrastructure.
Failure of such third-party equipment or software, or of non-information
technology systems and devices used by us, to operate properly with regard to
the Year 2000 and thereafter may require us to incur unanticipated expenses to
remedy problems, which may harm our financial condition.
Our AltaVista Shopping.com division has completed formal communications
with all of the major vendors presented in AltaVista Shopping.com's e-commerce
web site to determine the extent to which AltaVista
37
<PAGE>
Shopping.com is vulnerable to those third parties' failures to remediate their
own Year 2000 issues. Recently, AltaVista Shopping.com initiated Year 2000
compliant EDI interfaces for orders, invoices and shipment information with
its major vendors. However, AltaVista Shopping.com cannot control the degree
to which those vendors's internal systems and business processes are Year 2000
compliant. In the event Year 2000 compliance is not achieved by its vendors,
AltaVista Shopping.com may seek to identify alternate vendors for the affected
products. Because AltaVista Shopping.com's order processing systems can
transparently maintain multiple vendors for products, it can obtain
contingency vendors with only minor administrative and EDI setup costs.
In addition, AltaVista Shopping.com has completed evaluation of Year 2000
compliance by credit card processors and other financial intermediaries
through which transactions are processed when AltaVista Shopping.com's
customers purchase goods from AltaVista Shopping.com. There is a significant
amount of complexity of these transaction processing systems and AltaVista
Shopping.com has no direct control over them. Although AltaVista Shopping.com
believes these systems are Year 2000 compliant in all material respects, the
current systems may contain undetected errors or defects. Inability to process
credit card transactions would harm AltaVista Shopping.com's business, results
of operations and financial condition.
We also rely, both domestically and internationally, upon various vendors,
governmental agencies, utility companies, telecommunication service companies,
including internet service and online service providers, delivery service
companies and other service providers who are outside our control. We do not
currently have any information about the Year 2000 status of our advertising
customers. Further, we have not fully determined the progress of our joint
venture partners, media partners and content partners in identifying and
addressing systems that may potentially be impacted by Year 2000 related
problems. Failure of such parties to operate properly with regards to the
onset of Year 2000 and thereafter, may harm our business.
Year 2000 costs incurred to date have not been material, and we do not
believe that the cost of additional actions will have a material effect on our
results of operations or financial condition.
38
<PAGE>
BUSINESS
Background
In 1995, Digital Equipment Corporation developed technology to rapidly
search the Internet to retrieve web pages in response to a user's request for
information. This significant technological achievement, called the AltaVista
search engine, was one of the first modern Internet search engines to provide
extensive coverage of the Web, along with advanced search functionality, and
was available free of charge to anyone on the Internet. Digital integrated
this search engine with additional information services to create the
AltaVista Internet portal. In June 1998, Compaq acquired Digital and, in
January 1999, incorporated and formed AltaVista as a separate business unit.
To broaden the capabilities of AltaVista, in February 1999, Compaq acquired
Shopping.com, an e-commerce company, and, in April 1999, acquired Zip2, a
local portal service. In August 1999, CMGI acquired approximately 81.5% of our
equity ownership and Compaq retained approximately 18.5% of our equity
ownership. In connection with this acquisition, the AltaVista Search web site
and associated intellectual property, Shopping.com, Zip2 Corp. and other
assets were contributed to us. In October 1999, we acquired iAtlas from CMGI
to enhance our search service with iAtlas' filtering technology and
distributed a stock dividend of all Zip2 stock owned by us to our
stockholders. In October 1999, we launched our enhanced web sites with new
features, functionality and a layout aimed at providing an interactive medium
for the pursuit of knowledge and information. We embarked on an aggressive
marketing and public relations campaign in connection with the launch. As part
of our commitment to provide our users with high quality financial content as
well as to further broaden the community aspects of AltaVista Live!, in
November 1999, we agreed to acquire Raging Bull, a finance-oriented community
and content Internet company and an affiliate of CMGI. We expect this
acquisition to be completed during the first quarter of 2000. We offer our
complete network through the www.altavista.com Internet portal and also offer
our e-commerce services through the www.shopping.com web site.
Company Overview
AltaVista is a leading Internet search, new media and commerce network that
delivers personalized, relevant information and e-commerce services to
millions of users worldwide. With our patented technologies, international
presence, distinct service offerings and strong strategic partners, we seek to
provide a smart, dynamic and thought-provoking knowledge resource for Internet
users. Our goal is to expand our user base by extending our leadership in
search and expanding our content and e-commerce capabilities, thereby
increasing the attractiveness of our Internet properties to advertisers and
merchants.
The quality of our services has enabled us to be one of the top web sites
in terms of user reach. We target our services and branding towards Web
enthusiasts. Web enthusiasts, whether experienced Internet users or newly
online, are passionate about the Internet and view it as a powerful tool to
obtain knowledge and to communicate. We believe the AltaVista user base, which
in November 1999 we estimate consisted of more than 45 million unique monthly
visitors worldwide, is one of the most Web-savvy and brand-loyal on the
Internet. Data from @Plan, a market research company, in the Fall of 1999
shows that the typical AltaVista user is a more frequent online user and more
likely to buy products online than the typical Internet user. We believe that
as Internet use continues to increase and users become more familiar and
comfortable with using the Internet, the number of Web enthusiasts as a
percentage of total Internet users will increase. In addition to our broad
domestic reach, we have a significant international user base with over half
of the searches on AltaVista's Search service originating from outside the
United States.
Since our inception as an Internet search service, we have grown to become
a comprehensive information, media and commerce destination web site. During
November 1999, we delivered over 1.6 billion page views to our users. We
provide a suite of services including:
. AltaVista Search, our proprietary Internet search technology indexing
over 250 million web pages
. AltaVista Live!, our dynamic, personalized information service with
original content, real-time and local information, and a variety of
content channels including money, news, sports, travel, careers, health
and entertainment
39
<PAGE>
. AltaVista Shopping.com, our Internet retailing portal and shopping
service
. Free communications services including: instant messaging, Internet
access and e-mail services
Since developing the Internet's first large-scale search engine, we have
accumulated more than 70 Internet search-related patents and patent
applications. We have been consistently recognized as a leader in Internet
search technologies. For example, an August 1999 CNN poll rated AltaVista as
the preferred search web site among Internet users. We believe that, as the
number of web sites grows and the Internet increases in complexity, our
extensive search capability will continue to be a key tool in enabling users
to obtain information and knowledge from the Internet. According to a 1999
Jupiter Communications / NFO Consumer Study, 88% of the online population uses
search engines, up from 83% in 1998.
We supplement our core search capabilities with a suite of services that is
unique to AltaVista. AltaVista Live! is our multimedia service that delivers
personalized content such as real-time news and stock quotes, live sports
scores and live Internet broadcasts. AltaVista Live! also provides users
community-specific content including city and region-specific information such
as weather and movie reviews and listings. AltaVista Shopping.com is an
unbiased resource for comparison shopping and product information, offering
users the ability to find, compare and purchase merchandise from both online
and offline merchants. We also offer a full range of free communications
services such as instant messaging, Internet access and e-mail. Approximately
700,000 people have activated our free Internet access program since the
launch of AltaVista FreeAccess in August 1999. In addition, we license our
proprietary search technology and access to our search index to third parties
located in the United States and abroad.
We have established numerous strategic relationships to deliver Internet
content, news and commerce information through our network and to drive
traffic to our web sites. Examples of these strategic relationships include:
. The Associated Press, CBS Marketwatch, The New York Times, Reuters and
Washington Post--national news
. Compaq--traffic generation through default Internet browser and Internet
keyboard buttons
. HealthCentral--health-related content
. 1stUp--free Internet access
. Ask Jeeves--natural language search
. ConsumerReviews.com, ZDNet and BizRate--product and merchant reviews
. Systran--language translation for web sites
. Virage and Corbis--multimedia libraries
. RealNames--Internet Keywords
We believe that the combination of our unique technologies, relationships
with strategic partners and commitment to delivering immediate, current
information will enable us to enhance our position as one of the most visited
Internet resources.
Industry
Internet Growth
The Internet has emerged as a mass-market communications medium, enabling
millions of users to obtain and share information, interact with each other
and conduct business electronically. Declining prices for personal computers
and Internet access, coupled with increasing speed, convenience and
improvements in content have led to rapid growth in Internet usage. Market
research firm International Data Corporation estimates that the number of
Internet users worldwide will increase from approximately 142 million at the
end of 1998 to approximately 502 million by the end of 2003, representing a
compound annual growth rate of approximately 29%. As more and more users are
drawn to the Internet, the number of web pages on the Internet is expected to
experience
40
<PAGE>
similar rapid growth. The NEC Research Institute, an independent research
organization, estimates that there are over 800 million web pages on the
publicly indexable Web.
As the Internet grows, advertisers and marketers have the opportunity to
use this channel to reach global audiences more easily than ever before.
Internet advertising revenues in the United States are expected to increase
from $2.1 billion in 1998 to over $11.5 billion by 2003, according to Jupiter
Communications, a market research company. The Internet has also emerged as a
significant channel for e-commerce. Forrester Research has estimated that
consumer purchases of goods and services over the Internet in the United
States alone will increase from approximately $20 billion in 1999 to
approximately $184 billion in 2004, representing a compound annual growth rate
of over 56%. In many retail categories, the Internet and the emergence of
electronic retailers are fundamentally reshaping industry dynamics and
competition.
Emergence and Evolution of the Internet Portal
Many Internet portals originated as single-purpose services offering
limited search and directory capabilities. As the Internet user base expanded,
user traffic increased in frequency and duration. This led to users demanding
more sophisticated navigation tools and access to a greater amount and variety
of information. Users began to seek a one-stop solution for their Internet
navigation and e-commerce needs. As a result, these portals began to leverage
the natural synergies that exist between fundamental Internet services such as
access, navigation and search and broadly relevant content, including news,
directory listings and product information.
Portals are evolving to become the single destination for all of a
consumer's search, information, communication and commerce needs on the
Internet. To differentiate their services and to attract the attention of
users, portals are aggressively expanding and enriching their offerings with
value-added content and services. Many have added so-called sticky services,
including personalized pages, e-mail services, instant messaging and
individual web pages hosting in order to build user loyalty and to increase
the amount of time each user spends in a portal's network of web sites.
The Demand for Personalized, Relevant Knowledge
As use of the Internet has grown, individuals, businesses and organizations
have moved to quickly establish web sites, services, information and other
resources. The explosion of content on the Internet has made it increasingly
challenging for users to access all of the information and pull from it that
which is useful and relevant to them. We believe that, in order to fulfill the
promise of the Internet as a vast repository of information and revolutionary
enabler of communication and commerce, ready access to relevant information,
products and services must be available to all users. Furthermore, the range
of web sites being searched for information must include as many web sites as
possible and must be updated frequently as individual web sites are
continually modified. We believe that as the amount of information on the
Internet increases, Internet users will increasingly demand improved search
assistance. An easier and more effective means of getting information from the
Internet will improve the user's experience and enhance businesses' ability to
connect with potential customers. Successful Internet companies will be those
that build strong brands to attract customers, assist customers in navigating
efficiently through the massive volume of content on the Internet and offer a
satisfying, contextually relevant user experience.
The AltaVista Solution
We believe we are well positioned to be the Internet's trusted brand for
highly integrated, personally relevant information and e-commerce offerings.
We combine superior search technology, robust and timely media content, local
content and personalized e-commerce offerings with a broad network of
strategic partners to supply our users with an easy-to-use, engaging online
experience. Our web sites offer users ways to quickly, accurately and
dynamically access the knowledge they seek. Our portal has the following
capabilities:
41
<PAGE>
Superior Search Platform
AltaVista Search offers advanced search functionality that enables Internet
users to find information on the Internet. We believe that AltaVista Search is
one of the fastest Internet search services, includes one of the most
extensive indices available and produces highly relevant search results. We
believe our index, which is frequently updated and contained over 250 million
web pages at December 1999, includes more web pages than any other Internet
search service. Our search engine applies a complex, proprietary algorithm for
evaluating the relevancy of results based on several key attributes such as
popularity and quality of the web page and frequency of the requested text's
appearance. Our users can further narrow their desired information requests by
performing advanced searches that give them the ability to search for
information within certain date ranges or to specifically search for one of
eight possible sources of information: web pages, categories, news,
discussions, products, images, audio or video. We have developed significant
proprietary technologies and have over 70 patents and patent applications. Our
commitment to delivering superior search technologies provides a strong
foundation on which to build additional functionality to meet our users'
growing needs. We continue to add features and strategic partners to the
AltaVista Search service in areas such as natural language question and answer
through Ask Jeeves, company fact sheets attached to search results through
iAtlas, locating web sites through Internet keywords without knowledge of the
domain name through RealNames, translating languages through Babelfish with
Systran and searching photographs and multimedia content through AltaVista
Photo & Media Finder with Virage and Corbis.
AltaVista Live!
In addition to AltaVista Search, we offer users a comprehensive destination
for Internet navigation, directory services, personalized content and rich
local community information on the AltaVista Live! service. This destination
has many important features, including:
. finance and real-time stock quotes
. sports
. weather
. national news
. local news
. original content
. lottery results
. maps and directions
. movie and TV listings
. horoscopes
. a community section
. e-mail and calendaring
As part of our strategy to further broaden the community aspects of
AltaVista Live!, in November 1999, we agreed to acquire Raging Bull, a
finance-oriented community and content Internet company and an affiliate of
CMGI. As a result of our relationships with media partners and content
providers, we offer users a destination that includes international and
national content while providing a rich and relevant local community feel
through our AltaVista local service. For example, a user can state an interest
in a movie and we will identify local theaters and show times, offer movie
reviews and provide maps and directions. In addition, to enhance the AltaVista
Live! experience, we give users the ability to personalize our content and
information offerings through our My Live! service. My Live! allows users to
personalize more than 20 categories of information and choose what content
they want delivered and where they want it on their My Live! web page.
42
<PAGE>
AltaVista Shopping.com
We offer an e-commerce service that provides customers with the information
necessary to make personalized online buying decisions and gives retailers the
ability to reach a large customer base. AltaVista Shopping.com's goal is to
make the shopping experience informed, quick, interactive and personalized. We
leverage our superior search technology to enhance the shopping experience by
increasing the speed and accuracy of the shopping search, enabling our users
to research, compare and purchase merchandise from among millions of products.
We provide several of these services through strategic relationships: ZDNet
for expert reviews, ConsumerReviews.com for consumer product reviews and
BizRate for merchant rankings. We allow consumers to compare instantly online
merchants that sell the desired product and will also direct consumers to
offline, local store outlets in their own neighborhood complete with driving
directions. For our merchants and advertisers, this creates highly dynamic,
personally targeted selling opportunities.
Free Communications Services
We offer a number of free services to help attract users to the AltaVista
portal. We offer e-mail service and dial-up Internet access through our
AltaVista FreeAccess program to our users, and recently began offering instant
messaging services. The AltaVista FreeAccess service is combined with a
microportal, a small screen window that provides continuous personalized, up-
to-the-minute news and information, as well as links to AltaVista services and
search capabilities. The AltaVista FreeAccess software can be downloaded
directly from the AltaVista web sites or from numerous download and partner
sites throughout the Internet. AltaVista FreeAccess is also available at many
leading retail outlets nationwide and in Canada. Approximately 700,000 people
have activated our free Internet access program since the launch of AltaVista
FreeAccess in August 1999. Our free e-mail service, which is completely
integrated into the AltaVista network, is used by over 170,000 of our users.
In December 1999, we announced AltaVista Messenger, a real-time instant
messaging service that is compatible with MSN Messenger and AT&T WorldNet
messaging clients. AltaVista Messenger is free of charge and offers multiple
features, including: text messaging; instant voice messaging; a list that
allows users to keep track of their online friends regardless of the instant
messaging system they use; a web cruise capability that allows users to guide
the browser of the person with whom they are communicating; multi-person real-
time chat and game playing; and file exchanges.
The AltaVista Strategy
By focusing on our users' desire for comprehensive, personalized and
relevant information and e-commerce capabilities, we are building our network
into a leading Internet destination for web users and businesses that want to
efficiently access this information. Our customer-centric view is distinct
from the prevalent broad-based portal model that focuses on generating page
views, often at the expense of relevance and results. We believe that our
enhanced user experience will lead to increases in both unique users and page
views which, in turn, will drive increased advertising, sponsorship and
commerce revenues.
Our business strategy entails the following:
. Provide a superior user experience through distinct and innovative
technologies, content and services. We plan to continue integrating new
capabilities and services into the AltaVista portal. In each of our
offerings we focus on being a service leader by building innovative
technological capabilities and services.
. AltaVista Search. To maintain and extend our search leadership, we
will continue to invest heavily in our technology to provide the most
extensive and relevant Internet search experience. Our goal is to
continue expanding our extensive index while delivering consistently
relevant results faster than our competitors. We focus on providing
our users with the most exhaustive tool available to find
information. We plan to increase the coverage of our index by adding
additional sources of information.
43
<PAGE>
We intend to extend our leadership position in multimedia search by
expanding our index and adding additional multimedia types and
innovative new features. We believe a key component of our multimedia
index will be our new MP3 search capability which is expected to be a
comprehensive and accurate tool, allowing users to quickly and easily
find MP3 music on the Internet. Finally, we plan to expand the use of
our advanced search technology by continuing to license our technology
to third parties.
. AltaVista Live! We intend to develop additional personalization
capabilities and features to enable our users to create their own
Internet experience which should enhance user loyalty to our network.
We currently produce seven distinct content channels, with plans for
over 28 channels by the end of 2000. We plan to expand our content
channels to include, among other categories, technology, banking,
world, women, college and real estate to continue to offer users a
satisfying resource to gain knowledge that interests them.
. AltaVista Shopping.com. We are building our AltaVista Shopping.com
service into an objective source for product information on millions
of products offered by both online and offline merchants. By
increasing our index of products available and expanding our referral
service, we plan to attract additional customers and retail partners
to our web site. We plan to add product categories targeted at our
users, including home appliances and recreational products. We also
intend to establish member loyalty programs to attract users and
increase loyalty to our shopping service.
. Increase User Base. We believe that expanding our capabilities, features
and content will draw new users and increase user loyalty, repeat usage and
duration per visit. In addition, we plan to introduce and expand programs
to encourage user registration. We also expect our relationships with
Compaq, the top selling personal computer manufacturer in the world, and
CMGI will continue to increase our user base. Our strategy to increase our
user base includes the following:
. Expand Offering of Free Communications Services. We offer our
registered users a range of free communications services including
Internet access, Web-based e-mail, instant messaging and a real-time
notification service. We have entered into an agreement with 1stUp, an
affiliate of CMGI, to provide free Internet access through AltaVista
FreeAccess. AltaVista Live! is the permanent home page displayed every
time an AltaVista FreeAccess user logs onto the Internet, giving users
instant access to customizable content and services available on the
AltaVista network. On December 1, 1999, we introduced our FreeAccess
service into Canada and we plan to expand this service into Europe.
. Expand Community. Our pending acquisition of Raging Bull is part of
our plan to expand our community offerings. Based upon data obtained
from Media Metrix, Raging Bull was second among all web sites in
average unique page views per user for the month of October 1999.
Raging Bull is best known for its finance message boards and will
assist us in building our Web-wide communities in other important
areas such as politics, health, sports, games and technology. We plan
to integrate all these capabilities into the AltaVista network.
Additionally, we currently have a rich community section of AltaVista
Live! with clubs, photo albums and voice chat among other features.
Users can build their own homepages and photo albums, chat with
friends around the world, build clubs for their favorite hobbies and
develop message boards to stay in touch with people worldwide.
. Member Loyalty Programs. We are developing an AltaVista member loyalty
program to reward frequent users of our network. We plan to launch
this program in the first quarter of 2000. In addition, we will be
offering an AltaVista-branded credit card through an agreement with
Fleet Credit Card Services, the eighth largest bank credit card issuer
in the United States. Cardholders will be able to earn points based on
usage of various AltaVista services and on purchases made from
AltaVista Shopping.com's network of qualified merchants. Cardholders
can then apply their points toward purchasing products from AltaVista
Shopping.com.
44
<PAGE>
. Promote the AltaVista Brand. We believe that building an emotionally
embraced brand is critical to our goal of adding to our existing 45 million
unique monthly users and increasing our attractiveness to merchants and
advertisers. We intend to significantly increase our focus on building
brand awareness through an extensive advertising campaign spanning print,
radio, television and Internet media.
. Pursue Global Expansion Opportunities. We believe the global opportunity to
expand our business is significant. International users have been accessing
our central www.altavista.com web site and utilizing its multi-lingual
search capabilities for several years. Currently, over half of the searches
on AltaVista Search originate outside the United States. We intend to
address this opportunity by building an international organization and
seeking strategic partners that can extend the AltaVista network throughout
the world. In addition, we plan to aggressively expand our global reach by
adding more local web sites with country- specific content to our
international network.
. Pursue Strategic Acquisitions and Relationships. We intend to continue to
pursue strategic acquisitions and relationships that can provide
complementary content, features and functionality and increase our user
base. Additionally, to further advance and promote our web sites we expect
to leverage our relationship with CMGI to form strategic relationships
with, and integrate services and features offered by, CMGI's Internet
operating companies and affiliates.
. Capitalize on Next Generation Technologies. We believe we are prepared to
capitalize on the proliferation of handheld and other innovative Internet
access devices and on the penetration of wireless and broadband
technologies. Specifically, we plan to introduce a wireless interface to
our web sites and have developed a prototype of a wireless shopping agent
that will allow users to perform in-store product and price comparisons
from a wireless Internet-enabled device like 3Com's Palm Pilot. Our
AltaVista Live! and AltaVista local web sites offer a rich multimedia
perspective and position us well for distribution and usage with broadband
services like DSL and cable modem. In addition, we are working with CMGI,
Compaq and several telecommunications companies to develop wireless and
broadband offerings that we plan to implement and offer both in the United
States and internationally.
. Increase Revenues Through User Profiling, Targeting and Expanding Internal
Advertising Sales Capabilities. We plan to aggressively expand our internal
sales organization to increase our effectiveness at generating revenues
from our traffic and maintain closer relationships with our key advertisers
and strategic partners. We recently increased our sales staff from five in
July 1999, to 35 as of December 1, 1999. We are also implementing precision
profiling technology to generate increased revenues by better understanding
our users and providing them with more relevant offers and advertisements.
AltaVista Services
We offer a wide variety of Internet services, directly and through
partners, free of charge to Web users. Our network of services include:
AltaVista Search
AltaVista Search is our core Internet navigation and search service. We
believe that our search technology is one of the fastest, most robust tools
available for finding personally relevant information on the Internet. Users
can search for information on the Internet by entering their desired
information request in a series of keywords or in the form of a natural-
language question. Our service quickly responds to requests for information by
searching our large index of web pages, applying our proprietary algorithm for
sorting and classifying relevancy, and returning a list of search results. Our
users can further narrow their desired information requests by performing
advanced searches that give them the ability to search for information within
certain date ranges or to specifically search for one of eight possible
sources of information: web pages, categories, news, discussions, products,
images, audio or video.
As of December 1999, AltaVista Search had an index of over 250 million web
pages in more than 25 languages. In addition to being large, our index is
frequently updated. We explore the Internet intelligently,
45
<PAGE>
maintain a database that records how often pages are updated and remove
obsolete links to ensure current information.
AltaVista Search is extremely fast, responding to most queries in less than
a second. We believe we also deliver highly accurate and relevant results due
to our proprietary ranking algorithm, a complex formula that evaluates
possible search results based on several key attributes, such as the
popularity and quality of the web page and the frequency of the requested
text's appearance. We partner with Ask Jeeves and RealNames to provide our
users with the ability to search using natural-language questions or brand
names in addition to standard keyword searches.
We believe our multimedia search capabilities are distinctive. Currently, a
user can search through a database of 25 million images, audio clips and video
clips obtained from a combination of general Internet indexing and licensed
private collections such as those from Virage and Corbis. We are significantly
expanding our multimedia capabilities and expect this expansion to be more
central to our business as we expand our broadband offerings.
Another important feature of AltaVista Search is its ability to search for
information in 25 foreign languages. Our search engine was the first with the
ability to search the Internet for words in foreign languages and across both
domestic and international web pages, and continues to offer this capability
in more foreign languages than any other search engine. Through our
partnership with Systran, a leading provider of language translation software,
our users can also choose to translate web pages into French, Spanish, German,
Italian or Portuguese, or translate sites in those five languages back to
English. Our users also have the ability to translate any search result into
the same five languages.
AltaVista Live!
AltaVista Live! is our real-time, personalized information and news service
offering an attractive, personalized destination for AltaVista network users.
This destination centralizes numerous Internet resources into one web site,
integrating our search platform, seven content channels and other useful,
dynamic resources. AltaVista Live! provides breaking news, real-time stock
quotes, live sports scores, weather and local information, links to other
AltaVista services such as AltaVista Search, AltaVista Shopping.com and free
communications services such as instant messaging and e-mail.
Links to our content channels are an integral part of AltaVista Live!. Our
content channels combine original content with content we receive through
numerous strategic relationships in order to provide a dynamic, real-time
resource for news and information across numerous topics. AltaVista Live!
currently carries content in seven channels:
. Money. Our money channel delivers content related to personal finance
matters, business news, and the stock market. Among the distinct features
of the web site are access to live stock quotes, up-to-the-minute news
and analysis and the ability for users to personalize the web page to
track their personal stock portfolios. Further, we offer a real-time,
personalized notification service that alerts users to changes in their
stock portfolios. In November 1999, we agreed to acquire Raging Bull.
Raging Bull is a leading community and content web site dedicated to
finance and stock market information, with editorial content and more
than 10,000 dynamic discussion boards. Based upon data from Media Metrix,
Raging Bull was second among all web sites in average unique page views
per user for the month of October 1999. Raging Bull has grown to a
community of more than 1.7 million unique users and 300,000 registered
members.
. News. Our news channel delivers up-to-the-minute news by topic, by region
or by news source. The news channel covers areas of interest, including
national, international, money, technology, sports, entertainment,
health, politics, life & leisure, human rights, and travel and other
human interest, as well as major events. We provide our content through
relationships with the world's leading news sources, including The
Associated Press, The New York Times, Washington Post, ZDNet, and
Reuters.
46
<PAGE>
. Sports. Our sports channel is dedicated to sports news, real-time scores
and information. Users can easily search for sports news by utilizing
specialized links to AltaVista Live! sports web pages focused on specific
sports, leagues and teams.
. Travel. Our travel channel is an online resource for users to make travel
plans. The channel's content includes news and headlines that may affect
travel plans and tips for travelers from industry resources and
columnists. In addition, through our relationship with TheTrip.com, our
travel channel enables our users to book flights, cars and hotels,
research popular destinations, and save money through special travel
promotions.
. Careers. Our career channel is a resource for information related to
personal career advice and job-hunting information. The channel's content
includes feature articles and columns related to careers, job hunting and
the job market; tools such as a salary calculator and career workshops;
resources such as interviewing, resume writing, networking and other job
hunting tips; and discussion groups related to careers. In addition, we
provide content, resources and advice for employers and self-employed
workers. The channel also gives users the ability to post their resumes
and have them viewed by potential employers.
. Health. Our health channel, through a relationship with
HealthCentral.com, is a centralized resource for information on health,
medicine and preventive care. The channel offers our users original
content from nationally-acclaimed medical broadcaster Dean Edell, M.D.,
as well as HealthCentral's health risk assessment tools and topic centers
for health and medical issues. We expect one of the key features of our
health channel will be the Ask the Doctor section where users have access
to Dr. Edell. Our health channel will also feature a customized health
risk assessment and personal health record, the latest health and
wellness news, and access to a large online multimedia library spanning
more than 6,000 topics.
. Entertainment. Our entertainment channel offers an Internet destination
for entertainment news and information, including music, movies, games
and pop culture content as well as adventure sports such as skiing,
snowboarding, hiking and adventure/recreational travel.
47
<PAGE>
Much of the content on AltaVista Live!'s channels comes from leading
industry news and information providers. The following table shows some of our
content providers according to type of content they provide us:
News and Weather Entertainment
.Associated Press .Mondo Media
.AccuWeather.com .Small World
.Fastv.com .Stats Inc.
.latimes.com .Thingworld
.MyWay.com .Yack.com
.The New York Times on the Web
.Reuters Multimedia
.Washingtonpost.Newsweek Interactive .Corbis
.InterVU
Business and Finance .Lipstream
.BigCharts .Tibco
.Briefing.com .Tribal Voice
.BusinessWire.com .Virage
.CBS Marketwatch.com
.CSI Other
.Dow Jones.com .Cammunity
.Edgar Online .Critical Path
.Hoovers .Experts Exchange
.Industry Standard .Switchboard.com
.Investment Challenge.com .Systran
.JagNotes .TheTrip.com
.Morningstar.com
.Nasdaq
.NYSE
.NetEarnings
.PR NewsWire
.Raging Bull
.On24
.S&P Comstock
.ZDNet
One of the unique features of our content channels is that we deliver
content real-time and live. We are the first portal to deliver around-the-
clock production of timely and appropriate content tuned to the time of day.
Our AltaVista Live! service operates 24 hours a day, with a staff of producers
and editors. AltaVista Live! also operates with a day/night programming model
where different news and information is delivered depending on their relevancy
to the time of day. For example, on our finance channel, from 6 a.m. until 9
a.m. Eastern time, content is focused on pre-market news and commentary;
during market hours we provide live market updates; after the market's close
we provide market recaps and previews of international markets; and overnight
we deliver coverage of international markets.
In addition to providing a wealth of real-time content, we further enhance
our users' experience by enabling them to personalize their AltaVista Live!
web site through our My Live! service. My Live! allows our users to build
their own portal using content modules selected from AltaVista Live!, enabling
users to specify exactly what layout and content is most relevant to them. My
Live! allows users to organize their personal portal with a variety of layouts
and gives them a choice of several content sources. My Live! extends our
community features, which include personal photo albums and message boards,
online chat capabilities and clubs associated with
48
<PAGE>
various hobbies. The many content features of AltaVista Live! that users can
arrange and customize include:
. news and information
. real-time stock quotes and portfolio and market tracking
. sports scores
. lottery numbers
. weather
. web cameras
. horoscopes
. local information
. maps and directions
. live Internet chats
. links to user-specified web pages
. personal photographs
AltaVista Live! offers unique personalization capabilities which allow
users to insert local information and services onto their customized home
pages. Through our relationship with Zip2, these services include:
. local yellow pages
. local business searches for a variety of businesses including florists,
book stores, health clubs and child care
. restaurant searches based on type of cuisine or type of venue
. local TV listings
. weather
. maps and directions
. local movie theaters and showtimes
AltaVista Shopping.com
AltaVista Shopping.com is a complete, objective comparison shopping service
that provides information on millions of products offered by both online and
offline merchants. AltaVista Shopping.com enables users to search the Internet
for products, review and compare products and retailers, get recommendations
and gift ideas, and make actual purchases. AltaVista Shopping.com provides
links to numerous products, sorted by 20 categories including apparel and
accessories, books, computer hardware and software, furniture, jewelry, office
supplies, music, toys, and sports and fitness equipment, among others. Each
product category has an individual page dedicated to it, with product-specific
search capabilities and links to specialized retailers. Our core AltaVista
Shopping.com service allows users to:
. Find Products--We have integrated AltaVista's search technology into
AltaVista Shopping.com to enable our users to search for products and
online and offline retailers. Customers can search by specifying certain
criteria, such as the type of product, features they are looking for,
particular brands,
49
<PAGE>
and price ranges. Users are presented with a list of relevant products.
Users can also refine their search by simply clicking on one of AltaVista
Shopping.com's various departments, ranging from consumer electronics to
clothing to housewares to toys.
. Compare Features and Prices--Shopping.com gives users the ability to
compare products based on numerous, product-specific features. Upon
receiving product search results, users can specify which products are
most relevant and compare them based on individual features. For example,
a customer interested in buying a television set can search under
different criteria and choose specific brands and models from the search
results to compare. AltaVista Shopping.com will then display the narrowed
group of products and compare them based on such specific features as
sound, screen size, color and length of warranty.
. Read Reviews and Ratings--In addition to comparison of features and
prices, AltaVista Shopping.com allows customers to read reviews and
ratings of various products. We provide expert and consumer product
reviews through our relationships with ZDNet and ConsumerReviews.com, and
supply merchant ratings through BizRate.com.
. Buy Products--Shopping.com provides direct links to retailers, enabling
users to complete their purchase after using our service to find the
product they are looking for. AltaVista Shopping.com additionally sells
some products directly through its own retailing business. In addition,
if users choose to buy from offline retailers, AltaVista Shopping.com
provides information such as the address of and directions to these
retailers.
Free Communications Services
Internet Access. We provide free, unlimited Internet access across the
United States and Canada. Users can download and install a file onto their
computers that gives them Internet access featuring an AltaVista Live! home
page and featuring our microportal product. The microportal allows users to
easily navigate the Web through a small micro-browser that remains open as a
separate screen window without disrupting the user's browsing or other desktop
activities. Acting as a constant gateway to users' most desired information,
the screen window provides links to premier AltaVista services and displays
rotating, customizable content. Through one-click access, users can get
information about world events, news, sports, financial information, stock
quotes, weather updates, TV listings and local content. In return for free
Internet access, users must periodically interact with advertisements. Our
free Internet access service includes extensive customer support including 24
hour phone and e-mail support. We partner with 1stUp, an affiliate of CMGI, to
provide these services.
Instant Messaging. Based on technology developed by Tribal Voice, an
affiliate of CMGI, AltaVista Messenger is a real-time instant messaging
capability that we expect will significantly advance open, interoperable, Web-
wide instant messaging systems on the Internet. AltaVista Messenger was
announced in December 1999, and is compatible with MSN Messenger and AT&T
WorldNet messaging clients. AltaVista Messenger is free of charge and offers
multiple features, including text messaging; instant voice messaging; a list
that allows users to keep track of their online friends regardless of the
instant messaging system they use; a Web cruise capability that allows users
to guide the browser of the person with whom they are communicating; multi-
person real-time chat and game playing; and file exchanges.
E-Mail. We provide free e-mail services to our registered users. These
users can set up a personal mailbox enabling them to send and receive
electronic mail via an easy-to-use interface throughout the AltaVista Internet
portal.
Strategic Alliances
We have entered into a number of strategic alliances and advertising
agreements with technology, marketing and online companies in an effort to
expand our product and services offerings and grow our user base. We
50
<PAGE>
intend to continue developing these alliances with the goal of continually
expanding the features and functionality of the AltaVista portal and providing
Web users with the information and services they desire.
DoubleClick
In November 1999, we entered into an interim advertising services agreement
effective from January 1, 2000 through December 31, 2000 with DoubleClick,
which temporarily suspends an agreement we had entered into with DoubleClick
in January 1999. In January 2001, the agreement entered into in January 1999
will once again be effective unless a successor agreement is signed. As a
result of our plans to aggressively expand our internal sales organization and
develop closer relationships with our key advertisers, the interim agreement
with DoubleClick provides for us to maintain and service some key advertising
accounts previously serviced by DoubleClick. The interim agreement allows
DoubleClick to continue to sell advertisements throughout our network
including web sites acquired by us, such as those operated by Raging Bull.
Under the terms of the interim agreement, DoubleClick will provide us with the
right to use its DART service software to target and measure delivery of
advertising. All advertising placed on our web site by us or DoubleClick,
other than static advertising, will be delivered exclusively by DoubleClick
through the DART service. During the term of the interim agreement,
DoubleClick will be our sole and exclusive representative with respect to
advertising. With the exception of ten accounts to be designated by
DoubleClick, we have the right to designate 60 advertising accounts on January
1, 2000 as well as 30 more each subsequent quarter and designate them as
AltaVista accounts. We may sell advertising directly to these AltaVista
accounts within certain limits. In addition, within certain limitations, we
may sell advertising to affiliates of CMGI that are not competitors of
DoubleClick, provided such companies use the DART service.
Notwithstanding our exclusive relationship with DoubleClick, the interim
agreement permits us to enter into an arrangement with Engage Technologies,
Inc., an affiliate of CMGI, to sell advertising impressions for banners to
advertisers who are unaware of the specific web sites that their
advertisements will appear in, often referred to as white label advertising.
We may allow Engage to sell white label advertising within certain limits,
provided Engage uses the DART service. Both DoubleClick and AltaVista retain
the right to sell certain non-banner advertising to international advertisers
under the interim agreement. In addition, all unsold advertising inventory may
be bartered by us. During the term of the interim agreement, we will pay to
DoubleClick a DART services fee for all advertising delivered by DoubleClick
to our web sites and sales commissions.
The interim agreement terminates in December 2000, but may be terminated
earlier by us if DoubleClick is acquired by one of our competitors or if
DoubleClick is not among the top three centralized Internet advertisement
delivery companies based on a market analysis of a period of not less than 180
days.
The advertising and services agreement, entered into in January 1999, will
replace the interim agreement in January 2001 and be effective until December
2001. As in the interim agreement, we will pay to DoubleClick a DART services
fee for all advertising delivered by DoubleClick to our web sites and a sales
commission. We may also designate up to 200 advertising accounts as accounts
for which we will have the exclusive right to sell banner, badges, buttons,
toolboxes and text links located on certain web sites to domestic advertisers,
subject to certain requirements.
The agreement we entered into in January 1999 may be terminated by us if
DoubleClick is acquired by one of our competitors or if DoubleClick is not
among the top three centralized Internet advertisement delivery companies
based on a market analysis of a period of not less than 180 days.
1stUp.com
In June 1999, we entered into a strategic alliance agreement with 1stUp.Com
Corporation, an affiliate of CMGI. Under the terms of the agreement, 1stUp
will provide free Internet access to users of AltaVista's Internet web sites
through AltaVista FreeAccess. AltaVista FreeAccess is powered by patent-
pending technology from 1stUp and the required software may be downloaded from
the AltaVista web sites. Approximately
51
<PAGE>
700,000 people have activated our free Internet access program since the
launch of AltaVista FreeAccess in August 1999. AltaVista Live! is the
permanent home page displayed every time an AltaVista FreeAccess user logs
onto the Internet, giving users instant access to web sites of customizable
content and services available on the AltaVista network. 1stUp will receive a
fee for each impression leading to an AltaVista web page and 1stUp will pay us
a portion of adjusted revenues it receives from advertisers and sponsors
through AltaVista FreeAccess. In June 1999, we also entered into a rewards
service agreement with 1stUp. Under the terms of the agreement, 1stUp will
design and maintain software that allows users to view advertisements and
various types of reward banners. The strategic alliance agreement and rewards
service agreement have terms that extend through June 2001.
Compaq
In June 1999, CMGI entered into an agreement with Compaq to define various
aspects of the relationship between CMGI and Compaq. Under the agreement,
subject to certain exclusions, Compaq will preprogram up to four instant
Internet keyboard buttons, based on the total number of these buttons, on each
Presario-branded, including successor brands or sub-brands, consumer desktop
and portable personal computer, so that when a user presses the button, the
user is directed to the applicable CMGI-designated web sites. For example, if
designated by CMGI and preprogrammed by Compaq, the search button would direct
the user to the search area of our web site. Compaq will also preprogram
instant Internet keyboard buttons on any Compaq-only branded consumer-oriented
Internet appliances subject to the same exclusions as the instant Internet
keyboard buttons, as long as the designated CMGI web sites are competitive in
price and performance. In addition, when an instant Internet keyboard button
described above is preprogrammed to our home page, the home link for the
Internet browser that is bundled with these Compaq computers will also be
linked to our home page. We reimburse CMGI for fees CMGI pays to Compaq based
on the amount of redirected user traffic.
Compaq has the right to terminate these arrangements if the AltaVista
portal fails to be one of the 12 most trafficked web sites for four
consecutive months, as measured in terms of unique visitors at home and at
work, by Media Metrix. Media Metrix estimates the amount of user traffic on
web sites by monitoring the monthly activity of selected user groups and
expanding the results across the number of potential users. Actual usage may
differ materially from statistics provided by Media Metrix. If we experience
reduced traffic to our web sites or any inaccuracies in Media Metrix estimates
cause traffic to our web sites to be underestimated when compared to other web
sites, then Compaq could terminate its arrangement with CMGI, which could
seriously harm our business.
CMGI has agreed not to display advertisements for Compaq competitors on
CMGI web pages or products that are linked to or redirected directly from
Compaq web sites or computers. Subject to certain conditions, Compaq and its
affiliates will designate our search engine as the exclusive Internet search
service offered or promoted on Compaq web sites provided that we maintain a
competitive search service as determined by industry standards agreed to by
CMGI and Compaq. However, this arrangement terminates, at Compaq's election,
upon a change of control of AltaVista. For all Compaq products which contain
instant Internet keyboard buttons or other features labeled or otherwise
dedicated to a search engine, such as an Internet browser, subject to licensor
approval, Compaq will not redirect users to any search engine other than
AltaVista Search.
Compaq may disclose to CMGI new technology that it develops which may be of
interest to us or CMGI for incorporation into the AltaVista web sites. If CMGI
is interested in licensing such technology, CMGI has an option period of 30
days from the date of disclosure during which CMGI can acquire a non-exclusive
license to use that technology on the AltaVista web sites for a one-time fee
set by Compaq.
This agreement expires in May 2002. CMGI has the option to extend the
agreement for one additional year upon the same terms as the prior year if
CMGI has met or exceeded an agreed upon revenue target for payments to Compaq,
or is willing to pay Compaq the shortfall and the AltaVista web sites are
among the top five trafficked web sites as determined by Media Metrix. Each
subsequent year CMGI and Compaq will agree on appropriate revenue and traffic
targets required for CMGI to have an additional one-year renewal option. We
are not a party to, or a named third-party beneficiary of, the agreement
between CMGI and Compaq. Therefore, CMGI and Compaq may amend the agreement,
even in ways that could harm our business, without our consent.
52
<PAGE>
HealthCentral.com
In September 1999, we entered into a three-year agreement with
HealthCentral.com, Inc., an owner and provider of web sites, which provides
access to health content, information and e-commerce. Under the terms of the
agreement, HealthCentral.com is the exclusive domestic health content provider
for the AltaVista Health channel, provided it delivers the content we desire
within a given time period. The agreement with HealthCentral.com allows us to
provide our users with the ability to search for information on health,
medicine, preventive care and to purchase prescriptions and health-related
products. As the exclusive provider of healthcare content within our health
channel, HealthCentral.com offers our users original content from nationally-
acclaimed medical broadcaster Dean Edell, M.D., as well as HealthCentral.com's
health risk assessment tools and topic centers for health and medical issues.
We expect one of the key features of our health channel will be the Ask the
Doctor section where users have access to Dr. Edell. Our health channel also
features a customized health risk assessment and personal health record, the
latest health and wellness news, and access to a large online multimedia
library spanning more than 6,000 topics. Under the terms of the agreement, we
will not display any advertisements of any HealthCentral.com competitor on the
AltaVista Health channel. We also guarantee a certain number of
HealthCentral.com advertising impressions for every year of the agreement.
Over the term of the agreement, HealthCentral.com will pay us up to $65
million in cash and stock if we deliver a minimum number of advertising
impressions. In addition, HealthCentral.com has agreed to issue us warrants to
purchase its common stock if we meet higher performance thresholds. If we fail
to deliver the minimum advertising impressions, HealthCentral.com reduces its
payments to us.
The agreement has a three-year term, but may be terminated earlier by
HealthCentral.com if we fail to deliver at least 50% of the guaranteed number
of advertising impressions for any six-month period and by either party after
two years.
Fleet Credit Card Services
In November 1999, we entered into an agreement with Fleet Credit Card
Services, L.P., the eighth largest bank card issuer in the United States with
more that eight million customers, to offer a co-branded AltaVista credit
card. We expect to offer the new credit cards through Fleet to United States
consumers in early 2000. Cardholders will automatically be eligible to earn
points for every dollar they spend through the new AltaVista Incentive Rewards
Program. Rewards for every card purchase will be offered toward products on
AltaVista Shopping.com and its affiliate partners on a wide selection of
computer products, electronics, music, videos, books and other consumer
merchandise. We will also offer incentives for shopping at dozens of stores so
that consumers can take full advantage of our intelligent shopping process
that helps users compare prices, availability and ratings for online products
and retailers.
Fleet has agreed to provide an Internet purchase guarantee, which protects
cardholders against liability in the event of unauthorized transactions on any
of our web sites. In addition, cardholders will be able to take advantage of
convenient online services to check current balances and transaction history.
Fleet will be the sole and complete owner of the accounts and will have the
sole and complete responsibility and discretion to establish and change from
time to time any and all of the financial or other terms and conditions
applicable to the accounts. During the term of the agreement, Fleet will be
our exclusive credit card provider. We are also obligated to provide a minimum
number of Fleet advertising impressions every year of the agreement. The
agreement has a term of three years from the date of launch of the co-branded
credit card, but may be terminated during specified periods by either party if
the other does not meet its targets under the agreement.
Over the term of the agreement Fleet will pay us an aggregate of up to $34
million, based on a minimum number of advertising impressions. Under the terms
of the agreement, we also have the opportunity to earn up to an additional $16
million, based on the number of accounts opened with Fleet and the aggregate
amount of transactions completed.
53
<PAGE>
Marketing and Public Relations
AltaVista's marketing efforts employ a mix of media to reach the Company's
target audience, utilizing television advertising, radio, magazine, newspaper,
on-line sponsorships and link deals, online and offline promotions and direct
marketing. We also engage in proactive media and public relations to ensure
that both the press and industry are well appraised of AltaVista's web site
innovations, network development, and other noteworthy information.
Operations and Technology
Our business operations and computer systems are designed for high
performance, scalability, and reliability. We manage computing operations for
serving web pages in several facilities. We plan to consolidate West Coast
facilities and expand our computing capabilities in the Eastern United States,
Europe and other key regions around the world. Fault tolerance is a key
element in our operational design at every level, including architectural and
geographic redundancy.
In 1999, we have spent more than $30 million on computing systems and other
technology. We rely on two fundamental computing platforms. AltaVista Search
runs on a large number of Digital/Compaq Alpha multiprocessor computers
running UNIX. AltaVista Shopping.com and AltaVista Live! run on a large number
of interoperable Compaq Proliant Windows/NT multiprocessor computers. Both
platforms are modular, scalable architectures. Our search platform has already
been modified and packaged in several forms for various commercial purposes.
We maintain our own customer service and support organizations at our
locations in Irvine and San Mateo. The largest customer service organization
is in Irvine, California and supports AltaVista Shopping.com. This group
handles phone, fax and e-mail inquiries from customers or potential customers.
Governmental Regulation
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to access to online
commerce. However, due to the increasing popularity and use of the Internet,
new laws and regulations are under consideration in the United States and
internationally, addressing issues such as intellectual property, personal
privacy, pricing, content, advertising, taxation and characteristics and
quality of Internet products and services. The application of existing laws
and regulations governing Internet issues such as intellectual property
ownership and infringement, defamation, obscenity and personal privacy is also
subject to substantial uncertainty. New government laws and regulations, or
the application of existing laws and regulations, may expose us to significant
liabilities, significantly slow Internet growth and otherwise affect our
financial performance.
Intellectual Property
Most of our intellectual property has been contributed by Compaq. To
protect our rights to intellectual property, we rely, and we believe the
contributors relied, on a combination of patent, trademark and copyright law,
trade secret protection, misappropriation and anti-piracy laws,
confidentiality agreements and other contractual arrangements with our
employees, affiliates, clients, strategic partners and others. The protective
steps we and the contributors have taken may have been inadequate and may
continue to be inadequate to deter infringement or misappropriation of our
intellectual property and proprietary information. We may also be unable to
detect the unauthorized use of, or take appropriate steps to enforce, our
intellectual property rights.
As of December 1, 1999, we had over 70 patents and pending patent
applications. These patents and patent applications are generally directed at
the search technology that is used on our web sites, as well as related
inventions. We and our predecessors may not have sought protection for
technologies that may be or may become important to our business. In addition,
the technologies we have sought to protect may not be adequately protected by
patents.
54
<PAGE>
We also have numerous trademark registrations in the United States and
abroad which are generally directed at protecting our core brands and selected
sub-brands. We will file several more trademark registrations in the United
States and abroad directed at the same type of protection.
We may be unable to obtain or maintain intellectual property protection or
registrations in geographies or markets that are important to our success.
Further, we may not have selected the proper intellectual property for which
to seek protection. In addition, effective patent, trademark, copyright and
trade secret protection may not be available in every country in which we
offer or intend to offer our services. The protections we have sought may be
inadequate.
Competition
The Internet portal market is highly competitive, and we expect competition
will continue to intensify. Many companies currently offer directly
competitive products or services addressing Web search and navigation,
including America Online, CNET, Direct Hit, Excite, the Go Network, Google,
HotBot, Inktomi, Lycos, Microsoft Network, Northern Light and Yahoo!. The size
of the Web index, the speed with which search results return and the relevance
of results are factors which, among others, determine a portal's success. Many
of our existing competitors, as well as a number of potential new competitors,
have significant financial, technical, marketing and distribution resources,
which may enable them to increase the speed and relevance of their search
results. As the market for Internet and Intranet search and navigational
services develops, other companies may be expected to offer similar services
and directly and indirectly compete with us for advertising revenues.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand name recognition, greater
access to proprietary content and significantly greater financial, marketing
and other resources. In addition, our competitors may be acquired by, receive
investments from or enter into commercial relationships with larger, well-
established and well-financed companies as use of the Internet and other
online services increases. New technologies and the expansion of existing
technologies may also increase competitive pressures.
Through our AltaVista Shopping.com retail business, we sell a select number
of products directly to consumers. The e-commerce industry is new, rapidly
evolving and intensely competitive, and we expect competition to intensify
further. Competitors include Amazon.com, Buy.com, DealTime, mySimon, CBS
StoreRunner and Value America. Barriers to entry are minimal, allowing current
and new competitors to launch new web sites at a relatively low cost.
Some of our competitors may be able to obtain merchandise from vendors on
more favorable terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing or inventory availability policies
and devote substantially more resources to web site and systems development
than we can. Increased competition may result in reduced operating margins,
loss of market share and our value may be diminished. Further, as a strategic
response to changes in the competitive environment, we may, at various times,
make pricing, service or marketing decisions that could harm our business.
Employees
As of November 30, 1999, we had approximately 635 full-time employees, of
whom approximately 209 worked in Palo Alto, California, 139 in San Mateo,
California, 224 in Irvine, California, seven in Canada, 19 in Europe and the
remainder in various other locations in the United States.
We have never had a work stoppage and no personnel are represented under
collective bargaining agreements. We consider our relations with our employees
to be good.
55
<PAGE>
Facilities
Our headquarters, which we own, is located in Palo Alto, California and
consists of approximately 48,000 square feet. We also lease office space in
several locations in California, including Palo Alto, San Mateo, Irvine,
Stockton, and Corona Del Mar and in Chicago, Illinois. We also currently lease
space for computing operations in several locations in California, including
Palo Alto, Mountain View, Santa Clara, Scotts Valley, Sunnyvale, Irvine and
Stockton and in New York, New York and Andover, Massachusetts.
Legal
We are not a party to any material legal proceedings.
56
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers
and directors as of November 30, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Rodney W. Schrock....... 40 Chief Executive Officer, President and Director
Kenneth R. Barber....... 54 Vice President and Chief Financial Officer
Ross Levinsohn.......... 36 Vice President and General Manager--AltaVista New Media
Stephanie A. Lucie...... 37 Vice President, General Counsel and Corporate Secretary
Gregory B. Memo......... 35 Vice President and General Manager--AltaVista Search
Michael G. Rubin........ 33 Vice President and General Manager--AltaVista e-Commerce
David S. Wetherell...... 45 Chairman of the Board of Directors
Flint J. Brenton........ 43 Director
John G. McDonald........ 62 Director
Avram Miller............ 54 Director
Robert J. Ranalli....... 62 Director
</TABLE>
Rodney W. Schrock has served as President and Chief Executive Officer of
AltaVista since January 1999 and as a director since May 1999. In 1998, he
served as Senior Vice President and Group General Manager, Consumer Products
Group of Compaq. Mr. Schrock was elected Vice President of the Presario PC
Division on May 1995 and spent 12 total years in various positions at Compaq.
He has also worked for Apple Computer and IBM Corporation.
Kenneth R. Barber has served as Vice President of AltaVista since March
1999 and Chief Financial Officer of AltaVista since January 1999. Prior to
this position, he served as Vice President of Finance for the Tandem Business
Unit of Compaq. At the time of the Compaq acquisition of Tandem Computers
Incorporated in August 1997, Mr. Barber was Senior Vice President of Finance
and Administration, which position he had held since January 1997. Prior to
moving to Tandem, he was Vice President of Plans and Controls of ROLM
Corporation since February 1989.
Ross Levinsohn has served as Vice President and General Manager of
AltaVista New Media since May 1999. From May 1996 to May 1999, he was Vice
President of Programming and Executive Producer of CBS Sportsline. From August
1990 to May 1996, he was Director of Production and Marketing Enterprises at
Home Box Office.
Stephanie A. Lucie has served as Vice President, General Counsel and
Corporate Secretary of AltaVista since January 1999. She served as Vice
President and Associate General Counsel, as well as Senior Counsel and
Corporate Counsel at Compaq since May 1995. Ms. Lucie served as Assistant
General Counsel at Transco Energy Company from September 1994 until May 1995.
Gregory B. Memo has served as Vice President and General Manager of
AltaVista Search since May 1999. Prior to this position, he served as Vice
President and General Manager, Technology, Strategy and Corporate Development
from January 1999. He was Vice President and General Manager of the Consumer
Mobile Products Division at Compaq from February 1998 until January 1999. Mr.
Memo also served in several roles at Compaq, including Director of Business
Planning and Director of Product Marketing from February 1994 to February
1998.
Michael G. Rubin has served as Vice President and General Manager of
AltaVista e-commerce of AltaVista since January 1999. From February 1998 to
January 1999, he served as General Manager of the Consumer Desktop Division
for Compaq. From June 1993 to February 1998, Mr. Rubin served in a variety of
roles at Compaq, including Director of Product Marketing and Director of
Internet Strategy of the Consumer Products Group.
57
<PAGE>
David S. Wetherell has served as a director and Chairman of AltaVista since
August 1999. Mr. Wetherell has served as Chairman of the Board, President,
Chief Executive Officer and Secretary of CMGI since 1986 and as a member of
CMG@Ventures I, LLC, a venture capital firm subsidiary of CMGI, and President
of CMG@Ventures, Inc., the managing member of CMG@Ventures I, LLC, since
January 1995. He is also a managing member of CMG@Ventures II, LLC,
CMG@Ventures III, LLC and @Ventures Management, LLC, which also are strategic
investment and development venture capital subsidiaries or affiliates of CMGI.
Mr. Wetherell also serves on the boards of directors of Engage Technologies,
Inc. and NaviSite, Inc., each an affiliate of CMGI.
Flint J. Brenton has served as a director of AltaVista since August 1999
and as Vice President of e-Commerce for Compaq since August 1999. Prior to
joining Compaq, he served as Director of Product Development for BMC Software
from July 1996 to August 1999. Mr. Brenton was General Manager of
Houston/London Operation of I-Net, Inc from January 1995 to July 1996. He also
serves as director of Harris County Salvation Army.
John G. McDonald has served as a director of AltaVista since May 1999. Dr.
McDonald is The IBJ Professor of Finance in the Graduate School of Business at
Stanford University, where he has been a faculty member since 1968. He teaches
MBA courses in investment, entrepreneurial finance and the Internet. In 1987,
he was elected to the Board of Governors of the NASD in Washington, D.C. In
1989, he was elected Vice Chairman of the NASD Board of Governors. Dr.
McDonald serves as an independent director of Varian, Inc., Scholastic Corp.,
Plum Creek Timber Co., Starwood Financial, Inc., and eight mutual funds
managed by Capital Research & Management Co.
Avram Miller has served as a director of AltaVista since August 1999. Mr.
Miller has served as the Chief Executive Officer of The Avram Miller Company,
a strategy and business development corporation since June 1999. Prior to this
position, he served as Vice President and Director of Corporate Business
Development for Intel Corporation from September 1984 to April 1999. Mr.
Miller is a director of CMGI, Inc. He also serves as Chairman Emeritus of the
Board of Directors of Plugged-In, a non-profit organization, and is a member
of the Board of Trustees for the California Institute of the Arts.
Robert J. Ranalli has served as a director of AltaVista since August 1999.
Mr. Ranalli retired from AT&T in 1994. He had been President of AT&T
Multimedia Services. Mr. Ranalli served as president of AT&T Consumer
Communications Services, Inc., and Chairman of the Board of both AT&T
Universal Card Services Corp. and AT&T Transtech Corp. from 1990 to 1994. He
serves on the boards of CMGI, Sterling Network Group, and DirectAg.com.
Board Committees
We have established an Audit Committee and a Compensation Committee. The
Audit Committee reviews our internal accounting procedures and considers and
reports to the Board of Directors with respect to other auditing and
accounting matters, including the selection of our independent auditors, the
scope of annual audits, fees to be paid to our independent auditors and the
performance of our independent auditors. The Audit Committee currently
consists of John G. McDonald and Robert J. Ranalli. The Compensation Committee
reviews and recommends to the Board of Directors the salaries, benefits and
stock option grants of all employees, consultants, directors and other
individuals compensated by us. The Compensation Committee also administers our
stock option and other employee benefit plans. The Compensation Committee
currently consists of John G. McDonald and Avram Miller.
Director Compensation
We do not pay cash retainers or meeting fees to our directors. We reimburse
our directors for all out-of-pocket expenses incurred in the performance of
their duties as directors of AltaVista. We have granted non-qualified stock
options to our directors who are not AltaVista employees pursuant to our stock
option plans.
58
<PAGE>
Directors Plan
In September 1999, the board of directors adopted and our stockholders
approved our 1999 Stock Option Plan for Non-Employee Directors, pursuant to
which 250,000 shares of our common stock were reserved for issuance, subject
to adjustment in the event of stock splits and other similar events. This plan
was amended in October 1999. As of the date of amendment, this plan was
replaced by the Amended and Restated 1999 Directors Plan. Notwithstanding this
replacement, all then-outstanding options under this plan remain in effect, in
accordance with their terms. This plan is administered by the Compensation
Committee of our board of directors, which committee is sometimes referred to
as the "plan administrator." The plan administrator may interpret the
Directors Plan and, subject to its provisions, may prescribe, amend and
rescind rules and make all other determinations necessary or desirable for the
administration of the Directors Plan. In addition, the plan administrator may,
in its discretion, accelerate the vesting of any option or options granted
under this plan.
In the event we undertake any merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, appropriate and proportionate adjustments
will be made to (1) the securities reserved for issuance under the Directors
Plan, (2) the number and kind of securities subject to future grants under the
plan and (3) the number, kind and exercise price of the securities underlying
options outstanding at the time of such occurrence. All outstanding options
granted under the Directors Plan will immediately become exercisable in full
upon a change in control of AltaVista.
Amended and Restated 1999 Directors Plan
In October 1999, the board of directors adopted and our stockholders
approved our Amended and Restated 1999 Stock Option Plan for Non-Employee
Directors, pursuant to which 1,000,000 shares of our common stock are reserved
for issuance, subject to adjustment in the event of stock splits and other
similar events. The Amended Directors Plan will be administered by the
Compensation Committee of our board of directors, which committee is sometimes
referred to as the "plan administrator." The plan administrator may interpret
the Amended Directors Plan and, subject to its provisions, may prescribe,
amend and rescind rules and make all other determinations necessary or
desirable for the administration of the Amended Directors Plan. The plan
administrator reserves the right to suspend or terminate the Amended Directors
Plan or amend it in any respect whatsoever. In addition, the plan
administrator may, in its discretion, accelerate the vesting of any option or
options granted under the Amended Directors Plan.
All of our directors are eligible to receive non-statutory stock options to
purchase shares of our common stock under this Plan, except for any director
who (1) is an employee of AltaVista or any of our subsidiaries or affiliates
or (2) unless otherwise determined by our board of directors, is an affiliate,
employee or designee of an institutional or corporate investor that owns more
than 5% of our outstanding common stock. Under this plan:
. we will grant an initial option to acquire 125,000 shares of our common
stock to each eligible director who is elected a director for the first
time after the plan is adopted on the date of that election;
. we also will grant an initial option to acquire 125,000 shares of our
common stock to each eligible director who
. ceases being an affiliate, employee or designee of an institutional
or corporate investor that owns more than 5% of our outstanding
common stock and
. is not otherwise an employee of us or any of our subsidiaries, but
. remains as a member of our board on the date the director's
affiliate, employee or designee status ceases
We will also grant, on each anniversary of the grant of the initial option,
to each eligible director an additional option to purchase 31,250 shares of
common stock if the director is still serving as one of our directors
59
<PAGE>
on that anniversary date. Our board of directors may, in its discretion,
increase to up to 175,000 shares the aggregate number of shares of common
stock subject to any initial option or additional options so long as the
maximum aggregate number of shares that may vest for any optionee in any 48-
month period will not exceed 175,000 shares.
The option exercise price per share for each option granted under this plan
will be determined on the date of grant and will be equal to the closing price
of our common stock on a national securities exchange or as quoted on the
Nasdaq National Market, the average of the closing bid and asked prices of our
common stock in the over-the-counter market or the fair market value of our
common stock as determined by our board. Except as otherwise provided in the
applicable option agreement, each option granted under this plan will
terminate on the tenth anniversary of the date of grant of such option.
Subject to the optionee continuing to serve as one of our directors, each
initial option will vest and become exercisable as to 1/48th of the number of
shares of common stock originally subject to the option on each monthly
anniversary of the date of grant. Each annual option will vest and become
exercisable on a monthly basis as to 1/12th of the number of shares originally
subject to the option commencing on the 37th month after the grant date if the
optionee is still serving as a director on that monthly anniversary date.
In the event we undertake any merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, appropriate and proportionate adjustments
will be made to (1) the securities reserved for issuance under this plan, (2)
the number and kind of securities subject to future grants under the plan and
(3) the number, kind and exercise price of the securities underlying options
outstanding at the time of such occurrence. All outstanding options granted
under this plan will immediately become exercisable in full upon a change in
control of AltaVista.
Compensation Committee Interlocks and Insider Participation
Except as described below, no member of our Compensation Committee serves
as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving as a member of our board of
directors or Compensation Committee. Avram Miller, a member of our
Compensation Committee, is a member of the board of directors of CMGI, and
David S. Wetherell, the chairman of our board of directors, is the chairman of
the board of directors of CMGI and an executive officer of CMGI. Additional
information concerning transactions between AltaVista and entities affiliated
with members of the Compensation Committee is included in this prospectus
under the caption "Certain Relationships and Related Transactions."
60
<PAGE>
Executive Compensation
The following table indicates information concerning compensation of our
Chief Executive Officer and our four most highly compensated executive
officers other than the Chief Executive Officer whose salary and bonus
exceeded $100,000 for the fiscal year ended July 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation(a) Compensation
-------------------- ------------
Securities
Underlying All Other
Name and Principal Position Salary ($) Bonus ($) Options (#) Compensation ($)
- --------------------------- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C>
Rodney W. Schrock
Chief Executive Officer,
President and Director... 193,250 -- 1,000,000(b) 139,023(c)
Kenneth R. Barber
Vice President and
Chief Financial Officer.. 146,712 -- 200,000 3,548(d)
Ross Levinsohn
Vice President and General
Manager--AltaVista
New Media................. 37,949 400,000(e) 160,000 --
Gregory B. Memo
Vice President and General
Manager--AltaVista
Search.................... 98,353 25,000(e) 225,000(f) 70,216(g)
Michael G. Rubin
Vice President and General
Manager--AltaVista
e-Commerce................ 96,922 25,000(e) 225,000 88,916(h)
</TABLE>
- --------
(a) Annual compensation reflects the actual amounts of salary and bonuses paid
to these executive officers from January 1, 1999 through July 31, 1999. As
of July 31, 1999, the annual salaries of Messrs. Schrock, Barber,
Levinsohn, Memo and Rubin were $350,000, $225,000, $200,000, $175,000 and
$170,000. Mr. Schrock is eligible to receive an annual bonus of up to 50%
of his annual base compensation. Each other executive officer named above
is eligible to receive a bonus of up to 35% of his annual base
compensation. Mr. Levinsohn is eligible to receive a $300,000 bonus in
January 2000 if he is employed by us at that time and remains employed by
us through January 2001.
(b) Mr. Schrock converted 125,000 of these options into 42,237 options to
purchase CMGI common stock.
(c) Represents aggregate payments of $131,812 related to relocation expenses
and an aggregate of $7,211 of matching contributions made by Compaq and
AltaVista under the Compaq and AltaVista 401(k) plans.
(d) Represents the aggregate amount of contributions made by Compaq and
AltaVista under the Compaq and AltaVista 401(k) plans.
(e) Represents a signing bonus.
(f) Mr. Memo converted 25,000 of these options into 8,447 options to purchase
CMGI common stock.
(g) Represents aggregate payments of $65,991 related to relocation expenses
and an aggregate of $4,225 of matching contributions made by Compaq and
AltaVista under the Compaq and AltaVista 401(k) plans.
(h) Represents aggregate payments of $83,951 related to relocation expenses
and an aggregate of $4,965 of matching contributions made by Compaq and
AltaVista under the Compaq and AltaVista 401(k) plans.
Option Grants In Last Fiscal Year
The following table provides information concerning grants of options to
purchase our common stock made during the fiscal year ended July 31, 1999 to
the executive officers named in the "Summary Compensation Table." In the
fiscal year ended July 31, 1999, we granted options to purchase up to an
aggregate of 9,686,425 shares to employees, directors and consultants. These
options were granted pursuant to the 1999 Stock Option Plan. These options
have a term of ten years. Generally, options vest at the rate of 25% of the
total number of shares on the first anniversary of the date of grant and
thereafter ratably on a monthly basis for 36 months, provided that, in the
event of a change in control of AltaVista prior to January 31, 2000, 25% of
the shares subject to option will vest and be immediately exercisable, and
provided further, that in the event optionee's employment is terminated by us
without cause or by optionee for good reason within six months following a
change in control, an additional 25% of the share subject to option will vest
and be immediately exercisable. CMGI's acquisition of approximately 81.5% of
our common stock in August 1999 constituted a change of control.
61
<PAGE>
The potential realizable values are based on an assumption that the price
of our common stock will appreciate at the compounded annual rate shown from
the date of grant until the end of the option term. These values do not take
into account amounts required to be paid as income taxes under the Internal
Revenue Code and any applicable state laws or option provisions providing for
termination of an option following termination of employment, non-
transferability or vesting. These amounts are calculated based on the
requirements promulgated by the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth of the shares of our common
stock.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------
Potential Realizable
Value at Assumed
Percent of Annual Rates of
Number of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Market Option Term
Option Employees in Price Per Price Expiration ----------------------
Name Granted Fiscal Year Share Per Share Date 5% 10%
- ---- ---------- ------------ --------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rodney W. Schrock....... 1,000,000(a) 11.53% $ 8.75 $10.00 1/31/2009 $5,502,828 $13,945,247
Kenneth R. Barber....... 200,000 2.31 8.75 10.00 1/31/2009 1,100,566 2,789,049
Ross Levinsohn.......... 160,000 1.84 8.75 10.00 1/31/2009 880,452 2,231,239
Gregory B. Memo......... 225,000(b) 2.59 8.75 10.00 1/31/2009 1,238,136 3,137,680
Michael G. Rubin........ 225,000 2.59% $ 8.75 $10.00 1/31/2009 $1,238,136 $ 3,137,680
</TABLE>
- --------
(a) Mr. Schrock converted 125,000 of these options into 42,237 options to
purchase CMGI common stock at an exercise price of $25.90 per share.
(b) Mr. Memo converted 25,000 of these options into 8,447 options to purchase
CMGI common stock at an exercise price of $25.90 per share.
Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values
The following table describes for the executive officers named in the
"Summary Compensation Table" the exercisable and unexercisable options held by
them as of July 31, 1999. No options were exercised by these executive
officers during the fiscal year ended July 31, 1999.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options Held at In-The-Money Options at
July 31, 1999 July 31, 1999
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Rodney W. Schrock........... -- 1,000,000 -- $20,130,000
Kenneth R. Barber........... -- 200,000 -- 4,026,000
Ross Levinsohn.............. -- 160,000 -- 3,220,800
Gregory B. Memo............. -- 225,000 -- 4,529,250
Michael G. Rubin............ -- 225,000 -- $ 4,529,250
</TABLE>
The "Value of Unexercised In-the-Money Options at July 31, 1999" is based
on a value of $28.88 per share, the fair market value of our common stock as
of July 31, 1999, as determined by the board of directors, less the per share
exercise price, multiplied by the number of shares issued upon exercise of the
option.
1999 Employee Stock Purchase Plan
In December 1999, the board of directors adopted and our stockholders
approved our 1999 Employee Stock Purchase Plan, which allows eligible
employees, which may include employees located in foreign jurisdictions, to
purchase our common stock at a discount from fair market value. A total of
2,000,000 shares of common stock has been reserved for issuance under the
Purchase Plan.
The Purchase Plan will be administered by the Compensation Committee of our
board of directors, which committee is sometimes referred to as the "plan
administrator." The plan administrator may interpret the Purchase Plan and,
subject to its provisions, may prescribe, amend and rescind rules and make all
other determinations necessary or desirable for the administration of the
Purchase Plan.
62
<PAGE>
The Purchase Plan will be implemented by establishing purchase periods that
may be three-months, six-months or other periods as determined by the plan
administrator. The Purchase Plan will be implemented at different dates in
different countries with the initial purchase period in the first locations
not anticipated to begin before the closing of this offering.
Employees are generally eligible to participate if they are employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year although we may impose an eligibility period
of up to two years of employment before an employee is eligible to
participate. In no event may an employee be granted the right to purchase
stock under the Purchase Plan if the employee (1) immediately after the grant
would own stock possessing 5% or more of the total combined voting power or
value of all classes of our capital stock, or (2) holds rights to purchase
stock under any of our employee stock purchase plans that together accrue at a
rate which exceeds $25,000 worth of stock for each calendar year. The Purchase
Plan permits each employee to purchase common stock through payroll deductions
of up to 10% of the employee's "pay." Pay is defined as an employee's base
cash pay, excluding variable cash payments, paid for services rendered, plus
an employee's pre-tax contributions which are part of deferred pay or benefit
plans maintained by us, with any modifications determined by the plan
administrator. The maximum number of shares an employee may purchase during a
single purchase period is 2,500 shares.
Amounts deducted and accumulated by employees are used to purchase shares
of common stock at the end of each purchase period. The price of the common
stock offered under the Purchase Plan is an amount equal to 85% of the lower
of the fair market value of the common stock at the beginning or at the end of
each purchase period. Employees may end their participation in the Purchase
Plan at any time during a purchase period, in which event, any amounts
withheld through payroll deductions and not otherwise used to purchase shares
will be returned to them. Participation ends automatically upon termination of
employment with us. Rights granted under the Purchase Plan are not
transferable by an employee other than by will or the laws of descent and
distribution.
The Purchase Plan provides that, in the event of a proposed sale of all or
substantially all of our assets, or a merger or consolidation with or into
another corporation, at the discretion of the plan administrator, (1) each
outstanding right under the Purchase Plan will be assumed or an equivalent
right will be substituted by the successor corporation (or parent or
subsidiary thereof), (2) all outstanding rights will be exercised on a date
established by the plan administrator before the date of consummation of such
sale, merger or consolidation, or (3) all outstanding rights will terminate
and the accumulated payroll deductions will be returned to employees without
interest. In the event any change is made in our capitalization, such as a
stock split or stock dividend, which results in an increase or decrease in the
number of outstanding shares of common stock, appropriate adjustments will be
made to the shares available for issuance under the Purchase Plan, the maximum
number of shares each participant may purchase and the price of the option.
The Purchase Plan will terminate in 2009. Our board of directors has the
authority to amend or terminate the Purchase Plan, except that no amendment or
termination may adversely affect any outstanding rights under the Purchase
Plan.
1999 Stock Option Plan
In May 1999, the board of directors adopted and our stockholders approved
our 1999 Stock Option Plan to promote our interests and the interests of our
stockholders by (1) attracting and retaining exceptional employees,
consultants and directors; (2) motivating such employees, consultants and
directors by means of performance-related incentives to achieve long-range
performance goals; and (3) enabling such employees, consultants and directors
to participate in our long-term growth and financial success. The Option Plan
covers an aggregate of 20,000,000 shares of our common stock and provides for
the issuance of stock options and stock appreciation rights. This plan was
terminated in September 1999. Notwithstanding this termination, all then-
outstanding options under the Option Plan will remain in effect in accordance
with their terms. In the event an optionee's employment is terminated by us
without cause or by the optionee for good reason within six months following a
change in control, an additional 25% of the shares subject to the option will
vest and be immediately exercisable.
The Option Plan will be administered by the Compensation Committee of our
board of directors, which committee is sometimes referred to as the "plan
administrator." The plan administrator may interpret the
63
<PAGE>
Option Plan and, subject to its provisions, may prescribe, amend and rescind
rules and make all other determinations necessary or desirable for the
administration of the Option Plan.
In the event that the plan administrator determines that any dividend or
other distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, exchange of shares, issuance of warrants or other rights to
purchase shares, or other similar corporate transaction or event affects the
shares such that an adjustment is determined by the plan administrator to be
appropriate in order to prevent dilution or enlargement of the benefits, then
the plan administrator will adjust (1) the number of shares or other
securities with respect to which awards may be granted under the Option Plan,
(2) the maximum number of shares or other securities with respect to which an
executive officer may be granted under the Option Plan in any calendar year,
(3) the number of shares or other securities subject to outstanding awards,
and (4) the grant or exercise price with respect to outstanding awards, or, if
deemed appropriate, make provision for the payment of cash or other property
to the holder of an outstanding award in consideration for the cancellation of
such award; provided, however, that such adjustments shall be made solely by
the board with respect to awards to eligible directors.
The terms of the Option Plan provide that the plan administrator may amend,
suspend or terminate the plan at any time, provided, however, that certain
amendments require approval of our stockholders.
1999 Equity Incentive Plan
In September 1999, the board of directors adopted and our stockholders
approved our 1999 Equity Incentive Plan to attract and retain key employees
and consultants, to provide an incentive for them to achieve long-range
performance goals and to enable them to participate in our long-term growth.
The Equity Plan, together with our other stock option plans, covers an
aggregate of 20,000,000 shares of our common stock and provides for the
issuance of stock options, stock appreciation rights and restricted stock. All
grants of options, other than pursuant to the Amended Directors Plan, will be
granted pursuant to this plan. The maximum number of shares subject to options
or stock appreciation rights that may be granted to any participant in any
calendar year may not exceed 1,000,000 shares, subject to adjustment.
The Equity Plan will be administered by the Compensation Committee of our
board of directors, which committee is sometimes referred to as the "plan
administrator." The plan administrator may interpret the Equity Plan and,
subject to its provisions, may prescribe, amend and rescind rules and make all
other determinations necessary or desirable for the administration of the
Equity Plan. The Equity Plan permits the plan administrator to select the
participants who will receive awards and generally to determine the terms and
conditions of such awards.
Two types of stock options may be granted under the Plan: incentive stock
options, which are intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended, and non-qualified stock options. The option
price of each non-qualified stock option granted under the Equity Plan may not
be less than the par value of a share of our common stock. The option price of
each incentive stock option granted under the Equity Plan must be at least
equal to the fair market value of a share of our common stock on the date the
incentive stock option is granted.
A stock appreciation right granted under the Equity Plan entitles its
holder to receive, at the time of exercise, an amount per share equal to the
excess of the fair market value, at the date of exercise, of a share of our
common stock over a specified price fixed by the plan administrator. Stock
appreciation rights and limited stock appreciation rights may be granted under
the Equity Plan either alone or in conjunction with all or part of any stock
option granted under the Equity Plan. A limited stock appreciation right
granted under the Equity Plan entitles its holder to receive, at the time of
exercise, an amount per share equal to the excess of the change in control
price of a share of common stock over a specified price fixed by the plan
administrator.
The plan administrator will determine the terms and conditions with respect
to the grant of restricted stock. With respect to restricted stock,
participants generally have all of the rights of a stockholder with respect to
such stock.
