<PAGE>
As filed with the Securities and Exchange Commission on April 10, 2000
Registration Statement No. 333-93013
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 5 to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AltaVista Company
(Exact name of Registrant as specified in its charter)
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<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>
1070 Arastradero Road
Palo Alto, California 94304
(650) 320-7700
(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:
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<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>
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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. [_]
---------------
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.
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<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 April 10, 2000
14,800,000 Shares
[LOGO OF ALTAVISTA]
COMMON STOCK
-----------
We are offering 14,800,000 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 $18 and $20
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, including risks related to CMGI,
Inc.'s ownership of approximately 74% of our outstanding common stock after
this offering, assuming no exercise of the underwriters' over-allotment option.
See "Risk Factors" beginning on page 5.
-----------
PRICE $ A SHARE
-----------
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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
2,220,000 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
CHASE H&Q
ROBERTSON STEPHENS
PRUDENTIAL VOLPE TECHNOLOGY
a unit of Prudential Securities
WIT SOUNDVIEW
, 2000
<PAGE>
[The artwork consists of web page screen shots displaying various pages of
the AltaVista portal and our corporate logo, which contains the words
"AltaVista: Smart Is Beautiful." The text consists of the headings "Global,
Media and Commerce Network," "Web-wide Shopping and Finance Community" and
"Global," and the subheadings "Search," "Content," "Commerce," "Community,"
"United Kingdom," "Sweden," "Germany," "Netherlands" and "France."]
<PAGE>
TABLE OF CONTENTS
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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
Statements of Operations and
Balance Sheet..................... 21
Selected Historical Financial
Information....................... 27
Management's Discussion and
Analysis of Financial Condition
and Results of Operations......... 29
Business........................... 42
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management.......................... 60
Certain Relationships and Related
Transactions....................... 70
Ownership of Principal Stockholders
and Management..................... 77
Description of Capital Stock........ 79
Shares Eligible for Future Sale..... 83
Certain Federal Income Tax
Considerations for Non-United
States Stockholders................ 85
Underwriters........................ 87
Legal Matters....................... 91
Experts............................. 91
Where You Can Find More Information
About AltaVista.................... 92
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 an 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 user base and
relationships with content and service providers, we seek to provide a single
destination for all of a user's search, information, communication and commerce
needs on the Internet. Our goal is to expand our user base by building on our
strength in search, and extending our content and e-commerce capabilities,
thereby increasing the attractiveness of our Internet properties to advertisers
and merchants. We generate revenues through sales of advertising and
sponsorships, fees for search services, product and development fees, licensing
of our search product, software and related support services and shopping
services.
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 toward 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 we estimate, based on internally generated data, consisted of more than
54 million different visitors worldwide during the month of January 2000, 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 combine search technology, timely media content, local content and e-
commerce offerings with a broad network of relationships with content and
service providers to supply our users with an easy-to-use tool for their
Internet navigation and commerce needs. Our web sites offer users ways to
quickly, accurately and dynamically access the knowledge they seek. During
January 2000, we delivered over 1.9 billion page views to our users, based on
internally generated data. Our portal has the following capabilities:
Search Platform. AltaVista Search offers search functionality that enables
Internet users to find information on the Internet. We believe that AltaVista
Search produces highly relevant search results. We also believe that our index,
which is frequently updated, contained over 250 million web pages at
January 31, 2000, based on internally generated data.
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 finance-oriented content as well as to further broaden
the community aspects of AltaVista Live!, on February 1, 2000, we acquired
Raging Bull, Inc.
1
<PAGE>
AltaVista Shopping.com. AltaVista Shopping.com is an e-commerce service that
provides customers with the information necessary to make 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 use our search technology to enhance
the shopping experience by increasing the speed and accuracy of the shopping
search, enabling our users to research and compare 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.
CMGI, Inc. will own approximately 73.8% of our outstanding common stock upon
completion of this offering. 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. CMGI may exercise
its voting power by written consent, without convening a meeting of the
stockholders. This means 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 ownership may have the effect of delaying, deferring or preventing a
change in control of AltaVista. CMGI's interests could conflict with the
interests of our other stockholders.
We have incurred significant net operating losses in each fiscal quarter
since our inception, including an operating loss of $542.9 million for the six
months ended January 31, 2000. As of January 31, 2000, we had an accumulated
deficit of $765.1 million. We expect to incur additional losses and continued
negative cash flow from operations for the foreseeable future. For the six
months ended January 31, 2000, advertising, service and other revenue comprised
approximately 75% of our total revenue and product revenue accounted for
approximately 25% of our total revenue. Approximately 71% of our advertising,
service and other revenue during this period was derived from customer
advertising contracts serviced by DoubleClick, Inc., our outside sales agent.
We record DoubleClick's commission and service fees as sales and marketing
expense. In October 1999, we changed the focus of our e-commerce business
strategy from selling products to providing shopping services, including
directing traffic to merchant web sites for product sales. Revenue from the
sale of products on our web sites for the three-month period ended January 31,
2000 was less than 10% of our total revenue for the same period. To date,
revenue from shopping services, including commissions earned on sales of
products on merchant web sites, has not been significant. The market we serve
is highly competitive, and our revenue could be adversely affected by increased
competition.
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 February
2000, we acquired Raging Bull, a finance-oriented content provider and online
community and an affiliate of CMGI. In February 2000, we also acquired Transium
Corporation. Transium's primary business is providing search services to
customers such as e-commerce companies and Internet portal operators. Transium
receives and indexes data from customers and supplies the search services
available on their web sites to end users.
2
<PAGE>
THE OFFERING
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<C> <S>
Common stock offered:
United States offering............................ 11,840,000 shares
International offering............................ 2,960,000 shares
Total........................................... 14,800,000 shares
Common stock to be outstanding after the offering.. 153,995,511 shares
Use of Proceeds.................................... For working capital,
including sales and
marketing, 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. See "Use of
Proceeds" on Page 18.
Proposed Nasdaq National Market Symbol............. ALTA
</TABLE>
The common stock to be outstanding after the offering is based on shares
outstanding as of January 31, 2000, plus approximately 7,364,000 shares of
common stock issuable upon conversion of outstanding convertible notes and
convertible preferred stock, including the assumed exercise of Compaq's pre-
emptive rights to purchase additional convertible notes, as of that date. The
shares outstanding exclude:
. 16,474,667 shares of common stock issuable as of January 31, 2000 upon
the exercise of outstanding stock options issued under our stock option
plans at a weighted average exercise price of $11.45 per share and
options to purchase 1,220,830 shares of common stock granted during
January 2000 with exercise prices equal to the initial public offering
price
. 7,488,384 shares of common stock and options to purchase common stock
issued after January 31, 2000 in connection with our acquistions of
Raging Bull and Transium
. 2,600,000 shares of common stock initially reserved for issuance under
our employee stock purchase plan
----------------
Unless otherwise specifically stated, information in this prospectus (with
the exception of the financial statements) assumes:
. Conversion of $129.8 million of our convertible notes by CMGI and Compaq
into shares of convertible preferred stock prior to the closing of this
offering
. Compaq's exercise of its pre-emptive right to purchase additional
convertible notes in an amount not to exceed $17.5 million, and
conversion of these notes into convertible preferred stock prior to the
closing of this offering
. Conversion of all outstanding shares of our convertible preferred stock
into an aggregate of approximately 7,364,000 shares of common stock upon
completion of this offering
. No exercise of the underwriters' over-allotment option
. A 1.3-for-one split of our outstanding common stock to be approved and
effected prior to the closing of this offering
----------------
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.
The respective trademarks and logos of AltaVista, Shopping.com, iAtlas,
Raging Bull, Transium, and our other trademarks 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.
3
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents our summary pro forma financial data. We have
derived this data from "Unaudited Pro Forma Condensed Statements of
Operations," and the financial statements and notes that are included elsewhere
in this prospectus. You should read those sections for a further explanation of
the financial data summarized here.
The summary pro forma 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 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 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.
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.
<TABLE>
<CAPTION>
Seven Months Three Months Ended
Year Ended Ended ---------------------------------------------
December 31, July 31, March 31, June 30, October 31, January 31,
1998 1999 1999 1999 1999 2000
------------ ------------ --------- --------- ----------- -----------
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C> <C>
Summary Pro Forma
Statement of Operations
Data:
Advertising, service and
other revenue, net..... $ 37,139 $ 47,087 $ 16,705 $ 21,601 $ 30,196 $ 46,865
Product revenue, net.... 8,122 26,212 4,862 12,397 22,421 4,030
--------- --------- --------- --------- --------- ---------
Total revenue......... 45,261 73,299 21,567 33,998 52,617 50,895
Gross profit ........... 24,730 30,848 10,532 15,396 21,150 34,522
Product development
(a).................... 15,911 16,728 5,324 7,773 10,630 11,571
Sales and marketing
(a).................... 39,413 52,048 23,203 20,212 50,348 64,085
General and
administrative and
other (a).............. 26,282 23,690 3,597 5,539 6,471 7,171
Stock-based compensation
and amortization of
intangibles............ 875,067 510,456 218,767 218,767 219,795 222,300
--------- --------- --------- --------- --------- ---------
Loss from operations.... (931,943) (572,074) (240,359) (236,895) (266,094) (270,605)
Net loss................ $(939,162) $(572,504) $(240,467) $(236,952) $(267,993) $(272,221)
Loss per share--basic
and diluted (b)........ $ (7.22) $ (4.40) $ (1.85) $ (1.82) $ (2.06) $ (2.07)
</TABLE>
- -------
(a) Excludes stock-based compensation for the three months ended October 31,
1999 and January 31, 2000 as follows (in thousands): Product development
$83 and $235; Sales and marketing $56 and $156; and General and
administrative $139 and $391.
(b) Per share results for all periods presented prior to August 18, 1999, the
date of the CMGI acquisition, have been determined assuming a retroactive
application of our capital structure as of August 18, 1999. All periods
have been adjusted for a proposed 1.3-for-one stock split.
The summary pro forma consolidated balance sheet data below reflect the
conversion into common stock of amounts outstanding under our convertible notes
payable to CMGI and Compaq, and exercise of Compaq's pre-emptive right to
purchase additional convertible notes, based on CMGI's and Compaq's irrevocable
election to convert these amounts into equity upon the closing of this
offering. The summary pro forma as adjusted 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 January 31, 2000
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------- ---------- -----------
(in thousands)
<S> <C> <C> <C>
Summary Pro Forma Balance Sheet Data:
Cash and cash equivalents................... $ 12,368 $ 29,827 $ 288,343
Goodwill and other intangibles, net......... 2,252,216 2,252,216 2,252,216
Total assets................................ 2,402,724 2,420,183 2,678,699
Demand convertible notes payable to CMGI and
Compaq..................................... 129,814 -- --
Total stockholders' equity.................. $2,188,893 $2,336,166 $2,594,682
</TABLE>
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, which are
the most significant risks we face based on our business and the industry in
which we operate, 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 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 $542.9 million for the six
months ended January 31, 2000. As of January 31, 2000, we had an accumulated
deficit of $765.1 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
operating expenses, the amount of which we cannot accurately predict but
currently estimate to range from a $20 million to $35 million increase in the
second half of fiscal 2000, compared to operating expenses of $598.4 million
incurred in the first half of fiscal 2000. These increased expenses result
from our plan to continue to expand and improve our operating infrastructure
and expand our sales and marketing efforts. As a result, we expect to incur
additional losses and continued negative cash flow from operations for the
foreseeable future.
We may not be able to maintain or improve our competitive position because
of the number of Internet portals and the intense competition among these
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. For the month of
January 2000, Media Metrix ranked us fifth among all search engines and
Nielson/Net Ratings ranked us eighth among all search engine and portal web
sites, as measured in terms of unique visitors at home and at work.
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.
Our quarterly financial results are volatile and difficult to predict. If
we fail to meet the public's expectations, the market price of our common
stock may decrease significantly
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, which are outside our control. These
factors include:
. the timing and amount of advertising and e-commerce activity on our web
sites
5
<PAGE>
. changes in the mix of content and services provided by our competitors
. the demand for and market acceptance of our web sites
Moreover, our operating results in one or more future quarters may fail to
meet our expectations or those of investors. If this occurs, we could
experience an immediate and significant decline in the trading price of our
stock.
We plan to increase our operating expenses and if our revenues do not
increase, our business could be seriously harmed
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. We
anticipate significant increased operating expenses, the amount of which we
cannot accurately predict but currently estimate to range from a $20 million
to $35 million increase in the second half of fiscal 2000, compared to the
first half of fiscal 2000. 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.
Because we have a limited operating history as a combined company,
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, the recent acquisitions of
Shopping.com, iAtlas, Raging Bull and Transium and the divestiture of Zip2
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 not necessarily indicative
of future operating or financial performance.
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 acquisitions of iAtlas, Raging Bull and Transium create
challenges in coordinating business processes and integrating logistics,
marketing, product development, services and operations. If we do not
successfully integrate iAtlas, Raging Bull and Transium 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.
Expansion into international markets and development of country-specific
web sites may be difficult or unprofitable
We currently have branch offices located in Canada, France, Germany, Italy,
Sweden, The Netherlands and the United Kingdom. We plan to expand our
operations in each of these countries and enter additional 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. Our
international operating presence is limited to facilities located in seven
countries and a total of approximately 36 employees. Our failure to establish
successful operations and sales and marketing efforts in international markets
could seriously harm the financial results of our international operations.
6
<PAGE>
There are difficulties 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
Any difficulties of conducting our business internationally could harm our
international operations and, consequently, our business.
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 57% of our total revenues for
the six months ended January 31, 2000. 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 could harm our operating
results
For the six months ended January 31, 2000, approximately 54% of our total
revenue, and approximately 71% of our advertising, service and other revenue,
was derived from customer advertising contracts serviced by DoubleClick.
DoubleClick is a service provider that acts as our outside sales agent and
serves advertisements for the more than 2000 advertisers that advertise on our
website. We anticipate that for the foreseeable future, a substantial portion
of our advertising revenues will be derived from ads delivered by DoubleClick
through its DART service software, which is designed to target and measure
delivery of advertising. We have no assurance that DoubleClick will achieve
the advertising revenue targets that we have set for it, and a failure by
DoubleClick to assist us in achieving these targets could harm our business.
If DoubleClick's DART service were to fail or suffer severe interruptions, or
our relationship with DoubleClick were otherwise interrupted or terminated, we
would need to replace its delivery capability, which could temporarily reduce
our advertising revenues.
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Failure of our new Internet sales strategy could harm our operating results
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. The
number of our full-time employees in sales and marketing has grown from five
in July 1999 to 39 as of January 31, 2000. If we fail to develop our internal
sales organization or to manage our advertising sales strategy effectively,
our business could be seriously harmed.
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 and CMGI have funded our operations as needed,
however, we do not expect to borrow funds from Compaq or CMGI after completion
of this offering. We intend to expand our business rapidly and expect to incur
significant operating losses for the foreseeable future. We believe funding
from CMGI and Compaq prior to completion of this offering, together with the
net proceeds of this offering, will be sufficient to satisfy our cash
requirements for the next 18 months. We may be required to raise substantial
additional funds in order to support more rapid expansion, develop new or
enhanced services or technologies, respond to competitive pressures, acquire
complementary businesses or respond to unanticipated requirements, through
public or private financings, strategic relationships or other arrangements.
We cannot be sure that 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. We have no current plans to sell additional equity securities in
the near term.
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 $70.5 million during the six months ended January
31, 2000. To increase awareness of our brand, we expect to spend approximately
$120 million on advertising during the fiscal year ending 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.
Our ability to grow our business could be substantially impaired if we are
unable to expand our e-commerce services
To increase our revenues, we will need to expand our operations by
promoting and expanding the breadth and depth of our e-commerce services.
Specifically, our future success will depend in part on obtaining revenues
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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. To date, our revenue from shopping services has not been significant.
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
shopping service offerings may not be timely or may not generate sufficient
revenues to offset their cost. If this occurs, our business could be seriously
harmed.
A failure of retailers and product information providers to whom we direct
users to satisfy our users that are directed to them could harm our
business
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.
We may be unable to integrate and retain our workforce effectively, which
could harm our business
As a result of our rapid growth, as well as our recent acquisitions of
iAtlas, Raging Bull and Transium, 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 integrate and retain our
workforce. As of January 31, 2000, we had a total of approximately 700
employees. Many of our employees have joined us recently. We will need to
integrate these new employees into our business successfully or our business
could be seriously harmed.
We may be unable to recruit or retain qualified personnel, which could harm
our business
We also must continue to identify, recruit, hire, train, retain and
motivate other highly skilled technical, managerial, editorial, marketing and
customer service personnel. We anticipate that we will need to significantly
increase our work force, perhaps by as much as 10% to 15% per quarter, for the
next year as a result of anticipated growth in our business. 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.
We depend on key management personnel to achieve our business objectives
Our future success depends in part on the continued service of our key
management personnel, in particular Rodney W. Schrock, our CEO. 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 transitory peaks in usage of our web sites,
we may lose user confidence
At the time of the launch of our enhanced web sites in October 1999, we
experienced unusually high levels of activity on our web sites that resulted
in increased response times for our services. Increased response times
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result from a number of factors, including the number of users of our web
sites and the particular services being demanded by users. If unusually high
transitory peaks in usage occur in the future, increased response times 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, attacks by computer hackers,
earthquake and similar events. In the past, parts of our sites have
experienced occasional system failures as a result of power loss and hardware
problems within our network infrastructure. We do not carry business
interruption insurance sufficient to compensate fully for any or all losses
from any or all damage or interruptions. 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 January 31, 2000, 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.
As of January 31, 2000, we had over 600 trademark registrations and/or
applications in the United States and abroad which are generally directed at
protecting our core brands and selected sub-brands, such as the AltaVista
trademark and tradename, the AltaVista logos, and the "smart is beautiful"
slogan. We expect to file several more trademark registrations in the United
States and abroad directed at the same type of protection. We own many domain
name registrations in the United States and internationally, including
www.altavista.com and www.shopping.com, which are important to us because they
serve as both addresses for web users to find our web site and are themselves
highly recognizable brand names.
We also have copyrights in the text and graphics and other copyrightable
content on our web sites and in the software we use as our search engine. We
rely on these copyrights to make it more difficult for competitors to copy our
web site and to maintain and build our competitive advantage.
We may be unable to obtain or maintain intellectual property protection or
registrations in territories or markets that are important to our success. In
addition, given the early stage of our international expansion, we cannot
predict which territories or markets may be important to our success. Further,
we may not have selected the proper intellectual
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property for which to seek protection by way of registration. 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.
Infringement or other intellectual property claims could adversely affect
our ability to market our services, limit our rights to our technology and
harm our results of operations
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. In the past, we
have experienced occasional security breaches. Our insurance policies carry
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.
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Risks Related to Our Relationships with CMGI and Compaq
You will not be able to control AltaVista corporate events because CMGI
will own approximately 74% of our outstanding common stock after the
offering
Upon completion of this offering, CMGI will beneficially own approximately
74% of our outstanding common stock, or approximately 73% 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 and our Certificate of Incorporation, CMGI may exercise its
voting power by written consent, without convening a meeting of the
stockholders. CMGI's interests could conflict with the interests of our other
stockholders.
CMGI may need to maintain control of AltaVista to avoid becoming an
investment company, which could influence its decision to sell control of
AltaVista
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 three directors who are also directors and/or executive officers of
CMGI and one director who is an officer of Compaq who may face significant
conflicts of interest
Three of our six directors are also directors or executive officers of CMGI
and one director is an officer of Compaq. These directors 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. 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.
We may have potential business conflicts of interest with CMGI with our
past and ongoing relationships, and because of CMGI's majority ownership,
we may not resolve these conflicts on the most favorable terms to us
Conflicts of interests may have arisen or may in the future arise between
CMGI and ourselves in a number of areas relating to our past and ongoing
relationships, including:
. tax allocation matters
. rental of CMGI facilities
. contractual relationships with CMGI and its affiliates concerning
technical services, content provision, and other matters
. our acquisitions of iAtlas and Raging Bull, affiliates of CMGI
. business opportunities that may be attractive to both CMGI and us
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Nothing restricts CMGI from competing with us. Our certificate of
incorporation expressly provides that, except in limited circumstances,
neither CMGI nor any of our officers or directors who are also officers or
directors of CMGI will be liable to us as a result of engaging in activities
or lines of business similar to ours.
We may not be able to resolve any potential conflicts, and even if we do,
the resolution may be less favorable than if we were dealing with an
unaffiliated party. The agreements we have with CMGI may be amended upon
agreement between the parties. While we are controlled by CMGI, CMGI may be
able to require us to agree to amendments to these agreements that may be less
favorable to us than the current terms of these agreements.
If Compaq ceases to direct traffic to our web site, our business could be
harmed
Historically, approximately 5% to 10% of total monthly traffic to our web
sites has originated 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 any web
sites designated from time to time by CMGI. 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 web site
designated by CMGI. 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. CMGI pays Compaq a royalty for these preprogramming services, for which
we reimburse CMGI, based on the amount of redirected user traffic. 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. Our rankings by Media
Metrix for the months of October 1999 through
January 2000 were 11, 14, 12 and 9. 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.
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 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.
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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.
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 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 depend on the continued growth in use of the Internet for the growth of
our business
The Web-based information market is new and rapidly evolving. The growth of
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
We depend on efficient operation of the Internet for growth of our business
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 content and service 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.
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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, particularly because we
are an Internet company
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 74% and 17%,
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
153,995,511 shares of common stock. Of these shares, the 14,800,000 shares
being offered in this offering will be freely tradeable.
AltaVista and 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.
We have no agreement with Morgan Stanley for a waiver of this restriction.
However, Morgan Stanley may, in its discretion, release it. In some cases
underwriters have agreed to waive lock-up restrictions when a company's stock
has performed well and market conditions are favorable, in order to allow a
follow-on offering of common stock. Any decision by Morgan Stanley to waive
the lock-up restrictions would depend on a number of factors, including market
conditions, the performance of our common stock in the market and our
financial condition at that time. If Morgan Stanley were to waive the lock-up
restrictions prior to the expiration of the 180-day period, and our
stockholders were to sell additional shares of common stock to the public, the
market price of our common stock could decline.
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.
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You will experience immediate and substantial dilution upon completion of
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 $16.78 per
share, at an assumed initial public offering price of $19.00 per share after
giving effect to the exercise of Compaq's pre-emptive right to purchase an
additional $17.5 million in convertible notes of AltaVista, conversion of all
our convertible notes into convertible preferred stock and the conversion of
all shares of convertible preferred stock into common stock. In addition, to
the extent outstanding stock options are exercised, you will incur further
dilution. As of January 31, 2000, we had granted options that were outstanding
to purchase an aggregate of 16,474,667 shares of common stock at exercise
prices between $.05 and $22.73 per share, and at a weighted average exercise
price of $11.45, which is significantly lower than the proposed initial public
offering price of the common stock to be sold in this offering. If you
purchase common stock in this offering and these options are exercised, you
will suffer substantial additional dilution in the book value per share of
your shares of our common stock.
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.
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 $258.5 million, or $297.7 million if the
underwriters exercise their over-allotment option in full, based upon an
assumed initial public offering price of $19.00 per share and after deducting
estimated underwriting discounts and commissions and our estimated offering
expenses of $3.0 million.
The principal purposes of this offering are:
. to increase our equity capital
. to facilitate future access by us to public equity markets
. to provide increased visibility and credibility in the marketplace
Because of our need to be able to react to business opportunities and
competitive pressures, we cannot allocate precisely our use of these proceeds,
but we currently estimate that during the next 12 months we will use
approximately $90 million to $115 million for sales and marketing expenses,
including expenses related to advertising and the hiring of additional sales
personnel, approximately $25 million to $40 million for product development
expenses and approximately $13 million to $25 million for computer equipment,
software and facilities improvements. We may also 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. While
we evaluate these types of opportunities from time to time, we currently have
no commitments or agreements with respect to any acquisitions, except for a
signed letter of intent to invest $5 million in Pyungchang Computer and
Communications, Inc.
The amounts and timing of the expenditures set forth above will vary
significantly depending on a number of factors, including, but not limited to,
the availability of other financing, the success and timing of our advertising
and hiring efforts, the amount of cash generated by our operations and the
market response to our web sites. Accordingly, 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 January 31,
2000:
. on an actual basis
. on a pro forma basis to reflect the conversion of AltaVista's debt to
CMGI and Compaq as of January 31, 2000 into convertible preferred stock,
the exercise of Compaq's pre-emptive right to purchase an additional
$17.5 million in convertible notes, the conversion of all our issuable
convertible notes into 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 $19.00 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. CMGI and Compaq have agreed that the net
borrowings 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 January 31, 2000
-----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------- ---------- -----------
(in thousands, except share data)
<S> <C> <C> <C>
Debt to CMGI and Compaq.................... $ 129,814 $ -- $ --
========== ========== ==========
Long-term debt............................. $ 6,838 $ 6,838 $ 6,838
---------- ---------- ----------
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); 131,831,437 shares
issued and outstanding (actual);
139,195,511 shares issued and outstanding
(pro forma); 153,995,511 shares issued
and outstanding (pro forma as adjusted).. 1,318 1,392 1,540
Additional paid-in capital................. 2,956,361 3,103,560 3,361,928
Deferred compensation and other............ (3,682) (3,682) (3,682)
Accumulated deficit........................ (765,104) (765,104) (765,104)
---------- ---------- ----------
Total stockholders' equity............... 2,188,893 2,336,166 2,594,682
---------- ---------- ----------
Total capitalization................... $2,195,731 $2,343,004 $2,601,520
========== ========== ==========
</TABLE>
The shares of common stock outstanding in the actual, pro forma and pro
forma as adjusted columns exclude:
. 16,474,667 shares of common stock issuable as of January 31, 2000 upon
the exercise of outstanding stock options issued under our stock option
plans at a weighted average exercise price of $11.45 per share and
options to purchase 1,220,830 shares of common stock granted during
January 2000 with exercise prices equal to the initial public offering
price
. 7,488,384 shares of common stock and options to purchase common stock
issued after January 31, 2000 in connection with our acquisitions of
Raging Bull and Transium
. 2,600,000 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 January 31, 2000
was approximately $83.9 million or approximately $.60 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 139.2 million, the
number of shares of common stock treated as outstanding on a pro forma basis
after giving effect to the exercise of Compaq's pre-emptive right to purchase
an additional $17.5 million in convertible notes of AltaVista, the conversion
by CMGI and Compaq of AltaVista's notes 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
being offered at an assumed initial public offering price of $19.00 per share,
and after deducting the estimated underwriting discount and offering expenses
payable by AltaVista, AltaVista's pro forma net tangible book value at January
31, 2000 would have been approximately $342.5 million, or approximately $2.22
per share. This represents an immediate increase in net tangible book value to
existing stockholders of $1.62 per share and an immediate dilution of $16.78
per share to new investors. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $19.00
Pro forma net tangible book value per share before
this offering as of January 31, 2000........................ $ .60
Increase per share attributable to new investors............. 1.62
-----
Pro forma net tangible book value per share after this
offering...................................................... 2.22
------
Dilution per share to new investors............................ $16.78
======
</TABLE>
Assuming exercise in full of the underwriters' over-allotment option,
AltaVista's pro-forma net tangible book value at January 31, 2000 would have
been approximately $381.7 million, or approximately $2.44 per share. This
represents an immediate increase in net tangible book value to existing
stockholders of $1.84 per share and an immediate dilution of $16.56 per share
to new investors.
The following table summarizes, on a pro forma basis as of January 31,
2000, 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... 131,831,437 85.6% $2,170,847,531 83.5% $16.47
CMGI and Compaq
Convertible Notes and
Rights................. 7,364,074 4.8 147,273,465 5.7 20.00
New investors........... 14,800,000 9.6 281,200,000 10.8 19.00
----------- ----- -------------- -----
Total............... 153,995,511 100.0% $2,599,320,996 100.0%
=========== ===== ============== =====
</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 all assumed existing stockholders to 89.1% 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 17,020,000 shares or 10.9% of the total number of shares of common stock to
be outstanding upon completion of this offering.
The foregoing discussions and tables exclude:
. 16,474,677 shares of common stock issuable as of January 31, 2000 upon
the exercise of outstanding stock options issued under our stock option
plans at a weighted average exercise price of $11.45 per share and
options to purchase 1,220,830 shares of common stock granted during
January 2000 with exercise prices equal to the initial public offering
price
. 7,488,384 shares of common stock and options to purchase common stock
issued after January 31, 2000 in connection with our acquisitions of
Raging Bull and Transium
. 2,600,000 shares of common stock initially reserved for issuance under
our employee stock purchase plan
20
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS AND BALANCE SHEET
We derived the following unaudited pro forma condensed statements of
operations for the year ended December 31, 1998, the seven months ended July
31, 1999 and the six months ended January 31, 2000 from our historical
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
statement of operations for the seven months ended July 31, 1999 and the six
months ended January 31, 2000, adjusted to give effect to the following
events, as if those events had occurred on January 1, 1998:
. Inclusion of the results of operations of Shopping.com for its fiscal
year ended January 31, 1999 in the pro forma condensed results of
operations for the year ended December 31, 1998 and estimated results for
the period from January 1, 1999 to February 15, 1999, its acquisition
date, for the pro forma condensed 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 January 1, 1998. 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 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
Historical and pro forma per share results for the year ended December 31,
1998 and the seven months ended July 31, 1999 have been determined using an
assumed capital structure of 100,000,000 common shares outstanding
(130,000,000 reflecting a proposed 1.3-for-one stock split to be approved and
effected prior to the closing of this offering), reflecting the retroactive
application to January 1, 1998 of AltaVista Company's capital structure on
August 18, 1999, the date of the CMGI acquisition. Historical and pro forma
per share results for the six months ended January 31, 2000 have been
determined using our actual results, including results for the period from
August 1-18, 1999 (prior to the CMGI acquisition), and have been adjusted for
a 1.3-for-one stock split to be effected prior to the closing of this
offering.
We derived the following unaudited pro forma condensed balance sheet as of
January 31, 2000 from our historical balance sheet as of January 31, 2000,
adjusted to give effect to the following events, as if those events had
occurred on that date:
. Reflects the assumed exercise of Compaq's pre-emptive right to purchase
an additional $17.5 million in our convertible notes, the conversion by
CMGI and Compaq of all our assumed and actual outstanding convertible
notes into convertible preferred stock, and the conversion of all of our
preferred stock into common stock
. Reflects a proposed 1.3-for-one split of our outstanding common stock to
be approved and effected prior to the closing of this offering
The unaudited pro forma condensed statements of operations and balance
sheet do not include the financial results and purchase accounting for Raging
Bull and Transium because they were not deemed significant. The iAtlas
acquisition has been reflected in the pro forma condensed balance sheet and
due to its insignificance in the pro forma condensed statements of operations
only from the date at its acquisition of CMGI (September 28, 1999) and
thereafter. The estimated purchase price for each of these acquisitions is
approximately: $28 million for iAtlas; $163.0 million for Raging Bull; and,
$10 million for Transium.
The unaudited pro forma condensed 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 financial
statements below should be read in conjunction with the historical financial
statements and related notes included in this prospectus.
21
<PAGE>
UNAUDITED PRO FORMA CONDENSED 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
June 11, 1998 Dec. 31, 1998 Shopping.com Adjustments Pro Forma
------------- ------------- ------------ ----------- ---------
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C>
Advertising, service and
other 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,
service and other
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
Stock-based
compensation (a)...... -- -- 6,696 (6,696) --
Amortization of
intangibles (b)....... 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)
======= ========= ========= ========= =========
Net loss per share--
basic and diluted...... $ (0.02) $ (0.54) $ (7.22)
Shares used in computing
net loss per share--
basic and diluted ..... 130,000 130,000 130,000
</TABLE>
- --------
(a) Reflects elimination of stock-based compensation since pro forma
amortization of intangibles already considers this amount. Since the
stock-based compensation generated by stock options issued by
Shopping.com and recorded in its historical financial statements
represents outstanding equity interests at the time of its acquisition
date, and the intrinsic value of those stock option issuances is
considered in the purchase accounting acquisition price for this
transaction, amounts representing the amortization of the excess purchase
price attributable to this transaction already retroactively include a
charge for such stock options issuances.
(b) 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 STATEMENT OF OPERATIONS
FOR THE SEVEN MONTHS ENDED JULY 31, 1999
<TABLE>
<CAPTION>
Shopping.com
Historical January 1, 1999 - Zip2 Pro Forma
AltaVista February 15, 1999 Disposition Adjustments Pro Forma
---------- ----------------- ----------- ----------- ---------
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C>
Advertising, service and
other 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,
service and other
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
Stock-based
compensation (a)..... 35,782 -- -- (35,782) --
Amortization of
intangibles (b)...... 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)
========= ======= ======= ========= =========
Net loss per share--
basic and diluted...... $ (1.78) $ (4.40)
Shares used in computing
net loss per share--
basic and diluted...... 130,000 130,000
</TABLE>
- --------
(a) Reflects elimination of stock-based compensation since pro forma
amortization of intangibles already considers this amount. Since the
stock-based compensation generated by stock options issued by the
AltaVista Business and recorded in its historical financial statements
represents outstanding equity interests at the time of its acquisition
date, and the intrinsic value of those stock option issuances is
considered in the purchase accounting acquisition price for this
transaction, amounts representing the amortization of the excess purchase
price attributable to this transaction already retroactively include a
charge for such stock options issuances.