64
<PAGE>
In the event we undergo a change in control, the plan administrator may (1)
provide for the acceleration of any time period relating to the exercise or
payment of the award, (2) provide for payment to the participant of cash or
other property with a fair market value equal to the amount that would have
been received upon the exercise or payment of the award had the award been
exercised or paid upon the change in control, (3) adjust the terms of the
award in a manner determined by the plan administrator to reflect the change
in control, (4) cause the award to be assumed, or new rights substituted
therefor, by another entity or (5) make such other provision as the plan
administrator may consider equitable to participants and in our best
interests.
The terms of the Equity Plan provide that the plan administrator may amend,
suspend or terminate the Equity Plan at any time, provided, however, that no
such action may be taken which adversely affects any rights under outstanding
awards without the holder's consent.
Severance Agreements
We have entered into severance arrangements with each of our executive
officers. The terms of the severance agreements provide that in the event the
executive is terminated within six months following a change in control other
than for cause, by reason of the executive's death or disability or by the
executive for good reason, we will (1) pay to executive a lump sum severance
payment equal the executive's annual base salary as in effect immediately
prior to the date of termination, or if higher, as in effect immediately prior
to the first occurrence of an event or circumstance constituting good reason;
(2) accelerate the vesting of all the executive's outstanding options, subject
to the executive executing and delivering a Stock Purchase, Restriction, Buy-
Back and Right of First Refusal Agreement and such outstanding options will be
fully exercisable for a period of one year following the date of termination;
(3) will continue to pay the mortgage subsidy agreed between us and the
executive for the life of such subsidy, if applicable; and (4) subject to
certain limitations, will arrange to provide the executive and his dependents
life, disability, accident and health insurance benefits substantially similar
to those provided to the executive and his dependents immediately prior to the
date of termination, or if more favorable to the executive, those provided to
the executive immediately prior to the first occurrence of an event or
circumstance constitute good reason. In the event any payment or benefit
received by executive in connection with a change in control or termination of
employment would not be deductible by us, the severance benefits shall be
reduced to the extent necessary to make such payments or benefits deductible
by us.
Deferred Compensation Plan
A Deferred Compensation Plan was approved and adopted by our board of
directors in December 1999, to be effective upon completion of this offering.
Under the terms of the deferred compensation plan, AltaVista employees who are
selected by our board of directors will be able to elect to defer a portion of
their compensation for the following calendar year. Participants in the
deferred compensation plan will be able to defer up to 25% of their salary and
100% of their bonus compensation, which amounts will be paid out at a later
date at the participant's election. AltaVista also may make discretionary
contributions to a participant's account, to which the participant generally
will become entitled after five years of service with us. AltaVista will
maintain a bookkeeping account to track deferred amounts, which amounts will
be credited with gains or losses based on the performance of deemed investment
alternatives made available to participants under the deferred compensation
plan. In addition, in the event of a change in control, as defined in our
Deferred Compensation Plan, participants may be entitled to receive a lump sum
payment of the amount credited to his or her deferral account thereunder as of
the valuation date immediately preceding the date on which the change in
control occurs.
65
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with CMGI
As of October 31, 1999, CMGI owned approximately 81.69% of our common
stock. CMGI will directly own approximately % of our common stock upon
completion of this offering.
CMGI has the power to elect the majority of our board of directors and to
approve or disapprove any corporate transactions or other matters submitted to
our stockholders for approval, including the approval of mergers or other
significant corporate transactions. CMGI may exercise its voting power by
written consent, without convening a meeting of the stockholders, meaning that
CMGI will be able to effect a sale or merger of AltaVista without prior notice
to, or the consent of, our other stockholders.
AltaVista and CMGI have entered into or, upon or prior to completion of
this offering, will enter into the present and prospective arrangements and
transactions described below. These agreements were or will be negotiated
between CMGI, as a corporate parent, and AltaVista, its subsidiary, and
therefore are not the result of negotiations between independent parties.
AltaVista and CMGI intend that these agreements and the transactions provided
for in these agreements, taken as a whole, accommodate their respective
interests in a manner that is fair to both AltaVista and CMGI. However,
because of the nature of the relationship between AltaVista and CMGI, we
cannot assure you that each of the agreements described below, or the
transactions provided for in these agreements, were or will be effected on
terms at least as favorable to AltaVista as AltaVista could have obtained from
unaffiliated third parties.
AltaVista and CMGI may enter into additional or modified arrangements and
transactions in the future. AltaVista and CMGI will negotiate the terms of
such arrangements and transactions. Upon or prior to completion of this
offering, AltaVista expects to adopt a policy that all future arrangements
between AltaVista and CMGI other than routine commercial transactions entered
into in the ordinary course of business, will be on terms that AltaVista
believes are no less favorable to it than the terms AltaVista believes would
be available from unaffiliated parties and must be approved by a majority of
AltaVista's directors who are not employees of CMGI, even though such
directors may be less than a quorum.
The following is a summary of the material arrangements and transactions
between AltaVista and CMGI or its affiliates.
Debt Conversion
We have issued a convertible demand note to CMGI as payment for all
intercompany debt incurred by us to CMGI. CMGI may elect to convert amounts
payable under the note into Series A convertible preferred stock at any time.
Under the note, intercompany debt accrues interest at a rate of 7% per year,
compounded monthly until the day CMGI elects to convert the debt into shares
of Series A convertible preferred stock. The amount of each borrowing
represented by the note is convertible from time to time into the number of
shares of Series A convertible preferred stock equal to one-tenth of the
quotient of:
. the aggregate number of principal and interest to be so converted,
divided by
. the applicable conversion price for that fiscal quarter.
The conversion price applicable to advances made in any fiscal quarter,
except advances made in the fiscal quarter during which a qualified initial
public offering occurs and advances converted into Series A convertible
preferred stock in the same fiscal quarter in which they were made, is
determined by dividing our total enterprise value as of the fiscal quarter
end, as determined in good faith by our board of directors, by the number of
shares of common stock outstanding on a fully diluted, as-if-converted basis.
Each share of Series A convertible preferred stock outstanding will convert
into ten shares of common stock upon the completion of this offering.
66
<PAGE>
We currently owe CMGI $ million, which amount will be converted into
shares of preferred stock immediately prior to the closing of this offering.
Upon the closing of this offering, all outstanding shares of this preferred
stock will be converted into shares of our common stock. We do not expect
to borrow funds from CMGI after completion of this offering.
Facilities and Administrative Support Agreement
Upon or prior to completion of this offering, we will enter into a
facilities and administrative support agreement with CMGI under which CMGI
will continue to make available to us space at its headquarters in Andover,
Massachusetts and at other facilities in Europe and will provide various
services to us, including rent and facilities, Internet marketing and business
development.
The initial term of this agreement will be one year from the date of the
agreement, with automatic renewals at the end of the initial term and each
renewal term for successive one-year periods. Either party will be permitted
to terminate the facilities and administrative support agreement upon 30 days,
written notice to the other party prior to the expiration of the applicable
term. The facilities and administrative support agreement will automatically
terminate upon the date CMGI owns less than 50% of our outstanding voting
capital stock.
The fees payable by us for the availability of space and other services are
typically determined through an allocation of CMGI's costs based upon the
proportion of our employee headcount to the total headcount of CMGI and other
CMGI affiliates located in the same facility or using the same services. Under
the facilities and administrative support agreement, we will pay CMGI a
monthly fee reflecting the cost of the services provided by CMGI based on the
total number of our employees and consultants on the last day of that month.
Tax Allocation Agreement
Upon or prior to completion of this offering, we will enter into a tax
allocation agreement with CMGI to allocate responsibilities, liabilities and
benefits relating to taxes. We will be required to pay our share of income
taxes shown as due on any consolidated, combined or unitary tax returns filed
by CMGI for tax periods ending on or before or including the date as of which
we will no longer be a member of CMGI's group for federal, state or local tax
purposes, as the case may be. CMGI will indemnify us against liability for all
taxes in respect of consolidated, combined or unitary tax returns for periods
as to which CMGI is filing group returns which include us. Accordingly, any
redetermined tax liabilities for those periods will be the responsibility of
CMGI, and any refunds or credits of taxes attributable to us or our
subsidiaries in respect of consolidated, combined or unitary tax returns for
those periods will be for the account of CMGI. We will be responsible for
filing any separate tax returns for any taxable period and will be responsible
for any tax liabilities, and entitled to any refunds or credits of taxes, with
respect to separately filed tax returns. We will indemnify CMGI against any
tax liability with respect to separately filed tax returns.
Neither CMGI nor us will have any obligation to make any payment to the
other party for the use of the other party's tax attributes, such as net
operating losses. However, if one party realizes a windfall tax benefit
because of an adjustment to items on the other party's tax return, the party
that realizes the windfall tax benefit will be required to pay to the other
party the actual incremental tax savings it has realized. For example, if an
expense deducted by CMGI for a period prior to the closing date were
disallowed and required to be capitalized by us for a period after the closing
date, thereby generating future depreciation deductions to us, we would be
required to pay to CMGI any incremental tax savings as a result of the
depreciation deductions when those tax savings are actually realized by us.
Each of AltaVista and CMGI has control of any audit, appeal, litigation or
settlement of any issue raised with respect to a tax return for which it has
filing responsibility. Payments of claims under the agreement must be made
within 30 days of the date that a written demand for the claim is delivered.
Interest accrues on payments that are not made within ten days of the final
due date at the rate applicable to underpayments of the applicable tax. Any
dispute concerning the calculation or basis of determination of any payment
provided under the tax
67
<PAGE>
allocation agreement will be resolved by a law firm or "big five" accounting
firm selected and paid for jointly by the parties.
Investor Rights Agreement
Upon or prior to completion of this offering, we will enter into an
investor rights agreement with CMGI under which we will grant CMGI
registration rights and rights to purchase shares to maintain its majority
ownership. Under this agreement, CMGI and its assignees will have the right to
demand, on up to two occasions, that AltaVista register the sale of all or
part of their shares of our common stock having an aggregate value of at least
$10 million under the Securities Act. In addition, at any time after we become
eligible to file a registration statement on Form S-3 under the Securities
Act, CMGI and its assignees will have the right to request, on up to five
occasions, that we effect a registration of their shares of our common stock
having an aggregate value of at least $2.5 million on Form S-3. CMGI and its
assignees also are entitled to include shares of our common stock in a
registered offering by us of our securities for our own account, subject to
the underwriters' right to reduce the number of included shares. We will pay
all costs associated with the registration of shares by us pursuant to this
agreement, other than underwriting discounts and commissions and various other
expenses.
Also under this agreement, until such time as CMGI, or any permitted
transferee, owns less than a majority of voting power of the outstanding
shares of our capital stock, we will permit CMGI, or the transferee, to
purchase a portion of any shares that we may in the future issue so that CMGI
or the transferee will maintain its majority ownership position. Any such
purchases will be at the same price as is paid by third parties for the
shares. This right is transferable by CMGI to any party that acquires directly
from CMGI shares of common stock representing at least a majority of the
outstanding shares of our common stock.
Transactions with CMGI Affiliates
CMGi Solutions. On December 1, 1999, we entered into a source code
licensing agreement with CMGi Solutions, Inc. Under this agreement, CMGi
Solutions has licensed a clientside software application called AltaVista
Alert and its required server-side software for us to use in the course of our
business. In connection with this agreement we will pay CMGi Solutions a one-
time license fee of $150,000 by December 31, 1999 and a monthly recurring
license fee based on peak simultaneous online users.
Critical Path. On September 14, 1999, we entered into an 18-month e-mail
services agreement with Critical Path Inc. Under this agreement, Critical Path
provides e-mail outsourcing services to us which we offer free to registered
users. We have engineered our site so that users can activate their mailbox
from the AltaVista site and can subsequently get access to their e-mail box
without logging in again if they are logged in to the AltaVista site. Under
this agreement we pay Critical Path based upon the number of mailboxes
existing on the Critical Path system at the end of each month and upon the
features activated on the mailbox.
Engage. On October 10, 1999, we entered into a three-year alliance
agreement with Engage Technologies, Inc. Under this agreement, we license
Engage's profile technology for use throughout our network and we make
available certain of our advertising inventory for Engage's sale of
advertising through its AudienceNet. Under the agreement, we paid Engage $1
million in license and maintenance fees. We will also pay Engage up to
$1 million in consulting fees and $500,000 in annual maintenance fees for each
of the second and third years of the agreement. We will also pay up to a
maximum of $8 million to Engage for usage of Engage Local profiles.
iAtlas. On September 28, 1999, CMGI acquired iAtlas Corporation in a stock-
for-stock exchange. To enhance our search service with iAtlas' filtering
technology, on October 22, 1999, we acquired iAtlas from CMGI for a total
consideration of 1,197,221 shares of our common stock.
NaviSite. On September 4, 1998, we entered into a services agreement with
NaviSite. Under this agreement, NaviSite provides to us various Internet
services that include hosting, setup and management, load balancing and web
statistical reporting.
68
<PAGE>
Raging Bull. On November 23, 1999, we entered into a merger agreement with
Raging Bull. Under the merger agreement, Raging Bull agreed to merge with a
wholly owned subsidiary of ours, subject to receipt of approval by the
stockholders of Raging Bull and other closing conditions. We have agreed to
issue an aggregate of 5,589,711 shares of our common stock in consideration
for all the outstanding capital stock and stock options of Raging Bull. Ten
percent of the shares of our common stock to be issued to stockholders of
Raging Bull, however, will be held in escrow to secure certain indemnification
obligations of Raging Bull and certain stockholders of Raging Bull.
ThingWorld. On October 21, 1999, we entered into a one-year content
licensing agreement with ThingWorld.com LLC. ThingWorld is the creator, owner,
manufacturer and distributor of software products and services that enable
users to create, view, play, search for and collect multimedia digitized
images and sounds. Under this agreement, the first $20,000 of net revenue from
advertising sales on the co-branded web pages will be paid to us, thereafter
all subsequent net revenue will be shared on an equal basis.
Tribal Voice. On September 30, 1999, we entered into a license and
distribution agreement with Tribal Voice, Inc. Under this agreement, Tribal
Voice licensed us to deploy a version of its PowWow live voice chat software.
The agreement grants us a royalty-free license to provide the PowWow software
to our users. In connection with this agreement, we will pay Tribal Voice a
one-time development fee of $15,000 and agreed to share advertising net
revenue.
Vicinity. On May 1, 1998, Digital entered into a Mapping Service and
Linking Agreement with Vicinity Corporation, which agreement was contributed
to us in connection with Compaq's acquisition of Digital. Under this
agreement, Vicinity provided map and driving direction information to us. The
agreement expired on June 30, 1999. In connection with the agreement, we paid
Vicinity $42,000 on August 1, 1998, and $213,000 on July 31, 1999.
Zip2. We have entered into an agreement with Zip2 Corp., which assigns a
co-ownership interest in the Zip2 technology to AltaVista, allowing us to
further develop and enhance the AltaVista Live! service. Zip2 develops, hosts
and maintains web sites based on a technology platform that combines web
operations with local and national content and services. Zip2 has partnered
with the interactive divisions of leading newspaper companies to create
premiere local web destinations that combine popular portal features with the
newspaper company's local content. AltaVista Live! is based on the Zip2
technology which is co-owned by AltaVista and Zip2.
Relationship with Compaq
As of October 31, 1999, Compaq owned approximately 18.28% of our common
stock. Compaq will directly own approximately % of our common stock upon
completion of this offering.
Debt Conversion
We have issued a convertible demand note to Compaq as payment for all
intercompany debt incurred by us to Compaq. Compaq may elect to convert
amounts payable under the note into Series A convertible preferred stock at
any time. Under the note, intercompany debt accrues interest at a rate of 7%
per year, compounded monthly until the day Compaq elects to convert the debt
into shares of Series A convertible preferred stock. The amount of each
borrowing represented by the note is convertible from time to time into the
number of shares of Series A convertible preferred stock equal to one-tenth of
the quotient of:
. the aggregate number of principal and interest to be so converted,
divided by
. the applicable conversion price for that fiscal quarter.
The conversion price applicable to advances made in any fiscal quarter,
except advances made in the fiscal quarter during which a qualified public
offering occurs and advances converted into Series A convertible
69
<PAGE>
preferred stock in the same fiscal quarter in which they were made, is
determined by dividing our total enterprise value as of the fiscal quarter
end, as determined in good faith by our board of directors, by the number of
shares of common stock outstanding on a fully diluted, as-if-converted basis.
Each share of Series A convertible preferred stock outstanding will convert
into ten shares of common stock upon the completion of this offering.
We currently owe Compaq $ million, which amount will be converted into
shares of preferred stock immediately prior to the closing of this offering.
Upon the closing of this offering, all outstanding shares of this preferred
stock will be converted into shares of our common stock. We do not expect
to borrow funds from Compaq after completion of this offering.
Compaq and CMGI Agreement
In June 1999, CMGI entered into an agreement with Compaq to define various
aspects of the relationship between CMGI and Compaq. Under the agreement,
subject to certain exclusions, Compaq will preprogram up to four instant
Internet keyboard buttons, based on the total number of these buttons, on each
Presario-branded, including successor brands or sub-brands, consumer desktop
and portable personal computer, so that when a user presses the button, the
user is directed to the applicable CMGI-designated web sites. For example, if
designated by CMGI and preprogrammed by Compaq, the search button would direct
the user to the search area of our web site. Compaq will also preprogram
instant Internet keyboard buttons on any Compaq-only branded consumer-oriented
Internet appliances subject to the same exclusions as the instant Internet
keyboard buttons, as long as the designated CMGI web sites are competitive in
price and performance. In addition, when an instant Internet keyboard button
described above is preprogrammed to our home page, the home link for the
Internet browser that is bundled with these Compaq computers will also be
linked to our home page. We reimburse CMGI for fees CMGI pays to Compaq based
on the amount of redirected user traffic.
Compaq has the right to terminate these arrangements if the AltaVista
portal fails to be one of the 12 most trafficked web sites for four
consecutive months, as measured in terms of unique visitors at home and at
work, by Media Metrix. Media Metrix estimates the amount of user traffic on
web sites by monitoring the monthly activity of selected user groups and
expanding the results across the number of potential users. Actual usage may
differ materially from statistics provided by Media Metrix. If we experience
reduced traffic to our web sites or if any inaccuracies in Media Metrix
estimates cause traffic to our web sites to be underestimated when compared to
other web sites, then Compaq could terminate its arrangement with CMGI, which
could seriously harm our business.
CMGI has agreed not to display advertisements for Compaq competitors on
CMGI web pages or products that are linked to or redirected directly from
Compaq web sites or computers. Subject to certain conditions, Compaq and its
affiliates will designate our search engine as the exclusive Internet search
service offered or promoted on Compaq web sites provided that we maintain a
competitive search service as determined by industry standards agreed to by
CMGI and Compaq. However, this arrangement terminates, at Compaq's election,
upon a change of control of AltaVista. For all Compaq products which contain
instant Internet keyboard buttons or other features labeled or otherwise
dedicated to a search engine, such as an Internet browser, subject to licensor
approval, Compaq will not redirect users to any search engine other than
AltaVista Search.
Compaq may disclose to CMGI new technology that it develops which may be of
interest to us or CMGI for incorporation into the AltaVista web sites. If CMGI
is interested in licensing such technology, CMGI has an option period of 30
days from the date of disclosure during which CMGI can acquire a non-exclusive
license to use that technology on the AltaVista web sites for a one-time fee
set by Compaq.
This agreement expires in May 2002. CMGI has the option to extend the
agreement for one additional year upon the same terms as the prior year if
CMGI has met or exceeded an agreed upon revenue target for payments to Compaq,
or is willing to pay Compaq the shortfall and the AltaVista web sites are
among the top five trafficked web sites as determined by Media Metrix. Each
subsequent year CMGI and Compaq will agree on appropriate revenue and traffic
targets required for CMGI to have an additional one-year renewal option. We
are not a party to, or a named third-party beneficiary of, the agreement
between CMGI and Compaq. Therefore, CMGI and Compaq may amend the agreement,
even in ways that could harm our business, without our consent.
70
<PAGE>
Compaq Representation on Our Board of Directors
Pursuant to the purchase and contribution agreement, we agreed to elect to
our board of directors a designee named by Compaq. Flint J. Brenton is the
current Compaq designee. In addition, at any meeting of our stockholders at
which members of our board of directors are to be elected and the term of a
member designated by Compaq expires, our board of directors is required to
nominate and recommend to our stockholders a designee named by Compaq. If,
however, Compaq at any time owns less than five percent of our capital stock,
Compaq's rights to designate a member of our board of directors will terminate
and any then current Compaq designee on our board will be required to resign.
Registration Rights Agreement
In connection with CMGI's acquisition of majority ownership of us, we
entered into a registration rights agreement with Compaq with respect to
shares of our common stock retained by Compaq. Pursuant to this agreement,
Compaq and its assignees will have the right to demand, on up to five
occasions, that we register under the Securities Act the sale of all or part
of their shares of common stock having an aggregate value of at least $25
million. Compaq and its assignees also are entitled to include shares of
common stock in a registered offering by us of our securities for our own
account, subject to the underwriters' right to reduce the number of included
shares. We will pay all costs associated with the registration of shares by us
pursuant to this agreement, other than underwriting discounts and commissions
and various other selling expenses.
71
<PAGE>
OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of common stock of AltaVista and CMGI, as of October 31, 1999 and as
adjusted to reflect the sale of our common stock in this offering, by:
. each person known by us to beneficially own more than 5% of our common
stock
. each of our directors
. each executive officer named in the Summary Compensation Table
. all of our directors and executive officers as a group
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except as indicated by the footnotes
below, we believe, based on the information furnished to us, that the persons
and entities named in the tables below have sole voting and investment power
with respect to all shares of common stock shown as beneficially owned by
them, subject to applicable community property laws. Percentage of outstanding
shares of AltaVista common stock is based on 101,232,221 shares of common
stock outstanding as of October 31,1999, and as adjusted to reflect the
issuance of shares of common stock in this offering. The outstanding
shares of our common stock shown as held by CMGI include shares issuable upon
the conversion of our outstanding debt to CMGI as of October 31, 1999. The
percentages of outstanding shares of CMGI common stock are based on
118,666,917 shares of common stock outstanding as of October 31, 1999. In
computing the number of shares of common stock beneficially owned by a person
and the percentage ownership of that person, shares of common stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days of October 31, 1999 are deemed outstanding. These shares,
however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person. Unless otherwise indicated, the
address of each beneficial owner listed below is c/o AltaVista Company, 529
Bryant Street, Palo Alto, California 94301.
<TABLE>
<CAPTION>
Percent of Shares
Outstanding
--------------------
Name and Address of Beneficial Number of Shares Before the After the
Owner Company Beneficially Owned Offering Offering
- ------------------------------ --------- ------------------ ---------- ---------
<S> <C> <C> <C> <C>
CMGI, Inc..................... AltaVista 84,200,142 82.0%
100 Brickstone Square
Andover, Massachusetts 01810
Compaq Computer Corporation... AltaVista 18,504,884 18.3
20555 SH 249 CMGI -- --
Houston,Texas 77070
Rodney W. Schrock............. AltaVista 125,000(a) *
CMGI 20,237(a) *
Kenneth R. Barber............. AltaVista 50,000(a) *
CMGI -- --
Ross Levinsohn................ AltaVista 40,000(a) *
CMGI -- --
Gregory B. Memo............... AltaVista 31,250(a) *
CMGI 8,447(a) *
Michael G. Rubin.............. AltaVista 56,250(a) *
CMGI -- --
David S. Wetherell............ AltaVista 84,200,142(b) 82.0
CMGI 17,776,828(c) 14.8
Flint J. Brenton.............. AltaVista -- --
CMGI -- --
John G. McDonald.............. AltaVista 40,625(a) *
CMGI -- --
Avram Miller.................. AltaVista 84,208,017(d) 82.0
CMGI 75,200(a) *
Robert J. Ranalli............. AltaVista 84,208,017(e) 82.0
CMGI 80,400(a) *
All directors and executive
officers as a group (11 per-
sons)........................ AltaVista 84,592,767(f) 82.0
CMGI 17,964,601(g) 14.9%
</TABLE>
- --------
* Indicates beneficial ownership of less than 1% of the common stock.
72
<PAGE>
(a) Consists of shares issuable upon the exercise of options that are
currently exercisable or exercisable within 60 days of October 31, 1999.
(b) Consists of shares owned by CMGI. Mr. Wetherell disclaims beneficial
ownership of all 82,692,337 shares owned by CMGI.
(c) Includes 1,345,888 shares issuable upon the exercise of options that are
currently exercisable. Also includes 8,466,336 shares held by North
Andover LLC and 23,372 shares held by Mr. Wetherell and his wife, as
trustees for the David S. Wetherell Charitable Trust. Mr. Wetherell
disclaims beneficial ownership of the 8,489,708 shares held by North
Andover LLC and in trust, except to the extent of his pecuniary interest
in North Andover LLC.
(d) Includes 7,875 shares issuable upon exercise of options that are currently
exercisable or exercisable within 60 days of October 31, 1999. Also
includes 84,200,142 shares owned by CMGI. Mr. Miller disclaims beneficial
ownership of all 84,200,142 shares owned by CMGI.
(e) Includes 7,875 shares issuable upon the exercise of options that are
currently exercisable or exercisable within 60 days of October 31, 1999.
Also includes 84,200,142 shares owned by CMGI. Mr. Ranalli disclaims
beneficial ownership of all 84,200,142 shares owned by CMGI.
(f) Includes 392,625 shares issuable upon the exercise of options that are
currently exercisable or exercisable within 60 days of October 31, 1999.
(g) Includes 1,533,551 shares issuable upon the exercise of options that are
currently exercisable or exercisable within 60 days of October 31, 1999.
73
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description summarizes certain information regarding the
capital stock of AltaVista. This information does not purport to be complete
and is subject in all respects to the applicable provisions of the Delaware
General Corporation Law, AltaVista's amended and restated certificate of
incorporation and AltaVista's bylaws.
Immediately following the closing of this offering, the authorized capital
stock of AltaVista will consist of 1,500,000,000 shares of common stock, $.01
par value per share, and 5,000,000 shares of preferred stock, $.01 par value
per share. Immediately following the closing of this offering, shares
of common stock will be issued and outstanding and no shares of preferred
stock will be issued and outstanding.
Common Stock
Each share of common stock entitles the holder thereof to one vote on all
matters submitted to a vote of stockholders, including the election of
directors. There is not cumulative voting in the election of directors;
consequently, the holders of a majority of the outstanding shares of common
stock can elect all of the directors then standing for election.
Holders of common stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by the board of directors out of
funds legally available therefor. Holders of common stock have no conversion,
redemption or preemptive rights to subscribe to any securities of AltaVista.
All outstanding shares of common stock are, and the shares to be sold in this
offering when issued and paid for will be, validly issued, fully paid and
nonassessable. In the event of any liquidation, dissolution or winding-up of
the affairs of AltaVista, holders of common stock will be entitled to share
ratably in the assets of AltaVista remaining after provision for payment of
liabilities to creditors. The rights, preferences and privileges of holders of
common stock are subject to the rights of the holders of any shares of
preferred stock which AltaVista may issue in the future.
Our revised certificate of incorporation provides that special meetings of
stockholders may be called at any time only by the Chairman of our board of
directors, the board of directors, our Chief Executive Officer, President or
holders of at least 40% of the then-outstanding voting power of all shares
entitled to vote in the election of directors. This provision could have the
effect of delaying, deferring or preventing a change in control of our company
or discouraging a potential acquiror from attempting to obtain control of us,
which in turn could adversely affect the market price of our common stock.
Preferred Stock
We currently have outstanding no shares of preferred stock. Immediately
prior to the closing of this offering, we will have outstanding shares of
Series A convertible preferred stock. All such shares of Series A convertible
preferred stock will be held by CMGI and Compaq and will automatically convert
upon the closing of this offering into an aggregate of shares of our
common stock. Additional information concerning the issuance of our
convertible preferred stock to CMGI and Compaq is included in this prospectus
under the captions "Certain Relationships and Related Transactions--
Relationship with CMGI" and "--Relationship with Compaq."
Our revised certificate of incorporation authorizes the board of directors
to create and issue one or more series of preferred stock and determine the
rights and preferences of each series, to the extent permitted by the
certificate of incorporation and applicable law. Among other rights, the board
of directors may determine (1) the number of shares constituting the series
and the distinctive designation of the series; (2) the dividend rate on the
shares of the series, whether dividends will be cumulative, and if so, from
which date or dates, and the relative rights of priority, if any, of payment
of dividends on shares of the series; (3) whether the series shall have voting
rights, in addition to the voting rights provided by law, and if so, the terms
of such voting rights; (4) whether the series shall have conversion
privileges, and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the board of
directors shall determine;
74
<PAGE>
(5) whether or not the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the date or dates upon
or after which they shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates; (6) whether the series shall have a sinking fund
for the redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund; and (7) the rights of the shares of the
series in the event of voluntary or involuntary liquidation, dissolution or
winding-up of AltaVista and the relative rights or priority, if any, of
payment of shares of the series. Except for any difference so provided by the
board of directors, the shares of all series of preferred stock will rank on a
parity with respect to the payment of dividends and to the distribution of
assets upon liquidation.
Registration Rights
Information regarding the registration rights of CMGI and Compaq is
included in this prospectus under the headings "Certain Relationships and
Related Transactions--Relationship with CMGI--Investors Rights Agreement" and
"Certain Relationships and Related Transactions--Relationship with Compaq--
Registration Rights Agreement."
Delaware Anti-takeover Law
Our revised certificate of incorporation contains a provision expressly
electing not to be governed by Section 203 of the Delaware General Corporation
Law. In general, Section 203 restricts some business combinations involving
interested stockholders or their affiliates. An interested stockholder is
defined as any person or entity that is the beneficial owner of at least 15%
of a corporation's voting stock or is an affiliate or associate of the
corporation or the owner of 15% or more of the outstanding voting stock of the
corporation at any time in the past three years. Because of this election,
Section 203 will not apply to us.
Limitation of Liability and Indemnification
Our revised certificate of incorporation limits the liability of our
directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors will not be personally liable for monetary damages for
breach of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to 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 derived an improper personal
benefit
This provision has no effect on any non-monetary remedies that may be
available to us or our stockholders, nor does it relieve us or our officers or
directors from compliance with federal or state securities laws.
Our revised certificate of incorporation also generally provides that we
will indemnify, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit,
investigation, administrative hearing or any other proceeding by reason of the
fact that he or she is or was a director or officer of ours, or is or was
serving at our request as a director, officer, employee or agent of another
entity, against expenses incurred by him or her in connection with that
proceeding. An officer or director will not be entitled to indemnification by
us if:
. the officer or director did not act in good faith and in a manner
reasonably believed to be in, or not opposed to, our best interests
. with respect to any criminal action or proceeding, the officer or
director had reasonable cause to believe his or her conduct was unlawful
75
<PAGE>
In addition, we plan to enter into indemnification agreements with our
directors containing provisions which may require us, among other things, to
indemnify our directors against various liabilities that may arise by virtue
of their status or service as directors and to advance their expenses incurred
as a result of any proceeding against them as to which they could be
indemnified. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
AltaVista pursuant to the foregoing provisions or otherwise, AltaVista has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.
AltaVista's revised certificate of incorporation also permits AltaVista to
secure insurance on behalf of any officer or director for any liability
arising out of his or her actions in such capacity, regardless of whether our
revised certificate of incorporation would otherwise permit indemnification
for that liability. Our officers and directors are currently insured under a
policy procured by CMGI that provides coverage against losses arising from
claims against them for any actual or alleged act, omission, misstatement,
misleading statement, neglect, error or breach of duty by them in their
capacity as officers or directors of AltaVista. We also have obtained our own
liability insurance.
At the present time, there is no pending litigation or proceeding involving
any director, officer, employee or agent of AltaVista in which indemnification
will be required or permitted. We are not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
Transfer Agent and Registrar
American Stock Transfer & Trust Company will serve as our Transfer Agent
and Registrar for our common stock. The transfer agent's address and telephone
number is 40 Wall Street, New York, New York 10005, (212) 936-5100.
Listing
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "ALTA."
76
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Effect of Sales of Shares
Prior to this offering, no public market existed for our common stock, and
we can make no prediction as to the effect, if any, that sales of shares of
common stock or the availability of shares of our 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 our common stock in the public
market, or the perception that such sales occur, could adversely affect the
market price of our common stock and could impair our future ability to raise
capital through an offering of our equity securities.
Sale of Restricted Shares
Upon completion of this offering, based upon the number of shares
outstanding as of October 31, 1999, we will have an aggregate of shares
of common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options. Of these outstanding
shares, the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares purchased by our "affiliates," as that term is defined in Rule 144
under the Securities Act, generally only may be sold in compliance with the
limitations of Rule 144 described below. All of the remaining shares of
common stock that will be outstanding after this offering will be "restricted
securities" as that term is defined under Rule 144. Restricted securities may
be sold in the public market only if they qualify for an exemption from
registration under Rule 144, including Rule 144(k), or Rule 701 under the
Securities Act.
Lock-Up Agreements
Our directors, executive officers and substantially all of our other
stockholders, holding shares in the aggregate, have agreed that they will not
sell, directly or indirectly, any shares of common stock without the prior
written consent of Morgan Stanley & Co. Incorporated for a lock-up period of
180 days from the date of this prospectus. Upon expiration of the lock-up
period, 180 days after the date of this prospectus, shares will be
available for resale to the public in accordance with Rule 144 or Rule 701.
Rule 144
In general, under Rule 144 as currently in effect, commencing 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year is entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which is
expected to be approximately shares upon completion of this offering
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale, subject to the restrictions
specified in Rule 144
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
Commencing 90 days after the date of this prospectus, shares not subject
to a lock-up agreement will be available for resale to the public in
accordance with Rule 144.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years is entitled to sell such
shares under Rule 144(k) without complying with the manner of sale, public
information, volume limitation
77
<PAGE>
or notice provisions of Rule 144. Therefore, unless otherwise restricted, Rule
144(k) shares may be sold immediately upon completion of this offering.
Immediately upon completion of this offering, no outstanding shares may be
sold under Rule 144(k).
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchase shares from us in
connection with a compensatory stock plan or other written agreement are
eligible to resell such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with various
restrictions, including the holding period, contained in Rule 144.
Stock Options
As of October 31, 1999, options to purchase a total of 11,574,193 shares of
common stock were outstanding, of which 1,939,769 were then exercisable. Upon
completion of this offering, we intend to file a registration statement to
register for resale an aggregate of 20,000,000 shares of common stock reserved
or anticipated to be reserved for issuance under our purchase and option
plans. That registration statement will become effective immediately upon
filing. Accordingly, shares covered by that registration statement will become
eligible for sale in the public markets, subject to vesting restrictions, Rule
144 volume limitations applicable to our affiliates or the lock-up agreements
with Morgan Stanley & Co. Incorporated. All holders of options to purchase
shares of our common stock have entered into the lock-up agreement.
We have 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
we may issue and grant options to purchase shares of common stock under our
purchase and option plans. In addition, we may issue shares of common stock in
connection with an acquisition of another company provided that the terms of
such issuance may provide that the common stock issued to specified persons in
connection with an acquisition will not be resold prior to the expiration of
the 180-day lock-up period.
Registration Rights
Upon completion of this offering, under specified circumstances and subject
to customary conditions, CMGI and Compaq, who in aggregate hold shares of
our common stock, or their permitted assignees, will be entitled to rights
with respect to the registration under the Securities Act of some or all of
their shares, subject to the 180-day lockup period described above. Under the
agreements providing for these registration rights, these stockholders are
subject to lock-up periods of not more than 180 days following the date of
this prospectus or any subsequent prospectus. A more detailed discussion of
these registration rights is included in this prospectus under the headings
"Certain Relationships and Related Transactions--Relationship with CMGI--
Investor Rights Agreement" and "Certain Relationships and Related
Transactions--Relationship with Compaq--Registration Rights Agreement."
78
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-UNITED STATES STOCKHOLDERS
The following is a general summary of certain United States federal income
tax consequences of the purchase, ownership, and sale or other taxable
disposition of our common stock by non-U.S. holders. A "non-U.S. holder" is a
person or entity, other than:
. an individual who is a citizen or resident of the United States;
. a corporation, partnership, or other entity created or organized under
the laws of the United States or any political subdivision thereof;
. an estate that is subject to United States federal income taxation
without regard to the source of its income; and
. a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.
This summary does not address all tax considerations that may be relevant
to non-U.S. holders in light of their particular circumstances or to certain
non-U.S. holders that may be subject to special treatment under United States
federal income tax laws. This summary is based upon the United States Internal
Revenue Code of 1986, as amended, existing, temporary and proposed regulations
promulgated thereunder and administrative and judicial decisions, all of which
are subject to change, possibly with retroactive effect. In addition, this
summary does not address the effect of any state, local or foreign tax laws.
Each prospective purchaser of our common stock should consult its tax advisor
with respect to the tax consequences of purchasing, owning and disposing of
our common stock.
Dividends
Dividends paid to a non-U.S. holder of our common stock generally will be
subject to a withholding of United States federal income tax at a 30% rate or
a reduced rate specified by an applicable income tax treaty. For purposes of
determining whether tax is to be withheld at a reduced rate under an income
tax treaty, we will presume that dividends paid on or before December 31, 2000
to an address in a foreign country are paid to a resident of that country
unless we have knowledge that the presumption is not warranted.
In order to obtain a reduced rate of withholding for dividends paid after
December 31, 2000, a non-U.S. holder will be required to provide an Internal
Revenue Service Form W-8BEN certifying its entitlement to benefits under a
treaty. In addition, in certain cases where dividends are paid to a non-U.S.
holder that is a partnership or other pass-through entity, persons holding an
interest in the entity may need to provide the required certification.
The withholding tax does not apply to dividends paid to a non-U.S. holder
that provides a Form 4224 or, after December 31, 2000, a Form W-8ECI,
certifying that the dividends are effectively connected with the non-U.S.
holder's conduct of a trade or business within the United States. Instead, the
effectively connected dividends will be subject to regular U.S. income tax as
if the non-U.S. holder were a U.S. resident. A non-U.S. corporation receiving
effectively connected dividends may also be subject to an additional "branch
profits tax" imposed at a rate of 30%, or a lower treaty rate, on an earnings
amount that is net of the regular tax.
Sale or Other Disposition of Our Common Stock
A non-U.S. holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of our common stock unless:
. the gain is effectively connected with the conduct of a trade or business
of the non-U.S. holder within the United States;
79
<PAGE>
. in the case of a non-U.S. holder who is an individual and holds our
common stock as a capital asset, the holder is present in the United
States for 183 or more days in the taxable year of the disposition and
certain other tests are met;
. the non-U.S. holder is subject to tax pursuant to the provisions of
United States federal income tax law applicable to certain United States
expatriates; or
. we are or have been a "United States real property holding corporation"
for United States federal income tax purposes at any time within the
five-year period preceding the disposition or the non-U.S. holder's
holding period, whichever period is shorter. We do not believe we are,
and do not anticipate becoming, a United States real property holding
corporation.
Backup Withholding and Information Reporting
Dividends
United States backup withholding tax generally will not apply to dividends
paid on our common stock on or before December 31, 2000 at an address outside
of the United States, unless we have knowledge that the payee is a U.S.
person. A non-U.S. holder, however, may need to certify its non-U.S. status in
order to avoid backup withholding at a 31% rate on dividends paid after
December 31, 2000 or dividends paid on or before that date at an address in
the United States. We must report annually to the Internal Revenue Service and
to each non-U.S. holder the amount of dividends paid to, and the tax withheld
with respect to, such holder, regardless of whether any tax was withheld. This
information may also be made available to the tax authorities in the non-U.S.
holder's country of residence.
Sale or Other Disposition of Our Common Stock
Upon the sale or other taxable disposition of our common stock by a non-
U.S. holder to or through a United States office of a broker, the broker must
backup withhold at a rate of 31% and report the sale to the Internal Revenue
Service, unless the holder certifies its non-U.S. holder under penalties of
perjury or otherwise establishes an exemption. Upon the sale or other taxable
disposition of our common stock by a non-U.S. holder to or through the foreign
office of a United States broker, or a foreign broker with a certain
relationship to the United States, the broker must report the sale to the
Internal Revenue Service (but not backup withhold) unless the broker has
documentary evidence in its files that the seller is a non-U.S. holder and/or
certain other conditions are met or the holder otherwise establishes an
exemption.
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules generally are allowable as a refund or credit against
a non-U.S. holder's United States federal income tax liability, if any,
provided that the required information is furnished to the Internal Revenue
Service on a timely basis.
80
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the U.S. underwriters named
below, for whom Morgan Stanley & Co. Incorporated, Hambrecht & Quist LLC,
FleetBoston Robertson Stephens Inc., Prudential Securities Incorporated and
Wit Capital Corporation are acting as U.S. representatives, and the
international underwriters named below for whom Morgan Stanley & Co.
International Limited, Hambrecht & Quist LLC, BancBoston Robertson Stephens
International Ltd, and Prudential-Bache Securities (U.K.) Inc. are acting as
international representatives, have severally agreed to purchase, and we have
agreed to sell to them, severally, the number of shares indicated below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..............................
Hambrecht & Quist LLC..........................................
FleetBoston Robertson Stephens Inc.............................
Prudential Securities Incorporated.............................
Wit Capital Corporation........................................
----
Subtotal ....................................................
====
International Underwriters:
Morgan Stanley & Co. International Limited.....................
Hambrecht & Quist LLC..........................................
BancBoston Robertson Stephens International Ltd................
Prudential-Bache Securities (U.K.) Inc. .......................
----
Subtotal ......................................................
----
Total........................................................
====
</TABLE>
The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively
referred to as the "underwriters" and the "representatives," respectively. The
underwriters are offering the shares of common stock, subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by this prospectus
are subject to the approval of certain legal matters by their counsel and to
other conditions. The underwriters are obligated to take and pay for all of
the shares of common stock offered by this prospectus if any such shares are
taken. However, the underwriters are not required to take or pay for the
shares covered by the underwriters' over-allotment option described below.
In the agreement between U.S. and international underwriters, sales may be
made between U.S. underwriters and international underwriters of any number of
shares as may be mutually agreed. The per share price of any shares so sold
will be the public offering price listed on the cover page of this prospectus,
in U.S. dollars, less an amount not greater than the per share amount of the
concession to dealers set forth below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus and part to certain dealers at a price that represents
a concession not in excess of $ a share under the public offering price.
Any underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to certain dealers. After
the initial offering of the shares of common stock, the offering price and
other selling terms may from time to time be varied by the representatives.
We have granted to the U.S. underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price listed
81
<PAGE>
on the cover page of this prospectus, less underwriting discounts and
commissions. The U.S. underwriters may exercise this option solely for the
purpose of covering overallotments, if any, made in connection with the
offering of the shares of common stock offered by this prospectus. To the
extent the option is exercised, each U.S. underwriter will become obligated,
subject to certain conditions, to purchase about the same percentage of the
additional shares of common stock as the number listed next to the U.S.
underwriter's name in the preceding table bears to the total number of shares
of common stock listed next to the names of all U.S. underwriters in the
preceding table. If the U.S. underwriters' option is exercised in full, the
total price to the public would be $ , the total underwriters' discounts
and commissions would be $ and total proceeds to AltaVista would be
$ .
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have applied for quotation of the common stock on the Nasdaq National
Market under the symbol "ALTA."
Each of AltaVista and the directors, executive officers and substantially
all of the stockholders of AltaVista has agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, it will not, during the period ending 180 days after the date of
this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock;
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The restrictions described in this paragraph do not apply to:
. the sale of shares to the underwriters;
. the issuance by AltaVista of shares of common stock upon the exercise of
an option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing; or
. transactions by any person other than AltaVista relating to shares of
common stock or other securities acquired in open market transactions
after the completion of the offering of the shares.
At our request, the U.S. underwriters have reserved for sale, at the
initial public offering price, up to shares of common stock offered
in this offering under a directed share program. We currently expect that
of these shares will be offered to directors, officers, employees,
business associates, and related persons of AltaVista pursuant to a directed
share program being administered by Morgan Stanley & Co., and that
of these shares will be offered to U.S. stockholders of CMGI who hold at least
100 shares of CMGI stock as of , or 200 shares if this date is after
the consummation of CMGI's 2-for-1 stock split announced December 15, 1999,
and who have access to the Internet and a personal e-mail address pursuant to
a directed share program being administered by Wit Capital Corporation. We
cannot assure you that any of the reserved shares will be so purchased. The
number of shares of common stock available for sale to the general public in
this offering will be reduced by the number of reserved shares sold. Any
reserved shares not purchased will be offered to the general public on the
same basis as the other shares offered in this offering.
Purchases of the reserved shares pursuant to the CMGI directed share
programs are to be made through an account at Wit Capital in accordance with
Wit Capital's procedures for opening an account and transacting in securities.
In addition, Wit Capital is an underwriter of additional shares in the
offering. A prospectus in electronic format is being made available on an
Internet web site maintained by Wit Capital. In addition, all
82
<PAGE>
dealers purchasing common shares from Wit Capital in this offering have agreed
to make a prospectus in electronic format available on a web site maintained
by each of them. Other than the prospectus in electronic format, the
information on the web site and any information contained on any other web
site maintained by Wit Capital or any dealer purchasing common shares from it
is not part of this prospectus or the registration statement of which this
prospectus forms a part, has not been approved or endorsed by us or any
underwriter in its capacity as underwriter and should not be relied on by
prospective investors. The National Association of Securities Dealers, Inc.
approved the membership of Wit Capital on September 4, 1997. Since that time,
Wit Capital has acted as a co-lead managing underwriter on one offering, a co-
managing underwriter on 61 offerings and a dealer on 107 offerings.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in
these activities and may end any of these activities at any time.
From time to time, Morgan Stanley & Co. Incorporated and Hambrecht & Quist
LLC have provided, and continue to provide, investment banking services to
AltaVista. In addition, from time to time, some of the underwriters have
provided, and continue to provide, investment banking services to CMGI and/or
its affiliates.
AltaVista and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
Pricing of the Offering
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between AltaVista and the U.S. representatives. Among the factors to be
considered in determining the initial public offering price will be the future
prospects of AltaVista and its industry in general, sales, earnings and
certain other financial operating information of AltaVista in recent periods,
and the price-earnings ratios, price-sales ratios, market prices of securities
and certain financial and operating information of companies engaged in
activities similar to those of AltaVista. The estimated initial public
offering price range set forth on the cover page of this preliminary
prospectus is subject to change as a result of market conditions and other
factors.
83
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto,
California. Davis Polk & Wardwell, Menlo Park, California, is representing the
underwriters in connection with this offering.
EXPERTS
The combined financial statements and related schedule of the AltaVista
Business as of July 31, 1999 and for the seven month period then ended, have
been included herein and in the Registration Statement in reliance upon the
reports of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing. In September 1999, the Company's Board of Directors engaged KPMG
LLP as the Company's principal accountants to audit the Company's combined
financial statements. Prior to such engagement, KPMG and the Company discussed
matters including the application of accounting principles and auditing
standards. Such discussions occurred in the normal course of business, and
KPMG's responses were not a condition to its engagement by the Company.
PricewaterhouseCoopers LLP served as AltaVista's independent auditors from
AltaVista's inception until the dismissal of PwC effective November 16, 1999,
which dismissal was approved by the Company's Board of Directors. PwC
performed the audits of AltaVista as of December 31, 1998 and 1997 and for the
years ended December 31, 1996 and 1997, for the period from January 1, 1998
through June 11, 1999, and for the period from June 12, 1998 through
December 31, 1998. The reports of PwC on the financial statements of AltaVista
prepared in connection with any of the aforementioned audits did not contain
any adverse opinions or disclaimers of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. Furthermore,
in connection with the aforementioned audits and during the subsequent interim
period prior to the dismissal of PwC, there were no disagreements between PwC
and the Company on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of PwC, would have caused PwC to make reference
to the subject matter of such disagreements in connection with its reports.
The consolidated financial statements of Shopping.com as of January 31,
1998 and 1999 and for each of the years in the two-year period January 31,
1999, have been included herein and in the Registration Statement in reliance
on the report of PwC, independent accountants, given on the authority of said
firm as experts in accounting and auditing.
The financial statements of Shopping.com as of January 31, 1997 and for the
year then ended, have been included herein and in the Registration Statement
in reliance on the report of Singer Lewak Greenbaum & Goldstein LLP,
independent certified public accountants, given on the authority of said firm
as experts in accounting and auditing.
The financial statements of Zip2 Corp. as of December 31, 1997 and 1998,
and for each of the years in the three-year period ended December 31, 1998,
have been included herein and in the Registration Statement in reliance upon
the report of PwC, independent accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
84
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION ABOUT ALTAVISTA
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules filed therewith. For further information with respect to AltaVista
and the common stock offered hereby, reference is made to the registration
statement and the exhibits and schedules filed therewith. Statements contained
in this prospectus regarding the contents of any contract or any other
document to which reference is made are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference. A copy of the registration
statement and the exhibits and schedule filed therewith may be inspected
without charge at the public reference facilities maintained by the Commission
in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at the Northwestern Atrium 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 Commission. Information on the operation
of the Public Reference Room may be obtained by calling the Commission at 1-
800-SEC-0330. The Commission maintains a web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission. The address of the web site is
http://www.sec.gov.
AltaVista intends to provide its stockholders with annual reports
containing combined financial statements audited by an independent accounting
firm and quarterly reports containing unaudited combined financial data for
the first three quarters of each year.
85
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AltaVista Business
Report of KPMG LLP, Independent Accountants............................... F-2
Combined Balance Sheets as of December 31, 1998 (unaudited), July 31, 1999
and October 31, 1999 (unaudited)......................................... F-3
Combined Statements of Operations for the seven months ended July 31, 1999
and for the three months ended September 30, 1998 and October 31, 1999
(unaudited).............................................................. F-4
Combined Statement of Changes in Owners' Net Investment................... F-5
Combined Statements of Cash Flows for the seven months ended July 31, 1999
and for the three months ended September 30, 1998 and October 31, 1999
(unaudited).............................................................. F-6
Notes to Combined Financial Statements.................................... F-7
AltaVista Company
Report of PricewaterhouseCoopers LLP, Independent Accountants............. F-27
Balance Sheet as of December 31, 1997 and 1998............................ F-29
Statements of Operations for the year ended December 31, 1996 and 1997,
for the period from January 1, 1998 to June 11, 1998, and for the period
from June 12, 1998 to December 31, 1998.................................. F-30
Statements of Changes in Owner's Net Investment........................... F-31
Statements of Cash Flows for the year ended December 31, 1996 and 1997,
for the period from January 1, 1998 to June 11, 1998, and for the period
from June 12, 1998 to December 31, 1998.................................. F-32
Notes to Financial Statements............................................. F-33
Shopping.com
Report of PricewaterhouseCoopers LLP, Independent Accountants............. F-44
Consolidated Balance Sheet as of January 31, 1998 and 1999................ F-45
Consolidated Statement of Operations for the year ended January 31, 1998
and 1999................................................................. F-46
Consolidated Statement of Shareholders' Equity (Deficit).................. F-47
Consolidated Statement of Cash Flows as of January 31, 1998 and 1999...... F-48
Notes to Consolidated Financial Statements................................ F-49
Report of Singer Lewak Greenbaum & Goldstein LLP, Independent
Accountants.............................................................. F-66
Balance Sheet as of January 31, 1997...................................... F-67
Statement of Operations for the year ended January 31, 1997............... F-68
Statement of Shareholders' Deficit for the year ended January 31, 1997.... F-69
Statement of Cash Flows for the year ended January 31, 1997............... F-70
Notes to Financial Statements............................................. F-71
Zip2 Corp.
Report of PricewaterhouseCoopers LLP, Independent Accountants............. F-78
Consolidated Balance Sheet as of December 31, 1997 and 1998, and as of
March 31, 1999 (unaudited)............................................... F-79
Consolidated Statement of Operations for the year ended December 31, 1996,
1997 and 1998, and for the three months ended March 31, 1998 and 1999
(unaudited).............................................................. F-80
Consolidated Statement of Shareholders' Equity............................ F-81
Consolidated Statement of Cash Flows for the year ended December 31, 1996,
1997 and 1998, and for the three months ended March 31, 1998 and 1999
(unaudited).............................................................. F-82
Notes to Consolidated Financial Statements................................ F-83
</TABLE>
F-1
<PAGE>
REPORT OF KPMG LLP, INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of the AltaVista Business:
We have audited the accompanying combined balance sheet of the AltaVista
Business (as defined in note 1) as of July 31, 1999, and the related combined
statements of operations, changes in owners' net investment, and cash flows
for the seven-month period ended July 31, 1999. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
AltaVista Business as of July 31, 1999, and the results of its operations and
its cash flows for the seven-month period ended July 31, 1999, in conformity
with generally accepted accounting principles.
As discussed in note 1 to the combined financial statements, effective
August 18, 1999, CMGI acquired a majority interest in the AltaVista Business
in a business combination accounted for as a purchase. As a result of the
acquisition, the unaudited combined financial information for the periods
after the acquisition is presented on a different cost basis than that for the
periods before the acquisition and, therefore, is not comparable.
KPMG LLP
San Francisco, California
December 16, 1999
F-2
<PAGE>
ALTAVISTA BUSINESS
COMBINED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31, July 31, October 31,
1998 1999 1999
------------ ---------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ -- $ 7,482 $ 1,126
Accounts receivable, net of allowances
of $2,832, $5,052 and $5,701 at Decem-
ber 31, 1998, July 31, 1999 and Octo-
ber 31, 1999, respectively............ 12,819 37,057 40,552
Prepaid expenses and other current
assets................................ 350 5,211 11,454
-------- ---------- ----------
Total current assets................. 13,169 49,750 53,132
Property, plant and equipment, less
accumulated depreciation................ 24,173 46,746 51,782
Goodwill and other intangible assets,
net..................................... 226,488 709,185 2,473,715
Investments.............................. 500 11,480 11,913
Receivable from Compaq................... -- 10,315 10,315
Other noncurrent assets.................. -- 929 263
-------- ---------- ----------
Total assets......................... $264,330 $ 828,405 $2,601,120
======== ========== ==========
LIABILITIES AND OWNERS' NET INVESTMENT
Current liabilities:
Long-term debt, current portion........ $ 658 $ 916 $ --
Capital lease obligation, current
portion............................... -- 1,502 2,910
Payable to CMGI, net................... -- -- 289
Notes payable to CMGI.................. -- -- 43,455
Accounts payable....................... 691 27,008 22,518
Other current liabilities.............. 9,035 51,783 67,391
-------- ---------- ----------
Total current liabilities............ 10,384 81,209 136,563
-------- ---------- ----------
Long-term debt, net of current portion... 1,656 962 --
Capital lease obligation, net of current
portion................................. -- 2,381 5,655
-------- ---------- ----------
Total liabilities.................... 12,040 84,552 142,218
Commitments and contingencies
Preferred stock, $0.01 par value, autho-
rized 5,000,000 shares, no shares issued
and outstanding......................... -- -- --
Common stock, $.01 par value, authorized
200,000,000 shares, 101,232,221 shares
issued and outstanding at October 31,
1999.................................... -- -- 1,012
Treasury stock........................... -- -- (196)
Capital in excess of par................. -- 171,667 2,955,389
Net contribution from owner.............. 321,856 1,007,901 --
Unearned compensation.................... -- (135,885) (4,414)
Accumulated other comprehensive income... -- 1,713 (6)
Accumulated deficit...................... (69,566) (301,543) (492,883)
-------- ---------- ----------
Owners' net investment................... 252,290 743,853 2,458,902
-------- ---------- ----------
Total liabilities and owners' net
investment.......................... $264,330 $ 828,405 $2,601,120
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE>
ALTAVISTA BUSINESS
COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Seven Months Three Months Three Months
Ended Ended Ended
July 31, September 30, October 31,
1999 1998 1999
------------ ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Advertising and service revenue, net.. $ 49,812 $ 8,842 $ 32,414
Product revenue, net.................. 23,781 -- 22,421
--------- -------- ---------
Total revenue..................... 73,593 8,842 54,835
--------- -------- ---------
Cost of advertising and service
revenue.............................. 17,446 3,008 10,508
Cost of product revenue............... 25,402 -- 23,269
--------- -------- ---------
Total cost of revenue............. 42,848 3,008 33,777
--------- -------- ---------
Gross profit........................ 30,745 5,834 21,058
--------- -------- ---------
Operating expenses:
Product development................. 17,478 3,187 10,783
Sales and marketing................. 51,151 6,714 51,886
General and administrative.......... 23,939 1,909 7,705
Stock-based compensation............ 35,782 -- 15,828
Amortization of intangible assets... 133,976 23,030 207,110
--------- -------- ---------
Loss from operations.................. (231,581) (29,006) (272,254)
Interest income....................... -- -- (104)
Interest expense...................... 159 104 399
Other nonoperating loss............... 237 -- 1,610
--------- -------- ---------
Net loss.............................. (231,977) (29,110) (274,159)
Other comprehensive income (loss):
Unrealized gain (loss) on
securities......................... 1,713 -- (255)
--------- -------- ---------
Comprehensive loss.................... $(230,264) $(29,110) $(274,414)
========= ======== =========
Net loss per common share:
Basic............................... $ (2.74)
=========
Diluted............................. $ (2.74)
=========
Shares used in computing
Net loss per common share:
Basic............................... 100,134
=========
Diluted............................. 100,134
=========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
ALTAVISTA BUSINESS
COMBINED STATEMENT OF CHANGES IN OWNERS' NET INVESTMENT
(in thousands)
<TABLE>
<CAPTION>
Treasury Accumulated Total
Common Stock Stock Capital Net Other Owners'
-------------- ------------- in Excess Contribution Unearned Accumulated Comprehensive Net
Shares Amount Shares Amount of Par from Owner Compensation Deficit Income Investment
------- ------ ------ ------ ---------- ------------ ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1998......... -- $ -- -- $ -- $ -- $ 321,856 $ -- $ (69,566) $ -- $ 252,290
Net loss........ -- -- -- -- -- -- -- (231,977) -- (231,977)
Unearned
compensation.... -- -- -- -- 171,667 -- (171,667) -- -- --
Amortization of
unearned
compensation.... -- -- -- -- -- -- 35,782 -- -- 35,782
Fair value
adjustment on
available for
sale
securities...... -- -- -- -- -- -- -- -- 1,713 1,713
Net contribution
from owner...... -- -- -- -- -- 686,045 -- -- -- 686,045
------- ------ --- ----- ---------- ----------- --------- --------- ------- ----------
Balance, July 31,
1999............. -- -- -- -- 171,667 1,007,901 (135,885) (301,543) 1,713 743,853
Net loss
(unaudited)..... -- -- -- -- -- -- -- (38,710) -- (38,710)
Unearned
compensation
(unaudited)..... -- -- -- -- (190) -- 190 -- -- --
Amortization of
unearned
compensation
(unaudited)..... -- -- -- -- -- -- 15,550 -- -- 15,550
Fair value
adjustment on
available for
sale securities
(unaudited)..... -- -- -- -- -- -- -- -- (249) (249)
Net contribution
from owner
(unaudited)..... -- -- -- -- -- (2,750) -- -- -- (2,750)
------- ------ --- ----- ---------- ----------- --------- --------- ------- ----------
Balance, August
18, 1999
(unaudited)...... -- $ -- -- $ -- $ 171,477 $ 1,005,151 $(120,145) $(340,253) $ 1,464 $ 717,694
CMGI acquisition
(unaudited)...... 100,000 $1,000 -- $ -- $2,755,054 $(1,005,151) $ 120,145 $ 340,253 $(1,464) $2,209,837
------- ------ --- ----- ---------- ----------- --------- --------- ------- ----------
Balance, August
19, 1999
(unaudited)...... 100,000 1,000 -- -- 2,926,531 -- -- -- -- 2,927,531
Net loss
(unaudited)..... -- -- -- -- -- -- -- (235,449) -- (235,449)
Dividend of Zip2
(unaudited)..... -- -- -- -- -- -- -- (257,434) -- (257,434)
Deferred stock-
based
compensation
(unaudited)..... -- -- -- -- -- -- (4,692) -- -- (4,692)
Stock-based
compensation
(unaudited)..... -- -- -- -- -- -- 278 -- -- 278
Issuance of
common stock
(unaudited)..... 1,232 12 -- -- 28,858 -- -- -- -- 28,870
Treasury stock
(unaudited)..... -- -- 8 (196) -- -- -- -- -- (196)
Fair value
adjustment on
available for
sale securities
(unaudited)..... -- -- -- -- -- -- -- -- (6) (6)
------- ------ --- ----- ---------- ----------- --------- --------- ------- ----------
Balance, October
31, 1999
(unaudited)...... 101,232 $1,012 8 $(196) $2,955,389 $ -- $ (4,414) $(492,883) $ (6) $2,458,902
======= ====== === ===== ========== =========== ========= ========= ======= ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE>
ALTAVISTA BUSINESS
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Seven Three
Months Three Months Months
Ended Ended Ended
July 31, September 30, October
1999 1998 31, 1999
--------- ------------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................. $(231,977) $(29,110) $ (274,159)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... 140,149 24,286 210,537
Provision for bad debts and
concessions........................... 3,266 (814) 284
Stock-based compensation............... 35,782 -- 15,828
Stock issued to a community educational
foundation............................ $ -- $ -- $ 739
Changes in operating assets and
liabilities:
Accounts receivable.................. (25,777) (174) (6,594)
Prepaid expenses..................... 1,394 (1,850) (6,746)
Accounts payable to CMGI............. -- -- 432
Accounts payable..................... 18,803 (167) 374
Other current liabilities............ 19,941 2,860 30,441
--------- -------- ----------
Net cash used in operating
activities........................ (38,419) (4,969) (28,864)
--------- -------- ----------
Cash flows from investing activities:
Purchase of investments................ (10,980) -- (433)
Purchases of property and equipment.... (23,591) (419) (20,767)
Acquisition of Shopping.com, net of
cash acquired......................... (224,193) -- --
Acquisition of Zip2, net of cash
acquired.............................. (294,761) -- --
Acquisition of iAtlas, net of cash
acquired.............................. -- -- 248
Zip2 dividend, cash disposed........... -- -- (2,629)
Increase in other assets............... (487) (477) (116)
--------- -------- ----------
Net cash used in investing
activities........................ (554,012) (896) (23,697)
--------- -------- ----------
Cash flows from financing activities:
Borrowings of long-term debt........... 368 -- 7,779
Repayment of long-term debt............ (11,521) (224) (2,176)
Notes payable to CMGI.................. -- -- 43,455
Issuance of common stock............... -- -- 87
Change in contribution from owners..... 611,066 6,089 (2,940)
--------- -------- ----------
Net cash provided by financing
activities........................ 599,913 5,865 46,205
--------- -------- ----------
Net increase (decrease) in cash.......... 7,482 -- (6,356)
Cash and cash equivalents at beginning of
period.................................. -- -- 7,482
--------- -------- ----------
Cash and cash equivalents at end of
period.................................. $ 7,482 $ -- $ 1,126
========= ======== ==========
Noncash investing and financing
activities:
Change in basis attributable to CMGI
acquisition........................... $ -- $ -- $2,209,837
========= ======== ==========
Owners' stock options issued for
acquisitions.......................... $ 59,811 $ -- $ --
========= ======== ==========
Unrealized gain (loss) on available-
for-sale securities................... $ 1,713 $ -- $ (255)
========= ======== ==========
Stock issued to CMGI upon merger with
iAtlas................................ $ -- $ -- $ 28,033
========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
NOTE 1--BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of business
The AltaVista Business represents the AltaVista operation, including
Shopping.com, Zip2 and iAtlas, from their respective dates of acquisition (the
"AltaVista Business"). The AltaVista Business does not include Zip2 after its
date of disposition.
AltaVista is an Internet search, new media and commerce network that
delivers personalized, relevant information and e-commerce services to
millions of users worldwide. With patented technologies, international
presence, distinct service offerings and strong strategic partners, AltaVista
seeks to provide a smart and dynamic knowledge resource for Internet users.
Shopping.com is an e-commerce service that provides customers with the
information necessary to make personalized online buying decisions and gives
retailers the ability to reach a large customer base. Shopping.com's goal is
to make the shopping experience informed, quick, interactive and personalized.
Shopping.com leverages its search technology to enhance the shopping
experience by increasing the speed and accuracy of the shopping search,
enabling users to research, compare and purchase merchandise.
Zip2 supports the delivery of localized editorial content, consumer
information and advertising products by newspapers and other local media
companies through a comprehensive suite of Web development solutions and
service offerings.
iAtlas provides enhanced Internet solutions and services with products that
provide knowledge about Internet businesses to enable the delivery of focused
business information to end users.
Basis of presentation
The December 31, 1998 balance sheet information was derived from audited
financial statements.
As a result of the acquisition of Digital Equipment Corporation, the prior
owner of the AltaVista Business, by Compaq on June 11, 1998, the financial
statements of AltaVista after the acquisition date are derived from the
historic books and records of Compaq and reflect the pushdown of Compaq's
basis in the assets and liabilities. On August 18, 1999, CMGI consummated an
agreement with Compaq pursuant to which CMGI purchased a majority interest in
the AltaVista Business. This transaction resulted in Compaq retaining
approximately 18.5% minority interest in the AltaVista Business. As a result
of the CMGI transaction, the AltaVista Business financial statements after
August 18, 1999 reflect the pushdown of CMGI's and Compaq's new bases in the
assets acquired and liabilities assumed. Since August 18, 1999, certain
services have been provided to the AltaVista Business by CMGI. Such costs
include rent and facilities, Internet marketing and business development
expenses (See Note 9).
The financial statements of Shopping.com, Zip2 and iAtlas are included from
their respective dates of acquisition and reflect the pushdown of Compaq's and
CMGI's bases in the assets and liabilities. The combined financial statements
do not include the operations of Zip2 after its date of disposition.
The combined statements of operations include the revenue and costs
directly attributable to the AltaVista Business including charges for shared
facilities, functions and services used by the AltaVista Business and provided
by Compaq or CMGI. Certain costs and expenses have been allocated based on
management's estimates of the cost of services provided to the AltaVista
Business by Compaq or CMGI. Such costs include corporate research and
engineering expenses, corporate selling and marketing expenses and corporate
general and administrative expenses (see Note 9). Such allocations and charges
are based on either a direct cost pass-through or a percentage of total costs
for the services provided based on factors such as headcount or the specific
level of activity directly related to such costs (i.e., direct spending).
Management believes that these allocations are based on assumptions
F-7
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
that are reasonable under the circumstances. However, these allocations and
estimates are not necessarily indicative of the costs and expenses which would
have resulted if the AltaVista Business had been operated as a separate
entity.
The AltaVista Business has incurred recurring losses from operations
through October 31, 1999. Historically, the funds required for the conduct of
AltaVista's business operations were provided by Compaq or CMGI. CMGI has
committed to fund the AltaVista Business operations through the fiscal year
ended July 31, 2000. The historical operating results may not be indicative of
future results.
On August 18, 1999, the AltaVista Business merged into a subsidiary of CMGI
which thereupon changed its name to AltaVista Company (the "Company").
Principles of combination
The combined financial statements include the financial statements of
AltaVista, and the financial statements of Shopping.com, Zip2 and iAtlas from
their respective acquisition date. All significant intercompany balances and
transactions have been eliminated.
On October 20, 1999, the Company distributed the shares of Zip2 to CMGI and
Compaq based upon their proportional ownership interest in the Company.
Accordingly, Zip2's results of operations are not included in these combined
financial statements after the date of disposition.
Change in fiscal year end
Until the acquisition by CMGI, the AltaVista Business fiscal year ended on
December 31. In August 1999, the Company retroactively adopted the CMGI fiscal
year end of July 31, 1999. The most current financial period presented is the
three-month period ended October 31, 1999. This interim period is compared
with the three months ended September 30, 1998. Because the fiscal year end
change results in no material effect on reported trends, and due to the
impracticality of preparing comparable seven month or fiscal quarter
historical carve out financial statements, management believes these
comparison periods are reasonable for purposes of comparing and analyzing the
combined results of operations and financial condition.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Concentration of credit risk
Financial instruments which potentially subject the AltaVista Business to a
concentration of credit risk consist of accounts receivable. The AltaVista
Business' accounts receivable are derived primarily from advertising and
product revenue earned from customers located in the United States. The
AltaVista Business maintains reserves for potential credit loss. Historically
such losses have not been significant and have been within management's
expectations.
During all periods presented, the AltaVista Business derived a significant
portion of its revenues from Procurement and Trafficking Agreement (the
"Agreement") with DoubleClick, Inc. ("DoubleClick"). The
F-8
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
Agreement is expected to continue to account for a significant portion of the
AltaVista Business' revenues. The termination of the Agreement, or a
development materially affecting the business or financial condition of
DoubleClick would have a material adverse effect on the AltaVista Business'
results of operations and financial position. Accounts receivable from
DoubleClick comprised 77.8%, 62.7% and 50.6% of gross accounts receivable as
of December 31, 1998, July 31, 1999 and October 31, 1999, respectively.
Business risks
The AltaVista Business is subject to risks and uncertainties common to
growing technology-based companies, including rapid technological change,
growth and commercial acceptance of the Internet, dependence on third-party
technology, new service introductions and other activities of competitors,
significant financing requirements, dependence on key personnel, international
expansion, and limited operating history.
Revenue recognition
Advertising and service revenue
The AltaVista Business' revenues are derived primarily from short-term
advertising contracts negotiated by DoubleClick in accordance with the terms
of the Procurement and Trafficking Agreement (the "Agreement"). Prior to
January 1, 1999, the AltaVista Business recorded as revenues its contractual
percentage of the total revenues generated from the delivery of
advertisements. Effective January 1, 1999, the AltaVista Business renegotiated
the Agreement. The Agreement was renegotiated to enable the AltaVista Business
to use its internal sales force to sell advertisements directly to
advertisers. DoubleClick retains the exclusivity for delivering through its
proprietary computer systems the advertisements negotiated either by
DoubleClick or the AltaVista Business. Under the new agreement, the AltaVista
Business bears the economic risk of the advertising transactions. Accordingly,
the AltaVista Business now records the full sales amount as revenue upon
delivery of advertisements. The AltaVista Business reports as selling and
marketing expense, the amounts due to DoubleClick for sales commission,
billing and collection services, and cost of ad delivery. The Agreement is for
a term of three years from the effective date (the "Initial Term"). The
Agreement is automatically renewed for additional twelve-month periods
following the Initial Term unless either party provides notice of termination
during the third year of the Agreement and no later than ninety days prior to
the expiration of the Initial Term or no later than 180 days prior to the
expiration of any twelve-month renewal period.
Net revenues recorded per the Agreement represented 54% and 45% of the
AltaVista Business's total net revenues for the seven months ended July 31,
1999 and the three months ended October 31, 1999, respectively. Amounts
included in sales and marketing expense related to DoubleClick sales
commissions were $10.2 million and $5.9 million, for the seven months ended
July 31, 1999 and for the three months ended October 31, 1999, respectively.
Amounts included in sales and marketing expense related to DoubleClick billing
and collection services were $0.8 million and $0.5 million for the seven
months ended July 31, 1999 and for the three months ended October 31, 1999,
respectively. Amounts included in sales and marketing expense related to
DoubleClick for the cost of ad delivery were $3.0 million and $1.6 million for
the seven months ended July 31, 1999 and for the three months ended October
31, 1999, respectively.
The AltaVista Business has entered into agreements with companies whereby
it receives a percentage of revenue generated by these companies through e-
commerce transactions. Such revenue is recognized by the AltaVista Business
upon notification from these companies of revenue earned by the AltaVista
Business, and, to date, have not been significant.
F-9
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
Also included in revenue is the exchange by the AltaVista Business of
advertising space on its web site for a reciprocal advertising space or
traffic in other web sites or receipt of services. Revenue from these
transactions is recognized during the period in which the advertisements are
placed and are recorded at the lower of estimated fair value of the service
received or the estimated fair value of the advertisement given. Revenue for
barter transactions was insignificant for the seven months ended July 31, 1999
and for the three months ended October 31, 1999.
As a result of the acquisitions of Zip2 and iAtlas, the combined financial
statements include revenue from the delivery of web development solutions, web
software applications hosting, technical and sales-related consulting services
and from a share of advertising revenue generated by newspaper and other local
media customers. Revenue from the delivery of web development solutions
combined with consulting, Web hosting and other continuing service obligations
are recognized ratably as service revenue over the contract terms which range
from one to six years. Revenue from technical and sales-related consulting
services are recognized when services are provided. Provisions for contractual
adjustments and losses are recorded in the period such items are identified.
Revenue from contractual rights to share in advertising revenue generated by
newspaper and other local media customers are recognized as advertising
revenue as the fees are earned and become receivable from the customer.
Amounts payable due to newspaper and other local media customers from
contractual rights to share in advertising revenue generated by Zip2 and
iAtlas are recognized as costs of revenue in the period the related revenue is
earned.
Deferred revenue primarily comprises cash collections in advance of revenue
associated with certain licenses and contracts and is recognized at the time
AltaVista Business' obligations under the contracts are fulfilled.
Product revenue
As a result of the acquisition of Shopping.com, these combined financial
statements now include revenues from the sales of consumer products. The
AltaVista Business recognizes the full sales amount as revenue for such
transactions at the time the vendor ships the product to the customer when the
AltaVista Business bears full customer credit risk and merchandise return risk
following vendor shipment. The AltaVista Business provides an allowance for
sales returns based on historical experience. To date, the AltaVista Business'
sales returns have not been material.
For the seven months ended July 31, 1999 and the three months ended October
31, 1999, approximately 34% and 54%, respectively, of product revenues
represented sales by Shopping.com of Compaq computers to Free PC.com, an
AltaVista Business investee (see Note 5). Based on Compaq pricing,
Shopping.com recognized a nominal gross profit on such revenues.
Product development
Product development costs are expensed as incurred. Software development
costs subsequent to the establishment of technological feasibility are
capitalized and amortized to cost of revenues. Based upon the AltaVista
Business' product development process, technological feasibility is
established upon completion of a working model. Costs incurred by the
AltaVista Business between completion of the working model and the point at
which the product is ready for general release have been insignificant.
Advertising expense
The AltaVista Business expenses advertising costs as incurred. Advertising
costs included in sales and marketing expense are approximately $11.5 million,
$1.2 million and $32.1 million for the seven months ended July 31, 1999, the
three months ended September 30, 1998 and the three months ended October 31,
1999, respectively.
F-10
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
Stock-based compensation plans
The AltaVista Business accounts for its stock-based compensation plans
using the intrinsic value method prescribed by Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees." Under APB
No. 25, stock compensation expense for the seven months ended July 31, 1999
and for the three months ended October 31, 1999 and September 30, 1998 was
$35.8 million, and $15.8 million, and none, respectively. The AltaVista
Business amortizes stock compensation expense using the accelerated method
prescribed by FIN 28.
Interest expense
Interest expense was $159,000, $399,000 and $104,000 for the seven months
ended July 31, 1999 and the three months ended October 31, 1999, and September
30, 1998, respectively. There was no direct interest expense incurred by the
AltaVista Business until the purchase of the www.altavista.com domain name in
July 1998 (see Note 4). Prior to that date, all interest expense corresponded
to an allocation of Digital's or Compaq's worldwide interest expense based on
the AltaVista Business' proportionate share of total assets. Management
believes this method provides a reasonable basis for allocation within the
AltaVista Business' historical statement of operations. Since August 19, 1999,
CMGI has advanced funds and provided services to the AltaVista Business from
time to time. These amounts are reflected in demand notes payable to CMGI in
the accompanying combined balance sheets, and bear interest at 7%. Interest
expense included in the combined statement of operations for the three months
ended October 31, 1999 includes $360,000 related to the CMGI notes payable
(see Note 9).
Income taxes
The AltaVista Business was not a separate taxable entity for federal, state
or local income tax purposes and its operations were included in the
consolidated Compaq tax returns for periods prior to August 18, 1999, and will
be included with CMGI thereafter. The AltaVista Business accounts for income
taxes under the separate return method using an asset and liability approach.
Deferred tax assets generated from operating losses require a full valuation
allowance because, given the history of operating losses, realizability of
such tax benefit is not probable.
Net loss per share
On August 18, 1999, the AltaVista Business merged into a subsidiary of CMGI
which then changed its name to AltaVista Company. The Company has 200 million
shares of common stock authorized of which 100 million shares were issued and
outstanding on August 18, 1999.
A reconciliation of the numerator and denominator of pro forma basic and
diluted loss per share is provided as follows (in thousands, except share and
per share amounts):
<TABLE>
<CAPTION>
Three months
ended
October 31, 1999
----------------
<S> <C>
Numerator--basic and diluted................................ $ (274,159)
Denominator--basic and diluted:
Weighted average common shares outstanding................. 100,133,937
Basic and diluted loss per share............................ $ (2.74)
</TABLE>
F-11
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
Options to purchase common stock and shares issuable upon conversion of the
demand notes payable into preferred stock and the conversion of such preferred
stock into common stock are not included in the diluted loss per share
calculations as their effect, due to losses generated by the AltaVista
Business, are antidilutive for all periods presented. These potentially
dilutive securities are as follows:
<TABLE>
<CAPTION>
Three months
ended
October 31, 1999
----------------
<S> <C>
Options to purchase common stock........................... 10,186,405
Assumed conversion of demand notes payable into preferred
stock and the conversion of such preferred stock into
common stock.............................................. 1,507,807
</TABLE>
Comprehensive loss
Comprehensive income, as defined, includes all changes in equity (net
assets) during a period from non-owner sources. For the seven months ended
July 31, 1999, the AltaVista Business had unrealized gains on available-for-
sale securities of $1.7 million. For the three months ended October 31, 1999,
unrealized losses on available-for-sale securities totaled $255,000.
Cash
The AltaVista Business considers all highly-liquid investments with an
original maturity of three months or less to be cash equivalents.
Cash generated from and required to support the AltaVista Business
operations prior to August 18, 1999 was deposited and received through
Compaq's corporate operating cash accounts. As a result, there were no
separate bank accounts for the AltaVista Business, and the amounts recorded as
Net Contribution from Owner in our combined statement of cash flows represent
the net effect of all cash transactions between Compaq and AltaVista. From
August 19 through October 31, 1999, AltaVista Business financed working
capital through cash received from CMGI. In return, the Company issued demand
notes payable to CMGI that are convertible to preferred stock.
Fair value of financial instruments
The carrying amount of the AltaVista Business' financial instruments, which
include accounts receivable, accounts payable, accrued expenses and demand
notes payable approximate their fair values at December 31, 1998, July 31,
1999 and October 31, 1999.
Property and equipment
Property and equipment were recorded at fair market value at their
respective dates of acquisition. Minor replacements, maintenance and repairs
are charged to current operations. Depreciation is computed by applying the
straight-line method over the estimated useful lives of the related assets as
follows:
<TABLE>
<CAPTION>
Estimated
Useful
Lives In
Years
---------
<S> <C>
Machinery and equipment............................................ 3-10
Furniture and fixtures............................................. 5-10
Buildings and improvements......................................... 10-33
</TABLE>
Leasehold improvements are amortized over the shorter of the useful life of
the improvement or the life of the related lease.
F-12
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
Intangible assets
Intangible assets as of July 31, 1999 consist primarily of completed
technology, assembled workforce, trademarks and goodwill resulting from the
pushdown of the fair value of all assets attributable to the AltaVista
Business as recorded on Compaq's books as part of the acquisition of Digital
Equipment Corporation and from the acquisitions of Shopping.com and Zip2. As
of October 31, 1999, the intangibles reflect the pushdown of fair market
values based on the CMGI acquisition and from the acquisition of iAtlas.
Intangible assets are being amortized on a straight-line basis over their
estimated useful lives of three years.
Impairment of long-lived assets
The AltaVista Business reviews for the impairment of long-lived assets,
certain identifiable intangibles and goodwill whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of the asset
and its eventual disposition is less than its carrying amount. If an asset is
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds the fair value of the
asset. The AltaVista Business has not identified any such impairment losses.
Investments
Marketable equity securities are classified as available-for-sale.
Available-for-sale securities are included in prepaid expenses and other
current assets and are stated at fair value, with the unrealized gains and
losses reported in owners' net investment. Realized gains and losses and
declines in value judged to be other than temporary on available-for-sale
securities are included in results of operations.
The AltaVista Business has obtained equity interests of less than 20% in
several privately held companies. These investments are accounted for using
the cost method. For these investments, the AltaVista Business' policy is to
regularly review the assumptions underlying the operating performance and cash
flow forecasts in assessing the carrying values. The AltaVista Business
records impairment losses on investments when events and circumstances
indicate that such assets might be impaired and it is determined the
investment has suffered an other than temporary decline in value. To date, no
such impairment has been recorded.
Segment information
The AltaVista Business identifies its operating segments based on business
activities, management responsibility and geographic location. The AltaVista
Business has organized its operations in a single operating segment that
delivers personalized relevant information and e-commerce services to users
worldwide. Further, the AltaVista Business derives the vast majority of its
revenues from its operations in the United States.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Boards ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The new standard establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The AltaVista
Business does not expect SFAS No. 133 to have a material effect on its
financial position or results of operations.
F-13
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
Interim results
The interim combined financial statements as of October 31, 1999, and for
the three months ended October 31, 1999 and September 30, 1998 have been
prepared using the same accounting principles as were used for preparing the
audited combined financial statements, and in the opinion of management,
reflect all adjustments, which include only normal recurring adjustments,
necessary to present fairly the AltaVista Business' combined financial
position, results of operations and cash flows as of October 31, 1999 and for
the three-months ended October 31, 1999 and September 30, 1998. The results
for the seven months ended July 31, 1999 and for the three months ended
October 31, 1999 and September 30, 1998 are not necessarily indicative of
future results.
NOTE 2--ACQUISITIONS AND DISPOSITIONS
Compaq acquisition
On June 11, 1998, Compaq consummated its acquisition of Digital Equipment
Corporation. The purchase price was allocated to the assets acquired and
liabilities assumed related to AltaVista based on Compaq's estimates of fair
value. The fair value assigned to intangible assets acquired was based on a
valuation prepared by an independent third party appraisal company and
included intangibles aggregating $274.1 million (goodwill of $255.6 million,
proven technology of $13.0 million and trademarks of $5.6 million).
Shopping.com and Zip2 acquisitions
Effective February 15, 1999, Compaq completed its acquisition of
Shopping.com. The aggregate purchase price of $256.9 million consisted of
$218.9 million in cash, the issuance of Compaq employee stock options with a
fair value of $32.1 million and other acquisition costs. The transaction was
accounted for using the purchase method of accounting. The results of
operations of the acquired entity and the estimated fair market values of the
acquired assets and liabilities have been included in the AltaVista Business'
combined financial statements from the date of acquisition. The aggregate
purchase price including liabilities assumed has been allocated to the assets
acquired, consisting primarily of goodwill of approximately $271 million that
is being amortized over a three year period. The purchase price allocation was
based on the results of an independent third party appraisal.
At the time of the acquisition by Compaq, Shopping.com was a defendant in
various litigation matters for which Compaq agreed to assume liability. Any
unrecorded costs incurred in connection with resolving these matters will be
added to the purchase accounting allocation or charged to expense. An equal
amount will be recorded as a capital contribution from Compaq.
Effective April 1, 1999, Compaq completed its acquisition of Zip2. The
aggregate purchase price of $340.9 million consisted of $307.2 million in
cash, the issuance of employee stock options with a fair value of $27.7
million and other acquisition costs. The results of operations of the acquired
entity and the estimated fair market values of the acquired assets and
liabilities have been included in the AltaVista Business' combined financial
statements from the date of acquisition. The aggregate purchase price
including liabilities assumed has been allocated to the assets acquired,
consisting primarily of goodwill of approximately $335 million that is being
amortized over a three year period. The purchase price allocation was based on
the results of an independent third party appraisal.
F-14
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
iAtlas merger
On October 22, 1999, CMGI merged its iAtlas subsidiary into the AltaVista
Business in a transaction valued at approximately $28 million. CMGI acquired
all of the issued and outstanding stock of iAtlas on September 28, 1999, for
approximately 304,000 shares of CMGI common stock, and iAtlas has been
included in the combined financial statements from the date of the
acquisition.
Zip2 disposition
On October 20, 1999, the AltaVista Business distributed the shares in Zip2
to CMGI and Compaq according to their respective ownership percentages.
Subsequent to October 31, 1999, the AltaVista Business, Zip2 and CMGI
finalized a related separation agreement concerning certain technology, assets
and liabilities to be retained or utilized by the AltaVista Business, which
have not been reflected in the combined balance sheet as of October 31, 1999.
The AltaVista Business' estimated costs of utilizing such technology, assets
and liabilities for the period from October 20-31, 1999 was not considered
significant. Operations of Zip2 after October 20, 1999 will be included with
one or more CMGI businesses that are separate from the AltaVista Business.
The purchase prices for the Shopping. com, Zip2 and iAtlas transactions
were allocated to assets acquired and liabilities assumed as set forth below.
The AltaVista Business' basis in the assets and liabilities of Zip2 disposed
of on October 20, 1999 were as set forth below (in thousands):
<TABLE>
<CAPTION>
Shopping.com Zip2 iAtlas Zip2
Acquisition Acquisition Transaction Disposition
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets (net of
cash).................... $ 1,791 $ 3,090 $ 161 $ 3,226
Fixed assets.............. 1,935 3,497 747 13,570
Other assets.............. 546 2,877 6 795
Goodwill and other
intangibles.............. 276,384 340,258 23,003 258,950
Deferred compensation..... -- -- 4,692 --
Liabilities............... $ 23,717 $ 21,218 $ 825 $ 21,736
</TABLE>
Raging Bull
In November 1999, the AltaVista Business agreed to acquire Raging Bull,
Inc., a finance-oriented community and content internet company and an
affiliate of CMGI. The acquisition is expected to be completed during the
first calendar quarter of 2000.
NOTE 3--CMGI ACQUISITION
On August 18, 1999, CMGI acquired an 81.495% equity interest in the
AltaVista Business for consideration valued at approximately $2.4 billion,
including approximately $4 million of direct costs of the acquisition. Compaq
retained an 18.505% equity interest in the AltaVista Business. CMGI's purchase
price was determined as follows: CMGI issued 18,994,975 shares of its common
stock valued at approximately $1.8 billion, 18,090.45 shares of its Series D
Preferred Stock valued at approximately $173 million and promissory notes for
an aggregate principal amount of $220 million. Additionally, options to
purchase AltaVista Business common stock were assumed by CMGI in the
transaction and were valued at approximately $213 million. CMGI's purchase
price of $2.4 billion for 81.495% of the equity interest in the AltaVista
Business was used as a basis to step up the value of the AltaVista
F-15
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
Business to approximately $2.9 billion, in order to apply purchase accounting
to the AltaVista Business' assets acquired and liabilities assumed. The
AltaVista Business' allocation of the step-up was as follows (in millions):
<TABLE>
<S> <C>
Net tangible assets................................................ $ 27.5
Patents, trademarks and domain names............................... 34.9
Completed technology............................................... 154.9
Assembled workforce................................................ 10.0
Goodwill........................................................... 2,700.2
--------
Total step-up value.............................................. $2,927.5
========
</TABLE>
The resulting purchase price allocation was recorded on August 18, 1999.
All of the aforementioned intangibles are being amortized over a three-year
life.
The following unaudited pro forma combined amounts give effect to the CMGI
acquisition of the AltaVista Business, including Shopping.com, as if it had
occurred on January 1, 1998 (the pro forma results of operations for the year
ended December 31, 1998 reflects Shopping.com's results for the period from
February 1, 1998 to January 31, 1999 and the pro forma results of operations
for the seven month period ended July 31, 1999 reflects Shopping.com's results
for the period from January 1, 1999 to July 31, 1999). The results of Zip2
have not been included in the pro forma combined results given its disposal in
October 1999. The results of iAtlas have not been included in the unaudited
pro forma combined results due to its insignificance.
<TABLE>
<CAPTION>
(in thousands) Year Ended Seven Months
December 31, Ended July 31,
1998 1999
------------ --------------
<S> <C> <C>
Net revenues..................................... $ 45,261 $ 73,299
========= =========
Net loss......................................... $(945,858) $(608,286)
========= =========
Pro forma net loss per share..................... $ (9.46) $ (6.08)
========= =========
</TABLE>
NOTE 4--INTANGIBLE ASSETS
<TABLE>
<CAPTION>
(in thousands) December 31, July 31, October 31,
1998 1999 1999
------------ -------- -----------
<S> <C> <C> <C>
Goodwill................................... $255,600 $861,342 $2,456,878
Completed technology....................... -- 15,750 150,900
Trademarks................................. 18,500 7,050 33,410
Other...................................... -- 7,247 7,157
Purchased domain name ..................... 3,422 3,422 3,422
-------- -------- ----------
277,522 894,811 2,651,767
Less: accumulated amortization............. 51,034 185,626 178,052
-------- -------- ----------
$226,488 $709,185 $2,473,715
======== ======== ==========
</TABLE>
Purchased domain name
In March 1996, AltaVista entered into an agreement pursuant to which the
other party assigned to AltaVista all of its rights, title and interest to the
www.altavista.com domain name and AltaVista agreed to grant the other party a
non-exclusive license to use the www.altavista.com domain name as part of
their corporate name. In July 1998, the other party agreed to sell, transfer
and assign to AltaVista all of its rights in and to the
F-16
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
www.altavista.com domain name granted under the original agreement for an
aggregate consideration of approximately $3.4 million. The consideration paid
consists of cash and a note payable of $2.75 million (see Note 8).
NOTE 5--INVESTMENTS
In December 1998, Compaq purchased on behalf of the AltaVista Business
500,000 shares of Series B preferred stock of RealNames Corporation. The total
consideration paid of approximately $500,000 resulted in the AltaVista
Business owning less than 20% of RealNames Corporation.
In January 1999, Compaq purchased on behalf of the AltaVista Business
2,023,635 shares of Series D preferred stock of Virage, Inc. The total
consideration paid of approximately $3,480,000 resulted in the AltaVista
Business owning less than 20% of Virage, Inc.
In March 1999, Compaq purchased on behalf of the AltaVista Business
1,000,000 shares of Series B preferred stock of FreePC.com for approximately
$5,000,000 resulting in the AltaVista Business owning less than 20% of
FreePC.com.
In July 1999, the AltaVista Business purchased 2,171,809 shares of Series C
preferred stock of 1stUp.com Corporation for approximately $2,500,000
resulting in the AltaVista Business owning less than 20% of 1stUp.com. On
November 4, 1999, CMGI acquired all of the issued and outstanding stock of
1stUp.com.
NOTE 6--PROPERTY AND EQUIPMENT
Property and equipment are summarized below (in thousands):
<TABLE>
<CAPTION>
December 31, July 31,
1998 1999
------------ --------
<S> <C> <C>
Land................................................... $ 3,491 $ 3,491
Buildings.............................................. 8,451 11,741
Leasehold improvements................................. 1,296 5,266
Machinery and equipment................................ 11,480 35,295
Construction in process................................ 2,773 343
------- -------
27,491 56,136
Less: Accumulated depreciation......................... 3,318 9,390
------- -------
Property and equipment, net............................ $24,173 $46,746
======= =======
</TABLE>
Depreciation expense totaled $2.1 million, $3.3 million and $6.2 million
for the period from January 1, 1998 through June 11, 1998, for the period from
June 12, 1998 to December 31, 1998 and the seven months ended July 31, 1999,
respectively.
F-17
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
NOTE 7--OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
(in thousands) December 31, July 31, October 31,
1998 1999 1999
------------ -------- -----------
<S> <C> <C> <C>
Accrued legal reserve...................... $ -- $22,058 $22,005
Deferred revenue........................... 150 7,498 8,891
Accrued advertising commissions............ -- 7,011 6,433
Accrued advertising expense................ -- 4,327 15,608
Accrued revenue share fees................. 7,656 1,856 1,711
Other...................................... 1,229 9,033 12,743
------ ------- -------
Total other current liabilities.......... $9,035 $51,783 $67,391
====== ======= =======
</TABLE>
NOTE 8--DEBT
Long-term debt
Long-term debt as of July 31, 1999 includes a note payable related to the
purchased domain name which bears interest at an annual rate of 7%. The note
plus accrued interest was payable in 12 quarterly installments commencing
October 1, 1998. In October 1999, this note and accrued interest were paid in
full.
Demand note payable
Concurrent with the CMGI acquisition, the AltaVista Business issued a
convertible demand note payable to CMGI (see Note 9) pursuant to which the
AltaVista Business would pay to CMGI, upon demand of CMGI, the lesser of (i)
the principal sum of $100,000,000 or (ii) the aggregate unpaid principal
amount of all advances (and 7% interest thereon) made from CMGI to the
AltaVista Business. CMGI will at any time have the option to require the
AltaVista Business to issue shares of the AltaVista Business' capital stock as
follows: (a) prior to a qualified public offering (as defined), the AltaVista
Business will issue that number of shares of its Series A Convertible
Preferred stock (see Note 13) equal to one-tenth of the quotient of (i) the
aggregate amount of principal and interest to be so converted at any
particular date, divided by (ii) the applicable conversion price; (b)
following a qualified public offering, the AltaVista Business will issue that
number of shares of its common stock equal to the quotient of (i) the
aggregate amount of principal and interest to be so converted at any
particular date divided by (ii) the applicable conversion price. The
conversion price shall be determined as of a fiscal quarter end for that
particular fiscal quarter by dividing (i) the total enterprise valuation of
the AltaVista Business as of the fiscal quarter end by (ii) the number of
shares of the AltaVista Business' common stock outstanding as of that date,
determined on a fully-diluted, as-if converted basis. During the first quarter
in which a qualified public offering occurs, the conversion price applicable
to that quarter will be the conversion price in effect for the immediately
preceding quarter. As of October 31, 1999, the AltaVista Business had
approximately $43.5 million outstanding under the convertible demand note,
which, if so elected by CMGI, could have been converted into approximately
151,000 shares of Series A Convertible Preferred stock (using an assumed
conversion price of approximately $29). Compaq has certain pre-emptive rights
which allow it to purchase a proportionate amount of debt or convertible
preferred stock relative to the amount of any debt or convertible preferred
stock issued to CMGI in connection with CMGI's exercise of the conversion
feature of the demand note payable.
F-18
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
NOTE 9--RELATED PARTY TRANSACTIONS
Compaq allocated costs
The amounts allocated by Compaq to the AltaVista Business and included in
the accompanying combined statement of operations for the seven months ended
July 31, 1999 are $686,000 and $117,000 for general and administrative
expenses and interest expense, respectively.
Amounts paid to CMGI
Since August 19, 1999, CMGI has advanced funds and provided services to the
AltaVista Business from time to time. These amounts are reflected in
convertible demand notes payable to CMGI in the accompanying combined balance
sheet, and bear interest at 7% per annum. The CMGI amounts included in the
accompanying combined statement of operations for the three months ended
October 31, 1999 are $1,223,000 and $360,000 for sales and marketing expenses
and interest expense, respectively.
NOTE 10--INCOME TAXES
No income tax expense has been provided in these financial statements since
AltaVista's net operating losses generated have not been benefited.
Deferred tax assets and liabilities at July 31, 1999, computed under the
separate return method, are comprised of the following (in thousands):
<TABLE>
<CAPTION>
July 31,
1999
--------
<S> <C>
Property and equipment............................................. $ 3,251
Reserves and accruals.............................................. 5,717
Stock-based compensation........................................... 1,379
Capitalized research and development costs......................... 1,407
Net operating losses............................................... 68,268
--------
Gross deferred tax assets........................................ 80,022
Deferred tax liability intangible assets........................... (8,050)
Valuation allowance.............................................. (71,972)
--------
Net deferred tax assets............................................ $ --
========
</TABLE>
In light of the recent history of operating losses, the AltaVista Business
has provided a valuation allowance for all of its deferred tax assets.
Presently management is unable to conclude that it is more likely than not
that the deferred tax assets will be realized.
As of July 31, 1999, the AltaVista Business has a net operating loss
carryover of approximated $176 million for federal and California income tax
purposes. Approximately $50 million of the net operating loss remained with
Compaq after the assets and liabilities of the AltaVista Business were
transferred to CMGI.
Federal and California tax laws impose substantial restrictions on the
utilization of net operating loss carryforwards in the event of an ownership
change as defined in Section 382 of the Internal Revenue Code. If the
AltaVista Business has an ownership change, its ability, if any, to utilize
the net operating loss carryforwards could be significantly reduced.
F-19
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
NOTE 11--MARKETING AGREEMENTS
Premier Search Services Agreement with Microsoft
In September 1998, the AltaVista Business and Microsoft entered into a one
year Premier Search Services agreement whereby Microsoft guaranteed a minimum
number of impressions on its various Internet search versions and web site.
For the guaranteed impressions, AltaVista Business was to pay $18.0 million in
four quarterly installments. All impressions delivered above the guaranteed
impressions were to be paid at a specified contractual rate, not to exceed a
total payment of $23.0 million. This agreement was amended in February 1999.
Under the amended agreement, Microsoft guaranteed a minimum number of
impressions for total consideration of $16.5 million. Included in sales and
marketing expenses in the accompanying combined financial statements related
to this agreement for the seven months ended July 31, 1999 is approximately
$10.3 million.
NOTE 12--RETIREMENT PLANS
401(k) Investment Plan
The Company has a 401(k) investment plan (the "Investment Plan") covering
substantially all of its U.S. employees effective May 1, 1999 for AltaVista
and Zip2, and July 1, 1999 for Shopping.com. Under the Investment Plan,
employees may defer up to 20% of their eligible pre-tax earnings, subject to
the Internal Revenue Service annual contribution limitation. The Company
matches 33% of each employee's contribution up to 6% and such matching
contributions totaled approximately $100,000 for both the seven months ended
July 31, 1999 and the three months ended October 31, 1999.
Pensions
Upon consummation of the acquisition of Digital by Compaq, Compaq assumed
certain of Digital's defined benefit and defined contribution plans of which
employees of the AltaVista Business were participants. The AltaVista Business'
employees who were eligible to participate in the Digital plans at the time of
the acquisition continued to be eligible to participate in these plans until
May 1, 1999 at which time the employees had the option to rollover their fund
balances to a qualified plan or, if balances exceeded $5,000, to leave such
balances in the plan. The benefits generally are based on years of service and
compensation during the employee's career. Pension cost is based on estimated
benefit formulas.
Additionally, Compaq assumed the defined benefit postretirement plans that
provide medical and dental benefits for the AltaVista Business' retirees and
their eligible dependents in the United States.
The combined statements of operations include allocated costs as fringe
benefits included in general and administrative expense based upon an average
cost per employee for the retirement plan and are not significant for any
periods presented.
NOTE 13--CAPITAL STOCK AND STOCK OPTION PLANS
Capital stock
On August 18, 1999, the AltaVista Business merged into a subsidiary of CMGI
which then changed its name to AltaVista Company (the "Company"). The Company
has 200 million shares of common stock authorized, of which 100 million shares
were issued and outstanding on August 18, 1999.
F-20
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
The Company's Board of Directors has approved the authorization of
5,000,000 shares of Series A Convertible Preferred Stock, par value $0.01. As
of October 31, 1999, no such shares have been issued.
The significant rights that the holders of the Series A Convertible
Preferred Stock are entitled to are as follows:
(a) The right to receive dividends at a rate of 7% of the applicable
purchase price (as defined) per share per annum commencing as of the
date the particular shares are issued, payable when declared by the
Board of Directors of the Company.
(b) In the event of any liquidation, dissolution or winding up of the
Company, the entire assets of the Company available for such
distribution shall be distributed ratably among the holders of the
Series A Convertible Preferred Stock. If amounts available for
distribution to each holder is at least equal to the applicable
purchase price for each such share plus a dividend computed at a rate
of 7% of the applicable purchase price for each such share per annum,
compounded annually from their issuance date (the preferential amount),
holders of each share of Series A Convertible Preferred Stock shall be
entitled to be paid first out of the assets of the Company available
for distribution to holders of the Company's capital stock of all
classes an amount equal to the preferential amount. After the payment
of the preferential amount, the holders of the Company's common stock
shall be entitled to receive the remaining assets and funds of the
Company available for distribution to its stockholders. A consolidation
or merger of the Company or a sale of all or substantially all of the
assets of the Company shall be regarded as a liquidation, dissolution
or winding up of the Company.
(c) Each holder of Series A Convertible Preferred Stock shall be entitled
to vote on all matters and shall be entitled to that number of votes
equal to the largest number of whole shares of common stock into which
such holder's shares of Series A Convertible Preferred Stock could be
converted.
(d) Any shares of the Series A Convertible Preferred Stock may, at the
option of the holder, be converted into a number of shares of common
stock calculated as follows: the sum of the product obtained by
multiplying the applicable conversion rate for each tranche of Series A
Convertible Preferred Stock by the number of shares of each tranche of
Series A Convertible Preferred Stock being converted. The conversion
rate shall be the quotient obtained by dividing (i) the applicable
purchase price by (ii) the applicable conversion value. The conversion
value shall be equal to the quotient obtained by dividing (i) the
applicable purchase price by (ii) ten. The conversion value is subject
to certain anti-dilution provisions.
(e) All outstanding shares of Series A Convertible Preferred Stock
automatically convert into common stock, using the aforementioned
conversion formula, upon the closing of an underwritten public offering
in which (1) the price to the public is not less than an amount per
share calculated as follows: the aggregate purchase prices for each
tranche multiplied by the number of shares issued in such tranche plus
a dividend computed at 7% per share per annum, compounded annually from
their issue date, divided by the total number of shares of Series A
Convertible Preferred Stock issued and outstanding, and (2) the
aggregate gross proceeds received by the Company shall equal or exceed
$15,000,000.
(f) At the written election of a majority of the holders of the Series A
Convertible Preferred Stock on or before July 2, 2006, beginning on
January 2, 2007 and on the first day of July in each year thereafter,
the Company shall redeem, pro rata based on the number of shares of
each tranche, 25% of all of the outstanding shares of Series A
Convertible Preferred Stock. The redemption price for each share shall
be equal to the aforementioned preferential amount.
F-21
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
AltaVista stock option plans
On May 28, 1999, the AltaVista Business adopted the AltaVista Company 1999
Stock Option Plan (the "Plan"). The Plan was administered by a committee
designated by the Board of Directors to administer the Plan and composed of
individuals who are, to the extent necessary, "non-employee directors." In
September 1999, the Board of Directors adopted and stockholders approved the
1999 Equity Incentive Plan in order to replace the May 28, 1999 Plan. The Plan
was terminated, but all then-outstanding options under the Plan remain in
effect.
Subject to the terms of the Plan and applicable law, the committee had the
full authority to (a) designate participants; (b) determine the type, size,
terms and conditions of awards made to participants; and (c) establish rules
and regulations under and make any other determination necessary or desirable
for the administration of the Plan. The number of shares with respect to which
awards may have been granted under the Plan was 20,000,000.
As of July 31, 1999, there were 9,638,282 options outstanding under the
Plan (including options issued to Zip2 employees in exchange for their
outstanding options at the time of acquisition). Certain of these options were
issued at below fair value. The corresponding compensation expense of
approximately $172 million was scheduled to be amortized over the four year
vesting periods of the related options, from the grant dates. Amortization of
stock-based compensation included in the combined statement of operations
calculated using an accelerated method and totaled $35.8 million and $15.6
million, for the seven months ended July 31, 1999 and for the three months
ended October 31, 1999, respectively.
In September 1999, AltaVista instituted the 1999 Stock Option Plan for Non-
Employee Directors in which non-qualified options were granted to directors
who were not AltaVista employees. The Board reserved 250,000 shares of common
stock for issuance under the plan. In September 1999, the 1999 Stock Option
Plan for Non-Employee Directors was terminated, however, all then-outstanding
options under that plan remain in effect. As of October 31, 1999 options to
purchase 109,000 shares of common stock, with a weighted average exercise
price of $22.33 were outstanding under the plan.
1999 Directors Plan
In October 1999, the Board of Directors adopted and the stockholders
approved the 1999 Amended and Restated Directors Plan, pursuant to which
1,000,000 share of our common stock are reserved for issuance. As of
October 31, 1999, options to purchase 231,000 shares of common stock, with a
weighted average exercise price of $29.55, were outstanding.
All directors are eligible to receive non-statutory stock options to
purchase shares of common stock under the 1999 Directors Plan, except for any
director who (i) is an employee of AltaVista or any subsidiaries or affiliates
or (ii) unless otherwise determined by the Board of Directors, is an
affiliate, employee or designee of an institutional or corporate investor that
owns more than 5% of our outstanding common stock. Under the plan all non-
employee directors:
. will be granted an initial option to acquire 125,000 shares of common
stock when a director is elected a for the first time after the plan is
adopted on the date of that election;
. will also be granted an initial option to acquire 125,000 shares of
common stock when the director
. ceases being an affiliate, employee or designee of an institutional
or corporate investor that owns more than 5% of our outstanding
common stock and
. is not otherwise an employee of the AltaVista Business or any of its
subsidiaries, but
F-22
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
. remains as a member of the board on the date the director's
affiliate, employee or designee status ceases.
Each non-employee director will also receive, on each anniversary of the
grant of the initial option, an additional option to purchase 31,250 shares of
common stock if the director is still serving as one of the Company's
directors on that anniversary date. The Board of Directors may, in its
discretion, increase to up to 175,000 shares the aggregate number of shares of
common stock subject to any initial option or additional options so long as
the maximum aggregate number of shares that may vest for any optionee in any
48-month period will not exceed 175,000 shares.
The option exercise price per share for each option granted under the 1999
Directors Plan will be determined on the date of grant and will be equal to
the closing price of our common stock on a national securities exchange or as
quoted on the Nasdaq National Market, the average of the closing bid and asked
prices of the Company's common stock in the over-the-counter market or the
fair market value of our common stock as determined by the Board of Directors.
Except as otherwise provided in the applicable option agreement, each option
granted under the 1999 Directors Plan will terminate on the tenth anniversary
of the date of grant of such option. Subject to the optionee continuing to
serve as a director, each initial option will vest and become exercisable as
to 1/48th of the number of shares of common stock originally subject to the
option on each monthly anniversary of the date of grant. Each annual option
will vest and become exercisable on a monthly basis as to 1/12th of the number
of shares originally subject to the option commencing on the 37th month after
the grant date if the optionee is still serving as a director on that monthly
anniversary date.
1999 Equity Incentive Plan
In September 1999, the Board of Directors adopted and the stockholders
approved the 1999 Equity Incentive Plan (the "Equity Plan") to attract and
retain key employees and consultants. The Equity Plan covers an aggregate of
20,000,000 shares of common stock and provides for the issuance of stock
options, stock appreciation rights and restricted stock. All grants of
options, other than pursuant to the 1999 Amended and Restated Directors Plan,
will be granted pursuant to this plan. The maximum number of shares subject to
options or stock appreciation rights that may be granted to any participant in
any calendar year may not exceed 1,000,000 shares. As of October 31, 1999,
options to purchase 2,525,754 shares of common stock, with a weighted average
exercise price of $22.33, were outstanding.
Two types of stock options may be granted under the Plan: incentive stock
options ("ISOs"), which are intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended, and non-qualified stock options
("NSOs"). The option price of each NSO granted under the Plan may not be less
than the par value of a share of common stock. The option price of each ISO
granted under the Plan must be at least equal to the fair market value of a
share of common stock on the date the ISO is granted.
A stock appreciation right granted under the Equity Plan entitles its
holder to receive, at the time of exercise, an amount per share equal to the
excess of the fair market value (at the date of exercise) of a share of common
stock over a specified price fixed by the plan administrator. Stock
appreciation rights and limited stock appreciation rights may be granted under
the Equity Plan either alone or in conjunction with all or part of any stock
option granted under the Equity Plan. A limited stock appreciation right
granted under the Equity Plan entitles its holder to receive, at the time of
exercise, an amount per share equal to the excess of the change in control
price of a share of common stock over a specified price fixed by the plan
administrator.
F-23
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
The following table summarizes stock option activity under all the
AltaVista Business option plans:
<TABLE>
<CAPTION>
Weighted
Price Per Average Price
Shares Share Per Share
---------- ------------ -------------
<S> <C> <C> <C>
Options granted in the acquisition of
Zip2.................................. 998,666 $0.06-2.14 $ 0.59
Options granted........................ 8,687,759 8.75-12.00 9.10
Options lapsed or canceled............. (48,143) 0.06-8.75 2.35
---------- ------
Options outstanding July 31, 1999...... 9,638,282 8.25
========== ======
Options granted (unaudited)............ 2,873,254 22.33-29.55 22.91
Options lapsed or canceled
(unaudited)........................... (415,051) 8.75-22.33 8.55
Options exercised (unaudited).......... (10,000) 8.75 8.75
Options exchanged for CMGI options
(unaudited)........................... (512,292) $ 8.75-12.00 9.07
---------- ------
Options outstanding October 31, 1999
(unaudited)........................... 11,574,193 $11.84
========== ======
</TABLE>
The following table summarizes significant ranges of outstanding and
exercisable options at July 31, 1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
---------------------- -----------
Weighted
Average
Contractual
Remaining
Shares Life (Years) Shares
--------- ------------ -----------
<S> <C> <C> <C>
Range of exercise prices
$0.06-2.14.................................. 960,923 9.0 237,875
$8.75....................................... 7,751,560 9.8 --
$12.00...................................... 925,799 9.9 --
--------- -------
9,638,282 237,875
========= =======
</TABLE>
The weighted average fair value per share of stock based compensation
issued during the seven months ended July 31, 1999 was $23.71. The fair value
of these options was estimated using the Black-Scholes model with the
following weighted average assumptions:
Assumptions Table:
<TABLE>
<CAPTION>
Seven Months
Ended
July 31, 1999
-------------
<S> <C>
Expected option life (in years)................................... 3.0
Risk-free interest rate........................................... 5.6%
Volatility........................................................ 97.0%
Dividend yield.................................................... 0.0%
</TABLE>
F-24
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
The table that follows summarizes the pro forma effect of net loss if the
fair values of stock based compensation had been recognized in the period
presented as compensation expense on a straight-line basis over the vesting
period of the grant. The following pro forma effect on net loss for the
periods presented is not representative of the pro forma effect on net loss in
future years because it does not take into consideration pro forma
compensation expense related to grants made prior to 1995.
<TABLE>
<CAPTION>
Seven Months
Ended
July 31,
1999
------------
<S> <C>
(in thousands, except per share data)
Net loss:
As reported................................................... $(231,977)
Pro forma..................................................... (239,703)
Pro forma net loss per share:
As reported................................................... $ (2.32)
Pro forma..................................................... (2.39)
</TABLE>
NOTE 14--COMMITMENTS AND CONTINGENCIES
Lease commitments
The AltaVista Business leases office space and equipment under
noncancelable operating and capital leases with various expiration dates
through 2009. Rent expense for the seven months ended July 31, 1999 and for
the three months ended October 31, 1999 and September 30, 1998 was $1.4
million, $0.9 million and $0.1 milion, respectively.
At July 31, 1999, future minimum lease payments under noncancelable
operating and capital leases are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
Year ending July 31,
2000....................................................... $1,708 $ 5,448
2001....................................................... 1,562 6,192
2002....................................................... 913 6,017
2003....................................................... 158 5,951
2004....................................................... 27 5,899
Thereafter................................................. -- 22,135
------ -------
Total minimum lease payments............................... 4,368 $51,642
=======
Less: Amount representing interest......................... 485
------
Present value of capital lease obligations................. 3,883
Less: Current portion...................................... 1,502
------
Long-term portion of capital lease obligations............. $2,381
======
</TABLE>
Included in the above lease commitments as of July 31, 1999 are total
minimum lease payments of $3.9 million and $2.4 million for capital leases and
operating leases, respectively, of Zip2.
F-25
<PAGE>
ALTAVISTA BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended September 30, 1998 and October
31, 1999 is unaudited)
Indemnification Agreement
Compaq has agreed to assume liability for certain AltaVista Business claims
or liabilities (primarily related to Shopping.com), and has further
indemnified CMGI and the AltaVista Business for certain claims or liabilities
which existed at or prior to the CMGI acquisition date. As of July 31, 1999
and October 31, 1999, the AltaVista Business has recorded a receivable from
Compaq of approximately $10.3 million representing its claim against Compaq
for the indemnification of a corresponding accrual amount for certain legal
settlements.
Litigation
On December 16, 1999, the AltaVista Business settled a claim with One Zero
Media, Inc., which related to a claim that existed as of July 31, 1999. The
resulting settlement amount, of approximately $11.5 million, has been recorded
as a general and administrative expense in the combined statement of
operations for the seven-month period ended July 31, 1999, and no offsetting
indemnification from Compaq has been recorded as of this date.
NOTE 15--SUBSEQUENT EVENTS
1999 Employee Stock Purchase Plan
In December 1999, the Board of Directors adopted and the stockholders
approved the 1999 Employee Stock Purchase Plan (the "Purchase Plan") which
allows eligible employees, which may include employees located in foreign
jurisdictions, to purchase common stock at a discount from fair market value.
A total of 2,000,000 shares of common stock has been reserved for issuance
under the Purchase Plan.
The Purchase Plan will be implemented by establishing purchase periods that
may be three-months, six-months or other periods as determined by the plan
administrator. The Purchase Plan will be implemented at different dates in
different countries with the initial purchase period in the first locations
not anticipated to begin before the closing of this offering.
The Purchase Plan permits each employee to purchase common stock through
payroll deductions of up to 10% of the employee's pay. The maximum number of
shares an employee may purchase during a single purchase period is 2,500
shares. Amounts deducted and accumulated by employees are used to purchase
shares of common stock at the end of each purchase period. The price of the
common stock offered under the Purchase Plan is an amount equal to 85% of the
lower of the fair market value of the common stock at the beginning or at the
end of each purchase period.
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Compaq Computer Corporation
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in owner's net investment and of cash flows present
fairly, in all material respects, the financial position of AltaVista (the
"Business") at December 31, 1998, and the results of its operations and its
cash flows for the period from June 12, 1998 through December 31, 1998 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Business's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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
financials statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above. We have not audited the financial statements
of the Business for any period subsequent to December 31, 1998.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 29, 1999
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Compaq Computer Corporation
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in owner's net investment and of cash flows present
fairly, in all material respects, the financial position of AltaVista (the
"Business") at December 31, 1997, and the results of its operations and its
cash flows for the period from January 1, 1998 through June 11, 1998, and the
years ended December 31, 1997 and 1996 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Business's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which 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 financials statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 29, 1999
F-28
<PAGE>
ALTAVISTA
BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, less allowance of $1,427 and
$2,832............................................... $ 6,290 $ 12,819
Prepaid expenses...................................... 481 350
-------- --------
Total current assets.................................... 6,771 13,169
Property and equipment, less accumulated depreciation... 10,418 24,173
Goodwill and other intangible assets, net............... 31 226,488
Investments............................................. -- 500
-------- --------
Total assets............................................ $ 17,220 $264,330
======== ========
LIABILITIES AND OWNER'S NET INVESTMENT
Current liabilities:
Long-term debt, current portion....................... $ -- $ 658
Accounts payable...................................... 702 691
Salaries, wages and related items..................... 455 455
Accrued partner fees.................................. 281 7,656
Deferred revenue...................................... 500 150
Other current liabilities............................. 667 774
-------- --------
Total current liabilities............................... 2,605 10,384
-------- --------
Commitments and contingencies
Long-term debt.......................................... -- 1,656
-------- --------
Net contribution from owner............................. 28,738 321,856
Accumulated deficit..................................... (14,123) (69,566)
-------- --------
Owner's net investment.................................. 14,615 252,290
-------- --------
Total liabilities and owner's net investment............ $ 17,220 $264,330
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
ALTAVISTA
STATEMENT OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Period from Period from
Year ended January 1, June 12,
December 31, 1998 through 1998 through
---------------- June 11, December 31,
1996 1997 1998 1998
------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues........................... $ 900 $13,813 $13,622 $ 23,517
Cost of revenues................... 1,963 5,008 3,445 6,964
------- ------- ------- --------
Gross profit (loss).............. (1,063) 8,805 10,177 16,553
------- ------- ------- --------
Operating expenses:
Sales and marketing.............. 941 5,615 5,426 23,900
Product development.............. 3,475 6,000 5,413 7,210
General and administrative....... 1,784 2,785 1,744 3,806
Amortization of intangible
assets.......................... 19 25 8 50,982
------- ------- ------- --------
Loss from operations............... (7,282) (5,620) (2,414) (69,345)
Interest expense................... 32 114 79 221
------- ------- ------- --------
Loss before income taxes........... (7,314) (5,734) (2,493) (69,566)
Income taxes....................... -- -- -- --
------- ------- ------- --------
Net loss........................... $(7,314) $(5,734) $(2,493) $(69,566)
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
ALTAVISTA
STATEMENT OF CHANGES IN OWNER'S NET INVESTMENT
(in thousands)
<TABLE>
<CAPTION>
Net Total
Contribution Accumulated Owner's Net
from Owner Deficit Investment
------------ ----------- -----------
<S> <C> <C> <C>
Balance, January 1, 1996................... $ 1,454 $ (1,075) $ 379
Net loss................................... -- (7,314) (7,314)
Net contribution from owner................ 12,055 -- 12,055
-------- -------- --------
Balance, December 31, 1996................. 13,509 (8,389) 5,120
Net loss................................... -- (5,734) (5,734)
Net contribution from owner................ 15,229 -- 15,229
-------- -------- --------
Balance, December 31, 1997................. 28,738 (14,123) 14,615
Net loss................................... -- (2,493) (2,493)
Net contribution from owner................ 11,536 -- 11,536
-------- -------- --------
Balance, June 11, 1998..................... 40,274 (16,616) 23,658
======== ======== ========
Net loss................................... -- (69,566) (69,566)
Net contribution from owner................ 321,856 -- 321,856
-------- -------- --------
Balance, December 31, 1998................. $321,856 $(69,566) $252,290
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
ALTAVISTA
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from Period from
Year ended January 1, June 12,
December 31, 1998 through 1998 through
---------------- June 11, December 31,
1996 1997 1998 1998
------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(7,314) $(5,734) $(2,493) $(69,566)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization.. 854 2,685 2,079 54,147
Provision for bad debts........ -- 1,427 1,220 2,516
Changes in operating assets and
liabilities:
Accounts receivable.......... (573) (7,144) (3,248) (7,017)
Prepaid expenses............. (181) (300) (3,577) 3,708
Accounts payable............. 37 665 47 (58)
Salaries, wages and related
items....................... 161 290 371 (371)
Deferred revenue............. 100 400 (187) (163)
Other current liabilities.... 118 830 (329) 7,681
------- ------- ------- --------
Net cash used in operating
activities................ (6,798) (6,881) (6,117) (9,123)
------- ------- ------- --------
Cash flows from investing
activities:
Purchase of intangible assets.... (75) -- -- (477)
Purchases of property and
equipment....................... (5,182) (8,348) (5,419) (2,906)
Investments...................... -- -- -- (500)
------- ------- ------- --------
Net cash used in investing
activities................ (5,257) (8,348) (5,419) (3,883)
------- ------- ------- --------
Cash flows from financing
activities:
Repayment of long-term debt...... -- -- -- (436)
Net change in contribution from
owner........................... 12,055 15,229 11,536 13,442
------- ------- ------- --------
Net cash provided by
financing activities...... 12,055 15,229 11,536 13,006
------- ------- ------- --------
Net increase in cash ............ $ -- $ -- $ -- $ --
======= ======= ======= ========
Noncash investing activities:
Contribution of net assets from
owner........................... $ -- $ -- $ -- $308,414
Purchase of URL.................. $ -- $ -- $ -- $ 2,930
Noncash financing activities:
Note payable from purchase of
URL............................. $ -- $ -- $ -- $ 2,750
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
ALTAVISTA
NOTES TO FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES:
Description of business
AltaVista (the "Business") provides Internet search and navigation
technology, enabling the delivery of information through broad-based search
capabilities. The Business's objective is to deliver the most personally
relevant Internet results faster than anyone else on the Internet. With the
leverage from numerous partnerships, the business is extending its services to
delivering highly personalized e-Commerce offerings and local content through
an integrated network of new media and e-Commerce partners.
Basis of presentation
These financial statements present the assets, liabilities, changes in
owner's net investment, results of operations and cash flows applicable to the
operations of the Business. The financial statements of the Business are
derived from the historic books and records of Digital Equipment Corporation
("Digital") through June 11, 1998. As a result of the acquisition of Digital
by Compaq Computer Corporation ("Compaq") on June 11, 1998, the financial
statements of the Business after the acquisition date are derived from the
historic books and records of Compaq and reflect the "pushdown" of Compaq's
bases in the assets and liabilities.
The statement of operations includes all revenues and costs directly
attributable to the Business, including charges for shared facilities,
functions and services used by the Business and provided by Digital or Compaq.
Certain costs and expenses have been allocated based on management's estimates
of the cost of services provided to the Business by Digital or Compaq. Such
costs include corporate research and engineering expenses, corporate selling
and marketing expenses and corporate general and administrative expenses (see
Note 5). Such allocations and charges are based on either a direct cost pass-
through or a percentage of total costs for the services provided based on
factors such as headcount or the specific level of activity directly related
to such costs (i.e., direct spending). Management believes that these
allocations are based on assumptions that are reasonable under the
circumstances. However, these allocations and estimates are not necessarily
indicative of the costs and expenses which would have resulted if the Business
had been operated as a separate entity.
The Business has incurred recurring losses from operations through December
31, 1998. Compaq has committed to provide the funds required for the conduct
of the Business's operations at least through December 31, 1999 or to the
date, if earlier, on which it ceases to be the controlling shareholder. The
historical operating results may not be indicative of future results.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Significant estimates include the allowance for accounts receivable and the
lives of intangible assets.
Concentration of credit risk
Financial instruments which potentially subject the Business to a
concentration of credit risk consist of accounts receivable. The Business's
accounts receivable are derived primarily from advertising revenue earned from
customers located in the U.S. The Business maintains reserves for potential
credit loss. Historically such losses have not been significant and have been
within management's expectations.
F-33
<PAGE>
ALTAVISTA
NOTES TO FINANCIAL STATEMENTS--(Continued)
During all the periods presented, the Business derived substantially all of
its revenues from the Procurement and Trafficking Agreement (the "Agreement")
with DoubleClick, Inc. ("DoubleClick"). Under the Agreement, DoubleClick is
the exclusive third-party provider of advertising services on specified pages
within the Business's web site. The agreement was amended on January 7, 1998
to extend the term of the Agreement through December 1999, and to provide that
either party may terminate the Agreement, after July 1998, upon 90 days prior
written notice. The Agreement is expected to continue to account for a
significant portion of the Business's revenues. The termination of the
Agreement, or any development materially affecting the business or financial
condition of DoubleClick would have a material adverse effect on the
Business's results of operations and financial position. Accounts receivable
from DoubleClick comprised 77% and 77.8% of gross accounts receivable as of
December 31, 1997 and 1998, respectively.
Business risks
The Business is subject to risks and uncertainties common to growing
technology-based companies, including rapid technological change, growth and
commercial acceptance of the Internet, dependence on third-party technology,
new service introductions and other activities of competitors, dependence on
key personnel, international expansion, and limited operating history.
Cash
Cash received from operations by the Business is swept by Compaq or Digital
and recorded as reductions of net contribution from owner; disbursements made
by Compaq or Digital on behalf of the Business are recorded as increases to
net contribution from owner.
Property and equipment
Property and equipment were recorded at fair market value at the date of
the acquisition by Compaq. Minor replacements, maintenance and repairs are
charged to current operations. Depreciation is computed by applying the
straight-line method over the estimated useful lives of the related assets as
follows:
<TABLE>
<CAPTION>
Estimated Useful
Lives In Years
----------------
<S> <C>
Machinery and equipment..................................... 5-10
Furniture and fixtures...................................... 3-10
Buildings and improvements.................................. 10-33
</TABLE>
Leasehold improvements are amortized over the shorter of the useful life of
the improvement or the life of the related lease.
Revenue recognition
The Business's revenues are derived primarily from short term advertising
contracts negotiated by DoubleClick in accordance with the terms of the
Agreement. The Business records as revenues its contractual percentage of the
total revenues generated from the delivery of advertisements. Such revenues
are recognized in the periods in which the advertisement is delivered,
provided that no significant obligations remain and collection of the
resulting receivable is probable. To the extent DoubleClick does not collect
billings from the advertisers, or grants additional discounts, the Business is
at risk for its contractual percentage of such bad debts and additional
discounts. Provisions for bad debts and additional discounts are provided at
the time of revenue recognition based upon historical experience and current
economic conditions. Net revenues derived from the Agreement represented 22%,
58%, 68%, and 74% of the Business's total net revenues for the years ended
F-34
<PAGE>
ALTAVISTA
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997 and for the period January 1, 1998 through June 11,
1998, and for the period June 12, 1998 to December 31, 1998, respectively.
The Business has recently entered into agreements with partners whereby the
Business receives a percentage of revenues generated by the partners through
e-Commerce transactions. Such revenues are recognized by the Business upon
notification from the partners of revenues earned by the Business and, to
date, have not been significant.
Also included in revenue is the exchange by the Business of advertising
space on the Business' web site for reciprocal advertising space or traffic in
other web sites or receipt of services. Revenue from these transactions is
recognized during the period in which the advertisements are placed and are
recorded at the lower of estimated fair value of the service received or the
estimated fair value of the advertisement given. Revenues from these
transactions represented 7% and 5% of total net revenues for the period
December 31, 1998 through January 1, 1998 and for the year ended December 31,
1997, respectively. Revenues for barter transactions were immaterial for the
period from June 12, 1998 through December 31, 1998 and for the year ended
December 31, 1996.
Deferred revenue
Deferred revenue primarily comprises cash collections in advance of revenue
associated with certain contracts and is recognized at the time the Business's
obligations under the contracts are fulfilled.
Fair value of financial instruments
The carrying amount of the Company's financial instruments, which include
accounts receivable, accounts payable, accrued expenses and notes payable
approximate their fair values at December 31, 1997 and 1998.
Intangible assets
Intangible assets primarily consist of trademarks and goodwill resulting
from the "pushdown" of the fair market value of the intangible assets
attributable to the Business as recorded on Compaq's books resulting from the
acquisition of Digital. Intangible assets also relate to the Business's
purchase of Universal Resource Locators ("URL"). Intangible assets are being
amortized on a straight-line basis over their estimated useful lives of three
years.
Impairment of long-lived assets
The Business reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment
loss would be recognized when estimated undiscounted future cash flows
expected to result from the use of the asset and its eventual disposition is
less than its carrying amount. The Business has not identified any such
impairment losses.
Investments
Compaq obtained equity interests in one privately held company which is
intended to be contributed to the Business. The investment resulted in the
Business owning less than 20% of the investee. Accordingly, the investment is
accounted for under the cost method. The investment was purchased near
December 31, 1998, therefore, its carrying value approximates fair value. For
non-quoted investments, the Business's policy is to regularly review the
assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values.
F-35
<PAGE>
ALTAVISTA
NOTES TO FINANCIAL STATEMENTS--(Continued)
Product development
Product development costs are expensed as incurred. Software development
costs subsequent to the establishment of technological feasibility are
capitalized and amortized to cost of software. Based upon the Business's
product development process, technological feasibility is established upon
completion of a working model. Costs incurred by the Business between
completion of the working model and the point at which the product is ready
for general release have been insignificant.
Advertising expense
The Business expenses advertising costs the first time the advertisement is
published or broadcasted. Included in sales and marketing is approximately $0,
$2,339,000, $2,465,500 and $2,880,000 for the years ended December 31, 1996
and 1997 and for the period January 1, 1998 through June 11, 1998, and for the
period June 12, 1998 to December 31, 1998, respectively.
Interest expense
Interest expense represented $32,000, $114,000, $79,000 and $221,000 for
the years ended December 31, 1996 and 1997 and for the period January 1, 1998
through June 11, 1998, and for the period June 12, 1998 to December 31, 1998,
respectively. There was no direct interest expense incurred by the Business
until the purchase of the URL in July 1998 (Note 3). Prior to that date,
interest expense corresponded to an allocation of Digital's or Compaq's
worldwide interest expense based upon the Business' proportionate share of
total assets. Management believes that this method provides a reasonable basis
for allocation within the Business' historical statement of operations.
Income taxes
The Business was not a separate taxable entity for federal, state or local
income tax purposes and its operations are included in the consolidated
Digital or Compaq tax returns. The Business accounts for income taxes under
the separate return method in accordance with SFAS No. 109, "Accounting for
Income Taxes." Under the separate return method, deferred tax assets generated
from operating losses required a full valuation allowance because given the
history of operating losses, realizability of such tax benefit is not
probable.
Stock-based compensation plans
As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Business accounts for its stock-based compensation plans using the
intrinsic value method prescribed by Accounting Principals Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25). Under APB 25, no stock
compensation expense has been recorded for any of the periods presented in the
accompanying financial statements.
Earnings per share
The Business is not a separate legal entity and has no historical capital
structure. Therefore, historical earnings per share have not been presented in
the financial statements.
Comprehensive income
The Business has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements.
F-36
<PAGE>
ALTAVISTA
NOTES TO FINANCIAL STATEMENTS--(Continued)
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Business has not had any
transactions that are required to be reported in comprehensive income.
Segment information
Effective January 1, 1998, the Business adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). The Business identifies its operating segments based on business
activities, management responsibility and geographical location. The Business
has organized its operations in a single operating segment providing delivery
of relevant and personalized e-Commerce offerings and local content. Further,
the Business derives the vast majority of its revenue from its operations in
the United States.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
new standard establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Business
does not expect SFAS No. 133 to have a material effect on its financial
position or results of operations.
In February 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SoP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SoP 98-1
establishes the accounting for costs of software products developed or
purchased for internal use, including when such costs should be capitalized.
The Business does not expect SoP 98-1, which is effective for the Business
beginning January 1, 1999, to have a material effect on its financial position
or results of operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of Start-
Up Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, commencing some new operation or organizing a new entity. Under SoP
98-5, the cost of start-up activities should be expensed as incurred. SoP 98-5
is effective for the Business beginning January 1, 1999 and the Business does
not expect its adoption to have a material effect on its financial position or
results of operations.
NOTE 2--PROPERTY AND EQUIPMENT:
Property and equipment are summarized below (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- -------
<S> <C> <C>
Land........................................................ $ -- $ 3,491
Buildings................................................... -- 8,451
Leasehold improvements...................................... 1,111 1,296
Machinery and equipment..................................... 11,002 11,480
Construction in-process..................................... 2,168 2,773
------- -------
14,281 27,491
Less: Accumulated depreciation.............................. 3,863 3,318
------- -------
Property and equipment, net................................. $10,418 $24,173
======= =======
</TABLE>
Depreciation expense totaled $834,000, $2,660,000, $2,070,000, and
$3,318,000 for the years ended December 31, 1996 and 1997 and for the period
January 1, 1998 through June 11, 1998, and for the period June 12, 1998 to
December 31, 1998, respectively.
F-37
<PAGE>
ALTAVISTA
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3--INTANGIBLE ASSETS:
Intangible assets are summarized below (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
---- --------
<S> <C> <C>
Goodwill...................................................... $-- $255,600
Trademarks.................................................... 75 18,500
Purchased URL sites........................................... -- 3,422
--- --------
75 277,522
Less: accumulated amortization................................ 44 51,034
--- --------
$31 $226,488
=== ========
</TABLE>
Compaq acquisition
On June 11, 1998, Compaq consummated its acquisition of Digital. The
purchase price was allocated to the assets acquired and liabilities assumed
based on Compaq's estimates of fair value. The fair value assigned to
intangible assets acquired was based on a valuation prepared by an independent
third-party appraisal company.
Purchased URL
In March 1996, the Business entered into an agreement pursuant to which the
other party assigned to the Business all of its right, title and interest in
and to the AltaVista URL and the Business agreed to grant the other party a
nonexclusive license to use the AltaVista URL as part of their corporate name.
In July 1998, the other party agreed to sell, transfer and assign to the
Business all of its rights in and to the AltaVista URL granted under the
original agreement for an aggregate consideration of approximately $3.3
million. The consideration paid consists of cash and a note payable of
$2,750,000 (Note 5).
NOTE 4--INVESTMENT:
In December 1998, Compaq purchased 500,000 shares of Series B preferred
stock of Centraal Corporation ("Centraal"). The total consideration paid of
approximately $500,000 has been included in long-term investments from the
date of acquisition and represents an ownership of less than 10%. This
investment is accounted for under the cost method of accounting.
NOTE 5--LONG-TERM DEBT:
Long-term debt consists of a note payable related to the purchased URL
which bears interest at an annual rate of 7%. The note plus accrued interest
is payable in twelve quarterly installments commencing October 1, 1998.
Principal payments due under the note are as follows:
<TABLE>
<S> <C>
1999.................................................................. $ 658
2000.................................................................. 932
2001.................................................................. 724
------
Total................................................................. $2,314
======
</TABLE>
F-38
<PAGE>
ALTAVISTA
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 6--RELATED PARTY TRANSACTIONS:
The Business uses Digital or Compaq manufactured equipment for its
operations which represents 60% of the total assets at December 31, 1997 and
are not significant with respect to total assets at December 31, 1998. Digital
manufactured equipment is recorded at fair market value at the date of
acquisition.
Allocated costs
The amounts allocated to the Business and included in the accompanying
statement of operations are as follows (in thousands):
<TABLE>
<CAPTION>
Period from Period from
January 1, June 12,
Year ended 1998 1998
December 31, through through
------------- June 11, December 31,
1996 1997 1998 1998
------ ------ ----------- ------------
<S> <C> <C> <C> <C>
Research and engineering
expenses............... $ 764 $ 558 $318 $388
Selling and marketing
expenses............... 600 600 -- --
General and
administrative
expenses............... 1,001 1,082 631 973
Interest expense........ 32 114 79 145
</TABLE>
Beginning January 1, 1998, selling and marketing expenses were not
allocated from Compaq because these expenses were incurred directly by the
Business.
NOTE 7--INCOME TAXES:
Given the recent history of operating losses, deferred tax assets generated
from operating losses required a full valuation allowance because
realizability of such tax benefit is not probable. Accordingly, the
accompanying statement of operations includes no benefit for income taxes.
Deferred tax assets and liabilities at December 31, 1998 and 1997 are
comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Receivable allowances..................................... $ 655 $ 1,249
Capitalized research and development costs................ 1,752 1,534
Loss carryforwards........................................ 3,615 10,288
Property, plant and equipment............................. -- 2,868
Other..................................................... 14 201
------- --------
Gross deferred tax assets............................... 6,036 16,140
------- --------
Intangible assets......................................... -- (6,036)
Property, plant and equipment............................. (387) --
------- --------
Gross deferred tax liabilities.......................... (387) (6,036)
------- --------
Deferred tax asset valuation allowance.................... (5,649) (10,104)
------- --------
$ -- $ --
======= ========
</TABLE>
Net operating loss carryforwards will remain with Compaq after the assets
and liabilities of the Business are transferred to the Company.
F-39
<PAGE>
ALTAVISTA
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 8--MARKETING AGREEMENTS:
Premier Provider Agreement with Netscape
In June 1998, the Business entered into a Premier Provider agreement (the
"Service Agreement") with Netscape Corporation ("Netscape"), whereby Netscape
guaranteed a minimum number of exposures (as defined) for the Business's
search and directory service on the Netscape's Page, as defined. The Service
Agreement is for one year and the Business's minimum financial commitment
under the Service Agreement is $14,150,000, of which $3,650,000 was paid upon
execution of the Service Agreement and $3,500,000 was paid on July 15 and
December 15, 1998. The remaining payment to satisfy the minimum financial
commitment is payable on March 31, 1999. All exposures delivered above the
minimum number of impressions will be payable at specified contractual rates.
Amounts included in sales and marketing expense in the accompanying financial
statements related to the Service Agreement are approximately $1,550,000 for
the period from the date of the Service Agreement through June 11, 1998 and
$10,000,000 for the period from June 12, 1998 through December 31, 1998.
The Business's primary obligation under the Service Agreement is to display
certain Netscape buttons and/or information prominently on the Business's home
page and pages linked thereto. Other obligations include the implementation of
certain technologies to maintain compatibility with the Netscape's browser and
the placement of certain hypertext links for keywords searched on the
Business's Web site. Effective January 11, 1999, the Business terminated the
Service Agreement without penalty.
Premier Search Services Agreement with Microsoft
In September 1998, the Business and Microsoft (the "Portal") entered into a
one year Premier Search Services Agreement (the "Search Services Agreement")
whereby the Portal guaranteed a minimum number of impressions on the Portal's
various internet search versions and Web site (referred to as the "Guaranteed
Impressions"). For the Guaranteed Impressions, the Business shall pay $18
million, in four equal payments of $4.5 million as follows: the first payment
was paid upon execution, the second, third and fourth payments are due 90
days, 180 days and 270 days, respectively after September 16, 1998. All
impressions delivered above the Guaranteed Impressions will be payable at
specified contractual rates, not to exceed a total amount paid of $23 million.
Included in sales and marketing expense in the accompanying financial
statements related to the Search Services Agreement for the period from June
12, 1998 to December 31, 1998 is approximately $6.2 million.
NOTE 9--PENSIONS:
Upon consummation of the acquisition of Digital by Compaq, Compaq assumed
certain of Digital's defined benefit and defined contribution plans of which
employees of the Business were participants. The Business' employees who were
eligible to participate in the Digital plans at the time of the acquisition
continue to be eligible to participate in these plans. The benefits generally
are based on years of service and compensation during the employee's career.
Pension cost is based on estimated benefit formulas.
Additionally, Compaq assumed the defined benefit postretirement plans that
provide medical and dental benefits for Business' retirees and their eligible
dependents in the United States.
The statements of operations include allocated costs as fringe benefits
included in general and administrative expense based upon an average cost per
employee for the retirement plan and are not significant for any periods
presented.
F-40
<PAGE>
ALTAVISTA
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 10--STOCK OPTION PLANS:
The following disclosure related to stock-based compensation includes
information applicable to the Business derived from the historic books and
records of Digital through June 11, 1998 and Compaq thereafter.
Included in the acquisition of Digital by Compaq on June 11, 1998, all
outstanding Digital options were cancelled and Compaq issued, in exchange, a
fully vested and exercisable option to purchase shares of Compaq stock. The
Compaq options are subject to all other terms and conditions as applicable
immediately prior to the acquisition.
The following table summarizes activities under the stock option plans
related to employees of the Business:
<TABLE>
<CAPTION>
Weighted
Price Per Average Price
Shares Share Per Share
------- ----------- -------------
<S> <C> <C> <C>
Digital Options
Options outstanding, December 31, 1995: 25,894 $37.30
Options granted........................... 38,890 $0.00-54.13 38.18
Options lapsed or canceled................ (1,000) 56.00 56.00
Options exercised......................... (5,130) 0.00-22.88 5.53
------- ------
Options outstanding, December 31, 1996: 58,654 40.32
Options granted........................... 24,000 46.69-51.69 47.31
Options lapsed or canceled................
Options exercised......................... (4,931) 19.69-37.75 24.07
------- ------
Options outstanding, December 31, 1997: 77,723 43.49
Options granted ..........................
Options lapsed or canceled................ -- --
Options exercised......................... (1,790) 19.69-37.75 21.65
------- ------
Options outstanding, June 11, 1998.......... 75,933 44.00
------- ------
Compaq Options
Options granted in the acquisition of
Digital.................................. 150,997 9.90-39.23 22.03
Options granted........................... 109,500 35.88 35.88
Options lapsed or canceled................ (2,386) 36.71 36.71
Options exercised......................... (94,001) 9.90-23.48 20.69
------- ------
Options outstanding, December 31, 1998...... 164,110 $31.82
======= ======
</TABLE>
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1998:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
--------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Contractual Average Average
Exercise Remaining Exercise Exercise
Prices Options Life (Years) Price Options Price
-------------- ------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
$10.01 - 15.00 3,802 2.42 $11.50 3,802 $11.50
15.01 - 20.00 15,909 7.67 18.98 15,909 18.98
20.01 - 25.00 5,668 7.33 22.66 5,668 22.66
25.01 - 30.00 27,044 7.42 27.06 27,044 27.06
over 30.00 111,687 9.51 35.95 9,487 36.65
------- ------
164,110 8.74 31.81 61,910 19.48
======= ======
</TABLE>
F-41
<PAGE>
ALTAVISTA
NOTES TO FINANCIAL STATEMENTS--(Continued)
The weighted average fair value per share of stock based compensation
issued during the years ended December 31, 1996 and 1997 and during the period
from June 12, 1998 through December 31, 1998 was $15.53, $17.23, and $13.53,
respectively. There were no options issued during the period from January 1,
1998 to June 11, 1998. The fair value for these options was estimated using
the Black-Scholes model with the following weighted average assumptions.
Assumptions Table:
<TABLE>
<CAPTION>
Period from
January 1,
Year Ended 1998 Period from
December 31, Through June 12,
--------------- June 11, 1998 Through
1996 1997 1998 December 31,
Digital Digital Digital 1998 Compaq
------- ------- ----------- ------------
<S> <C> <C> <C> <C>
Expected option life (in years)... 4 4 2 2
Risk-free interest rate........... 6.2% 6.3% 5.5% 4.6%
Volatility........................ 35.0% 35.0% 35.0% 33.5%
Dividend yield.................... 0.0% 0.0% 0.0% 0.2%
</TABLE>
The table that follows summarizes the pro forma effect of net loss if the
fair values of stock based compensation had been recognized in the period
presented as compensation expense on a straight-line basis over the vesting
period of the grant. The following pro forma effect on net loss for the
periods presented is not representative of the pro forma effect on net loss in
future years because it does not take into consideration pro forma
compensation expense related to grants made prior to 1995.
<TABLE>
<CAPTION>
Period from
January 1, Period from
Year Ended 1998 June 12,
December 31, through 1998 through
---------------- June 11, December 31,
1996 1997 1998 1998
------- ------- ----------- ------------
<S> <C> <C> <C> <C>
(In thousands)
Net loss:
As reported..................... $(7,314) $(5,734) $(2,493) $(69,566)
Pro forma....................... (7,375) (5,904) (2,603) (69,665)
</TABLE>
NOTE 11--SUBSEQUENT EVENTS:
Acquisitions
Compaq acquired Shopping.com effective February 15, 1999. The aggregate
purchase price of $256.9 million consisted primarily of $218.9 million in
cash, the issuance of employee stock options with a fair value of $32 million
and other acquisition costs.
Compaq also acquired Zip2 on April 1, 1999. The aggregate purchase price of
$339.1 million consisted of $307.2 million in cash, the issuance of
approximately 999,000 employee stock options with a fair value of
$25.9 million and other acquisition costs.
Both acquisitions were intended to be included in the Business. On June 29,
1999, Compaq entered into a Purchase and Contribution Agreement (the "Purchase
Agreement") with CMGI whereby Compaq agreed to effectively sell controlling
interests in the Business including Zip2 and Shopping.com.
F-42
<PAGE>
ALTAVISTA
NOTES TO FINANCIAL STATEMENTS--(Continued)
Procurement and Trafficking Agreement with DoubleClick
Effective January 1, 1999, the Agreement has been amended so that the
Business could form its internal sales force to sell advertisements directly
to advertisers. DoubleClick no longer has the exclusivity to sell
advertisements on the Business's web site. DoubleClick only retains the
exclusivity for delivering through its proprietary computer system the
advertisements negotiated either by DoubleClick or by the Business. Under the
new agreement, the Business is bearing substantially the entire economic risk
of the transaction. This agreement is for a term of three years from the
effective date and can be cancelled by either party with a 90 days notice
period.
Premier Search Services Agreement with Microsoft
The Search Services Agreement was amended in February 1999. Under the
amended Search Services Agreement, Microsoft guaranteed a minimum number of
impressions for a total consideration of $16.5 million. No additional payment
is due if the number of impressions delivered exceeds the minimum number of
impressions. A payment of $4.5 million has been made as of December 31, 1998.
A second payment of $12 million is due after the effective date of the Search
Services Agreement.
Stock Option Plan
On May 28, 1999, the Company adopted the AltaVista Company 1999 Stock
Option Plan (the "Plan"). The Plan will be administered by a committee of the
Board designated by the Board of Directors to administer the Plan and composed
of individuals who are, to the extent necessary, "non-employee directors".
F-43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Shopping.com
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of Shopping.com and its subsidiary at January 31, 1998 and 1999, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of Shopping.com for any period subsequent to January 31, 1999.
PricewaterhouseCoopers LLP
Costa Mesa, California
June 9, 1999, except as to Note 12,
which is as of July 2, 1999
F-44
<PAGE>
SHOPPING.COM
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
January 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................... $ 4,761,000 $ 90,000
Accounts receivable, net of allowance for doubtful
accounts of $10,000 and $61,000.................. 169,000 648,000
Prepaid and other current assets.................. 666,000 1,465,000
Deposits.......................................... 1,373,000
----------- ------------
Total current assets................................ 5,596,000 3,576,000
Property and equipment, net......................... 2,846,000 1,972,000
Other assets........................................ 216,000 546,000
----------- ------------
Total assets........................................ $ 8,658,000 $ 6,094,000
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable.................................. $ 777,000 $ 5,580,000
Notes payable..................................... 3,000,000
Other accrued liabilities......................... 583,000 12,252,000
Current portion of capital lease obligations...... 211,000 250,000
----------- ------------
Total current liabilities........................... 1,571,000 21,082,000
Capital lease obligations, net of current portion... 229,000 92,000
----------- ------------
Total liabilities................................... 1,800,000 21,174,000
----------- ------------
Commitments and contingencies (Note 9)
Shareholders' Equity (Deficit)
Common stock, no par value 20,000,000 shares
authorized; 4,002,000 and 10,212,406 shares
issued and outstanding........................... 14,817,000 42,102,000
Unearned compensation............................. (557,000) (58,000)
Accumulated deficit............................... (7,402,000) (57,124,000)
----------- ------------
Total shareholders' equity (deficit)................ 6,858,000 (15,080,000)
----------- ------------
Total liabilities and shareholders' equity
(deficit).......................................... $ 8,658,000 $ 6,094,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
SHOPPING.COM
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended January 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Net sales........................................... $ 851,000 $ 8,122,000
Cost of sales....................................... 856,000 10,122,000
----------- ------------
Gross loss.......................................... (5,000) (2,000,000)
----------- ------------
Operating expenses:
General and administrative........................ 2,324,000 19,193,000
Advertising and marketing......................... 2,006,000 10,087,000
Product development............................... 658,000 3,288,000
Stock-based compensation.......................... 675,000 6,696,000
Loss on disposal of assets........................ 25,000 1,539,000
----------- ------------
Total operating expenses........................ 5,688,000 40,803,000
----------- ------------
Loss from operations................................ (5,693,000) (42,803,000)
----------- ------------
Other income (expense):
Interest expense.................................. (1,195,000) (5,819,000)
Interest income................................... 15,000 71,000
----------- ------------
Total other income (expense).................... (1,180,000) (5,748,000)
----------- ------------
Loss before extraordinary item.................... (6,873,000) (48,551,000)
Extraordinary loss (Note 6)....................... (1,171,000)
----------- ------------
Net loss............................................ $(6,873,000) $(49,722,000)
=========== ============
Basic and diluted per share amounts:
Loss before extraordinary item.................... $ (4.03) $ (10.10)
=========== ============
Extraordinary Item................................ $ -- $ (0.24)
=========== ============
Net loss.......................................... $ (4.03) $ (10.34)
=========== ============
Weighted average shares outstanding............... 1,786,894 4,808,069
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
SHOPPING.COM
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Preferred Stock
--------------------------------------------
Series A Convertible Series B Convertible Common Stock
--------------------- --------------------- ---------------------- Unearned Accumulated
Shares Amount Shares Amount Shares Amount Compensation Deficit Total
---------- --------- ---------- --------- ---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
31, 1997....... -- $ -- -- $ -- 1,152,500 $ 123,000 $ -- $ (202,000) $ (79,000)
Sale of common
stock.......... 100,000 2,000 2,000
Issuance of
common stock
for services... 38,000 54,000 54,000
Contribution of
domain name.... 90,000 90,000
Sale of Series A
Preferred
Stock.......... 1,000,000 200,000 200,000
Issuance of
Series A
Preferred Stock
for net
assets,........ 500,000 100,000 (100,000)
Sale of Series B
Preferred
Stock, net..... 1,073,000 749,000 749,000
Beneficial
conversion
feature........ 327,000 (327,000)
Issuance of
common stock
for software... 125,000 1,000,000 1,000,000
Sale of common
stock in IPO,
net............ 1,300,000 9,374,000 9,374,000
Conversion of
Series A and B
Preferred to
Common Stock... (1,500,000) (300,000) (1,073,000) (749,000) 1,286,500 1,049,000
Issuance of
warrants, net.. 1,666,000 1,666,000
Unearned
compensation... 1,232,000 (1,232,000)
Amortization of
unearned
compensation... 675,000 675,000
Net loss........ (6,873,000) (6,873,000)
---------- --------- ---------- --------- ---------- ----------- ----------- ------------ ------------
Balance, January
31, 1998....... -- -- -- -- 4,002,000 14,817,000 (557,000) (7,402,000) 6,858,000
Exercise of
stock options.. 5,175 5,000 5,000
Issuance of
common stock
for services... 121,226 2,878,000 2,878,000
Conversion of
debt to common
stock.......... 3,806,701 1,833,000 1,833,000
Issuance of
warrants, net.. 13,290,000 13,290,000
Exercise of
warrants....... 2,277,304 3,082,000 3,082,000
Stock-based
compensation--
employees...... 2,869,000 2,869,000
Stock-based
compensation--
nonemployees... 3,328,000 3,328,000
Amortization of
unearned
compensation... 499,000 499,000
Net loss........ (49,722,000) (49,722,000)
---------- --------- ---------- --------- ---------- ----------- ----------- ------------ ------------
Balance, January
31, 1999....... $ -- $ -- 10,212,406 $42,102,000 $ (58,000) $(57,124,000) $ 15,080,000
---------- --------- ---------- --------- ---------- ----------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
SHOPPING.COM
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended January 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................... $(6,873,000) $(49,722,000)
Adjustments to reconcile net loss to net cash used
in operating activities
Common stock issued for services................. 54,000 2,878,000
Warrants issued for services..................... 2,914,000
Amortization of debt issuance costs.............. 91,000 1,149,000
Amortization of debt discount.................... 1,082,000 2,462,000
Amortization of beneficial conversion feature.... 1,999,000
Extraordinary loss on conversion of notes
payable......................................... 1,171,000
Stock-based compensation--employees.............. 675,000 3,368,000
Stock-based compensation--nonemployees........... 3,328,000
Accrued interest converted to Common Stock....... 142,000
Depreciation and amortization.................... 163,000 600,000
Loss on disposal of assets....................... 25,000 1,539,000
Allowance for doubtful accounts.................. 10,000 61,000
Changes in assets and liabilities:
Accounts receivable.............................. (179,000) (636,000)
Prepaid expenses................................. (771,000) (799,000)
Deposits......................................... (196,000)
Other assets..................................... (34,000) (354,000)
Accounts payable................................. 546,000 4,803,000
Other accrued liabilities........................ 265,000 12,018,000
Stock subscription............................... 23,000
----------- ------------
Net cash used in operating activities.......... (4,923,000) (13,275,000)
----------- ------------
Cash flows from investing activities:
Purchase of property and equipment................. (1,564,000) (1,006,000)
----------- ------------
Net cash used in investing activities.......... (1,564,000) (1,006,000)
----------- ------------
Cash flows from financing activities:
Proceeds from the issuance of note payable--
related party..................................... 305,000
Payments on note payable--related party............ (355,000)
Payment on capital lease obligations............... (9,000) (333,000)
Proceeds from the issuance of notes payable........ 1,750,000 4,825,000
Payments on notes payable.......................... (1,750,000) (850,000)
Proceeds from exercise of warrants................. 1,905,000
Payment of debt issuance costs..................... (241,000) (942,000)
Proceeds from the issuance of Series A Preferred
Stock, net........................................ 200,000
Proceeds from the issuance of Series B Preferred
Stock, net........................................ 1,483,000
Proceeds from the issuance of 8% Debentures........ 5,000,000
Proceeds from the issuance of Common Stock, net.... 9,865,000 5,000
----------- ------------
Net cash provided by financing activities...... 11,248,000 9,610,000
----------- ------------
Net increase (decrease) in cash and cash
equivalents................................... 4,761,000 (4,671,000)
Cash and cash equivalents, beginning of
period........................................ -- 4,761,000
----------- ------------
Cash and cash equivalents, end of period....... $ 4,761,000 $ 90,000
=========== ============
Supplemental disclosure of cash flow information--
Note 3
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY
Shopping.com (the "Company") was incorporated in California on November 22,
1996. Cyber Depot, Inc. ("CyberDepot") was incorporated in California in
January 1996 and among other business ventures commenced the design and
development of proprietary software for the Internet shopping marketplace in
February 1996. In March 1997, CyberDepot exchanged substantially all of its
assets and liabilities and proprietary software for 500,000 shares of Series A
Preferred Stock and Common Stock warrants (Note 7). The Company and CyberDepot
are considered to be entities under common control; accordingly, CyberDepot's
results have been combined with the Company since February 1996.