(b) 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>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 2000
<TABLE>
<CAPTION>
Historical Zip2 Pro Forma
AltaVista Disposition Adjustments Pro Forma
---------- ----------- ----------- ---------
(in thousands, except per share information)
<S> <C> <C> <C> <C>
Advertising, service and other
revenue, net.................... $ 79,279 $(2,218) $ -- $ 77,061
Product revenue, net............. 26,451 -- -- 26,451
--------- ------- -------- ---------
Total revenue.................. 105,730 (2,218) 103,512
Cost of advertising, service and
other revenue................... 23,739 (2,310) -- 21,429
Cost of product revenue.......... 26,411 -- -- 26,411
--------- ------- -------- ---------
Total cost of sales............ 50,150 (2,310) -- 47,840
--------- ------- -------- ---------
Gross profit..................... 55,580 92 -- 55,672
--------- ------- -------- ---------
Operating expenses:
Product development (a)........ 22,354 (153) -- 22,201
Sales and marketing (a)........ 115,971 (1,538) -- 114,433
General and administrative
(a)........................... 14,876 (1,234) -- 13,642
Stock-based compensation (b)... 16,610 -- (15,550) 1,060
Amortization of intangibles
(c)........................... 428,628 (21,244) 33,651 441,035
--------- ------- -------- ---------
Loss from operations............. (542,859) 24,261 (18,101) (536,699)
Other expense:
Interest expense, net.......... 1,973 (6) -- 1,967
Other nonoperating loss........ 1,548 -- -- 1,548
--------- ------- -------- ---------
Total........................ 3,521 (6) -- 3,515
Loss before income taxes......... (546,380) 24,267 (18,101) (540,214)
--------- ------- -------- ---------
Net loss, including the period
August 1, 1999 to
August 18, 1999 (d)............. $(546,380) $24,267 $(18,101) $(540,214)
========= ======= ======== =========
Net loss per share--basic and
diluted......................... $ (4.17) $ (4.13)
Shares used in computing net loss
per share--basic and
diluted......................... 130,945 130,945
</TABLE>
- --------
(a) Pro Forma excludes stock-based compensation as follows (in thousands):
Product development $318; Sales and marketing $212; and General and
administrative $530.
(b) Reflects elimination of stock-based compensation since pro forma
amortization of intangibles already considers this amount. Since the
stock-based compensation generated by stock options issued by the
AltaVista Business and recorded in its historical financial statements
represents outstanding equity interests at the time of its acquisition
date, and the intrinsic value of those stock option issuance is
considered in the purchase accounting acquisition price for this
transaction, amounts representing the amortization of the excess purchase
price attributable to this transaction already retroactively include a
charge for such stock options issuances.
(c) 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.
(d) Historical AltaVista information represents AltaVista's results for the
six-month period ended January 31, 2000, including results for the period
from August 1, 1999 to August 18, 1999 (prior to the CMGI acquisition).
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
JANUARY 31, 2000
<TABLE>
<CAPTION>
Assumed exercise Proposed
Historical of Compaq's Conversion of 1.3-for-one
AltaVista pre-emptive right notes to equity stock split Pro Forma
---------- ----------------- --------------- ------------ ----------
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 12,368 $17,459 $ -- -- $ 29,827
Accounts receivable,
net.................. 50,567 -- -- -- 50,567
Other current assets.. 8,846 -- -- -- 8,846
---------- ------- --------- ---- ----------
Total current
assets............. 71,781 17,459 -- -- 89,240
Property, plant and
equipment, less
accumulated
depreciation........... 56,247 -- -- -- 56,247
Goodwill and other
intangible assets,
net.................... 2,252,216 -- -- -- 2,252,216
Investments............. 11,913 -- -- -- 11,913
Receivable from Compaq.. 10,315 -- -- -- 10,315
Other noncurrent
assets................. 252 -- -- -- 252
---------- ------- --------- ---- ----------
Total assets........ $2,402,724 $17,459 $ -- -- $2,420,183
========== ======= ========= ==== ==========
LIABILITIES AND OWNERS' NET
INVESTMENT
Current liabilities:
Capital lease
obligation, current
portion.............. $ 3,150 $ -- $ -- -- $ 3,150
Payable to CMGI, net.. 795 -- -- -- 795
Notes payable to
CMGI................. 121,752 -- (121,752) -- --
Notes payable to
Compaq............... 8,062 17,459 (25,521) -- --
Accounts payable...... 6,010 -- -- -- 6,010
Other current
liabilities.......... 67,224 -- -- -- 67,224
---------- ------- --------- ---- ----------
Total current
liabilities........ 206,993 17,459 (147,273) -- 77,179
---------- ------- --------- ---- ----------
Capital lease
obligation, net of
current portion........ 6,838 -- -- -- 6,838
---------- ------- --------- ---- ----------
Total liabilities... 213,831 17,459 (147,273) -- 84,017
Commitments and
contingencies
Preferred stock, par
value $0.01; no shares
outstanding and pro
forma.................. -- -- -- -- --
Common stock, par value
$0.01; 101,408,798 and
139,195,511 shares
outstanding historical
and pro forma,
respectively........... 1,014 -- 57 321 1,392
Capital in excess of
par.................... 2,956,665 -- 147,216 (321) 3,103,560
Unearned compensation
and other.............. (3,682) -- -- -- (3,682)
Accumulated deficit..... (765,104) -- -- -- (765,104)
---------- ------- --------- ---- ----------
Owners' net investment.. 2,188,893 -- 147,273 -- 2,336,166
---------- ------- --------- ---- ----------
Total liabilities and
owners' net
investment........... $2,402,724 $17,459 $ -- $-- $2,420,183
========== ======= ========= ==== ==========
</TABLE>
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED STATEMENTS OF OPERATIONS AND BALANCE SHEET
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 statements of operations since Zip2 was distributed to our
stockholders on October 20, 1999 and will not be included in our continuing
operations.
26
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
We have derived the following selected historical financial information
from our audited and unaudited historical financial statements and you should
read it in conjunction with those 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 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 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 January 31, 2000, and for the six months ended December 31, 1998 and
January 31, 2000 from our unaudited 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 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 financial
statements and notes, and the unaudited pro forma condensed 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.
27
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Combined Combined
Period from Period from Combined
Inception January 1, Period from Combined Consolidated
July, 1995 Combined Combined 1998 June 12, Seven Months Combined Six Six Months
through Year ended Year ended through 1998 through ended Months Ended Ended
December 31, December 31, December 31, June 11, December 31, July 31, December 31, January 31,
1995 1996 1997 1998 1998 1999 1998 2000 (a)
------------ ------------ ------------ ----------- ------------ ------------- ------------ ------------
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Selected
Statement of
Operations Data:
Advertising,
service and
other revenue,
net............. $ -- $ 900 $13,813 $13,622 $ 23,517 $ 49,812 $ 21,070 $ 79,279
Product revenue,
net(b).......... -- -- -- -- -- 23,781 -- 26,451
----- ------- ------- ------- -------- --------- -------- ---------
Total Revenue... -- 900 13,813 13,622 23,517 73,593 21,070 105,730
Cost of
advertising,
service and
other
revenue(c)...... -- 1,963 5,008 3,445 6,964 17,446 6,416 23,739
Cost of product
revenue......... -- -- -- -- -- 25,402 -- 26,411
Gross profit
(loss).......... -- (1,063) 8,805 10,177 16,553 30,745 14,654 55,580
Product
development(c).. 713 3,475 6,000 5,413 7,210 17,478 6,545 22,354
Sales and
marketing(c).... -- 941 5,615 5,426 23,900 51,151 22,395 115,971
General and
administrative(c).. 181 1,784 2,785 1,744 3,806 23,939 3,507 14,876
Stock-based
compensation(d).. -- -- -- -- -- 35,782 -- 16,610
Amortization of
intangibles(e).. -- 19 25 8 50,982 133,976 46,160 428,628
Loss from
operations...... (894) (7,282) (5,620) (2,414) (69,345) (231,581) (63,953) (542,859)
Net loss......... (895) (7,314) (5,734) (2,493) (69,566) (231,977) (64,163) (507,670)
Net loss per
share--basic and
diluted(f)...... $ (3.88)
Shares used in
computing net
loss per share--
basic and
diluted(f)...... 130,945
</TABLE>
<TABLE>
<CAPTION>
Combined Combined Combined Combined Combined Consolidated
December 31, December 31, December 31, December 31, July 31, January 31,
1995 1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ -------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Balance Sheet
Data (at period end):
Cash and cash
equivalents............ $-- $ -- $ -- $ -- $ 7,482 $ 12,368
Goodwill and other
intangibles, net(e).... -- 56 31 226,488 709,185 2,252,216
Total assets............ 383 5,540 17,220 264,330 828,405 2,402,724
Notes payable to CMGI
and Compaq............. -- -- -- -- -- 129,814
Long-term obligations... -- -- -- 1,656 3,344 6,838
Net stockholders'
equity................. $379 $5,120 $14,615 $252,290 $743,853 $2,188,893
</TABLE>
- --------
(a) The statement of operations for the six months ended January 31, 2000
represents the AltaVista revenues and expenses for the entire six-month
period, less an amount representing the total net results for the 18-day
portion of the six-month period before the CMGI transaction.
(b) Reflects product revenue in the periods ended July 31, 1999 and January 31,
2000 due to the acquisition of Shopping.com on February 15, 1999.
(c) Excludes stock-based compensation for the seven months ended July 31, 1999
and the six months ended January 31, 2000 as follows (in thousands): Cost
of advertising, service and other revenue $2,063 and $897; Product
development $7,485 and $3,571; Sales and marketing $12,661 and $5,714; and
General and administrative $13,573 and $6,428.
(d) Reflects stock-based compensation for options granted in May and June 1999.
(e) 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.
(f) Net loss per share and share amounts for the six months ended January 31,
2000 have been determined using the actual weighted-average share and per
share amounts reported, adjusted for a proposed 1.3-for-one stock split.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the 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 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.
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 six months ended January 31,
2000. This stub period is compared with the six months ended December 31,
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 an 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
user base and relationships with a variety of content and service providers,
we seek to provide a single destination for all of a consumer's search,
information, communication and commerce needs on the Internet. Our goal is to
expand our user base by extending our search, content and e-commerce
capabilities, thereby increasing the attractiveness of our Internet properties
to advertisers and merchants.
Advertising, service and other revenue. Advertising, service and other
revenue comprises sales of advertising and sponsorships, fees for search
services, production and development fees, licensing of search product
software and related support services, and shopping services revenue. For the
six months ended January 31, 2000 advertising, service and other revenue was
approximately 75% of total revenue. During this period, advertising revenue
was more than 65% of total revenue, and service and other revenue was less
than 10% of total revenue.
Advertising and sponsorship revenue results from advertising delivered on a
web page, at an agreed rate per thousand of impressions delivered. Advertising
revenue is recognized ratably over the term of the contract, provided we have
met our obligations to deliver impressions in each period. Fees for search
services are derived from third parties' use of our search technology. Fees
for search services are recognized ratably over the term of the contract
provided that we do not have significant remaining obligations. Production and
development fees are recognized upon delivery of the agreed upon service, with
accruals provided for ongoing maintenance obligations. To date, revenue from
production and development fees has not been significant. Search product
software and support are sold directly to customers and through resellers. We
generally license our search software in the form of a perpetual license
agreement and revenue is recognized upon shipment of the software product.
Search software customers may enter into separate support contracts. Revenue
for these contracts is recognized ratably over the period of the contract. To
date, revenue from search product software and support has not been
significant. Shopping service revenue occurs when we earn commissions on sales
of products on other web sites. Only the commission fee, not the gross product
revenue, is recorded as revenue. We earn commission revenue through a
combination of fixed fees and variable charges per click through when our
traffic is directed to a third party site. To date, shopping services revenue
has not been significant.
29
<PAGE>
Occasionally, we enter into barter transactions, which are a component of
advertising revenue. Since January 1, 1999 revenue from barter transactions
has not been significant. Barter transactions are the exchange of advertising
space on our web site for reciprocal space or traffic on other web sites.
Barter transactions are recognized ratably over the term of the contract as
long as both we and the other party with whom we have bartered have met
contractual obligations.
Through December 31, 1998, we derived substantially all of our revenue from
sales of advertising and sponsorships and fees for search services. From
January 1, 1999 through January 31, 2000, 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 currently derive a substantial portion of our advertising 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 retains the right to deliver the advertisements
negotiated either by DoubleClick or by us and also retains the exclusive right
to sell advertising to designated 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 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 web 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 we sell 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. We record revenue
at the gross sales amount on direct sales since we bear full customer credit
risk and merchandise return risk following vendor shipment, and are the
merchant of record on these transactions. For the six months ended January 31,
2000, product revenue was 25.0% of total revenue.
In October 1999, we changed the focus of our e-commerce business strategy
from selling products to providing shopping services, including directing
traffic to merchant web sites for sales of products. Because of the change in
our e-commerce business strategy, we anticipate that revenues derived from
advertising and fee-based shopping services will increase as a percentage of
our 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 financial results.
Cost of revenue. Cost of advertising, service and other 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, general and administrative expenses, stock based compensation
and amortization of intangibles as described below. These expenses have
increased significantly since our inception due to investments in new or
enhanced technology,
30
<PAGE>
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. From the date of
Shopping.com's acquisition through October 31, 1999, product development also
included the cost of Shopping.com's computer operations. In the quarter ended
January 31, 2000, following the change in our e-commerce business strategy,
the cost of these computer operations were included in cost of revenue.
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 sales and marketing expenses. In the future, we
expect to increase significantly our sales and marketing expenses as a result
of anticipated expansion of our internal sales organization and increased
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 revenue, 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. We recorded approximately $15.6
million amortization in August 1999. The stock-based compensation charges
represent the difference between the exercise price and the deemed fair value
of the stock on their date of grant. The deferred stock-based compensation
balance was eliminated in conjunction with purchase accounting adjustments
associated with the CMGI acquisition in August 1999. Additional stock-based
compensation associated with the iAtlas acquisition of approximately $4.7
million will be substantially amortized by July 31, 2001.
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 January 31, 2000 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 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
31
<PAGE>
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.
On June 11, 1998, Compaq acquired Digital for an aggregate purchase price
of $9.1 billion. In January 1999, Compaq incorporated and formed AltaVista as
a separate business unit. To broaden the capabilities of AltaVista, on
February 15, 1999, Compaq acquired Shopping.com, an e-commerce company for an
aggregate purchase price of $256.9 million, and on April 2, 1999, Compaq
purchased Zip2, a local portal service 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 for consideration of approximately $2.4 billion,
consisting of common stock valued at approximately $1.8 billion, Series D
preferred stock valued at approximately $173 million, promissory notes for an
aggregate principal amount of $220 million and direct costs of the acquisition
in the amount of approximately $4 million. Additionally, options to purchase
AltaVista common stock were assumed by CMGI in the transaction and were valued
at approximately $213 million. 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, CMGI and Digital, in the form of a pro rata dividend.
Accordingly, Zip2's results of operations are not included in our financial
statements after the date of disposition.
On October 22, 1999, CMGI merged its iAtlas subsidiary into the Company in
a transaction valued at approximately $28 million, CMGI's acquisition cost.
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 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.
In February 2000, we acquired Raging Bull, Inc., a finance-oriented content
provider and online community and an affiliate of CMGI. This acquisition was
effected by exchanging our common stock for all of the outstanding common and
preferred stock of Raging Bull, and by exchanging our stock options for all of
the outstanding stock options of Raging Bull. The total acquisition cost was
approximately $163 million, of which approximately $148 million is expected to
be allocated to goodwill and other intangible assets.
In February 2000, we acquired Transium Corporation, a provider of search
services, at an estimated total acquisition cost of approximately $10 million,
of which approximately $9 million is expected to be allocated to goodwill and
other intangible assets.
In March 2000, we signed a letter of intent with Pyungchang Computer and
Communications, Inc., a provider of web portal services in Korea. We intend to
invest $5 million in cash and to grant a technology license in exchange for a
60% equity interest in Pyungchang. We have no contractual commitment for
further funding of Pyungchang. Upon completion of the transaction, Pyungchang
will change its name to AltaVista Korea.
Results of Operations
Six Months Ended January 31, 2000 Compared to the Six Months Ended December
31, 1998
Our operating results reflect the operations included within Compaq based
on its allocated acquisition cost. Operating results of Shopping.com are
combined with AltaVista beginning February 15, 1999, the date on which it was
effectively acquired. Operating results of Zip2 were combined with AltaVista
beginning April 2, 1999,
32
<PAGE>
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
consolidated with AltaVista Company beginning September 28, 1999, the date on
which it was acquired by CMGI.
The following discussion presents the six months ended January 31, 2000
compared to the six months ended December 31, 1998. It should be noted that
the two periods compared are on a different basis of accounting given CMGI's
acquisition of AltaVista occurring on August 18, 1999.
Revenues. For the six months ended December 31, 1998 and the six months
ended January 31, 2000, advertising, service and other revenue increased 276%
from $21.1 million to $79.3 million. The increased revenue was primarily
attributable to increased sales of advertising and sponsorships resulting from
increased page views on the web site. Revenue also increased by approximately
$17 million 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 six months ended
December 31, 1998 and the six months ended January 31, 2000 were $16.6 million
and $56.6 million and represented approximately 79% and 71% of advertising,
service and other revenues.
For the six months ended December 31, 1998 and January 31, 2000, fees for
search services were approximately 11% and 4% of advertising, service and
other revenues. There were no revenues from the licensing of search product or
production and development fees prior to October 31, 1999. For the six months
ended January 31, 2000, revenue from the licensing of search product and
production and development fees were approximately 2% and 4% of advertising,
service and other revenues. For the six months ended December 31, 1998, barter
revenue was not significant. For the six months ended January 31, 2000, barter
revenue was approximately 4% of advertising, service and other revenue.
Product revenue for the six months ended January 31, 2000 was $26.5
million, compared to no revenues in the prior period, as a result of
Shopping.com operating results being included in our results since its
acquisition on February 15, 1999. For the six months ended January 31, 2000,
product revenues included $12.8 million, approximately 48% 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, service and other
revenue for the six months ended December 31, 1998 and the six months ended
January 31, 2000, increased approximately 270% from $6.4 million to
$23.7 million. Approximately $12 million of this increase was due to increases
in equipment and other costs associated with web site operations,
approximately $3.5 million was due to increases in number of personnel and
associated costs, and approximately $1 million was due to 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. Starting January 1, 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 six months ended January 31, 2000 was $26.4
million, compared to no costs in prior periods, as a result of Shopping.com
operating results being included in our results since its acquisition on
February 15, 1999. We have generally experienced negative gross margins from
product revenue in the periods reported due to our low pricing strategy that
was aimed at aggressively increasing customer base and web site traffic.
Product Development Expenses. Product development expenses for the six
months ended December 31, 1998 and the six months ended January 31, 2000
increased approximately 245% from $6.5 million to $22.4 million. Approximately
$7 million of 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 by
approximately $7 million as a result of Shopping.com, Zip2 and iAtlas
development costs being included following their acquisition dates.
Sales and Marketing Expense. Sales and marketing expense for the six months
ended December 31, 1998 and the six months ended January 31, 2000, increased
approximately 418% from $22.4 million to $116.0 million. The increase was due
to an approximately $70 million increase in advertising and promotion
expenses, the inclusion of $18.7 million of DoubleClick fees and commissions
in sales and marketing expense during the six
33
<PAGE>
months ended January 31, 2000, and an approximately $9 million increase in
compensation and related expenses associated with an increased number of sales
personnel. In addition, sales and marketing expense increased by approximately
$7 million 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 of approximately $14 million in fees paid to other
Internet sites for traffic directed to AltaVista.
General and Administrative Expense. General and administrative expense for
the six months ended December 31, 1998 and the six months ended January 31,
2000 increased approximately 326% from $3.5 million to $14.9 million. This
increase was primarily attributable to an increase of approximately $4 million
compensation and related expenses associated with a higher number of
personnel, an increase of approximately $3 million in legal and consulting
fees and approximately $3 million related to the inclusion of the results of
Shopping.com and Zip2 for the period subsequent to their acquisition dates. In
addition, in 1999 we 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 six months ended January 31,
2000, we recorded amortization of stock-based compensation of $16.6 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 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 six months ended January 31,
2000, we recorded $1.1 million stock-based compensation related to iAtlas.
If the amortization of stock-based compensation was not presented
separately in operating expenses and was included in the specific components
of operating expenses, it would increase cost of advertising, service and
other revenue by $.9 million, product development expense by $3.6 million,
sales and marketing expense by $5.7 million, and general and administrative
expense by $6.4 million.
Amortization of Intangibles. Amortization of intangibles for the six months
ended December 31, 1998 and the six months ended January 31, 2000 was $46.2
million and $428.6 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 six months ended December 31, 1998 and
the six months ended January 31, 2000, interest expense was $210,000 and $2.3
million. For the six months ended December 31, 1998, most of our 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 and Compaq that are reflected in notes
payable to CMGI and Compaq. The balance due to CMGI and Compaq on January 31,
2000 is $129.8 million, and these notes bear interest at a rate of 7% per
year.
For the six months ended January 31, 2000, interest income was $314,000
which is the interest on AltaVista's cash bank balances. Other non-operating
expenses of $1.5 million for the six months ended January 31, 2000 related
primarily to the non-recoverable cost of the write off of fixed assets that
are being taken out of service.
The combined statement of operations for the six months ended January 31,
2000 represents our revenues and expenses for the entire six-month period,
less $38.7 million representing the total net loss for the 18-day portion of
the six-month period before the CMGI transaction.
34
<PAGE>
Net Loss. Net loss for the six months ended December 31, 1998 and the
period ended January 31, 2000 was $64.2 million and $507.7 million. The net
loss increased by $443.5 million due to an increase of $382.5 million in 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 increases of
$16.6 million in stock based compensation and $120.8 million increase in other
operating expenses. These expense increases were partially offset by a $40.9
million increase in gross profit.
Comparison of Fiscal Years Ended December 31, 1996, 1997, the period from
January 1, 1998 to June 11, 1998, the period from June 12, 1998 to December
31, 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. Prior to 1996, AltaVista had
no revenue and its operating activities related primarily to development of
search technology.
The following discussion presents fiscal year 1998 in two periods due to
the change in accounting basis that occurred when Compaq acquired Digital. The
periods shown are January 1, 1998 through June 11, 1998 and June 12, 1998
through December 31, 1998. In addition, as a result of the fiscal year end
change which was adopted when CMGI acquired AltaVista, we present a seven
month period ended July 31, 1999.
Due to the varying lengths of the periods discussed below, the following
discussion does not identify the absolute dollar amount of changes between
periods. Instead, the trend in changes in the elements of revenue and spending
over time are described, and listed in order of significance, from most to
least significant.
Revenues. Advertising, service and other revenue for 1996, 1997, the period
from January 1, 1998 to June 11, 1998 and the period June 12, 1998 to December
31, 1998 was $.9 million, $13.8 million, $13.6 million and $23.5 million. For
the seven months ended July 31, 1999, advertising, service and other 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. Fees for search services were approximately 71%, 29%,
12%, 13% and 4% for 1996, 1997, the period from January 1, 1998 to June 11,
1998, the period June 12, 1998 to December 31, 1998 and the seven months ended
July 31, 1999. 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. If DoubleClick revenue had been recorded on a net basis for
the seven months ended July 31, 1999, advertising, service and other revenue
would have been approximately $37.8 million.
Revenue derived from the DoubleClick agreement for 1996, 1997, the period
January 1, 1998 to June 11, 1998 and the period June 12, 1998 to December 31,
1998 was $.3 million, $9.3 million, $9.7 million and $18.0 million. For the
seven months ended July 31, 1999, revenue derived from the DoubleClick
agreement was $40.0 million. Net revenues derived from the agreement
represented approximately 28%, 67%, 72% and 77% of the our total net revenues
for 1996, 1997, the period January 1, 1998 to June 11, 1998 and the period
June 12, 1998 to December 31, 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
35
<PAGE>
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, service and other
revenue for 1996, 1997, the period from January 1, 1998 to June 11, 1998 and
the period from June 12, 1998 to December 31, 1998 was $2.0 million, $5.0
million, $3.4 million and $7.0 million. For the seven months ended July 31,
1999, cost of advertising, service and other 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, service and other 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,
the period from January 1, 1998 to June 11, 1998 and the period from June 12,
1998 to December 31, 1998 were $3.5 million, $6.0 million, $5.4 million and
$7.2 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 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,
the period from January 1, 1998 to June 11, 1998 and the period from June 12,
1998 to December 31, 1998 were $.9 million, $5.6 million, $5.4 million and
$23.9 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 and
the period from January 1, 1998 to June 11, 1998 to the period June 12, 1998
to December 31, 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, the period from January 1, 1998 to June 11, 1998 and the
period June 12, 1998 to December 31, 1998 were $1.8 million, $2.8 million $1.7
million and $3.8 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.
36
<PAGE>
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.
If the amortization of stock-based compensation was not presented
separately in operating expenses and was included in the specific components
of operating expenses, it would increase cost of advertising, service and
other revenue by $2.1 million, product development expense by $7.5 million,
sales and marketing expense by $12.7 million, and general and administrative
expense by $13.6 million.
Amortization of Intangibles. Amortization of intangibles for the years
ended 1996, 1997 and the period from January 1, 1998 to June 11, 1998 was not
significant. Amortization of intangibles for the period June 12, 1998 to
December 31, 1998 was $51.0 million. The increase in the period June 12, 1998
to December 31, 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, the period
from January 1, 1998 to June 11, 1998 and the period June 12, 1998 to December
31, 1998, interest expense was approximately $32,000, $114,000, $79,000 and
$221,000. 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.
Net Loss. Net loss for the years ended 1996, 1997, the period from January
1, 1998 to June 11, 1998 and the period June 12, 1998 to December 31, 1998 was
$7.3 million, $5.7 million, $2.5 million and $69.6 million. Net loss for the
seven months ended July 31, 1999 was $232.0 million. In 1997 and the period
from January 1, 1998 to June 11, 1998, the net loss decreased over 1996
because revenue growth exceeded the growth in operating expenses. In the
period June 12, 1998 to December 31, 1998, the net loss increased due to
substantial increases in operating expenses. For the seven months ended July
31, 1999, the net loss included $134.0 million for amortization of intangibles
resulting from the acquisitions of Shopping.com and Zip2, as well as
$35.8 million of 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 January 31, 2000, we financed our working capital
through cash received from CMGI and Compaq. In return, we have issued demand
notes payable to CMGI and Compaq 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 January 31, 2000 we had cash and cash equivalents of
$7.5 million and $12.4 million.
37
<PAGE>
Net cash used in operating activities for the years ended 1996, 1997, the
period January 1, 1998 to June 11, 1998 and the period June 12, 1998 to
December 31, 1998 was $6.8 million, $6.9 million, $6.1 million and
$9.1 million. Cash used in 1996 was primarily the result of net operating
losses. Cash used in 1997 and the period January 1, 1998 to June 11, 1998 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 the period June 12, 1998 to December 31, 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 was $38.4 million, $8.6 million and
$97.6 million for the seven months ended July 31, 1999, the six months ended
December 31, 1998 and the six months ended January 31, 2000. Net cash used was
primarily the result of net operating losses partially offset by amortization,
depreciation and stock-based compensation.
Net cash used in investing activities for the years 1996, 1997, the period
January 1, 1998 to June 11, 1998 and the period June 12, 1998 to December 31,
1998 was $5.3 million, $8.3 million, $5.4 million and $3.9 million. Net cash
used in investing activities was $554.0 million for the seven months ended
July 31, 1999, $1.5 million for the six months ended December 31, 1998 and
$32.8 million for the six months ended January 31, 2000. Cash used in
investing in 1996, 1997 and 1998 and the six months ended December 31, 1998
and January 31, 2000 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, the period January
1, 1998 to June 11, 1998, the period June 12, 1998 to December 31, 1998 and
the six months ended December 31, 1998 was $12.1 million, $15.2 million, $11.5
million, $13.0 million, and $10.2 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 six months ended January 31,
2000 was $599.9 million and $135.3 million which was primarily funding
received from Compaq and CMGI.
Noncash investing activities were $311.3 million for the period June 12,
1998 to December 31, 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 and AltaVista stock options
issued for acquisitions. Noncash investing activities were $2.2 billion for
the six months ended January 31, 2000, 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 anticipate significant increased expenditures on
advertising, expansion of facilities and computer operations infrastructure,
as well as personnel. We believe funding from CMGI and Compaq prior to
completion of this offering, together with the net proceeds of this offering,
will be sufficient to satisfy our cash requirements for the next 18 months.
CMGI has committed to provide the cash required to fund AltaVista's operations
through July 31, 2001. Without the proceeds of this offering, we would be
dependent upon this funding from CMGI. We intend to invest our excess cash in
high quality, interest-bearing securities. We may be required to raise
additional funds in order to support more rapid expansion, develop new or
enhanced services or technologies, respond to competitive pressures, acquire
complementary businesses or respond to unanticipated requirements through
public or private financings, strategic relationships or other arrangements.
We cannot be sure that 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. We have no current plans to sell additional equity securities in
the near term.
38
<PAGE>
Unaudited Pro Forma Quarterly Results of Operations
The following table sets forth our pro forma statement of income data for
the six quarters ended January 31, 2000. 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 January 1, 1998. The pro
forma 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
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, January 31,
1998 1998 1999 1999 1999 2000
------------- ------------ --------- --------- ----------- -----------
(unaudited)
(in thousands)
Unaudited Pro Forma
Quarterly Results of
Operations
<S> <C> <C> <C> <C> <C> <C>
Advertising, service and
other revenue, net..... $ 8,842 $ 12,228 $ 16,705 $ 21,601 $ 30,196 $ 46,865
Product revenue, net.... 2,015 4,176 4,862 12,397 22,421 4,030
--------- --------- --------- --------- --------- ---------
Total revenue........ 10,857 16,404 21,567 33,998 52,617 50,895
Cost of advertising,
service and other
revenue................ 3,008 3,408 5,200 5,971 8,198 13,231
Cost of product
revenue................ 2,266 5,888 5,835 12,631 23,269 3,142
--------- --------- --------- --------- --------- ---------
Cost of revenue...... 5,274 9,296 11,035 18,602 31,467 16,373
--------- --------- --------- --------- --------- ---------
Gross profit............ 5,583 7,108 10,532 15,396 21,150 34,522
--------- --------- --------- --------- --------- ---------
Product
development (a)....... 3,940 4,193 5,324 7,773 10,630 11,571
Sales and
marketing (a)......... 9,282 18,900 23,203 20,212 50,348 64,085
General and
administrative (a).... 3,584 12,880 3,597 5,539 6,471 7,171
Loss on disposal of
assets................ 338 1 -- -- --
Stock based
compensation.......... -- -- -- -- 278 782
Amortization of
intangibles........... 218,767 218,767 218,767 218,767 219,517 221,518
--------- --------- --------- --------- --------- ---------
Loss from operations.... (230,328) (247,633) (240,359) (236,895) (266,094) (270,605)
Other income/expense
Interest, net.......... 1,499 3,985 108 76 289 1,678
Other non-operating
loss.................. -- -- -- (19) 1,610 (62)
--------- --------- --------- --------- --------- ---------
Total................ 1,499 3,985 108 57 1,899 1,616
Loss before income
taxes.................. (231,827) (251,618) (240,467) (236,952) (267,993) (272,221)
Extraordinary loss...... -- 1,171 -- -- -- --
--------- --------- --------- --------- --------- ---------
Net loss................ $(231,827) $(252,789) $(240,467) $(236,952) $(267,993) $(272,221)
========= ========= ========= ========= ========= =========
<CAPTION>
Three Months Ended
------------------------------------------------------------------------
September 30, December 31, March 31, June 30, October 31, January 31,
1998 1998 1999 1999 1999 2000
------------- ------------ --------- --------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Advertising, service and
other revenue, net..... 81% 75% 77% 64% 57% 92%
Product revenue, net.... 19 25 23 36 43 8
--------- --------- --------- --------- --------- ---------
Total revenue........ 100 100 100 100 100 100
Cost of advertising,
service and other
revenue (a)............ 28 21 24 18 16 26
Cost of product
revenue................ 21 36 27 37 44 6
--------- --------- --------- --------- --------- ---------
Cost of revenue...... 49 57 51 55 60 32
--------- --------- --------- --------- --------- ---------
Gross profit............ 51% 43% 49% 45% 40% 68%
========= ========= ========= ========= ========= =========
</TABLE>
- --------
(a) Excludes stock-based compensation for the three months ended October 31,
1999 and January 31, 2000 as follows (in thousands): Product development
$83 and $235; Sales and marketing $56 and $156; and General and
administrative $139 and $391.
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
39
<PAGE>
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. 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; loss from operations
of $(94.8) million; and net loss of $(95.1) million.