The Company is an Internet-based electronic retailer in marketing a broad
range of products to both consumers and trade customers. The Company employs
proprietary information systems along with industry software to provide its
customers with access to an automated marketplace of products, which consist
of inventories of multiple manufacturers and distributors, price comparisons,
detailed product descriptions, delivery status of products ordered and back
order information. The Company commenced selling products over the Internet in
July 1997 and completed its initial public offering ("IPO") in November 1997.
The Company's fiscal year ends on January 31; accordingly, all references
to 1998 and 1999 are for the years ended January 31, 1998 and 1999,
respectively.
The Company has incurred losses from operations through January 31, 1999.
Compaq Computer Corporation ("Compaq") has committed to provide the funds
required for the conduct of the Company's operations at least through January
31, 2000 or to the date, if earlier, on which it ceases to be the controlling
shareholder (Notes 11 and 12).
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany transactions and balances
have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
valuation of warrants, equity and debt securities, allowances for doubtful
accounts, and product returns, and litigation reserves require the use of
significant estimates. The Company believes the techniques and assumptions
used in establishing these estimates are appropriate.
Fair Value of Financial Instruments
It is management's belief that the carrying amounts for the Company's
financial instruments are reasonable estimates of their related fair values
due to the short-maturity of these instruments.
Cash and Cash Equivalents
The Company considers all highly-liquid investments with an original
maturity of three months or less to be cash equivalents.
F-49
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deposits
Deposits primarily consist of cash held by a third party that was collected
on behalf of the Company from the exercise of stock options and warrants. Of
the total $1,373,000 outstanding as of January 31, 1999, $1,177,000 represent
the deposits held by the third party.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. The Company maintains its cash and cash equivalents in bank
deposit accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses in these accounts and believes that it
is not exposed to any significant credit risk.
Accounts receivable are typically unsecured and are derived from revenues
earned from customers primarily located in the United States. The Company
generally requires no collateral from its customers for non-credit card sales.
To date, the Company has not experienced any material losses.
During 1998 and 1999, the Company sold products to its lead underwriter in
its IPO that accounted for approximately 40% and 2% of total net sales,
respectively. During 1998 and 1999, the Company purchased products from four
and two vendors, respectively, that represented 10% or more of total
purchases. These vendors represented 85% and 49% of total purchases in 1998
and 1999, respectively.
Long-Lived Assets
The Company assesses potential impairments to its long-lived assets when
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. An impairment loss would be recognized when the
sum of the expected future undiscounted net cash flows is less than the
carrying amount of the asset. The amount of the impairment loss is based on
the difference between the related asset's carrying value and the expected
future discounted net cash flows.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation
and amortization using the straight-line method over the following estimated
useful lives:
<TABLE>
<S> <C>
Computer equipment.......................................... 5 years
Purchased software.......................................... 3 to 5 years
Furniture and equipment..................................... 5 to 7 years
Leasehold improvements...................................... 5 years
</TABLE>
Leasehold improvements and assets under capital leases are amortized over
the term of the lease or estimated useful lives, whichever is shorter.
Maintenance and minor replacements are charged to expense as incurred. Gains
and losses on disposals are included in the results of operations. During
1999, the Company wrote-off the $1,201,000 carrying value of certain purchased
software which management determined had no future benefit.
Issuance Costs
Issuance costs are amounts paid or the estimated value of warrants issued
to placement agents or financial consultants to obtain debt or equity
financing. The Company allocates issuance costs for debt issued with warrants
between debt and equity based on the relative fair value of the individual
elements at the time of
F-50
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
issuance. Debt issuance costs are recorded as deferred charges and are
amortized over the term of the related debt using the effective interest
method. Equity issuance costs are deducted from the proceeds of the related
equity securities.
Stock-Based Compensation
The Company accounts for employee stock compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and complies with the
disclosure provisions of Statement of Financial Accounting Standards
"Accounting for Stock-Based Compensation" ("SFAS 123"). Under APB 25,
compensation expense is based on the difference, if any, on the date of grant
between the fair value of the Company's Common Stock and the exercise price.
Unearned compensation is amortized over the vesting period of the related
options.
Stock Split
At the completion of the Company's IPO in November 1997, the Company
effected a one-for-two reverse stock split of its Common Stock. All share and
per share data have been retroactively restated to reflect this stock split.
Revenue Recognition
The Company recognizes revenue at the time the vendor ships the product to
the customer. The Company provides an allowance for sales returns based on
historical experience. To date, the Company's sales returns have been
insignificant.
Advertising
The Company expenses advertising costs the first time the advertisement is
published or broadcasted. Included in advertising and marketing is $899,000
and $6,234,000 in advertising expense for 1998 and 1999, respectively.
Product Development
Product development expenses consist principally of payroll, consulting
fees, and related expenses for development and maintenance of the Company's
web site, including depreciation of computer equipment and purchased software.
All product development costs have been expensed as incurred.
Income Taxes
Income taxes are computed using the asset and liability method. Under the
asset and liability method, deferred income tax assets and liabilities are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted
tax rates and laws. A valuation allowance is provided for the amount of
deferred tax assets that, based on available evidence, are not expected to be
realized.
Net Loss per Share
The Company computes net loss per share in accordance with SFAS 128
"Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS 128 and SAB 98, basic and diluted net loss per
share is computed by dividing the net loss available to common shareholders
for the period by the weighted average number of Common Stock outstanding
during the period. The calculation of diluted net loss per share excludes
potential common shares if the effect is antidilutive.
F-51
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive Income
Effective February 1, 1998, the Company adopted the provisions of SFAS 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all charges in equity (net assets) during a
period from non-owner sources. To date, the Company has not had any material
transactions that are required to be reported in comprehensive income.
Segment Information
Effective January 1, 1998, the Company adopted the provisions of SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company operates in a single business segment that provides eCommerce to
individuals and businesses. The adoption of SFAS 131 did not have a material
impact to the Company's financial statement disclosure.
Recent Accounting Pronouncements
In March 1998, Statement of Position 98-I "Accounting for the Cost of
Computer Software Developed of Obtained for Internal Use" ("SOP 98-1") was
issued. SOP 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. The Company will adopt the
provisions of SOP 98-1 for the fiscal year ending January 31, 2000, and does
not expect adoption to have a material impact on its financial position and
results of operations.
In April 1998, SOP 98-5 "Reporting on the Costs of Start-Up Activities" was
issued. Start-up activities are defined broadly as those one-time activities
relating to opening a new facility, introducing a new product or service,
conducting business in a new territory, conducting business with a new class
of customer, commencing some new operation or organizing a new entity. Under
SOP 98-5, the cost of start-up activities should be expensed as incurred. SOP
98-5 is effective for the Company's year ending January 31, 2000. The Company
does not expect adoption to have a material impact to its financial position
and result of operations.
NOTE 3--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
In February and September 1998, the Company executed two separate
agreements with the same party whereby it issued 47,059 and 66,667 shares of
Common Stock, respectively, in exchange for radio advertising valued at
$2,675,000. The value of the advertising was based on the fair value of the
Common Stock issued. During 1999, the Company entered into two separate
agreements for investor and public relation services in exchange for shares of
Common Stock and stock options (Note 9). In September 1997, the Company
entered into an agreement whereby it issued 125,000 shares of the Company's
Common Stock in exchange for a five year software license. The estimated fair
value of the software license was $1,000,000. The value of other services
provided in exchange for Common Stock was based on the fair value of the
Common Stock issued.
F-52
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company entered into the following non-cash investing and financing
activities:
<TABLE>
<CAPTION>
Year Ended January
31,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Supplemental Schedule of Non-Cash Investing and
Financing Activities
Common Stock issued or to be issued for services... $ 54,000 $4,497,000
Warrants and options issued or to be issued for
services.......................................... 3,100,000
Exercise of warrants............................... 1,177,000
Common Stock issued for software license........... 1,000,000
Conversion of debt into Common Stock............... 1,833,000
Series A Preferred Stock and Common Stock warrants
issued in exchange for net assets................. 100,000
Contribution of domain name........................ 90,000
Equipment acquired under capital leases............ 449,000 236,000
Supplemental Disclosures of Cash Flow Information
Cash paid for interest............................. 56,000 86,000
Cash paid for taxes................................ -- --
</TABLE>
NOTE 4--COMPOSITION OF CERTAIN BALANCE SHEET COMPONENTS
Prepaid and other current assets consist of the following:
<TABLE>
<CAPTION>
January 31,
-------------------
1998 1999
-------- ----------
<S> <C> <C>
Advertising............................................. $458,000 $ 104,000
Insurance............................................... 112,000 20,000
Investor and public relations........................... 1,295,000
Other................................................... 96,000 46,000
-------- ----------
$666,000 $1,465,000
======== ==========
</TABLE>
Property and equipment consist of the following:
<TABLE>
<CAPTION>
January 31,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Computer equipment................................... $1,229,000 $1,698,000
Purchased software................................... 1,469,000 475,000
Furniture and equipment.............................. 237,000 309,000
Leasehold improvements............................... 59,000 103,000
---------- ----------
2,994,000 2,585,000
Less accumulated depreciation and amortization....... (148,000) (613,000)
---------- ----------
Total.............................................. $2,846,000 $1,972,000
========== ==========
</TABLE>
F-53
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Included in property and equipment at January 31, 1998 and 1999 is equipment
acquired under capital leases of $449,000 and $685,000 with related accumulated
amortization of $11,000 and $134,000, respectively. During 1997, 1998, and
1999, the Company recorded $1,000, $147,000 and $577,000 in depreciation
expense, respectively. Other assets consist of the following:
<TABLE>
<CAPTION>
January 31,
-----------------
1998 1999
-------- --------
<S> <C> <C>
Deposits................................................... $105,000 $487,000
Other...................................................... 111,000 59,000
-------- --------
$216,000 $546,000
======== ========
</TABLE>
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
January 31,
------------------------
1998 1999
----------- ------------
<S> <C> <C>
Legal.............................................. $ 331,000 $ 1,000,000
Litigation reserves................................ 113,000 8,510,000
Investor and public relations...................... 1,805,000
Termination and severance.......................... 307,000
Payroll and vacation............................... 76,000 151,000
Gift certificates.................................. 150,000
Other.............................................. 63,000 329,000
----------- ------------
$ 583,000 $ 12,252,000
=========== ============
</TABLE>
NOTE 5--NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss
per share:
<TABLE>
<CAPTION>
Year Ended January 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Loss before extraordinary item.................. $(6,873,000) $(48,551,000)
Preferred stock dividends from beneficial
conversion feature............................. (327,000)
----------- ------------
Loss before extraordinary item available to
common shareholders............................ (7,200,000) (48,551,000)
Extraordinary loss (Note 6)..................... (1,171,000)
----------- ------------
Net loss available to common shareholders....... $(7,200,000) $(49,722,000)
----------- ------------
Weighted average shares outstanding............. 1,786,894 4,808,069
----------- ------------
Basic and diluted per share amounts:
Loss before extraordinary item................ $ (4.03) $ (10.10)
----------- ------------
Extraordinary item............................ $ -- $ (0.24)
----------- ------------
Net loss...................................... $ (4.03) $ (10.34)
=========== ============
</TABLE>
F-54
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth potential dilutive securities that are not
included in the diluted net loss per share calculation above because to do so
would be antidilutive in the periods indicated:
<TABLE>
<CAPTION>
Year Ended January
31,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Weighed average effect of potential dilutive securities:
Series A Preferred Stock............................... $ 734,000 --
Series B Preferred Stock............................... 324,000 --
Common Stock warrants.................................. 19,000 $ 754,000
Common Stock options................................... 61,000 447,000
---------- ----------
$1,138,000 $1,201,000
========== ==========
</TABLE>
NOTE 6--BORROWINGS
Convertible Debentures
In June, July and November 1998, the Company issued $1,250,000, $1,250,000
and $2,500,000, respectively of 8% convertible debentures ("the 8%
Debentures"). Interest is payable quarterly, two years from the issuance date
(the "Maturity Date") or upon conversion. The Company, at its option, may pay
any accrued interest in shares of Common Stock at the Conversion Price then in
effect, as defined. The Debentures are convertible into Common Stock at a
conversion price equal to the lower of (i) the lowest market price for any
three days in the 30 days preceding conversion; or (ii) $16.00 per share (the
"Base Rate"), which is subject to a 10% reduction in the event of contract
breach, as defined. The holders of the 8% Debentures may convert up to 20% of
the original principal amount between 30 days and 90 days after issuance, up
to an additional 25% (45% cumulative) 120 days after issuance, up to an
additional 35% (80% cumulative) 150 days after issuance, with the balance
being convertible at anytime thereafter. Any 8% Debentures not previously
converted as of the Maturity Date automatically convert into Common Stock at
the applicable conversion rate, as defined.
The holders of the 8% Debentured receive one warrant to purchase one share
of Common Stock for each two shares of Common Stock issued in connection with
the corresponding conversion of the 8% Debentures. The warrants attributable
to each conversion have an exercise price equal to the lesser of (i) 120% of
the lowest market price for any three trading days prior to conversion or (ii)
125% of the Base Rate. The warrants expire in June 2003. The Company has the
right to redeem all or any portion of the Debentures, subject to a Redemption
Premium, as defined. The holders of the 8% Debentures may require the Company
to redeem the outstanding portion of the 8% Debentures in the event of a
contract breach, as defined. Additionally, in the event of contract default,
the holders may consider the 8% Debentures immediately due and payable.
In connection with the issuance of the 8% Debentures, the Company issued
warrants and made payments to placement agents, which were recorded as debt
and equity issuance costs. The debt issuance costs were originally being
amortized as additional interest expense ratably over the term of the 8%
Debentures. In November and December of 1998, the entire $5,000,000 principal
amount, plus accrued interest of the 8% Debentures was converted into
3,323,781 shares of Common Stock and 1,627,153 warrants were issued and then
exercised into 1,627,153 shares of Common Stock.
Promissory Notes
In December 1998, the Company issued a $2,500,000 secured promissory note
with a 10% per annum interest rate payable in 30 days provided however, if
within 30 days the Company closes a financing transaction, as defined, the
holder had the right to convert the note into the same class of security as
the defined financing transaction. In conjunction with the promissory note,
the Company issued 500,000 warrants to purchase common
F-55
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
stock at a price of $7.00 per share, subject to adjustment, which expire in
December 2001. The promissory note was secured by a Non-Resource Guaranty and
Pledge Agreement with a former officer and current shareholder of the Company.
In exchange for this guaranty, the former officer received 130,000 warrants to
purchase common stock at a price of $7.00 per share, subject to adjustment,
which expire in December 2003. The secured promissory note is also secured by
all assets of the Company. The secured promissory note was paid in full in
February 1999.
In September 1998, the Company issued a $500,000 promissory note to a
related party (a director of the Company is also a member of the Board of
Directors of the corporation to which the Company issued the promissory note)
that was due at the earlier of the Company receiving $500,000 in additional
financing from another source or October 1998. The Company also issued 30,000
warrants to purchase shares of Common Sock at an exercise price of $2.25 per
share. The warrants expires in September 2003. During October 1998, the
Company repaid $200,000 and renegotiated a revised due date of the earlier of
the Company receiving $300,000 in additional financing from another source or
December 1998. In connection with the modification, the Company also issued
30,000 additional warrants to purchase shares of the Company's Common Stock at
an exercise price of $1.65 that expires in November 2003. The remaining
balance of $300,000 was paid in January 1999.
In August 1998, the Company issued a $500,000 convertible promissory note
that is due six months from the date of issuance, with an interest rate of 8%
per annum, that have been converted into Common Stock at a rate of $10.00 per
share. In connection with the issuance of the convertible promissory note, the
Company issued 50,000 warrants to purchase shares of Common Stock at an
exercise price of $10.00 that expires in August 2001. The Company also issued
warrants to purchase 10,000 shares of Common Stock to the placement agent, the
value of which has been accounted for as debt and equity issuance costs. The
warrants issued to the placement agent contain the same terms and conditions
as the warrants issued with the convertible promissory note. In January 1999,
the note plus accrued interest, were converted into 156,196 shares of Common
Stock.
In May through July 1998, the Company issued $1,325,000 of unsecured
promissory notes at an interest rate of 8% per annum with principal and
accrued interest due six months from the date of issuance. In conjunction with
the issuance, the promissory note holders received a total of 132,500 warrants
to purchase shares of Common Stock that are exercisable until May 2001 (10,000
warrants are exercisable until June 2001) at an exercise price of $14.00 per
share. In November 1998, the Company provided the note holders with the option
to convert the promissory notes or extend the maturity date by 90 days in
exchange for warrants with an exercise price of $7.00 to purchase the
Company's Common Stock. Of the total promissory notes, $475,000 plus accrued
interest, were converted into shares of Common Stock and $350,000 was paid in
January 1999. The Company issued an additional 71,250 warrants to the note
holders. The holder of the remaining unpaid $500,000 principal balance has
filed a compliant against the Company contending that its entitled to convert
the note into Common Stock. The balance has not yet been paid. As a result of
the conversion of the notes to Common Stock, the Company reorganized a
$1,171,000 extraordinary loss which represents the excess of the fair value of
the Common Stock and warrants over the carrying value of the note on the date
of conversion. In addition, the Company issued warrants to purchase 20,000
shares of Common Stock at an exercise price of $14.00 per share to the
placement agent, the value of which has been accounted for as debt and equity
issuance costs.
In September 1997, the Company issued a $600,000 note to a shareholder of
the Company with an interest rate of 10% per annum that was due the earlier of
nine months or the closing of an IPO. In conjunction with the note, the
Company issued 199,800, five year warrants with an exercise price of $4.50 per
share. The note was paid in full in 1998.
F-56
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During June through July 1997, the Company issued $1,150,000 in
subordinated promissory notes each with an interest rate of 10% per annum that
were due the earlier of nine months from the date of issuance or the closing
of an IPO. The note holders were issued 333 warrants for every $1,000 of note
principal at an exercise price of $6.00 per share that were exercisable any
time after the earlier of 90 days after the effective date of the Company's
IPO or one year from the date of issuance. The notes were paid in full in
1998.
The Company allocates the proceeds received from debt or convertible debt
with detachable warrants using the relative fair value of the individual
elements at the time of issuance. The amount allocated to the warrants is
accounted for as debt discount and is amortized to interest expense over the
expected term of the debt using the effective interest method. The carrying
amount of convertible debt has been reduced by any related unamortized debt
discount and issuance costs on the date of conversion to Common Stock.
In accordance with FASB's Emerging Issues Task Force ("EITF") Topic No. D-
60 ("Topic D-60"), the Company accounts for the beneficial conversion feature
of convertible debt securities based on the difference between the conversion
price and the fair value of the Common Stock into which the security is
convertible, multiplied by the number of shares into which the security is
convertible. The amount attributable to the beneficial conversion feature is
recognized as additional interest expense over the most beneficial conversion
period using the effective interest method. Any unamortized beneficial
conversion feature is recognized as interest expense when the related debt
security is converted into Common Stock. During the 1999, the Company
recognized $1,999,000 in expense for the beneficial conversion feature of its
convertible debt.
NOTE 7-- SHAREHOLDERS EQUITY
Convertible Preferred Stock
The Company's Series A and Series B Convertible Preferred Stock
(collectively referred to as the "Preferred Stock") is convertible upon
issuance into Common Stock at the option of the holder or automatically
converts into shares of Common Stock based upon the Conversion Price,
immediately upon the closing of an IPO of not less that $6,000,000. The
initial Conversion Price per share for the Series A Preferred Stock and Series
B Preferred Stock was $.20 and $1.50, respectively, and was subsequently
increased to $.40 and $3.00, respectively, as a result of the reverse Common
Stock split. The Conversion Price was subject to further adjustment, as
defined. The Series A Preferred Stock and Series B Preferred Stock had a
liquidation preference of $0.20 and $1.50 per share, respectively, plus all
declared and unpaid dividends. The Series A Preferred Stock and Series B
Preferred Stock were entitled to receive non-cumulative dividends of $.02 and
$.15 per share, respectively. The Preferred Stock holders were entitled to
vote on an "as converted" basis. Total shares authorized for issuance of the
Series A and Series B Preferred Stock was 1,500,000 and 4,000,000
respectively.
During April through August 1997, the Company issued 1,073,000 of its
Series B Convertible Preferred Stock at an issuance price of $1.50 per share
with issuance costs of approximately $125,000. Upon the consummation of the
Company's IPO, each two shares of the Preferred Stock were converted into one
share of Common Stock.
In accordance with Topic D-60, the Company accounted for the beneficial
conversion feature of its convertible Preferred Stock based on the difference
between the conversion price and the estimated fair value of the Common Stock
into which the security is convertible, multiplied by the number of shares
into which the security is convertible. The resultant allocation of the
proceeds to the beneficial conversion feature was accounted for as a dividend
on the date the Preferred Stock was issued.
Each holder of the Series A and Series B Preferred Stock was issued one
warrant for every four shares of the Series A and Series B Preferred Stock to
purchase Common Stock at an exercise price of $.40 and $3.00 per share,
respectively. The Company allocated the proceeds received from the Preferred
Stock using the relative
F-57
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
fair value of the individual elements at the time of issuance. The estimated
value of the warrants issued to the Series A Preferred Stock holders was
determined to be de minimis. The $407,000 allocated to the warrants associated
with the Series B Convertible Preferred Stock is included in Common Stock.
Common Stock
In November 1997, the Company completed its IPO by issuing 1,300,000 shares
of Common Stock for gross proceeds of $11,700,000. In addition to issuance
costs of $2,326,000, the Company issued 122,000, four year warrants with an
exercise price of $14.40 per share with an estimated value of $504,000.
Common Stock Warrants
A summary of the Company's warrant activity is provided below.
<TABLE>
<CAPTION>
January 31,
-----------------------------------------------------------------
1998 1999
------------------------------- ---------------------------------
Issued Exercised Outstanding Issued Exercised Outstanding
--------- --------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance....... -- -- -- 1,348,004 -- 1,348,004
Series A Preferred
Stock................ 375,000 375,000
Series B Preferred
Stock................ 268,254 268,254 (97,402) (97,402)
8% Debentures......... -- 1,627,153 (1,627,153)
Promissory Notes...... 582,750 582,750 813,750 (233,150) 580,600
Services.............. 122,000 122,000 1,645,088 (669,152) 975,936
--------- ------- --------- --------- ---------- ---------
Ending Balance.......... 1,348,004 -- 1,348,004 5,433,995 (2,626,857) 2,807,138
========= ======= ========= ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
--------------------------------- --------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of at Remaining Average at Average
Exercise January 31, Contractual Exercise January 31, Exercise
Prices 1999 Life (Years) Price 1999 Price
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 1.78 - $ 3.25 772,501 3.66 $ 2.72 772,501 $ 2.72
4.50 - $ 7.00 1,284,200 3.39 $ 6.47 1,284,200 6.47
10.00 - $16.00 416,357 3.66 $14.05 416,357 14.05
21.92 - $24.00 334,080 4.14 $22.13 334,080 22.13
--------- ---------
2,807,138 2,807,138
========= =========
</TABLE>
The Company obtained a valuation for its warrants from an independent firm
that used the Black-Scholes option valuation model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
Year
Ended
January
31,
----------
1998 1999
---- ----
<S> <C> <C>
Dividend yield................................................... 0% 0%
Risk free interest rate.......................................... 6% 5%
Expected volatility.............................................. 61% 87%
Expected term-years.............................................. 5.0 4.7
</TABLE>
The weighted average fair value of the warrants issued during 1998 and 1999
was $2.94 and $7.63, respectively.
F-58
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Option Plan
In July 1997, the Company adopted the 1997 Stock Option Plan (the "1997
Plan") that provides for the issuances of options to employees, directors and
consultants of the Company for up to a maximum of 750,000 shares of Common
Stock. Generally, options granted under the 1997 Plan expire the earlier of
ten years from the date of grant, (or five years in the case of an incentive
stock option granted to a holder of 10% or more of the Company's outstanding
Common Stock), or three months after the optionee's termination of employment.
The options vest over periods ranging from two to five years. Options are
exercisable for consideration in the form of cash or Common Stock previously
held by the optionee. The 1997 Plan may be suspended or terminated at the
discretion of the Board of Directors. As of January 31, 1999, 208,000 options
are available for future grant under the 1997 Plan.
In 1998 and 1999, the Company issued options to directors and employees
with exercise prices below the fair market value of the underlying Common
Stock on the date of grant resulting in $675,000 and $3,368,000 in
compensation expense respectively. During 1999, the Company issued a total of
287,500 options to non-employees resulting in additional compensation expense
of $3,328,000 as determined using the Black-Scholes option valuation model.
A summary of the activity related to the Company's stock options issued
under the 1997 Plan, options issued to directors outside of the 1997 Plan, and
options issued to non-employees follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Price
Number of Per
Shares Share
--------- --------
<S> <C> <C>
Options outstanding, January 31, 1997.................... -- --
Granted................................................ 230,000 $3.00
Cancelled.............................................. (10,000) 3.00
---------
Options outstanding, January 31, 1998.................... 220,000 3.00
Granted................................................ 2,534,500 8.44
Exercised.............................................. (5,175) 2.50
Cancelled.............................................. (24,125) 2.74
---------
Options exercisable, January 31, 1999.................... 2,725,200 9.60
---------
Options exercisable, January 31, 1999.................... 2,530,325 7.91
=========
</TABLE>
<TABLE>
<CAPTION>
Options Vested
Options Outstanding and Exercisable
--------------------------------- --------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of at Remaining Average at Average
Exercise January 31, Contractual Exercise January 31, Exercise
Prices 1999 Life (Years) Price 1999 Price
-------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 1.78 - 3.00 1,612,700 5.04 $ 1.92 1,442,825 $ 1.94
13.47 - 16.00 787,500 4.42 15.36 787,500 15.36
18.49 - 21.00 325,000 4.46 20.51 300,000 21.00
--------- ---------
2,725,200 2,530,325
========= =========
</TABLE>
F-59
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value Disclosure
The Company applies the measurement principles of APB No. 25 in accounting
for options issued to employees under its stock option plan and options issued
to Directors. If the Company had elected to recognize compensation expense
based on the fair value at the grant dates as prescribed by SFAS 123, the
Company's net loss would have been increased to the pro forma amounts
indicated below.
<TABLE>
<CAPTION>
Year Ended January 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Net loss available to common shareholders:
As reported.................................... $(7,200,000) $(49,722,000)
Pro forma...................................... $(7,659,000) $(56,135,000)
Basic and diluted loss per common share:
As reported.................................... $ (4.03) $ (10.34)
Pro forma...................................... $ (4.29) $ (11.68)
</TABLE>
The pro forma effects presented above are not likely to be representative
of the effects on reported net loss for future years. The fair value of
options issued to employees, non-employees and directors was estimated at the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
Year
Ended
January
31,
---------
1998 1999
---- ----
<S> <C> <C>
Dividend yield..................................................... 0% 0%
Risk free interest rate............................................ 5% 5%
Expected volatility................................................ 60% 85%
Expected term--years............................................... 3.5 4.6
</TABLE>
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 the Company's employee 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 employee stock
options.
The weighted average fair values and exercise prices of options follows:
<TABLE>
<CAPTION>
Year Ended January 31,
---------------------------------------------------
1998 1999
------------------------- -------------------------
Fair Value Exercise Price Fair Value Exercise Price
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Issued at below market
value.................. $5.72 $3.00 $12.40 $16.00
Issued at market value.. $ 3.25 $ 5.52
All options............. $5.72 $3.00 $ 4.86 $ 7.71
</TABLE>
F-60
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Common Stock Equity Line
In December 1998, the Company entered into a Common Stock Private Equity
Line Subscription Agreement (the "Common Stock Line") whereby the Company, at
its option, may put shares of Common Stock to the subscriber for a maximum of
$60,000,000 at a put price that is equal to the lesser of (i) 83% of the
Common Stock fair market value or (ii) the Common Stock fair market value less
$.50 on the put date. The Common Stock Line includes the payment of semi-
annual commitment fees of $100,000 in the event the subscriber does not
receive a defined amount of proceeds from its sale of the Company's Common
Stock. In conjunction with the Common Stock Line, the Company issued 490,385
warrants to purchase the Company's Common Stock at an exercise price of $8.38
per share, with semi-annual reset provisions, that are exercisable over a 7
year period. The estimated value of the warrants issued is approximately
$4,440,000 and represents the estimated value of the Company's right to put
its Common Stock to the subscriber. No Common Stock has been sold under the
Common Stock Equity Line.
NOTE 8--INCOME TAXES
The Company did not record a provision for income taxes in 1998 and 1999
due to net losses incurred. The Company's deferred tax assets and liabilities
comprise the following:
<TABLE>
<CAPTION>
January 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 2,583,000 $ 17,277,000
Stock-based compensation........................ 7,000 1,379,000
Property and equipment.......................... 383,000
Litigation reserves............................. 46,000 3,478,000
Accrued expenses................................ 258,000 11,000
Other........................................... 4,000 52,000
----------- ------------
2,898,000 22,580,000
Valuation allowance............................... (2,898,000) (22,580,000)
----------- ------------
$ -- $ --
----------- ------------
</TABLE>
The Company has net operating loss carryforwards for both federal and state
purposes of $6,295,000 and $41,628,000 as of January 31, 1998 and 1999,
respectively. Federal and state net operating loss carryforwards begin
expiring in the years 2005 and 2011, respectively. Due to ownership changes,
the net operating loss carryforwards are subject to an annual limitation on
the amount that can be utilized. A full valuation allowance has been recorded
based on management's expectation that the Company's net deferred tax assets,
more likely than not, will not be realized based on estimated future taxable
income.
The income tax benefit differs from the amount computed by applying the
statutory federal income tax rate to net loss as follows:
<TABLE>
<CAPTION>
Year
Ended
January
31,
----------
1998 1999
---- ----
<S> <C> <C>
Computed expected tax benefit.................................... (35%) (35%)
State income tax benefit, net of federal benefit................. (6%) (6%)
Non-deductible interest expense.................................. 2%
Change in valuation allowance.................................... 41% 39%
---- ----
0% 0%
---- ----
</TABLE>
F-61
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE--9 COMMITMENTS AND CONTINGENCIES
SEC Investigation
In March 1998, the Company became aware that the SEC had initiated a
private investigation to determine whether the Company, its lead underwriter
in its IPO and market maker, (the "Market Maker"), or any of its officers,
directors, employees, affiliates, or others had engaged in fraudulent
activities in connection with transactions in the Company's Common Stock in
violation of federal securities laws. This investigation resulted in the SEC
temporarily suspending trading of the Company's stock for 10 days in March
1998. Due to the uncertainty regarding the outcome of the investigation,
management is unable to determine whether it will have a material adverse
effect on the Company's financial position, results of operations and cash
flows. An accrual has not been recorded in the financial statements for any
loss that may result from the outcome of the investigation.
Litigation
During the six months ended July 31, 1998, various similar class action
lawsuits were filed against the Company, certain officers of the Company, and
the Market Maker (the "Defendants") on behalf of all persons who purchased
shares of the Company's Common Stock between November 25, 1997 and March 26,
1998 alleging violations of the various state and federal securities laws by
the Defendants. The complaints charge that the Defendants participated in a
scheme and wrongful course of business to manipulate the price of the
Company's Common Stock, and the Defendants seek compensatory damages in
unspecified amounts. Compaq anticipates entering into a mediation where the
damages that may be awarded would be within a range between $2,400,000 and
$9,000,000. In addition, management believes that the Company's directors' and
officers' liability insurance carrier may reimburse a portion of any amounts
awarded.
In February 1999, a complaint was filed against the Company by a financial
advisor alleging that the Company owes $3,465,000 for breach of a warrant
agreement and an additional $2,886,000 as a transaction fee. The Company filed
an answer on April 9, 1999 denying the liability. Management is unable to
determine whether the outcome of this complaint will have a material adverse
effect on its financial position, results of operations and cash flows.
During 1999, the Company allegedly entered into a one-year consulting
agreement (for the period from December 1998 to November 1999) with firm (the
"Consulting Firm") whereby the Consulting Firm was to provide investor and
public relation services in exchange for 153,000 shares of Common Stock. As of
January 31, 1999, the shares of Common Stock have not been issued. The Company
recorded a liability of $1,555,000 based upon the fair value of the Common
Stock on the commencement of the agreement and recorded approximately $260,000
in expense related to this agreement in 1999. In March 1999, the Consulting
Firm filed a Demand for Arbitration claiming that the Company owes
approximately $3,000,000 of Common Stock pursuant to the contract. Management
is unable to determine whether the outcome of this complaint will have
material adverse effect on its financial position, results of operations and
cash flows. An accrual has not been recorded in the financial statements for
any loss that my result from the outcome of this litigation.
During 1999, the Company was negotiating a one-year consulting agreement
(for the period from February 1998 to January 1999) with a company (the
"Consultant") whereby the Consultant was to provide public relation services
in exchange for $5,000 upon execution of the agreement, monthly payments from
$5,000 to $7,000, 7,000 shares of Common Stock, and 30,000 options with
exercise prices of $22.50 and $25.00 (15,000 each) that are exercisable over a
three-year period. In June 1998, the Company wrote to the Consultant giving
the Consultant notice of termination of services and offered 2,917 shares of
Common Stock and a total of 6,250 stock options as reimbursement for services
previously provided. The Company has recorded $250,000 as expense that
represents the fair value of the Common Stock and the estimated fair value of
the stock options. As of January 31, 1999, neither the Common Stock nor the
stock options have been issued. In May 1999, the Company received a letter
from the Consultant claiming that it is owed $1,184,000 due to the Company's
F-62
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
failure to deliver all of the stock and options pursuant to the original
agreement. Management is unable to determine whether the outcome of this
complaint will have a material adverse effect on its financial position,
results of operations and cash flows. An accrual has not been recorded in the
financial statements for any loss that may result from the outcome of this
litigation.
The Company is a defendant in several complaints in which management
believes that i) it is not probable that a liability has been incurred and ii)
the amount of any potential loss cannot be reasonably estimated. Accordingly,
an accrual has not been recorded in the financial statements.
The Company and its shareholder (Note 11) have been subject to certain
claims related to contracts entered into by former management of the Company.
The Company and its shareholder intend to defend such claims as they arise;
however, no assertion can be made that additional claims for similar contracts
will not be made. In addition, the Company is involved in certain litigation
other than that described above arising in the normal course of business. The
Company believes any liability with respect to such routine litigation,
individually or in the aggregate, is not likely to be material to the
Company's financial position, results of operations and cash flows. An accrual
of $8,510,000 has been recorded for amounts management believes the Company
will incur and pay for the aggregate losses resulting from the outcome of the
aforementioned litigation.
Compaq has agreed to assume any liability that currently exists or may
exist as a result of the outcome of the Company's threatened and pending
litigation.
Employment Agreement
In June 1998, the President, Chief Executive Officer, and director (the
"Former Officer") of the Company resigned. Pursuant to a Termination and Buy
Out Agreement, the Former Officer will receive payments totaling $500,000,
with $100,000 paid on or before July 31, 1998 and the balance due in $50,000
increments on or before each succeeding fiscal quarter end, beginning October
31, 1998 until fully paid. In addition, the Former Officer received options to
purchase 150,000 shares of the Company's Common Stock at an exercise price of
$16.00 per share. The Company recorded a charge for the estimated fair value
of the options (Note 7). In September 1998, the Company approved the
conversion of $350,000 of its unpaid liability related to the Termination and
Buy Out Agreement for Common Stock at the then fair market value of $1.37 per
share, resulting in an issuance of 255,474 common shares.
Leases
The Company leases facilities for its corporate offices under non-
cancelable operating lease agreements that expires in 2002 and 2004, and have
annual rent increases of approximately 4% and 5%, respectively. The Company
also leases certain office equipment under operating and non-cancelable
capital lease arrangements. Future minimum lease payments follow:
<TABLE>
<CAPTION>
Year Ending January 31, Operating Capital
----------------------- ---------- --------
<S> <C> <C>
2000.................................................... $1,008,000 $283,000
2001.................................................... 1,220,000 58,000
2002.................................................... 1,271,000 31,000
2003.................................................... 1,205,000 15,000
2004.................................................... 1,218,000
Thereafter.............................................. 204,000
---------- --------
$6,126,000 387,000
----------
Amount representing interest............................ (45,000)
--------
Capital lease obligations............................... $342,000
========
</TABLE>
Rent expense for 1998 and 1999 was $116,000 and $221,000, respectively.
F-63
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 10--RELATED PARTY TRANSACTIONS
Total employee advances outstanding as of January 31, 1998 and 1999 were
$18,000 and $2,000, respectively, which are included in accounts receivable.
As of January 31, 1999, $36,000 in advances to a shareholder were included in
accounts receivable. During 1998, the Company made $154,000 in advances to a
then current officer of the Company, which was fully repaid during the year.
During 1998, the Company made $16,000 in advances to CyberDepot, which were
fully repaid during the year. A then current officer of the Company is the
principal shareholder of CyberDepot.
During 1998 and 1999, the Company entered into an agreement with a
consultant who was also a shareholder of the Company, under which the Company
incurred $23,000 and $52,000, respectively, in consulting expenses.
During 1998 and 1999, the Company sold $342,000 and $124,000 in products to
its lead underwriter in its IPO and current shareholder of the Company. As of
January 31, 1998 and 1999, $96,000 and $28,000 is included in accounts
receivable, respectively.
During 1998 and 1999, the Company incurred legal expenses of approximately
$528,000 and $283,000 respectively, from law firms that are also shareholders
of the Company. As of January 31, 1998 and 1999, approximately $354,000 and
$155,000 remains outstanding which are included in other accrued liabilities,
respectively.
During 1998 and 1999, the Company purchased $233,000 and $85,000 of
products from a shareholder of the Company. As of January 31, 1998, $114,000
was due to this shareholder.
During 1999, the Company paid $69,000 in consulting fees to an entity in
which a then current officer and director of the Company is the president and
principal shareholder.
In June 1998, the Company entered into a three year consulting agreement
with CyberDepot whereby CyberDepot will receive $22,000 per month and received
100,000 options to purchase shares of the Company's Common Stock at $21.00 per
share. The Company recorded a charge for the estimated fair value of the
options (Note 7). A then former officer and current shareholder of the Company
is the principal shareholder of CyberDepot. During 1999, the Company paid
$165,000 in consulting fees under the agreement. The Company paid $581,000 to
Cyber Depot in February 1999 which represents the total monthly fees over the
remaining three year term. This payment was made as a result of the changes in
control provision included in the agreement.
During 1998, the Company issued promissory notes for a total of $305,000 to
an affiliate of the Company's lead underwriter in its IPO. The note was paid
in full from the proceeds of the IPO.
NOTE 11--SUBSEQUENT EVENTS COMPAQ PURCHASE
On January 15, 1999, Compaq announced a tender offer to purchase all of the
outstanding shares of the Common Stock of the Company for $19.00 per share as
set forth in the Offer to Purchase Agreement. On January 21, 1999, the offer
price was reduced to $18.25 per share. Effective February 15, 1999, Compaq
completed the acquisition of the Company.
F-64
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 12--SUBSEQUENT EVENTS
Purchase by CMGI
On June 29, 1999, Compaq announced it entered into an agreement to exchange
a portion of its ownership in both the AltaVista business and two of its
second-tier subsidiaries, Shopping.com and Zip2 Corporation, among other
assets ("Alta Vista Business") to CMGI, Inc. Compaq will retain 18.5% equity
ownership in AltaVista or its successor. In return, Compaq will receive
18,994,975 CMGI common shares and CMGI preferred shares convertible into
1,809,045 CMGI common shares, which combined, would represent a 16.4% equity
ownership in CMGI, on a fully diluted basis. In addition, CMGI will issue a
$220 million three-year note to Compaq, bringing total consideration for
CMGI's 81.5% ownership in the AltaVista Business to approximately $2.3
billion. The agreement, subject to normal regulatory approvals, is binding on
both parties and does not require shareholder approval for the closing.
Arbitration
In July 1999, an arbitration proceeding against the Company commenced
demanding damages in an amount to be proven, but no less than $300,000,000
and/or an order for specific performance related to agreements entered into in
December and January of 1999. The agreements included provisions in which the
Company would receive a portion of the sale proceeds from products and
services to be provided by a vendor (the "Vendor") and sold on the Company's
website. The Vendor has also made a settlement demand of $35,000,000.
Management is unable to determine whether the outcome of this complaint will
have a material effect on its financial position, results of operations and
cash flows. An accrual has not been recorded in the financial statements for
any loss that may result from the outcome of this litigation.
F-65
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholder of
Shopping.com
We have audited the accompanying balance sheet of Shopping.com (a
development stage company) as of January 31, 1997, and the related statements
of operations, shareholders' deficit, and cash flows for the year then ended.
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 audit.
We conducted our audit 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 audit provides 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 Shopping.com as of January
31, 1997, and the results of its operations and cash flows for the year then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $201,697 and had negative cash
flows from operations for the year ended January 31, 1997, and had a
shareholders' deficit at January 31, 1997. These factors, among others, as
discussed in Note 1 to the financial statements, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
As discussed in Note 6 to the financial statements, management of the
Company discovered an error in the number of weighted-average shares
outstanding, resulting in an understatement of previously reported loss per
share.
/s/ Singer Lewak Greenbaum & Goldstein LLP
Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
June 17, 1997, except for Note 6,
for which the date is June 9, 1999
F-66
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
January 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.............................................................. $ 63
Stock subscription receivable..................................... 23,000
---------
Total current assets................................................ 23,063
Furniture and equipment, net........................................ 12,165
Other assets........................................................ 3,956
---------
Total assets........................................................ $ 39,184
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Note payable--related party....................................... $ 50,000
Accounts payable.................................................. 35,986
Other accrued liabilities......................................... 31,845
---------
Total current liabilities......................................... 117,831
---------
Commitments
Shareholders' deficit:
Preferred stock, Series A convertible, no par value 1,500,000
shares
authorized no shares issued and outstanding...................... --
Preferred stock, Series B convertible, no par value 4,000,000
shares
authorized no shares issued and outstanding...................... --
Common stock, no par value 4,000,000 shares authorized 1,152,500
shares
issued and outstanding........................................... 123,050
Deficit accumulated during development stage...................... (201,697)
---------
Total shareholders' deficit......................................... (78,647)
---------
Total liabilities and shareholders' deficit......................... $ 39,184
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
For the Year Ended January 31, 1997
<TABLE>
<S> <C>
Operating expenses.................................................. $ 201,697
---------
Net loss............................................................ $(201,697)
=========
Basic and diluted loss per share.................................. $ (0.18)
=========
Weighted-average shares outstanding............................... 1,152,500
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' DEFICIT
For the Year Ended January 31, 1997
<TABLE>
<CAPTION>
Preferred Preferred Deficit
Stock Series Stock Series Accumulated
A Convertible B Convertible Common Stock During
------------- ------------- ------------------ Development
Shares Amount Shares Amount Shares Amount Stage Total
------ ------ ------ ------ --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1,
1996................... -- $ -- -- $ -- -- $ -- $ -- $ --
Issuance of common
stock.................. 1,152,500 23,050 23,050
Capital contributed by
Cyber Depot, Inc. to
purchase assets and
develop proprietary
software............... 100,000 100,000
Net loss................ (201,697) (201,697)
----- ----- ----- ----- --------- -------- --------- ---------
Balance, January 31,
1997................... -- $ -- -- $ -- 1,152,500 $123,050 $(201,697) $ (78,647)
===== ===== ===== ===== ========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the Year Ended January 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities
Net loss.......................................................... $(201,697)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation of furniture and equipment......................... 1,276
(Increase) decrease in Other assets............................... (3,956)
Increase (decrease) in Accounts payable........................... 35,986
Other accrued liabilities......................................... 31,845
---------
Net cash used in operating activities........................... (136,546)
---------
Cash flows from investing activities
Purchase of furniture and equipment............................... (13,441)
---------
Net cash used in investing activities........................... (13,441)
---------
Cash flows from financing activities
Issuance of note payable--related party........................... 50,000
Proceeds from the issuance of common stock........................ 50
Capital contribution.............................................. 100,000
---------
Net cash provided by financing activities....................... 150,050
---------
Net increase in cash................................................ 63
Cash, beginning of year............................................. --
---------
Cash, end of year................................................... $ 63
=========
</TABLE>
Supplemental schedule of non-cash investing and financing activities
During the year ended January 31, 1997, the Company issued common stock in the
amount of $23,000 for a subscription receivable.
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE>
SHOPPING.COM
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
Shopping.com (the "Company") was incorporated in California on November 22,
1996. Cyber Depot, Inc. ("Cyber") was incorporated in California in January
1996 and among other business ventures commenced the design and development of
proprietary software for the Internet shopping marketplace in February 1996.
In March 1997, Cyber agreed to sell certain assets and liabilities and
proprietary software to Shopping.com for 250,000 shares of Series A
convertible preferred stock with warrants, and Shopping.com continued the
design and development of the proprietary software. The operations of Cyber
devoted to the design and development of the proprietary software are
considered to be the predecessor operations of the Company and have been
included with the operations of the Company since February 1996. The propriety
software acquired by the Company in this transaction has been expensed as
software research and development. The Company is engaged in the design and
development of proprietary software for marketing a broad range of products
and services to retail customers on the Internet. On July 11, 1997, the
Company commenced selling products over the Internet through its website at
http://www.shopping.com.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of the
Company as a going concern. However, the Company has experienced net losses of
$201,697 for the year ended January 31, 1997. In addition, the Company has
used, rather than provided, cash from its operations. In view of the matters
described above, recoverability of a major portion of the recorded asset
amounts shown in the accompanying balance sheet is dependent upon continued
operations of the Company, which in turn, is dependent upon the Company's
ability to continue to meet its financing requirements and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts,
or amounts and classification of liabilities that might be necessary should
the Company be unable to continue in existence.
Management has raised capital during 1997 through private placement
offerings of equity and debt securities and completed an initial public
offering ("IPO") in the latter part of 1997, which will provide sufficient
funding to continue present operations and support future marketing and
development activities.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue at the time the vendor ships the product to
the customer.
Net Loss Per Share
Net loss per share is based on the number of common shares issued in the
initial capitalization of the Company.
F-71
<PAGE>
SHOPPING.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock Subscription Receivable
At January 31, 1997, the Company had subscriptions to purchase its common
stock of $23,000. This amount was collected subsequent to the balance sheet
date; therefore, the amount is shown as an asset in the accompanying balance
sheet.
Cash Equivalents
For the purpose of the statement of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three months
or less to be cash equivalents.
Furniture and Equipment
Furniture and equipment are recorded at cost, less accumulated
depreciation. Depreciation is provided using the straight-line method over
estimated useful lives of three to 15 years as follows:
<TABLE>
<S> <C>
Computer hardware............................................... 5 years
Furniture and equipment......................................... 5 to 7 years
</TABLE>
Maintenance and minor replacements are charged to expense as incurred.
Gains and losses on disposals are included in the results of operations.
Advertising
The Company expenses advertising costs as incurred. There were no
advertising costs for the year ended January 31, 1997.
Income Taxes
The Company utilizes Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each period end based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. The provision for income taxes represents the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the Company's
financial instruments, including cash, accounts payable, and other accrued
liabilities, the carrying amounts approximate fair value due to their short
maturities. The amounts shown for note payable also approximate fair value
because current interest rates offered to the Company for debt of similar
maturities are substantially the same.
Stock Options
The Financial Accounting Standards Board ("FASB")issued SFAS No. 123,
"Accounting for Stock-Based Compensation," effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 establishes and
F-72
<PAGE>
SHOPPING.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
encourages the use of the fair value based method of accounting for stock-
based compensation arrangements under which compensation cost is determined
using the fair value of stock-based compensation determined as of the date of
grant and is recognized over the periods in which the related services are
rendered. The statement also permits companies to elect to continue using the
current implicit value accounting method specified in Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
to account for stock-based compensation. The Company will use the implicit
value based method and will be required to disclose the pro forma effect of
using the fair value based method to account for its stock-based compensation.
Risks and Uncertainties
The Company's future revenues and any future profits are substantially
dependent upon the widespread acceptance and use of the Internet and other
online services as an effective medium of commerce by consumers. Rapid growth
in the use of an interest in the Web, the Internet, and other online services
is a recent phenomenon, and there can be no assurance that acceptance and use
will continue to develop or that a sufficiently broad base of consumers will
adopt, and continue to use, the Internet and other online services as a medium
of commerce.
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality, and features of the Shopping.com online store.
The Internet and the online commerce industry are characterized by rapid
technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies, and the emergence of new industry standards and practices that
could render the Company's existing website and proprietary technology and
systems obsolete. The Company's success will depend, in part, on its ability
to license leading technologies useful in its business, enhance its existing
services, develop new services and technology that address the increasingly
sophisticated and varied needs of its prospective customers, and respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis.
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. The Company
relies on encryption and authentication technology licensed from third parties
to provide the security and authentication necessary to effect secure
transmission of confidential information, such as customer credit card
numbers. There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments will
not result in a compromise or breach of the algorithms used by the Company to
protect customer transaction data.
The online commerce market, particularly over the Internet, is new, rapidly
evolving, and intensely competitive, which competition the Company expects to
intensify in the future. Barriers to entry are minimal, and current and new
competitors can launch new websites at a relatively low cost. The Company
currently or potentially competes with a variety of other companies.
The Company carries no inventory, has no warehouse employees or facilities,
and relies on rapid fulfillment from its vendors. To satisfy customer orders,
the Company has no long-term contracts or arrangements with any of its
manufacturers or distributors that guarantee the availability of merchandise,
the continuation of particular payment terms, the extension of credit limits,
or the shopping schedules.
The Company regards its Shopping.com brand name and related software as
proprietary and relies primarily on a combination of copyright, trademark,
trade secret and confidential information laws, and employee and third party
non-disclosure agreements and other methods to protect its proprietary rights.
There can be no assurance that these protections will be adequate to protect
against technologies that are substantially equivalent or superior to the
Company's technologies. The Company does not currently hold any patents or
have any patent applications pending for itself or its products and has not
obtained federal registration for any of its trademarks.
F-73
<PAGE>
SHOPPING.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
Earnings per Share
The FASB issued SFAS No. 128, "Earnings Per Share," which is effective for
financial statements issued for periods ending after December 31, 1997. SFAS
No. 128 requires public companies to present basic loss per share and, if
applicable, diluted loss per share instead of primary and fully-diluted loss
per share.
NOTE 2--FURNITURE AND EQUIPMENT
Furniture and equipment at January 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Computer hardware................................................... $12,761
Furniture and equipment............................................. 680
-------
13,441
Less accumulated depreciation....................................... 1,276
-------
Total............................................................... $12,165
=======
</TABLE>
NOTE 3--COMMITMENTS
Litigation
The Company is involved in certain litigation in the normal course of
business. The Company does not believe that the resolution of any suit will
result in any material adverse effect on the Company's financial position,
results of operations, or cash flows.
Leases
The Company leases a facility for its corporate offices under a non-
cancelable operating lease agreement that expires in 2002. Future minimum
lease payments under this non-cancelable operating lease are as follows:
<TABLE>
<CAPTION>
Year Ending January 31,
-----------------------
<S> <C>
1998................................................................ $ 75,489
1999................................................................ 117,282
2000................................................................ 125,798
2001................................................................ 131,594
2002................................................................ 137,390
Thereafter.......................................................... 40,565
--------
Total............................................................. $628,118
========
</TABLE>
Rent expense was $13,451 for the year ended January 31, 1997.
NOTE 4--NOTE PAYABLE--RELATED PARTY
The Company has a note payable to a related party which is personally
guaranteed by an officer of the Company. In addition, the note is personally
guaranteed by a vice president of the Company and secured by a second deed of
trust on a residence owned by the vice president. The note accrues interest at
the highest rate permitted by California law (approximately 11% at January 31,
1997) and is due 90 days from January 13, 1997.
Subsequent to year-end, $51,000 was repaid which includes accrued interest
of $1,000.
F-74
<PAGE>
SHOPPING.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5--INCOME TAXES
For the year ended January 31, 1997, the Company did not provide a
provision for income taxes due to the net loss incurred. At January 31, 1997,
the Company has approximately $98,000 and $49,000 in net operating loss
carryforwards for federal and state income tax purposes, respectively, that
expire in 2012 and 2002, respectively. The components of the Company's
deferred tax assets and liabilities for income taxes consist of a deferred tax
asset relating to the net operating loss carryforwards of approximately
$36,000. The other components of the Company's deferred tax assets and
liabilities are immaterial. The Company has established a valuation allowance
of approximately $36,000 to fully offset its deferred tax asset as the Company
does not believe the recoverability of this deferred tax asset is more likely
than not.
NOTE 6--RESTATEMENT
Loss per share and common shares outstanding have been restated to correct
an error discovered by management in the computation of common shares
outstanding.
NOTE 7--SUBSEQUENT EVENTS (UNAUDITED)
Series A Convertible Preferred Stock
In March 1997, the Company issued 500,000 shares of Series A convertible
preferred stock ("Series A Preferred") in connection with the acquisition of
certain assets and liabilities and proprietary software developed by Cyber
(see Note 1). The historical cost of the assets and liabilities and
proprietary software acquired was approximately $100,000, which is the amount
used to value the 500,000 shares of Series A Preferred. In April 1997, the
Company sold 500,000 shares of Series A Preferred for a price of $0.40 per
share. The holders of the Series A Preferred are entitled to receive a
noncumulative dividend of $0.04 per share per annum, payable in cash at the
option of the Company.
Each share of Series A Preferred is convertible into shares of common stock
at the option of the holder. In addition, Series A Preferred will be
automatically converted into shares of common stock based upon the effective
conversion price immediately upon the closing of an IPO of not less than
$6,000,000.
The Series A Preferred has a liquidation preference of $0.40 per share,
plus all declared and unpaid dividends prior to the payment of any amount to
the holders of common stock.
Each holder of Series A Preferred was issued one warrant for every two
shares of Series A Preferred to purchase a share of the Company's common stock
for $3.00 per share, resulting in 375,000 warrants being issued. Based on the
financial condition of the Company at the time the warrants were issued,
management
estimates that the fair value of the Company's common stock was less than the
exercise price of the warrants.
Series B Convertible Preferred Stock
During May to September 1997, the Company sold 536,500 shares of Series B
convertible preferred stock ("Series B Preferred") for a price of $3.00 per
share. The holders of the Series B Preferred are entitled to receive a non-
cumulative dividend of $0.30 per share per annum, payable in cash at the
option of the Company.
Each share of Series B Preferred is convertible into shares of common stock
at the option of the holder. In addition, Series B Preferred will be
automatically converted into shares of common stock based upon the effective
conversion price immediately upon the closing of an IPO of not less than
$6,000,000.
The Series B Preferred has a liquidation preference of $3.00 per share,
plus all declared and unpaid dividends prior to the payment of any amount to
the holders of common stock.
F-75
<PAGE>
SHOPPING.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
Each holder of Series B Preferred was issued one warrant for every two
shares of Series B Preferred to purchase a share of the Company's common stock
for $3.00 per share, resulting in 268,250 warrants being issued. Based on the
financial condition of the Company at the time the warrants were issued,
management estimates that the fair value of the Company's common stock
approximates the exercise price of the warrants.
Upon the effective date of the Company's IPO, the 536,500 outstanding
shares of Series B Preferred were converted into 536,500 shares of the
Company's common stock.
Stock Options
The Company's board of directors adopted the 1997 Stock Option Plan (the
"Plan") and reserved 250,000 shares of common stock for grants of stock
options under the Plan. Generally, options granted under the Plan expire the
earlier of 10 years from the date of grant (five years in the case of an
incentive stock option granted to a holder of 10% or more of the Company's
outstanding capital stock) or three months after the optionee's termination of
employment or service. The Company had not granted any stock options as of
January 31, 1997, therefore, the disclosures required by SFAS No. 123 are not
applicable.
Notes Payable
In June and July 1997, the Company issued $950,000 of subordinated notes.
The notes bear interest at 10% per annum and are unsecured. The notes are due
at the earlier of nine months from the date of issuance or closing of the IPO.
In connection with the note agreement, each note holder is entitled to
receive 333 warrants for each $1,000 loaned to purchase the Company's common
stock for $6.00 per share. There is a twelve-month "lock-up" on the warrants
and the common stock underlying these warrants.
En Pointe Technologies, Inc.
On September 15, 1997 the Company entered into an agreement with En Pointe
Technologies, Inc. ("En Pointe") whereby:
. En Pointe made an investment in the Company by purchasing $600,000 of
subordinated notes. In connection therewith, the Company issued 199,800
warrants to purchase the Company's common stock at $4.50 per share. As a
result of these warrants being issued with an exercise price less than
the fair market value of similar warrants, the Company will recognize
additional financing cost;
. En Pointe granted the Company a license to En Pointe's proprietary EPIC
Software for five years in exchange for 125,000 shares of the Company's
common stock valued at $6.00 per share. The Company has agreed to pay an
annual maintenance and upgrade fee of $100,000. The initial annual fee is
to be paid concurrent with the funding of the $600,000 subordinated
notes;
. En Pointe has also agreed to provide (i) consulting services to the
Company by customizing its EPIC Software and (ii) information system
services for a quarterly fee estimated to be $60,000 and $50,000,
respectively. The initial quarterly fees of $60,000 and $50,000 are to be
paid concurrent with the funding of the $600,000 subordinated notes;
. In the event that the Company does not complete its IPO within one year,
the Company is obligated to pay En Pointe $1,000,000 for the licensing of
the EPIC Software.
Stock Split
At the completion of the Company's IPO in December 1997, the Company
effected a one-for-two reverse stock split of its common stock. All share and
per share data have been retroactively restated to reflect this stock split.
F-76
<PAGE>
ZIP2 CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-80
Consolidated Balance Sheet................................................. F-81
Consolidated Statement of Operations....................................... F-82
Consolidated Statement of Shareholders' Equity............................. F-83
Consolidated Statement of Cash Flows....................................... F-84
Notes to Consolidated Financial Statements................................. F-85
</TABLE>
F-77
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Zip2 Corp.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of Zip2
Corp. and its subsidiary at December 31, 1997 and 1998, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of Zip2 Corp. for any period subsequent to
December 31, 1998.
PricewaterhouseCoopers LLP
San Jose, California
April 2, 1999
F-78
<PAGE>
ZIP2 CORP.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, March 31,
-------------------------- ------------
1997 1998 1999
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 22,367,000 $ 16,028,000 $ 12,435,000
Accounts receivable, net of
allowance of $130,000 and
$180,000.......................... 704,000 956,000 994,000
Receivable from Compaq............. -- -- 1,585,000
Prepaid expenses and other current
assets............................ 878,000 466,000 511,000
------------ ------------ ------------
Total current assets............... 23,949,000 17,450,000 15,525,000
Property and equipment, net.......... 2,954,000 3,638,000 3,497,000
Goodwill, net........................ 577,000 180,000 153,000
Other assets......................... 460,000 535,000 812,000
------------ ------------ ------------
$ 27,940,000 $ 21,803,000 $ 19,987,000
------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable................... $ 390,000 $ 980,000 $ 348,000
Accrued liabilities................ 875,000 2,260,000 2,575,000
Deferred revenue................... 2,878,000 6,511,000 7,744,000
Notes payable, current............. 250,000 1,645,000 187,000
Payable to Compaq.................. -- -- 7,883,000
Capital lease obligations,
current........................... 393,000 1,078,000 1,159,000
------------ ------------ ------------
Total current liabilities............ 4,786,000 12,474,000 19,896,000
Notes payable, long-term............. 263,000 5,058,000 --
Capital lease obligations, long-
term................................ 1,219,000 2,600,000 2,716,000
------------ ------------ ------------
6,268,000 20,132,000 22,612,000
------------ ------------ ------------
Commitments (Note 7)
Shareholders' Equity:
Convertible Preferred Stock, $0.001
par value; issuable in series;
aggregate liquidation amount
$40,539,000; 12,000,000 shares
authorized; 9,412,112 shares
issued and outstanding at December
31, 1997 and 1998................. 9,000 9,000 9,000
Common Stock: $0.001 par value;
20,000,000 shares authorized;
4,956,552 and 4,967,947 shares
issued and outstanding at December
31, 1997 and 1998................. 5,000 5,000 7,000
Additional paid-in capital......... 40,088,000 54,621,000 61,008,000
Notes receivable from
shareholders...................... (184,000) (323,000) (2,065,000)
Unearned compensation.............. -- (12,620,000) (14,492,000)
Accumulated deficit................ (18,246,000) (40,021,000) (47,092,000)
------------ ------------ ------------
Total shareholders' equity........... 21,672,000 1,671,000 (2,625,000)
------------ ------------ ------------
$ 27,940,000 $ 21,803,000 $ 19,987,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-79
<PAGE>
ZIP2 CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
--------------------------------------- ------------------------------
1996 1997 1998 1998 1999
----------- ------------ ------------ -------------- --------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues:
Service............... $ -- $ 2,033,000 $ 4,058,000 $ 1,020,000 $ 1,953,000
Advertising........... -- 61,000 910,000 42,000 329,000
----------- ------------ ------------ -------------- --------------
Total net revenues.. -- 2,094,000 4,968,000 1,062,000 2,282,000
----------- ------------ ------------ -------------- --------------
Costs and expenses:
Cost of service
revenues............. -- 3,084,000 9,468,000 1,895,000 3,255,000
Sales and marketing... 1,430,000 7,661,000 9,184,000 2,647,000 1,722,000
Product development... 1,703,000 3,475,000 4,426,000 1,065,000 1,282,000
General and
administrative....... 847,000 2,567,000 4,105,000 707,000 1,092,000
----------- ------------ ------------ -------------- --------------
Total costs and
expenses........... 3,980,000 16,787,000 27,183,000 6,314,000 7,351,000
----------- ------------ ------------ -------------- --------------
Loss from operations.... (3,980,000) (14,693,000) (22,215,000) (5,252,000) (5,069,000)
Interest income......... 63,000 478,000 684,000 180,000 --
Interest and other
expenses............... (10,000) (63,000) (244,000) -- (2,002,000)
----------- ------------ ------------ -------------- --------------
Net loss............ $(3,927,000) $(14,278,000) $(21,775,000) $ (5,072,000) $ (7,071,000)
=========== ============ ============ ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-80
<PAGE>
ZIP2 CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Notes
Preferred Stock Common Stock Additional Receivable Total
---------------- ------------------- Paid-in from Unearned Accumulated Shareholders'
Shares Amount Shares Amount Capital Shareholders Compensation Deficit Equity
--------- ------ ---------- ------- ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1995........... -- $ -- 2,189,600 $ 2,000 $ 16,000 $ -- $ -- $ (41,000) $ (23,000)
Sale of Common
Stock for cash
and conversion
of notes
payable........ -- -- 284,350 -- 29,000 -- -- -- 29,000
Sale of Series A
Preferred Stock
for cash and
conversion of
notes payable,
net............ 3,734,732 4,000 -- -- 3,571,000 -- -- -- 3,575,000
Sale of Series B
Preferred Stock
for cash and
conversion of
notes payable,
net............ 2,420,600 2,000 -- -- 12,049,000 -- -- -- 12,051,000
Exercise of
stock options
for cash and
notes
receivable..... -- -- 1,706,086 2,000 170,000 (137,000) -- -- 35,000
Net loss........ -- -- -- -- -- -- -- (3,927,000) (3,927,000)
--------- ------ ---------- ------- ----------- ----------- ------------ ------------ ------------
Balances at
December 31,
1996........... 6,155,332 6,000 4,180,036 4,000 15,835,000 (137,000) -- (3,968,000) 11,740,000
Sale of Series B
Preferred Stock
for cash, net.. 50,000 -- -- -- 236,000 -- -- -- 236,000
Pantheon
acquisition,
net............ -- -- 501,167 1,000 230,000 -- -- -- 231,000
Sale of Series C
Preferred Stock
for cash and
conversion of
notes payable,
net............ 3,206,780 3,000 -- -- 23,697,000 -- -- -- 23,700,000
Exercise of
stock options
for cash and
notes
receivable..... -- -- 275,349 -- 90,000 (47,000) -- -- 43,000
Net loss........ -- -- -- -- -- -- -- (14,278,000) (14,278,000)
--------- ------ ---------- ------- ----------- ----------- ------------ ------------ ------------
Balances at
December 31,
1997........... 9,412,112 9,000 4,956,552 5,000 40,088,000 (184,000) -- (18,246,000) 21,672,000
Exercise of
stock options
for cash and
notes
receivable..... -- -- 1,182,122 1,000 806,000 (270,000) -- -- 537,000
Issuance of
warrants in
conjunction
with
subordinated
debt........... -- -- -- -- 560,000 -- -- -- 560,000
Repurchases of
unvested common
stock.......... -- -- (1,170,727) (1,000) (527,000) 131,000 -- -- (397,000)
Unearned
compensation... -- -- -- -- 13,694,000 -- (13,694,000) -- --
Amortization of
unearned
compensation... -- -- -- -- -- -- 1,074,000 -- 1,074,000
Net loss........ -- -- -- -- -- -- -- (21,775,000) (21,775,000)
--------- ------ ---------- ------- ----------- ----------- ------------ ------------ ------------
Balances at
December 31,
1998........... 9,412,112 9,000 4,967,947 5,000 54,621,000 (323,000) (12,620,000) (40,021,000) 1,671,000
Exercise of
stock options
for cash and
notes
receivable..... -- -- 1,993,976 2,000 1,954,000 (1,851,000) -- -- 105,000
Unearned
compensation... -- -- -- -- 2,874,000 -- (2,874,000) -- --
Amortization of
unearned
compensation... -- -- -- -- -- -- 1,002,000 -- 1,002,000
Exercise of
warrants in
conjunction
with
subordinated
debt........... 142,921 -- -- -- 1,310,000 -- -- -- 1,310,000
Exercise of
warrants....... -- -- 101,532 -- 271,000 -- -- -- 271,000
Repurchases of
unvested common
stock.......... -- -- (80,436) -- (22,000) 6,000 -- -- (16,000)
Payment for
notes
receivable..... -- -- -- -- -- 103,000 -- -- 103,000
Net loss........ -- -- -- -- -- -- -- (7,071,000) (7,071,000)
--------- ------ ---------- ------- ----------- ----------- ------------ ------------ ------------
Balances at
March 31, 1999
(unaudited).... 9,555,033 $9,000 6,983,019 $ 7,000 $61,008,000 $(2,065,000) $(14,492,000) $(47,092,000) $ (2,625,000)
========= ====== ========== ======= =========== =========== ============ ============ ============
</TABLE>
F-81
<PAGE>
ZIP2 CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(3,927,000) $(14,278,000) $(21,775,000) $(5,072,000) $(7,071,000)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Provision for
doubtful accounts.. -- 130,000 50,000 -- --
Depreciation and
amortization....... 36,000 630,000 2,471,000 320,000 550,000
Amortization of
unearned
compensation....... -- -- 1,074,000 268,000 1,002,000
Changes in assets
and liabilities,
net of effect of
Pantheon
acquisition:
Accounts
receivable....... -- (659,000) (302,000) (646,000) (38,000)
Receivable from
Compaq........... -- -- -- -- (1,585,000)
Prepaid expenses
and other current
assets........... (470,000) (366,000) 412,000 (137,000) (45,000)
Other assets...... (199,000) (258,000) (75,000) 229,000 (277,000)
Accounts payable.. 491,000 (307,000) 590,000 (73,000) (632,000)
Accrued
liabilities...... 457,000 163,000 1,385,000 112,000 315,000
Payable to
Compaq........... -- -- -- -- 1,427,000
Deferred revenue.. 521,000 2,131,000 3,633,000 681,000 1,233,000
----------- ------------ ------------ ----------- -----------
Net cash used in
operating
activities...... (3,091,000) (12,814,000) (12,537,000) (4,318,000) (5,121,000)
----------- ------------ ------------ ----------- -----------
Cash flows used in
investing activities
for acquisition of
property and
equipment............. (742,000) (1,138,000) (26,000) (15,000) --
----------- ------------ ------------ ----------- -----------
Cash flows from
financing activities:
Proceeds from issuance
of Preferred Stock,
net.................. 15,626,000 23,936,000 -- -- 1,870,000
Proceeds from issuance
of Common Stock,
net.................. 35,000 28,000 140,000 18,000 494,000
Proceeds from notes
payable.............. 609,000 141,000 7,000,000 -- --
Repayment of notes
payable.............. (11,000) (226,000) (250,000) (245,000) (589,000)
Repayment of capital
lease obligations.... -- (30,000) (666,000) 742,000 (247,000)
Proceeds from
shareholder notes
receivable........... -- 15,000 -- -- --
----------- ------------ ------------ ----------- -----------
Net cash provided
by financing
activities...... 16,259,000 23,864,000 6,224,000 515,000 1,528,000
----------- ------------ ------------ ----------- -----------
Net increase (decrease)
in cash and cash
equivalents........... 12,426,000 9,912,000 (6,339,000) (3,818,000) (3,593,000)
Cash and cash
equivalents at
beginning of year..... 29,000 12,455,000 22,367,000 22,367,000 16,028,000
----------- ------------ ------------ ----------- -----------
Cash and cash
equivalents at end of
year.................. $12,455,000 $ 22,367,000 $ 16,028,000 $18,549,000 $12,435,000
=========== ============ ============ =========== ===========
Supplemental disclosure
of cash flow
information:
Cash paid for
interest............. $ 8,000 $ 63,000 $ 243,000
=========== ============ ============
Supplemental schedule
of noncash investing
and financing
activities:
Capital leases for
equipment............ $ -- $ 1,642,000 $ 2,732,000
=========== ============ ============
Common Stock for
Pantheon
acquisition.......... $ -- $ 231,000 $ --
=========== ============ ============
Common Stock for notes
receivable, net...... $ 137,000 $ 47,000 $ 139,000
=========== ============ ============
Notes payable
converted to
Preferred and Common
Stock................ $ 29,000 $ -- $ --
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE>
ZIP2 CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Zip2 Corp., ("Zip2" or the "Company"), was incorporated in California on
November 6, 1995. Through a comprehensive suite of Web development solutions
and service offerings, the Company supports the delivery of localized
editorial content, consumer information and advertising products by newspapers
and other local media companies.
Basis of presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Zip2 Bay Area, Inc. ("Zip2 Bay
Area"). Zip2 Bay Area was sold in August 1998. All intercompany accounts and
transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity from date of purchase of three months or less to be cash equivalents.
At December 31, 1997 and 1998, cash equivalents were composed primarily of
investments in U.S. Treasury Bills, commercial paper and money market accounts
stated at cost, which approximates fair value.
Property and equipment
Property and equipment, including leasehold improvements, are stated at
cost net of accumulated depreciation and amortization. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets, generally three years. Leasehold improvements and assets acquired
under capital lease obligations are amortized over the shorter of the
estimated useful lives of the assets or the remaining lease term.
Goodwill
Goodwill arising from the acquisition of Pantheon III, Inc. is being
amortized using the straight-line method over three years from the acquisition
date. At each balance sheet date, the Company measures whether any impairment
exists with respect to the carrying amount of goodwill based upon the
undiscounted value of expected future cash flows from the acquired business.
Revenue recognition
The Company derives, or expects to derive, revenues from the delivery of
Web development solutions, Web software applications hosting, technical and
sales-related consulting services and from a share of advertising revenues
generated by newspaper and other local media customers.
F-83
<PAGE>
ZIP2 CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenues from the delivery of Web development solutions combined with
consulting, Web hosting and other continuing service obligations are
recognized ratably as service revenues over the contract terms which range
from one to six years. Revenues from technical and sales-related consulting
services are recognized as services are provided. Provisions for contract
adjustments and losses are recorded in the period such items are identified.
Deferred revenues represent the amount of cash received or invoices rendered
prior to revenue recognition. Revenues from contractual rights to share in
advertising revenues generated by newspaper and other local media customers
are recognized as advertising revenues as the fees are earned and become
receivable from the customer. Amounts payable due to newspaper and other local
media customers from contractual rights to share in advertising revenues
generated by the Company are recognized as costs of revenues in the period the
related revenues are earned.
Product development costs
The Company accounts for product development costs in accordance with SFAS
No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed." After technological feasibility is established using the
"working model" approach, product development costs are capitalized. The
capitalized costs are then amortized on a straight-line basis over the
estimated product life or on the ratio of current revenues to total projected
product revenue, whichever is greater. Since inception, the amount of costs
qualifying for capitalization has been immaterial and as a result, all product
development costs have been expensed as incurred.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of APB No. 25, "Accounting for Stock Issued to
Employees," ("APB No. 25") and complies with the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123"). Under
APB No. 25, compensation cost is recognized based on the difference, if any,
on the date of grant between the fair value of the Company's stock and the
amount an employee must pay to acquire the stock.
Advertising costs
Advertising costs are expensed as incurred in accordance with SOP 93-7,
"Reporting on Advertising." Advertising costs for the years ended December 31,
1996, 1997 and 1998, totaled $288,000, $519,000 and $969,000, respectively.
Income Taxes
Income taxes are accounted for using an asset and liability approach in
accordance with SFAS No. 109, "Accounting for Income Taxes." The asset and
liability approach requires the recognition of taxes payable or refundable for
the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. The measurement of current and deferred tax
liabilities and assets are based on provisions of the enacted tax law; the
effects of future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consists primarily of cash and cash equivalents
and accounts receivable. The Company limits its exposure to credit loss by
depositing its cash and cash equivalents with financial institutions that
management believes are of high credit quality. The Company believes that the
risk associated with accounts receivable is mitigated, to some
F-84
<PAGE>
ZIP2 CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
extent, by the fact that the Company's customer base is geographically
dispersed and is composed primarily of large newspaper and other local media
companies that management believes are financially secure.
During the year ended December 31, 1997, approximately 51% of the Company's
net revenues were derived from one customer that holds shares of the Company's
Series B and Series C Preferred Stock. At December 31, 1997, approximately 29%
and 15% of accounts receivable, net, were due from two customers that hold
shares of the Company's Series B and Series C Preferred Stock.
During the year ended December 31, 1998, two customers that hold shares of
the Company's Preferred Stock accounted for 11% and 10% of net revenue,
respectively. At December 31, 1998, one customer that holds shares of the
Company's Series B and Series C Preferred Stock accounted for 29% of accounts
receivable, net.
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
significant transactions that are required to be reported in comprehensive
income.
Segment information
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
The Company operates in a single business segment that provides Web
development solutions. The adoption of SFAS No. 131 did not have a material
impact on the Company's financial statement disclosure.
Interim results (unaudited)
The interim consolidated financial information as of March 31, 1999 and for
the three months ended March 31, 1998 and 1999, have been presented on the
same basis as the consolidated financial statements as of and for the year
ended December 31, 1998, and, in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the Company's financial position, results of operations, cash
flows and shareholders' equity as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999. The results for the three months ended March
31, 1999 are not necessarily indicative of the results to be expected for the
year ending December 31, 1999.
Recent accounting pronouncements
In March 1999, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company will adopt the provisions of SOP 98-1
in its fiscal year ending December 31, 1999, and does not expect adoption to
have a material impact on its financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards of derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
Company will adopt SFAS No. 133 in its fiscal year ending December 31, 1999
and does not expect adoption to have a material impact on its financial
position and results of operations.
F-85
<PAGE>
ZIP2 CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). Start-up activities are defined broadly as those
onetime activities related to opening a new facility, introducing a new
product or service, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as
incurred. SOP 98-5 is effective for the Company beginning January 1, 1999 and
the Company does not expect its adoption to have a material effect on its
financial position or results of operations.
NOTE 2--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
---------- -----------
<S> <C> <C>
Property and equipment,
net:
Computer equipment and
software............... $3,240,000 $ 5,859,000
Furniture and fixtures.. 65,000 68,000
Leasehold improvements.. 222,000 358,000
---------- -----------
3,527,000 6,285,000
Less: accumulated
depreciation and
amortization........... (573,000) (2,647,000)
---------- -----------
$2,954,000 $ 3,638,000
========== ===========
</TABLE>
At December 31, 1997 and 1998, property and equipment includes $1,642,000
and $4,374,000 of computer equipment, furniture and fixtures and leasehold
improvements acquired under capital lease obligations, respectively.