Unaudited Historical Quarterly Results of Operations
The following table sets forth our unaudited statement of operations data
for the six quarters ended January 31, 2000. This data should be read in
conjunction with our 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
--------------------------------------------------------------------------
Combined Combined Combined Combined Consolidated Consolidated
September 30, December 31, March 31, June 30, October 31, January 31,
1998 1998 1999 1999 1999 2000
------------- ------------ --------- --------- ------------ ------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Unaudited Historical
Quarterly Results of
Operations
Advertising, service and
other revenue, net..... $ 8,842 $ 12,228 $ 16,705 $ 24,289 $ 32,414 $ 46,865
Product revenue, net.... -- -- 2,431 12,397 22,421 4,030
-------- -------- -------- --------- --------- ---------
Total revenue.......... 8,842 12,228 19,136 36,686 54,835 50,895
Cost of advertising,
service and other
revenue (a)............ 3,008 3,408 5,200 8,949 10,508 13,231
Cost of product
revenue................ -- -- 2,917 12,631 23,269 3,142
-------- -------- -------- --------- --------- ---------
Cost of revenue........ 3,008 3,408 8,117 21,580 33,777 16,373
Gross profit............ 5,834 8,820 11,019 15,106 21,058 34,522
-------- -------- -------- --------- --------- ---------
Product
development (a)........ 3,187 3,358 4,627 9,171 10,783 11,571
Sales and
marketing (a).......... 6,714 15,681 19,672 22,069 51,886 64,085
General and
administrative (a)..... 1,909 1,598 2,645 6,488 7,705 7,171
Stock-based compensation
and amortization of
intangibles............ 23,030 23,130 34,667 83,410 222,938 222,300
-------- -------- -------- --------- --------- ---------
Loss from operations.... (29,006) (34,947) (50,592) (106,032) (272,254) (270,605)
Interest income......... -- -- -- -- (104) (210)
Interest expense........ 104 106 98 47 399 1,888
Other non-operating
(income) loss.......... -- -- -- -- 1,610 (62)
-------- -------- -------- --------- --------- ---------
(29,110) (35,053) (50,690) (106,079) (274,159) (272,221)
Less net loss for the
period August 1, 1999
to August 18, 1999..... -- -- -- -- 38,710 --
-------- -------- -------- --------- --------- ---------
Net loss................ $(29,110) $(35,053) $(50,690) $(106,079) $(235,449) $(272,221)
======== ======== ======== ========= ========= =========
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------
Combined Combined Combined Combined Consolidated Consolidated
September 30, December 31, March 31, June 30, October 31, January 31,
1998 1998 1999 1999 1999 2000
------------- ------------ --------- --------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Advertising, service and
other revenue, net..... 100% 100% 87% 66% 59% 92%
Product revenue, net.... -- -- 13 34 41 8
-------- -------- -------- --------- --------- ---------
Total revenue.......... 100 100 100 100 100 100
Cost of advertising,
service and other
revenue (a)............ 34 28 27 24 19 26
Cost of product
revenue................ -- -- 15 34 42 6
-------- -------- -------- --------- --------- ---------
Cost of revenue........ 34 28 42 59 61 32
Gross profit............ 66% 72% 58% 41% 38% 68%
======== ======== ======== ========= ========= =========
</TABLE>
- --------
(a) Excludes stock-based compensation for the three months ended June 30,
1999, October 31, 1999 and January 31, 2000 as follows (in thousands):
Cost of advertising, service and other revenue $514, $897 and none;
Product development $1,863, $3,336 and $235; Sales and marketing $3,151,
$5,558 and $156; and General and administrative $3,378, $6,037 and $391.
40
<PAGE>
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 $8.8
million; product revenue of $9.0 million; loss from operations of
$(75.0) million; and net loss of $(75.2) million.
Quantitative and Qualitative Disclosure About Market Risk
Market Risk. Our 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.
Interest Rate Sensitivity. As of January 31, 2000, we had cash and cash
equivalents of $12.4 million, which consisted of highly liquid money market
instruments with maturities less than 90 days. Because of the short maturities
of these instruments, a sudden change in market interest rates would not have
a material impact on the fair value of the portfolio. We would not expect our
operating results or cash flows to be affected to any significant degree by
the effect of a sudden change in market interest rates on our portfolio.
Foreign Currency Exchange Risk. To date we have not had extensive
international operations; therefore our foreign currency exchange risk is
immaterial.
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. SFAS 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 our financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101.
SAB No. 101 summarized certain of the SEC Staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The adoption of SAB No. 101 did not have a material effect on our financial
position or results of operations, nor does the Company expect to report a
change in accounting principle resulting from its application.
Year 2000 Compliance
We currently are not aware of any Year 2000 problem in any of our critical
systems and services. However, the success to date of our Year 2000 efforts
cannot guarantee that a Year 2000 problem affecting third parties upon which
we rely will not become apparent in the future that could harm our business.
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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
February 2000, we acquired Raging Bull, a finance-oriented content provider
and online community and an affiliate of CMGI. In February 2000, we also
acquired Transium Corporation. Transium's primary business is providing search
services to customers such as e-commerce companies and Internet portal
operators. Transium receives and indexes data from customers and supplies the
search services available on their web sites to end users. Transium receives
ongoing fees from the e-commerce firms and Internet portal operators to which
it provides services. 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 an 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
user base and relationships with content and service providers, we seek to
provide a single destination for all of a user's search, information,
communication and commerce needs on the Internet. Our goal is to expand our
user base by extending our search, 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. "User reach" is an industry term used to describe the
percentage of all Internet users in the United States who have visited a
particular Internet site one or more times during a specified period of time.
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 we estimate, based on
internally generated data, consisted of more than 54 million unique users
worldwide during the month of January 2000, is one of the most Web-savvy and
brand-loyal on the Internet. "Unique user" is an industry term used to
describe an individual who has visited a particular Internet site one or more
times during a specified period of time. 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 our users residing outside the United States.
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Since our inception as an Internet search service, we have grown to become
a comprehensive information, media and commerce destination web site. During
January 2000, we delivered over 1.9 billion page views to our users, based on
internally generated data. We provide a suite of services including:
. AltaVista Search, our proprietary Internet search technology indexing
over 250 million web pages according to internally generated data
. 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
. AltaVista Shopping.com, our shopping service
. Free communications services including: Internet access and e-mail
services
Since developing one of the first large-scale Internet search engines, we
have accumulated more than 70 Internet search-related patents and patent
applications. 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, sports scores
and 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 a 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 free communications services such as Internet access and e-mail.
Approximately 2 million people have downloaded and registered to use 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 generate service revenues through sales of advertising and sponsorships,
fees for search services, product and development fees, licensing of our
search product, software and related support services and shopping services.
Advertising and sponsorship revenue results from advertising delivered on a
web page at an agreed rate per thousand of impressions delivered. Fees for
search services are derived from third parties' use of our search technology.
Search product software and support are sold directly to customers and through
resellers. Shopping service revenue occurs when we earn commissions on sales
of products on other web sites.
We believe that the combination of our unique technologies, relationships
with a variety of content and service providers 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 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.
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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 single source for their Internet
navigation and e-commerce needs. As a result, these portals began to provide
their users with access to a combination of 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
additional content and services. Many have added services, including
personalized pages, e-mail services, instant messaging and individual web
pages hosting, so-called sticky services, which tend to increase the frequency
and duration of user visits.
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 combine search technology, timely media content, local content and
shopping services with a broad network of content and service providers to
supply our users with an easy-to-use, single source for their Internet
navigation and e-commerce needs. Our web sites offer users ways to quickly,
accurately and dynamically access the knowledge they seek. Our portal has the
following capabilities:
Search Platform
AltaVista Search offers search functionality that enables Internet users to
find information on the Internet. We believe that AltaVista Search produces
highly relevant search results. Our index, which is frequently updated,
contained over 250 million web pages at January 2000, according to internally
generated data. 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
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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 search technologies provide a strong
foundation on which to build additional functionality to meet our users'
growing needs. We continue to add features 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. We also recently added an advanced search center to the
AltaVista search service. The advanced search center provides our users with
search tutorials and a community platform that allows our users to share their
search strategies.
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 broaden the community aspects of AltaVista
Live!, on February 1, 2000, we acquired Raging Bull, a finance-oriented
community and content Internet company and an affiliate of CMGI. As a result
of our relationships with content and service 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.
AltaVista Shopping.com
We offer an e-commerce service that provides customers with the information
necessary to make informed 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. In
October 1999, we changed the focus of our e-commerce strategy from selling
products to providing shopping services, including directing traffic to
merchant web sites for sales of products. We use our search technology to
enhance the shopping experience by increasing the speed and accuracy of the
shopping search, enabling our users to research and compare merchandise from
among millions of products. We provide several of these services through
agreements with: ZDNet for expert reviews, ConsumerReviews.com for consumer
product reviews and BizRate
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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. 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 2 million people have downloaded and registered to use 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 785,000 of our users as of February 29,
2000, according to internally generated data.
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 an Internet destination for web users and businesses that want to
efficiently access this information. 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.
. AltaVista Search. To maintain and extend our search capabilities, we
will continue to invest in developing our technology to provide an
extensive and relevant Internet search experience. Our goal is to
continue expanding our extensive index while delivering consistently
relevant results faster. We focus on providing our users with an
exhaustive tool for finding information. We plan to increase the
coverage of our index by adding additional sources of information.
We intend to extend our multimedia search capabilities 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 will allow users to quickly and
easily find music in the increasingly popular MP3 format on the
Internet. Finally, we plan to expand the use of our 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 and
college 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 merchants 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.
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. 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 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 Online Community Offerings. Our acquisition of Raging Bull is
part of our plan to expand our services that allow users to create
and actively manage Web-wide communities around topics that interest
them. Based upon data obtained from Media Metrix, Raging Bull was
first among all web sites in the average number of different page
requests made per day during November 1999 by those persons visiting
that Web site. 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 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 second 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 redeem their points toward products
from an online reward catalog.
. Promote the AltaVista Brand. We believe that building increased brand
recognition is critical to our goal of adding to our existing user base 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 our users
reside outside the United States. We intend to address this opportunity by
building an international organization and seeking relationships with
selected content and service providers 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 relationships with, and
integrate services and features offered by, CMGI's Internet operating
companies and affiliates.
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. Capitalize on New Technologies. We intend to capitalize on the
proliferation of handheld and other innovative Internet access devices and
on the penetration of wireless and broadband technologies.
. Increase Revenues Through 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
content and service providers. We recently increased our sales staff from
five in July 1999, to 39 as of January 31, 2000.
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. Our
search technology helps users find 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. In addition to being large, our index is frequently
updated. We maintain a database that records how often pages are updated and
removes 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. Through our relationship with Ask Jeeves and RealNames, we
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,
based on internally generated data, a user can search through a database of 25
million images, audio clips and video clips. This database is 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
relationship 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 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 content providers 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
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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 February 2000, we acquired 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
first among all web sites in average unique page views per user for the
month of November 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 various news sources, including The Associated Press,
The New York Times, Washington Post, ZDNet, and Reuters.
. Sports. Our sports channel is dedicated to sports news, real-time scores
and information. As the exclusive provider of sports content within our
sports channel, Fox Sports.com offers our users original content from
numerous staff writers and editors. The channel provides our users the
ability to search and access information on sports topics such as news
stories, featured events, scoreboards and video. Users can also 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.
. Women. Our women channel provides our users with the ability to search
and access information of interest to women. As the exclusive provider of
women-related content within our women channel, Women.com offers our
users a range of content and features from numerous writers and editors.
. Real Estate. Our real estate channel provides our users with the ability
to search and access information on real estate and related issues such
as home buying and selling, renting, mortgages, moving resources, senior
housing, corporate housing and self storage. As the exclusive provider of
real estate content within our real estate channel, Move.com offers our
users original content regarding various real estate subjects, classified
listings for rent or purchase and interactive tools, such as
affordability calculators.
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The content on AltaVista Live!'s channels comes from a variety of industry
news and information providers. In addition to the content providers described
above, the following table shows some of our content providers according to
type of content they provide us:
News and Weather Education
.Associated Press
.AccuWeather.com .Space.com
.Studyabroad.com
.Fastv.com .Suzan Nolan
.latimes.com .NUA.com
.MyWay.com
.The New York Times on the Web Entertainment
.Reuters
.AETNA
.Washingtonpost.Newsweek .Audio Explosion
Interactive
.Gigmania.com
.Imagine Media
Business and Finance .Listen.com
.BigCharts .Mondo Media
.Briefing.com
.BusinessWire.com .MusicBlitz.com
.Mynetmedia.com
.CBS Marketwatch.com
.CSI .Niche Music
.Small World
.Dow Jones.com .Stats Inc.
.Edgar Online .Thingworld
.H&R Block .Yack.com
.Hoovers
.Industry Standard Multimedia
.Investment Challenge.com .Corbis
.JagNotes .InterVU
.Merrill Lynch .Lipstream
.Morningstar.com .Tibco
.Nasdaq .Tribal Voice
.NYSE .Virage
.NetEarnings
Other
.On24
.PR NewsWire .AutoDesk
.Raging Bull .Cammunity
.Critical Path
.Red Herring
.S&P Comstock .Experts Exchange
.Worldly Investor .NewMoon
.Yodlee.com .Switchboard.com
.ZDNet .Systran
.TheTrip.com
.Travlang.com
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
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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 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 an 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 and get
recommendations and gift ideas. 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, 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--AltaVista 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.
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. 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.
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 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 use 1stUp, an affiliate of CMGI, to provide these services.
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.
Key Relationships
We have entered into a number of agreements with technology, marketing and
online companies in an effort to expand our product and services offerings and
grow our user base. We intend to continue developing these relationships and
enter into new relationships with the goal of 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 sell advertisements throughout our network including web sites
acquired by us, such as those operated by Raging Bull. 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. With the
exception of ten accounts to be designated by DoubleClick, we have the right
to designate as AltaVista accounts 60 advertising accounts on January 1, 2000,
as well as 30 more accounts each subsequent quarter. We may sell advertising
directly to these AltaVista accounts, provided that the designated keyword
impressions delivered each month through sales to AltaVista accounts do not
exceed specified maximum percentages of total keyword impressions sold by
DoubleClick and AltaVista, ranging from 20% to 50%. In addition, we may sell
advertising to affiliates of CMGI that are not competitors of DoubleClick,
provided these companies use the DART service, do not resell to third parties
and account for less than 1% of the aggregate impressions delivered during the
month for that category of advertising. The interim agreement also 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
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appear in, often referred to as white label advertising. Both DoubleClick and
AltaVista retain the right to sell certain non-banner advertising to
international advertisers under the interim agreement. In addition, unsold
advertising inventory may be bartered by us.
Under the agreement entered into on January 1999, which will replace the
interim agreement in January 2001 unless the parties further amend the
agreement, DoubleClick retains the exclusive right to deliver through its
proprietary computer systems the advertisements negotiated by either by
DoubleClick or us, and also retains the exclusive right to sell advertising to
designated customers. We may designate up to 200 advertising accounts as
accounts for which we have the exclusive right to sell banner, badges,
buttons, toolboxes and text lines to domestic advertisers. We may also sell
links on any search results page as part of a non-banner arrangement with an
advertiser. If the advertiser is not an AltaVista account, that advertiser
must be valued at least $50,000 for a 12-month period and the aggregate number
of impressions generated by the link must not exceed 5% of the total
impressions per month for that type of advertising on that search results
page. Similarly, we may sell links on any home page or directory page as part
of an advertising arrangement so long as the aggregate number of impressions
does not exceed 10% and 5%, respectively, of the total impressions per month
for that type of advertising on that particular home page or directory page.
DoubleClick earns a sales commission based on a percentage of revenues
generated from all advertising sold by DoubleClick on behalf of AltaVista for
all sales, customer support and other services that DoubleClick performs for
us. These commissions range from 23% to 30% under both the interim agreement
and the January 1999 agreement. The precise commission depends upon whether
the advertising is local, national or international. In addition, we pay to
DoubleClick a DART service fee, which varies from 6% to 10% of revenues under
both agreements depending on the category of advertising and the number of
impressions generated for all advertising delivered by DoubleClick to our web
sites.
The January 1999 agreement may be terminated by either party at the end of
the third year of the agreement. We may also terminate our agreements with
DoubleClick if, among other things, one of our competitors acquires
DoubleClick 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.
According to reports filed by DoubleClick with the Securities and Exchange
Commission, for the year ended December 31, 1999, DoubleClick's revenues were
$258.3 million and its net loss was $55.8 million. At December 31, 1999,
DoubleClick's working capital was $309.8 million. You can find more
information about DoubleClick through documents filed by DoubleClick with the
Securities and Exchange Commission, including its Annual Report on Form 10-K.
See "Where You Can Find More Information About AltaVista."
1stUp.com
In June 1999, we entered into an agreement with 1stUp.com Corporation, an
affiliate of CMGI, under which 1stUp provides 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 2
million people have downloaded and registered to use 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. To date, neither the fees we have
paid to 1stUp nor the revenues we have received from 1stUp have been
significant. 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 agreement extends through June 2001.
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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. CMGI pays to Compaq a royalty for these
preprogramming services, for which we reimburse CMGI, based on the amount of
redirected user traffic. Compaq is entitled to $0.01875 per redirect until May
2000, $0.0200 per redirect from June 2000 through May 2001 and $0.0225 per
redirect from June 2001 through May 2002.
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. Our rankings by Media Metrix for the months of October
1999 through January 2000 were 11, 14, 12 and 9. 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. However, users can reprogram the buttons preprogrammed by
Compaq, or select a proprietary online service provider that controls the
buttons, and the browser to take them to alternative web sites.
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.
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
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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 the 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, and fail to make up for the
shortfall, HealthCentral.com reduces its monthly payments to us by the same
percentage as the shortfall. For example, if we deliver only 80% of the
required impressions over a six-month period, and fail to make up for the
shortfall, HealthCentral.com reduces its monthly payments to us for the
following six months by 20%.
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 October 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 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. If we fail to
deliver a minimum number of advertising impressions, Fleet reserves the right
to terminate the agreement. 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.
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Fox Sports.com
In January 2000, we entered into a three-year agreement with News Digital
Media, Inc., d/b/a Fox Sports.com, an owner and provider of web sites, which
provides access to sports content, information and e-commerce. Under the terms
of the agreement, Fox Sports.com is the exclusive domestic sports content
provider for the AltaVista sports channel, provided it delivers the content
desired by us within a given time period. The agreement with Fox Sports.com
allows us to provide our users with the ability to search and access
information on sports topics such as news stories, featured events,
scoreboards and video. As the exclusive provider of sports content within our
sports channel, Fox Sports.com offers our users original content from numerous
staff writers and editors. Under the terms of the agreement, we will not
display content of direct Fox Sports.com competitors or advertisements of Fox
Sports.com competitors or advertisements of third parties that conflict with
exclusive contractual obligations of Fox Sports.com on any web pages of the
sports channel that also display content provided by Fox Sports.com.
Over the term of the agreement, in exchange for a guarantee of a number of
impressions of Fox Sports.com, (1) Fox Sports.com will pay us up to an
aggregate of $18 million in cash if we deliver the minimum number of
impressions required under the agreement and shall purchase an aggregate of
$700,000 of advertising on the AltaVista network, and (2) AltaVista shall
purchase an aggregate of $300,000 of advertising on Fox Sports or any of its
affiliates' websites. If we fail to deliver the minimum number of impressions
and fail to make up for the shortfall, Fox Sports.com may reduce its payments
to us by the same percentage as the shortfall. For example, if we deliver only
80% of the required impressions during a quarter, and fail to make up for the
shortfall, Fox Sports.com reduces its monthly payments to us for the following
quarter by 20%.
The agreement may be terminated by either party as of the end of the second
year of the agreement. Before such early termination becomes effective, both
parties have an obligation to attempt to re-negotiate the terms of the
agreement to prevent such termination. The agreement may also be terminated by
Fox Sports.com if we do not deliver a minimum number of impressions during
each year of the agreement.
Move.com
In January 2000, we entered into a three-year agreement with Move.com, an
owner and provider of web sites, which provides access to real estate content,
information and e-commerce. Under the terms of the agreement, Move.com is the
exclusive domestic real estate content provider for the AltaVista real estate
channel, provided Move.com delivers the content desired by us within a given
time period. The agreement with Move.com allows us to provide our users with
the ability to search and access information on real estate such as home
buying and selling, renting, mortgages, moving resources, senior housing,
corporate housing, and self storage. As the exclusive provider of real estate
content within our real estate channel, Move.com offers our users original
content regarding various real estate subjects, classified listings for rent
or purchase, and interactive tools, such as affordability calculators. Under
the terms of the agreement, we will not display content of direct competitors
of Move.com or advertisements of Move.com competitors on the real estate
channel that also displays content provided by Move.com.
Over the term of the agreement, Move.com will pay us up to $40 million in
cash if we deliver the minimum number of impressions. If we fail to deliver
the minimum number of impressions, Move.com may reduce its payment to us by
the same percentage as the shortfall. For example, if we deliver 80% of the
required impressions, Move.com will reduce its payment to us by 20% for that
quarter. We will be required to make up the 20% shortfall in the subsequent
quarter.
The agreement may be terminated earlier by us or Move.com after the first
year with three months notice without reason or may be terminated earlier by
Move.com if we fail to deliver the minimum number of advertising impressions
for six consecutive months.
Women.com
In January 2000, we entered into a three-year agreement with Women.com
Networks, Inc., an owner and provider of web sites, which provides access to
women related content and information. Under the terms of the
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agreement, Women.com is the exclusive domestic women related content provider
for the AltaVista Women Channel, provided it delivers the content desired by
us within a given time period. The agreement with Women.com allows us to
provide our users with the ability to search and access information on women
and astrology related issues such as family, fashion, beauty, food, home,
relationships, and astrology. As the exclusive provider of women related
content within our women channel, Women.com offers our users a range of
content and features from numerous writers and editors. Under the terms of the
agreement, we will not display content of direct Women.com competitors or
advertisements of Women.com competitors on any web pages of the women channel
that also displays content provided by Women.com.
Over the term of the agreement, in exchange for a guarantee of a number of
impressions delivered by us, Women.com will pay us up to $12 million in cash
and an additional $3 million in the event AltaVista meets certain performance
thresholds. If we fail to deliver the minimum number of impressions, the term
of the agreement will be extended for a mutually agreed upon period, during
which we must make up for the shortfall in delivered impressions. The
agreement may be terminated by either party prior to the start of the second
and third years of the agreement. Before such early termination becomes
effective, the parties have the right to negotiate the terms of the agreement
to prevent such termination.
Marketing and Public Relations
AltaVista's marketing efforts employ a mix of media to reach our 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 our 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 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. As of January 31, 2000, we had a total of
20 employees within our customer service and support organizations. The larger
customer service organization is in Irvine, California with 17 employees and
supports AltaVista Shopping.com. This group handles phone, fax and e-mail
inquiries from customers or potential customers. As of March 8, 2000,
AltaVista Shopping.com no longer sold products.
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
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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 January 31, 2000, 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.
As of January 31, 2000, we had over 600 trademark registrations and/or
applications in the United States and abroad which are generally directed at
protecting our core brands and selected sub-brands, such as the AltaVista
trademark and tradename, the AltaVista logos, and the "smart is beautiful"
slogan. We expect to file several more trademark registrations in the United
States and abroad directed at the same type of protection. We own many domain
name registrations in the United States and internationally, including
www.altavista.com, www.shopping.com and www.ragingbull.com, which are
important to us because they serve as both addresses for web users to find our
web site and are themselves highly recognizable brand names.
We also have copyrights in the text and graphics and other copyrightable
content on our web sites and in our search software. We rely on these
copyrights to maintain and build our competitive advantage and to make it more
difficult for competitors to copy our web site.
We may be unable to obtain or maintain intellectual property protection or
registrations in geographies or markets that are important to our success. In
addition, given the early stage of our international expansion, we cannot
predict what territories or markets may be important to our success. Further,
we may not have selected the proper intellectual property for which to seek
protection by way of registration. 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
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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 January 31, 2000, we had approximately 700 full-time employees, of
whom approximately 650 are located in the United States and Canada,
approximately 30 in Europe and the remainder in various other locations
outside 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.
Facilities
Our headquarters, which we lease, is located in Palo Alto, California and
consists of approximately 75,000 square feet. We also own or 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.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers
and directors as of February 29, 2000:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Rodney W. Schrock....... 40 Chief Executive Officer, President and Director
Kenneth R. Barber....... 55 Vice President and Chief Financial Officer
Gregory B. Memo......... 35 Executive Vice President and General Manager--AltaVista Network
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............ 55 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.
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 from January 1997 to December 1998. 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.
Gregory B. Memo has served as Executive Vice President and General Manager,
AltaVista Network since February 2000, prior to that he 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.
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.
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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. 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.
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. 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, Avram Miller 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.
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 325,000 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
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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 1,300,000 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 162,500 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 162,500 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 40,625 shares of
common stock if the director is still serving as one of our directors on that
anniversary date. Our board of directors may, in its discretion, increase to
up to 227,500 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 227,500 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
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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."
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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 -- 1,300,000(b) 139,023(c)
Kenneth R. Barber
Vice President and
Chief Financial Officer... 146,712 -- 260,000 3,548(d)
Ross Levinsohn
Vice President and General
Manager--AltaVista
New Media.................. 37,949 400,000(e) 208,000 --
Gregory B. Memo
Executive
Vice President and General
Manager--AltaVista
Network................... 98,353 25,000(e) 292,500(f) 70,216(g)
Michael G. Rubin
Vice President and General
Manager--AltaVista
e-Commerce................. 96,922 25,000(e) 292,500 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.
Prior to January 1, 1999, we were operated as a division of Digital
Equipment Corporation and Compaq and were not incorporated or operated as
a separate entity. 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 received a $300,000 bonus
in January 2000 which he must repay if he is not employed by us through
January 2001.
(b) Mr. Schrock converted 162,500 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 32,500 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 12,592,353 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
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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.
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
---------------------------------------------------------
Percent of Potential Realizable
Number of Total Value at Assumed Annual Rates of
Securities Options Stock Price Appreciation for
Underlying Granted to Exercise Market Option Term
Option Employees in Price Per Price Expiration ---------------------------------
Name Granted Fiscal Year Share Per Share Date 0% 5% 10%
- ---- ---------- ------------ --------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rodney W. Schrock....... 1,300,000(a) 11.53% $6.73 $7.69 1/31/2009 $1,248,000 $5,502,828 $13,945,247
Kenneth R. Barber....... 260,000 2.31 6.73 7.69 1/31/2009 249,600 1,100,566 2,789,049
Ross Levinsohn.......... 208,000 1.84 6.73 7.69 1/31/2009 199,680 880,452 2,231,239
Gregory B. Memo......... 292,500(b) 2.59 6.73 7.69 1/31/2009 280,800 1,238,136 3,137,680
Michael G. Rubin........ 292,500 2.59% $6.73 $7.69 1/31/2009 $ 280,800 $1,238,136 $ 3,137,680
</TABLE>
- --------
(a) Mr. Schrock converted 162,500 of these options into 42,237 options to
purchase CMGI common stock at an exercise price of $25.90 per share in
August 1999.
(b) Mr. Memo converted 32,500 of these options into 8,447 options to purchase
CMGI common stock at an exercise price of $25.90 per share in August 1999.
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.......... -- 1,300,000(a) -- $20,130,000
Kenneth R. Barber.......... -- 260,000 -- 4,026,000
Ross Levinsohn............. -- 208,000 -- 3,220,800
Gregory B. Memo............ -- 292,500(b) -- 4,529,250
Michael G. Rubin........... -- 292,500 -- $ 4,529,250
</TABLE>
- --------
(a) Mr. Schrock converted 162,500 of these options into 42,237 options to
purchase CMGI common stock at an exercise price of $25.90 per share in
August 1999.
(b) Mr. Memo converted 32,500 of these options into 8,447 options to purchase
CMGI common stock at an exercise price of $25.90 per share in August 1999.
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The "Value of Unexercised In-the-Money Options at July 31, 1999" is based
on a value of $22.22 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 maximum of
2,600,000 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.
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 15% 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 3,250 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.
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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 26,000,000 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 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.
Amended and Restated 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.
In March 2000, the board of directors approved the Amended and Restated 1999
Equity Incentive Plan. The Equity Plan, together with our other stock option
plans, covers an aggregate of 40,300,000 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 1,300,000 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.
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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.
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) continue to pay the mortgage subsidy agreed between us and the executive
for the life of such subsidy, if applicable; and (4) 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. The life,
disability, accident and health insurance benefits will be reduced to the
extent benefits of the same type are received by or made available to the
executive officer by another employer during the 12-month period following the
executive officer's termination of employment. 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. A change in control is generally defined to include
the occurrence of any of the following events:
. a person or group of persons acquires securities representing 30% or more
of our voting stock;
. current Board members and persons approved by such members cease to be a
majority of the Board;
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. our stockholders approve a merger of consolidation and after such merger
of consolidation is complete, our stockholders do not own at least 50% of
the new company; or
. our stockholders approve a plan providing for our complete liquidation or
the sale of all or substantially all of our assets.
Cause is generally defined to include the occurrence of any of the
following events:
. the executive officer's willful and continued failure to substantially
perform his or her duties;
. the executive officer's willful engaging in conduct which is demonstrably
and materially injurious to us; or
. upon exercise of option to purchase our stock, the executive officer's
failure to execute an agreement limiting his transfer rights with respect
to the stock issuable in connection with such exercise, which limitations
will expire when our stock becomes publicly traded.
Good reason is generally defined to include the occurrence of any of the
following events without the executive officer's consent following a change in
control:
. a reduction in the nature or status of the executive officer's
responsibilities;
. a reduction in the executive officer's annual base salary;
. the relocation of the executive officer's employment to a location more
than 30 miles away;
. the failure to pay to the executive officer any portion of his or her
current or deferred compensation within seven days of the date such
amounts are due;
. the failure to continue in effect any material incentive compensation
plan in which the executive officer participates;
. the failure to continue to provide the executive officer with other
material benefits; or
. any purported termination of the executive officer's employment which is
not effected pursuant to the procedures set forth in the severance
agreement.
Mortgage Subsidy Agreements
Compaq entered into mortgage subsidy agreements with each of Messrs.
Schrock, Memo and Rubin, which agreements were assigned to AltaVista. The
total subsidy amounts received by each of these individuals is $148,716,
$123,200 and $86,506. Each of these agreements has a term of three years and
provides that AltaVista will pay a portion of the executive's monthly mortgage
payment so long as the executive remains employed by us and continues to own
the underlying property.
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.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with CMGI
As of January 31, 2000, CMGI owned approximately 81.54% of our common
stock. CMGI will directly own approximately 73.76% of our outstanding common
stock upon completion of this offering. The aggregate consideration paid by
CMGI for its equity interest in AltaVista was approximately $2.03 billion. The
aggregate value of the shares of our common stock that are owned by CMGI,
based on an assumed initial offering price of $19.00 per share, is
approximately $2.04 billion.
CMGI acquired substantially all of its equity ownership in us in August
1999, pursuant to a purchase and contribution agreement among CMGI, Compaq and
us. Pursuant to this agreement, CMGI contributed to us 18,994,975 shares of
CMGI common stock, 18,090.45 shares of CMGI series D preferred stock and all
of the shares of Zip2 and Shopping.com common stock it had purchased from
Compaq in return for 105,943,651 shares of our common stock. As part of this
same transaction, Compaq contributed the AltaVista business to us in exchange
for 24,056,349 shares of our common stock, 18,994,975 shares of CMGI common
stock and 18,090.45 shares of CMGI series D preferred stock.
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. Under Delaware law and our Amended and
Restated Certificate of Incorporation, CMGI may exercise its voting power by
written consent, without convening a meeting of the 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 will adopt a policy that all future arrangements between
AltaVista and CMGI 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, other than routine commercial transactions entered
into in the ordinary course of business, 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 note to CMGI as payment for all 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, 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
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. 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 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. The
conversion price applicable to all advances made after January 31, 2000 is
$19.00. Each share of Series A convertible preferred stock outstanding will
convert into ten shares of common stock upon the completion of this offering.
As of January 31, 2000, we owed CMGI $121.8 million, which amount will be
converted into approximately 608,000 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
approximately 6,081,000 shares of our common stock. Based on an assumed
initial offering price of $19.00 per share, the aggregate value of the common
stock issuable upon conversion of the preferred stock held by CMGI and debt
owed to CMGI is approximately $115,540,000. 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 related 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.
The costs of Internet marketing and business development is allocated by CMGI
in equal shares to each of its affiliates that use the services.
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.
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Neither CMGI nor we 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 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
1stUp. In June 1999, we entered into an agreement with 1stUp.com
Corporation, an affiliate of CMGI, under which 1stUp provides 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 2 million people have downloaded and registered to use
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. To date,
neither the fees we have paid to 1stUp nor the revenues we have received from
1stUp have been significant. 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 agreement extends through June 2001. In
July 1999, we purchased 2,171,809 shares of Series C preferred stock of 1stUp
for approximately $2,500,000,
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resulting in us owning approximately a 19.9% equity interest in 1stUp. On
November 4, 1999, CMGI acquired all of the issued and outstanding stock of
1stUp and we exchanged our equity interest in 1stUp for 137,705 shares of CMGI
common stock.
CMGi Solutions. On December 1, 1999, we entered into a source code
licensing agreement with CMGi Solutions, Inc., a wholly owned subsidiary of
CMGI. Under this agreement, CMGi Solutions has licensed to us 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 paid CMGi Solutions a one-time license fee of $150,000 in
January 2000, and a monthly recurring license fee based on peak simultaneous
online users, ranging from 5 cents to 1 cent per online user per month. The
contract is for a term of 24 months, with a cap of $600,000 on monthly fees we
pay them for the term. We have made no payments to CMGi Solutions to date.
Critical Path. On September 14, 1999, we entered into an 18-month e-mail
services agreement with Critical Path Inc., 4% of which is held by CMGI. 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. Under the terms of the
deal we are obligated to pay Critical Path a one-time fee of $17,000, as well
as a minimum of $10,000 per month. However, we have made no payments to date.
Engage. On October 10, 1999, we entered into a three-year alliance
agreement with Engage Technologies, Inc., approximately 81% of which is held
by CMGI. Under this agreement, we license Engage's ad management and profile
technology for use throughout our network. Engage's profile technology allows
targeted online advertising based on an anonymous collection of information
about our user's consumer interests, demographic characteristics and
geographic locations. 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. In January 2000, we paid
Engage $764,450.
EXP.com. On March 15, 2000, we entered into an ad insertion agreement with
EXP.com, approximately 4% of which is held by CMGI, through its CMG@Ventures
funds. Under this agreement, we will provide a link to EXP.com's website at
the bottom of each AltaVista search results page. Under this agreement,
EXP.com will pay us a minimum of $40,000 per month with increasing payments,
based on the number of user clickthroughs from the AltaVista search results
page to the EXP.com web site. The contract is for a term of six months.
EXP.com has made no payments to date.
iAtlas. On September 28, 1999, CMGI acquired iAtlas Corporation, previously
an unrelated entity, 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 1,556,387 shares of our common
stock for an aggregate acquisition cost of approximately $28 million.
ICast. On December 23, 2000, we entered into a software license agreement
with ICast, 80% of which is owned by CMGI. Under this agreement, we have
licensed our search technology to ICast for its Zinezone site. In connection
with the agreement, ICast has agreed to pay us $70,900 and has made no
payments to us to date.
NaviSite. On September 4, 1998, we entered into a services agreement with
NaviSite, for a term of three months, with a side letter entered into on May
21, 1999 extending the term to November 21, 1999. We were charged a one-time
fee of $88,110 in August 1999, with monthly recurring fees of $68,310. Since
the beginning of the original term, we have made total payments to NaviSite of
approximately $1 million. Navisite is 72% owned by CMGI. Under this agreement,
NaviSite provides to us various Internet services that include hosting, setup
and management, load balancing and web statistical reporting.
Raging Bull. On February 1, 2000, we completed our acquisition of Raging
Bull. We issued approximately 6,609,492 shares of our common stock, valued at
approximately $150.2 million, and options to purchase
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approximately 657,200 shares of our common stock, valued at approximately
$12.3 million, for an aggregate purchase price of approximately $163 million,
in consideration for all the outstanding capital stock and stock options of
Raging Bull. Ten percent of the shares of our common stock issued to
stockholders of Raging Bull, however, are held in escrow to secure the
obligations of Raging Bull and its stockholders to indemnify us against the
breach or inaccuracy of any representation or warranty, or the breach of any
covenant contained or contemplated by the merger agreement we entered into
with Raging Bull. Immediately prior to our acquisition, Raging Bull was owned
in part by various CMGI affiliates.
Signatures Network. In March 2000, we entered into a two-year agreement
with Signatures Network, Inc., 80% of which is indirectly held by CMGI. Under
this agreement, Signatures Network will sell music and artist-related
merchandise for AltaVista, including Signatures Network branded, AltaVista
branded and third-party branded products. Signatures Network will also grant
users access to celebrity events related to content promotion on a case-by-
case basis. Signatures Network will pay us $5,000 a month to secure a
permanent link on the AltaVista music channel home page. We will retain all
revenue across the AltaVista platform and will share revenue from artist
promotions with Signatures Network on a case-by-case basis. Signatures Network
will receive a percentage of net sales on all products sold through the co-
branded e-commerce store. To date, no payments have been made under this
arrangement.
ThingWorld. On October 21, 1999, we entered into a one-year content
licensing agreement with ThingWorld.com LLC, 36% of which is held by CMGI,
through its CMG@Ventures funds. 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., which is wholly owned by CMGI.
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
50% of net ad revenues for ads served.
Vicinity. On May 1, 1998, Digital entered into a Mapping Service and
Linking Agreement with Vicinity Corporation, 29% of which is held by CMGI,
through its CMG@Ventures funds, 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 May 1, 1999. In connection with the agreement, we have paid
Vicinity $32,000 on August 1, 1998, and $160,000 on July 31, 1999. In January
2000, our Shopping.com subsidiary entered into a new contract with Vicinity.
Zip2. In October 1999, we distributed a stock dividend of all Zip2 stock
owned by us to our stockholders. As a result, Zip2 was owned by CMGI and
Compaq, 81.5% and 18.5%, respectively. Zip2 has subsequently been acquired by
MyWay.com Corporation in a stock transaction. 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. We have entered into an agreement with
Zip2, which assigns a co-ownership interest in and a license to the Zip2
technology to AltaVista, allowing us to further develop and enhance the
AltaVista Live! service. Our agreement with Zip2 also provides for the
transfer of equipment from Zip2 to AltaVista and for AltaVista to provide
transition services to Zip2.
Relationship with Compaq
As of January 31, 2000, Compaq owned approximately 18.25% of our common
stock. Compaq will directly own approximately 16.46% of our outstanding common
stock upon completion of this offering. The aggregate consideration paid by
Compaq for its equity interest in AltaVista was approximately $138 million.
The aggregate value of the shares of our common stock that are owned by
Compaq, based on an assumed initial offering price of $19.00 per share, is
approximately $457 million.
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Debt Conversion
We have issued a convertible demand note to Compaq as payment for all 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, 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 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.
The conversion price applicable to all advances made after January 31, 2000 is
$19.00. Each share of Series A convertible preferred stock outstanding will
convert into ten shares of common stock upon the completion of this offering.
As of January 31, 2000, we owed Compaq $8.1 million, and Compaq has the
right to provide us with additional convertible debt financing of $17.5
million, which amounts will be converted into 128,000 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 1,283,000 shares of our common stock. Based on an assumed
initial offering price of $19.00 per share, the aggregate value of the common
stock issuable upon conversion of the preferred stock held by Compaq and debt
owed to CMGI is approximately $24.4 million. 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. CMGI pays to Compaq a royalty for these
preprogramming services, for which we reimburse CMGI, based on the amount of
redirected user traffic. Compaq is entitled to $0.01875 per redirect until May
2000, $0.0200 per redirect from June 2000 through May 2001 and $0.0225 per
redirect from June 2001 through May 2002. For the six months ended January 31,
2000, CMGI paid to Compaq $3.6 million for these preprogramming services, for
which we will reimburse CMGI.
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. Our rankings by Media Metrix for the months of October
1999 through January 2000 were 11, 14, 12 and 9. 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 harm our business.
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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. However, users can reprogram the buttons preprogrammed by
Compaq, or select a proprietary online service provider that controls the
buttons, and the browser to take them to alternative web sites.
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.
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.
Master Lease Agreement
In November 1999, we entered into a Master Lease and Financing Agreement
with Compaq Financial Services Corporation, a subsidiary of Compaq. From time
to time, under this agreement, Compaq Financial may lease equipment and
computer software programs to us and provide us with financing for license
fees related to
computer software programs and other services. As of January 31, 2000, our
outstanding balance under the agreement was approximately $26 million.
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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 January 31, 2000 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 131,831,437 shares of common
stock outstanding as of January 31, 2000, and as adjusted to reflect the
issuance of 14,800,000 shares of common stock in this offering. The
outstanding shares of our common stock shown as held by CMGI and Compaq
include shares issuable upon the conversion of our outstanding debt to CMGI
and Compaq as of January 31, 2000. The percentages of outstanding shares of
CMGI common stock are based on 279,933,518 shares of common stock outstanding
as of January 31, 2000, reflecting the 2-for-1 split of CMGI's outstanding
shares of common stock effected in January 2000. 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
January 31, 2000 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, 1070 Arastradero Road, Palo Alto,
California 94304.
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<TABLE>
<CAPTION>
Percent of Shares
Outstanding
--------------------
Name and Address of Number of Shares Before the After the
Beneficial Owner Company Beneficially Owned Offering Offering
- ------------------- --------- ------------------ ---------- ---------
<S> <C> <C> <C> <C>
CMGI, Inc................... AltaVista 113,581,082 81.6% 73.8%
100 Brickstone Square
Andover, Massachusetts
01810
Compaq Computer Corporation,
as successor in interest to
Digital Equipment
Corporation................ AltaVista 25,339,380 18.2% 16.5%
20555 SH 249
Houston,Texas 77070
Rodney W. Schrock........... AltaVista 379,165(a) * *
CMGI -- * *
Kenneth R. Barber........... AltaVista 75,833(a) * *
CMGI -- -- --
Ross Levinsohn.............. AltaVista 60,665(a) * *
CMGI -- -- --
Gregory B. Memo............. AltaVista 72,989(a) * *
CMGI 1,947(a) * *
Michael G. Rubin............ AltaVista 85,312(a) * *
CMGI -- -- --
David S. Wetherell.......... AltaVista 113,581,082(b) 81.6 73.8
CMGI 35,533,656(c) 12.5% 12.5%
Flint J. Brenton............ AltaVista -- -- --
CMGI -- -- --
John G. McDonald............ AltaVista 60,125(a) * *
CMGI -- -- --
Avram Miller................ AltaVista 113,601,393(d) 81.6 73.8
CMGI 87,999(a) * *
Robert J. Ranalli........... AltaVista 113,601,393(e) 81.6 73.8
CMGI 108,399(a) * *
All directors and executive
officers as a group
(10 persons)............... AltaVista 114,355,793(f) 82.2 74.3
CMGI 35,798,975(g) 12.7% 12.7%
</TABLE>
- --------
* Indicates beneficial ownership of less than 1% of the common stock.
(a) Consists of shares issuable upon the exercise of options that are
currently exercisable or exercisable within 60 days of January 31, 2000.
(b) Consists of shares owned by CMGI. Mr. Wetherell disclaims beneficial
ownership of all 113,581,082 shares owned by CMGI.
(c) As of January 31, 2000, Mr. Wetherell owned 35,553,656 shares of the
common stock of CMGI, which includes: (i) 2,691,776 shares which may be
acquired upon the exercise of options that are exercisable 60 days after
January 31, 2000, (ii) 16,932,672 shares held by the North Andover LLC of
which Mr. Wetherell is a manager, as to which Mr. Wetherell disclaims
beneficial ownership and (iii) 388,244 shares held in the David S.
Wetherell Charitable Trust, of which Mr. Wetherell is a trustee, as to
which Mr. Wetherell disclaims beneficial ownership.
(d) Includes 20,311 shares issuable upon exercise of options that are
currently exercisable or exercisable within 60 days of January 31, 2000.
Also includes 113,581,082 shares owned by CMGI. Mr. Miller disclaims
beneficial ownership of all 113,581,082 shares owned by CMGI.
(e) Includes 20,311 shares issuable upon the exercise of options that are
currently exercisable or exercisable within 60 days of January 31, 2000.
Also includes 113,581,082 shares owned by CMGI. Mr. Ranalli disclaims
beneficial ownership of all 113,581,082 shares owned by CMGI.
(f) Includes 774,711 shares issuable upon the exercise of options that are
currently exercisable or exercisable within 60 days of January 31, 2000.
(g) Includes 2,917,095 shares issuable upon the exercise of options that are
currently exercisable or exercisable within 60 days of January 31, 2000.
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DESCRIPTION OF CAPITAL STOCK
The following description summarizes the material terms of 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 1,495,000,000 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, 153,995,511
shares of common stock will be issued and outstanding and no shares of
preferred stock will be issued and outstanding.
Common Stock
Voting Rights. Each outstanding share of common stock is entitled to one
vote on all matters submitted to a vote of AltaVista's stockholders, including
the election of directors. There are no cumulative voting rights, and
therefore the holders of a plurality of the shares of common stock voting for
the election of directors may elect all of AltaVista's directors standing for
election.
Dividends. Holders of common stock are entitled to receive dividends at the
same rate if and when dividends are declared by our board of directors out of
assets legally available for the payment of dividends, subject to preferential
rights of any outstanding shares of preferred stock.
Liquidation. In the event of a liquidation, dissolution or winding up of
the affairs of AltaVista, whether voluntary or involuntary, after payment of
the debts and other liabilities of AltaVista and making provisions for the
holders of any outstanding shares of preferred stock, the remaining assets of
AltaVista will be distributed ratably among the holders of shares of common
stock.
Rights and Preferences. The common stock has no preemptive, redemption,
conversion or subscription rights. The rights, powers, preferences and
privileges of holders of common stock and subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future.
Fully Paid and Non-assessable. All outstanding shares of common stock are,
and the shares of common stock issued pursuant to this offering will be, fully
paid and non-assessable.
Special Meetings of Stockholders. 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 no shares of preferred stock outstanding. Immediately
prior to the closing of this offering, we will have outstanding approximately
736,000 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
7,364,074 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."
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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:
. the number of shares constituting the series and the distinctive
designation of the series;
. 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;
. 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;
. 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;
. 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;
. 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
. 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.
Corporate Opportunities
Our revised certificate of incorporation provides that CMGI will have no
duty to refrain from engaging in the same or similar activities or lines of
business as us, and neither CMGI nor any of its officers or directors, except
as provided below, will be liable to us or our stockholders for breach of any
fiduciary duty solely by reason of any of these activities. If CMGI acquires
knowledge of a potential transaction or matter which may be a corporate
opportunity for both CMGI and us, CMGI will have no duty to communicate or
offer this corporate opportunity to us. In addition, CMGI will not be liable
to us or our stockholders for breach of any fiduciary duty as a stockholder
solely by reason of the fact that CMGI pursues or acquires this corporate
opportunity for itself,
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directs this corporate opportunity to another person, or does not communicate
information regarding this corporate opportunity to us.
If a director or officer of us who is also a director or officer of CMGI
acquires knowledge of a potential transaction or matter which may be a
corporate opportunity for both us and CMGI, this individual will have fully
satisfied and fulfilled his or her fiduciary duty to us and our stockholders
with respect to this corporate opportunity if he or she acts in a manner
consistent with the following policy:
. the corporate opportunity will belong to us if this opportunity is
expressly offered to the person in writing solely in his or her capacity
as our director or officer
. otherwise, this opportunity will belong to CMGI
In addition to any vote of the stockholders required by our revised
certificate of incorporation, the affirmative vote of the holders of more than
80% of the outstanding shares of common stock will be required to alter, amend
or repeal, or adopt any provision inconsistent with, the corporate opportunity
provisions described above. Accordingly, so long as CMGI beneficially owns at
least 20% of the outstanding shares of our common stock, it can prevent any
such alteration, amendment, repeal or adoption.
Any person purchasing or otherwise acquiring our common stock will be
deemed to have notice of, and to have consented to, the foregoing provisions
of our revised certificate of incorporation.
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, or
. with respect to any criminal action or proceeding, the officer or
director had reasonable cause to believe his or her conduct was unlawful
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
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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."
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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 January 31, 2000, we will have an aggregate of 153,995,511
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 14,800,00 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
139,195,911 shares of common stock that will be outstanding after this
offering will be "restricted securities" as that term is defined under Rule
144. Upon expiration of the lock-up agreements described below, 138,920,462 of
these restricted shares will be immediately available for resale in the public
market. 275,449 of the restricted shares will be eligible for resale at
various times thereafter upon expiration of applicable holding periods.
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 139,186,536 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 or us, which
consent we have agreed will not be given without the prior written consent of
Morgan Stanley & Co. Incorporated, for a lock-up period of 180 days from the
date of this prospectus.
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 1,539,955 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.
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
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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. Upon
expiration of the lock-up agreements described above, 4,622,308 of such shares
will be immediately available for resale in the public market.
Stock Options
As of January 31, 2000, options to purchase a total of 16,474,667 shares of
common stock were outstanding, of which 2,881,108 were then exercisable and
2,500,963 were then vested. Upon completion of this offering, we intend to
file a registration statement to register for resale an aggregate of
40,300,000 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 held 138,920,462
shares of our common stock as of January 31, 2000, 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."
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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;
85
<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. status 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.
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<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, Chase Securities Inc.,
FleetBoston Robertson Stephens Inc., Prudential Securities Incorporated and
Wit SoundView Corporation are acting as U.S. representatives, and the
international underwriters named below for whom Morgan Stanley & Co.
International Limited, Chase Securities Inc., FleetBoston Robertson Stephens
International Ltd, Prudential-Bache International Limited, and Wit SoundView
Corporation 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.............................
Chase Securities Inc..........................................
FleetBoston Robertson Stephens Inc............................
Prudential Securities Incorporated............................
Wit SoundView Corporation.....................................
----------
Subtotal ................................................... 11,840,000
==========
International Underwriters:
Morgan Stanley & Co. International Limited....................
Chase Securities Inc..........................................
FleetBoston Robertson Stephens International Ltd..............
Prudential-Bache International Limited .......................
Wit SoundView Corporation.....................................
----------
Subtotal ..................................................... 2,960,000
----------
Total....................................................... 14,800,000
==========
</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.
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<PAGE>
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 selected dealers at a price that
represents a concession not in excess of $ a share under the public
offering price. No underwriter may allow, and no dealer may reallow, a
concession to other underwriters or 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 2,220,000
additional shares of common stock at the public offering price listed 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 the
conditions contained in the underwriting agreement, 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 underwriting discounts and commissions will be determined by
negotiations between AltaVista and the representatives. Among the factors to
be considered in determining the discounts and commissions will be the size of
the offering, the nature of the securities offered and the discounts and
commissions charged in comparable transactions.
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 other stockholders of AltaVista has agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, or without the prior written consent of AltaVista, which consent
AltaVista has agreed will not be given without the prior written consent of
Morgan Stanley & Co. Incorporated, 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;
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. the issuance by AltaVista of shares of common stock, rights to purchase
common stock or options in connection with its 1999 Employee Stock
Purchase Plan, 1999 Stock Option Plan, 1999 Equity Incentive Plan, 1999
Stock Option Plan for Non-Employee Directors, and Amended and Restated
1999 Stock Option Plan for Non-Employee Directors, if the recipients of
the shares agree to be bound by the restrictions in the preceding
paragraph;
. the issuance by AltaVista of shares of common stock in connection with a
merger or acquisition by AltaVista of the capital stock or assets of
another entity, if the recipients of the shares agree to be bound by the
restrictions in the preceding paragraph; and
. 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 2,960,000 shares of common stock offered
in this offering under a directed share program. We currently expect that
1,480,000 of these shares will be offered to persons and entities that have
contributed to the development of AltaVista, as well as employees. The
directed share program with respect to these persons is being administered by
Morgan Stanley Dean Witter. In addition, we currently expect that 1,480,000 of
these shares will be offered to U.S. stockholders of CMGI who held at least
200 shares of CMGI stock as of January 24, 2000 in any one account and who
have access to the Internet and a personal e-mail address. The directed share
program with respect to these qualifying CMGI stockholders is being
administered by Wit SoundView's affiliate, 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 shares reserved for qualified CMGI stockholders 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. If Wit
Capital receives indications of interest from qualifying CMGI stockholders for
a number of shares exceeding the number of shares reserved for such
shareholders, Wit Capital intends to allocate shares among these stockholders
by a random number generation process.
Morgan Stanley Dean Witter Online Inc., an affiliate of Morgan Stanley &
Co. Incorporated, is acting as an underwriter in connection with the offering
and will distribute shares of common stock over the Internet to its eligible
account holders. A prospectus in electronic format is being made available on
an Internet web site maintained by Wit SoundView's affiliate, Wit Capital
Corporation. In addition, all dealers purchasing common shares from Wit
SoundView in this offering have agreed to make a prospectus in electronic
format available on a web site maintained by each of them. A prospectus in
electronic format is being made available on an Internet web site maintained
by Prudential Securities Incorporated to eligible clients through its
PrudentialSecurities.com division. Clients of Prudential Securities
Incorporated may place orders only by directly contacting their financial
advisors.
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.
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<PAGE>
From time to time, Morgan Stanley & Co. Incorporated has provided, and
continues 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
some liabilities relating to this offering, 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. The material factors
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.
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<PAGE>
LEGAL MATTERS
The validity of the shares 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. In addition, Skadden, Arps, Slate, Meagher &
Flom LLP or an affiliated entity may purchase up to 10,000 shares reserved by
the underwriters for sale in the directed share program described under
"Underwriters."
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 and as
of August 18, 1999, 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 no significant matters. 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 accountants
until the Company dismissed PricewaterhouseCoopers LLP effective November 16,
1999, which dismissal was approved by the Company's Board of Directors.
PricewaterhouseCoopers LLP performed the audits of the financial statements
and related schedule of AltaVista as of December 31, 1997 and 1998 and for the
years ended December 31, 1996 and 1997, for the period from January 1, 1998
through June 11, 1998, and for the period from June 12, 1998 through
December 31, 1998. The reports of PricewaterhouseCoopers LLP on the financial
statements and schedule of AltaVista prepared in connection with 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 through November 16, 1999, there were no disagreements between
PricewaterhouseCoopers LLP and the Company on any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which disagreement if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to
make reference thereto in their reports on the financial statement for such
year.
The financial statements of Alta Vista as of December 31, 1997 and 1998 and
for the years ended December 31, 1996 and 1997, for the period from January 1,
1998 through June 11, 1998 and for the period from June 12, 1998 through
December 31, 1998, included in this prospectus, have been so included in
reliance on the report of PricewaterhouseCoopers, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
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 ended
January 31, 1999, included in this prospectus, have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
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,
included in this Prospectus, have been so indicated in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
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<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.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AltaVista Business
Report of KPMG LLP, Independent Accountants............................... F-2
Balance Sheets as of December 31, 1998 (unaudited), July 31, 1999, August
18, 1999 and January 31, 2000 (unaudited)................................ F-3
Statements of Operations for the seven months ended July 31, 1999 and for
the six months ended December 31, 1998 and January 31, 2000 (unaudited).. F-4
Statement of Changes in Owners' Net Investment............................ F-5
Statements of Cash Flows for the seven months ended July 31, 1999 and for
the six months ended December 31, 1998 and January 31, 2000 (unaudited).. F-6
Notes to Financial Statements............................................. F-7
AltaVista
Report of PricewaterhouseCoopers LLP, Independent Accountants............. F-31
Balance Sheet as of December 31, 1997 and 1998............................ F-33
Statement 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-34
Statement of Changes in Owner's Net Investment............................ F-35
Statement 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-36
Notes to Financial Statements............................................. F-37
Shopping.com
Report of PricewaterhouseCoopers LLP, Independent Accountants............. F-48
Consolidated Balance Sheet as of January 31, 1998 and 1999................ F-49
Consolidated Statement of Operations for the year ended January 31, 1998
and 1999................................................................. F-50
Consolidated Statement of Shareholders' Equity (Deficit).................. F-51
Consolidated Statement of Cash Flows as of January 31, 1998 and 1999...... F-52
Notes to Consolidated Financial Statements................................ F-53
Report of Singer Lewak Greenbaum & Goldstein LLP, Independent
Accountants.............................................................. F-70
Balance Sheet as of January 31, 1997...................................... F-71
Statement of Operations for the year ended January 31, 1997............... F-72
Statement of Shareholders' Deficit for the year ended January 31, 1997.... F-73
Statement of Cash Flows for the year ended January 31, 1997............... F-74
Notes to Financial Statements............................................. F-75
Zip2 Corp.
Index to Consolidated Financial Statements................................ F-81
Report of PricewaterhouseCoopers LLP, Independent Accountants............. F-82
Consolidated Balance Sheet as of December 31, 1997 and 1998, and as of
March 31, 1999 (unaudited)............................................... F-83
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-84
Consolidated Statement of Shareholders' Equity............................ F-85
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-86
Notes to Consolidated Financial Statements................................ F-87
</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 AltaVista (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 and the accompanying consolidated balance
sheet of the AltaVista Company as of August 18, 1999. These combined and
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined and
consolidated financial statements based on our audits.
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 audits provide a reasonable basis
for our opinion.
In our opinion, the combined and consolidated financial statements referred
to above present fairly, in all material respects, the combined financial
position of AltaVista as of July 31, 1999, the results of its operations and
its cash flows for the seven-month period ended July 31, 1999, and the
consolidated financial position of the AltaVista Company as of August 18,
1999, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the 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 consolidated financial information as of and for the periods
after the acquisition date are presented on a different cost basis than that
for the periods before the acquisition and, therefore, are not comparable.
KPMG LLP
San Francisco, California
February 22, 2000
F-2
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Combined Combined Consolidated Consolidated
December 31, July 31, August 18, January 31,
1998 1999 1999 2000
------------ ---------- ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ -- $ 7,482 $ -- $ 12,368
Accounts receivable, net
of allowances of $2,832,
$5,052, $5,380 and $4,416
at December 31, 1998,
July 31, 1999, August 18,
1999, and January 31,
2000, respectively....... 12,819 37,057 32,157 50,567
Other receivables......... -- -- -- 3,631
Prepaid expenses and other
current assets........... 350 5,211 5,357 5,215
-------- ---------- ---------- ----------
Total current assets.... 13,169 49,750 37,514 71,781
Property, plant and
equipment, less accumulated
depreciation............... 24,173 46,746 51,091 56,247
Goodwill and other
intangible assets, net..... 226,488 709,185 2,902,202 2,252,216
Investments................. 500 11,480 11,480 11,913
Receivable from Compaq...... -- 10,315 10,315 10,315
Other noncurrent assets..... -- 929 930 252
-------- ---------- ---------- ----------
Total assets............ $264,330 $ 828,405 $3,013,532 $2,402,724
======== ========== ========== ==========
LIABILITIES AND OWNERS' NET
INVESTMENT
Current liabilities:
Long-term debt, current
portion.................. $ 658 $ 916 $ 916 $ --
Capital lease obligation,
current portion.......... -- 1,502 1,444 3,150
Payable to CMGI, net...... -- -- -- 795
Notes payable to CMGI..... -- -- -- 121,752
Notes payable to Compaq... -- -- -- 8,062
Accounts payable.......... 691 27,008 22,066 6,010
Other current
liabilities.............. 9,035 51,783 58,239 67,224
-------- ---------- ---------- ----------
Total current
liabilities............ 10,384 81,209 82,665 206,993
-------- ---------- ---------- ----------
Long-term debt, net of
current portion............ 1,656 962 962 --
Capital lease obligation,
net of current portion..... -- 2,381 2,374 6,838
-------- ---------- ---------- ----------
Total liabilities....... 12,040 84,552 86,001 213,831
Commitments and
contingencies
Preferred stock, $0.01 par
value, authorized 5,000,000
shares, no shares issued
and outstanding............ -- -- -- --
Common stock, $.01 par
value, authorized
200,000,000 shares,
100,000,000 and 101,408,798
shares issued and
outstanding at August 18,
1999 and January 31, 2000,
respectively............... -- -- 1,000 1,014
Treasury stock.............. -- -- -- (196)
Capital in excess of par.... -- 171,667 2,926,531 2,956,665
Net contribution from
owner...................... 321,856 1,007,901 -- --
Unearned compensation....... -- (135,885) -- (3,632)
Accumulated other
comprehensive income....... -- 1,713 -- 146
Accumulated deficit......... (69,566) (301,543) -- (765,104)
-------- ---------- ---------- ----------
Owners' net investment...... 252,290 743,853 2,927,531 2,188,893
-------- ---------- ---------- ----------
Total liabilities and
owners' net
investment............. $264,330 $ 828,405 $3,013,532 $2,402,724
======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Combined Combined Consolidated
Seven Months Six Months Six Months
Ended Ended Ended
July 31, December 31, January 31,
1999 1998 2000
------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Advertising, service and other revenue,
net................................... $ 49,812 $ 21,070 $ 79,279
Product revenue, net (a)............... 23,781 -- 26,451
--------- -------- ---------
Total revenue...................... 73,593 21,070 105,730
--------- -------- ---------
Cost of advertising, service and other
revenue (b)........................... 17,446 6,416 23,739
Cost of product revenue (a)............ 25,402 -- 26,411
--------- -------- ---------
Total cost of revenue.............. 42,848 6,416 50,150
--------- -------- ---------
Gross profit......................... 30,745 14,654 55,580
--------- -------- ---------
Operating expenses:
Product development (b).............. 17,478 6,545 22,354
Sales and marketing (b).............. 51,151 22,395 115,971
General and administrative (b)....... 23,939 3,507 14,876
Stock-based compensation............. 35,782 -- 16,610
Amortization of intangible assets.... 133,976 46,160 428,628
--------- -------- ---------
Loss from operations................... (231,581) (63,953) (542,859)
Interest income........................ -- -- (314)
Interest expense....................... 159 210 2,287
Other nonoperating loss................ 237 -- 1,548
--------- -------- ---------
(231,977) (64,163) (546,380)
Less net loss for the period August 1,
1999 to August 18, 1999............... -- -- 38,710
--------- -------- ---------
Net loss............................... (231,977) (64,163) (507,670)
Other comprehensive income (loss):
Unrealized gain (loss) on
securities.......................... 1,713 -- (103)
--------- -------- ---------
Comprehensive loss..................... $(230,264) $(64,163) $(507,773)
========= ======== =========
Net loss per common share:
Basic................................ $ (5.04)
=========
Diluted.............................. $ (5.04)
=========
Shares used in computing net loss per
common share:
Basic................................ 100,727
=========
Diluted.............................. 100,727
=========
</TABLE>
- --------
(a) Includes sales of Compaq computers to FreePC.com of $8,130, none and
$12,755 for the seven months ended July 31, 1999 and the six months ended
December 31, 1998 and January 31, 2000, respectively. The costs of such
Compaq computers were $7,364, none and $12,216 for the seven months ended
July 31, 1999 and the six months ended December 31, 1998 and January 31,
2000, respectively.
(b) Excludes stock-based compensation for the seven months ended July 31, 1999
and the six months ended December 31, 1998 and January 31, 2000,
respectively, as follows (in thousands): Cost of advertising, service and
other revenue $2,063, none and $897; Product development $7,485, none and
$3,571; Sales and marketing $12,661, none and $5,714; and General and
administrative $13,573, none and $6,428.
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
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>
Combined 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
------- ------ --- ----- ---------- ----------- --------- --------- ------- ----------
Combined balance,
July 31, 1999.... -- -- -- -- 171,667 1,007,901 (135,885) (301,543) 1,713 743,853
Net loss........ -- -- -- -- -- -- -- (38,710) -- (38,710)
Unearned
compensation.... -- -- -- -- (190) -- 190 -- -- --
Amortization of
unearned
compensation.... -- -- -- -- -- -- 15,550 -- -- 15,550
Fair value
adjustment on
available for
sale
securities...... -- -- -- -- -- -- -- -- (249) (249)
Net contribution
from owner...... -- -- -- -- -- (2,750) -- -- -- (2,750)
------- ------ --- ----- ---------- ----------- --------- --------- ------- ----------
Combined balance,
August 18, 1999.. -- $ -- -- $ -- $ 171,477 $ 1,005,151 $(120,145) $(340,253) $ 1,464 $ 717,694
CMGI
acquisition...... 100,000 $1,000 -- $ -- $2,755,054 $(1,005,151) $ 120,145 $ 340,253 $(1,464) $2,209,837
------- ------ --- ----- ---------- ----------- --------- --------- ------- ----------
Consolidated
balance, August
18, 1999......... 100,000 1,000 -- -- 2,926,531 -- -- -- -- 2,927,531
Net loss
(unaudited)..... -- -- -- -- -- -- -- (507,670) -- (507,670)
Dividend of Zip2
(unaudited)..... -- -- -- -- -- -- -- (257,434) -- (257,434)
Deferred stock-
based
compensation
(unaudited)..... -- -- -- -- -- -- (4,692) -- -- (4,692)
Stock-based
compensation
(unaudited)..... -- -- -- -- -- -- 1,060 -- -- 1,060
Issuance of
common stock
(unaudited)..... 1,409 14 -- -- 30,134 -- -- -- -- 30,148
Treasury stock
(unaudited)..... -- -- 8 (196) -- -- -- -- -- (196)
Fair value
adjustment on
available for
sale securities
(unaudited)..... -- -- -- -- -- -- -- -- 146 146
------- ------ --- ----- ---------- ----------- --------- --------- ------- ----------
Consolidated
balance, January
31, 2000
(unaudited)...... 101,409 $1,014 8 $(196) $2,956,665 $ -- $ (3,632) $(765,104) $ 146 $2,188,893
======= ====== === ===== ========== =========== ========= ========= ======= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Combined Consolidated
Seven Months Combined Six Six Months
Ended Months Ended Ended
July 31, December 31, January 31,
1999 1998 2000
------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $(231,977) $(64,163) $ (507,670)
Net loss for the period August 1, 1999
to August 18, 1999.................... -- -- (38,710)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........ 140,149 48,939 436,725
Provision for bad debts and
concessions......................... 3,266 185 937
Stock-based compensation............. 35,782 -- 16,610
Stock issued to a community
educational foundation.............. -- -- 739
Changes in operating assets and
liabilities:
Accounts receivable................ (25,777) (3,676) (17,262)
Other receivables.................. -- -- (3,631)
Prepaid expenses and other current
assets............................ 1,394 2,666 (355)
Accounts payable to CMGI........... -- -- 938
Accounts payable................... 18,803 524 (16,134)
Other current liabilities.......... 19,941 6,884 30,207
--------- -------- ----------
Net cash used in operating
activities...................... (38,419) (8,641) (97,606)
--------- -------- ----------
Cash flows from investing activities:
Purchase of investments.............. (10,980) -- (433)
Purchases of property and equipment.. (23,591) (1,053) (30,060)
Proceeds from dispositions of
property and equipment.............. -- -- 225
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) (124)
--------- -------- ----------
Net cash used in investing
activities...................... (554,012) (1,530) (32,773)
--------- -------- ----------
Cash flows from financing activities:
Borrowings of long-term debt......... 368 -- 9,284
Repayment of long-term debt.......... (11,521) (436) (2,258)
Notes payable to CMGI................ -- -- 121,752
Notes payable to Compaq.............. -- -- 8,062
Issuance of common stock............. -- -- 1,365
Change in contribution from owners... 611,066 10,607 (2,940)
--------- -------- ----------
Net cash provided by financing
activities...................... 599,913 10,171 135,265
--------- -------- ----------
Net increase in cash................... 7,482 -- 4,886
Cash and cash equivalents at beginning
of period............................. -- -- 7,482
--------- -------- ----------
Cash and cash equivalents at end of
period................................ $ 7,482 $ -- $ 12,368
========= ======== ==========
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 $ -- $ (103)
========= ======== ==========
Stock issued to CMGI upon merger with
iAtlas.............................. $ -- $ -- $ 28,033
========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
NOTE 1--BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Reporting entity
The results of the AltaVista search and new media operations within Digital
Equipment Corporation (which was acquired by Compaq Computer Corporation in
June 1998) prior to and following the combination with those of Shopping.com
and Zip2, from their respective dates of acquisition in 1999, through August
18, 1999, the date of the CMGI acquisition, are collectively referred to
herein as those of AltaVista ("AltaVista") and represent the predecessor
operations of AltaVista Company.