Accumulated amortization of assets under capital lease obligations totaled
$164,000 and $1,371,000 at December 31, 1997 and 1998, respectively.
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
-------- ----------
<S> <C> <C>
Accrued liabilities:
Payroll and related expenses.......................... $608,000 $ 542,000
Accrued advertising................................... -- 855,000
Other................................................. 267,000 863,000
-------- ----------
$875,000 $2,260,000
======== ==========
</TABLE>
NOTE 3--ACQUISITION:
Pantheon III, Inc. acquisition
In July 1997, the Company acquired all of the outstanding stock of Pantheon
III, Inc. ("Pantheon"), a Washington corporation involved in the development,
marketing and support of data conversion software applications for the
newspaper industry. The consideration for the acquisition totaled $907,000 and
was composed of 501,167 shares of the Company's Common Stock, the assumption
of outstanding Pantheon warrants and options in exchange for 59,166 and 45,145
warrants and options, respectively, to purchase the Company's Common Stock,
assumption of Pantheon liabilities totaling $535,000 and direct acquisition
costs totaling $130,000. The acquisition was accounted for using the purchase
method of accounting and accordingly, the purchase price was allocated to the
assets acquired and liabilities assumed on the basis of their fair values on
the acquisition date, with the excess of $675,000 being allocated to goodwill.
During the years ended December 31, 1997 and 1998, goodwill amortization
totaled $98,000 and $396,000, respectively, including an impairment charge of
$181,000 in 1998.
F-86
<PAGE>
ZIP2 CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 4--RELATED PARTY TRANSACTIONS:
The Company conducts a substantial portion of its business with newspapers
and other local media companies that have also made strategic investments in
the Company's Preferred Stock. The terms of such arrangements have
historically been negotiated in parallel with negotiations for the purchase of
Preferred Stock and may not necessarily reflect terms that would have resulted
from negotiations with unrelated third parties.
During the years ended December 31, 1996, 1997 and 1998, service revenues
derived from customers that also hold shares of the Company's outstanding
Preferred Stock totaled $0, $1,224,000 and $1,861,000, respectively. During
the years ended December 31, 1996, 1997 and 1998, advertising revenues derived
from customers that also hold shares of the Company's outstanding Preferred
Stock amounted to $0, $34,000 and $232,000, respectively.
In August 1998, the Company discontinued the operations of Zip2 Bay Area
and sold certain Zip2 Bay Area assets for a nominal amount to a holder of
outstanding Preferred Stock. The loss on the sale was immaterial.
NOTE 5--INCOME TAXES:
Deferred tax assets, related primarily to net operating loss carryforwards,
amounted to approximately $5,000,000 and $13,000,000 at December 31, 1997 and
1998, respectively. Valuation allowances have been provided in amounts equal
to the assets because management believes that, based on a number of factors,
it is more likely than not that the deferred tax assets will not be realized.
At December 31, 1998, the Company had approximately $ 30,000,000 of federal
net operating loss carryforwards available to offset future taxable income
which expire in varying amounts beginning in 2011. Under the Tax Reform Act of
1986, the amounts of and benefits from net operating loss carryforwards may be
impaired or limited in certain circumstances. Events which cause limitations
in the amount of net operating losses that the Company may utilize in any one
year include, but are not limited to, a cumulative ownership change of more
than 50%, as defined, over a three year period.
NOTE 6--BORROWINGS:
Notes payable
During 1996 and 1997, the Company issued notes payable to a financing
company totaling $609,000 and $141,000, respectively. These notes payable are
secured by certain computer equipment of the Company. In connection with the
issuance of the notes payable during 1996, the Company granted the financing
company warrants to purchase 46,812 shares of the Company's Series A Preferred
Stock with an exercise price of $3.65 per share. The warrants expire on the
later of August 2006 or five years following an initial public offering and
had a nominal fair value on the date of the grant.
Subordinated debt
In December 1998, the Company entered into a loan and security agreement
with two holders of the Company's warrants and an unrelated party and issued
subordinated notes totaling $7,000,000. Under the terms of the agreement, the
notes bear interest at 12.75% per year and are secured by the Company's
assets. In conjunction with the subordinated debt, warrants to purchase
136,897 shares of the Company's Series C Preferred Stock with an exercise
price of $7.67 per share were issued to the note holders. The warrants expire
on the later of seven years after the date of grant or three years after the
closing of the Company's initial public offering. The warrants had an
estimated fair value of $560,000 on the date of grant, which will be amortized
to interest expense over the term of the related debt.
F-87
<PAGE>
ZIP2 CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1997 and 1998, outstanding borrowings consist of the
following:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
-------- ----------
<S> <C> <C>
8.6% note; principal and interest payable monthly;
due October 31, 1999................................. $275,000 $ 130,000
8.7% note; principal and interest payable monthly;
due December 1, 1999................................. 124,000 65,000
9.3% note; principal and interest payable monthly;
due April 30, 2000................................... 114,000 68,000
12.75% note; principal and interest payable beginning
July 1999; due December 2002......................... -- 7,000,000
Less: Discount associated with warrants............... -- (560,000)
-------- ----------
513,000 6,703,000
Less: Current portion................................. 250,000 1,645,000
-------- ----------
$263,000 $5,058,000
======== ==========
</TABLE>
Principal payments due under the notes payable are $1,645,000, $2,818,000
and $2,800,000 for 1999, 2000 and 2001, respectively.
Equipment lease line
During 1997 and 1998, the Company obtained certain equipment lease lines
from a leasing company. At December 31, 1997 and 1998, obligations under these
lease arrangements consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
$3,000,000 equipment lease line; equal monthly
installments through April 2002..................... $1,612,000 $2,430,000
$1,500,000 equipment lease line; equal monthly
installments through December 2002.................. -- 1,248,000
$2,000,000 equipment lease line; expires December
1999................................................ -- --
---------- ----------
1,612,000 3,678,000
Less: Current portion................................ 393,000 1,078,000
---------- ----------
$1,219,000 $2,600,000
========== ==========
</TABLE>
Under the terms of the 1997 lease lines, warrants to purchase 13,136 and
7,082 shares of the Company's Series B and Series C Preferred Stock with
exercise prices of $5.00 and $7.67 per share, respectively, were issued to the
leasing Company. The warrants expire on the later of August 2002 or five years
following an initial public offering and had a nominal fair value on the date
of grant. Under the terms of the 1998 lease lines, a warrant to purchase
18,253 shares of the Company's Series C Preferred Stock with an exercise price
of $7.67 per share was issued to the leasing Company. The warrant expires on
the shorter of five years from the date of grant or two years following an
initial public offering and had a nominal fair value on the date of grant.
F-88
<PAGE>
ZIP2 CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 7--COMMITMENTS:
Royalty obligations
The Company has obligations to pay minimum royalties to various companies
for mapping content. The minimum obligations under the royalty agreements
total $440,000 and $35,000 for the years ending December 31, 1999 and 2000,
respectively.
Leases
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through October 2001. Rent
expense for the years ended December 31, 1996, 1997 and 1998 totaled $77,000,
$415,000 and $910,000, respectively.
At December 31, 1998, future minimum lease payments under noncancelable
operating and capital leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
------------------------ ----------- ----------
<S> <C> <C>
1999................................................ $ 1,338,000 $1,159,000
2000................................................ 1,340,000 1,131,000
2001................................................ 1,170,000 687,000
2002................................................ 359,000 137,000
----------- ----------
Total minimum lease payments........................ 4,207,000 $3,114,000
==========
Less: Amount representing interest.................. (529,000)
Present value of capital lease obligations.......... 3,678,000
Less: Current portion............................... (1,078,000)
-----------
Long-term portion of capital lease obligations...... $ 2,600,000
===========
</TABLE>
NOTE 8--CONVERTIBLE PREFERRED STOCK:
At December 31, 1998, Convertible Preferred Stock consists of the
following:
<TABLE>
<CAPTION>
Proceeds
Shares Net of
---------------------- Liquidation Issuance
Series Authorized Outstanding Amount Costs
------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
A............................ 4,000,000 3,734,732 $ 3,590,000 $ 3,575,000
B............................ 4,000,000 2,470,600 12,353,000 12,287,000
C............................ 4,000,000 3,206,780 24,596,000 23,700,000
---------- --------- ----------- -----------
12,000,000 9,412,112 $40,539,000 $39,562,000
========== ========= =========== ===========
</TABLE>
The holders of Preferred Stock have various rights and preferences as
follows:
Voting
Each share of Series A, Series B and Series C has voting rights equal to an
equivalent number of shares of Common Stock into which it is convertible and
votes together as one class with the Common Stock.
As long as any shares of Convertible Preferred Stock remain outstanding,
the Company must obtain approval from a majority of the holders of Convertible
Preferred Stock in order to alter the articles of
F-89
<PAGE>
ZIP2 CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
incorporation as related to Convertible Preferred Stock, change the authorized
number of shares of Convertible Preferred Stock, repurchase any shares of
Common Stock other than shares subject to the right of repurchase by the
Company, change the authorized number of Directors, authorize a dividend for
any class or series other than Convertible Preferred Stock, create a new class
of stock or effect a merger, consolidation or sale of assets where the
existing shareholders retain less than 50% of the voting stock of the
surviving entity.
Dividends
Holders of Series A, B and C Convertible Preferred Stock are entitled to
receive noncumulative dividends at the per annum rate of $0.09613, $0.5 and
$0.767 per share, respectively, when and if declared by the Board of
Directors. The holders of Series A, B and C Convertible Preferred Stock will
also be entitled to participate in dividends on Common Stock, when and if
declared by the Board of Directors, based on the number of shares of Common
Stock held on an as-if converted basis. No dividends on Convertible Preferred
Stock or Common Stock have been declared by the Board from inception through
December 31, 1998.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's Common Stock and Convertible Preferred Stock own less than
51% of the resulting voting power of the surviving entity, the holders of
Series A, B and C Convertible Preferred Stock are entitled to receive an
amount of $0.9613, $5.00 and $7.67 per share, respectively, plus any declared
but unpaid dividends prior to and in preference to any distribution to the
holders of Common Stock. Should the Company's legally available assets be
insufficient to satisfy the liquidation preferences, the entire amount of
assets will be distributed ratably to the holders of Series A, B and C
Convertible Preferred Stock.
After the payment has been made to the holders of the Preferred Stock in
full, the remaining legally available assets would be distributed ratably to
the holders of Series A Preferred Stock and the holders of Common Stock.
Conversion
Each share of Series A, B and C Convertible Preferred Stock is convertible,
at the option of the holder, according to a conversion ratio, subject to
adjustment for dilution. Each share of Series A, B and C Convertible Preferred
Stock automatically converts into the number of shares of Common Stock into
which such shares are convertible at the then effective conversion ratio upon:
1) the closing of a public offering of Common Stock at a per share price of at
least $10 per share with gross proceeds of at least $17,000,000 or 2) the
consent of not less than two-thirds of the then holders of the majority of
Convertible Preferred Stock, subject to the limitation that the holders of
Series A Preferred Stock shall not be entitled to more than three times the
Liquidation Preference.
At December 31, 1998, the Company had reserved 4,000,000, 4,000,000 and
4,000,000 shares of Common Stock for the conversion of Series A, B and C
Convertible Preferred Stock, respectively.
NOTE 9--COMMON STOCK:
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 20,000,000 shares of $0.001 par value Common Stock. A portion of the
shares issued for notes receivable are subject to rights of repurchase by the
Company that lapse generally over a four year period from the earlier of the
purchase date or employee hire date, as applicable, until all restrictions
lapse. At December 31, 1998, there were 549,000 shares of Common Stock subject
to repurchase.
F-90
<PAGE>
ZIP2 CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 10--STOCK OPTION PLANS:
In April 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan"). The 1996 Plan provides for the granting of stock options to employees,
consultants and directors of the Company. Options granted under the Plan may
be either incentive stock options or nonqualified stock options. Incentive
stock options ("ISO") may be granted only to Company employees (including
officers and directors who are also employees). Nonqualified stock options
("NSO") may be granted to Company employees and consultants. The Company has
reserved 3,093,336 shares of Common Stock for issuance under the 1996 Plan.
In September 1997, the Company adopted the 1997 Stock Option Plan (the
"1997 Plan"). The 1997 Plan provides for the granting of stock options to
employees, consultants and directors of the Company. Options granted under the
1997 Plan may be either incentive stock options or nonqualified stock options.
Incentive stock options ("ISO") may be granted only to Company employees
(including officers and directors who are also employees). Nonqualified stock
options ("NSO") may be granted to Company employees and consultants. The
Company has reserved approximately 600,000 shares of Common Stock for issuance
under the 1997 Plan.
Options under the 1996 and 1997 Plans may be granted for periods of up to
ten years and at prices no less than 85% of the estimated fair value of the
shares on the date of grant as determined by the Board of Directors, provided,
however, that (i) the exercise price of an ISO and NSO shall not be less than
100% and 85% of the estimated fair value of the shares on the date of grant,
respectively, and (ii) the exercise price of an ISO and NSO granted to a 10%
shareholder shall not be less than 110% of the estimated fair value of the
shares on the date of grant, respectively. Options are exercisable immediately
subject to repurchase options held by the Company which lapse over a maximum
period of ten years at such times and under such conditions as determined by
the Board of Directors. To date, options granted generally vest over four
years.
The following table summarizes stock option activity under the Company's
stock option plans:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1996 1997 1998
--------------------- ------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Exercise Exercise
Outstanding Price Shares Price Shares Price
----------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 87,500 $ 0.10 808,095 $0.46
Granted................. 1,834,686 0.10 1,209,299 0.25 3,175,204 1.07
Assumed in Pantheon
acquisition............ -- -- 45,145 3.31 -- --
Exercised............... (1,706,086) 0.10 (447,849) 0.16 (1,182,122) 0.70
Canceled................ (41,100) 0.10 (86,000) 0.25 (325,885) 1.50
---------- --------- ----------
Outstanding at period
end.................... 87,500 0.10 808,095 0.46 2,475,292 0.99
---------- --------- ----------
Weighted average grant
date fair value of
options granted during
the year............... $ 0.04 $ 0.83 $4.26
------ ------ -----
</TABLE>
F-91
<PAGE>
ZIP2 CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1998, 1,064,031 options were available for grant under the
Plans.
<TABLE>
<CAPTION>
Options Outstanding at December Options Exercisable
31, 1998 at December 31, 1998
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Outstanding Price
------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10................... 20,000 7.59 $0.10 20,000 $0.10
0.25................... 112,968 8.50 0.25 109,968 0.25
0.40-$1.00............. 2,310,737 9.81 1.00 2,303,968 1.00
1.83-$3.66............. 31,587 7.72 3.39 31,587 3.39
--------- ---- ----- --------- -----
2,475,292 9.70 $0.99 2,465,523 $0.99
========= ==== ===== ========= =====
</TABLE>
At December 31, 1998, approximately 267,000 options were vested.
Unearned stock-based compensation
In connection with certain stock option grants during the year ended
December 31, 1998, the Company recognized unearned compensation totaling
$13,694,000, which is being amortized over the four year vesting periods of
the related options. Amortization expense recognized during the year ended
December 31, 1998 totaled approximately $1,074,000.
Minimum value disclosures
Had compensation cost for the Company's stock-based compensation plan been
determined based on the minimum value method at the grant dates for the awards
as prescribed by SFAS No. 123, the Company's net loss would have reflected an
immaterial change.
The Company calculated the minimum value of each option grant on the date
of grant using the Black-Scholes pricing method with the following
assumptions: dividend yield at 0%; weighted average expected option term of
five years; risk free interest rates of 6.2%, 6.2% and 5.4% for 1996, 1997 and
1998, respectively.
Notes receivable from shareholders
In connection with the issuance of Common Stock upon the exercise of stock
options, notes receivable were received from certain officers and employees.
These full-recourse notes, which accrue interest on unpaid balances at between
5.7% to 6.8% per annum and are secured by the related Common Stock, are due
between 1999 and 2008. The Company may accelerate the amounts due, in part or
in whole, upon certain events including termination of employment, payment
default or sales of the pledged securities.
NOTE 11--EMPLOYEE BENEFIT PLANS:
The Company sponsors a 401(k) defined contribution plan covering all
employees. Contributions made by the Company are determined annually by the
Board of Directors. There were no employer contributions under this plan
during the years ended December 31, 1996, 1997 and 1998.
F-92
<PAGE>
ZIP2 CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 12--SUBSEQUENT EVENTS:
Stock Option Grants
In January and February 1999, the Company granted to employees 201,000
options to purchase the Company's Common Stock at an exercise price of $1.00
per share. In connection with these stock option grants, the Company
recognized unearned compensation totaling approximately $2,874,000, which is
being amortized over the four year vesting periods of the related options.
Merger with Compaq Computer Corporation
On April 1, 1999, the Company consummated a merger agreement with Compaq
Computer Corporation ("Compaq"). Under the terms of the merger agreement, each
share of the Company's Convertible Preferred Stock and Common Stock was
converted into the right to receive an amount per share equal to $307,000,000,
divided by the number of issued and outstanding shares of Convertible
Preferred Stock and Common Stock immediately prior to the consummation of the
merger. Additionally, Compaq repaid the subordinated debt of the Company as
part of the terms of the acquisition.
F-93
<PAGE>
[LOGO]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities and we are not soliciting +
+offers to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion) [INTERNATIONAL COVER]
Issued
Shares
[AltaVista Company Logo]
COMMON STOCK
-----------
We are offering shares of our common stock. This is our initial public
offering and no public market currently exists for our shares. We anticipate
that the initial public offering price will be between $ and $ per
share.
-----------
We have applied for quotation of our common stock on the Nasdaq National Market
under the symbol "ALTA."
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting
Price Discounts Proceeds
to and to
Public Commissions AltaVista
------ ------------ ---------
<S> <C> <C> <C>
Per Share......................................... $ $ $
Total............................................. $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to an additional
shares to cover over-allotments.
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.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
HAMBRECHT & QUIST
BANCBOSTON ROBERTSON STEPHENS INTERNATIONAL
PRUDENTIAL--BACHE SECURITIES
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table indicates the expenses to be incurred in connection
with the offering described in this Registration Statement, all of which will
be paid by AltaVista. All amounts are estimates, other than the registration
fee, the NASD fee, and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration fee.............................................. 79,200
NASD Filing fee................................................... 30,500
Nasdaq National Market listing fee................................ *
Accounting fees and expenses...................................... *
Legal fees and expenses........................................... *
Director and officer insurance expenses........................... *
Printing and engraving expenses................................... *
Transfer agent fees and expenses.................................. *
Blue sky fees and expenses........................................ *
Miscellaneous fees and expense.................................... *
------
Total .......................................................... $
======
</TABLE>
- --------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers.
Section 102 of the Delaware General Corporation Law ("DGCL"), as amended,
allows a corporation to eliminate the personal liability of directors of a
corporation to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional
misconduct or knowingly violated a law, authorized the payment of a dividend
or approved a stock repurchase in violation of Delaware corporate law or
obtained an improper personal benefit.
Section 145 of the DGCL provides, among other things, that the Company may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than
an action by or in the right of the Company) by reason of the fact that the
person is or was a director, officer, agent or employee of the Company or is
or was serving at the Company's request as a director, officer, agent, or
employee of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgment, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding. The power to indemnify
applies (a) if such person is successful on the merits or otherwise in defense
of any action, suit or proceeding, or (b) if such person acted in good faith
and in a manner he reasonably believed to be in the best interest, or not
opposed to the best interest, of the Company, and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The power to indemnify applies to actions brought by or in the right
of the Company as well, but only to the extent of defense expenses (including
attorneys' fees but excluding amounts paid in settlement) actually and
reasonably incurred and not to any satisfaction of judgment or settlement of
the claim itself, and with the further limitation that in such actions no
indemnification shall be made in the event of any adjudication of negligence
or misconduct in the performance of his duties to the Company, unless the
court believes that in light of all the circumstances indemnification should
apply.
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for such actions. A
director who was either absent when the unlawful actions were approved or
dissented at the
II-1
<PAGE>
time, may avoid liability by causing his or her dissent to such actions to be
entered in the books containing the minutes of the meetings of the board of
directors at the time such action occurred or immediately after such absent
director receives notice of the unlawful acts.
Our Amended and Restated Certificate of Incorporation includes a provision
that eliminates the personal liability of its directors for monetary damages
for breach of fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to AltaVista or its
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under the section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our Amended and Restated Bylaws provide that:
. we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
. we may indemnify our other employees and agents to the same extent that
we indemnified our officers and directors, unless otherwise determined by
our Board of Directors; and
. we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware Law.
The indemnification provisions contained in the Company's Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws are not
exclusive of any other rights to which a person may be entitled by law,
agreement, vote of stockholders or disinterested directors or otherwise. In
addition, the Company maintains insurance on behalf of its directors and
executive officers insuring them against any liability asserted against them
in their capacities as directors or officers or arising out of such status.
Item 15. Recent Sales of Unregistered Securities.
In the three fiscal years preceding the filing of this registration
statement, AltaVista has issued the following securities that were not
registered under the Securities Act:
(a) Issuances of Capital Stock
(b) Grants and Exercises of Stock Options
As of November 30, 1999, AltaVista had granted options to purchase an
aggregate of 340,000 shares of common stock, with a weighted average exercise
price of $ per share to its non-employee directors.
As of November 30, 1999, AltaVista had granted options to purchase an
aggregate of shares of common stock, with a weighted average exercise
price of $ per share, to its employees under its stock option plans.
(c) Exemptions
No underwriters were involved in the foregoing sales of securities. These
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by
an issuer not involving any public offering or the rules and regulations
thereunder or, in the case of options to purchase common stock, Rule 701 under
the Securities Act. All of the foregoing securities are deemed restricted
securities for purposes of the Securities Act.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
a. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated By-Laws
4.1 Form of common stock certificate*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP*
10.1 1999 Stock Option Plan
10.2 1999 Stock Option Plan Agreements
10.3 1999 Equity Incentive Plan
10.4 1999 Equity Incentive Plan Agreement
10.5 1999 Stock Option Plan for Non-Employee Directors
10.6 Amended and Restated 1999 Stock Option Plan for Non-Employee Directors
10.7 1999 Stock Option Plan for Non-Employee Directors Agreements
10.8 Form of Severance Agreement
10.9 Forms of Indemnity Agreements
10.10 Deferred Compensation Plan
10.11 Trust Agreement under Deferred Compensation Plan
10.12 Investor Rights Agreement by and between the Registrant and CMGI, Inc.
16.1 Letter Regarding Change in Accountants
21.1 Subsidiary of the Registrant
23.1 Consent of KPMG LLP
23.2 Consent of Singer Lewak Greenbaum & Goldstein LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Report of PricewaterhouseCoopers LLP
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)*
24.1 Power of Attorney (included on signature page. See page II-4)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
b. Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing certificates in such denominations and registered in such names
as required by the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the provisions described in Item 14, or otherwise,
the registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. In the event that a
claim for indemnification by the registrant against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the
II-3
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or
(4) or 497 (h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bonafide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palo Alto, State of
California, on December 17, 1999.
AltaVista Company
/s/ Kenneth R. Barber
By: ________________________________
Name: Kenneth R. Barber
Title: Vice President and Chief
Financial Officer
Each person whose signature appears below hereby constitutes and appoints
Kenneth R. Barber and Stephanie A. Lucie, and each of them, his true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign any and all (i) amendments (including post-effective
amendments) and additions to this Registration Statement and (ii) Registration
Statements, and any and all amendments thereto (including post-effective
amendments), relating to the offering contemplated pursuant to Rule 462(b)
under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants to such attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Rodney W. Schrock President, Chief Executive December 17, 1999
____________________________________ Officer and Director
Rodney W. Schrock
/s/ Kenneth R. Barber Vice President and Chief December 17, 1999
____________________________________ Financial Officer
Kenneth R. Barber
/s/ Mary S. Yuschak Vice President, Corporate December 17, 1999
____________________________________ Controller and Treasurer
Mary S. Yuschak
/s/ David S. Wetherell Chairman December 17, 1999
____________________________________
David S. Wetherell
/s/ Flint J. Brenton Director December 17, 1999
____________________________________
Flint J. Brenton
/s/ John G. McDonald Director December 17, 1999
____________________________________
John G. McDonald
/s/ Avram Miller Director December 17, 1999
____________________________________
Avram Miller
/s/ Robert J. Ranalli Director December 17, 1999
____________________________________
Robert J. Ranalli
</TABLE>
II-5
<PAGE>
ALTAVISTA COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1998 and seven months ended July 31, 1999
<TABLE>
<CAPTION>
June 12, 1998 Seven Months
Year Ended January 1, 1998 to Ended
December 31, to December 31, July 31,
1997 June 11, 1998 1998 1999
------------ --------------- ------------- ------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts and
concessions (in
thousands)
Balance, beginning of
period................. $ -- $1,427 $ 2,647 $ 2,832
Additions charged to
expense................ 1,427 1,220 2,516 3,266
Additions due to
acquisitions........... -- -- -- 241
Reductions.............. -- -- (2,331) (1,287)
Balance, end of period.. $1,427 $2,647 $ 2,832 $ 5,052
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation
3.2 Amended and Restated By-Laws
10.1 1999 Stock Option Plan
10.2 1999 Stock Option Plan Agreements
10.3 1999 Equity Incentive Plan
10.4 1999 Equity Incentive Plan Agreement
10.5 1999 Stock Option Plan for Non-Employee Directors
10.6 Amended and Restated 1999 Stock Option Plan for Non-Employee Directors
10.7 1999 Stock Option Plan for Non-Employee Directors Agreements
10.8 Form of Severance Agreement
10.9 Forms of Indemnity Agreements
10.10 Deferred Compensation Plan
10.11 Trust Agreement under Deferred Compensation Plan
10.12 Investor Rights Agreement by and between the Registrant and CMGI, Inc.
16.1 Letter Regarding Change in Accountants
21.1 Subsidiary of the Registrant
23.1 Consent of KPMG LLP
23.2 Consent of Singer Lewak Greenbaum & Goldstein LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Report of PricewaterhouseCoopers LLP
24.1 Power of Attorney (included on signature page. See page II-4)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
27.4 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALTAVISTA COMPANY
AltaVista Company (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of the State of Delaware on June 28, 1999.
2. Pursuant to a meeting of the Board of Directors of the Company on
December 16, 1999, a resolution was duly adopted pursuant to the DGCL setting
forth an Amended and Restated Certificate of Incorporation of the Corporation
and declaring said Amended and Restated Certificate of Incorporation advisable.
The stockholders of the Corporation duly approved said proposed Amended and
Restated Certificate of Incorporation by written consent in accordance with
Sections 228, 242 and 245 of the DGCL. The resolution setting forth the Amended
and Restated Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, be
--------
and hereby is amended and restated in its entirety so that the same shall read
as follows:
FIRST. The name of the Corporation is:
AltaVista Company
SECOND. The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
<PAGE>
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,500,000,000 shares, consisting of
(i) 1,495,000,000 shares of Common Stock, par value $.01 per share ("Common
Stock"), and (ii) 5,000,000 shares of Preferred Stock, par value $.01 per share
("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof, in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. General. The voting, dividend and liquidation rights of the holders
-------
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock shall have voting rights at
------
all meetings of stockholders, each such holder being entitled to one vote for
each share thereof held by such holder. There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
DGCL.
3. Dividends. Dividends may be declared and paid on the Common Stock
---------
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
2
<PAGE>
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issuance of the shares thereof, to determine and fix such
voting powers, full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the DGCL.
Without limiting the generality of the foregoing, the resolutions providing for
issuance of any series of Preferred Stock may provide that such series shall be
superior or rank equally or be junior to the Preferred Stock of any other series
to the extent permitted by law. Except as otherwise provided in this Certificate
of Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions of
this Amended and Restated Certificate of Incorporation, the right to have such
vote being expressly waived by all present and future holders of the capital
stock of the Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. Election of directors need not be by written ballot, except as
and to the extent provided in the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the DGCL or on
3
<PAGE>
the application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of the DGCL
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
EIGHTH. Except to the extent that the DGCL prohibits the elimination or
limitation of liability of directors for breaches of fiduciary duty, no director
of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, notwithstanding any provision of law imposing such liability. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
NINTH. A. Actions, Suits and Proceedings Other than by or in the Right
------------------------------------------------------------
of the Corporation. The Corporation shall indemnify each person who was or is a
- ------------------
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that such person is or was, or has agreed to become, a
director or officer of the Corporation, or is or was serving, or has agreed to
serve, at the request of the Corporation, as a director, officer, partner,
employee or trustee of, or in a similar capacity with, another corporation,
partnership, joint venture, trust or other enterprise (including any employee
benefit plan), or by reason of any action alleged to have been taken or omitted
in such capacity against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person or on such person's behalf in connection with such action, suit or
proceeding and any appeal therefrom, if such person acted in good faith and in a
manner such person reasonably believed to be in, or not opposed to, the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
---------------
shall not, of itself, create
4
<PAGE>
a presumption that such person did not act in good faith and in a manner which
such person reasonably believed to be in, or not opposed to, the best interests
of the Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
B. Actions or Suits by or in the Right of the Corporation. The
------------------------------------------------------
Corporation shall indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that such person is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer, partner, employee or trustee
of, or in a similar capacity with, another corporation, partnership, joint
venture, trust or other enterprise (including any employee benefit plan), or by
reason of any action alleged to have been taken or omitted in such capacity,
against all expenses (including attorneys' fees) and, to the extent permitted by
law, amounts paid in settlement actually and reasonably incurred by such person
or on the such person's behalf in connection with such action, suit or
proceeding and any appeal therefrom, if such person acted in good faith and in a
manner such person reasonably believed to be in, or not opposed to, the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of Delaware shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
(including attorneys' fees) which the Court of Chancery of Delaware shall deem
proper. Each person seeking indemnification pursuant to Paragraphs a. and b. of
this Article Ninth shall hereafter be referred to as an "Indemnitee."
C. Indemnification for Expenses of Successful Party. Notwithstanding
------------------------------------------------
the other provisions of this Article Ninth, to the extent that an Indemnitee has
been successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Paragraphs a. and b. of this Article Ninth, or in
defense of any claim, issue or matter therein, or on appeal from any such
action, suit or proceeding, the Indemnitee shall be indemnified against all
expenses (including attorneys' fees) actually and reasonably incurred by the
Indemnitee or on the Indemnitee's behalf in connection therewith. Without
limiting the foregoing, if any action, suit or proceeding is disposed of, on the
merits or otherwise (including a disposition without prejudice), without (i) the
disposition being adverse to the Indemnitee, (ii) an adjudication that the
Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo
----
contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not
- ----------
act in good faith and in a manner he
5
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
Corporation and (v) with respect to any criminal proceeding, an adjudication
that the Indemnitee had reasonable cause to believe his conduct was unlawful,
the Indemnitee shall be considered for the purposes hereof to have been wholly
successful with respect thereto.
D. Notification and Defense of Claim. As a condition precedent to an
---------------------------------
Indemnitee's right to be indemnified, the Indemnitee must notify the Corporation
in writing as soon as practicable of any action, suit, proceeding or
investigation involving the Indemnitee for which indemnity will or could be
sought. With respect to any action, suit, proceeding or investigation of which
the Corporation is so notified, the Corporation will be entitled to participate
therein at its own expense and/or to assume the defense thereof at its own
expense, with legal counsel reasonably acceptable to the Indemnitee. After
notice from the Corporation to the Indemnitee of its election so to assume such
defense, the Corporation shall not be liable to the Indemnitee for any legal or
other expenses subsequently incurred by the Indemnitee in connection with such
action, suit, proceeding or investigation, other than as provided below in this
Paragraph d. The Indemnitee shall have the right to employ the Indemnitee's own
counsel in connection with such action, suit, proceeding or investigation, but
the fees and expenses of such counsel incurred after notice from the Corporation
of its assumption of the defense thereof shall be at the expense of the
Indemnitee unless (i) the employment of counsel by the Indemnitee has been
authorized by the Corporation, (ii) counsel to the Indemnitee shall have
reasonably concluded that there may be a conflict of interest or position on any
significant issue between the Corporation and the Indemnitee in the conduct of
the defense of such action, suit, proceeding or investigation or (iii) the
Corporation shall not in fact have employed counsel to assume the defense of
such action, suit, proceeding or investigation, in each of which cases the fees
and expenses of counsel for the Indemnitee shall be at the expense of the
Corporation, except as otherwise expressly provided by this Article Ninth. The
Corporation shall not be entitled, without the consent of the Indemnitee, to
assume the defense of any claim brought by or in the right of the Corporation or
as to which counsel for the Indemnitee shall have reasonably made the conclusion
provided for in clause (ii) above. The Corporation shall not be required to
indemnify the Indemnitee under this Article Ninth for any amounts paid in
settlement of any action, suit, proceeding or investigation effected without its
written consent. The Corporation shall not settle any action, suit, proceeding
or investigation in any manner which would impose any penalty or limitation on
the Indemnitee without the Indemnitee's written consent. Neither the Corporation
nor the Indemnitee will unreasonably withhold its consent to any proposed
settlement.
E. Advance of Expenses. Subject to the provisions of Paragraph f.
-------------------
below, in the event that the Corporation does not assume the defense pursuant to
Paragraph d.
6
<PAGE>
of this Article Ninth of any action, suit, proceeding or investigation of which
the Corporation receives notice under this Article Ninth, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter;
provided, however, that the payment of such expenses incurred by the Indemnitee
- -------- -------
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article Ninth; and further provided that no such advancement of expenses
------- --------
shall be made if it is determined that (i) the Indemnitee did not act in good
faith and in a manner the Indemnitee reasonably believed to be in, or not
opposed to, the best interests of the Corporation or (ii) with respect to any
criminal action or proceeding, the Indemnitee had reasonable cause to believe
the Indemnitee's conduct was unlawful. Such undertaking shall be accepted
without reference to the financial ability of the Indemnitee to make such
repayment.
F. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Paragraph a., b., c. or e. of this Article
Ninth, the Indemnitee shall submit to the Corporation a written request,
including in such request such documentation and information as is reasonably
available to the Indemnitee and is reasonably necessary to determine whether and
to what extent the Indemnitee is entitled to indemnification or advancement of
expenses. Any such indemnification or advancement of expenses, unless ordered by
a court, shall be made, with respect to requests under Paragraph a., b. or e.,
only as authorized in the specific case upon a determination by the Corporation
that the indemnification of the Indemnitee is proper because the Indemnitee has
met the applicable standard of conduct set forth in Paragraph a., b. or e., as
the case may be. Such determination shall be made in each instance (i) by a
majority vote of the directors of the Corporation consisting of persons who are
not at that time parties to the action, suit or proceeding in question
("Disinterested Directors"), whether or not a quorum, (ii) by a majority vote of
a committee of Disinterested Directors designated by majority vote of
Disinterested Directors, whether or not a quorum, (iii) if there are no
Disinterested Directors, or if Disinterested Directors so direct, by independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Corporation) in a written opinion or (iv) by the stockholders of the
Corporation.
G. Remedies. The right to indemnification or advances as granted by
--------
this Article Ninth shall be enforceable by the Indemnitee in any court of
competent jurisdiction. Neither the failure of the Corporation to have made a
determination prior
7
<PAGE>
to the commencement of such action that indemnification is proper in the
circumstances because the Indemnitee has met the applicable standard of conduct,
nor an actual determination by the Corporation pursuant to Paragraph f. above
that the Indemnitee has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the Indemnitee has not met
the applicable standard of conduct. The Indemnitee's expenses (including
attorneys' fees) incurred in connection with successfully establishing the
Indemnitee's right to indemnification, in whole or in part, in any such
proceeding also shall be indemnified by the Corporation.
H. Limitations. Notwithstanding anything to the contrary in this
-----------
Article Ninth, except as set forth in Paragraph g. above, the Corporation shall
not indemnify an Indemnitee in connection with a proceeding (or part thereof)
initiated by the Indemnitee unless the initiation thereof was approved by the
Board of Directors of the Corporation. Notwithstanding anything to the contrary
in this Article Ninth, the Corporation shall not indemnify an Indemnitee to the
extent the Indemnitee is reimbursed from the proceeds of insurance, and in the
event the Corporation makes any indemnification payments to an Indemnitee and
the Indemnitee is subsequently reimbursed from the proceeds of insurance, the
Indemnitee shall promptly refund such indemnification payments to the
Corporation to the extent of such insurance reimbursement.
I. Subsequent Amendment. No amendment, termination or repeal of this
--------------------
Article Ninth or of the relevant provisions of the DGCL or any other applicable
laws shall affect or diminish in any way the rights of any Indemnitee to
indemnification under the provisions hereof with respect to any action, suit,
proceeding or investigation arising out of or relating to any actions,
transactions or facts occurring prior to the final adoption of such amendment,
termination or repeal.
J. Other Rights. The indemnification and advancement of expenses
------------
provided by this Article Ninth shall not be deemed exclusive of any other rights
to which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or Disinterested Directors or otherwise, both as to action in the Indemnitee's
official capacity and as to action in any other capacity while holding office
for the Corporation, and shall continue as to an Indemnitee who has ceased to be
a director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article Ninth shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article Ninth. In addition, the Corporation may, to the extent authorized from
time to time by the Board of Directors, grant indemnification rights to other
employees
8
<PAGE>
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article Ninth.
K. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article Ninth to indemnification by the Corporation for some
or a portion of the expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement actually and reasonably incurred by the Indemnitee or
on the Indemnitee's behalf in connection with any action, suit, proceeding or
investigation and any appeal therefrom but not, however, for the total amount
thereof, the Corporation shall nevertheless indemnify the Indemnitee for the
portion of such expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement to which the Indemnitee is entitled.
L. Insurance. The Corporation may purchase and maintain insurance, at
---------
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by such person in any such capacity, or arising out
of his or her status as such, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
DGCL.
M. Savings Clause. If this Article Ninth or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article Ninth that shall not have been invalidated and to the fullest extent
permitted by applicable law.
N. Definitions. Terms used herein and defined in Section 145(h) and
-----------
Section 145(i) of the DGCL shall have the respective meanings assigned to such
terms in such Section 145(h) and Section 145(i).
TENTH. Except as otherwise provided herein, the Corporation reserves
the right to amend, alter, change or repeal any provision contained in this
Amended and Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and this Amended and Restated Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
9
<PAGE>
ELEVENTH: Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the Chief Executive Officer, the
President, the Board of Directors or the holders of at least 40% of the votes
which all stockholders would be entitled to cast in any annual election of
directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
TWELFTH: In furtherance and not in limitation of the powers conferred
upon it by the laws of the State of Delaware, the Board of Directors shall have
the power to adopt, amend, alter or repeal the Corporation's By-Laws. The
affirmative vote of a majority of the directors present at any regular or
special meeting of the Board of Directors at which a quorum is present shall be
required to adopt, amend, alter or repeal the Corporation's By-Laws. The
Corporation's By-Laws also may be adopted, amended, altered or repealed by the
affirmative vote of the holders of at least a majority of the votes which all of
the stockholders would be entitled to cast in any annual election of directors.
THIRTEENTH: The Corporation hereby elects not to be governed by Section
203 of the DGCL.
10
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
be affixed hereto and this Amended and Restated Certificate of Incorporation to
be signed by its Chief Executive Officer this ___ day of March, 2000.
ALTAVISTA COMPANY
By:_________________________________
Rodney W. Schrock
Chief Executive Officer
11
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
ALTAVISTA COMPANY
ARTICLE I. - Stockholders
-------------------------
1.1 Place of Meetings. All meetings of stockholders shall be held at
-----------------
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President or, if not so designated, at the registered
office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the
--------------
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on a date to be fixed by
the Board of Directors, the Chairman of the Board, the Chief Executive Officer
or the President (which date shall not be a legal holiday in the place where the
meeting is to be held) at the time and place to be fixed by the Board of
Directors, the Chairman of the Board, the Chief Financial Officer or the
President and stated in the notice of the meeting. If no annual meeting is held
in accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as is convenient. If no annual meeting
is held in accordance with the foregoing provisions, a special meeting may be
held in lieu of the annual meeting, and any action taken at that special meeting
shall have the same effect as if it had been taken at the annual meeting, and in
such case all references in these By-Laws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
----------------
any time only by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer, the President or the holders of at least 40% of the votes
which all stockholders would be entitled to cast in any annual election of
directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
1.4 Notice of Meeting. Except as otherwise provided by law, written
-----------------
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
<PAGE>
1.5 Voting List. The officer who has charge of the stock ledger of the
-----------
corporation shall prepare and make, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place, specified in the notice of the
meeting, within the city where the meeting is to be held or, if not so specified
in the notice of meeting, at the place where the meeting is to be held. The list
also shall be produced and kept at the time and place of the meeting during the
whole time of the meeting and may be inspected by any stockholder who is
present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
------
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
------------
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
------------------
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law, the Certificate of Incorporation or these By-Laws. Each stockholder of
record entitled to vote at a meeting of stockholders may vote in person or may
authorize another person or persons to vote or act for him by proxy executed in
writing (or in such other manner permitted by the General Corporation Law of the
State of Delaware) by the stockholder or his authorized agent and delivered to
the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
-----------------
holders, present or represented and voting on a matter, of shares representing a
majority of the votes cast (or if there are two or more classes of stock
entitled to vote as separate classes, then in the case of each such class, the
holders, present or represented and voting on a matter, of shares representing a
majority of votes cast by that class) shall decide any matter to be voted upon
by the stockholders at such meeting, except when a
<PAGE>
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election by stockholders shall be determined
by a plurality of the votes cast by the stockholders entitled to vote at the
election.
1.10 Nomination of Directors. Only persons who are nominated in accordance
-----------------------
with the following procedures shall be eligible for election as directors.
Nomination for election to the Board of Directors of the corporation at a
meeting of stockholders may be made (i) by or at the direction of the Board of
Directors or (ii) by any stockholder of the corporation entitled to vote for the
election of directors at such meeting who complies with the notice procedures
set forth in this Section 1.10.
To be timely, a stockholder's notice must be received by the Secretary of
the corporation at the principal executive offices of the corporation as
follows: (a) in the case of an election of directors at an annual meeting of
stockholders, not less than 45 days nor more than 60 days prior to the date on
which the corporation first mailed its proxy materials for the prior year's
annual meeting; provided, however, that in the event that the date of the annual
meeting is called for a date that is not within 30 days before or after the
first anniversary of the preceding year's annual meeting, to be timely, a
stockholder's notice must be so received not later than the 10th day following
the day on which notice of the date of such annual meeting was mailed or public
disclosure of the date of such annual meeting was made.
The stockholder's notice to the Secretary of the corporation shall set
forth (a) as to each proposed nominee, (i) the name, age, business address and,
if known, residence address of each such nominee, (ii) the principal occupation
or employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee and (iv) any other
information concerning the nominee that must be disclosed as to nominees in
proxy solicitations (including such person's written consent to be named as a
nominee and to serve as a director if elected) pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations promulgated thereunder; (b) as to the stockholder giving
the notice, (i) the name and address, as they appear on the corporation's books,
of such stockholder and (ii) the class and number of shares of the corporation
which are beneficially owned by such stockholder; and (c) as to the beneficial
owner, if any, on whose behalf the nomination is being made, (i) the name and
address of such beneficial owner and (ii) the class and number of shares of the
corporation which are beneficially owned by such person. In addition, to be
effective, the stockholder's notice must be accompanied by the written consent
of the proposed nominee to serve as a director if elected. The corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if chairman of the meeting should so determine, the
chairman of the
<PAGE>
meeting shall so declare to the meeting and the defective nomination shall be
disregarded.
1.11 Notice of Business at Annual Meetings. At any annual meeting of the
-------------------------------------
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of Directors, (b) otherwise
brought before the meeting by or at the direction of the Board of Directors (c)
otherwise properly brought before an annual meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, (i)
if such business relates to the election of directors of the corporation, the
procedures in Section 1.10 must be complied with and (ii) if such business
relates to any other matter, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation in accordance with the
procedures set forth in this Section 1.11.
To be timely, a stockholder's notice must be received by the Secretary of
the corporation at the principal executive offices of the corporation not less
than 45 days nor more than 60 days prior to the date on which the Corporation
first mailed its proxy materials for the prior year's annual meeting; provided,
however, that in the event that the date of the annual meeting is called for a
date that is not within 30 days before or after the first anniversary of the
preceding year's annual meeting, to be timely, a stockholder's notice must be so
received not later than the 10th day following the day on which notice of the
date of such annual meeting was mailed or public disclosure of the date of such
annual meeting was made.
The stockholder's notice to the Secretary of the corporation shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business and the name and address of the
beneficial owner, if any, on whose behalf the proposal is made, (c) the class
and number of shares of the corporation which are beneficially owned by the
stockholder and beneficial owner, if any, and (d) any material interest of the
stockholder or such beneficial owner, if any, in such business. Notwithstanding
anything in these By-Laws to the contrary, no business shall be conducted at any
annual meeting of stockholders except in accordance with the procedures set
forth in this Section 1.11; provided that any stockholder proposal which
complies with Rule 14a-8 of the proxy rules (or any successor provision)
promulgated under the Exchange Act and is to be included in the corporation's
proxy statement for an annual meeting of stockholders shall be deemed to comply
with the requirements of this Section 1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if the chairman of
the meeting should so
<PAGE>
determine, the chairman of the meeting shall so declare to the meeting that any
such business not properly brought before the meeting shall not be transacted.
1.12 Organization. The Chairman of the Board, or in his absence the Vice
------------
Chairman of the Board, the Chief Executive Officer or the President, in the
order named, shall call meetings of the stockholders to order, and shall act as
chairman of such meeting, however, that the Board of Directors may appoint any
officer or stockholder to act as chairman of any meeting in the absence of the
Chairman of the Board. The Secretary of the corporation shall act as secretary
at all meetings of the stockholders; but in the absence of the Secretary of the
corporation at any meeting of the stockholders, the presiding officer may
appoint any person to act as secretary of the meeting.
ARTICLE II - Directors
----------------------
2.1 General Powers. The business and affairs of the corporation shall be
--------------
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled.
2.2 Number; Election and Qualification. The number of directors which
----------------------------------
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors or by the holders of shares representing a majority of
the votes entitled to be cast by all stockholders in any annual election of
directors. The number of the directors may be decreased at any time and from
time to time by a majority of the directors then in office or by the holders of
shares representing a majority of the votes entitled to be cast by all
stockholders in any annual election of directors, but only to eliminate
vacancies existing by reason of the death, resignation, removal or expiration of
the term of one or more directors. The directors shall be elected at the annual
meeting of stockholders by such stockholders as have the right to vote on such
election. Directors need not be stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be increased at
------------------------
any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual
------
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.
2.5 Quorum; Action at Meeting. A majority of the directors at any time in
-------------------------
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no
<PAGE>
case shall less than one-third of the number of directors fixed pursuant to
Section 2.2 above constitute a quorum. If at any meeting of the Board of
Directors there shall be less than such a quorum, a majority of those present
may adjourn the meeting from time to time. Every act or decision done or made by
a majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors unless a greater
number is required by law, by the Certificate of Incorporation or these By-Laws.
2.6 Removal. Directors of the corporation may be removed, with or without
-------
cause, by the holders of at least a majority of the shares then entitled to vote
in any annual election of directors.
2.7 Vacancies. Any vacancy in the Board of Directors, however occurring,
---------
including a vacancy resulting from an enlargement of the Board, shall be filled
either by the holders of at least a majority of the votes which all of the
stockholders would be entitled to cast in any election of directors or by a vote
of a majority of the directors then in office, although less than a quorum, or
by the sole remaining director. A director elected to fill a vacancy shall hold
office until the next annual meeting of stockholders and until his or her
successor is elected and qualified or until his or her earlier death,
resignation or removal.
2.8 Resignation. Any director may resign by delivering his written
-----------
resignation to the corporation at its principal office or to the Chairman of the
Board or Secretary. Such registration shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
2.9 Regular Meetings. Regular meetings of the Board of Directors may be
----------------
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.10 Special Meetings. Special meetings of the Board of Directors may be
----------------
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, the Chief Executive Officer, the
President or two or more directors, or by one director in the event that there
is only a single director in office.
2.11 Notice of Special Meeting. Notice of any special meeting of directors
-------------------------
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
in person or by telephone at least 24 hours in advance of the meeting, (ii) by
sending a telegram, telecopy, telex or electronic mail, or delivering written
notice by hand, to his last known business, home or electronic mail address at
least 24 hours in advance of the meeting or (iii) by mailing written notice to
his last known business or home address at least 72
<PAGE>
hours in advance of the meeting, or (iii) by mailing written notice to his last
known business or home address at least 72 hours in advance of the meeting. A
notice or waiver of notice of a meeting of the Board of Directors need not
specify the purposes of the meeting.
2.12 Meetings by Telephone Conference Calls. Directors or any members of
--------------------------------------
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.13 Action by Consent. Any action required or permitted to be taken at any
-----------------
meeting of the Board of Directors or of any committee of the Board of Directors
may be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board of Directors or
committee.
2.14 Committees. The Board of Directors may designate one or more
----------
committees, each committee to consist of one or more of the directors of the
corporation. The Board of Directors may designate one or more directors as
alternate members of the committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members of the committee present at any
meeting and not disqualified from voting, whether or not a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request.
Except as the Board of Directors may otherwise determine, any committee may
make rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these By-Laws for the Board of
Directors.
2.15 Compensation of Directors. Directions may be paid such compensation
-------------------------
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
<PAGE>
ARTICLE III. - Officers
-----------------------
3.1 Enumeration. The officers of the corporation shall consist of a Chief
-----------
Executive Officer, a President, a Secretary, a Treasurer and such other officers
with such other titles as the Board of Directors shall determine, including a
Chairman of the Board, a Vice Chairman of the Board, and one or more Vice
Presidents, Assistant Treasurers and Assistant Secretaries. The Board of
Directors may appoint such other officers as it may deem appropriate.
3.2 Election. The Chief Executive Officer, President, Treasurer and
--------
Secretary shall be elected annually by the Board of Directors at its first
meeting following the annual meeting of stockholders. Other officers may be
appointed by the Board of Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
-------------
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his o
-----------------------
her written resignation to the corporation at its principal office or to the
Chairman of the Board, Chief Executive Officer, President or Secretary. Such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, whether his compensation be by
the month or by the year or otherwise, unless such compensation is expressly
provided in a duly authorized written agreement with the corporation. 3.6
Vacancies. The Board of Directors may fill any vacancy occurring in any office
for any reason and may, in its discretion, leave unfilled for such period as it
may determine any offices other than those of President, Treasurer and
Secretary. Each such successor shall hold office for the unexpired term of his
predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
---------
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board, Vice Chairman of the Board and Chief Executive
----------------------------------------------------------------------
Officer. The Board of Directors may appoint a Chairman of the Board and
- -------
<PAGE>
may designate the Chairman of the Board or, if not the Chairman of the Board,
someone else, as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. Unless otherwise provided by the
Board of Directors, he shall preside at all meetings of the stockholders and, if
he is a director, at all meetings of the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, the Vice Chairman of the Board
shall, in the absence or disability of the Chairman of the Board, perform the
duties and exercise the powers of the Chairman of the Board and shall perform
such other duties and possess such other powers as may from time to time be
vested in the Vice Chairman of the Board by the Board of Directors. The person
designated as the Chief Executive Officer of the Company (whether or not the
Chairman of the Board) shall, subject to the direction of the Board of
Directors, have general charge and supervision of the business of the
corporation.
3.8 President. Unless the Board of Directors has designated the
---------
Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors, Chairman of the Board or Chief Executive Officer may from time to
time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors, Chairman of the Board, Chief
Executive Officer or President may from time to time prescribe. In the event of
the absence, inability or refusal to act of the Chief Executive Officer, then,
in the order determined by the Board of Directors, the President (if he is not
the Chief Executive Officer) and the Vice President (or if there shall be more
than one, the Vice Presidents) shall perform the duties of the Chief Executive
Officer and when so performing shall have all the powers of and be subject to
all the restrictions upon the Chief Executive Officer. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such
-----------------------------------
duties and shall have such powers as the Board of Directors, Chairman of the
Board or Chief Executive Officer may from time to time prescribe. In addition,
the Secretary shall perform such duties and have such powers as are incident to
the office of secretary, including without limitation the duty and power to give
notices of all meetings of stockholders and special meetings of the Board of
Directors, to attend all meetings of stockholders and the Board of Directors and
keep a record of the proceedings, to maintain a stock ledger and prepare lists
of stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, Chairman of the Board, Chief Executive Officer
or Secretary may from time to time prescribe. In the event of the absence,
inability or refusal to act of the Secretary, the Assistant Secretary (or if
there shall be more than one, the
<PAGE>
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurer. The Treasurer shall perform such
---------------------------------
duties and shall have such powers as may from time to time be assigned to him or
her by the Board of Directors, Chairman of the Board or the Chief Executive
Officer. In addition, the Treasurer shall perform such duties and have such
powers as are incident to the office of treasurer, including without limitation
the duty and power to keep and be responsible for all funds and securities of
the corporation, to deposit funds of the corporation in depositories selected in
accordance with these By-Laws, to disburse such funds as ordered by the Board of
Directors, to make proper accounts of such funds, and to render as required by
the Board of Directors statements of all such transactions and of the financial
condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the Chief Executive Officer or the Treasurer may from
time to time prescribe. In the event of the absence, inability or refusal to act
of the Treasurer, the Assistant Treasurer (or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE IV - Capital Stock
--------------------------
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any balance of the authorized capital stock of the
corporation held in its treasury maybe issued, sold, transferred or otherwise
disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
---------------------
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him or her in the corporation. Each such certificate shall be signed by, or in
the name of the corporation. Each such certificate shall be signed by, or in the
name of the corporation by, the Chairman or Vice Chairman, if any, of the Board
of Directors, or the President or a Vice President, and the Treasurer or any
Assistant Treasurer, or the Secretary or an
<PAGE>
Assistant Secretary of the corporation. Any or all of the signatures on the
certificate may be a facsimile.
Each certificate for shares of stock that are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the By-
Laws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
---------
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirement of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue
--------------------------------------
a new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 or less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
<PAGE>
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting,
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE V - General Provisions
-------------------------------
5.1 Fiscal Year. Except as from time to time otherwise designated by
----------
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of August of each year and end on the last day of July in each year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall be
--------------
approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
----------------
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice in writing signed by the person entitled to such notice or such
person's duly authorized attorney, delivered by telecopy or any other available
method, whether before, at or after the time stated in such waiver, or the
appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise designate,
--------------------
the Chairman of the Board or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for the
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an Assistant
---------------------
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
5.6 Certificate of Incorporation. All references in these By-Laws to the
----------------------------
Certificate of Incorporation shall be deemed to refer to the Amended and
Restated Certificate of Incorporation of the corporation, as amended and in
effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
------------------------------------
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association or other
organization in which one or more of the directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or a committee of
<PAGE>
the Board of Directors at which the contract or transaction is authorized or
solely because his or their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum;
(b) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified by the Board of Directors, a
committee of the Board of Directors or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-Laws is
------------
for any reason in applicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to
--------
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE VI - Amendments
----------------------
These By-Laws may be altered, amended or repealed, in whole or in part,
or new By-Laws may be adopted by the Board of Directors or by the stockholders
as provided in the Certificate of Incorporation.
<PAGE>
EXHIBIT 10.1
Adopted May 28, 1999
AltaVista Company
1999 Stock Option Plan
SECTION 1. Purpose. The AltaVista Company 1999 Stock Option Plan has been
-------
established to promote the interests of AltaVista Company and its stockholders
by (i) attracting and retaining exceptional employees, consultants and directors
of AltaVista and its Affiliates, as defined below; (ii) motivating such
employees, consultants and directors by means of performance-related incentives
to achieve long-range performance goals; and (iii) enabling such employees,
consultants and directors to participate in the long-term growth and financial
success of AltaVista.
SECTION 2. Definitions. As used in the Plan, the following terms shall have
-----------
the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or indirectly, is
controlled by AltaVista and (ii) any entity in which AltaVista has a significant
equity interest, in either case as determined by the Committee.
"AltaVista" shall mean AltaVista Company, together with any successor thereto.
"Award" shall mean any Option or Stock Appreciation Right granted hereunder.
"Board" shall mean the board of directors of AltaVista.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time, and the regulations thereunder.
"Committee" shall mean a committee of the Board designated by the Board to
administer the Plan and composed of persons who, (i) to the extent necessary and
desirable to comply with Rule 16b-3, are "Non-Employee Directors" within the
meaning of Rule 16b-3 and, (ii) to the extent any Award granted hereunder is
intended, as determined by the Committee in its sole discretion, to qualify as
performance-based compensation under Section 162(m) of the Code, constitute
"outside directors" within the meaning of Section 162(m) of the Code. Until
otherwise determined by the Board, the Compensation Committee designated by the
Board shall be the Committee under the Plan.
"Consultant" shall mean any person, including an advisor, engaged by the Company
or an Affiliate to render consulting services.
"Director" shall mean a member of the Board.
1
<PAGE>
"Election Date" shall mean the date of the appointment, election, or re-
election of a Director of the Company or any Affiliate.
"Eligible Director" shall mean each Director of the Company who is not an
employee of Compaq Computer Corporation, the Company or any Subsidiary of the
Company (as defined in Section 424(f) of the Code).
"Employee" shall mean an employee of AltaVista or of any Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from
time to time.
"Executive Officer" shall mean, at any time, an individual who is an executive
officer of AltaVista within the meaning of Exchange Act Rule 3b-7, as
promulgated and interpreted by the SEC under the Exchange Act, or any successor
rule or regulation thereto, as in effect from time to time, or who is an officer
of AltaVista within the meaning of Exchange Act Rule 16a-1(f), as promulgated
and interpreted by the SEC under the Exchange Act, or any successor rule or
regulation thereto, as in effect from time to time.
"Fair Market Value" shall mean, as of any given date, with respect to any Award
granted hereunder, (i) if the Shares are publicly traded, the closing sale price
of a Share on the principal securities exchange on which the Stock is listed or
traded, (ii) the fair market value of a Share as determined in accordance with a
method prescribed in the Notice, or (iii) the fair market value of a Share as
otherwise determined by the Board in the good faith exercise of its discretion.
"Incentive Stock Option" shall mean an Option to purchase Shares from AltaVista
that is granted under Section 5 of the Plan and that is intended to meet the
requirements of Section 422 of the Code, or any successor provision thereto.
"Non-Qualified Stock Option" shall mean an Option to purchase Shares from
AltaVista that is granted under Section 5 or Section 8 of the Plan and that is
not intended to be an Incentive Stock Option.
"Notice" shall mean any written notice, contract, or other instrument or
document evidencing any Award, which may, but need not, be executed or
acknowledged by a Participant.
"Option" shall mean a Non-Qualified Stock Option or Incentive Stock Option
granted hereunder.
"Participant" shall mean any Employee, Consultant or Director selected to
receive an Award under the Plan.
"Person" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.
"Plan" shall mean this AltaVista Company 1999 Stock Option Plan.
2
<PAGE>
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the SEC
under the Exchange Act, or any successor rule or regulation thereto as in effect
from time to time.
"SEC" shall mean the Securities and Exchange Commission or any successor thereto
and shall include the staff thereof.
"Shares" shall mean shares of the common stock, par value $0.0l per share, of
AltaVista or such other securities of AltaVista as may be designated by the
Committee from time to time.
"Stock Appreciation Right" shall mean a right granted under Section 6 of the
Plan.
"Substitute Awards" shall mean Awards granted in assumption of, or in
substitution for, outstanding awards previously granted by a company acquired by
AltaVista or with which AltaVista combines.
SECTION 3. Administration.
--------------
(a) Authority of Committee. The Committee shall administer the Plan. Subject
----------------------
to the terms of the Plan and applicable law, the Committee shall have full
power and authority to: (i) designate Participants; (ii) determine the type
or types of Awards to be granted to Participants; (iii) determine the
number of Shares to be covered by, or with respect to which payments,
rights, or other matters are to be calculated in connection with, Awards;
(iv) determine the terms and conditions of Awards; (v) determine whether,
to what extent, and under what circumstances Awards may be settled or
exercised in cash, Shares, other securities, other Awards or other
property, or canceled, forfeited, or suspended and the method or methods by
which Awards may be settled, exercised, canceled, forfeited, or suspended;
(vi) determine whether, to what extent, and under what circumstances cash,
Shares, other securities, other Awards, other property, and other amounts
payable with respect to Awards shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret and
administer the Plan and any instrument or Notice relating to, or Award made
under, the Plan; (viii) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and (ix) make any other determination
and take any other action that the Committee deems necessary or desirable
for the administration of the Plan.
(b) Committee and Board Discretion Binding. Unless otherwise expressly
--------------------------------------
provided in the Plan, all designations, determinations, interpretations,
and other decisions under or with respect to the Plan or any Award shall be
within the sole discretion of the Committee or the Board, as may be made at
any time, and shall be final, conclusive, and binding upon all Persons,
including AltaVista, any Affiliate, any Participant, any holder or
beneficiary of any Award, any stockholder of AltaVista or of any Affiliate,
any Employee, any Consultant and any Director.
3
<PAGE>
SECTION 4. Shares Available for Awards.
---------------------------
(a) Shares Available. Subject to adjustment as provided in Section 4(b), the
----------------
number of Shares with respect to which Awards may be granted under the Plan
shall be twenty million (20,000,000). If, after the effective date of the
Plan, any Shares covered by an Award granted under the Plan or to which
such Award relates, are forfeited, or if such Award is settled for cash or
otherwise terminates or is canceled without the delivery of Shares, then
the Shares covered by such Award, or to which such Award relates, or the
number of Shares otherwise counted against the aggregate number of Shares
with respect to which Awards may be granted, to the extent of any such
settlement, forfeiture, termination or cancellation, shall again become
Shares with respect to which Awards may be granted. In the event that any
Option or other Award granted hereunder is exercised through the delivery
of Shares or in the event that withholding tax liabilities arising from
such Award are satisfied by the withholding of Shares by AltaVista, the
number of Shares available for Awards under the Plan shall be increased by
the number of Shares so surrendered or withheld.
(b) Adjustments. In the event that the Committee determines that any dividend
-----------
or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of
AltaVista, issuance of warrants or other rights to purchase Shares or other
securities of AltaVista, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the
Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number of Shares or other securities of
AltaVista (or number and kind of other securities or property) with respect
to which Awards may be granted under the Plan, (ii) the maximum number of
Shares or other securities of AltaVista (or number and kind of other
securities or property) with respect to which an Executive Officer may be
granted under the Plan in any calendar year, (iii) the number of Shares or
other securities of AltaVista (or number and kind of other securities or
property) subject to outstanding Awards, and (iv) the grant or exercise
price with respect to outstanding Awards, or, if deemed appropriate, make
provision for the payment of cash or other property to the holder of an
outstanding Award in consideration for the cancellation of such Award;
provided, however, that such adjustments shall be made solely by the Board
-------- -------
with respect to Awards to Eligible Directors.
(c) Sources of Shares Deliverable Under Awards. Any Shares delivered pursuant
------------------------------------------
to an Award may consist, in whole or in part, of authorized and unissued
Shares or of treasury Shares.
(d) Award Limits. Subject to adjustment as provided in Section 4(b), no
------------
Executive Officer may receive Awards under the Plan in any calendar year
that relate to more than 1,000,000 Shares.
4
<PAGE>
SECTION 5. Options.
-------
(a) Eligibility and Limits on Awards. Any Employee, including any officer or
--------------------------------
employee-director of the Company or any Affiliate, Consultant or Director
shall be eligible to be granted Options; provided, however, that only
-------- -------
Employees shall be eligible to be granted Incentive Stock Options.
(b) Grant. Subject to the provisions of the Plan, the Committee shall have
-----
sole and complete authority to determine the Participants to whom Options
shall be granted, the number of Shares to be covered by each Option, and
the conditions and limitations applicable to the exercise of the Option.
(c) Exercise Price. The per Share exercise price purchasable under an Option
--------------
shall be determined by the Committee in its sole discretion at the time of
grant but shall not, (i) in the case of Incentive Stock Options, be less
than 100% of the Fair Market Value of a Share on such date, (ii) in the
case of Non-Qualified Stock Options (A) that are intended to qualify under
California securities laws, be less than 85% of the Fair Market Value of a
Share on such date or (B) that are intended to qualify as "performance-
based compensation" within the meaning of Section 162(m) of the Code, be
less than 100% of the Fair Market Value of a Share on such date and (iii)
in any event, be less than the par value (if any) of a Share. If a
Participant owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or of any Parent (as
defined in Section 424(e) of the Code) or Subsidiary and such Participant
is granted an Incentive stock Option or an Option that is subject to
California securities laws, the per Share exercise price of such Option (to
the extent required at the time of grant by the Code or by California
securities laws, respectively) shall be no less than 110% of the Fair
Market Value of the Stock on the date such Option is granted. The Committee
shall determine the appropriate exercise prices for Substitute Awards based
on the terms and conditions of the transaction related to such Awards.
(d) Option Term. The term of each Option shall be fixed by the Committee, but
-----------
no Option shall be exercisable more than ten years after the date such
Option is granted; provided, however, that if an Employee owns or is deemed
-------- -------
to own (by reason of the attribution rules of Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the
Company or of any Parent or Subsidiary and an Incentive Stock Option is
granted to such Employee, the term of such Incentive Stock Option (to the
extent required by the Code at the time of grant) shall be no more than
five years from the date of grant.
(e) Exercise. Each Option shall be exercisable at such times and subject to
--------
such terms and conditions as the Committee may, in its sole discretion,
specify in the applicable Notice; provided, however, that in the case of
-------- -------
Options intended to qualify under California securities laws, Options
granted to individuals other than officers, Directors or
5
<PAGE>
Consultants shall be exercisable at the rate of at least 25% per year over
four years from the date of grant. The Committee and the Board may impose
such conditions with respect to the exercise of Options, including without
limitation, any condition relating to the application of Federal or state
securities laws, as either the Committee or Board may deem necessary or
advisable.
(f) Payment. No Shares shall be delivered pursuant to any exercise of an
-------
Option until payment in full of the exercise price with respect to which
Shares are being purchased is received by AltaVista. Such payment may be
made (i) in cash, or its equivalent, (ii) if and to the extent permitted by
the Committee (A) by exchanging Shares owned by the Participant (which are
not the subject of any pledge or other security interest), (B) by
surrendering all or part of that Option or any other Option, or (C) with a
note or other loan arrangement or (iii) by a combination of the foregoing,
provided that the combined value of all cash and cash equivalents and the
aggregate Fair Market Value of any such Shares so tendered to AltaVista as
of the date of such tender is at least equal to such aggregate exercise
price with respect to which Shares are being purchased.
(g) ISO Limitations. To the extent that the aggregate Fair Market Value
---------------
(determined as of the date an Incentive Stock Option is granted) of Shares
with respect to which Incentive Stock Options granted to a Participant
under this Plan and all other option plans of the Company or of any Parent
or Subsidiary become exercisable for the first time by the Participant
during any calendar year exceeds $100,000 (as determined in accordance with
Section 422(d) of the Code), the portion of such Incentive Stock Options in
excess of $100,000 shall be treated as Non-Qualified Stock Options.
SECTION 6. Stock Appreciation Rights.
-------------------------
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
-----
sole and complete authority to determine the Employees, Consultants and
Directors to whom Stock Appreciation Rights shall be granted, the number of
Shares to be covered by each Stock Appreciation Right Award, and the
conditions and limitations applicable to the exercise thereof. Stock
Appreciation Rights shall have a grant price equal to the Fair Market Value
of the related Shares on the day of the Award.
(b) Exercise and Payment. A Stock Appreciation Right shall entitle the
--------------------
Participant to receive an amount equal to the excess of the Fair Market
Value of a Share on the date of exercise of the Stock Appreciation Right
over the per Share grant price thereof multiplied by the number of Shares
subject to the Stock Appreciation Right Award. The Committee shall
determine whether a Stock Appreciation Right shall be settled in cash,
Shares or a combination of cash and Shares.
(c) Other Terms and Conditions. Subject to the terms of the Plan, the
--------------------------
Committee shall determine, at or after the grant of a Stock Appreciation
Right, the term, methods of exercise, methods and form of settlement, and
any other terms and conditions of any Stock Appreciation
6
<PAGE>
Right. Any such determination by the Committee may be changed by the
Committee from time to time and may govern the exercise of Stock
Appreciation Rights granted or exercised prior to such determination as
well as Stock Appreciation Rights granted or exercised thereafter. The
Committee may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it shall deem appropriate.
SECTION 7. Termination or Suspension of Service. The following provisions
------------------------------------
shall apply in the event of the Participant's termination of employment or
cessation of service to the Company or any Affiliate, unless the Committee shall
have provided otherwise, either at the time of the grant of the Award or
thereafter.
(a) Termination of Service. If a Participant's employment or service with
----------------------
AltaVista or any Affiliate is terminated or otherwise ceases for any reason
other than for the Participant's death, permanent and total disability, or
retirement, unless otherwise provided in the Notice, the Participant shall
have the right to exercise any Option or Stock Appreciation Right to the
extent it was vested on the date of such termination or cessation until the
earlier of (i) 90 days (but in no event less than thirty (30) days if
required under California securities laws at the time of grant) following
the date of such termination or cessation or (ii) the date such Option or
Stock Appreciation Right would have expired had it not been for such
termination or cessation. The Participant shall have the right to exercise
such Option or Stock Appreciation Right prior to such expiration to the
extent it was vested on the date of such termination of employment or
cessation of service.
(b) Death, Disability or Retirement. If a Participant's employment or service
-------------------------------
with AltaVista or any Affiliate is terminated or otherwise ceases as a
result of the Participant's death, permanent and total disability, or
retirement, the Participant or his successor (if Participant's employment
is terminated by reason of Participant's death) shall have the right to
exercise any Option or Stock Appreciation Right to the extent it was vested
on the date of such termination of employment or cessation of service until
the date the Option or Stock Appreciation Right would have expired had it
not been for such termination of employment or cessation of service. The
meaning of the terms "total and permanent disability" and "retirement"
shall be determined by the Committee.
(c) Acceleration and Extension of Exercisability. Notwithstanding the
--------------------------------------------
foregoing provisions of this Section 7, the Committee may, in its
discretion, provide (i) that an Option granted to a Participant may expire
at a date earlier than that set forth above, (ii) that an Option granted to
a Participant may expire at a date later than that set forth above,
provided such date shall not be beyond the date the Option would have
expired had it not been for the termination of the Participant's employment
or cessation of service, and (iii) that an Option or Stock Appreciation
Right may vest in full and become immediately exercisable when it finds
that such acceleration would be in the best interests of AltaVista.
(d) Leave of Absence. In the event that an employee Participant takes a "leave
----------------
without pay" for longer than 30 days, all of such Participant's Awards, or
any portion thereof, shall, to the
7
<PAGE>
extent permitted by applicable law, cease to vest during the period of such
leave that exceeds 30 days. With respect to the portion of the Award that
has vested immediately prior to such leave, such Award shall remain
exercisable during the period of such leave in accordance with the terms
thereof. For purposes of Incentive Stock Options only, employment shall be
considered terminated for any leave of absence (whether paid or unpaid)
which exceeds 90 days, unless re-employment by the Company upon expiration
of such leave is guaranteed by contract or statute. If re-employment upon
expiration of a leave of absence approved by the Company is not so
guaranteed, Participant's employment relationship will be deemed terminated
as of the 91/st/ day for Federal income tax purposes only, and any
Incentive Stock Option held by the Participant shall cease to be treated as
an Incentive Stock Option and shall be treated for Federal income tax
purposes as a Non-Qualified Stock Option.
SECTION 8. Director Options.
----------------
(a) Initial Grants. Each Eligible Director who is first elected or appointed
--------------
to the Board shall be granted an Option to acquire 25,000 Shares. In the
event that the Election Date occurs during a Window, such Option shall be
granted on the Election Date.
(b) Annual Options. Each Eligible Director who is reelected to the Board at
---------------
an annual meeting of the Company's stockholders and who has not received a
grant under Section 8(a) during the period since the most recent previous
annual meeting of the Company's stockholders shall be granted an Option to
acquire 15,000 Shares on each Election Date on which he is reelected.
(c) Terms and Conditions. Any Option granted under this Section 8 shall be
--------------------
subject to the following terms and conditions:
(i) Any Option granted under this Section 8 shall be a Non-Qualified Stock
Option and the per Share exercise price thereof shall be not less than
the Fair Market Value of the underlying Share on the date of grant.
(ii) An Option granted under this Section 8 shall be exercisable (A) with
respect to 50% of the Shares thereunder on the six-month anniversary
of the Election Date related to such Option and (B) with respect to
the remaining 50% of the Shares thereunder on the anniversary of such
Election Date.
(d) Pro Rata Distribution. In the event that the number of Shares available
---------------------
for grant under the Plan is not sufficient to accommodate the grants
pursuant to this Section 8, then the remaining Shares available for grant
pursuant to this Section 8 shall be granted to Eligible Directors on a pro-
rata basis as determined by the Board, in its sole discretion. No further
grants shall be made until such time, if any, as additional Shares become
available for grant under the Plan through action of the Board and/or the
stockholders of the Company to increase the number of Shares that may be
issued under the Plan or through cancellation or expiration of Awards
previously granted hereunder.
8
<PAGE>
SECTION 9. Amendment and Termination; Adjustments to Awards.
------------------------------------------------
(a) Amendments to the Plan. The Board may amend, alter, suspend, discontinue,
----------------------
or terminate the Plan, or any portion thereof, at any time; provided that
no such amendment, alteration, suspension, discontinuation or termination
shall be made without approval of AltaVista's stockholders, if such
approval, as determined by the Board, in its sole discretion, is necessary
and desirable to comply with any tax or regulatory requirement, including,
for these purposes, any approval requirement that is a prerequisite for
exemptive relief from Section 16(b) of the Exchange Act or Section 162(m)
of the Code for which or with which the Board deems it necessary or
desirable to qualify or comply. The Board also may amend the Plan in such
manner as may be necessary so as to have the Plan conform with local rules
and regulations in any jurisdiction outside the United States.
(b) Amendments to Awards. The Committee may waive any conditions or rights
--------------------
under, amend any terms of, suspend, or terminate any Award, prospectively
or retroactively; provided that, except as provided under Section 7(c), any
waiver, amendment, suspension, or termination that would adversely affect
the rights of any Participant or any holder or beneficiary of any
outstanding Award shall not, to that extent, be effective without the
consent of the affected Participant, holder, or beneficiary.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring
---------------------------------------------------------------------------
Events. The Committee is hereby authorized to make adjustments in the
------
terms and conditions of, and the criteria included in, Awards in
recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4(b) hereof) affecting
AltaVista, any Affiliate, or the financial statements of AltaVista or any
Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
(d) Cancellation. Any provision of this Plan or any Notice to the contrary
------------
notwithstanding, the Committee may cause any Award granted hereunder to be
canceled in consideration of an alternative Award or cash payment made to
the holder of such canceled Award equal in value to the Fair Market Value
of such canceled Award as of the effective date of such cancellation.
(e) Employee Status Change to Part-Time. At such time as a full-time Employee
-----------------------------------
becomes a part-time Employee, as determined by the Committee, in its sole
discretion, on the next vesting date following such status change, the
vesting schedule for all Awards previously granted to such Employee and not
yet vested will, to the extent permitted by applicable law, be
automatically amended to reduce the number of Shares vesting each month by
one-half during the time that such Employee is working on a part-time
basis.
9
<PAGE>
SECTION 10. California "Securities Laws" Compliance.
---------------------------------------
(a) Financial Statements. To the extent applicable, pursuant to the provisions
--------------------
of Section 260.140.46 of Title 10 of the California Code of Regulations,
the Company shall provide to each Participant and to each individual who
acquires Shares pursuant to the Plan, not less frequently than annually
during the period such Participant or purchaser has one or more awards
granted under the Plan outstanding, and, in the case of an individuals who
acquires Shares pursuant to the Plan, during the period such individual
owns such Shares, copies of the Company's annual financial statements. The
Company shall not be required to provide such statements to key employees
of the Company whose duties in connection with the Company assure their
access to equivalent information.