AltaVista Company was incorporated in June 1999, and was a dormant company
until the CMGI acquisition date. On the CMGI acquisition date, the individual
operations which had been combined to form AltaVista, including the
Shopping.com and Zip2 subsidiaries, have been consolidated and their results
thereafter (including the results of iAtlas following its acquisition by CMGI
in September 1999) are presented as the consolidated financial results of
AltaVista Company ("AltaVista Company" or the "Company"). The consolidated
financial results of AltaVista Company do not include the results of the Zip2
subsidiary after its date of disposal.
The results of AltaVista and AltaVista Company are collectively referred to
as the results of the AltaVista Business (the "AltaVista Business" or the
"Business").
Description of business
The AltaVista Business 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 user base and relationships with a variety of contract and
service providers, the Company seeks to provide a single destination for all
of a user's search, information, communication and commerce needs on the
Internet.
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 AltaVista, 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
F-7
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
majority interest in AltaVista. (See Note 3). This transaction resulted in
Compaq retaining approximately 18.5% minority interest in AltaVista. As a
result of the CMGI transaction, the Company's financial statements as of and
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 Company 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 consolidated financial
statements do not include the operations of Zip2 after its date of
disposition.
The consolidated statement of operations for the six months ended January
31, 2000 presents the Company's consolidated revenues and expenses for the
entire six-month period (including the period after August 18, 1999, when the
pushdown of the CMGI transaction was reflected in the basis of the assets
acquired and liabilities assumed). Results for the portion of the six-month
period before the CMGI transaction (August 1, 1999 to August 18, 1999) have
been excluded in determining net results for the period after the application
of pushdown accounting. AltaVista's summary operating results for the period
from August 1, 1999 to August 18, 1999 are as follows: total revenue of $7.2
million; gross profit of $3.1 million; stock-based compensation of
$15.6 million; amortization of intangibles of $14.6 million; loss from
operations at $38.7 million; and, net loss of $38.7 million.
The 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 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 January 31, 2000. Historically, the funds required for the conduct of
the AltaVista Business' operations were provided by Compaq or CMGI. CMGI has
committed to fund the Company's operations through the fiscal year ended July
31, 2000. The historical operating results may not be indicative of future
results.
Principles of combination and consolidation
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 the consolidated
financial statements after the date of disposition.
Change in fiscal year end
Until the acquisition by CMGI, AltaVista's 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 six-month
period ended January 31, 2000. This interim period is compared with the six
months
F-8
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
ended December 31, 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 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 customer advertising contracts serviced by
DoubleClick, Inc. ("DoubleClick") through the Procurement and Trafficking
Agreement (the "Agreement"). DoubleClick is expected to continue to provide
services which support a significant portion of the AltaVista Business'
revenues. Accounts receivable from DoubleClick comprised 77.8%, 62.7%, 72.8%
and 75.0% of gross accounts receivable as of December 31, 1998, July 31, 1999,
August 18, 1999 and January 31, 2000, 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, service and other revenue
Advertising, service and other revenue is comprised of sales of advertising
and sponsorships, fees for search services, production and development fees,
licensing of search product software and related support services, and
Shopping.com services revenue. Advertising and sponsorship revenue results
from advertising delivered on a web page, at an agreed rate per thousand of
impressions delivered. Advertising revenue is recognized ratably over the term
of the contract, provided the AltaVista Business has met its obligations to
deliver impressions in each period. Fees for search services are derived from
third parties' use of the Business's search technology. Fees for search
services are recognized ratably over the term of the contract provided that
the Business does not have significant remaining obligations. Production and
development fees are recognized upon delivery of the
F-9
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
agreed upon service, with accruals provided for ongoing maintenance
obligations. To date, revenue from production and development fees has not
been significant. Search product software and support is sold directly to
customers and through resellers. The search software license is generally a
perpetual license agreement and revenue is recognized upon shipment of the
software product. Search software customers may enter into separate support
contracts. Revenue for these support contracts is recognized ratably over the
period of contract. To date, revenue from search product software and support
has not been significant. Shopping services revenue occurs when the Company
earns commissions on sales of products on other web sites. Only the commission
fee, not the gross product revenue, is recorded as revenue. The Business earns
commission revenue through a combination of fixed fees and variable charges
per click through when its traffic is directed to an affiliate's site. To
date, shopping services revenue has not been significant.
The AltaVista Business' revenues are derived primarily from short-term
advertising contracts serviced by DoubleClick in accordance with the terms of
the Procurement and Trafficking Agreement (the "Agreement"). Prior to January
1, 1999, AltaVista 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% of the AltaVista
Business's total net revenues for both the seven months ended July 31, 1999
and the six months ended January 31, 2000. Amounts included in sales and
marketing expense related to DoubleClick sales commissions were $10.2 million
and $14.3 million, for the seven months ended July 31, 1999 and for the six
months ended January 31, 2000, respectively. Amounts included in sales and
marketing expense related to DoubleClick billing and collection services were
$0.8 million and $1.1 million for the seven months ended July 31, 1999 and for
the six months ended January 31, 2000, respectively. Amounts included in sales
and marketing expense related to DoubleClick for the cost of ad delivery were
$3.0 million and $3.3 million for the seven months ended July 31, 1999 and for
the six months ended January 31, 2000, 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.
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 six months ended January 31, 2000.
F-10
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
As a result of the acquisitions of Zip2 and iAtlas, the historical
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
recognition, primarily associated with banner advertising and consulting
services, and is recognized at the time the AltaVista Business' obligations
under the contracts are fulfilled.
Product revenue
As a result of the acquisition of Shopping.com, the historical 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.
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 at such time as
advertisements are published or broadcast. Advertising costs included in sales
and marketing expense are approximately $11.5 million, $2.5 million and $70.5
million for the seven months ended July 31, 1999, the six months ended
December 31, 1998 and the six months ended January 31, 2000, respectively.
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." The
AltaVista Business amortizes stock compensation expense using an accelerated
method (See Note 13).
F-11
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
Interest expense
Interest expense was $159,000, $2,287,000 and $210,000 for the seven months
ended July 31, 1999 and the six months ended January 31, 2000, and December
31, 1998, respectively. There was no direct interest expense incurred by
AltaVista 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
AltaVista's proportionate share of total assets. Management believes this
method provides a reasonable basis for allocation within AltaVista's
historical statement of operations. Since August 19, 1999, CMGI and Compaq
have advanced funds and CMGI has provided services to the Company from time to
time. These amounts are reflected in demand notes payable to CMGI and Compaq,
respectively, in the accompanying consolidated balance sheet, and bear
interest at 7%. Interest expense included in the consolidated statement of
operations for the six months ended January 31, 2000 includes $2,098,000 and
$62,000 related to the CMGI and Compaq notes payable, respectively (See Note
9).
Income taxes
AltaVista 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, AltaVista 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>
Six months ended
January 31, 2000
----------------
<S> <C>
Numerator--basic and diluted............................... $ (507,670)
Denominator--basic and diluted:
Weighted average common shares outstanding................ 100,727,223
Basic and diluted loss per share........................... $ (5.04)
</TABLE>
F-12
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 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 Company, are
antidilutive for all periods presented. These potentially dilutive securities
are as follows:
<TABLE>
<CAPTION>
Six months ended
January 31, 2000
----------------
<S> <C>
Options to purchase common stock........................... 13,611,921
Assumed conversion of outstanding CMGI and Compaq demand
notes payable into preferred stock and the conversion of
such preferred stock into common stock.................... 4,957,452
Assumed exercise of Compaq's right to provide additional
demand notes payable financing to the Company, which is
then convertible into preferred and common stock.......... 706,842
</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, AltaVista had unrealized gains on available-for-sale securities
of $1.7 million. For the six months ended January 31, 2000, the Company had
unrealized losses on available-for-sale securities which totaled $103,000.
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 AltaVista's 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
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 Compaq and AltaVista. From August 19, 1999 through
January 31, 2000, the Company financed working capital through cash received
from CMGI and Compaq. In return, the Company issued demand notes payable 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, August 18, 1999 and January 31, 2000.
F-13
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
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.
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 and after August 18, 1999, the intangibles reflect the pushdown of fair
market values based on the CMGI acquisition and, after September 28, 1999,
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.
F-14
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
Segment information
The AltaVista Business has adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements.
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 Company
does not expect SFAS No. 133 to have a material effect on its financial
position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101.
SAB No. 101 summarized certain of the SEC Staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The adoption of SAB No. 101 did not have a material effect on the financial
position or results of operations of the Company.
Interim results
The interim financial statements as of January 31, 2000, and for the six
months ended January 31, 2000 and December 31, 1998 have been prepared using
the same accounting principles as were used for preparing the audited
financial statements, and in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the AltaVista Business' financial position, results of
operations and cash flows as of January 31, 2000 and for the six-months ended
January 31, 2000 and December 31, 1998. The results for the seven months ended
July 31, 1999 and for the six months ended January 31, 2000 and December 31,
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
F-15
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
values of the acquired assets and liabilities have been included in the
AltaVista Business' 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' 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.
iAtlas merger
On October 22, 1999, CMGI merged its iAtlas subsidiary into the Company in
a transaction valued at approximately $28 million, which represents CMGI's
acquisition cost. 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 consolidated financial statements
from the date of the acquisition.
Zip2 disposition
On October 20, 1999, the Company distributed shares in Zip2 to CMGI and
Compaq according to their respective ownership percentages. Subsequent to
October 20, 1999, the Company and CMGI entered into a related separation
agreement concerning the Company's utilization of certain technology and
assets. Decisions with respect to any specific assets to be retained by the
Company are not expected to be material and have not been agreed to. Upon any
such transfer of assets to the Company, the originally recorded dividend will
be adjusted by the cost of such assets. The Company's estimated costs of
utilizing such technology and assets for the period from October 20, 1999 to
January 31, 2000 are included in results of operations. Operations of Zip2
after October 20, 1999 will be included with one or more CMGI businesses that
are separate from the Company.
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>
F-16
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
Raging Bull
In November 1999, the Company agreed to acquire Raging Bull, Inc., a
finance-oriented community and content Internet company and an affiliate of
CMGI. The acquisition of Raging Bull was completed on February 1, 2000. The
aggregate acquisition cost of $163.0 million consists of the issuance of the
Company's common stock with a fair value of $150.2 million for all of the
issued and outstanding common and preferred stock of Raging Bull, the issuance
of the Company's stock options with a fair value of $12.3 million in exchange
for all of the outstanding options of Raging Bull, and other acquisition
costs. This transaction will be accounted for under 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 will be included in
the Company's financial statements from the date of acquisition. The aggregate
purchase price including liabilities assumed will be allocated to the assets
acquired, consisting primarily of goodwill and other intangibles of
approximately $148.3 million that will be amortized over a three-year period.
Transium
On February 2, 2000, the Company agreed to acquire Transium Corporation
and, on February 22, 2000, completed the acquisition. Total acquisition cost
is expected to be approximately $10.0 million, consisting of approximately
$5.0 million cash and approximately $5.0 million, representing 170,532 shares
of the Company's common stock issued to Transium shareholders and option
holders. Approximately $9.0 million of the total acquisition cost is expected
to be allocated to goodwill and other intangibles which will be amortized over
a three-year period.
NOTE 3--CMGI ACQUISITION
CMGI's acquisition of AltaVista was accomplished in a series of integrated
transactions. In the first step of the transaction, CMGI received 100% of the
stock of Shopping.com and approximately 52% of the stock of Zip2 in exchange
for a $220 million note payable from CMGI to Compaq. In the second step, NEWCO
(formed by CMGI for purposes of this transaction) issued 81,495,016 common
shares of NEWCO to CMGI in exchange for the stock of Shopping.com and Zip2
held by CMGI, as well as approximately 19 million shares of CMGI common and
approximately 18,000 shares of CMGI Series D preferred shares. In the third
step, NEWCO then acquired 100% of the AltaVista Business and the remaining
shares of Zip2 common stock from Compaq in exchange for the CMGI common and
Series D preferred shares and 18,504,884 common shares of NEWCO (18.5%). NEWCO
was then renamed the AltaVista Company. Because at the completion of this
series of integrated transactions the Company acquired 100% of Shopping.com,
Zip2 and the AltaVista Business, the Company has revalued 100% of the acquired
entities in accordance with paragraph 67 of APB No. 16.
F-17
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
CMGI's purchase price is summarized 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 Company to approximately $2.9 billion, in order to apply purchase
accounting to the Company's assets acquired and liabilities assumed. The
Company's 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 for the year ended
December 31, 1998 and for the seven months ended July 31, 1999 give effect to
the CMGI acquisition of the AltaVista Business, including Shopping.com, as if
it had occurred on January 1, 1998 and January 1, 1999, respectively (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......................................... $(939,162) $(572,504)
========= =========
Pro forma net loss per share..................... $ (9.39) $ (5.73)
========= =========
</TABLE>
F-18
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
NOTE 4--INTANGIBLE ASSETS
<TABLE>
<CAPTION>
(in thousands) December 31, July 31, August 18, January
1998 1999 1999 31, 2000
------------ -------- ---------- ----------
<S> <C> <C> <C> <C>
Goodwill....................... $255,600 $861,342 $2,700,158 $2,456,878
Completed technology........... 12,950 15,750 154,900 150,900
Trademarks..................... 5,550 7,050 34,880 33,410
Other.......................... -- 7,247 10,050 7,105
Purchased domain name ......... 3,422 3,422 2,214 2,233
-------- -------- ---------- ----------
277,522 894,811 2,902,202 2,650,526
Less: accumulated
amortization.................. 51,034 185,626 -- 398,310
-------- -------- ---------- ----------
$226,488 $709,185 $2,902,202 $2,252,216
======== ======== ========== ==========
</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 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 AltaVista 500,000 shares of
Series B preferred stock of RealNames Corporation. The total consideration
paid of approximately $500,000 resulted in AltaVista owning less than 20% of
RealNames Corporation.
In January 1999, Compaq purchased on behalf of AltaVista 2,023,635 shares
of Series D preferred stock of Virage, Inc. for approximately $3,480,000. In
September 1999, the Company purchased 131,983 shares of Series E preferred
stock of Virage, Inc. for $433,000. The aggregate purchases resulted in the
Company owning less than 20% of the investee.
In March 1999, Compaq purchased on behalf of AltaVista 1,000,000 shares of
Series B preferred stock of FreePC.com for approximately $5,000,000 resulting
in AltaVista owning less than 20% of FreePC.com. In January 2000, FreePC.com
was acquired and became a wholly owned subsidiary of eMachines, Inc. Pursuant
to the transaction, the Company's shares of Series B preferred stock of
FreePC.com were converted into 1,100,055 shares of eMachines, Inc. Series C
preferred stock and a warrant to purchase 471,452 shares of eMachines, Inc.
common stock. The conversion resulted in the Company owning less than 20% of
eMachines, Inc.
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. As a result, the Company now owns 137,705 shares of CMGI common
stock at a cost of $2,500,000. Upon disposition of these shares, any gain or
loss will be recorded as a capital contribution from CMGI to the Company.
F-19
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
NOTE 6--PROPERTY AND EQUIPMENT
Property and equipment are summarized below (in thousands):
<TABLE>
<CAPTION>
December 31, July 31, August 18, January 31,
1998 1999 1999 2000
------------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Land.......................... $ 3,491 $ 3,491 $ 3,491 $ 3,491
Buildings..................... 8,451 11,741 13,422 13,422
Leasehold improvements........ 1,296 5,266 5,107 3,091
Machinery and equipment....... 11,480 35,295 26,822 38,277
Construction in process....... 2,773 343 2,249 3,926
------- ------- ------- -------
27,491 56,136 51,091 62,207
Less: Accumulated
depreciation................. 3,318 9,390 -- 5,960
------- ------- ------- -------
Property and equipment, net... $24,173 $46,746 $51,091 $56,247
======= ======= ======= =======
</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.
NOTE 7--OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
(in thousands) December 31, July 31, August 18, January 31,
1998 1999 1999 2000
------------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Accrued legal................. $ -- $22,058 $21,773 $10,504
Deferred revenue.............. 150 7,498 8,671 9,706
Accrued advertising
commissions.................. -- 7,011 4,550 10,762
Accrued advertising expense... -- 4,327 5,510 11,366
Accrued revenue share fees.... 7,656 1,856 1,550 1,670
Other......................... 1,229 9,033 16,185 23,216
------ ------- ------- -------
Total other current
liabilities................ $9,035 $51,783 $58,239 $67,224
====== ======= ======= =======
</TABLE>
NOTE 8--DEBT
Long-term debt
Long-term debt as of July 31, 1999 and August 18, 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 notes payable
Concurrent with the CMGI acquisition, the Company issued a convertible
demand note payable to CMGI (see Note 9) pursuant to which the Company would
pay to CMGI, upon demand of CMGI, the lesser of (i) the principal sum of
$200,000,000 or (ii) the aggregate unpaid principal amount of all advances
(and 7% interest thereon) made from CMGI to the Company. CMGI will at any time
have the option to require the Company to issue shares of the Company's
capital stock as follows: (a) prior to a qualified public offering (as
defined), the Company 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 Company 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
F-20
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
price shall be determined as of a fiscal quarter end for that particular
fiscal quarter by dividing (i) the total enterprise valuation of the Company
as of the fiscal quarter end by (ii) the number of shares of the Company's
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 initial
public offering price. At August 18, 1999, there were no amounts outstanding
under the convertible demand note. As of January 31, 2000, the Company had
approximately $121.8 million outstanding under the convertible demand note,
which, if so elected by CMGI, could have been converted into approximately
468,000 shares of Series A Convertible Preferred stock.
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 notes payable. As
of January 31, 2000, principal and interest due to Compaq under this
arrangement was approximately $8.1 million. Further, Compaq held a right to
purchase an additional proportionate amount of debt totalling approximately
$17.5 million. Compaq's total outstanding and issuable convertible debt could
be converted into approximately 99,000 shares of Series A Convertible
Preferred Stock. The total Series A Convertible Preferred Stock issuable to
CMGI and Compaq could be converted into approximately 5,664,000 shares of
common stock.
NOTE 9--RELATED PARTY TRANSACTIONS
Related-party revenue and costs
Product revenue includes sales of Compaq computers to FreePC.com, an
AltaVista Business investee (see Note 5), of $8,130,000, none and $12,755,000
for the seven months ended July 31, 1999 and the six months ended December 31,
1998 and January 31, 2000, respectively. The costs of such Compaq computers
were $7,364,000, none, and $12,216,000 for the seven months ended July 31,
1999 and the six months ended December 31, 1998 and January 31, 2000,
respectively.
Compaq allocated costs and notes payable to Compaq
The amounts allocated by Compaq to AltaVista 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. In December 1999, Compaq advanced funds to the
Company. These amounts are reflected in convertible demand notes payable to
Compaq in the accompanying consolidated balance sheet, and bear interest at 7%
per annum. Interest expense included in the consolidated statement of
operations for the six months ended January 31, 2000 includes $62,000 related
to the Compaq notes payable.
Amounts paid to CMGI
Since August 19, 1999, CMGI has advanced funds and provided services to the
Company from time to time. These amounts are reflected in convertible demand
notes payable to CMGI in the accompanying consolidated balance sheet, and bear
interest at 7% per annum. The CMGI amounts included in the accompanying
consolidated statement of operations for the six months ended January 31, 2000
are $3,343,000, $2,098,000, $165,000 and $101,000 for sales and marketing
expenses, interest expense, product development expenses and general and
administrative expenses, respectively.
NOTE 10--INCOME TAXES
No income tax expense has been provided in the historical financial
statements since the AltaVista Business net operating losses generated have
not been benefited.
F-21
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
Deferred tax assets and liabilities of AltaVista at July 31, 1999, computed
under the separate return method, comprise 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, AltaVista 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.
NOTE 11--MARKETING AGREEMENTS
Premier Search Services Agreement with Microsoft
In September 1998, AltaVista 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 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 AltaVista Business 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
F-22
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
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 were approximately $100,000 and $287,000, for
the seven months ended July 31, 1999 and the six months ended January 31,
2000, respectively.
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 AltaVista were participants. The AltaVista 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 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, AltaVista 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.
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 January 31, 2000, 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
F-23
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
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.
AltaVista stock option plans
On May 28, 1999, AltaVista 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 and January 31, 2000, there were 9,638,282 and
7,873,901 options outstanding under the Plan (including options issued to Zip2
employees in exchange for their outstanding options at the time of
acquisition), respectively. The weighted average exercise prices were $8.25
and $8.22, respectively. Certain of
F-24
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
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 is included in a single line in the
historical statements of operations, is calculated using an accelerated method
and totaled $35.8 million and $16.6 million for the seven months ended July
31, 1999 and for the six months ended January 31, 2000, respectively.
The individual cost and expense captions on the historical statement of
operations exclude stock-based compensation as follows (in thousands):
<TABLE>
<CAPTION>
Six Months
Seven Months Ended
Ended July 31, January 31,
1999 2000
-------------- -----------
<S> <C> <C>
Cost of advertising,
service and other
revenue................ $ 2,063 $ 897
Product development..... 7,485 3,571
Sales and marketing..... 12,661 5,714
General and
administrative......... 13,573 6,428
------- -------
$35,782 $16,610
======= =======
</TABLE>
In September 1999, the Company instituted the 1999 Stock Option Plan for
Non-Employee Directors in which non-qualified options were granted to
directors who were not 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 January 31, 2000 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 the Company's common stock are reserved for issuance. As of
January 31, 2000, 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 the Company 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 Company or any of its
subsidiaries, but
. remains as a member of the board on the date the director's
affiliate, employee or designee status ceases.
F-25
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
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 January 31, 2000,
options to purchase 4,458,920 shares of common stock, with a weighted average
exercise price of $25.69, were outstanding.
Two types of stock options may be granted under the Equity 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 Equity Plan may not
be less than the par value of a share of common stock. The option price of
each ISO granted under the Equity 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-26
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 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 outstanding December 31, 1998.. -- $ -- $ --
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) 0.15-8.75 2.35
---------- ------
Options outstanding July 31, 1999...... 9,638,282 $ 8.25
---------- ------
Options granted (unaudited)............ 4,975,054 $22.33-29.55 $25.72
Options lapsed or canceled
(unaudited)........................... (1,241,646) 0.59-29.55 10.36
Options exercised (unaudited).......... (186,577) 0.14-12.00 7.31
Options exchanged for CMGI options
(unaudited)........................... (512,292) 8.75-12.00 9.07
---------- ------
Options outstanding January 31, 2000
(unaudited)........................... 12,672,821 $14.88
========== ======
</TABLE>
On January 28, 2000, 939,100 stock option grants were approved at an
exercise price to be based upon the price of an initial public offering of the
Company's common stock. If the Company has not completed an initial public
offering of its common stock by July 31, 2000, the exercise price will be
based upon an independent appraisal of the Company as of that date. Because
the exercise price of these grants is not yet determinable, such grants are
not included in the preceding table.
The following table summarizes significant ranges of outstanding and
exercisable options at July 31, 1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
------------------------------- ----------------
Weighted
Average Weighted Weighted
Contractual Average Average
Remaining Exercise Exercise
Shares Life (Years) Price Shares Price
--------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
Range of exercise prices
$0.06-2.14.................... 960,923 9.0 $ 0.59 237,875 $0.59
$8.75......................... 7,751,560 9.8 8.75 -- --
$12.00........................ 925,799 9.9 12.00 -- --
--------- ------ ------- -----
9,638,282 $8.25 237,875 $0.59
========= ====== ======= =====
</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-27
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 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>
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 may 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 15% 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.
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 six months ended January 31, 2000 and December 31, 1998 was $1.4 million,
$3.3 million and $0.3 million, respectively.
F-28
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
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.
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,
August 18, 1999 and January 31, 2000, 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 Company settled a claim with One Zero Media,
Inc., which related to a condition 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. The settlement
was paid in full by the Company in January 2000.
Note 15--SEGMENT INFORMATION
The AltaVista Business has adopted SFAS No. 131, which requires the
reporting of segment information using the "management approach" versus the
"industry approach" previously required. Based on the information provided to
the Business's chief operating decision maker for purposes of making decisions
about allocating resources and assessing performance, the Business's
operations have been classified in two primary business segments (i)
advertising, service and other and (ii) product. The advertising, service and
other segment provides advertising and sponsorships, search services,
production and development, licensing of search product software and related
support services. The product segment provides e-commerce sales of consumer
products. Prior to the acquisition of Shopping.com effective February 15,
1999, the Business's operations were classified
F-29
<PAGE>
ALTAVISTA COMPANY
(Including Predecessor Operations)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(information as of and for the periods ended December 31, 1998 and January 31,
2000 is unaudited)
in a single operating segment, advertising service and other. Headquarter
expenses pertain primarily to and are included in the advertising, service and
other operating segment.
Performance measurement and resource allocation for the reportable
operating segments are based on many factors. The primary financial measures
used are revenues from United States and international web sites and loss from
operations before stock-based compensation and amortization of intangibles.
The chief operating decision maker does not use a measurement of total assets
for purposes of making decisions about allocating resources and assessing
performance. The total asset information by operating segment presented below
is based upon the total assets used in each operating segment. As of January
31, 2000, total assets used in the product segment were determined based upon
the Shopping.com ratio of headcount associated with the product business to
its total headcount including headcount associated with its new services
business. As of January 31, 2000, total assets used in international
operations were insignificant.
For all periods presented, substantially all of the Company's long-lived
assets were used in its United States operations. The accounting policies of
the reportable operating segments are the same as those described in the
Summary of Significant Accounting Policies (see Note 1).
The AltaVista Business derives the vast majority of its revenues from its
United States web sites. All intercompany transactions have been eliminated,
and intersegment revenues are not significant. Revenues derived from
international web sites represented less than 3% for both the seven months
ended July 31, 1999 and the six months ended January 31, 2000. There were no
international web sites prior to 1999.
Summarized financial information of the Business's operations by business
segment are as follows (in thousands):
<TABLE>
<CAPTION>
Seven Months Six Months Six Months
Ended Ended Ended
July 31, December 31, January 31,
1999 1998 2000
------------ ------------ -----------
<S> <C> <C> <C>
Net revenues:
Advertising, service and other......... $ 49,812 $ 21,070 $ 79,279
Product................................ 23,781 -- 26,451
--------- -------- ---------
Total revenue........................ $ 73,593 $ 21,070 $ 105,730
========= ======== =========
Loss from operations:
Loss from operations before stock-based
compensation and amortization of
intangibles...........................
Advertising, service and other....... $ (37,560) $(17,793) $ (85,024)
Product.............................. (24,263) -- (12,597)
--------- -------- ---------
(61,823) (17,793) (97,621)
Stock-based compensation and
amortization of intangibles........... 169,758 46,160 445,238
--------- -------- ---------
Loss from operations................. $(231,581) $(63,953) $(542,859)
========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
December 31, July 31, August 18, January 31,
1998 1999 1999 2000
------------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Total assets:
Advertising, service and other.. $ 37,842 $ 90,658 $ 90,482 $ 140,598
Product......................... -- 28,562 20,848 9,910
-------- -------- ---------- ----------
37,842 119,220 111,330 150,508
Goodwill and other intangible
assets, net.................... 226,488 709,185 2,902,202 2,252,216
-------- -------- ---------- ----------
Total assets.................. $264,330 $828,405 $3,013,532 $2,402,724
======== ======== ========== ==========
</TABLE>
F-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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..................................... 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.
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-38
<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 comprises cash collections in advance of revenue
recognition, primarily associated with banner advertising and consulting
services, 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, 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 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-39
<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-40
<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-41
<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
Completed technology.......................................... -- 12,950
Trademarks.................................................... 75 5,550
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-42
<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-43
<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-44
<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-45
<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-46
<PAGE>
ALTAVISTA
NOTES TO FINANCIAL STATEMENTS--(Continued)
Procurement and Trafficking Agreement with DoubleClick
Effective January 1, 1999, the Agreement has been amended by the Interim
Amended and Restated Services Agreement 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 (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 expiration of the Initial Term or no later than 180 days prior
to the expiration of any twelve-month renewal 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-47
<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-48
<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-49
<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 (a).................... 2,324,000 19,193,000
Advertising and marketing (a)..................... 2,006,000 10,087,000
Product development (a)........................... 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>
- --------
(a) Excludes stock-based compensation for the years ended December 31, 1998
and 1999, respectively, as follows: General and administrative $459 and
$6,588; Advertising and marketing $211 and $105; and Product development
$5 and $3.
The accompanying notes are an integral part of these financial statements.
F-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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-60
<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.
In March 1997, the Company issued 500,000 shares of its Series A
Convertible Preferred Stock in exchange for substantially all of the assets
and liabilities and proprietary software of CyberDepot (Note 1). In April
1997, the Company issued 1,000,000 shares of its Series A Convertible
Preferred Stock at an issuance price of $.20 per share. No issuance costs were
incurred in connection with the issuance of the Series A Convertible Preferred
Stock. 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.
F-61
<PAGE>
SHOPPING.COM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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-62
<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 by exchange of an
equivalent value of the Company's Common Stock owned 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 to Directors................................... 125,000 $3.00
Granted to Employees................................... 105,000 3.00
Cancelled--Employees................................... (10,000) 3.00
---------
Options outstanding, January 31, 1998.................... 220,000 3.00
Granted to Directors................................... 1,875,000 8.15
Granted to Employees................................... 372,000 2.91
Granted to Non-employees............................... 287,500 17.48
Exercised--Employees................................... (5,175) 2.50
Cancelled--Employees................................... (24,125) 2.74
---------
Options outstanding, January 31, 1999.................... 2,725,200 9.60
---------
Options exercisable, January 31, 1999.................... 2,530,325 7.61
=========
</TABLE>
Options granted to directors in 1998 were issued under the 1997 Plan.
Options granted to directors and non-employees in 1999 were issued outside of
the 1997 Plan.
<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-63
<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-64
<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-65
<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-66
<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-67
<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-68
<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-69
<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-70
<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-71
<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-72
<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-73
<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-74
<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-75
<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-76
<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-77
<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-78
<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-79
<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-80
<PAGE>
ZIP2 CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-82
Consolidated Balance Sheet................................................. F-83
Consolidated Statement of Operations....................................... F-84
Consolidated Statement of Shareholders' Equity............................. F-85
Consolidated Statement of Cash Flows....................................... F-86
Notes to Consolidated Financial Statements................................. F-87
</TABLE>
F-81
<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-82
<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-83
<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......... 63,000 478,000 684,000 180,000 139,000
Interest and other
expenses (a)........... (10,000) (63,000) (244,000) -- (2,141,000)
----------- ------------ ------------ -------------- --------------
Net loss............ $(3,927,000) $(14,278,000) $(21,775,000) $ (5,072,000) $ (7,071,000)
=========== ============ ============ ============== ==============
</TABLE>
- --------
(a) Interest and other expenses for the three months ended March 31, 1999
included $781,000 prepayment penalty on early extinguishment of
subordinated debt, $588,000 amortization of warrants and $466,000 expenses
associated with the April 1, 1999 merger with Compaq Computer Corporation.
The accompanying notes are an integral part of these consolidated financial
statements.
F-84
<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-85
<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-86
<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-87
<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-88
<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-89
<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-90
<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-91
<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-92
<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-93
<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-94
<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-95
<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-96
<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-97
<PAGE>
[LOGO OF ALTAVISTA]
<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 April 10, 2000
14,800,000 Shares
[LOGO OF ALTAVISTA]
COMMON STOCK
-----------
We are offering 14,800,000 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 $18 and $20
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, including risks related to CMGI,
Inc.'s ownership of approximately 74% of our outstanding common stock after
this offering, assuming no exercise of the underwriters' over-allotment option.
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
2,220,000 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
CHASE H&Q
FLEETBOSTON ROBERTSON STEPHENS INTERNATIONAL
PRUDENTIAL--BACHE INTERNATIONAL
WIT SOUNDVIEW
, 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.......................................... 89,866
NASD Filing fee............................................... 30,500
Nasdaq National Market listing fee............................ 95,000
Accounting fees and expenses.................................. 600,000
Legal fees and expenses....................................... 700,000
Director and officer insurance expenses....................... *
Printing expenses............................................. 1,000,000
Transfer agent fees and expenses.............................. *
Blue sky fees and expenses.................................... 15,000
Miscellaneous fees and expense................................ 169,634
----------
Total ...................................................... $2,300,000
==========
</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 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
The indemnification provisions contained in the Company's Amended and
Restated Certificate of Incorporation 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
In August 1999, CMGI contributed to AltaVista 18,994,975 shares of CMGI
common stock, 18,090.45 shares of CMGI series D preferred stock and all of the
shares of Zip2 and Shopping.com common stock which CMGI had purchased from
Compaq in exchange for 105,943,651 shares of AltaVista common stock. As part
of the same transaction, Compaq contributed the AltaVista business to
AltaVista in exchange for 24,056,349 shares of AltaVista common stock,
18,994,975 shares of CMGI common stock and 18,090.45 shares of CMGI series D
preferred stock.
In October 1999, AltaVista issued to CMGI 1,556,387 shares of common stock
in connection with AltaVista's acquisition of iAtlas.
In February 2000, AltaVista issued 6,609,492 shares of common stock to
former stockholders of Raging Bull in connection with AltaVista's acquisition
of Raging Bull.
In February 2000, AltaVista issued 221,692 shares of common stock to former
stockholders of Transium in connection with AltaVista's acquisition of
Transium.
(b) Grants and Exercises of Stock Options
On September 29, 1999, AltaVista granted options to purchase 2,821,330
shares of common stock at an exercise price of $17.18 per share to its
employees.
On September 29, 1999, AltaVista granted options to purchase 141,700 shares
of common stock at exercise price of $17.18 per share to its directors.
II-2
<PAGE>
On September 28, 1999, AltaVista granted options to purchase 471,900 shares
of common stock at an exercise price of $17.18 per share to former employees
of iAtlas in connection with AltaVista's acquisition of iAtlas.
On October 11, 1999, AltaVista granted options to purchase 300,300 shares
of common stock at an exercise price of $22.73 per share to its non-employee
directors.
On November 16, 1999, AltaVista granted options to purchase 1,703,325
shares of common stock at an exercise price of $22.73 per share to its
employees.
On December 16, 1999, AltaVista granted options to purchase 1,029,015
shares of common stock at an exercise price of $22.73 per share to its
employees.
On January 28, 2000, AltaVista granted options to purchase 1,220,959 shares
of common stock to its employees at an exercise price per share equal to the
initial public offering price in this offering.
On March 2, 2000, AltaVista granted options to purchase 3,835,276 shares of
common stock to its employees at an exercise price per share equal to the
initial public offering price in this offering.
(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.
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 Agreement**
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 Agreement**
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 AltaVista and CMGI, Inc.**
10.13 1999 Employee Stock Purchase Plan**
10.14 Interim Amended and Restated Advertising Services Agreement, between
DoubleClick, Inc. and AltaVista, dated as of November 1, 1999+
10.15 Advertising Services Agreement, between DoubleClick, Inc. and Compaq
Computer Corporation, dated as of January 1, 1999+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.16 Strategic Business Agreement, between Compaq Computer Corporation and
CMGI, Inc., dated as of June 29, 1999
10.17 Strategic Alliance Agreement, between 1stUp.Com Corporation and
AltaVista, dated as of June 25, 1999
10.18 Facilities and Administrative Support Agreement by and between
AltaVista and CMGI, Inc.**
10.19 Tax Allocation Agreement by and between AltaVista and CMGI, Inc.**
10.20 Master Lease and Financing Agreement between Compaq Computer
Corporation and AltaVista, dated as of November 24, 1999**
10.21 Amendment Number 1 to Master Lease and Financing Agreement**
10.22 Amended and Restated 1999 Equity Incentive Plan
16.1 Letter Regarding Change in Accountants**
21.1 Subsidiaries of the Registrant**
23.1 Consent and Report 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**
27.1 Financial Data Schedule**
27.2 Financial Data Schedule**
27.3 Financial Data Schedule**
27.4 Financial Data Schedule**
27.5 Financial Data Schedule**
27.6 Financial Data Schedule**
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ We have sought confidential treatment from the Commission for selected
portions of this exhibit. The omitted portions will be separately filed
with the Commission.
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 successful defense of
any action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<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-5
<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 April 10, 2000.
AltaVista Company
/s/ Kenneth R. Barber
By: ________________________________
Name: Kenneth R. Barber
Title: Vice President and Chief
Financial Officer
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>
* President, Chief Executive April 10, 2000
____________________________________ Officer and Director
Rodney W. Schrock
* Vice President and Chief April 10, 2000
____________________________________ Financial Officer
Kenneth R. Barber
* Vice President, Corporate April 10, 2000
____________________________________ Controller and Treasurer
Mary S. Yuschak
* Chairman April 10, 2000
____________________________________
David S. Wetherell
* Director April 10, 2000
____________________________________
Flint J. Brenton
* Director April 10, 2000
____________________________________
John G. McDonald
* Director April 10, 2000
____________________________________
Avram Miller
* Director April 10, 2000
____________________________________
Robert J. Ranalli
</TABLE>
/s/ Kenneth R. Barber
*By:______________________________
Name: Kenneth R. Barber
(Attorney-in-fact)
II-6
<PAGE>
ALTAVISTA COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1998, seven months ended July 31, 1999 and as of
August 18, 1999
<TABLE>
<CAPTION>
June 12, 1998 Seven Months
Year Ended January 1, 1998 to Ended
December 31, to December 31, July 31, August 18,
1997 June 11, 1998 1998 1999 1999
------------ --------------- ------------- ------------ ----------
<S> <C> <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 $ 5,380
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.14 Advertising Services Agreement, between DoubleClick, Inc. and
AltaVista, dated as of November 1, 1999
10.15 Advertising Services Agreement, between DoubleClick, Inc. and Compaq
Computer Corporation, dated as of January 1, 1999
10.16 Relevant portions of the Strategic Business Agreement, between Compaq
Computer Corporation and CMGI, Inc., dated as of June 29, 1999
10.17 Strategic Alliance Agreement, between 1stUp.Com Corporation and
AltaVista, dated as of June 25, 1999
10.22 Amended and Restated 1999 Equity Incentive Plan
23.1 Consent and Report of KPMG LLP
23.2 Consent of Singer Lewak Greenbaum & Goldstein LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
</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
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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
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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.
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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.
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EXHIBIT 3.1
FOURTEENTH
A. In anticipation that CMGI, Inc. ("CMGI") will be a substantial
stockholder of the Company, and in anticipation that the Company and CMGI may
engage in the same or similar activities or lines of business and have an
interest in the same areas of corporate opportunities, and in recognition of the
benefits to be derived by the Company through its continued contractual,
corporate and business relations with CMGI (including possible service of
officers and directors of CMGI as officers and directors of the Company), the
provisions of this Article Fourteenth are set forth to regulate and define the
conduct of certain affairs of the Company as they may involve CMGI and its
officers and directors, and the power, rights, duties and liabilities of the
Company and its officers, directors and stockholders in connection therewith.
B. CMGI shall have no duty to refrain from engaging in the same or
similar activities or lines of business as the Company, and neither CMGI nor
any officer of director thereof (except as provided in paragraph (c) below)
shall be liable to the Company or its stockholders for breach of any fiduciary
duty by reason of any such activities of CMGI. In the event that CMGI acquires
knowledge of a potential transaction or matter which may be a corporate
opportunity for both CMGI and the Company, CMGI shall have no duty to
communicate or offer such corporate opportunity to the Company and shall not be
liable to the Company or its stockholders for breach of any fiduciary duty as a
stockholder of the Company by reason of the fact that CMGI pursues or acquires
such corporate opportunity for itself, directs such corporate opportunity to
another person, or does not communicate information regarding such corporate
opportunity to the Company.
C. In the event that a director or officer of the Company who is also a
director or officer of CMGI acquires knowledge of a potential transaction or
matter which may be a corporate opportunity for both the Company and CMGI, such
director or officer of the Company shall have fully satisfied and fulfilled the
fiduciary duty of such director or officer to the Company and its stockholders
with respect to such corporate opportunity, if such director or officer acts in
a manner consistent with the following policy:
(i) A corporate opportunity offered to any person who is a director
or officer of the Company, and who is also a director or officer of CMGI, shall
belong to the Company if such opportunity is expressly offered to such person
solely in his or her capacity as a director or officer of the Company.
(ii) Otherwise, such corporate opportunity shall belong to CMGI.
D. For purposes of this Article Fourteenth only: (i) The term "Company"
shall mean the Company and all corporations, partnerships, joint ventures,
associations and other entities in which the Company beneficially owns (directly
or indirectly) 50% or more of the outstanding voting power, partnership
interests or similar voting interests, and (b) the term CMGI shall mean, CMGI
and all corporations, partnerships, joint ventures, associations and other
entities (other than the Company, defined in accordance with Clause (i) of this
Paragraph (D)) in which CMGI beneficially owns (directly or indirectly) 50% or
more of the outstanding voting stock, voting power, partnership interests or
similar voting interests.
E. Any person or entity purchasing or otherwise acquiring any interest in
any shares of capital stock of the Company will be deemed to have notice of and
to have consented to the provisions of this Article Fourteenth.
F. Notwithstanding anything in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of more than 80% of the votes
entitled to be cast by the holders of the Common Stock, voting together as a
single class, shall be required to alter, amend or repeal or adopt any provision
inconsistent with, any provision of this Article Fourteenth. Neither the
alteration, amendment or repeal of this Article Fourteenth nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article Fourteenth shall eliminate or reduce the effect of this Article
Fourteenth in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article Fourteenth, would accrue or arise, prior to
such alteration, amendment, repeal or adoption.
G. This Article shall apply as set forth above except as otherwise
provided by law. It is the intention of this Article to take full advantage of
statutory amendments, the effect of which may be to specifically authorize or
approve provisions such as this Article. Any repeal of this Article, or any
amendment of this Article insofar as it would in any way enlarge the liability
of any person covered by this Article, shall be ineffective with respect to any
acts or omissions occurring prior to the date of such repeal or amendment.
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 April, 2000.
ALTAVISTA COMPANY
By:_________________________________
Rodney W. Schrock
Chief Executive Officer
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Exhibit 5.1
Skadden, Arps, Slate, Meagher & Flom LLP
525 University Avenue
Palo Alto, CA 94301
April 7, 2000
AltaVista Company
529 Bryant Street
Palo Alto, California 94301
Re: AltaVista Company
Registration Statement on Form S-1
(File No. 333-93013)
----------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to AltaVista Company, a Delaware
corporation (the "Company"), in relation to the initial public offering by the
Company of up to 17,020,000 shares (including 2,220,000 shares subject to an
over-allotment option) (the "Shares") of the Company's common stock, par value
$0.01 per share (the "Common Stock").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-1 (File No. 333-93013) as filed with the Securities and
Exchange Commission (the "Commission") on December 17, 1999 under the Act; (ii)
Amendment No. 1 to the Registration Statement as filed with the Commission on
January 31, 2000 under the Act; (iii) Amendment No. 2 to the Registration
Statement as filed with the Commission on February 11, 2000 under the Act; (iv)
Amendment No. 3 to the Registration Statement as filed with the Commission on
March 9, 2000 under the Act; (v) Amendment No. 4 to the Registration Statement
as filed with the Commission on March 24, 2000 under the Act (such Registration
Statement, as so amended, being hereinafter referred to as the "Registration
Statement"); (vi) the form
<PAGE>
AltaVista Company
March 24, 2000
Page 2
of Purchase Agreement (the "Purchase Agreement") proposed to be entered into
by and among the Company, as issuer, and, Morgan Stanley & Co. Incorporated,
Chase Securities Inc., FleetBoston Robertson Stephens Inc., Prudential
Securities Incorporated, Wit SoundView Corporation (the "U.S.
Representatives") and Morgan Stanley & Co. International Limited, Chase
Securities Inc., FleetBoston Robertson Stephens International Ltd, Prudential
Bache International Limited, and Wit SoundView Corporation (the "International
Representatives") as representatives of the several underwriters named therein
(the "Underwriters") filed as an exhibit to the Registration Statement; (vii)
a specimen certificate representing the Common Stock; (viii) the Amended and
Restated Certificate of Incorporation of the Company, as currently in effect;
(ix) the Amended and Restated By-Laws of the Company, as currently in effect;
(x) the form of Amended and Restated Certificate of Incorporation of the
Company intended to be filed with the Secretary of State for the State of
Delaware filed as an exhibit to the Registration Statement; and (xi) certain
resolutions of the Board of Directors of the Company, (the "Resolutions")
relating to the issuance and sale of the Shares and related matters. In
connection with this opinion, we have also made such legal and factual
examinations and inquiries, including an examination of originals (or copies
certified or otherwise identified to our satisfaction as being true
reproductions of originals) of such documents, corporate records and other
instruments, and have obtained from officers of the Company and agents thereof
such certificates and other representations and assurances as to matters of
fact as we have deemed necessary or appropriate for the purposes of this
opinion.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
<PAGE>
AltaVista Company
March 24, 2000
Page 3
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents.
We do not express any opinion as to the laws of any jurisdiction other
than the General Corporation Law of Delaware, including statutory and reported
decisional law thereunder, and we do not express any opinion as to the effect of
any other laws on the opinion stated herein.
Based upon and subject to the foregoing, we are of the opinion that
when (i) the Registration Statement becomes effective under the Act; (ii) the
Purchase Agreement has been duly executed and delivered; (iii) certificates
representing the Shares in the form of the specimen certificate examined by us
have been manually signed by an authorized officer of the transfer agent and
registrar for the Common Stock and registered by such transfer agent and
registrar, and have been delivered to and paid for by the Underwriters as
contemplated by the Purchase Agreement, the Shares will be validly issued,
fully paid and nonassessable.
<PAGE>
AltaVista Company
March 24, 2000
Page 4
We consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement and to the reference to our firm under
the caption "Legal Matters" in the prospectus included in the Registration
Statement. In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Commission.
Very truly yours,
Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE>
EXHIBIT 10.14
Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchange
Commission.
INTERIM AMENDED AND RESTATED
ADVERTISING SERVICES AGREEMENT
This ADVERTISING SERVICES AGREEMENT (this "Agreement"), effective as
---------
of November 1, 1999 (the "Effective Date"), by and between DoubleClick Inc., a
--------------
Delaware corporation ("DoubleClick"), AltaVista Company, a Delaware corporation
-----------
(as successor to Compaq Computer Corporation) and AV Internet Solutions Ltd., an
Irish corporation (AV Internet Solutions Ltd., AltaVista Company, and the direct
and indirect subsidiaries of AltaVista Company, "AltaVista").
WHEREAS, DoubleClick and Compaq Computer Corporation entered into an
Advertising Services Agreement as of January 1, 1999 (the "Existing Agreement");
------------------
WHEREAS, AltaVista is the successor in interest to Compaq Computer
Corporation's rights and obligations under the Existing Agreement;
WHEREAS, DoubleClick and AltaVista desire that the Existing Agreement
be suspended and that this Agreement apply instead but only for the duration of
the period from January 1, 2000 until December 31, 2000 (except for Section 4.2
and 4.4, which shall apply from the Effective Date until December 31, 2000),
after which this Agreement shall cease to have effect and the Existing Agreement
shall again apply;
WHEREAS, subject to Section 11.8, AltaVista intends to form an
internal sales force to solicit advertising for the Web Site; and
WHEREAS, in furtherance of the objectives set forth above, the parties
hereto desire to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
DoubleClick and AltaVista, intending to be legally bound, hereby agree as
follows:
As of the Effective Date Sections 4.2 and 4.4 of the Existing
Agreement are deleted in their entirety and replaced with the Sections numbered
4.2 and 4.4 below.
As of January 1, 2000 the parties hereby agree that the Existing
Agreement is amended and restated in its entirety as set forth in this
Agreement.
The parties agree that on January 1, 2001, the Existing Agreement
shall again apply and that apart from any obligations that survive pursuant to
Section 5.5(b) of this Agreement, this Agreement shall no longer be of any
effect on January 1, 2001.
The parties further agree that DoubleClick may delegate its
obligations under this Agreement outside the United States to the Affiliates and
joint venture entities listed on Exhibit H, and to any other Affiliate or joint
venture entity that has been approved by AltaVista, which approval shall not be
unreasonably withheld.
<PAGE>
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the meanings specified below:
(a) "Ad Sales Service" shall mean the services provided by
DoubleClick on behalf of AltaVista in relation to the Web Site pursuant to
Article III.
(b) "Advertiser" shall mean a Person who provides material, whether
directly or through its advertising agency, to promote itself, its brands or the
products or services that it offers.
(c) "Advertiser Contract" shall mean any contract with an Advertiser
relating to the sale of Advertising.
(d) "Advertising" or "Advertisement" shall mean any material
(including any graphical or textual element) provided by or on behalf of an
Advertiser that promotes a brand or products or services and which falls within
one of the following categories: (i) it is on the rate card for Advertising,
(ii) it is intended to be on the rate card for Advertising, or (iii) it is or
could be rotated between several different Advertisers without changing the
nature of the content or service on the Page where the advertising material
appears. Advertising shall not include the direct output or an aspect of such
output (e.g. prominent placement in such output, or prioritization of results)
or a hit within such output of a service that is solely for merchant listings,
product listings, or directory listings even though such output is being offered
or sold to an Advertiser ("Merchant Listings").
(e) "Affiliate" shall mean, with respect to any Person, any other
Person that, directly or indirectly, controls, is controlled by, or is under
common control with, such Person.
(f) "Agreement" shall mean this Agreement and the schedules, exhibits
and addenda attached hereto as the same may be amended, supplemented or modified
in accordance with the terms hereof.
(g) "Average Combined Pricing" shall have the meaning set forth in
Section 4.4 of this Agreement.
(h) "Average DART Only Fee" shall have the meaning set forth in
Section 4.4 of this Agreement.
(i) "Badge" shall mean a graphical element in a fixed location on a
Page designed for the delivery of Advertising that is, as of the Effective Date,
125x125 pixels, or the equivalent or smaller sizes, and shall, in all cases,
include all natural evolutions thereof. A current sample of a Badge is attached
hereto as Exhibit A.
(j) "Bad Debt" shall mean receivables for billed Net Revenues in
which collection has not been made and, in accordance with criteria set by
AltaVista, is deemed
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uncollectable. In no event shall a receivable that is less than One Hundred and
Twenty (120) days past due be deemed uncollectable.
(k) "Banner" shall mean a graphical element in a fixed location on a
Page designed for the delivery of Advertising that is, as of the Effective Date,
468x60 pixels (file size up to 15K bytes), and shall include all natural
evolutions thereof. A current sample of a Banner is attached hereto as Exhibit
A.
(l) "Barter" shall mean the exchange or trade of any unsold inventory
on the Web Site for non-monetary consideration.
(m) "Beyond-the-Banner Arrangements" shall mean any arrangement, as
now existing or hereafter developed, for material provided by or on behalf of an
Advertiser that promotes a brand or products or services and is provided for
delivery to Users on a Page or Pages but does not constitute a Standard Ad Unit.
"Beyond-the-Banner Arrangements" include, but are not limited to, the following:
(i) ad units hereafter developed other than the Standard Ad Units (whether or
not such newly-developed ad unit requires integration with the content on the
Web Site); (ii) Pages on the Web Site that are customized so that they include
co-branding with, or sponsorship by, the Advertiser during the course of the
arrangements; and (iii) Pages on the Web Site that feature content created or
licensed from the Advertiser or another third party specifically for the
advertising campaign in question. Advertising campaigns may include both Beyond-
the-Banner Arrangements and Standard Ad Units.
(n) "Button" shall mean a graphical element in a fixed location on a
Page designed for the delivery of Advertising that is, as of the Effective Date,
88x33 pixels, and shall include all natural evolutions thereof. A current sample
of a Button is attached hereto as Exhibit A.
(o) "Centralized Internet Ad Company" shall mean any company that is
primarily engaged in the business of targeting, measuring and delivering
Advertising on the Internet via a network of web sites all linked to the
company's computers.
(p) "Comparable Customer" shall have the meaning set forth in Section
4.4 to this Agreement.
(q) "AltaVista" shall have the meaning set forth in the preamble to
this Agreement.
(r) "AltaVista Indemnitee" shall have the meaning set forth in
Section 7.2 to this Agreement.
(s) "Confidential Information" shall have the meaning set forth in
Section 10.1 to this Agreement.
(t) "Content Zone" shall mean either (i) any section of the Web Site
existing as of the date of this Agreement that contains editorial content,
whether such content is developed by AltaVista or licensed from a third party,
provided that the Standard Ad Units in such section had been sold by DoubleClick
prior to the Effective Date of this Agreement, or (ii)
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any currently existing section of the Web Site that offers services to Users
(e.g., translation and e-mail services) other than services that would be
offered on a Home Page, Search Results Page or Directory Page.
(u) "Content Zone Page" shall mean any Page within a Content Zone.
For purposes of this Agreement, any Page that has attributes of a Content Zone
Page shall be deemed a "Content Zone Page", even if it also has attributes of a
Directory Page. However, any Page that has the attributes of a Content Zone Page
and also of a Home Page and/or Search Results Page shall be deemed to be a "Home
Page" or "Search Results Page" only, and shall in no event be deemed a "Content
Zone Page."
(v) "DART Service" shall mean a service provided by DoubleClick to
Web site publishers for the targeted and measured delivery of Advertising
through the System from DoubleClick's servers to specified Web sites based on
criteria selected by Advertisers.
(w) "Directory Page" shall mean any Page that contains a
comprehensive directory of Web sites, whether existing on the Web Site as of the
date of this Agreement or developed in the future. Any Page that has the
attributes of a Directory Page and of a Home Page, Search Results Page and/or
Content Zone Page shall be defined in accordance with the definitions of "Home
Page", "Search Results Page" and "Content Zone Page", and shall in no event be
deemed a "Directory Page."
(x) "DoubleClick" shall have the meaning set forth in the recitals to
this Agreement.
(y) "DoubleClick Competitor" shall mean any Person that is (i)
primarily engaged in the business of third party online advertising sales,
delivery, or tracking or otherwise engaged in third party online advertising
technology or services and/or (ii) listed in Exhibit F attached hereto;
provided, however, that a Person shall be deemed a "DoubleClick Competitor" if
it owns a division, business unit or similar entity that is primarily engaged in
the business of third party online advertising sales, delivery, or tracking or
otherwise engaged in third party online advertising technology or services.
(z) "DoubleClick Represented Pages" shall mean any Pages for which
DoubleClick may sell Advertising pursuant to the terms of this Agreement.
(aa) "DoubleClick Indemnitee" shall have the meaning set forth in
Section 7.1 to this Agreement.
(bb) "Effective Date" shall have the meaning set forth in the preamble
to this Agreement.
(cc) "Existing Agreement" shall have the meaning set forth in the
recitals to this Agreement.
(dd) "Existing Orders" shall have the meaning set forth in Section
3.8(e) to this Agreement.
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(ee) "Home Page" shall mean the Page initially presented to the User
when accessing the primarily advertised Web Site URL. For the purposes of this
Agreement, any Page that has the attributes of a Home Page shall be deemed to be
the "Home Page," even if it also has attributes of any of the following: a
Search Results Page, Content Zone Page and/or Directory Page.
(ff) "HTML Modifications" shall have the meaning set forth in Section
3.7 to this Agreement.
(gg) "Impression" shall mean each occurrence of Advertising on a Page
resulting from a User accessing or visiting such Page.
(hh) "Indemnitee" shall have the meaning set forth in Section 7.3 to
this Agreement.
(ii) "Indemnitor" shall have the meaning set forth in Section 7.3 to
this Agreement.
(jj) "International Ads" shall mean Advertising offered to Non-U.S.
Advertisers.
(kk) "Local Ads" shall mean Advertising offered to U.S. Advertisers to
target Users who are located in any of five or fewer U.S. states specified by
such U.S. Advertiser.
(ll) "National Ads" shall mean Advertising offered to U.S. Advertisers
to target Users who are located in any of six or more U.S. states specified by
such U.S. Advertisers.
(mm) "Net Payable" shall have the meaning set forth in Section 4.6 of
this Agreement
(nn) "Net Revenue" shall mean the gross billings invoiced by
DoubleClick to Advertisers less rate card and volume discounts, rebates, make-
goods and third party agency commissions.
(oo) "New Inventory" shall have the meaning set forth in Section 3.5
to this Agreement.
(pp) "New Inventory Addendum" shall mean the addendum, to be signed by
both AltaVista and DoubleClick, that will confirm the New Inventory that will be
subject to this Agreement and the specific arrangements for such New Inventory.
(qq) "New Web Site Area" shall have the meaning set forth in Section
3.5 to this Agreement.
(rr) "Non-U.S. Advertiser" shall mean an Advertiser for which the
primary sales contact with respect to a given Advertising campaign is based in
Advertiser's offices outside of the United States; provided, however, that if an
Advertiser is represented by an
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advertising agency, the primary sales contact shall be deemed to be the agency's
primary contact in the Advertiser's organization.
(ss) "Page" shall mean a page on the Web Site that is linked to the
DART Service.
(tt) "Paid Advertising" or "Paid Advertisement" shall mean (i)
Advertising which is paid for by an Advertiser; (ii) Advertising that is
provided to an Advertiser free of charge as a component of a Paid Advertising
campaign; and (iii) Advertising provided as a make-good to an Advertiser so long
as DoubleClick shall not receive credit more than once for such make-good.
(uu) "Permitted Designees" shall mean any designee of AltaVista
provided that such Person is not a DoubleClick Competitor.
(vv) "Person" shall mean any individual, firm, corporation,
partnership, trust, association, joint venture, company or other entity, or any
government authority.
(ww) "Sales Policies" shall have the meaning set forth in Section 3.10
to this Agreement.
(xx) "Search Results Page" shall mean the Page on any section of the
Web Site on which the results of a keyword search powered by the AltaVista
search engine appear. For the purposes of this Agreement, any Page that has the
attributes of a Search Results Page shall be deemed to be a "Search Results
Page" only, even if it also has attributes of any of the following: Content Zone
Page or Directory Page. However, any Page that has the attributes of both a
Search Results Page and Home Page shall be deemed a "Home Page" only, and shall
in no event be deemed a Search Results Page.
(yy) "Services" shall mean, collectively, the DART Service, the Ad
Sales Service, and any other service provided by DoubleClick to AltaVista under
this Agreement.
(zz) "Standard Ad Unit" shall mean a Banner, Badge, Button, Toolbox or
Text Link.
(aaa) "Strategic Advertiser" shall mean any Person that enters into a
Strategic Advertising Arrangement.
(bbb) "Strategic Advertising Arrangement" shall have the meaning set
forth in Section 3.3 to this Agreement.
(ccc) "System" shall mean DoubleClick's proprietary DART software
technology.
(ddd) "Term" shall have the meaning set forth in Section 5.1 to this
Agreement.
(eee) "Text Link" shall mean a hypertext link in a fixed location on
a Page designed for the delivery of Advertising that is, as of the Effective
Date, a 1x1 pixel tracking gif
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(no more than two lines of text, no more than 20 characters per line), and shall
include all natural evolutions thereof. A current sample of a Text Link is
attached hereto as Exhibit A.
(fff) "Toolbox" shall mean a graphical element in a fixed location on
a Page designed for the delivery of Advertising that is, as of the Effective
Date, 131x190 pixels,and shall include all natural evolutions thereof. A current
sample of a Toolbox is attached hereto as Exhibit E.
(ggg) "Top Three" shall have the meaning set forth in Section 5.4 to
this Agreement.
(hhh) "Trademark Use Guidelines" shall have the meaning set forth in
Section 8.1 to this Agreement.
(iii) "Unpaid Advertising" or "Unpaid Advertisement" shall mean any
Advertisement that is not a Paid Advertisement. Examples of "Unpaid Advertising"
include (i) Advertisements that promote AltaVista, the Web Site, or their
respective products and services, and (ii) Advertisements Bartered by AltaVista
pursuant to Section 3.6.
(jjj) "U.S. Advertiser" shall mean an Advertiser for which the
primary sales contact with respect to a given Advertising campaign is based in
Advertiser's offices in the United States; provided, however, that if an
Advertiser is represented by an advertising agency, the primary sales contact
shall be deemed to be the agency's primary contact in the Advertiser's
organization.
(kkk) "User" shall mean any Person that accesses the Web Site.
(lll) "Web Site" shall mean (a) the AltaVista Web site currently
located at the URL http://www.altavista.com/ and (b) all other Web sites now or
-------------------------
hereafter owned or controlled by AltaVista (but only for so long as such Web
sites are owned or controlled by AltaVista), and all pages contained within each
of those Web sites hosted anywhere in the world. For purposes of this
definition, a Web site shall be deemed owned or controlled by AltaVista if
AltaVista owns, directly or indirectly, more than 50% of the Person that owns
the Web site. If, during the Term, AltaVista shall come to control additional
web sites through acquisitions and such web sites are subject to agreements
which existed prior to the acquisition and which prevent the inclusion of such
web site in the arrangements set forth in this Agreement, then such web sites
shall not constitute part of the "Web Site"; provided, however, that AltaVista
shall use reasonable commercial efforts to have such web sites included in the
arrangements set forth in this Agreement as soon as possible by either
terminating the preexisting agreements or not renewing the preexisting
agreements as they expire, as determined by AltaVista.
(mmm) "Year 1" shall mean the period from the Effective Date until
December 31, 1999.
(nnn) "Year 2" shall mean the period from January 1, 2000 to December
31, 2000.
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(ooo) "Year 3" shall mean the period from January 1, 2001 through the
termination of this Agreement.
(ppp) "Year 2 Excluded Advertisers" shall have the meaning set forth
in Section 3.7 to this Agreement.
(qqq) "Year 3 Excluded Advertisers" shall have the meaning set forth
in Section 3.7 to this Agreement.
(rrr) "Acquisition Notice" shall have the meaning set forth in
Section 3.1(a) to this Agreement.
(sss) "Adjustment Commission" shall have the meaning set forth in
Section 3.3(e) to this Agreement.
(ttt) "Advertising Communication" shall mean a discussion, meeting or
other communication with an Advertiser concerning either a specific request for
proposal, a specific proposal, or a specific purchase that includes Advertising.
For purposes of this definition, "communication" shall include telephone calls,
faxes, letters, and email messages.
(uuu) "Aggregate Designated Keywords Impressions" shall mean the
aggregate Designated Keyword Impressions for a given period of time sold by
either DoubleClick or AltaVista.
(vvv) "AltaVista Account" shall mean an Advertiser for whom AltaVista
has the exclusive right to sell Advertising and where the primary sales contact
with respect to the majority of the Advertiser's advertising budget is based in
the Advertiser's offices in the United States; provided, however, that if an
Advertiser is represented by an advertising agency, the primary sales contact
shall be deemed to be the agency's primary contact in the Advertiser's
organization.
(www) "Channel Report" shall have the meaning set forth in Section
3.9(b) to this Agreement.
(xxx) "CMGI Company" shall have the meaning set forth in Section
3.3(b) to this Agreement.
(yyy) "CMGI Company Advertisement shall have the meaning set forth in
Section 3.1(b) to this Agreement.
(zzz) "Designated Keywords" shall mean the 500 keywords listed in
Exhibit G. Exhibit G shall be completed by DoubleClick and delivered to
AltaVista on or before December 1, 1999.
(aaaa) "Designated Keyword Impressions" shall mean the Impressions
for Banners that are delivered on the Search Results Pages generated when a User
has searched for any one of the Designated Keywords on any area or part of the
Web Site (excluding searches when a Designated Keyword is combined with any
other search term, typed incorrectly or is
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otherwise entered in a format that is not identical to the representation of the
Designated Keyword in Exhibit G).
(bbbb) "DMZ Ad Unit" shall mean a hybrid graphical plus hypertext
Advertising element on a Search Results Page designed for the delivery of
Advertising that is, as of the Effective Date, 88 x 31 pixels packaged with
three lines of text and all natural evolutions thereof. The DMZ Ad Unit is
designed as a single ad unit for reporting and delivery purposes and does not
support reporting at a sub-item level.
(cccc) "DoubleClick Account" shall mean an Advertiser for whom
DoubleClick has the exclusive right to sell Advertising.
(dddd) "Engage" shall have the meaning set forth in Section 3.1(c) to
this Agreement.
(eeee) "Engage Arrangement" shall have the meaning set forth in
Section 3.3(c).
(ffff) "High Value Advertising" shall have the meaning set forth in
Section 4.7 to this Agreement.
(gggg) "Red Report" shall have the meaning set forth in Section
3.9(b) to this Agreement.
(hhhh) "User Profile" shall mean the set of known, assumed or
inferred attributes about a particular User which is created by DoubleClick as a
result of applying its proprietary statistical models or selection techniques to
User information in its data alliance database.
(iiii) "User Profile-Based Advertising" shall mean Advertising that
is targeted to Users based on the User Profiles.
(jjjj) "White Label Advertising" shall have the meaning set forth in
Section 3.1(c) to this Agreement.
ARTICLE II
DART SERVICE
2.1 DART Service.
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(a) Subject to the terms and conditions of this Agreement,
DoubleClick hereby agrees to provide the DART Service to AltaVista for the Web
Site during the Term. Except for static Advertising that is hard-coded into
certain pages of the Web Site, all other Advertising placed on the Web Site by
AltaVista or DoubleClick shall be delivered exclusively by DoubleClick through
the DART Service. A description of the DART Service as of the date hereof is
attached hereto as Exhibit B. AltaVista shall not use any other third party ad
delivery service for the delivery of Advertising.
(b) DoubleClick grants to AltaVista the non-exclusive and non-
transferable (except as permitted pursuant to Section 11.8) right to access and
use the DART Service, which
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AltaVista can access and use on DoubleClick's Web servers by means of a unique
password issued by DoubleClick, and for the purposes of: (i) performing
projections of Advertising Impression inventories that might be available
through the DART Service, (ii) uploading and storing Advertising for delivery by
DoubleClick through the DART Service, (iii) selecting trafficking criteria for
the delivery of Advertising to Users through the DART Service, and (iv)
receiving reports of Advertising Impressions and other data related to the
delivery of Advertising by the DART Service.
2.2 AltaVista's DART Service Obligations. AltaVista shall be responsible
------------------------------------
for soliciting Advertising, except to the extent such soliciting is conducted by
DoubleClick on behalf of AltaVista pursuant to this Agreement. With respect to
all Advertising sold by AltaVista that is delivered through the DART Service,
AltaVista shall be responsible for trafficking Advertising (which shall include
the input of Advertising into the System) and handling all inquiries of any type
or nature. Trafficking of Advertising may be outsourced to DoubleClick at
AltaVista's request and for additional fees (as set forth in Article IV below).