(b) Limitation on Number of Shares. To the extent applicable, the provisions
------------------------------
of Section 260.140.45 of Title 10 of the California Code of Regulations are
incorporated herein by reference.
SECTION 11. General Provisions.
------------------
(a) Nontransferability. No Award shall be assigned, alienated, pledged,
------------------
attached, sold or otherwise transferred or encumbered by a Participant,
except by will or the laws of descent and distribution, and may only be
exercised by Participant during the lifetime of Participant; provided,
however, that (to the extent permitted at the time of grant by California
securities laws) a Non-Qualified Stock Option or Stock Appreciation Right
may be transferable, to the extent set forth in the applicable Notice and
in accordance with procedures adopted by the Committee.
(b) No Rights to Awards. No Participant or other Person shall have any claim
-------------------
to be granted any Award, and there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Awards. The terms
and conditions of Awards need not be the same with respect to each
recipient.
(c) Share Certificates. All certificates for Shares or other securities of
------------------
AltaVista or any Affiliate delivered under the Plan pursuant to any Award
or the exercise thereof shall be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the Plan or
the rules, regulations, and other requirements of the SEC, any stock
exchange upon which such Shares or other securities are then listed or
traded, and any applicable Federal or state securities laws, and the
Committee may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
(d) Delegation. Subject to the terms of the Plan and applicable law, the
----------
Committee may delegate to one or more officers or managers of AltaVista or
any Affiliate, or to a committee of such officers or managers, the
authority, subject to such terms and limitations as the Committee shall
determine, to grant Awards to, or to cancel, modify or waive rights with
respect to, or to alter, discontinue, suspend, or terminate Awards held by,
Participants
10
<PAGE>
other than Executive Officers.
(e) Withholding. A Participant may be required to pay to AltaVista or any
-----------
Affiliate and, to the extent permitted by applicable law, AltaVista or any
Affiliate shall have the right and is hereby authorized to withhold from
any Award, from any payment due or transfer made under any Award or under
the Plan, or from any compensation or other amount owing to a Participant
the amount (in cash, Shares, other securities, other Awards or other
property) of any applicable withholding taxes in respect of an Award, its
exercise, or any payment or transfer under an Award or under the Plan, and
to take such other action as may be necessary in the opinion of AltaVista
to satisfy all obligations for the payment of such taxes. The Committee may
provide for additional cash payments to holders of Awards to defray or
offset any tax arising from the grant, vesting, exercise, or payments of
any Award.
(f) Notices. Each Award hereunder shall be evidenced by a Notice that shall be
-------
delivered to the Participant and shall specify the terms and conditions of
the Award and any rules applicable thereto.
(g) No Limit on Other Compensation Arrangements. Nothing contained in the Plan
-------------------------------------------
shall prevent AltaVista or any Affiliate from adopting or continuing in
effect other compensation arrangements, which may, but need not, provide
for the grant of options, restricted stock, Shares and other types of
Awards provided for hereunder (subject to stockholder approval if such
approval is necessary and desirable), and such arrangements may be either
generally applicable or applicable only in specific cases.
(h) No Right to Employment. The grant of an Award shall not be construed as
----------------------
giving a Participant the right to be retained in the employ of AltaVista or
any Affiliate. Further, AltaVista or an Affiliate may at any time dismiss a
Participant from employment, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Notice.
(i) No Rights as Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or holder or beneficiary of any Award shall have any
rights as a stockholder with respect to any Shares to be distributed under
the Plan until he or she has become the holder of such Shares.
(j) Governing Law. The validity, construction, and effect of the Plan and any
-------------
rules and regulations relating to the Plan and any Notice shall be
determined in accordance with the laws of the State of Delaware.
(k) Severability. Notwithstanding any other provision or section of the Plan,
------------
if any provision of the Plan or any Award is or becomes or is deemed to be
invalid, illegal, or unenforceable in any jurisdiction or as to any Person
or Award, or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable laws (but only to such extent
necessary to
11
<PAGE>
comply with such laws), or if it cannot be construed or deemed amended
without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to
such jurisdiction, Person or Award and the remainder of the Plan and any
such Award shall remain in full force and effect.
(l) Other Laws. The Committee may refuse to issue or transfer any Shares or
----------
other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle
AltaVista to recover the same under Section 16(b) of the Exchange Act, and
any payment tendered to AltaVista by a Participant, other holder or
beneficiary in connection with the exercise of such Award shall be promptly
refunded to the relevant Participant, holder, or beneficiary. Without
limiting the generality of the foregoing, no Award granted hereunder shall
be construed as an offer to sell securities of AltaVista, and no such offer
shall be outstanding, unless and until the Committee in its sole discretion
has determined that any such offer, if made, would be in compliance with
all applicable requirements of the U.S. Federal securities laws and any
other laws to which such offer, if made, would be subject.
(m) No Trust or Fund Created. Neither the Plan nor any Award shall create or
------------------------
be construed to create a trust or separate fund of any kind or a fiduciary
relationship between AltaVista or any Affiliate and a Participant or any
other Person. To the extent that any Person acquires a right to receive
payments from AltaVista or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of
AltaVista or any Affiliate.
(n) No Fractional Shares. No fractional Shares shall be issued or delivered
--------------------
pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated, or otherwise
eliminated.
(o) Headings. Headings are given to the Sections and subsections of the Plan
--------
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
SECTION 12. Term of the Plan.
----------------
(a) Effective Date. The Plan shall be effective upon approval by the
--------------
stockholders of AltaVista (the "Effective Date").
(b) Expiration Date. No Option or Stock Appreciation Right shall be granted
---------------
pursuant to the Plan on or after the tenth anniversary of the Effective
Date, but awards theretofore granted may extend beyond that date. Unless
otherwise expressly provided in the Plan or in an
12
<PAGE>
applicable Notice, any Award granted hereunder may, and the authority of
the Board or the Committee to amend, alter, adjust, suspend, discontinue,
or terminate any such Award or to waive any conditions or rights under any
such Award shall, continue after the authority for grant of new Awards
hereunder has been exhausted.
13
<PAGE>
EXHIBIT 10.2
Page 1
NON-QUALIFIED STOCK OPTION NOTICE AND AGREEMENT
-----------------------------------------------
NON-QUALIFIED STOCK OPTION NOTICE AND AGREEMENT (this "Option
Agreement"), dated as of the [_] day of [_], 1999 (the "Effective Date"), by and
between AltaVista Company, a Delaware corporation, and any successor entity
(either, hereinafter referred to as the "Company") and [_] ("Optionee").
Pursuant to the Company's 1999 Stock Option Plan (the "Plan"), the
Optionee has been granted an option (the "Option") to purchase shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"), on the
terms and conditions set forth herein. The Option is not intended to constitute
an "incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
Any capitalized terms not defined herein shall have their respective
meanings set forth in the Plan.
1. Number of Shares. The Option entitles the Optionee to purchase [_]
----------------
shares of the Company's Common Stock (the "Option Shares") at a price of $[8.75]
per share (the "Option Exercise Price").
2. Option Term. The term of the Option and of this Option Agreement (the
-----------
"Option Term") shall commence on the Effective Date (the "Date of Grant") (the
and, unless the Option is previously terminated pursuant to this Option
Agreement, shall terminate upon the expiration of ten (10) years from the Date
of Grant. Upon expiration of the Option Term, all rights of the Optionee
hereunder shall terminate.
3. Conditions of Exercise. (a) Subject to Section 9 below, the Option
----------------------
shall vest and become exercisable as to twenty-five percent (25%) of the Shares
subject to the Option on [January 1, 2000/insert date of hire, if hired after
4/15/99] (the "First Tranche"), and as to an additional 1/48 Option Shares for
each of the 36 months beginning [February 1, 2000/insert 13 months after date of
hire] (the "Remaining Tranche"); provided, however, that, if a Change
-------- -------
in Control (as defined below) occurs prior to January 1, 2000, the First Tranche
shall become immediately vested and exercisable in full. The vesting of the
Remaining Tranche shall remain unchanged; provided, further, that, if within six
-------- -------
(6) months following a Change in Control, (i) Optionee's employment with the
Company or any Parent or Subsidiary is terminated by the Company or any Parent
or Subsidiary without Cause (as defined below) or (ii) Optionee terminates
employment withe the Company or any Parent or Subsidiary for "Good Reason" (as
defined below) an additional twenty-five (25%) of
<PAGE>
Page 2
the Option Shares shall vest in full and be immediately exercisable.
For purposes of this Option Agreement, a "Change in Control" of the
Company shall be deemed to occur as of such time of either: (i) any "person" as
such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than
AltaVista, any trustee or other fiduciary holding securities under any AltaVista
employee benefit plan, or any entity owned, directly or indirectly, by AltaVista
stockholders in substantially the same proportions as their ownership of
AltaVista voting securities), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act, or any successor rule or regulation
thereto as in effect from time to time), directly or indirectly, of AltaVista
securities representing 30% or more of the combined voting power of AltaVista's
then outstanding securities; (ii) during any period of two consecutive years
(not including any period prior to the adoption of the Plan), individuals who at
the beginning of such period constitute the Board, and any new Director (other
than a Director designated by a person who has entered into an agreement with
AltaVista to effect a transaction described in clause (i), (iii), or (iv) of
this paragraph) whose election by the Board or nomination for election by
AltaVista's stockholders was approved by a vote of at least two-thirds of the
Directors then still in office who either were Directors at the beginning of the
two-year period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority of the Board;
(iii) AltaVista stockholders approve a merger or consolidation of AltaVista with
any other corporation, other than a merger or consolidation that would result in
AltaVista voting securities outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting power
of voting securities of AltaVista or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation effected to implement a recapitalization of AltaVista (or
similar transaction) in which no person acquires more than 30% of the combined
voting power of AltaVista's then outstanding securities shall not constitute a
Change in Control; or (iv) AltaVista stockholders approve a plan of complete
liquidation of AltaVista or an Agreement for the sale or disposition by
AltaVista of all or substantially all of AltaVista's assets. If any of the
events enumerated in clauses (i) through (iv) occur, the Board shall determine
the effective date of the Change in Control resulting therefrom, for purposes of
the Plan.
For purposes of this Option Agreement, "Cause" shall mean the
occurrence of any of the following: (i) the willful and continued failure by the
Optionee to substantially perform the his or her duties with the Company (other
than any such failure resulting from the Optionee's incapacity due to physical
or mental
<PAGE>
Page 3
illness) or (ii) the willful engaging by the Optionee in conduct that is
demonstrably and materially injurious to the Company or its subsidiaries,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, (x) no act, or failure to act, on the Optionee's part shall be
deemed "willful" unless done, or omitted to be done, by the Optionee not in good
faith and without reasonable belief that the Optionee's act, or failure to act,
was in the best interest of the Company.
For purposes of this Option Agreement, "Good Reason" shall mean the
occurrence of any of the following: (i) a reduction by the Company in the
Optionee's annual base salary as in effect on the date hereof or as the same may
be increased from time to time except for across-the-board salary reductions
similarly affecting all similarly situated employees of the Company and all
similarly situated employees of any Person in control of the Company; (ii) the
relocation of the Optionee's principal place of employment to a location more
than 30 miles from the Optionee's principal place of employment immediately
prior to the Change in Control or the Company's requiring the Optionee to be
based anywhere other than such principal place of employment (or permitted
relocation thereof) except for required travel on the Company's business to an
extent substantially consistent with the Optionee's present business travel
obligations;(iii) the failure by the Company to pay to the Optionee any portion
of the Optionee's current compensation except pursuant to an across-the-board
compensation deferral similarly affecting all similarly situated employees of
the Company and all similarly situated employees of any Person in control of the
Company; or (iv) the taking of any other action by the Company which would
directly or indirectly materially reduce any other material benefits or deprive
the Optionee of any other material benefit enjoyed by the Optionee at the time
of the Change in Control.
(b) As a condition to exercising this Option, Optionee shall execute and
deliver to the Company the Stock Purchase, Restriction, Buy-Back and Right of
First Refusal Agreement with the Company in the form attached hereto as Exhibit
B.
(c) Except as otherwise provided herein, the right of the Optionee to
purchase Option Shares with respect to which this Option has become exercisable
may be exercised in whole or in part at any time or from time to time prior to
expiration of the Option Term; provided, however, that the Option may not be
-------- -------
exercised for a fraction of a Share.
4. Adjustments. In the event of any merger, reorganization,
-----------
consolidation, recapitalization, stock dividend, stock split or similar change
affecting the Common Stock, a substitution or proportionate adjustment shall be
made in the kind, number and option price of Shares subject to the unexercised
portion of the Option, as may
<PAGE>
Page 4
be determined by the Board in its sole discretion, or, if deemed appropriate,
make provision for the payment of cash to the Optionee in consideration for the
cancellation of the Option.
5. Nontransferability of Option and Option Shares. The Option and this
----------------------------------------------
Option Agreement shall not be transferable and, during the lifetime of Optionee,
the Option may be exercised only by Optionee. Without limiting the generality
of the foregoing, except as otherwise provided herein, the Option may not be
assigned, transferred, pledged or hypothecated in any way, shall not be
assignable by operation of law, and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions
hereof, and the levy of any execution, attachment or similar process upon the
Option shall be null and void and without effect.
6. Method of Exercise of Option. The Option may be exercised by means of
----------------------------
written notice of exercise to the Company specifying the number of Option Shares
to be purchased, accompanied by (i) an executed copy of the Stock Purchase,
Restriction, Buy-Back and Right of First Refusal Agreement and (ii) payment in
full of the aggregate Option Exercise Price and any applicable withholding taxes
(i) in cash, or its equivalent, (ii) if and to the extent permitted by the
Committee (A) by exchanging Shares owned by the Participant (which are not the
subject of any pledge or other security interest), (B) by surrendering all or
part of that Option or any other Option, or (C) with a note or other loan
arrangement or (iii) by a combination of the foregoing, provided that the
combined value of all cash and cash equivalents and the aggregate Fair Market
Value of any such Shares so tendered to AltaVista as of the date of such tender
is at least equal to such aggregate exercise price with respect to which Shares
are being purchased.
7. Effect of Termination of Employment. Upon the termination of
-----------------------------------
Optionee's employment or service with the Company or any Parent or Subsidiary
under any circumstances (including without limitation by reason of the sale of
such Subsidiary), the Option shall immediately terminate as to any Option Shares
that have not previously vested as of the date of such termination (the
"Termination Date"). Any portion of the Option that has vested as of the
Termination Date shall be exercisable in whole or in part until the later of 90
days following (i) the Termination Date or (ii) the earlier of (x) the first
date an exemption from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended, is available or (y) the first trading
day on or after the date on which the Securities and Exchange Commission
declares the Company's registration statement in Form S-1 filed with the
Securities and Exchange Commission for the initial underwritten public offering
of the Shares effective (but in no event following the
<PAGE>
Page 5
expiration date of the Option as set forth in Section 2 hereof); provided,
--------
however, that in the event of termination by reason of Optionee's death or
- -------
permanent and total disability, such exercise period shall extend until the
expiration date of the Option as set forth in Section 2 hereof. Upon expiration
of the 90-day period, any unexercised portion of the Option shall terminate in
full.
8. Investment Representation. The Optionee hereby represents and
-------------------------
warrants to the Company that the Optionee, by reason of the Optionee's business
or financial experience (or the business or financial experience of the
Optionee's professional advisors who are unaffiliated with and who are not
compensated by the Company or any affiliate or selling agent of the Company,
directly or indirectly), has the capacity to protect the Optionee's own
interests in connection with the transactions contemplated under this Option
Agreement.
9. Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be given by facsimile or first class mail,
certified or registered with return receipt requested, and shall be deemed to
have been duly given three days after mailing or 24 hours after transmission by
facsimile to the respective parties named below:
If to Company: AltaVista Company
529 Bryant Street
Palo Alto, CA 94301
Attention: General Counsel
Facsimile: (650) 617-3526
If to the Optionee:
Facsimile:
Either party hereto may change such party's address for notices by notice duly
given pursuant hereto.
10. Securities Laws Requirements. The Option shall not be exercisable to
----------------------------
any extent, and the Company shall not be obligated to transfer any Option Shares
to the Optionee upon exercise of such Option, if such exercise, in the opinion
of counsel for the Company, would violate the Securities Act (or any other
federal or state statutes having similar requirements as may be in effect at
that time). Further, the Company may require as a condition of transfer of any
Option Shares pursuant to
<PAGE>
Page 6
any exercise of the Option that the Optionee furnish a written representation
that he or she is purchasing or acquiring the Option Shares for investment and
not with a view to resale or distribution to the public. The Optionee hereby
represents and warrants that he or she understands that the Option Shares are
"restricted securities," as defined in Rule 144 under the Securities Act, and
that any resale of the Option Shares must be in compliance with the registration
requirements of the Securities Act, or an exemption therefrom, and with the
requirements of California "Blue Sky" law. Each certificate representing Option
Shares shall bear the legends set forth below and with any other legends that
may be required by the Company or by any Federal or state securities laws:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE RESTRICTED SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES
THEREUNDER, AND MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S). SUCH TRANSFER RESTRICTIONS AND RIGHT OF
FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
Further, if the Company decides, in its sole discretion, that the listing or
qualification of the Option Shares under any securities or other applicable law
is necessary or desirable, the Option shall not be exercisable, in whole or in
part, unless and until such listing or qualification, or a consent or approval
with respect thereto, shall have been effected or obtained free of any
conditions not acceptable to the Company.
11. No Obligation to Register Option Shares. The Company shall be under
---------------------------------------
no obligation to register the Option Shares pursuant to the Securities Act or
any other Federal or state securities laws.
12. Protections Against Violations of Agreement. No purported sale,
-------------------------------------------
assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift,
transfer in trust (voting or other) or other disposition of, or creation of a
security interest in or lien on, any of the Option Shares by any holder thereof
in violation of the provisions of this Agreement or the Certificate of
Incorporation or the Bylaws of the Company, will be valid, and the Company will
not transfer any of said Option Shares on its
<PAGE>
Page 7
books nor will any of said Option Shares be entitled to vote, nor will any
dividends be paid thereon, unless and until there has been full compliance with
said provisions to the satisfaction of the Company. The foregoing restrictions
are in addition to and not in lieu of any other remedies, legal or equitable,
available to enforce said provisions.
13. Withholding Requirements. The Company's obligations under this Option
------------------------
Agreement shall be subject to all applicable tax and other withholding
requirements, and the Company shall, to the extent permitted by law, have the
right to deduct any withholding amounts from any payment or transfer of any kind
otherwise due to the Optionee.
14. Failure to Enforce Not a Waiver. The failure of the Company to
-------------------------------
enforce at any time any provision of this Option Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
15. Governing Law. This Option Agreement shall be governed by and
-------------
construed according to the laws of the State of California without regard to its
principles of conflict of laws.
16. Incorporation of Plan. The Plan is hereby incorporated by reference
---------------------
and made a part hereof, and the Option and this Option Agreement shall be
subject to all terms and conditions of the Plan.
17. Amendments. This Option Agreement may be amended or modified at any
----------
time only by an instrument in writing signed by each of the parties hereto.
18. Rights as a Stockholder. Neither the Optionee nor any of the
-----------------------
Optionee's successors in interest shall have any rights as a stockholder of the
Company with respect to any Shares subject to the Option until the date of
issuance of a stock certificate for such Shares.
19. Agreement Not a Contract of Employment. Neither the Plan, the
--------------------------------------
granting of the Option, this Option Agreement nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that the Optionee has a right to continue to
provide services as an officer, director, employee, consultant or advisor of the
Company or any Parent, Subsidiary or affiliate of the Company for any period of
time or at any specific rate of compensation.
20. Authority of the Board. The Board shall have full authority to
----------------------
interpret and
<PAGE>
Page 8
construe the terms of the Plan and this Option Agreement. The determination of
the Board as to any such matter of interpretation or construction shall be
final, binding and conclusive.
21. Dispute Resolution. The parties hereto will use their reasonable best
------------------
efforts to resolve any dispute hereunder through good faith negotiations. A
party hereto must submit a written notice to any other party to whom such
dispute pertains, and any such dispute that cannot be resolved within 30
calendar days of receipt of such notice (or such other period to which the
parties may agree) will be submitted to an arbitrator selected by mutual
agreement of the parties. In the event that, within 50 days of the written
notice referred to in the preceding sentence, a single arbitrator has not been
selected by mutual agreement of the parties, a panel of arbitrators (with each
party to the dispute being entitled to select one arbitrator and, if necessary
to prevent the possibility of deadlock, one additional arbitrator being selected
by such arbitrators selected by the parties to the dispute) shall be selected by
the parties. Except as otherwise provided herein or as the parties to the
dispute may otherwise agree, such arbitration will be conducted in accordance
with the then existing rules of the American Arbitration Association. The
decision of the arbitrator or arbitrators, or of a majority thereof, as the case
may be, made in writing will be final and binding upon the parties hereto as to
the questions submitted, and the parties will abide by and comply with such
decision; provided, however, the arbitrator or arbitrators, as the case may be,
-------- -------
shall not be empowered to award punitive damages. Unless the decision of the
arbitrator or arbitrators, as the case may be, provides for a different
allocation of costs and expenses determined by the arbitrators to be equitable
under the circumstances, the prevailing party or parties in any arbitration will
be entitled to recover all reasonable fees (including but not limited to
attorneys' fees) and expenses incurred by it or them in connection with such
arbitration from the nonprevailing party or parties.
22. Market Stand-Off. In connection with any underwritten public offering
----------------
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act for such period as the Company or its
underwriters may request (such period not to exceed 180 days following the date
of the applicable offering), the Optionee shall not, directly or indirectly,
sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell
any option or other contract for the purchase of, purchase any option or other
contract for the sale of, or otherwise dispose of or transfer, or agree to
engage in any of the foregoing transactions with respect to, any Option Shares
acquired under this Option Agreement without the prior written consent of the
Company or its underwriters.
23. BY ACCEPTANCE OF THIS OPTION, OPTIONEE AGREES TO BE
<PAGE>
Page 9
BOUND BY ALL OF THE TERMS AND CONDITIONS HEREOF, INCLUDING WITHOUT LIMITATION,
THOSE SET FORTH IN THE NON-COMPETITION AND DEVELOPMENTS AGREEMENT (ATTACHED
HERETO AS EXHIBIT A), THE NON-DISCLOSURE AGREEMENT (ATTACHED HERETO AS EXHIBIT
C) AND THE STOCK PURCHASE, RESTRICTION, BUY-BACK AND RIGHT OF FIRST REFUSAL
AGREEMENT.
<PAGE>
Page 10
24. IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Option Agreement, the Non-Competition Agreement and the Non-Disclosure Agreement
on the day and year first above written.
ALTAVISTA COMPANY
By
Name
Title
The undersigned hereby accepts and agrees to all the terms and provisions
of the foregoing Option Agreement and to all the terms and provisions of
the Plan, herein incorporated by reference.
The Optionee
Address:
<PAGE>
ALTAVISTA COMPANY
STOCK PURCHASE, RESTRICTION, BUY-BACK,
AND RIGHT OF FIRST REFUSAL AGREEMENT
THIS AGREEMENT (the "Agreement") is made this ____, day of __________,
____, by and between AltaVista Company, a Delaware corporation (the "Company,"
which term as used herein shall in all instances be deemed to include all
Affiliates (as defined in the Company's 1999 Stock Option Plan ), and
________________ (the "Purchaser").
WHEREAS, the Purchaser desires to acquire the number of shares (the
"Shares") of common stock, $0.01 par value, of the Company ("Common Stock") set
forth under his signature below at the purchase price also set forth under his
signature below pursuant to his/her exercise of a non-qualified stock option
issued by the Company to the Purchaser pursuant to the Company's 1999 Stock
Option Plan and the Company desires to issue said Shares to the Purchaser,
subject to the restrictions on transfer, Buy-Back Option and Right of First
Refusal hereinafter set forth; and,
WHEREAS, the parties desire to enter into this Agreement in order to (i)
assure the continuity of ownership of the Company, (ii) assure that the Company
will remain closely held, (iii) prevent the transfer of the Shares to third
parties who might not contribute to the development and management of the
Company's business, and (iv) provide for the future management and ownership of
the Company; and,
WHEREAS, to achieve these objectives, the parties wish to impose certain
restrictions on the transfer or encumbrance of the Shares issued to the
Purchaser and to give the Company the right to purchase the Shares in certain
events;
NOW, THEREFORE, for and in consideration of the premises and the covenants
of the parties contained in this Agreement, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto,
for themselves, their successors and assigns, hereby agree as follows:
1
<PAGE>
1. Purchase of Shares.
------------------
The Purchaser hereby subscribes for and, upon acceptance hereof, shall
purchase, the Shares. The aggregate purchase price for the Shares set forth
under the Purchaser's signature below shall be paid by the Purchaser by check
payable to the order of the Company or such other method as may be acceptable to
the Company. Upon receipt of payment by the Company for the Shares, the Company
shall issue to the Purchaser one or more certificates in the name of the
Purchaser for the Shares. The Purchaser agrees that the Shares shall be subject
to all terms and conditions of this Agreement including, without limitation, the
Buy-Back Option set forth in Section 2 of this Agreement, and the Right of First
Refusal set forth in Section 3 of this Agreement.
2. Buy-Back Option.
---------------
(a) If the employment or director or consulting relationship of the
Purchaser with the Company is terminated for any reason or for no reason, with
or without cause, voluntarily or involuntarily, the Company shall have the right
and option (the "Buy-Back Option"), but not the obligation, to purchase from the
Purchaser, at one hundred percent (100%) of fair market value (except as
provided in the next sentence) as determined in good faith by the Board of
Directors of the Company in its sole discretion (the "Buy-Back Price") part or
all of the Shares. If the employment or director or consulting relationship of
the Purchaser with the Company is terminated by the Company for Cause (as
hereinafter defined), the purchase price as set forth in the preceding sentence
shall be one-half (50%) of fair market value as determined in good faith by the
Board of Directors of the Company in its sole discretion. For purposes of this
Section 2(a), Cause shall mean (i) arrest, indictment or conviction of a crime
which may injure the business or reputation of the Company or an affiliate of
the Company or arrest, indictment or conviction of a crime of moral turpitude;
(ii) theft or embezzlement of assets of the Company or an affiliate of the
Company; (iii) a material breach of any agreement between the Purchaser and the
Company or an affiliate of the Company; (iv) the willful and continued failure
by the Purchaser to perform his or her duties and responsibilities at the
Company (other than as a result of incapacity due to physical or mental
illness); and (v) willful misconduct which seriously and adversely affects the
business of the Company or an affiliate of the Company; but only with respect to
Clauses (iii), (iv) and (v) if there has been a good faith determination by the
Board of Directors of the Company that such breach, failure to perform or
willful misconduct has occurred.
(b) Without limiting the generality of Section 2(a) above, the Purchaser's
relationship with the Company shall be deemed to have terminated for purposes of
Section 2(a) at such time as the Company gives notice to the Purchaser that (a)
the Company is assigning the Purchaser to any position or office which involves
less responsibility than the position in which he or she was
2
<PAGE>
initially hired or retained, and (b) that, as a result of such action, the Buy-
Back Option is being exercised by the Company, in its sole discretion, in whole
or in part.
(c) The Company may exercise the Buy-Back Option by delivering or mailing
to the Purchaser (or to his estate), in accordance with Section 14 of this
Agreement, written notice of exercise within ninety (90) days after the
termination of the relationship of the Purchaser with the Company. Such notice
shall specify the date of the notice, the number of Shares to be purchased and
the Buy-Back Price. If and to the extent the Buy-Back Option is not so
exercised within such ninety (90) day period, the Buy-Back Option shall
automatically expire and terminate effective upon the expiration of such ninety
(90) day period. Any Shares to which the Company's Buy-Back Option is not so
exercised will henceforth remain subject to all other terms and conditions of
this Agreement.
(d) Within ten (10) days after his receipt of the Company's notice of
exercise of the Buy-Back Option pursuant to Section 2(a) above, the Purchaser
(or his estate) shall tender to the Company at its principal office the
certificate or certificates representing the Shares which the Company has
elected to purchase, duly endorsed in blank by the Purchaser or with duly
endorsed stock powers attached thereto, all in form suitable for the transfer of
such Shares to the Company. Upon its receipt of such shares, the Company shall
deliver or mail to the Purchaser a check in the amount of the aggregate Buy-Back
Price therefor.
(e) The aggregate Buy-Back Price may be payable, at the option of the
Company, in cancellation of all or a portion of any outstanding indebtedness of
the Purchaser to the Company or in cash (by check) or both.
(f) The Company shall not purchase any fraction of a share upon exercise
of the Buy-Back Option, and any fraction of a Share resulting from a computation
made pursuant to Section 2 of this Agreement shall be rounded up to the next
whole Share.
(g) After the time at which any Shares are required to be delivered to the
Company for transfer to the Company pursuant to Section 2(d) above, the Company
shall not pay any dividend to the Purchaser on account of such Shares or permit
the Purchaser to exercise any of the privileges or rights of a stockholder with
respect to such Shares, but shall, in so far as permitted by law, treat the
Company as the owner of such Shares.
3. Right of First Refusal.
----------------------
(a) If at any time, either during the Purchaser's relationship with the
Company or afterwards, the Purchaser wishes to transfer (as hereinafter defined)
any of his or her Shares, other than as provided for in Section 5(b) of this
Agreement, the Purchaser shall first give written notice to the Company, stating
the nature of the proposed transfer, the name and address
3
<PAGE>
of the proposed transferee or transferees, the number of shares to be
transferred (the "Offered Shares"), the price to be paid therefor and all the
terms and conditions of the proposed transfer, and shall forthwith offer in
writing to transfer such shares to the Company for the same consideration and on
the same terms and conditions and the Company shall have the irrevocable and
exclusive first option (the "Right of First Refusal"), but not the obligation,
to acquire from the Purchaser all or any portion of the Offered Shares on the
same terms and conditions.
(b) The Purchaser agrees that the Company has the right to assign its
rights under Subsections 3(c) and 3(d) below, with respect to the purchase of
part or all of the Offered Shares, to one or more other persons or entities (the
"Purchasing Stockholder(s)") in its sole discretion and in whatever proportions
it decides and the Purchaser agrees that any such assignment shall constitute a
novation as among the Company, the Purchaser and the Purchasing Stockholder(s)
with respect to the rights and obligations of the Company and the Purchaser set
forth in Subsections 3(c) and 3(d) below so that such rights and obligations
with respect to the purchase of that part or all of the Offered Shares (if any)
assigned to the Purchasing Stockholder(s) in whatever proportions have been
decided by the Company, shall thereafter exist between the Purchaser and the
Purchasing Stockholder(s).
(c) Within ninety (90) days following delivery of the Purchaser's notice,
as specified in Section 3(a) above, the Company and/or the Purchasing
Stockholder(s) shall give written notice to the Purchaser, stating whether or
not the Company and/or the Purchasing Stockholder(s) elect to exercise their
Rights of First Refusal as to all or any part of the Offered Shares. Failure by
the Company and/or the Purchasing Stockholder(s) to give this notice within the
ninety (90) day period shall be deemed to be an election of the Company and/or
the Purchasing Stockholder(s) not to exercise their Rights of First Refusal for
the Offered Shares.
(d) Within ten (10) days after the date of the Company's and/or the
Purchasing Stockholder(s) notice of exercise of their Rights of First Refusal
pursuant to Section 3(c) above, the Purchaser, or his estate, shall tender to
the Company and/or the Purchasing Stockholder(s) at the Company's principal
offices the certificate or certificates representing that portion of the Offered
Shares which the Company and/or the Purchasing Stockholder(s) have elected to
acquire, duly endorsed in blank by the Purchaser or with duly endorsed stock
powers attached thereto, all in form suitable for the transfer of such Shares to
the Company and/or the Purchasing Stockholder(s) and the Company and/or the
Purchasing Stockholder(s) shall pay to the Purchaser the purchase price at the
times and upon the terms and conditions proposed to be paid by the proposed
third-party transferee, as set forth in the Purchaser's notice. If the Board of
Directors of the Company, in its sole judgment, shall determine that the
proposed purchase price set forth in the Purchaser's notice is less than fair
market value or if there is no purchase price, then the Company and/or the
Purchasing Stockholder(s) shall pay to the Purchaser fair market value of part
or all of the Shares to be purchased as determined in good faith by the Board of
Directors of the Company in its sole discretion
4
<PAGE>
(e) If the Purchaser's notice shall be duly given, and the Company and/or
the Purchasing Stockholder(s) shall fail to purchase all of the Offered Shares
by the exercise of their Right of First Refusal, then, but only then, the
Purchaser shall be free to transfer the Offered Shares, but only for the price
and upon the terms and conditions set forth in the Purchaser's notice, and only
to the transferee or transferees named therein, and only if the Board of
Directors of the Company, in its sole judgment, shall determine that the
proposed transfer is a bona fide transfer and said transfer shall be consummated
within one hundred twenty (120) days after the date of the Purchaser's notice to
the Company, and only if the transferee or transferees shall execute a copy of
this Agreement satisfactory to the Company in all respects. If the Offered
Shares shall not be so transferred by the Purchaser within the period specified
above, then the transfer may not be made and the Offered Shares shall remain
subject to the terms of this Agreement in the same manner as if the Purchaser's
notice had not been given.
4. Compliance With This Agreement.
------------------------------
The Company shall not be required to transfer any Shares upon its books or
to recognize any purported new transferee thereof in any manner, unless every
applicable provision hereof has first been complied with to the satisfaction of
the Company or has been waived in writing by the Company. The provisions hereof
shall not be discharged with respect to any Shares by any transfer or
encumbrance made in compliance with this Agreement but shall apply anew to such
shares in the hands of the new transferee thereof. If the Purchaser or any legal
representative or any transferee attempts to transfer any of the Shares without
compliance with the requirements and restrictions of this Agreement, he shall
not, until full compliance therewith, be entitled to any of the rights and
privileges of a shareholder of the Company, and no person purporting to claim or
hold by, through or under him shall in any way be recognized; but this provision
shall in no way relieve the Purchaser or any legal representative or any
transferee from the obligation to offer, transfer or sell the Shares to the
Company as herein provided.
5. Restrictions on Transfer.
------------------------
(a) The Purchaser shall not sell, assign, transfer, pledge, hypothecate or
otherwise dispose of, by operation of law or otherwise (collectively
"transfer"), any Shares (or any interest therein) except in accordance with the
provisions of Section 3 of this Agreement.
(b) Notwithstanding the foregoing, the Purchaser may transfer Shares, to
the Purchaser's spouse, children or grandchildren (collectively "Purchaser's
immediate family") or to an instrument of trust for the benefit of the members
of the Purchaser's immediate family (excluding, however, transfer made pursuant
to any divorce or separation proceedings or settlement) and, further provided,
that such Shares shall remain subject to this Agreement (including without
limitation the restrictions on transfer set forth in this Agreement) and any
permitted transferee shall, as a condition of such transfer, execute and deliver
to the Company a
5
<PAGE>
copy of this Agreement satisfactory to the Company in all respects and
confirming that such transferee shall be bound by all of the terms and
conditions of this Agreement.
6. Restrictive Legend.
------------------
All certificates representing Shares shall have affixed thereto a legend in
substantially the following form, in addition to any other legends that may be
required under federal or state securities laws:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER AND AN OPTION TO PURCHASE SET FORTH IN A CERTAIN STOCK PURCHASE,
RESTRICTION, BUY-BACK AND RIGHT OF FIRST REFUSAL AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED OWNER OF THIS CERTIFICATE (OR HIS PREDECESSOR IN
INTEREST), WHICH AGREEMENT IS BINDING UPON ANY AND ALL OWNERS OF ANY INTEREST IN
SAID SHARES. SAID AGREEMENT IS AVAILABLE FOR INSPECTION WITHOUT CHARGE AT THE
PRINCIPAL OFFICE OF THE CORPORATION AND A COPY THEREOF WILL BE FURNISHED WITHOUT
CHARGE TO ANY OWNER OF SAID SHARES UPON REQUEST.
7. Investment Representations.
--------------------------
The Purchaser represents, warrants and covenants as follows:
(a) He is purchasing the Shares for his own account and not with a view
to, or for sale in connection with, any distribution of the Shares in violation
of the Securities Act of 1933, as amended, (the "Securities Act") or any rule or
regulation under the Securities Act or in violation of any applicable state
securities law.
(b) He has had such opportunity as he has deemed adequate to obtain from
representatives of the Company such information as is necessary to permit him to
evaluate the merits and risks of his investment in the Company.
(c) He has sufficient experience in business, financial and investment
matters to be able to evaluate the risks involved in the purchase of the Shares
and to make an informed investment decision with respect to such purchase.
(d) He can afford the complete loss of the value of the Shares and is able
to bear the economic risk of holding such Shares for an indefinite period.
(e) He understands that (i) the Shares have not been registered under the
Securities
6
<PAGE>
Act and are "restricted securities" within the meaning of Rule 144 under the
Securities Act; (ii) the Shares cannot be sold, transferred or otherwise
disposed of unless they are subsequently registered under the Securities Act or
an exemption from registration is then available; (iii) in any event, the
exemption from registration under Rule 144 will not be available for at least
one (1) year and even then will not be available unless a public market then
exists for the Common Stock, adequate information concerning the Company is then
available to the public, and other terms and conditions of Rule 144 are complied
with; and (iv) there is now no registration statement on file with the
Securities and Exchange Commission with respect to any stock of the Company and
the Company has no obligation or current intention to register the Shares under
the Securities Act.
(f) A legend substantially in the following form will be placed on the
certificate or certificates representing the Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE SECURITIES ACT OF 1933, AND ANY APPLICABLE STATE
SECURITIES LAWS, UNLESS THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL,
WHICH OPINION IS SATISFACTORY TO THE CORPORATION, TO THE EFFECT THAT SUCH
REGISTRATIONS ARE NOT REQUIRED.
8. Adjustments for Stock Splits, Stock Dividends, etc.
(a) If from time to time during the term of this Agreement there is any
stock split-up, stock dividend, stock distribution or other reclassification of
the Common Stock of the Company, any and all new, substituted or additional
securities to which the Purchaser is entitled by reason of his ownership of the
Shares shall be immediately subject to the terms of this Agreement.
(b) If the Shares are converted into or exchanged for, or stockholders of
the Company receive by reason of any distribution in total or partial
liquidation, securities of another corporation, or other property (including
cash), pursuant to any merger of the Company or acquisition of its assets, then
the rights of the Company under this Agreement shall inure to the benefit of the
Company's successor and this Agreement shall apply to the securities or other
property received upon such conversion, exchange or distribution in the same
manner and to the same extent as the Shares.
7
<PAGE>
9. Taxes.
-----
The Purchaser acknowledges and agrees that the Company has the right to
deduct from payments of any kind otherwise due to the Purchaser any federal,
state or local taxes of any kind required by law to be withheld with respect to
the purchase of the Shares by the Purchaser.
10. Severability.
------------
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, and each other provision of the Agreement shall be severable and
enforceable to the extent permitted by law.
11. Waiver.
------
Any provision contained in the Agreement may be waived in writing by the
Board of Directors of the Company. No waiver of any right hereunder by any
party shall operate as a waiver of any other right, or as a waiver of the same
right with respect to any subsequent occasion for its exercise, or as a waiver
of any right to damages. No waiver by any party of any breach of this Agreement
shall be held to constitute a waiver of any other breach or a waiver of the
continuation of the same breach.
12. Binding Effect.
--------------
This Agreement shall be binding upon and inure to the benefit of the
Company and the Purchaser and their respective heirs, executors, administrators,
legal representatives, successors and assigns.
13. No Rights to Employment.
-----------------------
Nothing contained in this Agreement shall be construed as giving the
Purchaser any right to be retained, in any position, as an employee, consultant
or director of the Company.
14. Notice.
------
All notices required or permitted hereunder shall be in writing and deemed
effectively given upon personal delivery or upon deposit in the United States
Post Office, by registered or certified mail, postage prepaid, addressed to the
other party hereto at the address shown beneath his or its respective signature
to this Agreement, or at such other address or addresses as either party shall
designate to the other in accordance with this Section 14.
8
<PAGE>
15. Pronouns.
--------
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms and the singular
form of nouns and pronouns shall include the plural, and vice-versa.
16. Entire Agreement.
----------------
This Agreement constitutes the entire agreement between the parties, and
supersedes all prior agreements and understandings, relating to the subject
matter of this Agreement.
17. Amendment.
---------
This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Purchaser.
18. Construction.
------------
This Agreement and all matters connected therewith shall be construed and
all questions shall be determined by the Board of Directors of the Company
acting in its sole discretion and the decisions of such Board shall be binding
upon all interested parties.
19. Governing Law.
-------------
This Agreement shall be construed, interpreted and enforced in accordance
with the laws of the State of Delaware.
20. Termination.
-----------
This Agreement shall become null and void and shall be of no further force
or effect immediately upon (i) the closing of the Company's Qualified Initial
Public Offering, or (ii) written agreement between the Company and the Purchaser
or his successor or assign. The term "Qualified Initial Public Offering" shall
mean: (i) an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of shares of Common Stock of the Company but only if the aggregate proceeds
(before deduction of any underwriting discounts, commissions or expenses)
received by the Company from such public offering, at the offering price, shall
equal or exceed $15,000,000; and (ii) each of the underwriters participating in
such public offering shall be obligated to buy on a "firm commitment" basis all
shares of capital stock of the Company which such underwriters shall have agreed
to distribute.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and the year first written above.
ALTVISTA COMPANY PURCHASER
By: By:
Purchaser Signature
Title: Printed
Name:___________________
Address: ___________________________
___________________________
Number of Shares Purchased:
Purchase Price Per Share:
Aggregate Purchase Price:
Effective Date: ________________
10
<PAGE>
EXHIBIT 10.3
ALTAVISTA COMPANY
1999 EQUITY INCENTIVE PLAN
1. Purpose
The purpose of the AltaVista Company 1999 Equity Incentive Plan (the
"Plan") is to attract and retain key employees and consultants of the Company
and its Affiliates, to provide an incentive for them to achieve long-range
performance goals, and to enable them to participate in the long-term growth of
the Company.
2. Definitions
"Affiliate" means any business entity in which the Company owns directly or
indirectly 50% or more of the total voting power or has a significant financial
interest as determined by the Committee.
"Award" means any Option, Stock Appreciation Right or Restricted Stock
granted under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor law.
"Committee" means one or more committees each comprised of not less than
three members of the Board appointed by the Board to administer the Plan or a
specified portion thereof. If a Committee is authorized to grant Awards to a
Reporting Person or a "covered employee" within the meaning of Section 162(m) of
the Code, each member shall be a "disinterested person" or the equivalent within
the meaning of applicable Rule 16b-3 under the Exchange Act or an "outside
director" or the equivalent within the meaning of Section 162(m) of the Code,
respectively.
"Common Stock" or "Stock" means the Common Stock, $0.01 par value, of the
Company.
"Company" means AltaVista Company.
"Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Committee, to receive amounts due or exercise
rights of the Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, "Designated Beneficiary"
means the Participant's estate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to
1
<PAGE>
time, or any successor law.
"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"Incentive Stock Option" -- See Section 6(a).
"Nonstatutory Stock Option" -- See Section 6(a).
"Option" -- See Section 6(a).
"Participant" means a person selected by the Committee to receive an Award
under the Plan.
"Reporting Person" means a person subject to Section 16 of the Exchange
Act.
"Restricted Period" -- See Section 8(a).
"Restricted Stock" -- See Section 8(a).
"Stock Appreciation Right" or "SAR" -- See Section 7(a).
3. Administration
The Committee shall administer the Plan. The Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The
Committee's decisions shall be final and binding. To the extent permitted by
applicable law, the Committee may delegate to one or more executive officers of
the Company the power to make Awards to Participants who are not subject to
Section 16 of the Exchange Act and all determinations under the Plan with
respect thereto, provided that the Committee shall fix the maximum amount of
such Awards for all such Participants and a maximum for any one Participant.
4. Eligibility
All employees and, in the case of Awards other than Incentive Stock Options
under Section 6, consultants of the Company or any Affiliate, capable of
contributing significantly to the successful performance of the Company, other
than a person who has irrevocably elected not to be eligible, are eligible to be
Participants in the Plan. Incentive Stock Options may be granted only to
persons eligible to receive such Options under the Code.
5. Stock Available for Awards
(a) Amount. Subject to adjustment under subsection (b), Awards may be made
under the Plan for up to 20,000,000 shares of Common Stock. If any Award expires
or is
2
<PAGE>
terminated unexercised or is forfeited or settled in a manner that results in
fewer shares outstanding than were awarded, the shares subject to such Award, to
the extent of such expiration, termination, forfeiture or decrease, shall again
be available for award under the Plan. Common Stock issued through the
assumption or substitution of outstanding grants from an acquired company shall
not reduce the shares available for Awards under the Plan. Shares issued under
the Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.
(b) Adjustment. In the event that the Committee determines that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, or other
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits intended to be provided by the Plan, then the
Committee (subject in the case of Incentive Stock Options to any limitation
required under the Code) shall equitably adjust any or all of (i) the number and
kind of shares in respect of which Awards may be made under the Plan, (ii) the
number and kind of shares subject to outstanding Awards and (iii) the exercise
price with respect to any of the foregoing, and if considered appropriate, the
Committee may make provision for a cash payment with respect to an outstanding
Award, provided that the number of shares subject to any Award shall always be a
whole number.
(c) Limit on Individual Grants. The maximum number of shares of Common
Stock subject to Options and Stock Appreciation Rights that may be granted to
any Participant in the aggregate in any calendar year shall not exceed 1,000,000
shares, subject to adjustment under subsection (b).
6. Stock Options
Grant of Options. Subject to the provisions of the Plan, the Committee may
grant options ("Options") to purchase shares of Common Stock (i) complying with
the requirements of Section 422 of the Code or any successor provision and any
regulations thereunder ("Incentive Stock Options") and (ii) not intended to
comply with such requirements ("Nonstatutory Stock Options"). The Committee
shall determine the number of shares subject to each Option and the exercise
price therefor, which, in the case of incentive stock options only, shall not be
less than 100% of the fair market value of the Common Stock on the date of
grant. No Incentive Stock Option may be granted hereunder more than ten years
after the effective date of the Plan.
Terms and Conditions. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee may specify in the
applicable grant or thereafter. The Committee may impose such conditions with
respect to the exercise of Options, including conditions relating to applicable
federal or state securities laws, as it considers necessary or advisable.
Payment. No shares shall be delivered pursuant to any exercise of an
Option until payment in full of the exercise price therefor is received by the
Company. Such payment may be made in whole or in part in cash or, to the extent
permitted by the Committee at or after the grant of the Option, by delivery of a
note or shares of Common Stock owned by the optionee,
3
<PAGE>
including Restricted Stock, or by retaining shares otherwise issuable pursuant
to the Option, in each case valued at their Fair Market Value on the date of
delivery or retention, or such other lawful consideration as the Committee may
determine.
7. Stock Appreciation Rights
Grant of SARs. Subject to the provisions of the Plan, the Committee may
grant rights to receive any excess in value of shares of Common Stock over the
exercise price ("Stock Appreciation Rights" or "SARs") in tandem with an Option
(at or after the award of the Option), or alone and unrelated to an Option.
SARs in tandem with an Option shall terminate to the extent that the related
Option is exercised, and the related Option shall terminate to the extent that
the tandem SARs are exercised. The Committee shall determine at the time of
grant or thereafter whether SARs are settled in cash, Common Stock or other
securities of the Company, Awards or other property.
Exercise Price. The Committee shall fix the exercise price of each SAR or
specify the manner in which the price shall be determined. An SAR granted in
tandem with an Option shall have an exercise price not less than the exercise
price of the related Option. An SAR granted alone and unrelated to an Option
may not have an exercise price less than 100% of the Fair Market Value of the
Common Stock on the date of the grant.
Limited SARs. An SAR related to an Option, which SAR can only be exercised
upon or during limited periods following a change in control of the Company, may
entitle the Participant to receive an amount based upon the highest price paid
or offered for Common Stock in any transaction relating to the change in control
or paid during a specified period immediately preceding the occurrence of the
change in control in any transaction reported in the stock market in which the
Common Stock is normally traded.
8. Restricted Stock
Grant of Restricted Stock. Subject to the provisions of the Plan, the
Committee may grant shares of Common Stock subject to forfeiture ("Restricted
Stock") and determine the duration of the period (the "Restricted Period")
during which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. Shares of Restricted
Stock may be issued for no cash consideration or such minimum consideration as
may be required by applicable law.
Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as permitted by the
Committee, during the Restricted Period. Shares of Restricted Stock shall be
evidenced in such manner as the Committee may determine. Any certificates
issued in respect of shares of Restricted Stock shall be registered in the name
of the Participant and unless otherwise determined by the Committee, deposited
by the Participant, together with a stock power endorsed in blank, with the
Company. At the expiration of the Restricted Period, the Company shall deliver
such certificates to the Participant or if the Participant has died, to the
Participant's Designated Beneficiary.
4
<PAGE>
9. General Provisions Applicable to Awards
Reporting Person Limitations. Notwithstanding any other provision of the
Plan, to the extent required to qualify for the exemption provided by Rule 16b-3
under the Exchange Act, Awards made to a Reporting Person shall not be
transferable by such person other than by will or the laws of descent and
distribution and are exercisable during such person's lifetime only by such
person or by such person's guardian or legal representative. If then permitted
by Rule 16b-3, such Awards shall also be transferable pursuant to a qualified
domestic relations order as defined in the Code or Title I of the Employee
Retirement Income Security Act or the rules thereunder.
Documentation. Each Award under the Plan shall be evidenced by a writing
delivered to the Participant specifying the terms and conditions thereof and
containing such other terms and conditions not inconsistent with the provisions
of the Plan as the Committee considers necessary or advisable to achieve the
purposes of the Plan or to comply with applicable tax and regulatory laws and
accounting principles.
Committee Discretion. Each type of Award may be made alone, in addition to
or in relation to any other Award. The terms of each type of Award need not be
identical, and the Committee need not treat Participants uniformly. Except as
otherwise provided by the Plan or a particular Award, any determination with
respect to an Award may be made by the Committee at the time of grant or at any
time thereafter.
Dividends and Cash Awards. In the discretion of the Committee, any Award
under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and (ii)
cash payments in lieu of or in addition to an Award.
Termination of Employment. The Committee shall determine the effect on an
Award of the disability, death, retirement or other termination of employment of
a Participant and the extent to which, and the period during which, the
Participant's legal representative, guardian or Designated Beneficiary may
receive payment of an Award or exercise rights thereunder.
Change in Control. In order to preserve a Participant's rights under an
Award in the event of a change in control of the Company, the Committee in its
discretion may, at the time an Award is made or at any time thereafter, take one
or more of the following actions: (i) provide for the acceleration of any time
period relating to the exercise or payment of the Award, (ii) provide for
payment to the Participant of cash or other property with a Fair Market Value
equal to the amount that would have been received upon the exercise or payment
of the Award had the Award been exercised or paid upon the change in control,
(iii) adjust the terms of the Award in a manner determined by the Committee to
reflect the change in control, (iv) cause the Award to be assumed, or new rights
substituted therefor, by another entity or (v) make such other provision as the
Committee may consider equitable to Participants and in the best interests of
the Company.
Loans. The Committee may authorize the making of loans or cash payments to
Participants in connection with the grant or exercise of any Award under the
Plan, which loans may be secured by any security, including Common Stock,
underlying or related to such Award
5
<PAGE>
(provided that the loan shall not exceed the Fair Market Value of the security
subject to such Award), and which may be forgiven upon such terms and conditions
as the Committee may establish at the time of such loan or at any time
thereafter.
Withholding Taxes. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Awards under the Plan no later than the date of
the event creating the tax liability. In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to
the extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the Participant.
Foreign Nationals. Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or to comply with applicable
laws.
Amendment of Award. The Committee may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
10. Miscellaneous
No Right To Employment. No person shall have any claim or right to be
granted an Award. Neither the Plan nor any Award hereunder shall be deemed to
give any employee the right to continued employment or to limit the right of the
Company to discharge any employee at any time.
No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
Effective Date. The Plan shall be effective on September 30, 1999.
Amendment of Plan. The Board may amend, suspend or terminate the Plan or
any portion thereof at any time, subject to such stockholder approval as the
Board determines to be necessary or advisable to comply with any tax or
regulatory requirement.
Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of Delaware.
6
<PAGE>
_________________________________________
This Plan was approved by the Board of Directors on September 29, 1999.
This Plan was approved by the Stockholders on September 30, 1999.
7
<PAGE>
EXHIBIT 10.4
ALTAVISTA COMPANY
Non-Statutory Stock Option Terms and Conditions
-----------------------------------------------
1. Plan Incorporated by Reference. This Option is issued pursuant to the
------------------------------
terms of the Plan and may be amended as provided in the Plan. Capitalized terms
used and not otherwise defined in this certificate have the meanings given to
them in the Plan. This certificate does not set forth all of the terms and
conditions of the Plan, which are incorporated herein by reference. The
Committee administers the Plan and its determinations regarding the operation
of the Plan are final and binding. Copies of the Plan may be obtained upon
written request without charge from the Secretary of the Company.
2. Option Price. The price to be paid for each share of Common Stock
------------
issued upon exercise of the whole or any part of this Option is the Option Price
set forth on the face of this certificate.
3. Exercisability Schedule. This Option may be exercised at any time and
-----------------------
from time to time for the number of shares and in accordance with the
exercisability schedule set forth on the face of this certificate, but only for
the purchase of whole shares. This Option may not be exercised as to any shares
after the Expiration Date.
4. Method of Exercise. To exercise this Option, the Optionholder shall
------------------
deliver written notice of exercise to the Company specifying the number of
shares with respect to which the Option is being exercised accompanied by
payment of the Option Price for such shares in cash, by certified check or in
such other form, including shares of Common Stock of the Company valued at their
Fair Market Value on the date of delivery or a payment commitment of a financial
or brokerage institution, as the Committee may approve. Promptly following such
notice, the Company will deliver to the Optionholder a certificate representing
the number of shares with respect to which the Option is being exercised.
5. Rights as a Stockholder, Employee or Consultant. The Optionholder
-----------------------------------------------
shall not have any rights in respect of shares as to which the Option shall not
have been exercised and payment made as provided above. The Optionholder shall
not have any rights to continued employment or consulting with the Company or
its Affiliates by virtue of the grant of this Option.
6. Recapitalization, Mergers, Etc. As provided in the Plan, in the event
-----------------------------
of corporate transactions affecting the Company's outstanding Common Stock, the
Committee shall equitably adjust the number and kind of shares subject to this
Option and the exercise price hereunder or make provision for a cash payment.
If such transaction involves a consolidation or merger of the Company with
another entity, the sale or exchange of all or substantially all of the assets
of the Company or a reorganization or liquidation of the Company, then in lieu
of the foregoing, the Committee may upon written notice to the Optionholder
provide that this Option shall terminate on a date not less than 20 days after
the date of such notice unless theretofore exercised. In connection with such
notice, the Committee may in its discretion accelerate or waive any deferred
exercise period.
7. Option Not Transferable. This Option is not transferable by the
-----------------------
Optionholder otherwise than by will or the laws of descent and distribution, and
is exercisable, during the Optionholder's lifetime, only by the Optionholder.
The naming of a Designated Beneficiary does not constitute a transfer.
8. Exercise of Option After Termination of Employment. If the
--------------------------------------------------
Optionholder's status as an employee or consultant of (a) the Company, (b) an
Affiliate, or (c) a corporation (or parent or subsidiary corporation of such
corporation) issuing or assuming a stock option in a transaction to which
Section 424(a) of the Code applies, is terminated for any reason other than by
disability (within the meaning of Section 22(e)(3) of the Code) or death, the
Optionholder may exercise the rights which were available to the Optionholder at
the time of such termination only within one month following the date of
termination. If such status is terminated as a result of disability, such
rights may be exercised within six months from the date of termination. Upon
the death of the Optionholder, his or her Designated Beneficiary shall have the
right, at any time within twelve months after the date of death, to exercise in
whole or in part any rights that were available to the Optionholder at the time
of death. Notwithstanding the foregoing, no rights under this Option may be
exercised after the Expiration Date. The aforesaid one month, six month and
twelve month periods may be extended by the Committee in its sole discretion
up to the Expiration Date of the option. If an Optionholder's employment or
consulting relationship with the Company or any Affiliate is terminated for
cause (as defined by the Committee in its sole discretion), all such
Optionholder's options shall terminate immediately and be of no further force or
effect. Whether authorized leaves of absence or absence on military or
governmental service may constitute termination for purposes of the Plan shall
be conclusively determined by the Committee. Nothing in the Plan or in any
option granted thereunder shall be deemed to give the Optionholder the right to
continue his or her employment or consulting with the Company or any of its
Affiliates or shall be deemed to interfere in any way with the right of the
Company to terminate any Optionholder's employment or consulting relationship at
any time and for any reason. Options granted under the Plan shall not be
affected by any change of employment or consulting among the Company and its
Affiliates so long as the Optionholder continues to have an employment or
consulting relationship with the Company or one of its Affiliates.
9. Compliance with Securities Laws. It shall be a condition to the
-------------------------------
Optionholder's right to purchase shares of Common Stock hereunder that the
Company may, in its discretion, require (a) that the shares of Common Stock
reserved for issue upon the exercise of this Option shall have been duly listed,
upon official notice of issuance, upon any national securities exchange or
automated quotation system on which the Company's Common Stock may then be
listed or quoted, (b) that either (i) a registration statement under the
Securities Act of 1933 with respect to the shares shall be in effect, or (ii) in
the opinion of counsel for the Company, the proposed purchase shall be exempt
from registration under that Act and the Optionholder shall have made such
undertakings and agreements with the Company as the Company may reasonably
require, and (c) that such other steps, if any, as counsel for the Company shall
consider necessary to comply with any law applicable to the issue of such shares
by the Company shall have been taken by the Company or the Optionholder, or
both. The certificates representing the shares purchased under this Option may
contain such legends as counsel for the Company shall consider necessary to
comply with any applicable law.
10. Payment of Taxes. The Optionholder shall pay to the Company, or make
----------------
provision satisfactory to the Company for payment of, any taxes required by law
to be withheld with respect to the exercise of this Option. The Committee may,
in its discretion, require or permit any other Federal or state taxes imposed on
the exercise of this option or the sale of the shares to be paid by the
Optionholder. In the Committee's discretion, such tax obligations may be paid in
whole or in part in shares of Common Stock, including shares retained from the
exercise of this Option, valued at their Fair Market Value on the date of
delivery. The Company and its Affiliates may, to the extent permitted by law,
deduct any such tax obligations from any payment of any kind otherwise due to
the Optionholder.
11. Market Stand-Off. In connection with any underwritten public offering
----------------
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act for such period as the Company or its
underwriters may request (such period not to exceed 180 days following the date
of the applicable offering), the Optionee shall not, directly
<PAGE>
Page 2
or indirectly, sell, make any short sale of, loan, hypothecate, pledge, offer,
grant or sell any option or other contract for the purchase of, purchase any
option or other contract for the sale of, or otherwise dispose of or transfer,
or agree to engage in any of the foregoing transactions with respect to, any
Option Shares acquired under this Option Agreement without the prior written
consent of the Company or its underwriters.
<PAGE>
ALTAVISTA COMPANY
1999 Equity Incentive Plan
Non-Statutory Stock Option Certificate
AltaVista Company (the "Company"), a Delaware corporation, hereby grants to
the person named below an option to purchase shares of Common Stock, $0.01 par
value per share, of the Company (the "Option") pursuant to and subject to the
Company's 1999 Equity Incentive Plan (the "Plan") (all such terms and conditions
of the Plan being incorporated herein by reference as fully as if set forth
herein, except if contrary or supplementary terms are set forth in this Stock
Option Certificate, in which case such terms shall take precedence over those in
the Plan), exercisable on the following terms and conditions, including those
---------------
set forth in the attached Non-Statutory Stock Option Terms and Conditions:
- -------------------------------------------------------------------------
Name of Optionholder:
Address:
Social Security No.:
Number of Shares:
Option Price per Share:
Month of Employment:
Date of Grant:
Installment Terms, Exercise Dates and Other Terms:
This is a Non-Qualified Stock Option. This option is exercisable in forty-
eight (48) equal monthly cumulative installments of 1/48th of the Number of
Shares each beginning one month after the last day of the Month of
Employment (except that the first twelve (12) installments shall not be
exercisable until the first anniversary of the last day of the Month of
Employment) and shall be exercisable in full on the fourth anniversary of
the last day of the Month of Employment and shall expire on the fifth
anniversary of the last day of the Month of Employment. This option shall
not be exercisable with respect to any fractional share.
Expiration Date:
This option shall not be treated as an Incentive Stock Option under Section
---
422 of the Internal Revenue Code, as amended (the "Code").
By acceptance of this Option, the Optionholder agrees to all of the terms
and conditions hereof, including, without limitation, those set forth in the
Non-Competition Agreement attached hereto as Exhibit A and those set forth in
the Stock Purchase, Restriction, Buy-Back and Right of First Refusal Agreement
attached hereto as Exhibit B, those set forth in the Plan, and those set forth
in the attached Non-Statutory Stock Option Terms and Conditions. The grant of
this Non-Qualified Stock Option is subject to and conditioned upon the execution
by the Optionholder of the Non-Competition Agreement attached hereto as Exhibit
A. The Optionholder agrees that as a condition to the exercise of this option,
the Optionholder will execute a Stock Purchase, Restriction, Buy-Back and Right
of First Refusal Agreement with the Company in the form attached hereto as
Exhibit B. The Optionholder hereby acknowledges receipt of a copy of the Plan.
AltaVista Company
By:
ACCEPTED AND AGREED TO:
Optionholder
2
<PAGE>
EXHIBIT 10.5
ALTAVISTA COMPANY
1999 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose.
-------
The purpose of this 1999 Stock Option Plan for Non-Employee Directors (the
"Plan") of AltaVista Company (the "Company") is to encourage ownership in the
Company by non-employee directors of the Company whose continued services are
considered essential to the Company's future progress and to provide them with a
further incentive to remain as directors of the Company.
2. Administration.
--------------
The Board of Directors (the "Board") shall supervise and administer the
Plan. All questions concerning interpretation of the Plan or any options granted
under it shall be resolved by the Board of Directors and such resolution shall
be final and binding upon all persons having an interest in the Plan. The Board
of Directors may, to the full extent permitted by or consistent with applicable
laws or regulations, delegate any or all of its powers under the Plan to a
committee appointed by the Board of Directors, and if a committee is so
appointed, all references to the Board of Directors in the Plan shall mean and
relate to such committee.
3. Eligibility.
-----------
There shall be eligible to receive options under the Plan each director of
the Company who: (i) is not an employee of the Company or any of its
subsidiaries or affiliates, or (ii) unless otherwise determined by the Board, is
not an affiliate (as such term is defined in Rule 144(a)(1) promulgated under
the Securities Act of 1993), employee, representative, or designee of an
institutional or corporate investor (an "Affiliated Director").
4. Stock Subject to the Plan.
-------------------------
(a) A total of 250,000 shares of the Company's Common Stock, par value
$.01 per share ("Common Stock") may be issued under the Plan, subject to
adjustment as provided in Section 7.
(b) All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended.
5. Terms, Conditions and Form of Options.
-------------------------------------
1
<PAGE>
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) (i) Initial Grants. Each eligible director who is elected for the
--------------
first time to the Board of Directors of the Company shall be granted, upon the
date of such initial election, an option to acquire 48,000 shares of Common
Stock under the Plan (the "Initial Option"), provided that if such initial
--------
election occurs prior to the approval of the Plan by the stockholders of the
Company, such option may, at the discretion of the Board, be granted on the date
of such approval. Each Affiliated Director who ceases to be an Affiliated
Director and is not otherwise an employee of the Company or any of its
subsidiaries or affiliates shall be granted, on the date such director ceases to
be an Affiliated Director but remains as a member of the Board or Directors, an
Initial Option to acquire 48,000 shares of Common Stock under the Plan.
(ii) Annual Grants. On the first anniversary of the grant of the
-------------
Initial Option to an eligible director, and on each subsequent anniversary
thereof, the Company shall grant to such eligible director an option to purchase
12,000 shares of Common Stock (an "Annual Option"), provided that such eligible
--------
director serves as a member of the Board on the applicable anniversary date.
(iii) Additional Shares. The Board may, in its discretion, increase to
-----------------
up to 100,000, the aggregate number of shares of Common Stock that may be
subject to an Initial Option and/or Additional Options covering any vesting
period of up to 48 months that may be granted to an eligible director after the
date of such increase, provided that the maximum number of shares of Common
Stock that may vest in any 48 month period shall not exceed 100,000.
(b) Option Exercise Price. The option exercise price per share for each
---------------------
option granted under the Plan shall equal (i) the closing price of the Common
Stock on any national securities exchange on which the Common Stock is listed,
(ii) the closing price of the Common Stock on the Nasdaq National Market or
(iii) the average of the closing bid and asked prices of the Common Stock in the
over-the-counter market, whichever is applicable, on the date of grant, or if
none of clauses (i), (ii) or (iii) applies, the fair market value of the Common
Stock, as determined by the Board, on the date of grant. In the case of clauses
(i), (ii) and (iii), if no sales of Common Stock were made on the date of grant,
the price of the Common Stock shall be the reported price for the next preceding
day on which sales were made.
(c) Transferability of Options. Except as the Board may otherwise provide
--------------------------
in an option granted under the Plan, any option granted under the Plan to an
optionee shall not be transferable by the optionee other than (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder, or (iii) to any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former
2
<PAGE>
spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, sister-in-law, niece, nephew or other person sharing the
director's household (other than a parent or employee) (a "Family Member"), or
any trust in which Family Members have more than 50% of the beneficial interest,
any foundation in which Family Members (or the optionee) control the management
of assets, and any other entity in which Family Members (or the optionee) have
more than a 50% aggregate voting interest. References to an optionee, to the
extent relevant in the context, shall include references to authorized
transferees.
(d) Time and Manner of Exercise.
---------------------------
(i) Vesting.
-------
(a) Each Initial Option granted under the Plan shall vest and
become exercisable as to 1/48th of the number of shares originally subject to
the option on each monthly anniversary date of the date of grant, provided that
--------
the optionee serves as a director on such monthly anniversary date.
(b) Each Additional Option shall vest and become exercisable as
to 1/12th of the number of shares originally subject to the option on each
monthly anniversary date of the date of grant commencing on the 37th monthly
anniversary date, provided that the optionee serves as a director on such
--------
monthly anniversary date.
(ii) Termination. Except as otherwise provided in the applicable
-----------
option agreement, each option shall expire on the date ten years after the date
of grant of such option (the "Expiration Date"), provided that if the optionee
ceases to serve as a director of the Company prior to such Expiration Date, each
option shall remain exercisable thereafter and up to but not after the
Expiration Date, but may be exercised only to the extent it was exercisable at
the time of the optionee's cessation of service as a director.
(iii) Change in Control. All outstanding options granted under the
-----------------
Plan shall immediately become exercisable in full upon a Change in Control (as
defined in Section 8).
(iv) Exercise Procedure. An option may be exercised in whole or in
------------------
part, to the extent it is then exercisable, only by written notice to the
Company at its principal office accompanied by (i) payment in cash or by check
of the full exercise price for the shares as to which it is exercised, (ii)
delivery of outstanding shares of Common Stock (which have been outstanding for
at least six months) having a fair market value on the last business day
preceding the date of exercise equal to the option exercise price, (iii) an
irrevocable undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price or delivery of irrevocable
instructions to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price, (iv) payment by such other means
as may be approved by the
3
<PAGE>
Board, or (v) any combination of the foregoing.
(v) Exercise by Representative Following Death of Director. An
------------------------------------------------------
optionee, by written notice to the Company, may designate one or more persons
(and from time to time change such designation), including his or her legal
representative, who, by reason of the optionee's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
(vi) Withholding Taxes. An optionee shall pay to the Company, or
-----------------
make provisions satisfactory to the Company for payment of, any taxes required
by law to be withheld upon any exercise of an option granted under the Plan, no
later than the date of the event creating such tax liability. In the Board's
discretion, such tax obligation may be paid in whole or in part in shares of
Common Stock, including shares retained from the exercise of the option, valued
at the then fair market value.
(e) Early Exercise Provisions. Notwithstanding anything to the contrary in
-------------------------
the Plan, an optionee may at any time exercise any Initial Option or Additional
Option in its entirety, as to both vested and unvested shares, provided that at
--------
the time of and as a condition to such exercise, such optionee executes and
delivers to the Company a stock restriction agreement, in a form approved by the
Board, pursuant to which the Company (or its designee) shall have the right to
purchase from the optionee within 90 days of his or her termination of service
as a director for any reason (or, if later, within 90 days after his or her
exercise of the option), at the original option exercise price, all shares
acquired upon such exercise that would not, but for the provisions of this
Section 5(e), have otherwise been purchasable by the optionee under the
provisions of Section 5(d)(i) on the date of such termination of service.
6. Limitation of Rights.
--------------------
(a) No Right to Continue as a Director. Neither the Plan, nor the granting
----------------------------------
of an option nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Company will retain the optionee as a director for any period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no rights
-----------------------------------
as a stockholder with respect to the shares covered by his or her option until
the date of the issuance to him or her of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 7) for which the record date is prior to the date such certificate is
issued.
(c) Compliance with Securities Laws. Each option shall be subject to the
-------------------------------
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities
4
<PAGE>
exchange or under any state or federal law, or the consent or approval of any
governmental or regulatory body, or the disclosure of non-public information or
the satisfaction of any other condition is necessary as a condition of, or in
connection with, the issuance or purchase of shares thereunder, such option may
not be exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall have
been effected or obtained on conditions acceptable to the Board of Directors.
Nothing herein shall be deemed to require the Company to apply for or to obtain
such listing, registration or qualification, or to satisfy such condition.
7. Adjustment Provisions for Mergers, Recapitalizations and Related
----------------------------------------------------------------
Transactions.
- ------------
If, through or as a result of any merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar transaction, (i) the outstanding shares of Common Stock
are exchanged for a different number or kind of securities of the Company or of
another entity, or (ii) additional shares or new or different shares or other
securities of the Company are distributed with respect to such shares of Common
Stock, the Board of Directors shall make an appropriate and proportionate
adjustment in (x) the maximum number and kind of shares reserved for issuance
under the Plan, (y) the number and kind of shares or other securities subject to
then outstanding options under the Plan, and (z) the price for each share
subject to any then outstanding options under the Plan (without changing the
aggregate purchase price for such options), to the end that each option shall be
exercisable, for the same aggregate exercise price, for such securities as such
optionholder would have held immediately following such event if he had
exercised such option immediately prior to such event. No fractional shares will
be issued under the Plan on account of any such adjustments.
8. Change in Control.
-----------------
For purposes hereof, "Change in Control" means an event or occurrence set
forth in any one or more of subsections (a) through (d) below (including an
event or occurrence that constitutes a Change in Control under one of such
subsections but is specifically exempted from another such subsection):
(a) the acquisition by an individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership of any
capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) a majority or more of either (i) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
--------
following acquisitions shall not constitute a Change in Control: (i) any
5
<PAGE>
acquisition directly from the Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security exercisable for, convertible
into or exchangeable for common stock or voting securities of the Company,
unless the Person exercising, converting or exchanging such security acquired
such security directly from the Company or an underwriter or agent of the
Company), (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (iv) any Business Combination
(as defined below) excepted from subsection (c) of this Section 8 by the proviso
set forth therein; or
(b) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board (or, if applicable, the Board of Directors of
a successor corporation to the Company), where the term "Continuing Director"
means at any date a member of the Board (i) who was a member of the Board on the
date of adoption of this Plan or (ii) who was nominated or elected subsequent to
such date by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election or whose election to the Board was
recommended or endorsed by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election; provided,
--------
however, that there shall be excluded from this clause (ii) any individual whose
- -------
initial assumption of office occurred as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents, by or on behalf of a
person other than the Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving the Company or a sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), provided, that no such Business Combination shall
--------
constitute a Change in Control if, immediately following such Business
Combination, all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, at least a majority of the then
outstanding shares of common stock and the combined voting power of the then
outstanding securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
result of such transaction owns the Company or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, respectively; or
(d) approval by the stockholders of the Company of a complete liquidation
or dissolution of the Company.
9. Termination and Amendment of the Plan.
-------------------------------------
6
<PAGE>
The Board of Directors may suspend or terminate the Plan or amend it in any
respect whatsoever. In addition, the Board may, in its discretion, accelerate
the vesting of any option or options granted under the Plan.
Adopted by the Board of Directors on
September 29, 1999
Approved by the Stockholders on
September 30, 1999
7
<PAGE>
EXHIBIT 10.6
ALTAVISTA COMPANY
1999 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose.
-------
The purpose of this 1999 Stock Option Plan for Non-Employee Directors (the
"Plan") of AltaVista Company (the "Company") is to encourage ownership in the
Company by non-employee directors of the Company whose continued services are
considered essential to the Company's future progress and to provide them with a
further incentive to remain as directors of the Company.
2. Administration.
--------------
The Board of Directors (the "Board") shall supervise and administer the
Plan. All questions concerning interpretation of the Plan or any options granted
under it shall be resolved by the Board of Directors and such resolution shall
be final and binding upon all persons having an interest in the Plan. The Board
of Directors may, to the full extent permitted by or consistent with applicable
laws or regulations, delegate any or all of its powers under the Plan to a
committee appointed by the Board of Directors, and if a committee is so
appointed, all references to the Board of Directors in the Plan shall mean and
relate to such committee.
3. Eligibility.
-----------
There shall be eligible to receive options under the Plan each director of
the Company who: (i) is not an employee of the Company or any of its
subsidiaries or affiliates, or (ii) unless otherwise determined by the Board, is
not an affiliate (as such term is defined in Rule 144(a)(1) promulgated under
the Securities Act of 1993), employee, representative, or designee of an
institutional or corporate investor (an "Affiliated Director").
4. Stock Subject to the Plan.
-------------------------
(a) A total of 1,000,000 shares of the Company's Common Stock, par value
$.01 per share ("Common Stock") may be issued under the Plan, subject to
adjustment as provided in Section 7.
(b) All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended.
5. Terms, Conditions and Form of Options.
-------------------------------------
1
<PAGE>
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) (i) Initial Grants. Each eligible director who is elected for the
--------------
first time to the Board of Directors of the Company shall be granted, upon the
date of such initial election, an option to acquire 125,000 shares of Common
Stock under the Plan (the "Initial Option"), provided that if such initial
--------
election occurs prior to the approval of the Plan by the stockholders of the
Company, such option may, at the discretion of the Board, be granted on the date
of such approval. Each Affiliated Director who ceases to be an Affiliated
Director and is not otherwise an employee of the Company or any of its
subsidiaries or affiliates shall be granted, on the date such director ceases to
be an Affiliated Director but remains as a member of the Board or Directors, an
Initial Option to acquire 125,000 shares of Common Stock under the Plan.
(ii) Annual Grants. On the first anniversary of the grant of the
-------------
Initial Option to an eligible director, and on each subsequent anniversary
thereof, the Company shall grant to such eligible director an option to purchase
31,250 shares of Common Stock (an "Annual Option"), provided that such eligible
--------
director serves as a member of the Board on the applicable anniversary date.
(iii) Additional Shares. The Board may, in its discretion, increase to
-----------------
up to 175,000, the aggregate number of shares of Common Stock that may be
subject to an Initial Option and/or Additional Options covering any vesting
period of up to 48 months that may be granted to an eligible director after the
date of such increase, provided that the maximum number of shares of Common
Stock that may vest in any 48 month period shall not exceed 175,000.
(b) Option Exercise Price. The option exercise price per share for each
---------------------
option granted under the Plan shall equal (i) the closing price of the Common
Stock on any national securities exchange on which the Common Stock is listed,
(ii) the closing price of the Common Stock on the Nasdaq National Market or
(iii) the average of the closing bid and asked prices of the Common Stock in the
over-the-counter market, whichever is applicable, on the date of grant, or if
none of clauses (i), (ii) or (iii) applies, the fair market value of the Common
Stock, as determined by the Board, on the date of grant. In the case of clauses
(i), (ii) and (iii), if no sales of Common Stock were made on the date of grant,
the price of the Common Stock shall be the reported price for the next preceding
day on which sales were made.