With respect to all Advertising sold by AltaVista that is delivered through the
DART Service, AltaVista shall obtain all necessary rights, licenses, consents,
waivers and permissions from Advertisers and others to allow DoubleClick to
store and deliver Advertising and otherwise operate the DART Service on
AltaVista's behalf and on behalf of AltaVista's Advertisers, and to use any data
provided to or collected by the System, and AltaVista agrees to comply with any
further requirements of the ad insertion orders agreed with DoubleClick.
2.3 DoubleClick's DART Service Obligations. DoubleClick's sole
--------------------------------------
obligations in relation to the DART Service under this Agreement shall be (i) to
make the System available to AltaVista, (ii) to deliver Advertising through the
DART Service according to the trafficking criteria selected by AltaVista and
AltaVista's Advertisers using the System and (iii) to provide training sessions
explaining the proper use of the DART Service and the System.
2.4 Proprietary Rights and Restrictions. DoubleClick is the exclusive
-----------------------------------
supplier of the DART Service and the exclusive owner of all right, title and
interest in and to the System, all software, databases and other aspects and
technologies related to the System and DART Service, including the System, and
any enhancements thereto. AltaVista shall not use the System or any data thereby
provided except pursuant to the limited rights expressly granted in this
Agreement. AltaVista shall use the System only in accordance with reference
manuals to be supplied by DoubleClick and only in accordance with DoubleClick's
standard security procedures, as posted on the DoubleClick Web site or otherwise
provided to AltaVista. AltaVista has the sole and exclusive right to use all
data derived by its use of the DART Service, for any purpose related to
AltaVista's business with Advertisers, provided that DoubleClick may use and
disclose the User data (other than personally-identifiable information) derived
from AltaVista's use of the DART Service pursuant to this Agreement only (i) for
DoubleClick's reporting purposes (consisting of the compilation of aggregated
statistics about the DART Service (e.g., the aggregate number of ads delivered)
that may subsequently be provided to customers, potential customers and
disclosed to the general public; (ii) if required by court order, law, or
governmental agency (including but not limited to, the Securities and Exchange
Commission); and (iii) to the extent necessary to integrate operation and
management of the Services for the Web Site within the operation and management
of the DART Service by DoubleClick for all its customers and otherwise for the
DoubleClick Network.
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ARTICLE III
ADVERTISING SALES REPRESENTATION
3.1 AltaVista's Reservation of Rights.
---------------------------------
(a) After DoubleClick's appointment of its ten (10) DoubleClick
Accounts in accordance with Section 3.2 below and subject to Section 3.3 below,
AltaVista shall have the right (exercisable in AltaVista's sole discretion) to
designate Advertisers as AltaVista Accounts in accordance with the following
schedule (the dates specified are the "commencement dates" for each tranche of
AltaVista Accounts): sixty (60) Advertisers may become AltaVista Accounts on
January 1, 2000; thirty (30) additional Advertisers may become AltaVista
Accounts on April 1, 2000; thirty (30) additional Advertisers may become
AltaVista Accounts on July 1, 2000; and thirty (30) additional Advertisers may
become AltaVista Accounts on October 1, 2000 (making an aggregate of 150
accounts on October 1, 2000). In each case AltaVista shall provide thirty (30)
days prior written notice to DoubleClick of the Advertiser that AltaVista
desires to designate an AltaVista Account (each an "Acquisition Notice"). After
------------------
AltaVista has selected an Advertiser to be an AltaVista Account and delivered an
Acquisition Notice to DoubleClick, AltaVista shall have the exclusive right to
sell Advertising to such AltaVista Account from the applicable commencement date
set forth in the schedule in this Section 3.1(a); provided, however, that if
thirty (30) days from the date of DoubleClick's receipt of the Acquisition
Notice has yet to expire at the applicable commencement date, that Advertiser
shall not be deemed to be an AltaVista Account until the thirty (30) day notice
period for the Acquisition Notice has expired. In the event that at any time
during the Term, AltaVista desires to conduct an Advertising Communication with
a current DoubleClick Account, then prior to making such Advertising
Communication AltaVista shall notify DoubleClick and invite DoubleClick to
participate in the initial meeting. After the initial meeting, AltaVista will
keep DoubleClick reasonably informed of the outcome of future meetings via a
timely and detailed status report. The foregoing shall not apply to an
Advertiser after the expiration of thirty days from the date of DoubleClick's
receipt of an Acquisition Notice in respect of such Advertiser and thereafter as
long as such Advertiser remains an AltaVista Account. In the unusual event that
AltaVista fails to follow proper procedure, then DoubleClick shall notify the
appropriate AltaVista executives to resolve the problem and, if the problem is
not promptly rectified or wherever the executives of DoubleClick and AltaVista
think appropriate, AltaVista shall pay to DoubleClick a deemed commission of
[***]% of the [***] month of AltaVista's gross revenues from such Advertiser.
[***] Denotes language for which AltaVista has requested confidential
treatment pursuant to the rules and regulations of the Securities Act of 1933,
as amended.
(b) Subject to Section 3.3 below, AltaVista may also sell to CMGI
Companies Advertising for the products or services of such CMGI Companies (each
a "CMGI Company Advertisement"); provided that such sales shall conform to all
------------ -------------
the terms of this Agreement, including without limitation, those with respect to
delivery through DART.
(c) Subject to Section 3.3 below, AltaVista may also enter into an
arrangement with Engage Technologies, Inc. and its subsidiaries ("Engage") which
------
shall allow Engage to sell "White Label Advertising" on the Web Site so long as
the "White Label Advertising" is delivered through DART. "White Label
-----------
Advertising" shall mean (i) Impressions for Banners that are untargeted and
- -----------
sold to Advertisers such that the Advertisers know that their advertising may
appear on the Internet, but are unaware that the advertising will be
specifically
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delivered on the Web Site and (ii) such Banners are preemptible by other
Advertising that is sold on the Web Site (i.e., bulk inventory).
(d) AltaVista retains the right to enter into Beyond-the-Banner
Arrangements with Non-U.S. Advertisers. The parties agree that both parties
shall be entitled to enter into Beyond-the Banner Arrangements with Non-U.S.
Advertisers, provided that AltaVista may not enter into any Beyond-the-Banner
Arrangements with the ten (10) DoubleClick Accounts designated by DoubleClick
pursuant to Section 3.2 below and AltaVista may not appoint any third party as
its representative for such Beyond-the-Banner Arrangements with Non-U.S.
Advertisers.
3.2 Scope of Ad Sales Representation. During the Term, subject to the
--------------------------------
limitations stated herein and AltaVista's retained rights to sell set forth in
Section 3.1 above, DoubleClick and its authorized representatives, licensees and
assigns shall be AltaVista's sole and exclusive representative with respect to
Advertising and shall have the exclusive right to enter into agreements for such
Advertising on behalf of AltaVista. In addition, on or before November 26, 1999
DoubleClick shall designate (in its sole discretion) any ten (10) current
Advertisers other than those that appear on Exhibit I, which Advertisers shall
remain DoubleClick Accounts throughout the Term and which cannot be designated
by AltaVista as AltaVista Accounts.
3.3 Limitations on Advertising Sales by AltaVista.
---------------------------------------------
(a) AltaVista agrees that during the calendar year 2000, the
Designated Keyword Impressions delivered in each month pursuant to sales made by
AltaVista to the AltaVista Accounts shall not exceed the following maximum
percentages of Aggregate Designated Keyword Impressions: twenty percent (20%)
for each of [***] and [***]; [***] percent ([***]%) for each of [***]; [***]
percent ([***]%) for each of [***]; and fifty percent (50%) for each of [***].
[***] Denotes language for which AltaVista has requested confidential
treatment pursuant to the rules and regulations of the Securities Act of 1933,
as amended.
(b) AltaVista also agrees that during calendar year 2000 and for each
category of Advertising, the CMGI Company Advertisements (excluding those
Advertisements sold to CMGI Companies that have also been selected by AltaVista
as AltaVista Accounts) must in the aggregate represent less than one percent
(1%) of the aggregate Impressions delivered during the month for that category
of Advertising (aggregating Impressions for that category of Advertising sold by
either DoubleClick or AltaVista). AltaVista may not sell Advertisements to CMGI
Companies for the purpose of allowing such CMGI Companies to resell those
Advertisements to a third party. "CMGI Company" means any company which
------------
qualifies as an Affiliate (as defined in this Agreement) of CMGI, Inc. but
excluding any DoubleClick Competitor. Categories of Advertising for purposes of
this Section, shall be the categories used for pricing Advertising for
Advertisers (e.g., each size of Banner shall be a separate category). In the
event that AltaVista names CMGI Companies as AltaVista Accounts, those CMGI
Companies shall not (a) resell Advertisements to any third party and (b) be a
DoubleClick Competitor (provided that, for purposes of this Section 3.3(b) only,
CMGI, Inc. shall not constitute a DoubleClick Competitor).
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(c) Subject to the limitations set forth in this Section 3.3(c),
AltaVista may enter into an arrangement with Engage (the "Engage Arrangement")
------------------
which shall allow Engage to sell White Label Advertising according to one of the
two following structures:
(i) If the Engage Arrangement covers the entire Web Site, then
the Engage Arrangement must conform to the limitations set forth below for all
areas and parts of the Web Site:
Preemptible and Non-preemptible Scheme. As between Engage, DoubleClick and
AltaVista and in accordance with the terms of this Agreement, DoubleClick and
AltaVista shall have the exclusive right to sell all non-preemptible Advertising
on the Web Site. However, both Engage and DoubleClick shall be entitled to sell
preemptible Banners (i.e., bulk inventory). For the preemptible Banners, (a) the
Banners with the highest CPM shall run on the Web Site and (b) AltaVista may
permit Engage to sell only up to five percent (5%) each month of all Impressions
that are for Banners. It is understood that DoubleClick may only sell User
Profile-Based Banners as preemptible Banners.
(ii) If the Engage Arrangement covers only pages in the
Shopping.com Web site, then the Engage Arrangement shall allow Engage exclusive
access to preemptible Banners on Shopping.com with any residual preemptible
Banner inventory on Shopping.com after such exclusive access being available for
DoubleClick to sell.
AltaVista shall provide to DoubleClick on January 1, 2000 a written notice of
its decision to elect for one of the two Engage Arrangements described in (i) or
(ii) above.
AltaVista agrees that it may allow Engage to use only one third party sales
agent in connection with Engage's rights hereunder; provided, however, that
AltaVista's contract with Engage expressly limits Engage's rights to use third
party sales agents to just one sales agent.
In all cases, AltaVista shall ensure that Engage delivers all Advertising
through DART.
(d) DoubleClick may implement technical means through the DART
Service to monitor and ensure compliance with Sections 3.3(a), (b) and (c)
above.
(e) Each quarter, DoubleClick shall audit the (i) Designated Keyword
Impressions and CMGI Company Advertisements sold by AltaVista, (ii) the White
Label Advertising sold by Engage and (iii) calculate what percentage such
Designated Keyword Impressions represents of the Aggregate Designated Keyword
Impressions for the same period, what percentage the CMGI Company Advertising
represents of the aggregate Impressions for each category of Advertising for the
same period and what percentage the White Label Advertising represents of the
aggregate Impressions for Banners that are preemptible by other Advertising on
the Web Site. DoubleClick shall promptly notify AltaVista of the results of this
audit via an email report. The sales commissions and billing and collections
fees set forth in Section 4.3 shall be applied to all Designated Keyword
Impressions, CMGI Company Advertising and White Label Advertising that are in
excess of the amount permitted within the applicable percentages for a
particular quarter and in each case such amounts shall be calculated based on a
deemed Net Revenues amount that is equal to the average price that DoubleClick
and AltaVista sold the Designated Keyword Impressions, the Impression within the
category of
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Advertising or White Label Advertising during the same period (the "Adjustment
----------
Commission"). DoubleClick shall be entitled to offset the amount of any
- ----------
Adjustment Commission against any payments otherwise due from DoubleClick to
AltaVista under the terms of this Agreement. In addition to the above Adjustment
Commission remedy, in the event that the Aggregate Designated Keyword
Impressions sold by AltaVista exceeds the percentage permitted by Section 3.3(a)
above, the percentage of CMGI Company Advertisements exceeds the percentage
permitted by Section 3.3(b), or the percentage of White Label Advertising sold
by Engage exceeds the percentage permitted by Section 3.3(c) above, the
thresholds set forth in Sections 3.3(a), (b) and (c) above shall be reduced for
the next subsequent quarter by the number of Impressions by which AltaVista
exceeded the threshold in the prior quarter. In the last quarter of 2000,
DoubleClick's remedy under this Section 3.3(e) shall be limited to the
Adjustment Commission. In addition to the quarterly audit reports, DoubleClick
shall provide to AltaVista monthly reports detailing similar information to be
used for informational purposes only.
(f) Designations of Advertisers as AltaVista Accounts once made may
not be changed or exchanged for alternative Advertisers; provided, however, that
of the AltaVista Accounts designated on January 1, 2000 and April 1, 2000, up to
thirty-five (35) of those Advertisers may be exchanged for alternative
Advertisers (the "Returned Accounts") upon commencement of Year 3 of the
Existing Agreement and the remaining AltaVista Accounts that have been
designated by the end of calendar year 2000 shall constitute part of the Year 3
Excluded Advertisers for purposes of Year 3 and Section 3.7(c) of the Existing
Agreement when the Existing Agreement again comes into force on January 1, 2001.
AltaVista must provide DoubleClick with at least thirty days written notice
prior to December 31, 2000 of its desire to make an existing AltaVista Account a
Returned Account. In addition, from the date that a Returned Account ceases to
be an AltaVista Account, all Advertising sold by AltaVista to such Advertiser
which has yet to be delivered shall be deemed to have been sold by DoubleClick
and AltaVista shall pay to DoubleClick the commissions and fees required by
Article IV below in respect of such Advertising (or DoubleClick may deduct such
amount from payments otherwise due to AltaVista hereunder).
(g) Except for DoubleClick and as set forth in Section 3.1(c),
AltaVista shall not use or appoint any third party, including but not limited to
AdSmart, to sell any Advertising, Beyond-the-Banner Arrangements, Merchant
Listings or any other material provided by or on behalf of an Advertiser that
promotes a brand or products or services of that Advertiser.
3.4 No Other Rights. Other than as set forth in this Article III,
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DoubleClick shall not have the right to place Advertising on the Web Site.
3.5 New Web Site Areas. The parties recognize that AltaVista will
------------------
regularly update the design and content and technology of the Web Site. As new
content channels (zones) are added to the Web Site, and except as provided in
Section 3.1 above, DoubleClick shall be sole and exclusive representative with
respect to such new Advertising and shall have the exclusive right to enter into
agreements for such Advertising, in accordance with Section 3.2 above.
3.6 Unsold Inventory. All unsold Advertising inventory may be Bartered by
----------------
AltaVista, subject to the fees set forth in Article IV.
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3.7 AltaVista's Ad Sales Service Obligations.
----------------------------------------
(a) AltaVista agrees to effect all necessary HTML programming with
respect to the Web Site and Pages in accordance with the HTML modifications (the
---
"HTML Modifications") designated by DoubleClick so as to enable DoubleClick to
- -------------------
perform its obligations under this Agreement.
(b) At all times during the Term, each Search Results Page and
Directory Page shall include substantially the same number and type of
Advertising as were included on the corresponding or most closely analogous
Search Results Page or Directory Page prior to the Effective Date of this
Agreement, as illustrated on Exhibit A.
(c) AltaVista agrees that DoubleClick has no responsibility to review
the contents of Pages or the Web Site.
(d) AltaVista shall have the right at any time to ban and remove
Advertising from the Web Site to establish domain restrictions to prevent
delivery of Advertising linked to certain domains, by accessing the "Manage Site
Application" (located at www.doubleclick.net) of the DART Service interface or
otherwise.
(e) AltaVista acknowledges and agrees that all Advertising sold by
DoubleClick under the Existing Agreement for delivery after the Effective Date
shall be governed by the terms and conditions of this Agreement and AltaVista
shall pay DoubleClick the DART Service fee, sales commission, billing and
collections fees and other fees specified under Article IV of this Agreement for
all such Advertising delivered after the Effective Date.
3.8 Dedicated Sales Specialists. Until December 31, 2000, no fewer than
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four DoubleClick sales specialists, reasonably acceptable to AltaVista, shall
be designated by DoubleClick as the Web Site's dedicated sales team. Promptly
after the Effective Date, DoubleClick shall use commercially reasonable efforts
to staff Web Site's dedicated sales team.
3.9 DoubleClick's Ad Sales Service Obligations.
------------------------------------------
(a) Use of Information. DoubleClick shall have the right to use for
------------------
DoubleClick's own use or for use in connection with potential Advertisers on the
Ad Sales Service, information concerning Pages, Impressions and Users accessing
Pages obtained through the Service, provided DoubleClick does not reproduce any
Pages without AltaVista's prior consent.
(b) Reporting. In addition to the daily DART Service reports made
---------
available to AltaVista through DoubleClick's Web site (www.doubleclick.net),
DoubleClick shall use commercially reasonable efforts to deliver to AltaVista
within fifteen (15) days following the end of the month the following reports:
(i) a list of the Advertisers that have purchased Advertising through
DoubleClick, together with a summary of the nature of the order (type of
Advertising and Impressions) and revenue generated from such Advertiser; and
(ii) a four-month and twelve-month forecast of the Advertising scheduled to run
on the Web Site. In addition, DoubleClick shall use commercially reasonable
efforts to deliver to AltaVista within three (3) business days following the end
of the month the following reports: (i) monthly revenue by ad
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placement report ("Red Report") and (ii) summary report of gross revenue for the
----------
Web Site ("Channel Report"). During the Term, DoubleClick agrees also to
--------------
provide AltaVista with such other reports as AltaVista may reasonably request;
provided that DoubleClick shall not be required to provide reports that are, in
DoubleClick's view, unduly burdensome to prepare. All reports and data provided
by DoubleClick to AltaVista are subject to the confidentiality obligations set
forth herein, and access to such reports and data online is subject to
DoubleClick's customary security procedures.
(c) Restrictions. DoubleClick acknowledges that it shall abide by
------------
all reasonable restrictions placed on Advertisements on the Web Site by
AltaVista, including restrictions arising from exclusivity and non-compete
arrangements.
3.10 Rate Card. During the Term of this Agreement, AltaVista, in
---------
consultation with DoubleClick, shall set the rate card for all Advertising sold
by DoubleClick. The current rate card as of the Effective Date is attached
hereto as Exhibit D. In addition, AltaVista, in consultation with DoubleClick,
shall set the minimum and maximum term for Advertiser Contracts and such other
Advertising sales policies and parameters for sales of Advertising on the Web
Site as AltaVista may notify DoubleClick in writing from time to time, which
policies and parameters shall include credit and collections policies applicable
to Advertisers (collectively, the "Sales Policies"). The parties acknowledge
--------------
and agree that both DoubleClick and AltaVista shall comply with the rate card
and the Sales Policies. The parties acknowledge that the credit policies
included in the Sales Policies are not applicable to Advertising sales made by
DoubleClick on AltaVista's behalf prior to the date this Agreement was fully
executed by the parties. Certain of the current Sales Policies are attached as
Exhibit J.
3.11 New Advertising. When new Advertising opportunities become available
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on the Web Site during the Term (through the launch of a new Web Site, content
channel, page, Advertising unit or otherwise) DoubleClick's and AltaVista's
rights to sell such Advertising shall be as set forth in this Article III and
both parties' rights to promote, market and sell such new Advertising
opportunities shall commence at the same time. AltaVista shall provide
DoubleClick with reasonable advance notice in writing of all new Advertising
opportunities and shall not offer to sell any of the new Advertising until the
date on which DoubleClick's rights to sell also commence.
3.12 User Profile-Based Advertising. DoubleClick hereby agrees to sell
------------------------------
User Profile-Based Advertising to Advertisers on the Web Site, subject to
Section 3.1.
ARTICLE IV
COMPENSATION
4.1 Payments. During the Term of this Agreement, AltaVista shall pay to
--------
DoubleClick (i) a DART Services fee for all advertising delivered by DoubleClick
to the Web Site, (ii) a sales commission based on the Net Revenues generated
from all Advertising sold by DoubleClick on behalf of AltaVista, for all sales,
customer support and other services (other than billing and collections
services) that DoubleClick performs on behalf of AltaVista (which shall include
Net Revenues from Advertising sold by DoubleClick to an Advertiser prior to the
date on which AltaVista may commence sales of Advertising to that Advertiser in
accordance with
16
<PAGE>
Section 3.1(a) above, including Advertising that will be delivered after the
date on which AltaVista may commence sales of Advertising to the Advertiser) and
(iii) a billing and collections fee for all billing and collections services
performed by DoubleClick on behalf of AltaVista in relation to Advertising sold
by DoubleClick, based on the Net Revenues generated from such Advertising.
4.2 DART Services Fee.
-----------------
(a) Delivery of U.S. Ads. AltaVista shall pay the following DART
--------------------
fees for all Advertising that is delivered by DoubleClick from the Effective
Date through December 31, 2000:
<TABLE>
<S> <C> <C> <C>
Category 0-0.5 per month 0.5-2B per month Over 2B per month
- -------------------------------------------------------------------------------------
Banners $[***] CPM $[***] CPM $[***] CPM
- -------------------------------------------------------------------------------------
125 x 125 (and smaller) $[***] CPM $[***] CPM $[***] CPM
- -------------------------------------------------------------------------------------
DMZ Sponsorship Unit $[***] CPM $[***] CPM $[***] CPM
(and smaller)
- -------------------------------------------------------------------------------------
Text Links $[***] CPM $[***] CPM $[***] CPM
- -------------------------------------------------------------------------------------
House Redirects $[***] CPM
- -------------------------------------------------------------------------------------
</TABLE>
Volumes shall be determined by aggregating the total number of Impressions
within a category on a worldwide basis.
[***] Denotes language for which AltaVista requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as amended.
(b) Tracking and Trafficking Fees. In addition to one of the
-----------------------------
payments required by Section 4.2(a) above, AltaVista shall also pay the
following fees to the extent that the following Services from DoubleClick are
utilized during the Term:
(i) A tracking fee of [***] CPM for optional pixel tracking services
(which fee is applicable only to Advertising sold by AltaVista);
and
(ii) A trafficking fee of [***] CPM for all advertising not placed by
DoubleClick that is trafficked by DoubleClick.
[***] Denotes language for which AltaVista requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as amended.
(c) Delivery of International Ads. DoubleClick may impose the
-----------------------------
following CPM premiums for International Ads:
Canada - $[***]
UK - $[***]
Hong Kong - $[***]
Germany - $[***]
Italy - $[***]
France - $[***]
Scandinavia - $[***]
Australia - $[***]
Japan - $[***]
Brazil - $[***]
South Africa - $[***]
[***] Denotes language for which AltaVista requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as amended.
17
<PAGE>
(d) Pricing for Delivery of Ads Placed by AltaVista. The parties
-----------------------------------------------
shall meet, commencing on December 1, 1999, to determine whether the DART fees
specified in Section 4.2(a) to be in effect for Year 2 for the delivery of
Advertising placed by AltaVista should be adjusted. The parties would also meet,
commencing on December 1, 2000, to determine whether the DART fees in effect in
Year 3 should be adjusted.
4.3 Ad Sales Commission and Billing/Collections Fees. AltaVista shall pay
------------------------------------------------
to DoubleClick (i) the sales commissions set forth below for all the Ad Sales
Service, support, and other services (other than billing and collections
services) that DoubleClick performs on behalf of AltaVista and (ii) the billing
and collections fees set forth below for all billing and collections services
performed by DoubleClick in relation to Advertising sold by DoubleClick on
behalf of AltaVista, in each case based on the Net Revenues generated from all
Advertising sold by DoubleClick on behalf of AltaVista (which shall include Net
Revenues from Advertising sold by DoubleClick to an Advertiser prior to the date
on which AltaVista may commence sales of Advertising to that Advertiser in
accordance with Section 3.1(a) above, including Advertising that will be
delivered after the date on which AltaVista may commence such sales to the
Advertiser):
<TABLE>
<CAPTION>
Billing and Sales Commission to DoubleClick
Collections -----------------------------------------------------------
Period During Term Fee National Ads International Ads Local Ads
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year 1 [***] [***] [***] [***]
- -------------------------------------------------------------------------------------------------------
Year 2 [***] [***] [***] [***]
- -------------------------------------------------------------------------------------------------------
Year 3 [***] [***] [***] [***]
- -------------------------------------------------------------------------------------------------------
</TABLE>
All sales commissions and billing and collections fees based on Net Revenue
shall be determined using the above chart and based upon the date upon which the
Advertising is sold. If a campaign continues from one calendar year into the
next, the rates applicable at the start of the campaign shall apply for the
whole campaign. For National Ads sold before any termination by AltaVista of
DoubleClick's rights under this Agreement, DoubleClick shall be entitled to
receive the sales commission and billing and collections fees for those National
Ads over the life of the campaign, even if the campaign continues to run after
the effective date of AltaVista's termination of those rights.
[***] Denotes language for which AltaVista has requested confidential
treatment pursuant to the rules and regulations of the Securities Act of 1933,
as amended.
4.4 Most Favored Nation. AltaVista shall not be entitled to a most
-------------------
favored nation status.
4.5 Training; Sales Engineer Services. DoubleClick shall provide
---------------------------------
one training session on the DART Service at DoubleClick's offices in New York
City at no charge to
18
<PAGE>
AltaVista. All additional training and other DoubleClick personnel days shall
be charged for at DoubleClick's customary rates.
4.6 Invoicing. On a monthly basis, DoubleClick shall remit to AltaVista
---------
the Net Payable. The "Net Payable" shall mean the sum of the cash collections
for Advertising actually received by DoubleClick during the month, less amounts
payable to DoubleClick for services rendered in respect of or based on
Advertising delivered and/or sold by DoubleClick on behalf of AltaVista during
the month or still owed to DoubleClick in respect of past months: the DART
Service fees, sales commissions on amounts received, and billing and collections
fees and any other fees payable to DoubleClick pursuant to this Agreement in
total. DoubleClick shall use commercially reasonable efforts to deliver to
AltaVista within [***] business days following the end of the month the
accounts receivable aging report. The Net Payable will be remitted to AltaVista
on or before the fifteenth day following the end of the month (or on the next
business day if the fifteenth day following the end of the month falls on a
weekend or holiday).
[***] Denotes language for which AltaVista has requested confidential
treatment pursuant to the rules and regulations of the Securities Act of 1933,
as amended.
The bill accompanying the net payable will set forth the cash
collections generated from non-U.S. Advertisers and the costs associated with
this revenue, which amount shall be billed to AV Internet Solutions Ltd., and
the cash collections from U.S. Advertisers and the costs associated with this
revenue, which amount shall be billed to AltaVista Company.
On a calendar quarterly basis, AltaVista may charge DoubleClick an
amount equal to the applicable ad sales commission multiplied by the amount of
Bad Debt charged in the applicable quarter; provided that such amount shall not
exceed [***]% of Net Revenues recorded in such quarter. AltaVista shall notify
DoubleClick of the amount of such charge within [***] days after the end of
calendar quarter and DoubleClick shall pay Company the amount of such charge
within [***] days of DoubleClick's receipt of such notice. Notwithstanding the
foregoing, DoubleClick shall be charged the full amount of Bad Debt associated
with any Advertising sales made by DoubleClick on AltaVista's behalf in
violation of AltaVista's Sales Policies (other than deviations made with
AltaVista's prior consent at the time of the sale).
[***] Denotes language for which AltaVista has requested confidential
treatment pursuant to the rules and regulations of the Securities Act of 1933,
as amended.
4.7 Opportunity Cost. All Advertising placed by AltaVista and DoubleClick
----------------
shall normally be subject to pre-existing Advertising sales of the other party.
"Pre-existing Advertising" shall be determined based solely on the date the
Advertising sale is entered into the System; provided, however, that the parties
shall discuss giving alternative priority to Advertising sales where to do so
would be in the best interests of both parties. In the unusual event that (i)
DoubleClick is required by AltaVista to cancel any Advertising sold by
DoubleClick on behalf of AltaVista to avoid a conflict with an advertising
agreement entered into by AltaVista and (ii) no alternative Advertising programs
acceptable to Advertiser are available through DoubleClick, AltaVista shall (i)
remit to DoubleClick the sales commission to which DoubleClick would have been
entitled had the campaign run its full course, by the dates such payments would
have been due hereunder, assuming the cancelled Advertising had been paid when
due, (ii) AltaVista shall be solely responsible for any compensation due to the
Advertiser whose Advertising campaign has been cancelled and (iii) AltaVista
shall indemnify DoubleClick against any other loss, damages or claims of the
Advertiser against DoubleClick that relate solely to such cancellation.
19
<PAGE>
However, the foregoing provision shall not apply to:
(i) Advertising that AltaVista, acting in good faith, identified to
DoubleClick in advance and in writing as being unavailable, if
DoubleClick nonetheless sells such Advertising after its receipt
of such notice.
(ii) High Value Advertising campaigns for which DoubleClick has not
received prior AltaVista approval; it being understood that such
approval shall not be unreasonably withheld and that failure by
AltaVista to respond within twenty-four (24) hours (Monday-
Friday) to a request for approval shall be considered approved.
"High Value Advertising" shall mean any Advertising campaign that
----------------------
either (i) has a value of greater than $[***] and a duration of
greater than 3 months or (ii) has a value of greater than
$[***] and a duration of greater than 6 months. DoubleClick may
resubmit proposals for High Value Advertising if the Advertising
in question remains unsold five (5) days or more after the date
of the original proposal.
In the instances of (i) and (ii) above, DoubleClick shall be responsible
for any compensation due to the Advertiser whose Advertising campaign has
been cancelled.
In addition, during the thirty (30) day period following an Acquisition
Notice, the parties agree that in addition to the limitations set forth in
(i) and (ii) above, DoubleClick also agrees not to sell any Advertising to
the Advertiser that is the subject of the Acquisition Notice at rates that
are less than 95% of standard rate card rates for such Advertising without
receiving AltaVista's prior written consent; it being understood that such
approval shall not be unreasonably withheld and that failure by AltaVista
to respond within three (3) days to a request for approval shall be
considered approved.
4.8 [***]
[***] Denotes language for which AltaVista has requested confidential
treatment pursuant to the rules and regulations of the Securities Act of 1933,
as amended.
20
<PAGE>
4.9 AltaVista's Costs. AltaVista shall be solely responsible for any
-----------------
costs or expenses it incurs in connection with the Services or performance of
its obligations under this Agreement including, without limitation, expenses
associated with any HTML programming and linking Pages to the DART Service.
4.10 DoubleClick's Costs. DoubleClick shall be solely responsible for any
-------------------
costs or expenses it incurs in connection with the provision of the Services or
performance of its obligations under this Agreement including, without
limitation, expenses associated with any costs of operating and maintaining the
DART Service.
4.11 Taxes. Each party shall be responsible for the payment of taxes
-----
imposed on that party and shall withhold taxes which, in its reasonable belief,
it is required to withhold from payments to the other party. DoubleClick will be
responsible for billing, collecting and remitting, all applicable taxes on
similar levies with respect to Advertisements which it places.
ARTICLE V
TERM & TERMINATION
5.1 Term. This Agreement shall be for a period from the Effective Date
----
until December 31, 2000 (the "Term"). Upon expiration of the Term or earlier
----
termination of this Agreement pursuant to Sections 5.3 and 5.4 below, the
Existing Agreement shall automatically replace this Agreement.
5.2 Intentionally left blank.
5.3 Termination for Breach. In the event of a material breach of a
----------------------
material provision of this Agreement, the non-breaching party may give written
notice of such breach to the breaching party and if the breaching party fails to
cure such breach within ninety (90) days of receipt of such notice, the non-
breaching party may terminate this Agreement once the cure period has expired.
5.4 Termination by AltaVista for Certain Changes. In addition to its
--------------------------------------------
right to terminate specified above, AltaVista shall also have the right to
terminate this Agreement if any of the following events occur:
(a) DoubleClick is found by reputable independent sources on the
basis of verifiable data based on an analysis of a period of not less than 180
days, to no longer be one of the top three Centralized Internet Ad Delivery
Companies measured on the basis of the aggregate number of Impressions served by
each Centralized Internet Ad Delivery Companies in such period (the "Top
---
Three");
- -----
(b) DoubleClick ceases to operate or provide technical support for
the DART Service for a period in excess of five (5) business days;
(c) DoubleClick is adjudged insolvent or bankrupt;
(d) Institution of any proceeding by DoubleClick seeking relief,
reorganization or arrangement under any laws relating to insolvency;
21
<PAGE>
(e) Institution of any proceeding against DoubleClick seeking relief,
reorganization or arrangement under any laws relating to insolvency that is not
dismissed within sixty (60) days;
(f) The making of any assignment for the benefit of creditors;
(g) Upon the appointment of a receiver, liquidator or trustee of any
of DoubleClick's property or assets, or upon liquidation, dissolution or winding
up of the DoubleClick's business; or
(h) In the event that a Person who owns, either directly or
indirectly, a Web site that is widely regarded by recognized Internet industry
analysts as a direct competitor of the Web Site acquires (i) through a merger
or consolidation pursuant to which the stockholders of DoubleClick immediately
prior to such merger or consolidation will not own, immediately after such
merger or consolidation, at least forty percent (40%) of the voting power of the
surviving Person's voting securities, whether or not such Person is DoubleClick,
(ii) securities representing a majority of DoubleClick's voting securities as a
result of a tender or exchange offer, open market purchase, privately negotiated
purchases, share exchange, extraordinary dividend, acquisition, disposition or
recapitalization (or series of related transactions of such nature) (other than
a merger or consolidation), or (iii) all or substantially all of DoubleClick's
assets.