(c) Transferability of Options. Except as the Board may otherwise provide
--------------------------
in an option granted under the Plan, any option granted under the Plan to an
optionee shall not be transferable by the optionee other than (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder, or (iii) to any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former
2
<PAGE>
spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, sister-in-law, niece, nephew or other person sharing the
director's household (other than a parent or employee) (a "Family Member"), or
any trust in which Family Members have more than 50% of the beneficial interest,
any foundation in which Family Members (or the optionee) control the management
of assets, and any other entity in which Family Members (or the optionee) have
more than a 50% aggregate voting interest. References to an optionee, to the
extent relevant in the context, shall include references to authorized
transferees.
(d) Time and Manner of Exercise.
---------------------------
(i) Vesting.
-------
(a) Each Initial Option granted under the Plan shall vest and
become exercisable as to 1/48th of the number of shares originally subject to
the option on each monthly anniversary date of the date of grant, provided that
--------
the optionee serves as a director on such monthly anniversary date.
(b) Each Additional Option shall vest and become exercisable as
to 1/12th of the number of shares originally subject to the option on each
monthly anniversary date of the date of grant commencing on the 37th monthly
anniversary date, provided that the optionee serves as a director on such
--------
monthly anniversary date.
(ii) Termination. Except as otherwise provided in the applicable
-----------
option agreement, each option shall expire on the date ten years after the date
of grant of such option (the "Expiration Date"), provided that if the optionee
ceases to serve as a director of the Company prior to such Expiration Date, each
option shall remain exercisable thereafter and up to but not after the
Expiration Date, but may be exercised only to the extent it was exercisable at
the time of the optionee's cessation of service as a director.
(iii) Change in Control. All outstanding options granted under the
-----------------
Plan shall immediately become exercisable in full upon a Change in Control (as
defined in Section 8).
(iv) Exercise Procedure. An option may be exercised in whole or in
------------------
part, to the extent it is then exercisable, only by written notice to the
Company at its principal office accompanied by (i) payment in cash or by check
of the full exercise price for the shares as to which it is exercised, (ii)
delivery of outstanding shares of Common Stock (which have been outstanding for
at least six months) having a fair market value on the last business day
preceding the date of exercise equal to the option exercise price, (iii) an
irrevocable undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price or delivery of irrevocable
instructions to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price, (iv) payment by such other means
as may be approved by the
3
<PAGE>
Board, or (v) any combination of the foregoing.
(v) Exercise by Representative Following Death of Director. An
------------------------------------------------------
optionee, by written notice to the Company, may designate one or more persons
(and from time to time change such designation), including his or her legal
representative, who, by reason of the optionee's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
(vi) Withholding Taxes. An optionee shall pay to the Company, or make
-----------------
provisions satisfactory to the Company for payment of, any taxes required by law
to be withheld upon any exercise of an option granted under the Plan, no later
than the date of the event creating such tax liability. In the Board's
discretion, such tax obligation may be paid in whole or in part in shares of
Common Stock, including shares retained from the exercise of the option, valued
at the then fair market value.
(e) Early Exercise Provisions. Notwithstanding anything to the contrary in
-------------------------
the Plan, an optionee may at any time exercise any Initial Option or Additional
Option in its entirety, as to both vested and unvested shares, provided that at
--------
the time of and as a condition to such exercise, such optionee executes and
delivers to the Company a stock restriction agreement, in a form approved by the
Board, pursuant to which the Company (or its designee) shall have the right to
purchase from the optionee within 90 days of his or her termination of service
as a director for any reason (or, if later, within 90 days after his or her
exercise of the option), at the original option exercise price, all shares
acquired upon such exercise that would not, but for the provisions of this
Section 5(e), have otherwise been purchasable by the optionee under the
provisions of Section 5(d)(i) on the date of such termination of service.
6. Limitation of Rights.
--------------------
(a) No Right to Continue as a Director. Neither the Plan, nor the granting
----------------------------------
of an option nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Company will retain the optionee as a director for any period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no rights
-----------------------------------
as a stockholder with respect to the shares covered by his or her option until
the date of the issuance to him or her of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 7) for which the record date is prior to the date such certificate is
issued.
(c) Compliance with Securities Laws. Each option shall be subject to the
-------------------------------
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities
4
<PAGE>
exchange or under any state or federal law, or the consent or approval of any
governmental or regulatory body, or the disclosure of non-public information or
the satisfaction of any other condition is necessary as a condition of, or in
connection with, the issuance or purchase of shares thereunder, such option may
not be exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval, or satisfaction of such condition shall have
been effected or obtained on conditions acceptable to the Board of Directors.
Nothing herein shall be deemed to require the Company to apply for or to obtain
such listing, registration or qualification, or to satisfy such condition.
7. Adjustment Provisions for Mergers, Recapitalizations and Related
----------------------------------------------------------------
Transactions.
- ------------
If, through or as a result of any merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar transaction, (i) the outstanding shares of Common Stock
are exchanged for a different number or kind of securities of the Company or of
another entity, or (ii) additional shares or new or different shares or other
securities of the Company are distributed with respect to such shares of Common
Stock, the Board of Directors shall make an appropriate and proportionate
adjustment in (x) the maximum number and kind of shares reserved for issuance
under the Plan, (y) the number and kind of shares or other securities subject to
then outstanding options under the Plan, and (z) the price for each share
subject to any then outstanding options under the Plan (without changing the
aggregate purchase price for such options), to the end that each option shall be
exercisable, for the same aggregate exercise price, for such securities as such
optionholder would have held immediately following such event if he had
exercised such option immediately prior to such event. No fractional shares will
be issued under the Plan on account of any such adjustments.
8. Change in Control.
-----------------
For purposes hereof, "Change in Control" means an event or occurrence set
forth in any one or more of subsections (a) through (d) below (including an
event or occurrence that constitutes a Change in Control under one of such
subsections but is specifically exempted from another such subsection):
(a) the acquisition by an individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership of any
capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) a majority or more of either (i) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
--------
following acquisitions shall not constitute a Change in Control: (i) any
5
<PAGE>
acquisition directly from the Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security exercisable for, convertible
into or exchangeable for common stock or voting securities of the Company,
unless the Person exercising, converting or exchanging such security acquired
such security directly from the Company or an underwriter or agent of the
Company), (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (iv) any Business Combination
(as defined below) excepted from subsection (c) of this Section 8 by the proviso
set forth therein; or
(b) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board (or, if applicable, the Board of Directors of
a successor corporation to the Company), where the term "Continuing Director"
means at any date a member of the Board (i) who was a member of the Board on the
date of adoption of this Plan or (ii) who was nominated or elected subsequent to
such date by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election or whose election to the Board was
recommended or endorsed by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election; provided,
--------
however, that there shall be excluded from this clause (ii) any individual whose
- -------
initial assumption of office occurred as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents, by or on behalf of a
person other than the Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving the Company or a sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), provided, that no such Business Combination shall
--------
constitute a Change in Control if, immediately following such Business
Combination, all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, at least a majority of the then
outstanding shares of common stock and the combined voting power of the then
outstanding securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
result of such transaction owns the Company or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, respectively; or
(d) approval by the stockholders of the Company of a complete liquidation
or dissolution of the Company.
9. Termination and Amendment of the Plan.
-------------------------------------
6
<PAGE>
The Board of Directors may suspend or terminate the Plan or amend it in any
respect whatsoever. In addition, the Board may, in its discretion, accelerate
the vesting of any option or options granted under the Plan.
Adopted by the Board of Directors on
October 11, 1999
Approved by the Stockholders on
October 20, 1999
7
<PAGE>
Page 1
EXHIBIT 10.7
Stock Option No.:___
AltaVista Company
INITIAL NON-QUALIFIED STOCK OPTION
1999 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Grant of Option
Grantee: Address:
Social Security No.:
AltaVista Company (the "Corporation") has granted to you a non-qualified
stock option to purchase shares of Common Stock, par value $0.01 per share, of
the Corporation (the "Shares") pursuant to, and subject to the terms and
conditions of, its 1999 Option Plan for Non-Employee Directors (the "Plan"), as
follows:
Date of Grant:
Number of Shares:
Price per Share:
Installment Terms, Exercise Date and Other Terms:
This Option is exercisable in 48 cumulative installments of _____ Shares
each, with (i) the first installment becoming exercisable on the first monthly
anniversary date of grant (i.e.,______, 19__), (ii) additional installments
becoming exercisable on each subsequent monthly anniversary date, and (iii) this
Option becoming exercisable in full on the fourth anniversary of the date of
grant, provided the Grantee continues in office as a Director of the Corporation
on the applicable monthly anniversary date. In addition, in accordance with
Section 5(e) of the Plan, this Option may be exercised as to Unvested Shares at
any time at which the Grantee serves as a Director of the Corporation. At the
time of and as a condition to any exercise, the Grantee must execute and deliver
to the Corporation the Stock Restriction Agreement attached hereto as Exhibit A
---------
(the "Stock Restriction Agreement"), provided such exercise is prior to the
Corporation's Qualified Initial Public Offering as defined in said agreement or
is subsequent to such Offering and involves the purchase of Unvested Shares as
aforesaid.
Date of Expiration:
AltaVista Company
By:
Vice President, General Counsel
I acknowledge receiving this Grant of Option and a copy of the Plan. I
agree that all terms and conditions set forth in the Plan are incorporated
herein by reference as fully as if set forth herein. I also agree that, as a
condition to the exercise of this Option, I will execute the Stock Restriction
Agreement.
Grantee
<PAGE>
Stock Option No.: ____
AltaVista Company
ANNUAL NON-QUALIFIED STOCK OPTION
1999 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Grant of Option
Grantee: Address:
Social Security No.:
AltaVista Company (the "Corporation") has granted to you a non-qualified
stock option to purchase shares of Common Stock, par value $0.01 per share, of
the Corporation (the "Shares") pursuant to, and subject to the terms and
conditions of, its 1999 Stock Option Plan for Non-Employee Directors (the
"Plan"), as follows:
Date of Grant:
Number of Shares:
Price per Share:
Installment Terms, Exercise Date and Other Terms:
This Option is exercisable in 12 cumulative installments of _________
Shares each, with (i) the first installment becoming exercisable on the 37th
monthly anniversary date of the date of grant (i.e., _____________, 19___), (ii)
additional installments becoming exercisable on each subsequent monthly
anniversary date, and (iii) this Option becoming exercisable in full on the
fourth anniversary of the date of grant, provided the Grantee continues in
office as a Director of the Corporation on the applicable monthly anniversary
date. In addition, in accordance with Section 5(e) of the Plan, this Option may
be exercised as to Unvested Shares at any time at which the Grantee serves as a
Director of the Corporation. At the time of and as a condition to any exercise,
the Grantee must execute and deliver to the Corporation the Stock Restriction
Agreement attached hereto as Exhibit A (the "Stock Restriction Agreement"),
---------
provided such exercise is prior to the Corporation's Qualified Initial Public
Offering as defined in said agreement or is subsequent to such Offering and
involves the purchase of Unvested Shares as aforesaid.
Date of Expiration:
AltaVista Company
By:
Vice President and General Counsel
I acknowledge receiving this Grant of Option and a copy of the Plan. I
agree that all terms and conditions set forth in the Plan are incorporated
herein by reference as fully as if set forth herein. I also I agree that, as a
condition to the exercise of this Option, I will execute the Stock Restriction
Agreement.
Grantee
<PAGE>
ALTAVISTA COMPANY
STOCK RESTRICTION AGREEMENT
This Agreement (the "Agreement") is made this ___ day of __________, 19___,
by and between AltaVista Company, a Delaware corporation (the "Company"), and
_________________________ (the "Purchaser").
WHEREAS, the Purchaser desires to acquire the number of shares (the
"Shares") of common stock, $0.01 par value, of the Company ("Common Stock") set
forth under the Purchaser's signature below at the purchase price set forth
under the Purchaser's signature below pursuant to his or her exercise of a non-
qualified stock option (the "Option") issued by the Company to the Purchaser
pursuant to the Company's 1999 Stock Option Plan for Non-Employee Directors, and
the Company desires to issue the Shares to the Purchaser, subject to the
restrictions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises and the covenants
of the parties contained in this Agreement, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereby
agree as follows:
1. Purchase of Shares.
------------------
The Purchaser hereby subscribes for and, upon acceptance hereof, shall
purchase, the Shares. The aggregate purchase price for the Shares set forth
under the Purchaser's signature below shall be paid by the Purchaser by check
payable to the order of the Company or such other method as may be provided for
in the Plan. Upon receipt of payment by the Company for the Shares, the Company
shall issue to the Purchaser one or more certificates in the name of the
Purchaser for the Shares. The Purchaser agrees that the Shares shall be subject
to all terms and conditions of this Agreement.
2. Buy-Back Option.
---------------
(a) If the director relationship of the Purchaser with the Company is
terminated for any reason or for no reason, with or without cause, voluntarily
or involuntarily, the Company shall have the right and option (the "Buy-Back
Option"), but not the obligation, to purchase from the Purchaser, part or all of
the then Unvested Shares at a price equal to the exercise price paid by the
Purchaser for such Unvested Shares upon exercise of the Option (the purchase
price to be paid is referred to as the "Buy-Back Price"). "Unvested Shares"
shall mean, as of the termination of the Purchaser's service as a director of
the Company, all Shares as to which the Option
1
<PAGE>
would not then have been exercisable but for the provisions of Section 5(e) of
the Plan.
(b) The Company may exercise the Buy-Back Option by delivering or mailing
to the Purchaser (or to his estate), in accordance with Section 17 of this
Agreement, written notice of exercise within ninety (90) days after the
termination of the relationship of the Purchaser with the Company. Such notice
shall specify the date of the notice, the number of Shares to be purchased and
the Buy-Back Price. If and to the extent the Buy-Back Option is not so
exercised within such ninety (90) day period, the Buy-Back Option shall
automatically expire and terminate effective upon the expiration of such ninety
(90) day period. Any Shares to which the Company's Buy-Back Option is not so
exercised will remain subject to all other terms and conditions of this
Agreement.
(c) Within ten (10) days after his receipt of the Company's notice of
exercise of the Buy-Back Option pursuant to Section 2(a) above, the Purchaser
(or his estate) shall tender to the Company at its principal office the
certificate or certificates representing the Shares which the Company has
elected to purchase, duly endorsed in blank by the Purchaser or with duly
endorsed stock powers attached thereto, all in form suitable for the transfer of
such Shares to the Company. Upon its receipt of such shares, the Company shall
deliver or mail to the Purchaser a check in the amount of the aggregate Buy-Back
Price therefor.
(d) The aggregate Buy-Back Price may be payable, at the option of the
Company, in cancellation of all or a portion of any outstanding indebtedness of
the Purchaser to the Company or in cash (by check) or both.
(e) The Company shall not purchase any fraction of a share upon exercise
of the Buy-Back Option, and any fraction of a Share resulting from a computation
made pursuant to Section 2 of this Agreement shall be rounded up to the next
whole Share.
(f) After the time at which any Shares are required to be delivered to the
Company for transfer to the Company pursuant to Section 2(c) above, the Company
shall not pay any divided to the Purchaser on account of such Shares or permit
the Purchaser to exercise any of the privileges or rights of stockholder with
respect to such Shares, but shall, in so far as permitted by law, treat the
Company as the owner of such Shares.
3. Right of First Refusal.
----------------------
(a) If at any time, either during the Purchaser's relationship with the
Company or afterwards but in all events prior to the Company's Qualified Initial
Public Offering as hereinafter defined, the Purchaser wishes to transfer (as
hereinafter defined) any of his or her Shares, other than as provided for in
Section 5(b) of this Agreement, the Purchaser shall first give written notice to
the Company, stating the nature of the proposed transfer, the name and address
of the proposed transferee or transferees, the number of shares to be
transferred (the "Offered Shares"), the price to be paid therefor
2
<PAGE>
and all the terms and conditions of the proposed transfer, and shall forthwith
offer in writing to transfer such shares to the Company for the same
consideration and on the same terms and conditions and the Company shall have
the irrevocable and exclusive first option (the "Right of First Refusal"), but
not the obligation, to acquire from the Purchaser all or any portion of the
Offered Shares on the same terms and conditions.
(b) The Purchaser agrees that the Company has the right to assign its
rights under Subsections 3(c) and 3(d) below, with respect to the purchase of
part or all of the Offered Shares, to one or more other persons or entities (the
"Purchasing Stockholder(s)") in its sole discretion and in whatever proportions
it decides and the Purchaser agrees that any such assignment shall constitute a
novation as among the Company, the Purchaser and the Purchasing Stockholder(s)
with respect to the rights and obligations of the Company and the Purchaser set
forth in Subsections 3(c) and 3(d) below so that such rights and obligations
with respect to the purchase of that part or all of the Offered Shares (if any)
assigned to the Purchasing Stockholder(s) in whatever proportions have been
decided by the Company, shall thereafter exist between the Purchaser and the
Purchasing Stockholder(s).
(c) Within ninety (90) days following delivery of the Purchaser's notice,
as specified in Section 3(a) above, the Company and/or the Purchasing
Stockholder(s) shall give written notice to the Purchaser, stating whether or
not the Company and/or the Purchasing Stockholder(s) elect to exercise their
Rights of First Refusal as to all or any part of the Offered Shares. Failure by
the Company and/or the Purchasing Stockholder(s) to give this notice within the
ninety (90) day period shall be deemed to be an election of the Company and/or
the Purchasing Stockholder(s) not to exercise their Rights of First Refusal for
the Offered Shares.
(d) Within ten (10) days after the date of the Company's and/or the
Purchasing Stockholder(s) notice of exercise of their Rights of First Refusal
pursuant to Section 3(c) above, the Purchaser, or his estate, shall tender to
the Company and/or the Purchasing Stockholder(s) at the Company's principal
offices the certificate or certificates representing that portion of the Offered
Shares which the Company and/or the Purchasing Stockholder(s) have elected to
acquire, duly endorsed in blank by the Purchaser or with duly endorsed stock
powers attached thereto, all in form suitable for the transfer of such Shares to
the Company and/or the Purchasing Stockholder(s) and the Company and/or the
Purchasing Stockholder(s) shall pay to the Purchaser the purchase price at the
times and upon the terms and conditions proposed to be paid by the proposed
third-party transferee, as set forth in the Purchaser's notice. If the Board of
Directors of the Company, in its sole judgment, shall determine that the
proposed purchase price set forth in the Purchaser's notice is less than fair
market value or if there is no purchase price, then the Company and/or the
Purchasing Stockholder(s) shall pay to the Purchaser fair market value of part
or all of the Shares to be purchased as determined in good faith by the Board of
Directors of the Company in its sole discretion.
3
<PAGE>
(e) If the Purchaser's notice shall be duly given, and the Company and/or
the Purchasing Stockholder(s) shall fail to purchase all of the Offered Shares
by the exercise of their Right of First Refusal, then, but only then, the
Purchaser shall be free to transfer the Offered Shares, but only for the price
and upon the terms and conditions set forth in the Purchaser's notice, and only
to the transferee or transferees named therein, and only if the Board of
Directors of the Company, in its sole judgment, shall determine that the
proposed transfer is a bona fide transfer and said transfer shall be consummated
within one hundred twenty (120) days after the date of the Purchaser's notice to
the Company, and only if the transferee or transferees shall execute a copy of
this Agreement satisfactory to the Company in all respects. If the Offered
Shares shall not be so transferred by the Purchaser within the period specified
above, then the transfer may not be made and the Offered Shares shall remain
subject to the terms of this Agreement in the same manner as if the Purchaser's
notice had not been given.
(f) Notwithstanding the forgoing, in no event shall the Purchaser transfer
any Unvested Shares (or any interest therein) pursuant to this Section 3, except
in accordance with the provisions of Section 5(b), in which event any such
Unvested Shares shall remain subject to all applicable provisions of this
Agreement.
4. Compliance With This Agreement.
------------------------------
The Company shall not be required to transfer any Shares upon its books or
to recognize any purported new transferee thereof in any manner, unless every
applicable provision hereof has first been complied with to the satisfaction of
the Company or has been waived in writing by the Company. The provisions hereof
shall not be discharged with respect to any Shares by any transfer or
encumbrance made in compliance with this Agreement but shall apply anew to such
shares in the hands of the new transferee thereof. If the Purchaser or any
legal representative or any transferee attempts to transfer any of the Shares
without compliance with the requirements and restrictions of this Agreement, he
shall not, until full compliance therewith, be entitled to any of the rights and
privileges of a shareholder of the Company, and no person purporting to claim or
hold by, through or under him shall in any way be recognized; but this provision
shall in no way relieve the Purchaser or any legal representative or any
transferee from the obligation to offer, transfer or sell the Shares to the
Company as herein provided.
5. Restrictions on Transfer.
------------------------
(a) The Purchaser shall not sell, assign, transfer, pledge, hypothecate or
otherwise dispose of, by operation of law or otherwise (collectively
"transfer"), any Shares (or any interest therein) except in accordance with the
provisions of Section 3 of this Agreement.
(b) Notwithstanding the foregoing, the Purchaser may transfer Shares, to
the Purchaser's spouse, children or grandchildren (collectively "Purchaser's
immediate family") or to an instrument of trust for the benefit of the members
of the Purchaser's
4
<PAGE>
immediate family (excluding, however, any transfer made pursuant to any divorce
or separation proceedings or settlement) and, further provided, that such Shares
shall remain subject to this Agreement (including without limitation the
restrictions on transfer set forth in this Agreement) and any permitted
transferee shall, as a condition of such transfer, execute and deliver to the
Company a copy of this Agreement satisfactory to the Company in all respects and
confirming that such transferee shall be bound by all of the terms and
conditions of this Agreement.
6. Restrictive Legend.
------------------
All certificates representing Shares shall have affixed thereto a legend in
substantially the following form, in addition to any other legends that may be
required under federal or state securities laws:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO RESTRICTIONS ON TRANSFER AND/OR AN OPTION TO PURCHASE SET
FORTH IN A CERTAIN STOCK RESTRICTION AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED OWNER OF THIS CERTIFICATE (OR HIS
PREDECESSOR IN INTEREST), WHICH AGREEMENT IS BINDING UPON ANY AND
ALL OWNERS OF ANY INTEREST IN SAID SHARES. SAID AGREEMENT IS
AVAILABLE FOR INSPECTION WITHOUT CHARGE AT THE PRINCIPAL OFFICE
OF THE CORPORATION AND A COPY THEREOF WILL BE FURNISHED WITHOUT
CHARGE TO ANY OWNER OF SAID SHARES UPON REQUEST.
7. Investment Representations.
--------------------------
The Purchaser represents, warrants and covenants as follows:
(a) He is purchasing the Shares for his own account and not with a view
to, or for sale in connection with, any distribution of the Shares in violation
of the Securities Act of 1933, as amended, (the "Securities Act") or any rule or
regulation under the Securities Act or in violation of any applicable state
securities law.
(b) He has had such opportunity as he has deemed adequate to obtain from
representatives of the Company such information as is necessary to permit him to
evaluate the merits and risks of his investment in the Company.
(c) He has sufficient experience in business, financial and investment
matters to be able to evaluate the risks involved in the purchase of the Shares
and to make an informed investment decision with respect to such purchase.
(d) He can afford the complete loss of the value of the Shares and is able
to
5
<PAGE>
bear the economic risk of holding such Shares for an indefinite period.
(e) He understands that (i) the Shares have not been registered under the
Securities Act and are "restricted securities" within the meaning of Rule 144
under the Securities Act; (ii) the Shares cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then available; (iii) in any
event, the exemption from registration under Rule 144 will not be available for
at least one (1) year and even then will not be available unless a public market
then exists for the Common Stock, adequate information concerning the Company is
then available to the public, and other terms and conditions of Rule 144 are
complied with; and (iv) there is now no registration statement on file with the
Securities and Exchange Commission with respect to any stock of the Company and
the Company has no obligation or current intention to register the Shares under
the Securities Act.
(f) A legend substantially in the following form will be placed on the
certificate or certificates representing the Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AND ANY
APPLICABLE STATE SECURITIES LAWS, UNLESS THE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL, WHICH OPINION IS SATISFACTORY TO
THE CORPORATION, TO THE EFFECT THAT SUCH REGISTRATIONS ARE NOT
REQUIRED.
8. Adjustments for Stock Splits, Stock Dividends, etc.
---------------------------------------------------
(a) If from time to time during the term of this Agreement there is any
stock split-up, stock dividend, stock distribution or other reclassification of
the Common Stock of the Company, any and all new, substituted or additional
securities to which the Purchaser is entitled by reason of his ownership of the
Shares shall be immediately subject to the terms of this Agreement.
(b) If the Shares are converted into or exchanged for, or stockholders of
the Company receive by reason of any distribution in total or partial
liquidation, securities of
6
<PAGE>
another corporation, or other property (including cash), pursuant to any merger
of the Company or acquisition of its assets, then the rights of the Company
under this Agreement shall inure to the benefit of the Company's successor and
this Agreement shall apply to the securities or other property received upon
such conversion, exchange or distribution in the same manner and to the same
extent as the Shares.
9. Taxes.
-----
The Purchaser acknowledges and agrees that the Company has the right to
deduct from payments of any kind otherwise due to the Purchaser any federal,
state or local taxes of any kind required by law to be withheld with respect to
the purchase of the Shares by the Purchaser.
10. Termination.
-----------
Except for any continuing rights and obligations of the parties hereto as
set forth in Section 2 with respect to Unvested Shares which rights and
obligations shall continue in full force and effect, this Agreement shall become
null and void and shall be of no further force or effect immediately upon (i)
the closing of the Company's Qualified Initial Public Offering, or (ii) written
agreement between the Company and the Purchaser or his successor or assign. The
term "Qualified Initial Public Offering" shall mean: (i) an underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of shares of Common Stock
of the Company but only if the aggregate proceeds (before deduction of any
underwriting discounts, commissions or expenses) received by the Company from
such public offering, at the offering price, shall equal or exceed $15,000,000;
and (ii) each of the underwriters participating in such public offering shall be
obligated to buy on a "firm commitment" basis all shares of capital stock of the
Company which such underwriters shall have agreed to distribute.
11. Section 83(b).
-------------
The Purchaser has reviewed with the Purchaser's own tax advisors the
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. The Purchaser is relying solely on
such advisors and not on any statements or representations of the Company or any
of its agents. The Purchaser understands that the Purchaser (and not the
Company) shall be responsible for the Purchaser's own tax liability that may
arise as a result of this investment or the transactions contemplated by this
Agreement. The Purchaser understands that it may be beneficial in many
circumstances to elect to be taxed at the time Unvested Shares are purchased
rather than when and as the Company's Buy-Back Option expires by filing an
election under Section 83(b) of the Internal Revenue Code with the Internal
Revenue Service within thirty (30) days from the date of purchase.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
7
<PAGE>
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE IN A TIMELY MANNER THE ELECTION
UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF. IF THE PURCHASER
FILES SUCH AN ELECTION, THE PURCHASER AGREES TO IMMEDIATELY FILE A COPY THEREOF
WITH THE COMPANY.
12. Lock Up.
-------
The Purchaser agrees, in connection with the initial underwritten public
offering of the Company's securities pursuant to a registration statement under
the Securities Act, (i) not to sell, make short sale of, loan, grant any options
for the purchase of, or otherwise dispose of any shares of Common Stock held by
the Purchaser (other than those shares included in the offering) without the
prior written consent of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities for a period of 180
days from the effective date of such registration statement, and (ii) to execute
any agreement reflecting clause (i) above as may be requested by the Company or
the managing underwriters at the time of such offering.
13. Severability.
------------
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, and each other provision of the Agreement shall be severable and
enforceable to the extent permitted by law.
14. Waiver.
------
Any provision contained in the Agreement may be waived in writing by the
Board of Directors of the Company. No waiver of any right hereunder by any
party shall operate as a waiver of any other right, or as a waiver of the same
right with respect to any subsequent occasion for its exercise, or as a waiver
of any right to damages. No waiver by any party of any breach of this Agreement
shall be held to constitute a waiver of any other breach or a waiver of the
continuation of the same breach.
15. Binding Effect.
--------------
This Agreement shall be binding upon and inure to the benefit of the
Company and the Purchaser and their respective heirs, executors, administrators,
legal representatives, successors and assigns.
16. No Rights to Employment.
-----------------------
8
<PAGE>
Nothing contained in this Agreement shall be construed as giving the
Purchaser any right to be retained a director of the Company.
17. Notice.
------
All notices required or permitted hereunder shall be in writing and deemed
effectively given upon personal delivery or upon deposit in the United States
Post Office, by registered or certified mail, postage prepaid, addressed to the
other party hereto at the address shown beneath his or its respective signature
to this Agreement, or at such other address or addresses as either party shall
designate to the other in accordance with this Section 17.
18. Pronouns.
--------
Whenever the context may require, any pronouns used in this Agreement shall
include the corresponding masculine, feminine or neuter forms and the singular
form of nouns and pronouns shall include the plural, and vice-versa.
19. Entire Agreement.
----------------
This Agreement and the Plan constitute the entire agreement between the
parties, and supersede all prior agreements and understandings relating to the
subject matter of this Agreement.
20. Amendment.
---------
This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Purchaser.
21. Construction.
------------
This Agreement and all matters connected therewith shall be construed and
all questions shall be determined by the Board of Directors of the Company
acting in its sole discretion and the decisions of such Board shall be binding
upon all interested parties.
22. Governing Law.
-------------
This Agreement shall be construed, interpreted and enforced in accordance
with the laws of the State of Delaware.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and the year first written above.
10
<PAGE>
AltaVista Company PURCHASER
By: By:
Purchaser Signature
Title:
Name of Purchaser
Address:
Number of Shares Purchased:
Number of Shares Purchased which are Unvested Shares:
Purchase Price Per Share:
Aggregate Purchase Price:
Effective Date:
11
<PAGE>
EXHIBIT 10.8
SEVERANCE AGREEMENT
-------------------
THIS AGREEMENT, dated August __, 1999, is made by and between
AltaVista Company, a Delaware corporation (the "Company"), and
__________________ (the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management personnel;
and
WHEREAS, the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control (as defined below)
exists and that such possibility, and the uncertainty and questions that it may
raise among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
-------------
Agreement are provided in the last Section hereof.
2. Term of Agreement. Subject to the provisions of Section 12.2
-----------------
hereof, the Term of this Agreement shall commence on the date hereof and shall
continue in effect through December 31, 2001.
3. Company's Covenants Summarized. In order to induce the Executive
------------------------------
to remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 4 hereof, the Company agrees, under the
conditions described herein, to pay to Executive the Severance Benefits and the
other payments and benefits described herein. Except as provided in Section 9.1
hereof, no Severance Benefits shall be payable under this Agreement unless there
shall have been (or, under the terms of the second sentence of Section 6.1
hereof, there shall be deemed to have been) a termination of the Executive's
employment with the Company following a Change in Control and during the Term.
This Agreement shall not be construed as creating an express or implied contract
of employment and, except as otherwise agreed in writing between the Executive
and the Company, the Executive shall not have any right to be retained in the
employ of the Company.
1
<PAGE>
4. The Executive's Covenants. The Executive agrees that, subject to
-------------------------
the terms and conditions of this Agreement, in the event of a Change in Control
during the Term, the Executive will remain in the employ of the Company until
the earliest of (i) the date of a Change in Control, (ii) the date of
termination by the Executive of the Executive's employment for Good Reason or by
reason of death, Disability or Retirement, or (iii) the termination by the
Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Benefits.
------------------------------------------
5.1. Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties with
the Company as a result of incapacity due to physical or mental illness, the
Company shall pay the Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together with all compensation
and benefits payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement (other than the Company's short- or long-
term disability plan, as applicable) maintained by the Company during such
period, until the Executive's employment is terminated by the Company for
Disability.
5.2. If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's full salary to the Executive through the Date of Termination at the
rate in effect immediately prior to the Date of Termination or, if higher, the
rate in effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of the Company's compensation and benefit plans, programs or arrangements
as in effect immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason.
5.3. If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay to the
Executive the Executive's normal post-termination compensation and benefits as
such payments become due. Such post-termination compensation and benefits shall
be determined under, and paid in accordance with, the Company's retirement,
insurance and other compensation or benefit plans, programs and arrangements as
in effect immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the first
event or circumstance constituting Good Reason.
6. Severance Benefits.
------------------
6.1. Subject to Section 6.2 hereof, if the Executive's employment is
terminated within six (6) months following a Change in Control, other than (a)
by the Company for Cause, (b) by
2
<PAGE>
reason of death or Disability, or (c) by the Executive without Good Reason, then
the Company shall pay the Executive the amounts, and provide the Executive the
benefits, described in this Section 6.1 ("Severance Benefits"), in addition to
any payments and benefits to which the Executive is entitled under Section 5
hereof. For purposes of this Agreement, the Executive's employment shall be
deemed to have been terminated following a Change in Control by the Company
without Cause or by the Executive with Good Reason, if (i) the Executive's
employment is terminated by the Company without Cause prior to a Change in
Control (whether or not a Change in Control ever occurs) and such termination
was at the request or direction of a Person who has entered into an agreement
with the Company the consummation of which would constitute a Change in Control,
(ii) the Executive terminates his employment for Good Reason prior to a Change
in Control (whether or not a Change in Control ever occurs) and the circumstance
or event which constitutes Good Reason occurs at the request or direction of
such Person, or (iii) the Executive's employment is terminated by the Company
without Cause or by the Executive for Good Reason and such termination or the
circumstance or event which constitutes Good Reason is otherwise in connection
with or in anticipation of a Change in Control (whether or not a Change in
Control ever occurs). For purposes of any determination regarding the
applicability of the immediately preceding sentence, any position taken by the
Executive shall be presumed to be correct unless the Company establishes to the
Board by clear and convincing evidence that such position is not correct.
(a) In lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in lieu of any severance
benefit otherwise payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to the Executive's base
salary as in effect immediately prior to the Date of Termination or, if higher,
in effect immediately prior to the first occurrence of an event or circumstance
constituting Good Reason.
(b) Any options awarded to the Executive that are outstanding as of
the date of Termination shall become 100% vested and, subject to the Executive
executing and delivering to the Company at the time of exercise the form of
Stock Purchase, Restriction, Buy-Back and Right of First Refusal Agreement
(attached as Exhibit B to the Executive's Non-Qualified Stock Option Notice and
Agreement) fully exercisable effective as of such Date of Termination for a
period of one (1) year following the later of (i) the Date of Termination or
(ii) the earlier of (x) the first date an exemption from the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended, is
available or (y) the first trading day on or after the date on which the
Securities and Exchange Commission declares the Company's registration statement
in Form S-1 filed with the Securities and Exchange Commission for the initial
underwritten public offering of the Company's securities effective (but in no
event following the expiration date of the Option as set forth in Section 2
hereof). In the event any of the outstanding options awarded to Executive are
incentive stock options within the meaning of Section 422 of the Code, such
options, to the extent unexercised, will automatically be treated as non-
qualified stock options for Federal income tax purposes on the ninety-first
(91/st/) day following the Date of Termination.
3
<PAGE>
(c) The Company shall continue to pay the mortgage subsidy agreed to
between the Executive and the Company for the life of such subsidy.
(d) For the twelve (12)-month period immediately following the Date of
Termination, the Company shall arrange to provide the Executive and his
dependents life, disability, accident and health insurance benefits
substantially similar to those provided to the Executive and his dependents
immediately prior to the Date of Termination or, if more favorable to the
Executive, those provided to the Executive and his dependents immediately prior
to the first occurrence of an event or circumstance constituting Good Reason, at
no greater cost to the Executive than the cost to the Executive immediately
prior to such date or occurrence; provided, however, that, unless the Executive
-------- -------
consents to a different method (after taking into account the effect of such
method on the calculation of "parachute payments" pursuant to Section 6.2
hereof), such health insurance benefits shall be provided through a third-party
insurer. Benefits otherwise receivable by the Executive pursuant to this
Section 6.1 (b) shall be reduced to the extent benefits of the same type are
received by or made available to the Executive during the twelve- (12) month
period following the Executive's termination of employment and any such benefits
received by or made available to the Executive shall be reported to the Company
by the Executive); provided, however, that the Company shall reimburse the
-------- -------
Executive for the excess, if any, of the cost of such benefits to the Executive
over such cost immediately prior to the Date of Termination or, if more
favorable to the Executive, the first occurrence of an event or circumstance
constituting Good Reason.
6.2.
(a) Notwithstanding any other provisions of this Agreement, in the event
that any payment or benefit received or to be received by the Executive in
connection with a Change in Control or the termination of the Executive's
employment (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any Person whose actions result in a
Change in Control or any Person affiliated with the Company or such Person) (all
such payments and benefits, including the Severance Benefits, being hereinafter
called "Total Payments") would not be deductible (in whole or part), by the
Company, an affiliate or Person making such payment or providing such benefit as
a result of section 280G of the Code, then, to the extent necessary to make such
portion of the Total Payments deductible (and after taking into account any
reduction in the Total Payments provided by reason of section 280G of the Code
in such other plan, arrangement or agreement), the cash Severance Benefits shall
first be reduced (if necessary, to zero), and all other Severance Benefits shall
thereafter be reduced (if necessary, to zero); provided, however, that the
-------- -------
Executive may elect to have the noncash Severance Benefits reduced (or
eliminated) prior to any reduction of the cash Severance Benefits.
(b) For purposes of this limitation, (i) no portion of the Total Payments
the receipt or enjoyment of which the Executive shall have waived at such time
and in such manner as not to constitute a "payment" within the meaning of
section 280G(b) of the Code shall be taken into account, (ii) no portion of the
Total Payments shall be taken into account which, in the opinion of
4
<PAGE>
tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected
by the accounting firm which was, immediately prior to the Change in Control,
the Company's independent auditor (the "Auditor"), does not constitute a
"parachute payment" within the meaning of section 280G(b)(2) of the Code,
including by reason of section 280G(b)(4)(A) of the Code, (iii) the Severance
Benefits shall be reduced only to the extent necessary so that the Total
Payments (other than those referred to in clauses (i) or (ii)) in their entirety
constitute reasonable compensation for services actually rendered within the
meaning of section 280G(b)(4)(B) of the Code or are otherwise not subject to
disallowance as deductions by reason of section 280G of the Code, in the opinion
of Tax Counsel, and (iv) the value of any noncash benefit or any deferred
payment or benefit included in the Total Payments shall be determined by the
Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the
Code.
(c) If it is established pursuant to a final determination of a court or
an Internal Revenue Service proceeding that, notwithstanding the good faith of
the Executive and the Company in applying the terms of this Section 6.2, the
Total Payments paid to or for the Executive's benefit are in an amount that
would result in any portion of such Total Payments being subject to the Excise
Tax, then, if such repayment would result in (i) no portion of the remaining
Total Payments being subject to the Excise Tax and (ii) a dollar-for-dollar
reduction in the Executive's taxable income and wages for purposes of Federal,
state and local income and employment taxes, the Executive shall have an
obligation to pay the Company upon demand an amount equal to the sum of (i) the
excess of the Total Payments paid to or for the Executive's benefit over the
Total Payments that could have been paid to or for the Executive's benefit
without any portion of such Total Payments being subject to the Excise Tax; and
(ii) interest on the amount set forth in clause (i) of this sentence at the rate
provided in section 1274(b)(2)(B) of the Code from the date of the Executive's
receipt of such excess until the date of such payment.
6.3. The payments provided in subsection (a) of Section 6.1 hereof
shall be made not later than the fifth day following the Date of Termination;
provided, however, that if the amounts of such payments cannot be finally
- -------- -------
determined on or before such day, the Company shall pay to the Executive on such
day an estimate, as determined in good faith by the Company of the minimum
amount of such payments to which the Executive is clearly entitled and shall pay
the remainder of such payments (together with interest on the unpaid remainder
(or on all such payments to the extent the Company fails to make such payments
when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as
soon as the amount thereof can be determined but in no event later than the
thirtieth (30th) day after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to the
Executive, payable on the fifth (5th) business day after demand by the Company
(together with interest at 120% of the rate provided in section 1274(b)(2)(B) of
the Code).
6.4. The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right
5
<PAGE>
provided by this Agreement or in connection with any tax audit or proceeding to
the extent attributable to the application of section 4999 of the Code to any
payment or benefit provided hereunder. Such payments shall be made within five
(5) business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
7. Termination Procedures and Compensation During Dispute.
------------------------------------------------------
7.1. Notice of Termination. After a Change in Control and during the
---------------------
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive was
guilty of conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
7.2. Date of Termination. "Date of Termination," with respect to any
-------------------
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty- (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the case of a termination for
Cause) and, in the case of a termination by the Executive, shall not be less
than fifteen (15) days nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given).
7.3. Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the earlier of (i) the date on which the Term ends or (ii) the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of an arbitrator or a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
6
<PAGE>
provided, however, that the Date of Termination shall be extended by a notice of
- -------- -------
dispute given by the Executive only if such notice is given in good faith and
the Executive pursues the resolution of such dispute with reasonable diligence.
7.4. Compensation During Dispute. If a purported termination occurs
---------------------------
following a Change in Control and during the Term and the Date of Termination is
extended in accordance with Section 7.3 hereof, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans in
which the Executive was participating when the notice giving rise to the dispute
was given, until the Date of Termination, as determined in accordance with
Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all
other amounts due under this Agreement (other than those due under Section 5.2
hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
-------------
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(b) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
-----------------------------
9.1. In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
9.2. This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the
7
<PAGE>
Executive) if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators of the
Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the Executive's signature on the final
page hereof and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
To the Company:
AltaVista Company
529 Bryant Street
Palo Alto, California 94301
Attention: General Counsel
11. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either party;
provided, however, that this Agreement shall supersede any agreement setting
- -------- -------
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is terminated
on or following a Change in Control, by the Company other than for Cause or by
the Executive other than for Good Reason. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law and any additional
withholding to which the Executive has agreed. The obligations of the Company
and the Executive under this Agreement which by their nature may require either
partial or total performance after the expiration of the Term (including,
without limitation, those under Sections 6 and 7 hereof) shall survive such
expiration.
12. Validity. The invalidity or unenforceability of any provision
--------
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
8
<PAGE>
13. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
-----------------------------------
14.1. All claims by the Executive for benefits under this Agreement
shall be directed to and determined by the Board and shall be in writing. Any
denial by the Board of a claim for benefits under this Agreement shall be
delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Board shall afford a reasonable opportunity to the Executive for a review of the
decision denying a claim and shall further allow the Executive to appeal to the
Board a decision of the Board within sixty (60) days after notification by the
Board that the Executive's claim has been denied.
14.2. Any further dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in the San
Francisco Bay Area in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
-------- -------
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms
-----------
shall have the meanings indicated below:
(a) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(b) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(c) "Base Amount" shall have the meaning set forth in section 280G(b)(3)
of the Code.
(d) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Cause" for termination by the Company of the Executive's employment
shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after the
9
<PAGE>
issuance of a Notice of Termination for Good Reason by the Executive pursuant to
Section 7.1 hereof) that has not been cured within 30 days after a written
demand for substantial performance is delivered to the Executive by the Board,
which demand specifically identifies the manner in which the Board believes that
the Executive has not substantially performed the Executive's duties, (ii) the
willful engaging by the Executive in conduct which is demonstrably and
materially injurious to the Company or its subsidiaries, monetarily or
otherwise, (iii) the failure by the Executive to execute a signed copy of the
Non-Competition Agreement or Non-Disclosure and Developments Agreement, or (iv)
upon exercise of any option granted by the Company, failure to execute a signed
copy of the Stock Purchase, Restriction, Buy-Back and Right of First Refusal
Agreement. For purposes of clauses (i) and (ii) of this definition, (x) no act,
or failure to act, on the Executive's part shall be deemed "willful" unless
done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to act, was in the best
interest of the Company and (y) in the event of a dispute concerning the
application of this provision, no claim by the Company that Cause exists shall
be given effect unless the Company establishes to the Board (or committee
thereof) by clear and convincing evidence that Cause exists.
(g) A "Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have occurred:
(i) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its affiliates) representing 30% or more
of the combined voting power of the Company's then outstanding
securities, excluding any Person who becomes such a Beneficial Owner
in connection with a transaction described in clause (i) of paragraph
(iii) below; or
(ii) during any period of two consecutive years (not including any
period prior to the adoption of this Agreement), individuals who at
the beginning of such period constitute the Board, and any new
director of the Board (other than a director of the Board designated
by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii), or (iv) of this
paragraph) whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least two-
thirds of the directors then still in office who either were directors
at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority of the Board; or
(iii) the Company's stockholders approve a merger or consolidation of
the Company with any other corporation, other than a merger or
consolidation that would result in the Company's voting securities
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted
10
<PAGE>
into voting securities of the surviving entity) more than 50% of
the combined voting power of voting securities of the Company or
such surviving entity outstanding immediately after such merger
or consolidation; provided, however, that a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person acquires more
than 30% of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in Control;
or
(iv) the Company's stockholders approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(i) "Company" shall mean AltaVista Company and, except in determining
under Section 15(e) hereof whether or not any Change in Control of the Company
has occurred, shall include any successor to its business and/or assets which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
(j) "Date of Termination" shall have the meaning set forth in Section
7.2 hereof.
(k) "Disability" shall be deemed the reason for the termination by
the Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the Company
for a period of six (6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and, within thirty (30) days
after such Notice of Termination is given, the Executive shall not have returned
to the full-time performance of the Executive's duties.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(m) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(n) "Good Reason" for termination by the Executive of Executive's
employment shall mean the occurrence (without the Executive's express written
consent) after any Change in Control, of any one of the following acts by the
Company, or failures by the Company to act, unless, in the case of any act or
failure to act described in paragraph (i), (v), (vi) or (vii) below, such act or
failure to act is corrected prior to the Date of Termination specified in the
Notice of Termination given in respect thereof:
11
<PAGE>
(i) the assignment to the Executive of any duties inconsistent with
the Executive's status as an executive officer of the Company or a
substantial adverse alteration in the nature or status of the
Executive's responsibilities from those in effect immediately prior to
the Change in Control other than any such alteration primarily
attributable to the fact that the Company may no longer be a public
company;
(ii) a reduction by the Company in the Executive's annual base salary
as in effect on the date hereof or as the same may be increased from
time to time except for across-the-board salary reductions similarly
affecting all executives of the Company and all executives of any
Person in control of the Company;
(iii) the relocation of the Executive's principal place of employment
to a location more than 30 miles from the Executive's principal place
of employment immediately prior to the Change in Control or the
Company's requiring the Executive to be based anywhere other than such
principal place of employment (or permitted relocation thereof) except
for required travel on the Company's business to an extent
substantially consistent with the Executive's present business travel
obligations;
(iv) the failure by the Company to pay to the Executive any portion
of the Executive's current compensation except pursuant to an across-
the-board compensation deferral similarly affecting all executives of
the Company and all executives of any Person in control of the
Company, or to pay to the Executive any portion of an installment of
deferred compensation under any deferred compensation program of the
Company, within seven (7) days of the date such compensation is due;
(v) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the Executive's
total compensation or any substitute plans adopted prior to the Change
in Control, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such
plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount or
timing of payment of benefits provided and the level of the
Executive's participation relative to other participants, as existed
immediately prior to the Change in Control; or
(vi) any purported termination of the Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 7.1 hereof; for purposes of this Agreement, no
such purported termination shall be
12
<PAGE>
effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Executive that Good Reason exists shall be presumed to
be correct unless the Company establishes to the Board by clear and convincing
evidence that Good Reason does not exist.
(o) "Notice of Termination" shall have the meaning set forth in Section
7.1 hereof.
(p) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.
(r) "Retirement" shall be deemed the reason for the termination by the
Executive of the Executive's employment if such employment is terminated in
accordance with the Company's retirement policy, including early retirement,
generally applicable to its salaried employees.
(s) "Severance Benefits" shall have the meaning set forth in Section 6.1
hereof.
(t) "Tax Counsel" shall have the meaning set forth in Section 6.2 hereof.
(u) "Term" shall mean the period of time described in Section 2 hereof
(including any extension, continuation or termination described therein).
(v) "Total Payments" shall mean those payments so described in Section 6.2
hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ALTAVISTA COMPANY
By:
Name:
Title:
13
<PAGE>
EXECUTIVE
Address:
(Please print carefully)
14
<PAGE>
EXHIBIT 10.9
INDEMNITY AGREEMENT
THIS AGREEMENT made as of the __ day of _______, 19__, between AltaVista
Company, a Delaware corporation ("Company"), and __________("Indemnitee").
WHEREAS, Indemnitee is an executive officer of the Company, and the Company
and Indemnitee desire that Indemnitee continue to serve in this capacity; and
WHEREAS, qualified persons are often reluctant to serve publicly-held
corporations as directors or officers unless they are provided with adequate
protection through insurance or adequate indemnification against inordinate
risks of claims and actions against them arising out of their service to and
activities on behalf of the corporation; and
WHEREAS, the Board of Directors has determined that the inability to
attract and retain such persons is detrimental to the best interests of the
Company's stockholders and that the Company should act to assure such persons
that there will be increased certainty of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company to agree
to indemnify such persons so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the Company desires and intends hereby to indemnify Indemnitee to
the fullest extent permitted by law:
NOW THEREFORE, WITNESSETH:
THAT for and in consideration of the premises and the covenants contained
herein, the Company and Indemnitee do hereby covenant and agree as follows:
1. Continued Service. Indemnitee will continue to serve, at the will of the
-----------------
Company, as an officer so long as Indemnitee is duly elected and qualified in
accordance with the by-laws of the Company or until Indemnitee tenders
Indemnitee's resignation.
2. Indemnification.
---------------
(a) The Company shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof or as such laws may from time to
time be amended.
(b) Without limiting the generality of Subsection 2(a) hereof, the Company
agrees that it shall indemnify Indemnitee as follows:
<PAGE>
(i) The Company shall indemnify Indemnitee when Indemnitee is a
party or is threatened to be made a party to any threatened, pending or
completed proceeding (other than an action by or in the right of the Company) by
reason of the fact that Indemnitee is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, judgments, fines and
amounts paid in settlements actually and reasonably incurred by Indemnitee or on
Indemnitee's behalf (net of any insurance proceeds received by Indemnitee or
paid on Indemnitee's behalf) in connection with such proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee failed to act in good
faith and in a manner which Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that Indemnitee's conduct
was unlawful.
(ii) The Company shall indemnify Indemnitee when Indemnitee is a
party or is threatened to be made a party to any threatened, pending or
completed proceeding brought by or in the right of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf (net of any insurance proceeds received by Indemnitee or paid on
Indemnitee's behalf) in connection with the defense or settlement of such
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company
and except that no indemnification shall be made in respect of any claim, issue
or matter as to which Indemnitee shall have been adjudged to be liable to the
Company unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnification for such expenses which the Court of Chancery or such other
court shall deem proper.
(iii) Any indemnification under the circumstances specified in
Subsections 2(b)(i) or (ii) hereunder (unless ordered by a court) shall be made
by the Company only as authorized in the specific case upon a determination (in
accordance with Section 3 hereof) that indemnification of Indemnitee is proper
in the circumstances because Indemnitee has met the applicable standard of
conduct set forth in Subsections 2(b)(i) or (ii) hereof. Such determination
shall be made (1) by a majority vote of the directors who were not parties to
such proceeding ("Disinterested Directors"), even though less than a quorum, (2)
by a committee of Disinterested Directors designated by a majority vote of
Designated Directors, even though less than a quorum, (3) if there are no
Disinterested Directors, or if the Disinterested Directors so direct, by
independent legal counsel in a written opinion, or (4) by the stockholders.
2
<PAGE>
(c) Expenses actually and reasonably incurred or to be incurred within the
next 30 days by Indemnitee (including attorneys' retainers and other expenses
required to be paid in advance) in defending a pending or threatened proceeding
shall be paid by the Company in advance of the final disposition of such
proceeding within 30 days of the actual receipt by the Company of a sworn
statement of request for advancement of expenses substantially in the form of
Exhibit 1 attached hereto and made a part hereof (together with evidence
thereof), averring that (i) Indemnitee has reasonably incurred or will
reasonably incur actual expenses in defending a proceeding, and (ii) Indemnitee
undertakes to repay such amount if it is ultimately determined, in accordance
with the provisions of Section 3 hereof, that Indemnitee is not entitled to be
indemnified by the Company under this Agreement or otherwise.
(d) Notwithstanding the other provisions of this Section, to the extent
that Indemnitee has served as a witness on behalf of the Company, Indemnitee
shall be indemnified by the Company against all expenses actually and reasonably
incurred by Indemnitee in connection with such services as a witness.
Notwithstanding the other provisions of this Section, to the extent that
Indemnitee has been successful on the merits or otherwise in defense of any
proceeding referred to in Subsections 2(b)(i) and (ii), or in defense of any
claim, issue or matter therein, Indemnitee shall be indemnified by the Company
against expenses actually and reasonably incurred by Indemnitee in connection
with such proceeding, claim, issue or matter. Any indemnifiable amount required
under this Subsection 2(d) shall be paid by the Company no later than 30 days
after actual receipt by the Company of a sworn statement of request for such
expenses (together with evidence thereof).
(e) The right to indemnification and advancement of expenses provided by
this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may be entitled under any statute, by-law, insurance policy,
agreement, vote of stockholders or Disinterested Directors or otherwise, both as
to action in Indemnitee's official capacity and as to action in another capacity
while holding such office.
(f) The Company's agreements and obligations under this Agreement shall
continue during the period Indemnitee is a director or officer of the Company,
and shall continue thereafter so long as Indemnitee shall be subject to any
possible claim or proceeding by reason of Indemnitee's service in such capacity.
The Indemnitee's rights under this Agreement shall inure to the benefit of
Indemnitee's heirs, executors and administrators.
(g) The Company shall not be liable under this Agreement to make any
payment which is prohibited by applicable law, including, without limitation,
any liability of Indemnitee to the Company under Section 16(b) of the Securities
Exchange Act of 1934.
(h) Upon payment of any amounts under this Agreement, the Company shall be
subrogated to the rights of the Indemnitee, and Indemnitee's heirs, executors or
administrators receiving such payments, against any insurance carrier in respect
to such amounts (to the extent
3
<PAGE>
permitted by such insurance carriers). In no event shall the Company be
obligated to maintain directors' and officers' liability insurance on
Indemnitee's behalf.
3. Determination of Right to Indemnification. For purposes of making the
-----------------------------------------
determination in a specific case under Subsection 2(b)(iii) hereof whether to
make indemnification, the Disinterested Directors, the Committee of
Disinterested Directors, independent legal counsel or stockholders, as the case
may be, shall make such determination in accordance with the following
procedure:
(a) Indemnitee may submit to the Board of Directors a sworn statement of
request for indemnification substantially in the form of Exhibit 2 attached
hereto and made a part hereof ("Indemnification Statement") averring that
Indemnitee has met the applicable standard of conduct set forth in Subsections
2(b)(i) and (ii) hereof; and
(b) Submission of the Indemnification Statement to the Board of Directors
shall create a rebuttable presumption that Indemnitee is entitled to
indemnification under this Agreement, and the Disinterested Directors,
independent legal counsel or stockholders, as the case may be, shall within 60
days after actual receipt by the Company of the Indemnification Statement
specifically determine that Indemnitee is so entitled, unless it or they shall
possess sufficient evidence to rebut the presumption that Indemnitee has met the
applicable standard of conduct set forth in Subsections 2(b)(i) and (ii) hereof.
If the determination is made by the Disinterested Directors, the evidence which
they possess shall be disclosed to Indemnitee with particularity in a sworn
written statement signed by all persons who participated in the determination
and voted to deny indemnification.
(c) Subject to the Company's obligation to advance expenses pursuant to
Section 2(c) above, if indemnification is requested with respect to any
proceeding (whether threatened, pending or completed) to which Indemnitee is a
party, the request for indemnification shall be made only after a Company-
approved settlement has been reached (and approved by the court if required) or
a final judgment has been entered. Once a determination has been made under
this Section 3 that Indemnitee is entitled to indemnification hereunder, the
amounts to be indemnified hereunder shall be paid by the Company within 30 days
thereafter, or otherwise as specified by the terms of any such settlement or
judgment.
4. Merger, Consolidation or Change in Control. In the event that the Company
------------------------------------------
shall be a constituent corporation in a consolidation or merger, whether the
Company is the resulting or surviving corporation or is absorbed, or if there is
a change in control of the Company as defined in Section 5 hereof, Indemnitee
shall stand in the same position under this Agreement with respect to the
resulting, surviving or changed corporation as Indemnitee would have with
respect to the Company if its separate existence had continued or if there had
been no change in the control of the Company.
5. Certain Definitions. For purposes of this Agreement, the following
-------------------
definitions apply herein:
4
<PAGE>
(a) "change of control" shall include any change in the ownership of
a majority of the capital stock of the Company or in the composition of a
majority of the members of the Board of Directors of the Company.
(b) "expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcripts, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, appeal bonds and all other disbursements or
expenses customarily incurred in connection with asserting or defending
claims;
(c) "fines" shall include any excise taxes assessed on Indemnitee
with respect to any employee benefit plan;
(d) "independent counsel" shall mean a law firm or member of a law
firm that neither is presently nor in the past five years has been retained
to represent: (i) the Company or Indemnitee in any matter material to
either such party, or (ii) any other party to the proceeding giving rise to
a claim for indemnification hereunder. Notwithstanding the foregoing, the
term "independent counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's right to indemnification under this
Agreement;
(e) "proceeding" shall include any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative
hearing or any other proceeding whether civil, criminal, administrative or
investigative;
(f) "other enterprises" shall include employee benefit plans, and
civic, non-profit or charitable organizations, whether or not incorporated;
and
(g) "serving at the request of the Company" shall include any service
at the request or with the express or implied authorization of the Company,
as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, Indemnitee with respect to a
corporation or "other enterprise," its participants or beneficiaries; and
if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of
such other enterprise or entity, Indemnitee shall be deemed to have acted
in a manner "not opposed to the best interests of the Company" as referred
to in this Agreement;
6. Notification and Defense of Claim. Within five days after receipt by
---------------------------------
Indemnitee of notice of the commencement of any proceeding, Indemnitee will, if
a claim in respect thereof is to be made against the Company under this
Agreement, notify the Company of the commencement thereof. Failure to so notify
the Company within such period will terminate the Company's obligation to
Indemnitee with respect to such proceeding under this Agreement, but the
omission so to notify the Company will not relieve it from any liability which
it may have to
5
<PAGE>
Indemnitee otherwise than under this Agreement. With respect to any such
proceeding as to which Indemnitee notifies the Company of the commencement
thereof:
(a) The Company will be entitled to participate therein at its own
expense; and
(b) Except as otherwise provided below, to the extent that it may wish,
the Company jointly with any other indemnifying party similarly notified will be
entitled to assume the defense thereof, with counsel satisfactory to Indemnitee.
After notice from the Company to Indemnitee of its election to assume the
defense thereof, the Company will not be liable to Indemnitee under this
Agreement for any legal or other expenses subsequently incurred by Indemnitee in
connection with the defense thereof other than reasonable costs of investigation
or as otherwise provided below. Indemnitee shall have the right to employ his
own counsel in such proceeding, but the fees and expenses of such counsel
incurred after notice from the Company of its assumption of the defense thereof
shall be at the expense of Indemnitee unless (i) the employment of counsel by
Indemnitee has been authorized by the Company, (ii) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of the defense of such proceeding, or
(iii) the Company shall not in fact have employed counsel to assume the defense
of such proceeding, in each of which cases the fees and expenses of counsel
shall be at the expense of the Company. The Company shall not be entitled to
assume the defense of any proceeding brought by or on behalf of the Company or
as to which Indemnitee shall have made the conclusion provided for in (ii)
above; and
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any proceeding effected without
its written consent. The Company shall not settle any proceeding in any manner
which would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent. Neither the Company nor Indemnitee will unreasonably withhold
their consent to any proposed settlement.
7. Attorneys' Fees. In the event that Indemnitee institutes any legal action
---------------
to enforce Indemnitee's rights hereunder, or to recover damages for breach of
this Agreement, Indemnitee, if Indemnitee prevails in whole or in part, shall be
entitled to recover from the Company all attorneys' fees and disbursements
incurred by Indemnitee with respect to the claims or matters on which Indemnitee
has prevailed.
8. Severability. If any provision of this Agreement or the application of any
------------
provision hereof to any person or circumstances is held invalid, the remainder
of this Agreement and the application of such provision to other persons or
circumstances shall not be affected.
9. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware without regard to its conflict
of laws rules.
6
<PAGE>
10. Modification. This Agreement contains the entire agreement of the parties
------------
relating to the subject matter hereof. This Agreement may be modified only by
an instrument in writing signed by both parties hereto.
11. Deposit of Funds in Trust. In the event that the Company decides to
-------------------------
voluntarily dissolve or to file a voluntary petition for relief under applicable
bankruptcy, moratorium or similar laws, then not later than ten days prior to
such dissolution or filing, the Company shall deposit in trust for the exclusive
benefit of Indemnitee a cash amount equal to all amounts previously authorized
to be paid to Indemnitee hereunder, such amounts to be used to discharge the
Company's obligations to Indemnitee hereunder. Any amounts in such trust not
required for such purpose shall be returned to the Company. This Section 11
shall not apply to dissolution of the Company in connection with a transaction
as to which Section 4 hereof applies.
12. Notices. All notices (and other communications) provided for by this
-------
Agreement, unless actual receipt thereof is required by this Agreement, shall be
deemed given when delivered by hand or when deposited in the U.S. mails,
registered or certified mail, return receipt requested, postage prepaid, as
follows:
If to Indemnitee: _________________________
_________________________
_________________________
_________________________
If to the Company: AltaVista Company
529 Bryant Street
Palo Alto, CA 94024
Attn.: Stephanie Lucie
or to such address as either party may have furnished to the other in writing.
Any notice of Indemnitee to the Company pursuant to Section 6 hereof shall be
deemed made when actually received at the office provided above, addressed as
provided above.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
this __ day of _____________ 19__ effective as of the date first above written.
ALTAVISTA COMPANY
By: ______________________________
INDEMNITEE
_____________________________
Name: _______________________
7
<PAGE>
EXHIBIT 1
STATEMENT OF UNDERTAKING
STATE OF
COUNTY OF
I, ______________________, being first duly sworn do depose and say as
follows:
1. This Statement is submitted pursuant to the Indemnity Agreement dated
______________, between AltaVista Company, a Delaware corporation ("Company"),
and the undersigned.
2. I am requesting advancement of certain actual expenses which have
reasonably been incurred or will be reasonably incurred by me or on my behalf
within the next 30 days in defending a civil or criminal action, suit or
proceeding to which I am a party or am threatened to be made a party by reason
of the fact that I am or was a director or officer of the Company.
3. I hereby undertake to repay this advancement of expenses if it is
ultimately determined that I am not entitled to be indemnified by the Company.
4. The expenses for which advancement is requested have been or will be
incurred in connection with the following action, suit or proceeding:
__________________________________
Name: ____________________________
Subscribed and sworn to before me this _____ day of _______________, 19___.
__________________________________
Notary Public in and for
said state and county
My commission expires: ___________
8
<PAGE>
EXHIBIT 2
STATEMENT OF REQUEST FOR INDEMNIFICATION
STATE OF
COUNTY OF
I, _______________________, being first duly sworn do depose and say as
follows:
1. This Statement is submitted pursuant to the Indemnity Agreement dated
_________________, between AltaVista Company, a Delaware corporation
("Company"), and the undersigned.
2. I am requesting indemnification against expenses and, with respect to
any action not by or in the right of the Company, judgments, fines and amounts
paid in settlement, all of which have been actually and reasonably incurred by
me or on my behalf in connection with a certain action, suit or proceeding to
which I am a party by reason of the fact that I am or was a director or officer
of the Company.
3. With respect to all matters related to any such action, suit or
proceeding, I acted in good faith and in a manner I reasonably believed to be in
or not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, I had no reason to believe that my conduct was
unlawful.
4. I am requesting indemnification in connection with the following suit,
action or proceeding:
__________________________________
Name: ____________________________
Subscribed and sworn to before me this _____ day of _____________________,19___.
__________________________________
Notary Public in and for
said state and county
My commission expires: ___________
9
<PAGE>
INDEMNITY AGREEMENT
THIS AGREEMENT, effective as of the 18th day of August, 1999, between
AltaVista Company, a Delaware corporation ("Company"), and
__________("Indemnitee").
WHEREAS, Indemnitee is a director of the Company, and the Company and
Indemnitee desire that Indemnitee continue to serve in this capacity; and
WHEREAS, qualified persons are often reluctant to serve publicly-held
corporations as directors or officers unless they are provided with adequate
protection through insurance or adequate indemnification against inordinate
risks of claims and actions against them arising out of their service to and
activities on behalf of the corporation; and
WHEREAS, the Board of Directors has determined that the inability to
attract and retain such persons is detrimental to the best interests of the
Company's stockholders and that the Company should act to assure such persons
that there will be increased certainty of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company to agree
to indemnify such persons so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the Company desires and intends hereby to indemnify Indemnitee to
the fullest extent permitted by law:
NOW THEREFORE, WITNESSETH:
THAT for and in consideration of the premises and the covenants contained
herein, the Company and Indemnitee do hereby covenant and agree as follows:
1. Continued Service. Indemnitee will continue to serve, at the will of the
-----------------
Company, as a director so long as Indemnitee is duly elected and qualified in
accordance with the by-laws of the Company or until Indemnitee tenders
Indemnitee's resignation.
2. Indemnification.
---------------
(a) The Company shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof or as such laws may from time to
time be amended.
(b) Without limiting the generality of Subsection 2(a) hereof, the Company
agrees that it shall indemnify Indemnitee as follows:
<PAGE>
(i) The Company shall indemnify Indemnitee when Indemnitee is a
party or is threatened to be made a party to any threatened, pending or
completed proceeding (other than an action by or in the right of the Company) by
reason of the fact that Indemnitee is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, judgments, fines and
amounts paid in settlements actually and reasonably incurred by Indemnitee or on
Indemnitee's behalf (net of any insurance proceeds received by Indemnitee or
paid on Indemnitee's behalf) in connection with such proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that Indemnitee failed to act in good
faith and in a manner which Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that Indemnitee's conduct
was unlawful.
(ii) The Company shall indemnify Indemnitee when Indemnitee is a
party or is threatened to be made a party to any threatened, pending or
completed proceeding brought by or in the right of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf (net of any insurance proceeds received by Indemnitee or paid on
Indemnitee's behalf) in connection with the defense or settlement of such
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company
and except that no indemnification shall be made in respect of any claim, issue
or matter as to which Indemnitee shall have been adjudged to be liable to the
Company unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnification for such expenses which the Court of Chancery or such other
court shall deem proper.
(iii) Any indemnification under the circumstances specified in
Subsections 2(b)(i) or (ii) hereunder (unless ordered by a court) shall be made
by the Company only as authorized in the specific case upon a determination (in
accordance with Section 3 hereof) that indemnification of Indemnitee is proper
in the circumstances because Indemnitee has met the applicable standard of
conduct set forth in Subsections 2(b)(i) or (ii) hereof. Such determination
shall be made (1) by a majority vote of the directors who were not parties to
such proceeding ("Disinterested Directors"), even though less than a quorum, (2)
by a committee of Disinterested Directors designated by a majority vote of
Designated Directors, even though less than a quorum, (3) if there are no
Disinterested Directors, or if the Disinterested Directors so direct, by
independent legal counsel in a written opinion, or (4) by the stockholders.
2
<PAGE>
(c) Expenses actually and reasonably incurred or to be incurred within the
next 30 days by Indemnitee (including attorneys' retainers and other expenses
required to be paid in advance) in defending a pending or threatened proceeding
shall be paid by the Company in advance of the final disposition of such
proceeding within 30 days of the actual receipt by the Company of a sworn
statement of request for advancement of expenses substantially in the form of
Exhibit 1 attached hereto and made a part hereof (together with evidence
thereof), averring that (i) Indemnitee has reasonably incurred or will
reasonably incur actual expenses in defending a proceeding, and (ii) Indemnitee
undertakes to repay such amount if it is ultimately determined, in accordance
with the provisions of Section 3 hereof, that Indemnitee is not entitled to be
indemnified by the Company under this Agreement or otherwise.
(d) Notwithstanding the other provisions of this Section, to the extent
that Indemnitee has served as a witness on behalf of the Company, Indemnitee
shall be indemnified by the Company against all expenses actually and reasonably
incurred by Indemnitee in connection with such services as a witness.
Notwithstanding the other provisions of this Section, to the extent that
Indemnitee has been successful on the merits or otherwise in defense of any
proceeding referred to in Subsections 2(b)(i) and (ii), or in defense of any
claim, issue or matter therein, Indemnitee shall be indemnified by the Company
against expenses actually and reasonably incurred by Indemnitee in connection
with such proceeding, claim, issue or matter. Any indemnifiable amount required
under this Subsection 2(d) shall be paid by the Company no later than 30 days
after actual receipt by the Company of a sworn statement of request for such
expenses (together with evidence thereof).
(e) The right to indemnification and advancement of expenses provided by
this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may be entitled under any statute, by-law, insurance policy,
agreement, vote of stockholders or Disinterested Directors or otherwise, both as
to action in Indemnitee's official capacity and as to action in another capacity
while holding such office.
(f) The Company's agreements and obligations under this Agreement shall
continue during the period Indemnitee is a director or officer of the Company,
and shall continue thereafter so long as Indemnitee shall be subject to any
possible claim or proceeding by reason of Indemnitee's service in such capacity.
The Indemnitee's rights under this Agreement shall inure to the benefit of
Indemnitee's heirs, executors and administrators.
(g) The Company shall not be liable under this Agreement to make any
payment which is prohibited by applicable law, including, without limitation,
any liability of Indemnitee to the Company under Section 16(b) of the Securities
Exchange Act of 1934.
(h) Upon payment of any amounts under this Agreement, the Company shall be
subrogated to the rights of the Indemnitee, and Indemnitee's heirs, executors or
administrators receiving such payments, against any insurance carrier in respect
to such amounts (to the extent
3
<PAGE>
permitted by such insurance carriers). In no event shall the Company be
obligated to maintain directors' and officers' liability insurance on
Indemnitee's behalf.
3. Determination of Right to Indemnification. For purposes of making the
-----------------------------------------
determination in a specific case under Subsection 2(b)(iii) hereof whether to
make indemnification, the Disinterested Directors, the Committee of
Disinterested Directors, independent legal counsel or stockholders, as the case
may be, shall make such determination in accordance with the following
procedure:
(a) Indemnitee may submit to the Board of Directors a sworn statement of
request for indemnification substantially in the form of Exhibit 2 attached
hereto and made a part hereof ("Indemnification Statement") averring that
Indemnitee has met the applicable standard of conduct set forth in Subsections
2(b)(i) and (ii) hereof; and
(b) Submission of the Indemnification Statement to the Board of Directors
shall create a rebuttable presumption that Indemnitee is entitled to
indemnification under this Agreement, and the Disinterested Directors,
independent legal counsel or stockholders, as the case may be, shall within 60
days after actual receipt by the Company of the Indemnification Statement
specifically determine that Indemnitee is so entitled, unless it or they shall
possess sufficient evidence to rebut the presumption that Indemnitee has met the
applicable standard of conduct set forth in Subsections 2(b)(i) and (ii) hereof.
If the determination is made by the Disinterested Directors, the evidence which
they possess shall be disclosed to Indemnitee with particularity in a sworn
written statement signed by all persons who participated in the determination
and voted to deny indemnification.
(c) Subject to the Company's obligation to advance expenses pursuant to
Section 2(c) above, if indemnification is requested with respect to any
proceeding (whether threatened, pending or completed) to which Indemnitee is a
party, the request for indemnification shall be made only after a Company-
approved settlement has been reached (and approved by the court if required) or
a final judgment has been entered. Once a determination has been made under
this Section 3 that Indemnitee is entitled to indemnification hereunder, the
amounts to be indemnified hereunder shall be paid by the Company within 30 days
thereafter, or otherwise as specified by the terms of any such settlement or
judgment.
4. Merger, Consolidation or Change in Control. In the event that the Company
------------------------------------------
shall be a constituent corporation in a consolidation or merger, whether the
Company is the resulting or surviving corporation or is absorbed, or if there is
a change in control of the Company as defined in Section 5 hereof, Indemnitee
shall stand in the same position under this Agreement with respect to the
resulting, surviving or changed corporation as Indemnitee would have with
respect to the Company if its separate existence had continued or if there had
been no change in the control of the Company.
5. Certain Definitions. For purposes of this Agreement, the following
-------------------
definitions apply herein:
4
<PAGE>
(a) "change of control" shall include any change in the ownership of
a majority of the capital stock of the Company or in the composition of a
majority of the members of the Board of Directors of the Company.
(b) "expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcripts, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, appeal bonds and all other disbursements or
expenses customarily incurred in connection with asserting or defending
claims;
(c) "fines" shall include any excise taxes assessed on Indemnitee
with respect to any employee benefit plan;
(d) "independent counsel" shall mean a law firm or member of a law
firm that neither is presently nor in the past five years has been retained
to represent: (i) the Company or Indemnitee in any matter material to
either such party, or (ii) any other party to the proceeding giving rise to
a claim for indemnification hereunder. Notwithstanding the foregoing, the
term "independent counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's right to indemnification under this
Agreement;
(e) "proceeding" shall include any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative
hearing or any other proceeding whether civil, criminal, administrative or
investigative;
(f) "other enterprises" shall include employee benefit plans, and
civic, non-profit or charitable organizations, whether or not incorporated;
and
(g) "serving at the request of the Company" shall include any service
at the request or with the express or implied authorization of the Company,
as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, Indemnitee with respect to a
corporation or "other enterprise," its participants or beneficiaries; and
if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of
such other enterprise or entity, Indemnitee shall be deemed to have acted
in a manner "not opposed to the best interests of the Company" as referred
to in this Agreement;
6. Notification and Defense of Claim. Within five days after receipt by
---------------------------------
Indemnitee of notice of the commencement of any proceeding, Indemnitee will, if
a claim in respect thereof is to be made against the Company under this
Agreement, notify the Company of the commencement thereof. Failure to so notify
the Company within such period will terminate the Company's obligation to
Indemnitee with respect to such proceeding under this Agreement, but the
omission so to notify the Company will not relieve it from any liability which
it may have to
5
<PAGE>
Indemnitee otherwise than under this Agreement. With respect to any such
proceeding as to which Indemnitee notifies the Company of the commencement
thereof:
(a) The Company will be entitled to participate therein at its own
expense; and
(b) Except as otherwise provided below, to the extent that it may wish,
the Company jointly with any other indemnifying party similarly notified will be
entitled to assume the defense thereof, with counsel satisfactory to Indemnitee.
After notice from the Company to Indemnitee of its election to assume the
defense thereof, the Company will not be liable to Indemnitee under this
Agreement for any legal or other expenses subsequently incurred by Indemnitee in
connection with the defense thereof other than reasonable costs of investigation
or as otherwise provided below. Indemnitee shall have the right to employ his
own counsel in such proceeding, but the fees and expenses of such counsel
incurred after notice from the Company of its assumption of the defense thereof
shall be at the expense of Indemnitee unless (i) the employment of counsel by
Indemnitee has been authorized by the Company, (ii) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of the defense of such proceeding, or
(iii) the Company shall not in fact have employed counsel to assume the defense
of such proceeding, in each of which cases the fees and expenses of counsel
shall be at the expense of the Company. The Company shall not be entitled to
assume the defense of any proceeding brought by or on behalf of the Company or
as to which Indemnitee shall have made the conclusion provided for in (ii)
above; and
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any proceeding effected without
its written consent. The Company shall not settle any proceeding in any manner
which would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent. Neither the Company nor Indemnitee will unreasonably withhold
their consent to any proposed settlement.
7. Attorneys' Fees. In the event that Indemnitee institutes any legal action
---------------
to enforce Indemnitee's rights hereunder, or to recover damages for breach of
this Agreement, Indemnitee, if Indemnitee prevails in whole or in part, shall be
entitled to recover from the Company all attorneys' fees and disbursements
incurred by Indemnitee with respect to the claims or matters on which Indemnitee
has prevailed.
8. Severability. If any provision of this Agreement or the application of any
------------
provision hereof to any person or circumstances is held invalid, the remainder
of this Agreement and the application of such provision to other persons or
circumstances shall not be affected.
9. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware without regard to its conflict
of laws rules.
6
<PAGE>
10. Modification. This Agreement contains the entire agreement of the parties
------------
relating to the subject matter hereof. This Agreement may be modified only by
an instrument in writing signed by both parties hereto.
11. Deposit of Funds in Trust. In the event that the Company decides to
-------------------------
voluntarily dissolve or to file a voluntary petition for relief under applicable
bankruptcy, moratorium or similar laws, then not later than ten days prior to
such dissolution or filing, the Company shall deposit in trust for the exclusive
benefit of Indemnitee a cash amount equal to all amounts previously authorized
to be paid to Indemnitee hereunder, such amounts to be used to discharge the
Company's obligations to Indemnitee hereunder. Any amounts in such trust not
required for such purpose shall be returned to the Company. This Section 11
shall not apply to dissolution of the Company in connection with a transaction
as to which Section 4 hereof applies.
12. Notices. All notices (and other communications) provided for by this
-------
Agreement, unless actual receipt thereof is required by this Agreement, shall be
deemed given when delivered by hand or when deposited in the U.S. mails,
registered or certified mail, return receipt requested, postage prepaid, as
follows:
If to Indemnitee: _________________________
_________________________
_________________________
_________________________
If to the Company: AltaVista Company
529 Bryant Street
Palo Alto, CA 94024
Attn.: Stephanie Lucie
or to such address as either party may have furnished to the other in writing.
Any notice of Indemnitee to the Company pursuant to Section 6 hereof shall be
deemed made when actually received at the office provided above, addressed as
provided above.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
which is effective as of the date first above written.
ALTAVISTA COMPANY
By: ______________________________
Stephanie Lucie
Vice President, General Counsel & Secretary
[name]
_____________________________
8
<PAGE>
EXHIBIT 1
STATEMENT OF UNDERTAKING
STATE OF
COUNTY OF
I, ______________________, being first duly sworn do depose and say as
follows:
1. This Statement is submitted pursuant to the Indemnity Agreement dated
______________, between AltaVista Company, a Delaware corporation ("Company"),
and the undersigned.
2. I am requesting advancement of certain actual expenses which have
reasonably been incurred or will be reasonably incurred by me or on my behalf
within the next 30 days in defending a civil or criminal action, suit or
proceeding to which I am a party or am threatened to be made a party by reason
of the fact that I am or was a director or officer of the Company.
3. I hereby undertake to repay this advancement of expenses if it is
ultimately determined that I am not entitled to be indemnified by the Company.
4. The expenses for which advancement is requested have been or will be
incurred in connection with the following action, suit or proceeding:
__________________________________
Name: ____________________________
Subscribed and sworn to before me this _____ day of _______________, 19___.
_______________________________________
Notary Public in and for
said state and county
My commission expires: ___________
9
<PAGE>
EXHIBIT 2
STATEMENT OF REQUEST FOR INDEMNIFICATION
STATE OF
COUNTY OF
I, _______________________, being first duly sworn do depose and say as
follows:
1. This Statement is submitted pursuant to the Indemnity Agreement dated
_________________, between AltaVista Company, a Delaware corporation
("Company"), and the undersigned.
2. I am requesting indemnification against expenses and, with respect to
any action not by or in the right of the Company, judgments, fines and amounts
paid in settlement, all of which have been actually and reasonably incurred by
me or on my behalf in connection with a certain action, suit or proceeding to
which I am a party by reason of the fact that I am or was a director or officer
of the Company.
3. With respect to all matters related to any such action, suit or
proceeding, I acted in good faith and in a manner I reasonably believed to be in
or not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, I had no reason to believe that my conduct was
unlawful.
4. I am requesting indemnification in connection with the following suit,
action or proceeding:
__________________________________
Name: ____________________________
Subscribed and sworn to before me this _____ day of _____________________,
19___.
__________________________________
Notary Public in and for
said state and county
My commission expires: ___________
10
<PAGE>
EXHIBIT 10.10
ALTAVISTA COMPANY
DEFERRED COMPENSATION PLAN
Article I
Establishment of Plan
1.1 Purpose. The AltaVista Company Deferred Compensation Plan is
-------
hereby established by the Board of Directors of AltaVista Company ("AltaVista"),
a Delaware corporation, to provide deferred compensation benefits to selected
executives of AltaVista and certain related subsidiaries as more fully provided
herein. The benefits provided under the Plan are intended to be in addition to
other employee benefits programs offered by the Participating Employers (as
defined in Section 2.18), including but not limited to tax-qualified employee
benefit plans.
1.2 Prior Plan. AltaVista has been a Participating Employer in
----------
the CMGI and Participating Subsidiaries Deferred Compensation Plan (the "Prior
Plan"). In connection with the initial public offering of its common stock,
AltaVista has decided to continue providing such benefits to its employees under
a separate plan. Therefore, AltaVista hereby adopts this unfunded deferred
compensation plan, to be known as the AltaVista Company Deferred Compensation
Plan, hereinafter referred to as the "Plan" as a continuation of the Prior Plan.
All of AltaVista's liabilities under the terms of the Prior Plan, with respect
to benefits accrued by its employees as well as new benefits for employees, will
henceforth be provided under the terms of this Plan.
1.3 Applicability of ERISA. This Plan is intended to be a "top-
----------------------
hat" plan. This is an unfunded plan maintained primarily for the purpose of
providing deferred compensation to a select group of management or highly
compensated employees within the meaning of ERISA.
Article II
Definitions
As used within this document, the following words and phrases have the
meanings described in this Article II unless a different meaning is required by
the context. Some of the words and phrases used in the Plan are not defined in
this Article II, but for convenience, are defined as they are introduced into
the text. Words in the masculine gender shall be deemed to include the feminine
gender. Any headings used are included for ease of reference only, and are not
to be construed so as to alter any of the terms of the Plan.
<PAGE>
2.1 Annual Deferral. The amount of Base Salary and/or Bonuses
---------------
which the Participant elects to defer in each Deferral Period pursuant to
Article 4.1 of the Plan document.
2.2 Basic Salary. A Participant's base annual salary for the
------------
applicable Plan Year.
2.3 Beneficiary. An individual or entity designated by a
-----------
Participant in accordance with Section 14.6.
2.4 Board or Board of Directors. The Board of Directors of
---------------------------
AltaVista.
2.5 Bonus. Earnings awarded to a Participant at the option of
-----
the Participating Employer which may or may not occur during each Plan Year.
2.6 Code. The Internal Revenue Code of 1986. Reference to a
----
section of the Code shall include that section and any comparable section or
sections of any future legislation that amends, supplements or supersedes such
section.
2.7 Committee. A committee of one or more individuals appointed
---------
by the Board of Directors to administer the Plan, or, in the absence of such
appointment, the Board of Directors.
2.8 Deferral Account. The account established for a Participant
----------------
pursuant to Section 5.1 of the Plan document.
2.9 Deferral Election. The election made by the Participant
-----------------
pursuant to Section 4.1 of the Plan document.
2.10 Deferral Period. The Plan Year, or in the case of a newly
---------------
hired or promoted employee who becomes an Eligible Employee during a Plan Year,
the remaining portion of the Plan Year. In the case of the first Plan Year under
the Prior Plan, the Deferral Period commenced December 1, 1998 and ended
December 31, 1998.
2.11 Disability. A total and permanent disability, which qualifies the
----------
Participant for early payout of benefits, as described in Section 7.2. The
existence of a Disability shall be determined by the Committee on the advice of
a physician chosen by the Committee.
2.12 Effective Date. The Prior Plan was effective December 1,
--------------
1998. The terms of this Plan will be effective on the closing of the initial
public offering of AltaVista's common stock.
2
<PAGE>
2.13 Eligible Employee. Any person who is employed by AltaVista
-----------------
on the Effective Date of the Plan and who was an Eligible Employee under the
Prior Plan, and any employee of the Participating Employer who is designated by
the Board of Directors.
2.14 ERISA. The Employee Retirement Income Security Act of 1974,
-----
as amended.
2.15 IRS. The Internal Revenue Service.
---
2.16 Participant. Any individual who becomes eligible to
-----------
participate in the Plan pursuant to Article III of the Plan document.
2.17 Participant Agreement and Deferral Election Form. The
------------------------------------------------
written agreement made by Participant to defer his Basic Salary and/or Bonus.
Such written agreement shall be in a format designated by AltaVista.
2.18 Participating Employer. AltaVista and each related
----------------------
subsidiary of AltaVista which has adopted this Plan with the consent of
AltaVista. For purposes of this Plan, a "related subsidiary" is a subsidiary
that together with AltaVista would be treated as a single employer within the
meaning of Code Section 414(b), (c), (m) or (o) of the Code.
2.19 Plan. The AltaVista Company Deferred Compensation Plan.
----
2.20 Plan Administrator. AltaVista, unless AltaVista designates
------------------
another individual or entity to hold the position of the Plan Administrator.
2.21 Plan Year. For the initial Plan Year under the Prior Plan,
---------
the period beginning December 1, 1998 and ending on December 31, 1998.
Thereafter, "Plan Year" means the 12-month period beginning each January 1 and
ending on the following December 31.
2.22 Rabbi Trust. The Rabbi Trust, which AltaVista may, in its
-----------
discretion, establish for the Plan, as amended from time to time.
2.23 Specified Age. Age 65 or later age chosen by the Participant
-------------
on his Participation Agreement and Deferral Election Form.
2.24 Valuation Date. Each business day of the Plan Year.
--------------
2.25 Years of Service. Each consecutive twelve (12) month period
----------------
during which a Participant is continuously employed by the Participating
Employer.
3
<PAGE>
Article III
Eligibility and Participation
3.1 Participation Eligibility. Participation in the Plan is open
-------------------------
only to Eligible Employees of a Participating Employer. Any Participant in the
Prior Plan who is an employee or former employee of AltaVista on the Effective
Date of the Plan will automatically cease to be a Participant under the Prior
Plan and immediately become a Participant under the Plan. An Eligible Employee
may become a Participant by submitting a properly executed Participation
Agreement and Deferral Election form prior to January 1 of the Plan Year for
which it is effective. Any employee becoming an Eligible Employee after January
1 of any Plan Year (e.g., new hires or promoted employees or newly designated
participating subsidiaries), may become a Participant for the Deferral Period
commencing on or after he becomes an Eligible Employee if he submits a properly
completed Participation Agreement and Deferral Election Form within thirty (30)
days after becoming eligible for participation.
3.2 Subsequent Entry into Plan. An Eligible Employee who does
--------------------------
not elect to participate at the time of initial eligibility as set forth in
Section 3.1 shall remain eligible to become a Participant in subsequent Plan
Years as long as he continues his status as an Eligible Employee. In such event,
the Eligible Employee may become a Participant by submitting a properly executed
Participation Agreement and Deferral Election Form prior to January 1 of the
Plan Year for which it is effective.
Article IV
Contributions
4.1 Deferral Election. Before the first day of each Plan Year, a
-----------------
Participant may file with the Committee a Participation Agreement and Deferral
Election Form indicating the amount of Basic Salary and/or Bonus deferrals that
Plan Year. A Participant shall not be obligated to make a Deferral Election in
each Plan Year. After a Plan Year commences, such Deferral Election shall
continue for the entire Plan Year except that it shall terminate upon
termination of employment. On the Effective Date of the Plan, any Participation
Agreement and Deferral Election Form filed under the Prior Plan for 1999 by an
Eligible Employee of AltaVista shall continue in full force and effect under the
terms of this Plan.
4.2 Maximum Deferral Election. A Participant may elect to defer
-------------------------
up to 25% of Basic Salary and/or up to 100% of Bonus earned during the
corresponding Deferral Period. The amount of deferral must be stated as a
percentage. A Deferral Election may
4
<PAGE>
be automatically reduced if the Committee determines that such action is
necessary to meet Federal or state tax withholding obligations.
4.3 Minimum Deferral Election. A Participant must either (i)
-------------------------
elect to defer at least $2,000 during the Deferral Period from Basic Salary,
Bonus, or a combination of Basic Salary and Bonus or (ii) make no deferral
during such Deferral Period.
4.4 Employer Contributions. Participating Employer may, in its
----------------------
sole discretion, make a contribution to the Participants' Deferral Accounts.
Article V
Accounts
5.1 Deferral Accounts. Solely for recordkeeping purposes, the
-----------------
Plan Administrator shall establish a Deferral Account for each Participant. A
Participant's Deferral Account shall be credited with the contributions made by
him or on his behalf by the Participating Employer under Section 4.4 and shall
be credited (or charged, as the case may be) with the hypothetical or deemed
investment earnings and losses determined pursuant to Section 5.3, and charged
with distributions made to or with respect to him. Any deferral account under
the Prior Plan maintained for an employee or former employee of AltaVista shall
be governed solely by the terms of this Plan after its Effective Date.
5.2 Crediting of Deferral Accounts. Salary contributions under
------------------------------
Section 4.l shall be credited to a Participant's Deferral Account as of the date
on which such contributions were withheld from his Basic Salary. Bonus
contributions under Section 4.1 shall be credited to a Participant's Deferral
Account as of the date on which the contribution would have otherwise been paid
in cash. Contributions under Section 4.4 shall be credited to the Participant's
Deferral Account as of the date declared by the Participating Employer. Any
distribution with respect to a Deferral Account shall be charged to such
Deferral Account as of the date the distribution is made by the Participating
Employer or the trustee of any Rabbi Trust established for the Plan.
5
<PAGE>
5.3 Earning Credits or Losses. Amounts credited to a Deferral
-------------------------
Account shall be credited with deemed net income gain and loss, including the
deemed net unrealized gain and loss based on hypothetical investment directions
made by the Participant with respect to such Deferral Account on a form
designated by AltaVista, in accordance with investment options and procedures
adopted by AltaVista in its sole discretion, from time to time. Such earnings
will continue to accrue during any period in which installments are paid
pursuant to Article VII. Any such form executed with respect to the Prior Plan
by an individual who is an employee or former employee of AltaVista shall
continue in effect until modified in accordance with the terms of this Plan.
5.4 Hypothetical Nature of Accounts. The Plan constitutes a mere
-------------------------------
promise by the Participating Employer to make the benefit payments in the
future. Any Deferral Account established for a Participant under this Article V
shall be hypothetical in nature and shall be maintained for the Participating
Employer's recordkeeping purposes only, so that any contributions can be
credited and so that deemed investment earnings and losses on such amounts can
be credited (or charged, as the case may be). Neither the Plan nor any of the
Deferral Accounts (or subaccounts) shall hold any actual funds or assets. The
right of any individual or entity to receive one or more payments under the Plan
shall be an unsecured claim against the general assets of the Participating
Employer. Any liability of the Participating Employer to any Participant, former
Participant or Beneficiary with respect to a right to payment shall be based
solely upon contractual obligations created by the Plan. The Participating
Employer, the board of directors of any Participating Employer, the Committee
and any individual or entity shall not be deemed to be a trustee of any amounts
to be paid under the Plan. Nothing contained in the Plan, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind, or a fiduciary relationship, between the Participating Employer and a
Participant, former Participant, Beneficiary or any other individual or entity.
AltaVista may, in its sole discretion, establish a Rabbi Trust as a vehicle in
which to place funds with respect to this Plan.
The Participating Employer does not in any way guarantee any
Participant's Deferral Account against loss or depreciation, whether caused by
poor investment performance, insolvency of a deemed investment or by any other
event or occurrence. In no event shall the employees, officers, directors or
stockholders of the Participating Employer be liable to any individual or entity
on account of any claim arising by reason of the Plan provisions or any
instrument or instruments implementing its provisions, or for the failure of any
Participant, Beneficiary or other individual or entity to be entitled to any
particular tax consequences with respect to the Plan or any credit or payment
thereunder.
6
<PAGE>
5.5 Statement of Deferral Accounts. The Plan Administrator shall
------------------------------
provide to each Participant quarterly statements setting forth the value of the
Deferral Account maintained for such Participant.
Article VI
Vesting
6.1 Vesting. The Participating Employer's contributions credited
-------
to a Participant's Deferral Account under Section 4.4 and any deemed investment
earnings attributable to these contributions shall be one hundred percent (100%)
vested or nonforfeitable when the Participant has five Years of Service with the
Participating Employer. Prior to the time a Participant has five Years of
Service with the Participating Employer, the Participating Employer's
contributions to his account shall be zero percent (0%) vested. In addition, a
Participant shall be one hundred percent (100%) vested in the Participating
Employer's contributions, including any deemed investment earnings attributable
to these contributions, upon his death or Disability while he is actively
employed by the Participating Employer. All other amounts credited to a
Participant's Deferral Account shall be one hundred percent (100%) vested at all
times.
Article VII
Benefits
7.1 Attainment of Specified Age. Unless benefits have already
---------------------------
commenced pursuant to another section in this Article VII, a Participant shall
be entitled to begin receipt of the vested amount credited to his Deferral
Account as of the Valuation Date coinciding with his Specified Age chosen
according to his Participation Agreement and Deferral Election Form. Payment of
any amount under this Section shall commence within thirty (30) days of the
Participant's Specified Age and in accordance with the payment method elected by
the Participant on his Participation Agreement and Deferral Election Form.
Payments shall commence on or after that age even if the Participant is still
then employed.
7.2 Disability. If a Participant suffers a Disability while
----------
employed with the Participating Employer and before he is entitled to benefits
under this Article, he shall receive the amount credited to his Deferral Account
as of the Valuation Date coinciding with the Date on which the Participant is
determined to have suffered a Disability. Payment of any amount under this
section shall commence within thirty (30) days of when the Committee determines
the existence of the Participant's Disability and in accordance with the payment
method elected by the Participant on his Participation Agreement and Deferral
Election Form.
7
<PAGE>
7.3 Pre-Retirement Survivor Benefit. If a Participant dies
-------------------------------
before becoming entitled to benefits under this Article, the Beneficiary or
Beneficiaries designated under Section 14.6 shall receive in a single lump sum a
Pre-Retirement Survivor Benefit equal to two (2) times the Participant's Basic
Salary for the Plan Year in which he dies (such Pre-Retirement Survivor Benefit
not to exceed $500,000) in addition to the vested amount credited to the
Participant's Deferral Account as of the Valuation Date coinciding with the date
of the Participant's death. Payment of any amount under this section shall be
made within thirty (30) days of the Participant's death, or if later, within
thirty (30) days of when the Committee received notification of or otherwise
confirms the Participant's death.
7.4 Post-Retirement Survivor Benefit. If a Participant dies
--------------------------------
after benefits have commenced, but prior to receiving complete payment of
benefits under this Article, the Beneficiary or Beneficiaries designated under
Section 14.6, shall receive in a single lump sum the vested amount credited to
the Participant's Deferral Account as of the Valuation Date coinciding with the
date of the Participant's death. Payment of any amount under this section shall
be made within thirty (30) days of the Participant's death, or if later, within
thirty (30) days of when the Committee received notification of or otherwise
confirms the Participant's death.
7.5 Termination. If a Participant's employment terminates with
-----------
the Participating Employer before he becomes entitled to receive benefits by
reason of any of the above Sections, he shall receive in a single lump sum the
vested amount credited to his Deferral Account as of the Valuation Date
coinciding with the date on which the Participant's employment terminates.
Payment of any amount under this Section shall be made within thirty (30) days
of when the Participant terminates his employment with the Participating
Employer.
7.6 Change in Control. If a Change in Control occurs before a
-----------------
Participant becomes entitled to receive benefits by reason of any of the above
sections or before the Participant has received complete payment of his benefits
under this Article, he shall receive a lump sum payment of the amount credited
to his Deferral Account as of the Valuation Date immediately preceding the date
on which the Change in Control occurs. Payment of any amount under this section
shall be made within thirty (30) days of when the Change in Control occurs.
For purposes of this Plan, a Change in Control shall mean a change in
control of the Participating Employer of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
whether or not the Participating Employer is in fact required to comply
therewith; provided that, without
8
<PAGE>
limitation, a Change in Control for purposes of this Plan shall be deemed to
have occurred if on any future date:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than the Participating Employer, any trustee or other
fiduciary holding securities under an employee benefit plan of the Participating
Employer or a corporation owned, directly or indirectly, by the stockholders of
the Participating Employer in substantially the same proportions as their
ownership of stock of the Participating Employer for the first time becomes the
"beneficial owner" (as defined in the Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Participating Employer representing
thirty percent (30%) or more of the combined voting power of the Participating
Employer's then outstanding securities; or
(ii) during any period of twenty-four (24) consecutive months (not
including any period prior to the Effective Date of this Plan), individuals who
at the beginning of such period constitute the Participating Employer's board of
directors and any new director (other than a director designated by a person who
has entered into an agreement with the Participating Employer to effect a
transaction described in paragraphs (i), (ii) or (iii) of this Section) whose
election by the board of directors of the Participating Employer or nomination
for election by the stockholders of the Participating Employer was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of such period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; or
(iii) the stockholders of the Participating Employer approve a merger
or consolidation of the Participating Employer with any other corporation, other
than (A) a merger or consolidation which would result in the voting securities
of the Participating Employer outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the combined
voting securities of the Participating Employer or such surviving entity
outstanding immediately after such merger or consolidation or (B) a merger or
consolidation effected to implement a re-capitalization of the Participating
Employer (or similar transaction) in which no "person" (as hereinabove defined)
acquires thirty percent (30%) or more of the combined voting power of the
Participating Employer's then outstanding securities; or
(iv) the stockholders of the Participating Employer approve a plan of
complete liquidation of the Participating Employer or an agreement for the sale
or
9
<PAGE>
disposition by the Participating Employer of all or substantially all of the
Participating Employer's assets.
7.7 Payment Methods. Unless otherwise provided in this Article VII, a
---------------
Participant may elect to receive payment of the vested amount credited to his
Deferral Account in a single lump sum or in five (5) or (10) annual
installments. This election must be made on the Participation Agreement and
Deferral Election Form for the corresponding Plan Year. Any installment payments
shall be paid annually on the first practicable day after the distributions are
scheduled to commence. Each installment payment shall be determined by
multiplying the Deferral Account balance by a fraction, the numerator of which
is one and the denominator of which is the number of remaining installment
payments.
Article VIII
In-Service Distributions
8.1 Election of In-Service Distributions. A Participant may elect in
------------------------------------
each Deferral Period, for that particular Deferral Election, to receive in the
future an In-Service Distribution from his Deferral Account. Such Deferral
Election shall state the percentage or flat dollar amount and date on which such
In-Service Distribution is to be paid, provided that such date is not earlier
than five (5) years from January 1st of the Plan Year following the year of said
election. For example: The earliest distribution date for the initial Plan Year
ending December 31, 1999 would be January 1, 2005. This is calculated using
January 1, 2000 as the "January 1/st/ of the Plan Year following" plus five (5).
8.2 Payment of In-Service Distributions. All In-Service Distributions
-----------------------------------
shall be made within thirty (30) days of the date stated on the Election Form.
Distributions shall be in the form of a single lump sum payment.
8.3 Termination Prior to In-Service Distribution Date.
-------------------------------------------------
Notwithstanding a Participant's election of an In-Service Distribution, in the
event a Participant's employment terminates for any reason pursuant to Section
7.5 of the Plan document and prior to such Participant receiving any In-Service
Distribution, the Participant shall receive his Deferral Account according to
the payment method designated in Article VII or as elected on his Participation
Agreement and Deferral Election Form.
10
<PAGE>
Article IX
Hardship Withdrawals
9.1 Hardship Withdrawals. If a Participant incurs an unforeseeable
--------------------
emergency, the Participant may make a written request to the Committee for a
hardship withdrawal ("Hardship Withdrawal") from his account. An unforeseeable
emergency is a severe financial hardship to the Participant resulting from a
sudden and unexpected illness or accident of the Participant or the
Participant's dependent (as defined in Section 152(e) of the Code), loss of the
Participant's property due to casualty or other similar extraordinary and
unforeseen circumstances beyond the control of the Participant. Withdrawals of
amounts because of unforeseeable emergencies are only permitted to the extent
reasonably necessary to satisfy the emergency needed. This section shall be
interpreted in a manner consistent with Sections 1.457-2(h)(4) and 1.457-2(h)(5)
of the Treasury Regulations. In the event of a Hardship Withdrawal, the
Participant's deferrals for the remainder of the Plan Year shall be suspended.
Deferrals may commence with the next following Plan Year provided the
Participant completes the appropriate Participation Agreement and Deferral
Election form prior to January 1 of the corresponding Plan Year.
Article X
Establishment of Trust
10.1 Establishment of Trust. AltaVista may establish a Rabbi Trust for
----------------------
the Plan. If established, all benefits payable under this Plan to a Participant
shall be paid directly by the Participating Employer from the Rabbi Trust. To
the extent that such benefits are not paid from the Rabbi Trust, the benefits
shall be paid from the general assets of the Participating Employer. The assets
of the Rabbi Trust are subject to the claims of the Participating Employer's
creditors in the event of its insolvency. Except as to any amounts paid or
payable to a Rabbi Trust, the Participating Employer shall not be obligated to
set aside, earmark or escrow any funds or other assets to satisfy its
obligations under this Plan, and the Participant and/or his designated
Beneficiaries shall not have any property interest in any specific assets of the
Participating Employer other than the unsecured right to receive payments from
the Participating Employer, as provided in this Plan.
11
<PAGE>
Article XI
Plan Administration
11.1 Plan Administration. The Plan shall be administered by the
-------------------
Committee and such Committee may designate an agent to perform the recordkeeping
duties. The Committee shall construe and interpret the Plan, including disputed
and doubtful terms and provisions and, in its sole discretion, decide all
questions of eligibility and determine the amount, manner and time of payment of
benefits under the Plan. The determinations and interpretations of the Committee
shall be consistently and uniformly applied to all Participants and
Beneficiaries, including but not limited to interpretations and determinations
of amounts due under this Plan, and shall be final and binding on all parties.
The Plan at all times shall be interpreted and administered as an unfunded
deferred compensation plan, and no provision of the Plan shall be interpreted so
as to give any Participant or Beneficiary any right in any asset of the
Participating Employer which is a right greater than the right of a general
unsecured creditor of the Participating Employer.
Article XII
Non-alienation of Benefits
12.1 Non-alienation of Benefits. The interests of Participants and
--------------------------
their Beneficiaries under this Plan are not subject to the claims of their
creditors and may not be voluntarily or involuntarily sold, transferred,
alienated, assigned, pledged, anticipated, or encumbered, attached or garnished.
Any attempt by a Participant, his Beneficiary, or any other individual or entity
to sell, transfer, alienate, assign, pledge, anticipate, encumber, attach,
garnish, charge or otherwise dispose of any right to benefits payable shall be
void. The Participating Employer may cancel and refuse to pay any portion of a
benefit which is sold, transferred, alienated, assigned, pledged, anticipated,
encumbered, attached or garnished. The benefits which a Participant may accrue
under this Plan are not subject to the terms of any Qualified Domestic Relations
Order (as that term is defined in Section 414(p) of the Code) with respect to
any Participant, and the Plan Administrator, board of directors of any
Participating Employer, Committee and Participating Employer shall not be
required to comply with the terms of such order in connection with this Plan.
The withholding of taxes from Plan payments, the recovery of Plan overpayments
of benefits made to a Participant or Beneficiary, the transfer of Plan benefit
rights from the Plan to another plan, or the direct deposit of Plan Payments to
an account in a financial institution (if no actually a part of an arrangement
constituting an assignment or alienation) shall not be construed as assignment
or alienation under this Article XII.
12
<PAGE>
Article XIII
Amendment and Termination
13.1 Amendment and Termination. AltaVista reserves the right to amend,
-------------------------
alter or discontinue this Plan at any time. Such action may be taken in writing
by any officer of AltaVista who has been duly authorized by AltaVista to perform
acts of such kind. However, no such amendment shall deprive any Participant or
Beneficiary of any portion of any benefit which would have been payable had the
Participant's employment with AltaVista terminated on the effective date of such
amendment or termination. Notwithstanding the provisions of this Article XIII to
the contrary, AltaVista may amend the Plan at any time, in any manner, if
AltaVista determines any such amendment is required to ensure that the Plan is
characterized as providing deferred compensation for a select group of
management or highly compensated employees and as described in ERISA Sections
201(2), 301(a)(3) and 401(a)(1) or to otherwise conform the Plan to the
provisions of any applicable law including, but not limited to, ERISA and the
Code.
Article XIV
General Provisions
14.1 Good Faith Payment. Any payment made in good faith in accordance
------------------
with provisions of the Plan shall be a complete discharge of any liability for
the making of such payment under the provisions of this Plan.
14.2 No Right to Employment. This Plan does not constitute a contract
----------------------
of employment, and participation in the Plan shall not give any Participant the
right to be retained in the employment of the Participating Employer.
14.3 Binding Effect. The provisions of this Plan shall be binding upon
--------------
the Participating Employer and its successors and assigns and upon every
Participant and his heirs, Beneficiaries, estates and legal representatives.
14.4 Participant Change of Address. Each Participant entitled to
-----------------------------
benefits shall file with the Plan Administrator, in writing, any change of post
office address. Any check representing payment and any communication addressed
to a Participant or a former Participant at this last address filed with the
Plan Administrator, or if no such address has been filed, then at his last
address as indicated on the Participating Employer's records, shall be binding
on such Participant for all purposes of the Plan, and neither the Plan
Administrator, the Participating Employer nor any other payor shall be obligated
to search for or ascertain the location of any such Participant. If the Plan
Administrator is in doubt as to the address of any Participant entitled to
benefits or as
13
<PAGE>
to whether benefit payments are being received by a Participant, it shall, by
registered mail addressed to such Participant at his last known address, notify
such Participant that:
(i) All unmailed and future Plan payments shall be withheld until
Participant provides the Plan Administrator with evidence of such Participant's
continued life and proper mailing address; and
(ii) Participant's right to any Plan payment shall, at the option of
the Committee, be canceled forever, if, at the expiration of five (5) years from
the date of such mailing, such Participant or his Beneficiary shall not have
provided the Committee with evidence of his continued life and proper mailing
address.
14.5 Notices. Each Participant shall furnish to the Plan Administrator
-------
any information the Plan Administrator deems necessary for purposes of
administering the Plan, and the payment provisions of the Plan are conditional
upon the Participant furnishing promptly such true and complete information as
the Plan Administrator may request. Each Participant shall submit proof of his
age when required by the Plan Administrator. The Plan Administrator shall, if
such proof of age is not submitted as required, use such information as is
deemed by it to be reliable, regardless of the lack of proof, or the
misstatement of the age of individuals entitled to benefits. Any notice or
information which, according to the terms of the Plan or requirements of the
Plan Administrator, must be filed with the Plan Administrator, shall be deemed
so filed if addressed and either delivered in person or mailed to and received
by the Plan Administrator, in care of AltaVista at:
AltaVista Company
549 Bryant Street
Palo Alta, CA 94301
14.6 Designation of Beneficiary. Each Participant shall designate, by
--------------------------
name, on Beneficiary designation forms provided by the Plan Administrator, the
Beneficiary(ies) who shall receive any benefits which might be payable after
such Participant's death. A Beneficiary designation may be changed or revoked
without such Beneficiary's consent at any time or from time to time in the
manner as provided by the Plan Administrator, and the Plan Administrator shall
have no duty to notify any individual or entity designated as a Beneficiary of
any change in such designation which might affect such individual or entity's
present or future rights. If the designated Beneficiary does not survive the
Participant, all amounts which would have been paid to such deceased Beneficiary
shall be paid to any remaining Beneficiary in that class of beneficiaries,
unless the Participant has designated that such amounts go to the lineal
descendants of the deceased Beneficiary. If none of the designated primary
14
<PAGE>
Beneficiaries survive the Participant, and the Participant did not designate
that payments would be payable to such Beneficiary's lineal descendants, amounts
otherwise payable to such Beneficiaries shall be paid to any successor
Beneficiaries designated by the Participant, or if none, to the Participant's
spouse, or, if the Participant was not married at the time of death, the
Participant's estate.
No Participant shall designate more than five (5) simultaneous
Beneficiaries, and if more than one (1) Beneficiary is named, Participant shall
designate the share to be received by each Beneficiary. Despite the limitation
on five (5) Beneficiaries, a Participant may designate more than five (5)
Beneficiaries provided such beneficiaries are the surviving spouse and children
of the Participant. If a Participant designates alternative, successor, or
contingent Beneficiaries, such Participant shall specify the shares, terms and
conditions upon which amount shall be paid to such multiple, alternative,
successor or contingent beneficiaries. Any payment made under this Plan after
the death of a Participant shall be made only to the Beneficiary or
Beneficiaries designated pursuant to this Section. Any beneficiary designation
made in accordance with the Prior Plan shall be treated as if made under this
Plan.
14.7 Claims. Any claim for benefits must initially be submitted in
------
writing to the Plan Administrator. If such claim is denied (in whole or in
part), the claimant shall receive notice from the Plan Administrator, in
writing, setting forth the specific reasons for denial, with specific reference
to applicable provisions of this Plan. Such notice shall be provided within
ninety (90) days of the date the claim for benefits is received by the Plan
Administrator, unless special circumstances require an extension of time for
processing the claim, in which event notification of the extension shall be
provided to the claimant prior to the expiration of the initial 90 day period.
The extension notification shall indicate the special circumstances requiring
the extension of time and the date by which the Plan Administrator expects to
render its decision. Any such extension shall not exceed 90 days. Any
disagreements about such interpretations and construction may be appealed in
writing by the claimant within sixty (60) days to the Plan Administrator. The
Plan Administrator shall respond to such appeal within sixty (60) days, with a
notice in writing fully disclosing its decision and its reasons, unless special
circumstances require an extension of time for reviewing the claim, in which
event notification of the extension shall be provided to the claimant prior to
the expiration of the initial sixty (60) day period. Any such extension shall be
provided to the claimant prior to the commencement of the extension. Any such
extension shall not exceed 60 days. No employee of AltaVista or member of the
Board of Directors, or any committee thereof, shall be liable to any individual
or entity for any action taken hereunder, except those actions which are
unreasonable and undertaken with lack of good faith.
15
<PAGE>
14.8 Action by Board of Directors. Any action required to be taken by
----------------------------
the board of directors of the Participating Employer pursuant to the Plan
provisions may be performed by a committee of the board, to which the board of
directors of the Participating Employer delegates the authority to take actions
of that kind.
14.9 Governing Law. To the extent not superseded by the laws of the
-------------
United States, the laws of the Commonwealth of Massachusetts shall be
controlling in all matters relating to this Plan.
14.10 Severability. In the event any provision of this Plan shall be
------------
held illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions of the Plan, and the Plan shall be interpreted
and enforced as if such illegal and invalid provisions had never been set forth.
IN WITNESS WHEREOF, AltaVista Company has adopted the foregoing instrument.
ALTAVISTA COMPANY
By:_____________________________________
Name:___________________________________
Title:__________________________________
________________________________________
ATTEST
16
<PAGE>
EXHIBIT 10.11
TRUST UNDER ALTAVISTA COMPANY
DEFERRED COMPENSATION PLAN
This Agreement (the "Trust Agreement") made this ____ day of March, 2000,
by and between AltaVista Company (the "Company") and Eastern Bank and Trust
Company (the "Trustee");
WHEREAS, the Company has adopted the AltaVista Company Deferred
Compensation Plan (the "Plan");
WHEREAS, the Company has incurred or expects to incur liability under the
terms of such Plan with respect to the individuals participating in such Plan
(the "Participants");
WHEREAS, the Company wishes to establish a trust (hereinafter called the
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
Insolvency, as herein defined, until paid to Plan Participants (and their
beneficiaries) in such manner and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
WHEREAS, it is the intention of the Company to make contributions to the
Trust to provide a source of funds to assist it in meeting its liabilities under
the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
<PAGE>
Section 1. Establishment of Trust. The Company hereby deposits with
----------------------
Trustee in trust Ten Dollars ($10) which shall become the principal of the Trust
to be held, administered and disposed of by Trustee as provided in this Trust
Agreement.
(a) The Trust hereby established shall be irrevocable.
(b) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and
shall be construed accordingly.
(c) The principal of the Trust, and any earnings thereon, shall
be held separate and apart from other funds of the Company and shall be used
exclusively for the uses and purposes of Plan Participants and general creditors
as herein set forth. Plan Participants (and their beneficiaries) shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Plan and this Trust Agreement shall be mere
unsecured contractual rights of Plan Participants (and their beneficiaries)
against the Company. Any assets held by the Trust will be subject to the claims
of the Company's general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(d) The Company, in its sole discretion, may at any time, or
from time to time, make additional deposits of cash or other property in trust
with Trustee to augment the principal to be held, administered and disposed of
by Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan
Participant (or beneficiary) shall have any right to compel such additional
deposits.
Section 2. Payments to Plan Participants and Their Beneficiaries.
-----------------------------------------------------
(a) The Company shall deliver to Trustee a schedule (the
"Payment Schedule") that indicates the amounts payable in respect of each Plan
Participant (and his or her beneficiaries), that provides a formula or other
instructions acceptable to Trustee for determining the amounts so payable, the
form in which such amount is to be paid (as provided for or available under the
Plan), and the time of commencement for payment of such amounts. Except as
otherwise provided herein, Trustee shall make payments to the Plan Participants
(and their beneficiaries) in accordance with such Payment Schedule. The Trustee
shall make provision for the reporting and withholding of any federal, state or
local taxes that may be required to be withheld with respect to the payment of
benefits pursuant to the terms of the Plan and shall pay amounts withheld to the
appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by the Company.
(b) The entitlement of a Plan Participant (or his or her
beneficiaries) to benefits under the Plan shall be determined by the Company or
such party as it shall designate under the Plan, and any claim for such benefits
shall be considered and reviewed under the procedures set out in the Plan.
2
<PAGE>
(c) The Company may make payment of benefits directly to Plan
Participants (or their beneficiaries) as they become due under the terms of the
Plan. The Company shall notify Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to Participants (or
their beneficiaries). In addition, if the principal of any Trust, and any
earnings thereon, are not sufficient to make payments of benefits in accordance
with the terms of the Plan, the Company shall make the balance of each such
payment as it falls due. Trustee shall notify the Company where principal and
earnings are not sufficient. Notwithstanding any other provision of this Trust
Agreement, in the event that the Company determines in good faith that the
assets of the Trust are in excess of the amount needed to pay benefits in
accordance with the terms of the Plan, the Company may direct the Trustee to
refund such excess to the Company.
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary
--------------------------------------------------------------
When Company Is Insolvent.
- -------------------------
(a) Trustee shall cease payment of benefits to a Plan
Participant (and his or her beneficiaries) if the Company is Insolvent. The
Company shall be considered "Insolvent" for purposes of this Trust Agreement if
(i) the Company is unable to pay its debts as they become due or (ii) the
Company is subject to a pending proceeding as a debtor under the United States
Bankruptcy Code.
(b) At all times during the continuance of this Trust, as
provided in Section 1(e) hereof, the principal and income of the Trust shall be
subject to claims of general creditors of the Company under federal and state
law as set fort h below.
(i) The Board of Directors and the Chief Executive
Officer of the Company shall have the duty to inform Trustee in writing of the
Company's Insolvency. If a person claiming to be a creditor of the Company
alleges in writing to Trustee that the Company has become Insolvent, Trustee
shall determine whether the Company is Insolvent and, pending such
determination, Trustee shall discontinue payment of benefits to Plan
Participants (or his or her beneficiaries).
(ii) Unless Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming to be a
creditor alleging that the Company is Insolvent, Trustee shall have no duty to
inquire whether the Company is Insolvent. Trustee may in all events rely on such
evidence concerning the Company's solvency as may be furnished to Trustee and
that provides Trustee with a reasonable basis for making a determination
concerning the Company's solvency.
(iii) If at any time Trustee has determined that the
Company is Insolvent, Trustee shall discontinue payments to Plan Participants
(or their beneficiaries) and shall hold the assets of the Trust for the benefit
of the Company's general creditors. Nothing in this Trust Agreement shall in any
way diminish any rights of Plan Participants (or their beneficiaries) to pursue
3
<PAGE>
their rights as general creditors of the Company with respect to benefits due
under the Plan or otherwise.
(iv) Trustee shall resume the payment of benefits to Plan
Participants (or their beneficiaries) in accordance with Section 2 of this Trust
Agreement only after Trustee has determined that the Company is not Insolvent
(or is no longer Insolvent).
(d) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
Participants (or their beneficiaries) under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
Participants (or their beneficiaries) by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
Section 4. Payments to the Company. Except as provided in Sections 2(c)
-----------------------
and 3 hereof, the Company shall have no right or power to direct Trustee to
return to the Company or to divert to others any of the Trust assets before all
payment of benefits have been made to Plan Participants (and their
beneficiaries) pursuant to the terms of the Plan.
Section 5. Investment Authority. Trustee shall invest the assets held
--------------------
hereunder in a manner intended to assist the Company in meeting its liabilities
under the Plan even if that does not maximize the investment return of the
assets. In no event may Trustee invest in securities (including stock or rights
to acquire stock) or obligations issued by the Company, other than a de minimis
amount held in common investment vehicles in which Trustee invests. All rights
associated with assets of the Trust shall be exercised by Trustee or the person
designated by Trustee, and shall in no event be exercisable by or rest with Plan
Participants.
Section 6. Disposition of Income. During the term of this Trust, all
---------------------
income received by the Trust, net of expenses and taxes, shall be accumulated
and reinvested.
4
<PAGE>
Section 7. Accounting by Trustee. Trustee shall keep accurate and
---------------------
detailed records of all investments, receipts, disbursements, and all other
transactions required to be made, including such specific records as shall be
agreed upon in writing between the Company and Trustee. Within ninety (90) days
following the close of each calendar year and within ninety (90) days after the
removal or resignation of Trustee, Trustee shall deliver to the Company a
written account of its administration of the Trust during such year or during
the period from the close of the last preceding year to the date of such removal
or resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
Section 8. Responsibility of Trustee. Trustee shall act with the care,
-------------------------
skill, prudence and diligence under the circumstances then prevailing that a
prudent person acting in like capacity and familiar with such matters would use
in the conduct of an enterprise of a like character and with like aims,
provided, however, that Trustee shall incur no liability to any person for any
action taken pursuant to a direction, request or approval given by the Company
which is contemplated by, and in conformity with, the terms of the Plan or this
Trust and is given in writing by the Company. In the event of a dispute between
the Company and a party, Trustee may apply to a court of competent jurisdiction
to resolve the dispute.
(a) If Trustee undertakes or defends any litigation arising in
connection with this Trust with the Company's consent, the Company agrees to
indemnify Trustee against Trustee's costs, expenses and liabilities (including,
without limitation, attorneys' fees and expenses) relating thereto and to be
primarily liable for such payments. If the Company does not pay such costs,
expenses and liabilities in a reasonably timely manner, Trustee may obtain
payment from the Trust.
(b) Trustee may consult with legal counsel (who may also be
counsel for the Company generally) with respect to any of its duties or
obligations hereunder.
(c) Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder with the Company's
consent.
(d) Trustee shall have, without exclusion, all powers conferred
on Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than the
Trust or the Company, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor Trustee, or to loan to any
person the proceeds of any borrowing against such policy except for the payment
of benefits.
(e) However, notwithstanding the provisions of Section 8(e)
above, Trustee may loan to the Company the proceeds of any borrowing against an
insurance policy held as an asset of the Trust.
(f) Notwithstanding any powers granted to Trustee pursuant to
this Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the
5
<PAGE>
objective of carrying on a business and dividing the gains therefrom, within the
meaning of section 301.7701-2 of the Procedure and Administrative Regulations
promulgated pursuant to the Internal Revenue Code.
Section 9. Compensation and Expenses of Trustee. The Company shall pay
------------------------------------
all administrative and Trustee's fees and expenses. If not so paid, the fees
and expenses shall be paid from the Trust.
Section 10. Resignation and Removal of Trustee.
----------------------------------
(a) Trustee may resign at any time by written notice to the
Company, which shall be effective ninety (90) days after receipt of such notice
unless the Company and Trustee agree otherwise.
(b) Trustee may be removed by the Company on sixty (60) days
notice or upon shorter notice accepted by Trustee. Upon a Change of Control, as
defined herein, Trustee may not be removed by the Company for two (2) years.
(c) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within ninety (90) days after receipt
of notice of resignation, removal or transfer, unless the Company extends the
time limit.
(d) If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraphs (a) or (b) of this section. If no such
appointment has been made, Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses of
Trustee in connection with the proceeding shall be allowed as administrative
expenses of the Trust.
Section 11. Appointment of Successor.
------------------------
(a) If Trustee resigns or is removed in accordance with Section
10(a) or (b) hereof, the Company may appoint any third party, such as a bank
trust department or other party that may be granted corporate trustee powers
under state law, as a successor to replace Trustee upon resignation or removal.
The appointment shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by the Company or the successor
Trustee to evidence the transfer.
(b) If Trustee resigns or is removed pursuant to the provisions
of Section 10(e) hereof and selects a successor Trustee, Trustee may appoint any
independent third party such as a bank trust department or other party that may
be granted corporate trustee powers under state law. The appointment of a
successor Trustee shall be effective when accepted in writing by the new
Trustee. The new Trustee shall have all the rights and powers of the former
Trustee, including ownership rights in Trust assets. The former Trustee shall
execute any instrument necessary or reasonably requested by the successor
Trustee to evidence the transfer.
6
<PAGE>
(c) The successor Trustee need not examine the records and acts
of any prior Trustee and may retain or dispose of existing Trust assets, subject
to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for
and the Company shall indemnify and defend the successor Trustee from any claim
or liability resulting from any action or inaction of any prior Trustee or from
any other past event, or any condition existing at the time it becomes successor
Trustee.
Section 12. Amendment or Termination.
------------------------
(a) This Trust Agreement may be amended by a written instrument
executed by Trustee and the Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan or shall make the Trust
revocable.
(b) The Trust shall not terminate until the date on which all
Participants (and their beneficiaries) are no longer entitled to benefits
pursuant to the terms of the Plan. Upon termination of the Trust any assets
remaining in the Trust shall be returned to the Company.
Section 13. Miscellaneous.
-------------
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition, without invalidating
the remaining provisions hereof.
(b) Benefits payable to Plan Participants (and their
beneficiaries) under this Trust Agreement may not be anticipated, assigned
(either at law or in equity), alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of Massachusetts. For purposes of this Trust, Change of
Control shall mean a change in control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is in fact required to comply
therewith; provided, that, without limitation, such a change in control for
purposes of this Plan shall be deemed to have occurred if on any future date:
(i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company
for the first time becomes the "beneficial owner" (as defined in the Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing thirty percent (30%) or more of the combined voting power of the
Company then outstanding securities; or
(ii) during any period of twenty-four (24) consecutive
months (not including any period prior to the effective date of the Plan),
individuals who at the beginning of such period constitute the Company's Board
of Directors and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
7
<PAGE>
described in paragraphs (i), (ii) or (iii) of this Section) whose election by
the board of directors of the Company or nomination for election by the
stockholders of the Company was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the beginning
of such period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to implement a
re-capitalization of the Company (or similar transaction) in which no "person"
(as herein above defined) acquires thirty percent (30%) or more of the combined
voting power of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
Section 14. Effective Date. The effective date of this Trust Agreement
--------------
shall be the effective date of the Company's initial public offering of its
common stock.
ALTAVISTA COMPANY
By_________________________________________
Name:
Title:
EASTERN BANK AND TRUST COMPANY
By_________________________________________
Name:
Title:
8
<PAGE>
EXHIBIT 10.12
ALTAVISTA COMPANY
INVESTOR RIGHTS AGREEMENT
This Agreement dated as of March __, 2000 is entered into by and among
AltaVista Company, a Delaware corporation (the "Company"), and CMGI, Inc., a
Delaware corporation (the "Investor").
Recitals
--------
WHEREAS, the Company desires to undertake an initial public offering of
its Common Stock; and
WHEREAS, in order to induce the Investor to approve such offering, the
Company has agreed to provide for certain arrangements with respect to (i) the
registration of shares of capital stock of the Company under the Securities Act
of 1933, as amended, and (ii) the Investor's right of first refusal with respect
to certain issuances of securities of the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
I. Certain Definitions.
-------------------
As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" means the Securities and Exchange Commission, or any other
----------
federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $.01 par value per share, of
------------
the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any successor federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Initiating Holders" means the Stockholders initiating a request for
------------------
registration pursuant to Section 2.1(a) or 2.1(b), as the case may be.
<PAGE>
"Initial Public Offering" means the initial underwritten public
-----------------------
offering of shares of Common Stock pursuant to an effective Registration
Statement.
"Permitted Transferee" shall have the meaning set forth in Section 3.3.
--------------------
"Prospectus" means the prospectus included in any Registration
----------
Statement, as amended or supplemented by an amendment or prospectus supplement,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
"Registration Statement" means a registration statement filed by the
----------------------
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registration Expenses" means the expenses described in Section 2.4.
---------------------
"Registrable Shares" means (a) the shares of Common Stock held by the
------------------
Investor upon the closing of the Initial Public Offering and (b) any other
shares of Common Stock issued in respect of such shares (because of stock
splits, stock dividends, reclassifications, recapitalizations or similar
events); provided, however, that shares of Common Stock which are Registrable
-------- -------
Shares shall cease to be Registrable Shares upon (i) any sale pursuant to a
Registration Statement or Rule 144 under the Securities Act or (ii) any sale in
any manner to a person or entity which, by virtue of Section 3.4 of this
Agreement, is not entitled to the rights provided by this Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Selling Stockholder" means any Stockholder owning Registrable Shares
-------------------
included in a Registration Statement.
"Stockholders" means the Investor and any persons or entities to whom
------------
the rights granted under this Agreement are transferred by the Investor, its
successors or assigns, pursuant to Section 3.4 hereof.
2
<PAGE>
II. Registration Rights.
-------------------
2.1 Required Registrations.
----------------------
(a) At any time following 180 days after the closing
of the Initial Public Offering, a Stockholder or Stockholders may request, in
writing, that the Company effect the registration on Form S-1 or Form S-2 (or
any successor form) of Registrable Shares owned by such Stockholder or
Stockholders having an aggregate value of at least $10,000,000 (based on the
then current public market price).
(b) At any time after the Company becomes eligible to
file a Registration Statement on Form S-3 (or any successor form relating to
secondary offerings), a Stockholder or Stockholders may request, in writing,
that the Company effect the registration on Form S-3 (or such successor form),
of Registrable Shares having an aggregate value of at least $2,500,000 (based on
the then current public market price).
(c) Upon receipt of any request for registration
pursuant to this Section 2.1, the Company shall promptly give written notice of
such proposed registration to all other Stockholders. Such Stockholders shall
have the right, by giving written notice to the Company within 15 days after the
Company provides its notice, to elect to have included in such registration such
of their Registrable Shares as such Stockholders may request in such notice of
election, subject in the case of an underwritten offering to the approval of the
managing underwriter as provided in Section 2.1(d) below. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on an appropriate registration form of all Registrable Shares which
the Company has been requested to so register (provided, however, that in the
-------- -------
case of a registration requested under Section 2.1(b), the Company will only be
obligated to effect such registration on Form S-3 (or any successor form)).
(d) If the Initiating Holders intend to distribute
the Registrable Shares covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 2.1(a) or (b), as the case may be, and the Company shall include such
information in its written notice referred to in Section 2.1(c). The right of
any other Stockholder to include its Registrable Shares in such registration
pursuant to Section 2.1(a) or (b), as the case may be, shall be conditioned upon
such other Stockholder's participation in such underwriting on the terms set
forth herein. If the managing underwriter determines that the marketing factors
require a limitation of the number of shares to be underwritten, the number of
Registrable
3
<PAGE>
Shares to be included in a Registration Statement filed pursuant to this Section
2.1 shall be reduced pro rata among the requesting Stockholders based on the
quotient of (i) the total Registrable Shares to be included in the Registration
Statement, divided by (ii) the total number of Registrable Shares that requested
registration.
(e) The Initiating Holders shall have the right to
select the managing underwriter(s) for any underwritten offering requested
pursuant to Section 2.1(a) or (b), subject to the approval of the Company, which
approval will not be unreasonably withheld.
(f) The Company shall not be required to effect more
than two registrations pursuant to Section 2.1(a) or more than five
registrations pursuant to Section 2.1(b). In addition, the Company shall not be
required to effect any registration within 90 days after the effective date of
any other Registration Statement of the Company relating to an underwritten
offering. For purposes of this Section 2.1(f), a Registration Statement shall
not be counted until such time as such Registration Statement has been declared
effective by the Commission, unless the Initiating Holders withdraw their
request for such registration (other than as a result of information concerning
the business or financial condition of the Company which is made known to the
Stockholders after the date on which such registration was requested) and elect
not to pay the Registration Expenses therefor pursuant to Section 2.4.
(g) If at the time of any request to register
Registrable Shares by Initiating Holders pursuant to this Section 2.1, the
Company is engaged or has plans to engage in a registered public offering or is
engaged in any other activity which, in the good faith determination of the
Company's Board of Directors, would be adversely affected by the requested
registration or if financial statements required for the requested registration
are not then available, then the Company may at its option direct that such
request be delayed for a period not in excess of 90 days from the date of such
request, such right to delay a request to be exercised by the Company not more
than once in any 12-month period.
4
<PAGE>
2.2 Incidental Registration.
-----------------------
(a) Whenever the Company proposes to file a
Registration Statement (other than a Registration Statement filed pursuant to
Section 2.1) at any time and from time to time, it will, prior to such filing,
give written notice to all Stockholders of its intention to do so; provided,
--------
that no such notice need be given if no Registrable Shares are to be included
therein as a result of a determination of the managing underwriter pursuant to
Section 2.2(b). Upon the written request of a Stockholder or Stockholders given
within 20 days after the Company provides such notice (which request shall state
the intended method of disposition of such Registrable Shares), the Company
shall use its best efforts to cause all Registrable Shares which the Company has
been requested by such Stockholder or Stockholders to register to be registered
under the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified in
the request of such Stockholder or Stockholders; provided, that the Company
--------
shall have the right to postpone or withdraw any registration effected pursuant
to this Section 2.2 without obligation to any Stockholder.
(b) If the registration for which the Company gives
notice pursuant to Section 2.2(a) involves an underwriting, the Company shall so
advise the Stockholders as a part of the written notice given pursuant to
Section 2.2(a). In such event, the right of any Stockholder to include its
Registrable Shares in such registration pursuant to Section 2.2 shall be
conditioned upon such Stockholder's participation in such underwriting on the
terms set forth herein. All Stockholders proposing to distribute their
securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for the
underwriting by the Company. Notwithstanding any other provision of this
Agreement, if the Company and the managing underwriter(s) determine in good
faith that marketing factors require a limitation of the number of shares to be
underwritten, then the Company and the managing underwriter(s) may exclude
shares from the registration and the underwriting, and the number of shares that
may be included in the registration and the underwriting shall be allocated,
first to the Company or the Company stockholder(s) for which the registration
- -----
was initiated, and second to each of the Stockholders requesting inclusion of
------
their Registrable Shares in such registration and each of the other holders of
piggyback registration rights on a parity with those Stockholders on a pro rata
basis based on the total number of Registrable Shares and other securities
requested for inclusion in such registration by each such Stockholder or other
holder. If any holder of Registrable Shares or any other Company stockholder
requesting inclusions of securities in the registration disapproves of the terms
of any such underwriting, such person may elect to withdraw therefrom by written
notice to the Company, and any Registrable Shares or other
5
<PAGE>
securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration.
(c) Notwithstanding the foregoing, the Company shall
not be required, pursuant to this Section 2.2, to include any Registrable Shares
in a Registration Statement if such Registrable Shares can then be sold pursuant
to Rule 144(k) under the Securities Act and represent less than 1% of the then
outstanding shares of Common Stock.
2.3 Registration Procedures.
-----------------------
(a) If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any Registrable Shares under the Securities Act, the Company shall:
(i) file with the Commission a
Registration Statement with respect to such Registrable Shares and use
its best efforts to cause that Registration Statement to become
effective as soon as possible;
(ii) as expeditiously as possible, prepare
and file with the Commission any amendments and supplements to the
Registration Statement and the prospectus included in the Registration
Statement as may be necessary to comply with the provisions of the
Securities Act (including the anti-fraud provisions thereof) and to
keep the Registration Statement effective for 12 months from the
effective date or such lesser period until all such Registrable Shares
are sold;
(iii) as expeditiously as possible, furnish
to each Selling Stockholder such reasonable numbers of copies of the
Prospectus, including any preliminary Prospectus, in conformity with
the requirements of the Securities Act, and such other documents as
such Selling Stockholder may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Shares owned by
such Selling Stockholder;
(iv) as expeditiously as possible, use its
best efforts to register or qualify the Registrable Shares covered by
the Registration Statement under the securities or Blue Sky laws of
such states as the Selling Stockholders shall reasonably request and do
any and all other acts and things that may be necessary or desirable to
enable the
6
<PAGE>
Selling Stockholders to consummate the public sale or other disposition
in such states of the Registrable Shares owned by the Selling
Stockholder; provided, however, that the Company shall not be required
-------- -------
in connection with this paragraph (iv) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction;
(v) as expeditiously as possible, cause all
such Registrable Shares to be listed on each securities exchange or
automated quotation system on which similar securities issued by the
Company are then listed; and
(vi) promptly make available for inspection
by the Selling Stockholders, any managing underwriter participating in
any disposition pursuant to such Registration Statement and any
attorney or accountant or other agent retained by any such underwriter
or selected by the Selling Stockholders, all financial and other
records, pertinent corporate documents and properties of the Company
and cause the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
Selling Stockholder, underwriter, attorney, accountant or agent in
connection with such Registration Statement.
(b) If the Company has delivered a Prospectus to the Selling
Stockholders, and after having done so, the Prospectus is amended to comply with
the requirements of the Securities Act, the Company shall promptly notify the
Selling Stockholders and, if requested, the Selling Stockholders shall
immediately cease making offers of Registrable Shares and return all
Prospectuses to the Company. The Company shall promptly provide the Selling
Stockholders with revised Prospectuses, and following receipt of the revised
Prospectuses, the Selling Stockholders shall be free to resume making offers of
the Registrable Shares.
(c) In the event that, in the judgment of the Company, it is
advisable to suspend use of a Prospectus included in a Registration Statement
due to pending material developments or other events that have not yet been
publicly disclosed and as to which the Company believes public disclosure would
be detrimental to the Company, the Company shall notify all Selling Stockholders
to such effect, and upon receipt of such notice, each such Selling Stockholder
shall immediately discontinue any sales of Registrable Shares pursuant to such
Registration Statement until such Selling Stockholder has received copies of a
supplemented or amended Prospectus or until such Selling Stockholder is advised
in writing by the Company that the then current
7
<PAGE>
Prospectus may be used and has received copies of any additional or supplemental
filings that are incorporated or deemed incorporated by reference in such
Prospectus. Notwithstanding anything to the contrary herein, the Company shall
not exercise its rights under this Section 2.3(c) to suspend sales of
Registrable Shares for a period in excess of 90 days in any 365-day period.
2.4 Allocation of Expenses. The Company will pay all
----------------------
Registration Expenses for all registrations under this Agreement; provided,
--------
however, that if a registration under Section 2.1 is withdrawn at the request of
- -------
the Initiating Holders (other than as a result of information concerning the
business or financial condition of the Company which is made known to the
Stockholders after the date on which such registration was requested) and if the
Initiating Holders elect not to have such registration counted as a registration
requested under Section 2.1, the requesting Stockholders shall pay the
Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares included in such registration. For purposes
of this Section, the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Agreement, including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses, fees and expenses of counsel for the Company and the fees and expenses
of one counsel selected by the Selling Stockholders to represent the Selling
Stockholders, state Blue Sky fees and expenses and the expense of any special
audits incident to or required by any such registration, but excluding
underwriting discounts, selling commissions and the fees and expenses of Selling
Stockholders' own counsel (other than the counsel selected to represent all
Selling Stockholders).
8
<PAGE>
2.5 Indemnification and Contribution.
--------------------------------
(a) In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless the Selling Stockholder, each
underwriter of such Registrable Shares and each other person, if any, who
controls such Selling Stockholder or underwriter within the meaning of the
Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such Selling Stockholder, underwriter or
controlling person may become subject under the Securities Act, the Exchange
Act, state securities or Blue Sky laws or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) (i) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement or any
amendment or supplement to such Registration Statement or (ii) arise out of or
are based upon the omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and the Company will reimburse such Selling Stockholder, underwriter
and controlling person for any legal or any other expenses reasonably incurred
by such Selling Stockholder, underwriter or controlling person in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
-------- -------
to the extent that any such loss, claim, damage or liability arises out of or is
based upon any untrue statement or omission made in such Registration Statement,
preliminary prospectus or prospectus, or any such amendment or supplement, in
reliance upon and in conformity with information furnished to the Company, in
writing, by or on behalf of such Selling Stockholder, underwriter or controlling
person specifically for use in the preparation thereof.
(b) In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, each
Selling Stockholder, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers, underwriter or controlling person may become subject
under the Securities Act, Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) (i) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus
9
<PAGE>
or final prospectus contained in the Registration Statement or any amendment or
supplement to the Registration Statement or (ii) arise out of or are based upon
any omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information relating to such Selling Stockholder furnished in writing to the
Company by or on behalf of such Selling Stockholder specifically for use in
connection with the preparation of such Registration Statement, prospectus,
amendment or supplement; provided, however, that the obligations of a Selling
-------- -------
Stockholder hereunder shall be limited to an amount equal to the net proceeds to
such Selling Stockholder of Registrable Shares sold in connection with such
registration.
(c) Each party entitled to indemnification under this
Section 2.5 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom; provided, that counsel for the
--------
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, provided, further, that the failure of any
-------- -------
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 2.5 except to the
extent that the Indemnifying Party is adversely affected by such failure. The
Indemnified Party may participate in such defense at such Indemnified Party's
expense; provided, however, that the Indemnifying Party shall pay such expense
-------- -------
if representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding; provided further that in no event shall the
-------- -------
Indemnifying Party be required to pay the expenses of more than one law firm per
jurisdiction as counsel for the Indemnified Party. The Indemnifying Party also
shall be responsible for the expenses of such defense if the Indemnifying Party
does not elect to assume such defense. No Indemnifying Party, in the defense of
any such claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of such claim or litigation, and no Indemnified Party shall consent to entry of
any judgment or settle such claim or litigation without the prior written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld.
10
<PAGE>
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in this
Section 2.5 is due in accordance with its terms but for any reason is held to be
unavailable to an Indemnified Party in respect to any losses, claims, damages
and liabilities referred to herein, then the Indemnifying Party shall, in lieu
of indemnifying such Indemnified Party, contribute to the amount paid or payable
by such Indemnified Party as a result of such losses, claims, damages or
liabilities to which such party may be subject in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and the
Selling Stockholders on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of the Company and
the Selling Stockholders shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of material fact related
to information supplied by the Company or the Selling Stockholders and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Stockholders
agree that it would not be just and equitable if contribution pursuant to this
Section 2.5 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this Section 2.5(d), (a) in no case
shall any one Selling Stockholder be liable or responsible for any amount in
excess of the net proceeds received by such Selling Stockholder from the
offering of Registrable Shares and (b) the Company shall be liable and
responsible for any amount in excess of such proceeds; provided, however, that
-------- -------
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section
2.5(d), notify such party or parties from whom contribution may be sought, but
the omission so to notify such party or parties from whom contribution may be
sought shall not relieve such party from any other obligation it may have
thereunder or otherwise under this Section 2.5(d). No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its prior written consent, which consent shall not be unreasonably
withheld.
11
<PAGE>
2.6 Other Matters with Respect to Underwritten Offerings. In
----------------------------------------------------
the event that Registrable Shares are sold pursuant to a Registration Statement
in an underwritten offering pursuant to Section 2.1, the Company agrees to enter
into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of the Company and
customary covenants and agreements to be performed by the Company, including
without limitation customary provisions with respect to indemnification by the
Company of the underwriters of such offering.
2.7 Information by Holder. Each Selling Stockholder shall
---------------------
furnish to the Company such information regarding such Selling Stockholder and
the distribution proposed by such Selling Stockholder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
III. Right Of First Refusal.
----------------------
3.1 Rights of Investor.
------------------
(a) Until the first date on which the Investor or
any Permitted Transferee (as defined below) owns less than a majority, by voting
power, of the outstanding shares of capital stock of the Company, the Company
shall not issue or sell (i) any shares of its Common Stock, (ii) any other
voting equity securities of the Company, including, without limitation, shares
of preferred stock, (iii) any option, warrant or other right to subscribe for,
purchase or otherwise acquire any voting equity securities of the Company or
(iv) any debt securities convertible into voting capital stock of the Company
(collectively, the "Offered Securities"), unless in each such case the Company
shall have first complied with this Section 3.1. The Company shall deliver to
the Investor a written notice of any proposed or intended issuance or sale of
Offered Securities (the "Offer"), which Offer shall (A) identify and describe
the Offered Securities, (B) describe the price and other terms upon which they
are to be issued or sold, and the number or amount of the Offered Securities to
be issued or sold, (C) identify the persons or entities (if known) to which or
with which the Offered Securities are to be offered, issued or sold and (D)
offer to issue and sell to the Investor a number of the Offered Securities (the
"Available Amount") such that, after the issuance and sale of all of the Offered
Securities, including the purchase of the Available Amount by the Investor, the
Investor would own at least a majority, by voting power, of the outstanding
capital stock of the Company (assuming the exercise and conversion of all
outstanding options, warrants and convertible securities). The Company shall not
be required to offer
12
<PAGE>
any Offered Securities to the Investor hereunder if, after the issuance and sale
thereof, the Investor (or the Permitted Transferee) would continue to own at
least a majority, by voting power, of the outstanding capital stock of the
Company.
(b) To accept an Offer, in whole or in part, the
Investor must deliver a written notice to the Company within 20 days after its
receipt of the Offer, setting forth the portion of the Available Amount that the
Investor elects to purchase (the "Notice of Acceptance").
(c) The Company shall have 180 days from the
expiration of the period set forth in Section 3.1(b) above to issue or sell all
or any part of such Offered Securities as to which a Notice of Acceptance has
not been given by the Investor, upon terms and conditions which are not more
favorable, in the aggregate, to the acquiring person or persons or less
favorable to the Company than those set forth in the Offer. If the consideration
to be received by the Company from the sale of Offered Securities consists of
anything other than cash, the Board of Directors of the Company shall in good
faith determine the cash equivalent of such non-cash consideration and the
Investor may pay an equivalent portion of its purchase price for the elected
portion of the Available Amount in cash.
(d) The purchase by the Investor of any Offered
Securities is subject in all cases to the preparation, execution and delivery by
the Company and the Investor of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Investor.
(e) The rights of the Investor under this Section
3.1 shall not apply to the grant of options to officers, directors, consultants
and employees of the Company or any subsidiary pursuant to any plan, agreement
or arrangement approved by a vote of not less than a majority of the members of
the Board of Directors of the Company, provided, however, that if the exercise
-------- -------
of any such options results in the reduction of the Investor's, or Permitted
Transferee's, ownership to less than a majority, by voting power, of the
outstanding capital stock of the Company, the Company shall so notify the
Investor (or Permitted Transferee), and the Investor or Permitted Transferee
shall have the right, within 30 days after such notice, to purchase from the
Company, at a price equal to the then Fair Market Value (as defined below)
thereof, such number of shares of Common Stock as would increase its ownership
to a majority, by voting power, of the outstanding capital stock of the Company.
"Fair Market Value" shall mean the average closing price of the Common Stock on
the Nasdaq National Market (or other principal securities exchange or other
interdealer quotation system on which the
13
<PAGE>
Common Stock is traded or quoted), during the 10-day period ending on the day
prior to the date of purchase.
3.2 Termination. This Article III shall terminate upon the
-----------
earlier of (i) the sale of all or substantially all of the assets or business of
the Company, by merger, sale of assets or otherwise, and (ii) the first date on
which the Investor (or Permitted Transferee) owns less than a majority, by
voting power, of the outstanding capital stock of the Company for 30 consecutive
days.
3.3 Permitted Transferee. For purposes hereof, a "Permitted
--------------------
Transferee" shall mean any person or entity that acquires directly from the
Investor shares of Common Stock representing at least a majority of the
outstanding shares of Common Stock of the Company and to which the Investor
assigns, in writing, its rights under Section 3.1. Upon such assignment, the
Permitted Transferee shall be considered the "Investor" for purposes of Section
3.1.
3.4 Transfers of Rights. The rights and obligations of the
-------------------
Investor under Section 2 may be assigned by Investor to any person or entity
that acquires shares of Common Stock having an aggregate value of at least
$2,500,000 (as adjusted in stock splits and similar events) from the Investor.
The rights and obligations of the Investor under Section 3.1 may be assigned
only to a Permitted Transferee, and upon such assignment, the rights and
obligations of the Investor under Section 3.1 shall terminate. In the event of
any such assignment, the assignee must provide written notice of such assignment
to the Company and agree in writing to be bound by the applicable provisions of
this Agreement.
IV. General.
-------
4.1 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
4.2 Specific Performance. In addition to any and all other
--------------------
remedies that may be available at law in the event of any breach of this
Agreement, each Investor shall be entitled to specific performance of the
agreements and obligations of the Company hereunder and to such other injunctive
or other equitable relief as may be granted by a court of competent
jurisdiction.
14
<PAGE>
4.3 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of Delaware (without
reference to the conflicts of law provisions thereof).
4.4 Notices. All notices, requests, consents and other
-------
communications under this Agreement shall be in writing and shall be deemed
delivered (i) two business days after being sent by registered or certified
mail, return receipt requested, postage prepaid, or (ii) one business day after
being sent via a reputable nationwide overnight courier service guaranteeing
next business day delivery, in each case to the intended recipient as set forth
below:
If to the Company, at AltaVista Company, 529 Bryant Street, Palo Alto,
California 94301, Attention: President, or at such other address or addresses as
may have been furnished in writing by the Company to the Investor; or
If to the Investor, at CMGI, Inc., 100 Brickstone Square, Andover,
Massachusetts 01810, or at such other address or addresses as may have been
furnished to the Company in writing by such Investor.
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
4.5 Complete Agreement. This Agreement constitutes the entire
------------------
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and understandings relating to
such subject matter.
4.6 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or terminated and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) with the written consent of the Company and the Investor.
15
<PAGE>
4.7 Pronouns. Whenever the context may require, any pronouns
--------
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural, and vice versa.
4.8 Counterparts; Facsimile Signatures. This Agreement may be
----------------------------------
executed in two counterparts, each of which shall be deemed to be an original,
and both of which together shall constitute one and the same document. This
Agreement may be executed by facsimile signatures.
4.9 Section Headings. The section headings are for the
----------------
convenience of the parties and in no way alter, modify, amend, limit or restrict
the contractual obligations of the parties.
4.10 Effective Date. This Agreement shall become effective
---------------
upon the closing of the Company's initial public offering of Common Stock
pursuant to an effective registration statement and shall terminate if such
offering does not close prior to July 31, 2000.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
ALTAVISTA COMPANY
By______________________________________
Name: Rodney W. Schrock
Title:Chief Executive Officer
CMGI, INC.
By______________________________________
Name:
Title:
17
<PAGE>
EXHIBIT 16.1
December 16, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We have read the statements made by AltaVista (copy attached), which we
understand will be filed with the Commission, pursuant to Item 11 (i) of Form
S-1 as part of the Company's Registration Statement on Form S-1 dated December
17, 1999. We agree with the statements concerning our Firm in such Form S-1.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
<PAGE>
EXHIBIT 21.1
Subsidiary of the Registrant
Shopping.com
<PAGE>
Exhibit 23.1
The Board of Directors
The AltaVista Business:
The audit referred to in our report dated December 16, 1999, included the
related financial statement schedule as of July 31, 1999, and for the seven-
month period then ended, included in the registration statement. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit. In our opinion, such financial
statement schedule, when considered in relation to the basic combined
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
KPMG LLP
San Francisco, California
December 17, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of AltaVista
Company on Form S-1 of our report, dated June 17, 1997, except for Note 6, for
which the date is June 9, 1999, relating to the financial statements of
Shopping.com. We also consent to the reference to our Firm under the caption
"Experts" in the prospectus, which is part of this Registration Statement.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
December 17, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Accountants
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated as follows:
. June 29, 1999 relating to financial statements and financial statement
schedule of AltaVista,
. April 2, 1999 relating to the financial statements of Zip2 Corporation, and
. June 9, 1999, except as to Note 12, which is as of July 3, 1999, relating
to the financial statements of Shopping.com
which appear in such Registration Statement. We also consent to the references
to us under the headings "Experts" and "Selected Financial Data" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
December 16, 1999
<PAGE>
Exhibit 23.4
Report of Independent Accountants on the Financial Statement Schedule
To the Board of Directors and Shareholders
of Compaq Computer Corporation
Our audits of the financial statements referred to in our reports dated June
29, 1999 appearing in this prospectus of AltaVista Company also included an
audit of the financial statement schedule listed in Item 16(b) of this Form S-
1. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 1,126
<SECURITIES> 0
<RECEIVABLES> 46,253
<ALLOWANCES> (5,701)
<INVENTORY> 0
<CURRENT-ASSETS> 53,132
<PP&E> 53,798
<DEPRECIATION> (2,016)
<TOTAL-ASSETS> 2,601,120
<CURRENT-LIABILITIES> 136,563
<BONDS> 0
0
0
<COMMON> 1,012
<OTHER-SE> 2,457,890
<TOTAL-LIABILITY-AND-EQUITY> 2,601,120
<SALES> 22,421
<TOTAL-REVENUES> 54,835
<CGS> 23,269
<TOTAL-COSTS> 33,777
<OTHER-EXPENSES> 294,102
<LOSS-PROVISION> (790)
<INTEREST-EXPENSE> 399
<INCOME-PRETAX> (274,159)
<INCOME-TAX> 0
<INCOME-CONTINUING> (274,159)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (274,159)
<EPS-BASIC> (2.74)
<EPS-DILUTED> (2.74)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 7,482
<SECURITIES> 0
<RECEIVABLES> 42,109
<ALLOWANCES> (5,052)
<INVENTORY> 0
<CURRENT-ASSETS> 49,750
<PP&E> 56,136
<DEPRECIATION> (9,390)
<TOTAL-ASSETS> 828,405
<CURRENT-LIABILITIES> 81,209
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 743,853
<TOTAL-LIABILITY-AND-EQUITY> 828,405
<SALES> 23,781
<TOTAL-REVENUES> 73,593
<CGS> 17,446
<TOTAL-COSTS> 25,402
<OTHER-EXPENSES> 261,458
<LOSS-PROVISION> 868
<INTEREST-EXPENSE> 159
<INCOME-PRETAX> (231,977)
<INCOME-TAX> 0
<INCOME-CONTINUING> (231,977)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (231,977)
<EPS-BASIC> (2.32)
<EPS-DILUTED> (2.32)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> OTHER OTHER
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JUN-12-1998
<PERIOD-END> JUN-11-1998 DEC-31-1998
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 15,651 15,651
<ALLOWANCES> (2,832) (2,832)
<INVENTORY> 0 0
<CURRENT-ASSETS> 13,169 13,169
<PP&E> 27,491 27,491
<DEPRECIATION> (3,318) (3,318)
<TOTAL-ASSETS> 264,330 264,330
<CURRENT-LIABILITIES> 10,384 10,384
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 252,290 252,290
<TOTAL-LIABILITY-AND-EQUITY> 264,330 264,330
<SALES> 0 0
<TOTAL-REVENUES> 13,622 23,517
<CGS> 0 0
<TOTAL-COSTS> 3,445 6,964
<OTHER-EXPENSES> 11,927 85,447
<LOSS-PROVISION> 664 451
<INTEREST-EXPENSE> 79 221
<INCOME-PRETAX> (2,493) (69,566)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,493) (69,566)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,493) (69,566)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 573 7,717
<ALLOWANCES> 0 (1,427)
<INVENTORY> 0 0
<CURRENT-ASSETS> 754 6,771
<PP&E> 5,708 14,281
<DEPRECIATION> (978) (3,863)
<TOTAL-ASSETS> 5,540 17,220
<CURRENT-LIABILITIES> 420 2,605
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 5,120 14,615
<TOTAL-LIABILITY-AND-EQUITY> 5,540 17,220
<SALES> 0 0
<TOTAL-REVENUES> 900 13,813
<CGS> 0 0
<TOTAL-COSTS> 1,963 5,008
<OTHER-EXPENSES> 6,219 13,833
<LOSS-PROVISION> 0 592
<INTEREST-EXPENSE> 32 114
<INCOME-PRETAX> (7,314) (5,734)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,314) (5,734)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,314) (5,734)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