5.5 Effect of Termination.
---------------------
(a) Notwithstanding anything to the contrary contained herein, in the
event this Agreement is terminated and DoubleClick, prior to said termination,
has entered into any Advertiser Contracts for the delivery of Advertising to the
Pages, the duration of which Advertiser Contracts extend beyond the date on
which this Agreement has been terminated, and such Advertising continue to be
delivered after the termination of this Agreement, then DoubleClick shall be
entitled to receive (i) sales commissions and billing and collections fees for
such Advertising calculated on the basis of the applicable sales commission and
billing and collections fees that would have been due under Section 4.3 above as
of the effective date of the Advertising Contract for the type of Advertising in
question and (ii) where the parties mutually agree that DoubleClick should
continue to deliver said Advertising on behalf of AltaVista, the applicable DART
Service fees specified in Section 4.2.
(b) The following provisions of this Agreement and any causes of
action arising in relation to this Agreement prior to termination, shall survive
such termination: Sections 3.3(f), 7.1 through 7.3, 9.1, 9.2, and 10.1 and
Article V.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 AltaVista's Representations and Warranties. AltaVista represents and
------------------------------------------
warrants at all times that AltaVista (i) owns the Web Site, and (ii) has the
right and full power and authority to enter into this Agreement, to grant the
rights herein granted and fully to perform its obligations hereunder. AltaVista
acknowledges that the System can be used to target, measure and traffic
advertisements in many different ways and based on many difference types of
data. AltaVista represents and warrants that it will not use the System or the
DART Service in a way
22
<PAGE>
or for any purpose that infringes or misappropriates any third party's
copyrights, U.S. patents issued as of the Effective Date, trademarks or trade
secrets.
6.2 DoubleClick's Representations and Warranties. DoubleClick represents
--------------------------------------------
and warrants that (i) it owns the DART Service and the System, (ii) it has the
right and full power and authority to enter into this Agreement, to grant the
rights herein granted and fully to perform its obligations hereunder, and (iii)
the System was developed by DoubleClick without infringement or misappropriation
of any third party's copyrights, U.S. patents issued as of the Effective Date,
trademarks or trade secrets.
ARTICLE VII
INDEMNITIES
7.1 AltaVista's Indemnities. AltaVista agrees to indemnify and hold
-----------------------
DoubleClick and its Affiliates, officers, directors, employees and agents (each
a "DoubleClick Indemnitee") harmless from and against any and all claims,
----------------------
actions, losses, damages, liability, costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements incurred by a
DoubleClick Indemnitee in any action between AltaVista and the DoubleClick
Indemnitee, or between the DoubleClick Indemnitee and any third party or
otherwise) arising out of or in connection with any breach of any of AltaVista's
representations, warranties or obligations set forth in this Agreement.
DoubleClick shall promptly notify AltaVista of all claims and proceedings
related thereto of which DoubleClick becomes aware.
7.2 DoubleClick's Indemnities. DoubleClick agrees to indemnify and hold
-------------------------
AltaVista and its Affiliates, officers, directors, employees and agents (each a
"AltaVista Indemnitee") harmless from and against any and all claims, actions,
--------------------
losses, damages, liability, costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements incurred by a AltaVista Indemnitee
in any action between DoubleClick and the AltaVista Indemnitee, or between the
AltaVista Indemnitee and any third party or otherwise) arising out of or in
connection with any breach of DoubleClick's representations, warranties or
obligations set forth in this Agreement. AltaVista shall promptly notify
DoubleClick of all claims and proceedings related thereto of which AltaVista
becomes aware.
7.3 Procedure. The Indemnitee ("Indemnitee") that intends to claim
--------- ----------
indemnification under this Agreement shall promptly notify the other party (the
"Indemnitor") of any claim, demand, action or other proceeding for which the
----------
Indemnitee intends to claim such indemnification, and the Indemnitor shall have
the right to participate in, and, to the extent the Indemnitor so desires, to
assume sole control of the defense thereof with counsel selected by the
Indemnitor; provided, however, that the Indemnitee shall have the absolute right
to retain its own counsel, with the fees and expenses to be paid by the
Indemnitee. The indemnity obligations under this Agreement shall not apply to
amounts paid in settlement of any loss, claim, damage, liability or action if
such settlement is effected without the consent of the Indemnitor, which consent
shall not be unreasonably withheld or delayed. The failure to deliver notice to
the Indemnitor within a reasonable time after the commencement of any such
action, if prejudicial to Indemnitor's ability to defend such action, shall
relieve the Indemnitor of any liability to the Indemnitee under this Article
VII. The Indemnitee, its employees, agents, officers, directors and
23
<PAGE>
partners shall cooperate fully with the Indemnitor and its legal representatives
in the investigation of any action, claim or liability covered by an
indemnification from the Indemnitor.
ARTICLE VIII
ANCILLARY OBLIGATIONS
8.1 Web Site Co-Marketing. Each party shall have the right to create
---------------------
promotional materials for the Web Site and Advertising on the Web Site, provided
that each party's use of the other party's trade name and trademarks is subject
to (i) the other party's approval, which shall not be unreasonably withheld or
delayed and (ii) compliance with the other party's standards and guidelines as
to proper use of such party's trade name and trademarks ("Trademark Use
-------------
Guidelines"). Each party's Trademark Use Guidelines are attached hereto as
- ----------
Exhibits E-1 and E-2. All use of the other party's trade name and trademarks is
by way of license only and only for the limited purposes of creating and
distributing the promotional materials during the Term. Each party shall comply
with the requests of the other party in relation to correct usage of the other
party's trademarks and shall promptly make any changes to the use being made of
the other party's trademarks and trade names if such change is requested by
other party.
8.2 Non-Solicitation. During the Term and for a one-year period following
----------------
expiration or termination of this Agreement:
(a) AltaVista agrees for itself and for all its controlled
subsidiaries not to (i) solicit for employment (whether directly or indirectly)
any employee of DoubleClick or (ii) employ any former employee of DoubleClick
within sixty (60) days of such former employee leaving DoubleClick; and
(b) DoubleClick agrees for itself and for all its controlled
subsidiaries not to (i) solicit for employment (whether directly or
indirectly) any employee of AltaVista or (ii) employ any former employee of
AltaVista within sixty (60) days of such former employee leaving the AltaVista.
For purposes of this Section 8.2, controlled subsidiaries are those subsidiary
companies where a party to this Agreement owns, directly or indirectly, 50% or
more of that company's stock.
ARTICLE IX
DISCLAIMERS AND LIMITATIONS ON LIABILITY
9.1 WARRANTY DISCLAIMERS.
--------------------
(a) DOUBLECLICK DISCLAIMER. EXCEPT AS SET FORTH IN THIS AGREEMENT,
----------------------
DOUBLECLICK MAKES NO WARRANTIES OF ANY KIND TO ANY PERSON WITH RESPECT TO THE
SERVICES, THE SYSTEM, ANY ADVERTISING OR ANY DATA SUPPLIED, WHETHER EXPRESS OR
IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR NONINFRINGEMENT.
(b) ALTAVISTA DISCLAIMER. EXCEPT AS SET FORTH IN THIS AGREEMENT,
--------------------
ALTAVISTA MAKES NO WARRANTIES OF ANY KIND TO ANY
24
<PAGE>
PERSON WITH RESPECT TO THE WEB SITE, ANY ADVERTISING OR ANY DATA SUPPLIED,
WHETHER EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT.
9.2 Limitation and Exclusion of Liability. Neither party shall be liable
-------------------------------------
to the other party, any Advertisers or any other third party for any loss, cost,
damage or expense incurred in connection with the unavailability or
inoperability of the System, the Services or the Internet, technical
malfunction, computer error or loss or corruption of data, or other injury,
damage or disruption of any kind related thereto. In no event shall either
party be liable for any indirect, incidental, consequential, special or
exemplary damages, including, but not limited to, loss of profits, or loss of
business opportunity, even if such damages are foreseeable and whether or not
the other party has been advised of the possibility thereof. Except in relation
to a claim against a party based on its breach of its representations and
warranties in this Agreement as to infringement and misappropriation of third
party copyrights, patents, trademarks or trade secrets, each party's maximum
aggregate liability shall not exceed the total amount paid by AltaVista to
DoubleClick under this Agreement or the Existing Agreement during the twelve
(12) month period prior to the first date the liability arose. In all Advertiser
Contracts the parties shall use reasonable efforts to include a provision that
will state that the other party is a third party beneficiary of any disclaimers
and limitations or exclusions of liability that such party has agreed to with
the Advertiser in the Advertiser Contract.
ARTICLE X
CONFIDENTIALITY
10.1 Confidentiality.
---------------
(a) The terms of this Agreement and information and data that either
party has received or will receive from the other party about the Services, the
System and other matters relating to the respective businesses of the parties is
proprietary and confidential information of the disclosing party ("Confidential
------------
Information"), including without limitation any information that is marked as
- -----------
"confidential" or should be reasonably understood to be confidential or
proprietary to the disclosing party and any reference manuals compiled or
provided hereunder. Each party agrees that for the Term and for two (2) years
thereafter, it will not disclose to any third party nor use for any purpose not
permitted under this Agreement any Confidential Information disclosed to it by
the other party. The nondisclosure obligations set forth in this Section shall
not apply to information that the receiving party can document is generally
available to the public (other than through breach of this Agreement by the
receiving party) or was already lawfully in the receiving party's possession at
the time of receipt of the information from the disclosing party.
(b) Notwithstanding 10.1(a) above, AltaVista may disclose a copy of
this Agreement and information contained in this Agreement to CMGI, Inc. for the
sole purpose of CMGI, Inc.'s internal review and obtaining CMGI, Inc.'s approval
and for no other purposes. CMGI, Inc. may only disclose the Agreement to those
of its employees that have a need to know and shall not disclose the Agreement
to any third party or use it for any other purpose. AltaVista
25
<PAGE>
shall be liable to DoubleClick for any breach of the above confidentiality
restrictions by CMGI, Inc. or any of CMGI, Inc.'s employees.
ARTICLE XI
GENERAL PROVISIONS
11.1 Independent Contractor Status. Each party shall be and act as an
-----------------------------
independent contractor and not as partner, joint venturer or agent of the other.
11.2 Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with the laws of the State of New York, without regard to the
principles of conflicts or choice of law of any jurisdiction.
11.3 Dispute Resolution. The parties shall attempt to settle any claim or
------------------
controversy arising out of this Agreement through consultation and negotiation
in good faith and spirit of mutual cooperation. In the event that any dispute
arises between the parties in connection with any subject matter of this
Agreement, the dispute will be referred to a senior-level manager of each party
involved in the day-to-day performance of this Agreement, who shall promptly
meet and endeavor to resolve the dispute in a timely manner. In the event such
individuals are unable to resolve such dispute within ten (10) days from the
commencement of the dispute, the matter shall be referred to the Chief Executive
Officer ("CEO") of each party, who shall promptly meet and endeavor to resolve
---
the dispute. In the event that the respective CEOs of the parties are unable to
resolve such dispute within ten (10) days, the dispute shall be deemed an
unresolved dispute and either party may commence litigation in a court having
proper jurisdiction to resolve such dispute.
11.4 Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the minimum extent necessary without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provisions in any other jurisdiction.
11.5 Force Majeure. No failure or omission by the parties hereto in the
-------------
performance of any obligation of this Agreement shall be deemed a breach of this
Agreement nor create any liability if the same shall arise from any cause or
causes beyond the control of the parties, including but not limited to the
following which, for the purposes of this Agreement, shall be regarded as beyond
the control of the party in question: acts of God, acts or omissions of any
government or any rules, regulations or orders of any governmental authority or
any officer, department, agency or instrument thereof; fire, storm, flood,
earthquake, accident, acts of the public enemy, war, rebellion, Internet brown
out, insurrection, riot, invasion, strikes, or lockouts.
11.6 Notices. All notices, demands and other communications provided for
-------
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
26
<PAGE>
If to DoubleClick prior to December 3, 1999, to:
DoubleClick Inc.
41 Madison Avenue
New York, NY 10010
Attention: Chief Executive Officer
Telecopier No.: (212) 889-0029
With a copy to:
DoubleClick Inc.
41 Madison Avenue
New York, NY 10010
Attention: General Counsel
Telecopier No.: (212) 497-4397
If to DoubleClick on or after December 3, 1999, to:
DoubleClick Inc.
450 West 33rd Street, 16th Floor
New York, New York 10001
Attention: Chief Executive Officer
Telecopier No.: (212) 287-7999
With a copy to:
DoubleClick Inc.
450 West 33rd Street, 16th Floor
New York, New York 10001
Attention: General Counsel
Telecopier No.: (212) 287-9704
If to AltaVista Company, to:
AltaVista Company
529 Bryant Street
Palo Alto, California 94301
Attention: General Manager of AltaVista
Telecopier No.: (650) 617-3526
27
<PAGE>
With a copy to:
AltaVista Company
529 Bryant Street
Palo Alto, California 94301
Attention: General Counsel
Telecopier No.: (650) 617-3526
If to AV Internet Solutions Ltd., to:
AV Internet Solutions, Ltd.
c/o Arthur Cox
Earlsfort Centre, Earlsfort Terrace
Dublin 2, Ireland
or to such other address or attention of such other Person as such
party shall advise the other party in writing.
All such notices and communications shall be deemed to have been duly given when
delivered by hand, if personally delivered; when delivered by courier, if
delivered by commercial courier service; five (5) business days after being
deposited in the mail, postage prepared, if mailed; and when receipt is
mechanically acknowledged, if telecopied.
11.7 Entire Agreement. This Agreement, together with the schedules,
----------------
exhibits and addenda hereto, is intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth herein. This Agreement, together with
the schedules, exhibits and addenda hereto, supercedes and terminates all prior
agreements and understandings between the parties with respect to such subject
matter, including, but not limited to the Existing Agreement.
11.8 Successors and Assigns; Third Party Beneficiaries. This Agreement
-------------------------------------------------
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto. This Agreement and the rights hereunder are not
transferable without the prior written consent of the non-assigning party;
provided, however, that DoubleClick may assign this Agreement and its rights and
obligations hereunder to (a) a purchaser of substantially all of DoubleClick's
stock or business by sale, merger or otherwise and (b) an Affiliate of
DoubleClick; and provided, further, however, that AltaVista may assign this
Agreement and its rights and obligations hereunder to (a) a Person who acquires
the Web Site or the Web Site's assets or business, by sale, merger or otherwise
or (b) an Affiliate of AltaVista. AltaVista further covenants that it shall not
in any circumstance transfer the Web Site or its business involving the Web Site
to any Affiliate or third party, without also assigning to such Affiliate or
third party (if approved by DoubleClick) AltaVista's rights and obligations
under this Agreement. Except as provided in Article VII, no Person other than
the parties hereto and their successors and permitted assigns is intended to be
a beneficiary of this Agreement. No assignment to any permitted assign shall be
effective until
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such permitted assign agrees in writing to be bound by and comply with the terms
of this Agreement.
11.9 Amendment and Waiver. No failure or delay on the part of any party
--------------------
hereto in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise hereof or the exercise of
any other right, power or remedy. The remedies provided herein are cumulative
and are not exclusive of any remedies that may be available to the parties
hereto at law, in equity or otherwise. Any amendment, supplement or modification
of or to any provision of this Agreement, any waiver of any provision of this
Agreement and any consent to any departure by the parties hereto from the terms
of any provision of this Agreement, shall be effective only if it is made or
given in writing and signed by each of the parties hereto.
11.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
11.11 Publicity. None of the parties hereto shall issue a press release
---------
or public announcement or otherwise make any disclosure concerning this
Agreement or the terms hereof, without prior approval by the other party hereto
(which approval shall not be unreasonably withheld); provided, however, that
nothing in this Agreement shall restrict any party from disclosing information
(a) that is already publicly available, except as a result of a breach of this
provision by the disclosing party, (b) that is required to be disclosed by law,
provided that if such disclosing party is required to file a copy of this
Agreement with a governmental authority, such party shall seek confidential
treatment to the extent reasonably available and (c) to its attorney's
accountant, consultants and other advisers or restrict AltaVista from disclosing
this Agreement to CMGI, Inc. in accordance with Section 10.1(b) above. Prior to
issuing any press release, public announcement or disclosure, the disclosing
party will deliver a draft of such press release, public announcement or
disclosure to the other party and shall give such party a reasonable opportunity
to comment thereon. Both parties shall each also comply with the following: (i)
disclose Confidential Information only to those of its employees, directors and
advisors who need to know the information; (ii) use its best efforts to
implement compliance procedures within its organization; and (iii) in the event
an authorized or unauthorized disclosure is materially inaccurate or misleading
in any way, promptly release a retraction and correction that has been approved
by the other Party. The foregoing remedies shall be non exclusive and the non-
breaching Party may enforce all its other rights and remedies under this
Agreement and at law and in equity.
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Dated: November 1, 1999. Dated: November 1, 1999
AV INTERNET SOLUTIONS LTD.
Signature: /s/ Brian Moore
---------------------------
Printed Name: Brian Moore
Title: Director
Dated: November 1, 1999
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EXHIBIT 10.15
Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchange
Commission.
ADVERTISING SERVICES AGREEMENT
This ADVERTISING SERVICES AGREEMENT (this "Agreement"), effective as of January
1, 1999 (the "Effective Date"), by and between DoubleClick Inc., a Delaware
corporation ("DoubleClick") and Compaq Computer Corporation, a Delaware
corporation (together with its direct and indirect subsidiaries and affiliates,
"Compaq").
WHEREAS, DoubleClick and Compaq are parties to that certain Procurement and
Trafficking Agreement, dated December 19, 1996, between DoubleClick and Digital
Equipment Corporation (Compaq's predecessor-in-interest), as amended by
Amendment No. 1, dated December 16, 1997 (collectively, the "Existing
Agreement")
WHEREAS, DoubleClick and Compaq desire to replace the Existing Agreement and
DoubleClick has agreed to provide certain advertising services to Compaq for the
Alta Vista Web site currently located at the URL www.altavista.com (together
with all Alta Vista content pages and any successor public Internet search and
navigation Web site or pages, the "Web Site"), subject to certain terms and
conditions;
WHEREAS, subject to Section 11.8, Compaq intends to form an internal sales force
to solicit advertising for the Web Site; and
WHEREAS, in furtherance of the objectives set forth above, the parties hereto
desire to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, DoubleClick and Compaq,
intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall have the
meanings specified below:
(a) "Ad Sales Service" shall mean the services provided by DoubleClick on behalf
of Compaq in relation to the Web Site pursuant to Article III.
(b) "Advertiser" shall mean a Person who provides Advertising, whether directly
or through its advertising agency, to promote itself, its brands or the products
or services that it offers.
(c) "Advertiser Contract" shall mean any contract with an Advertiser.
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(d) "Advertising" or "Advertisement" shall mean material that (i) promotes a
brand or products or services and (ii) is provided to Compaq (whether directly
or through
DoubleClick) for delivery to Users. "Advertising" or "Advertisement" shall be
classified either as a Standard Ad Unit or a Beyond-the-Banner Arrangement.
(e) "Affiliate" shall mean, with respect to any Person, any other Person that,
directly or indirectly, controls, is controlled by, or is under common control
with, such Person.
(f) "Agreement" shall mean this Agreement and the schedules, exhibits and
addenda attached hereto as the same may be amended, supplemented or modified in
accordance with the terms hereof.
(g) "Average Combined Pricing" shall have the meaning set forth in Section 4.4
of this Agreement.
(h) "Average DART Only Fee" shall have the meaning set forth in Section 4.4 of
this Agreement.
(i) "Badge" shall mean a graphical element in a fixed location on a Page
designed for the delivery of Advertising that is, as of the Effective Date,
125x125 pixels (file size up to 5K bytes), 120x60 pixels (file size up to 2K or
3K bytes), 100x40 pixels (file size up to 2K bytes), 234x60 pixels (file size up
to 6K bytes), or any other size in use prior to the Effective Date on any Page
that is a DoubleClick Represented Page under this Agreement, and shall, in all
cases, include all natural evolutions thereof. A current sample of a Badge is
attached hereto as Exhibit A.
(j) "Bad Debt" shall mean receivables for billed Net Revenues in which
collection has not been made and, in accordance with criteria set by Compaq, is
deemed uncollectable. In no event shall a receivable that is less than One
Hundred and Twenty (120) days past due be deemed uncollectable.
(k) "Banner" shall mean a graphical element in a fixed location on a Page
designed for the delivery of Advertising that is, as of the Effective Date,
468x60 pixels (file size up to 12K bytes), and shall include all natural
evolutions thereof. A current sample of a Banner is attached hereto as Exhibit
A.
(l) "Barter" shall mean the exchange or trade of any unsold inventory on the Web
Site for non-monetary consideration.
(m) "Beyond-the-Banner Arrangements" shall mean any arrangement, as now existing
or hereafter developed, for Advertising on a Page or Pages other than a Standard
Ad Unit. "Beyond-the-Banner Arrangements" include, but are not limited to, the
following: (i) ad units hereafter developed other than the Standard Ad Units
(whether or not such newly-developed ad unit requires integration with the
content on the Web Site); (ii) Pages on the Web Site that are customized so that
they include co-branding with, or sponsorship by, the Advertiser during the
course of the arrangements; and (iii) Pages on the Web Site that feature content
created or licensed from the Advertiser or another third party specifically for
the advertising campaign in question. Advertising campaigns may include both
Beyond-the-Banner Arrangements and Standard Ad Units.
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(n) "Button" shall mean a graphical element in a fixed location on a Page
designed for the delivery of Advertising that is, as of the Effective Date,
88x33 pixels (files size up to 2K bytes), and shall include all natural
evolutions thereof. A current sample of a Button is attached hereto as Exhibit
A.
(o) "Centralized Internet Ad Company" shall mean any company that is primarily
engaged in the business of targeting, measuring and delivering Advertising on
the Internet via a network of web sites all linked to the company's computers.
(p) "Comparable Customer" shall have the meaning set forth in Section 4.4 to
this Agreement.
(q) "Compaq" shall have the meaning set forth in the preamble to this Agreement.
(r) "Compaq Indemnitee" shall have the meaning set forth in Section 7.2 to this
Agreement.
(s) "Confidential Information" shall have the meaning set forth in Section 10.1
to this Agreement.
(t) "Content Zone" shall mean either (i) any section of the Web Site existing as
of the date of this Agreement that contains editorial content, whether such
content is developed by Compaq or licensed from a third party, provided that the
Standard Ad Units in such section had been sold by DoubleClick prior to the
Effective Date of this Agreement, or (ii) any currently existing section of the
Web Site that offers services to Users (e.g., translation and e-mail services)
other than services that would be offered on a Home Page, Search Results Page or
Directory Page.
(u) "Content Zone Page" shall mean any Page within a Content Zone. For purposes
of this Agreement, any Page that has attributes of a Content Zone Page shall be
deemed a "Content Zone Page", even if it also has attributes of a Directory
Page. However, any Page that has the attributes of a Content Zone Page and also
of a Home Page and/or Search Results Page shall be deemed to be a "Home Page" or
"Search Results Page" only, and shall in no event be deemed a "Content Zone
Page."
(v) "DART Service" shall mean a service provided by DoubleClick to Web site
publishers for the targeted and measured delivery of Standard Ad Units through
the System from DoubleClick's servers to specified Web sites based on criteria
selected by Advertisers.
(w) "Directory Page" shall mean any Page that contains a comprehensive directory
of Web sites, whether existing on the Web Site as of the date of this Agreement
or developed in the future. Any Page that has the attributes of a Directory Page
and of a Home Page, Search Results Page and/or Content Zone Page shall be
defined in accordance with the definitions of "Home Page", "Search Results Page"
and "Content Zone Page", and shall in no event be deemed a "Directory Page."
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(x) "DoubleClick" shall have the meaning set forth in the recitals to this
Agreement.
(y) "DoubleClick Competitor" shall mean any Person that is primarily engaged in
the business of third party online advertising sales and services; provided,
however, that a Person shall be deemed a "DoubleClick Competitor" if it owns a
division, business unit or similar entity that is primarily engaged in the
business of third party online advertising sales and services.
(z) "DoubleClick Represented Pages" shall mean any Pages for which DoubleClick
may sell Advertising pursuant to the terms of this Agreement.
(aa) "DoubleClick Indemnitee" shall have the meaning set forth in Section 7.1 to
this Agreement.
(bb) "Effective Date" shall have the meaning set forth in the preamble to this
Agreement.
(cc) "Existing Agreement" shall have the meaning set forth in the recitals to
this Agreement.
(dd) "Existing Orders" shall have the meaning set forth in Section 3.8(e) to
this Agreement.
(ee) "Home Page" shall mean the Page initially presented to the User when
accessing the primarily advertised Web Site URL. For the purposes of this
Agreement, any Page that has the attributes of a Home Page shall be deemed to be
the "Home Page," even if it also has attributes of any of the following: a
Search Results Page, Content Zone Page and/or Directory Page.
(ff) "HTML Modifications" shall have the meaning set forth in Section 3.8 to
this Agreement.
(gg) "Impression" shall mean each occurrence of Advertising on a Page resulting
from a User accessing or visiting such Page.
(hh) "Indemnitee" shall have the meaning set forth in Section 7.3 to this
Agreement.
(ii) "Indemnitor" shall have the meaning set forth in Section 7.3 to this
Agreement.
(jj) "International Ads" shall have the meaning set forth in Section 3.2(b) to
this Agreement.
(kk) "Local Ads" shall have the meaning set forth in Section 3.2(c) to this
Agreement.
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(ll) "National Ads" shall have the meaning set forth in Section 3.2(a) to this
Agreement.
(mm) "Net Payable" shall have the meaning set forth in Section 4.6 of this
Agreement
(nn) "Net Revenue" shall mean the gross billings invoiced by DoubleClick to
Advertisers less rate card and volume discounts, rebates, make-goods and third
party agency commissions.
(oo) "New Inventory" shall have the meaning set forth in Section 3.5 to this
Agreement.
(pp) "New Inventory Addendum" shall mean the addendum, to be signed by both
Compaq and DoubleClick, that will confirm the New Inventory that will be subject
to this Agreement and the specific arrangements for such New Inventory.
(qq) "New Web Site Area" shall have the meaning set forth in Section 3.5 to this
Agreement.
(rr) "Non-U.S. Advertiser" shall mean an Advertiser for which the primary sales
contact with respect to a given Advertising campaign is based in Advertiser's
offices outside of the United States; provided, however, that if an Advertiser
is represented by an advertising agency, the primary sales contact shall be
deemed to be the agency's primary contact in the Advertiser's organization.
(ss) "Page" shall mean a page on the Web Site that is linked to the DART
Service.
(tt) "Paid Advertising" or "Paid Advertisement" shall mean (i) Advertising which
is paid for by an Advertiser; (ii) Advertising that is provided to an Advertiser
free of charge as a component of a Paid Advertising campaign; and (iii)
Advertising provided as a make-good to an Advertiser so long as DoubleClick
shall not receive credit more than once for such make-good.
(uu) "Permitted Designees" shall mean any designee of Compaq provided that such
Person is not a DoubleClick Competitor.
(vv) "Person" shall mean any individual, firm, corporation, partnership, trust,
association, joint venture, company or other entity, or any government
authority.
(ww) "Sales Policies" shall have the meaning set forth in Section 3.11 to this
Agreement.
(xx) "Search Results Page" shall mean the Page on any section of the Web Site on
which the results of a keyword search powered by the AltaVista search engine
appear. For the purposes of this Agreement, any Page that has the attributes of
a Search Results Page shall be deemed to be a "Search Results Page" only, even
if it also has attributes of any of the following:
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Content Zone Page or Directory Page. However, any Page that has the attributes
of both a Search Results Page and Home Page shall be deemed a "Home Page" only,
and shall in no event be deemed a Search Results Page.
(yy) "Services" shall mean, collectively, the DART Service, the Ad Sales
Service, and any other service provided by DoubleClick to Compaq under this
Agreement.
(zz) "Standard Ad Unit" shall mean a Banner, Badge, Button, Toolbox or Text
Link.
(aaa) "Strategic Advertiser" shall mean any Person that enters into a Strategic
Advertising Arrangement.
(bbb) "Strategic Advertising Arrangement" shall have the meaning set forth in
Section 3.3 to this Agreement.
(ccc) "System" shall mean DoubleClick's proprietary DART software technology.
(ddd) "Term" shall have the meaning set forth in Section 5.1 to this
Agreement.
(eee) "Text Link" shall mean a hypertext link in a fixed location on a Page
designed for the delivery of Advertising that is, as of the Effective Date, a
1x1 pixel tracking gif (file size up to 1K bytes; file size for text 500 bytes
or less; no more than two lines of text, no more than 20 characters per line),
and shall include all natural evolutions thereof. A current sample of a Text
Link is attached hereto as Exhibit A.
(fff) "Toolbox" shall mean a graphical element in a fixed location on a Page
designed for the delivery of Advertising that is, as of the Effective Date,
131x190 pixels (file size up to 8K bytes), and shall include all natural
evolutions thereof. A current sample of a Toolbox is attached hereto as Exhibit
E.
(ggg) "Top Three" shall have the meaning set forth in Section 5.4 to this
Agreement.
(hhh) "Trademark Use Guidelines" shall have the meaning set forth in Section 8.1
to this Agreement.
(iii) "Unpaid Advertising" or "Unpaid Advertisement" shall mean any
Advertisement that is not a Paid Advertisement. Examples of "Unpaid Advertising"
include (i) Advertisements that promote Compaq, the Web Site, or their
respective products and services, and (ii) Advertisements Bartered by Compaq
pursuant to Section 3.6.
(jjj) "U.S. Advertiser" shall mean an Advertiser for which the primary sales
contact with respect to a given Advertising campaign is based in Advertiser's
offices in the United States; provided, however, that if an Advertiser is
represented by an advertising agency, the primary sales contact shall be deemed
to be the agency's primary contact in the Advertiser's organization.
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(kkk) "User" shall mean any Person that accesses the Web Site.
(lll) "Web Site" shall have the meaning set forth in the recitals to this
Agreement.
(mmm) "Year 1" shall mean the period from the Effective Date until December 31,
1999.
(nnn) "Year 2" shall mean the period from January 1, 2000 to December 31, 2000.
(ooo) "Year 3" shall mean the period from January 1, 2001 through the
termination of this Agreement.
(ppp) "Year 2 Excluded Advertisers" shall have the meaning set forth in Section
3.7 to this Agreement.
(qqq) "Year 3 Excluded Advertisers" shall have the meaning set forth in Section
3.7 to this Agreement.
ARTICLE II
DART SERVICE
(a) Subject to the terms and conditions of this Agreement, DoubleClick hereby
agrees to provide the DART Service to Compaq for the Web Site during the Term.
Standard Ad Units placed on the Web Site by Compaq or DoubleClick shall be
delivered exclusively by DoubleClick through the DART Service. Subject to the
fees described in Article IV, DoubleClick agrees also to deliver through the
DART Service those Beyond-the-Banner Arrangements as may be requested by Compaq.
A description of the DART Service as of the date hereof is attached hereto as
Exhibit B.
(b) DoubleClick grants to Compaq the non-exclusive and non-transferable (except
as permitted pursuant to Section 11.8) right to access and use the DART Service,
which Compaq can access and use on DoubleClick's Web servers by means of a
unique password issued by DoubleClick, and for the purposes of: (i) performing
projections of Standard Ad Unit Impression inventories that might be available
through the DART Service, (ii) uploading and storing Standard Ad Units for
delivery by DoubleClick through the DART Service, (iii) selecting trafficking
criteria for the delivery of Standard Ad Units to Users, and (iv) receiving
reports of Standard Ad Units Impressions and other data related to the delivery
of Standard Ad Units by the DART Service.
2.2 Compaq's DART Service Obligations. Compaq shall be responsible for
soliciting Advertising, except to the extent such soliciting is conducted by
DoubleClick on behalf of Compaq pursuant to this Agreement. With respect to all
Advertising sold by Compaq that is delivered through the DART Service, Compaq
shall be responsible for trafficking Advertising
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(which shall include the input of Advertising into the System) and handling all
inquiries of any type or nature. Trafficking of Advertising may be outsourced to
DoubleClick at Compaq's request and for additional fees (as set forth in Article
IV below). With respect to all Advertising sold by Compaq that is delivered
through the DART Service, Compaq shall obtain all necessary rights, licenses,
consents, waivers and permissions from Advertisers and others to allow
DoubleClick to store and deliver Advertising and otherwise operate the DART
Service on Compaq's behalf and on behalf of Compaq's Advertisers, and to use any
data provided to or collected by the System, and Compaq agrees to comply with
any further requirements of the ad insertion orders agreed with DoubleClick.
2.3 DoubleClick's DART Service Obligations. DoubleClick's sole obligations in
relation to the DART Service under this Agreement shall be (i) to make the
System available to Compaq, (ii) to deliver Advertising through the DART Service
according to the trafficking criteria selected by Compaq and Compaq's
Advertisers using the System and (iii) to provide training sessions explaining
the proper use of the DART Service and the System.
2.4 Proprietary Rights and Restrictions. DoubleClick is the exclusive supplier
of the DART Service and the exclusive owner of all right, title and interest in
and to the System, all software, databases and other aspects and technologies
related to the System and DART Service, including the System, and any
enhancements thereto. Compaq shall not use the System or any data thereby
provided except pursuant to the limited rights expressly granted in this
Agreement. Compaq shall use the System only in accordance with reference manuals
to be supplied by DoubleClick and only in accordance with DoubleClick's standard
security procedures, as posted on the DoubleClick Web site or otherwise provided
to Compaq. Compaq has the sole and exclusive right to use all data derived by
its use of the DART Service, for any purpose related to Compaq's business with
Advertisers, provided that DoubleClick may use and disclose the User data (other
than personally-identifiable information) derived from Compaq's use of the DART
Service pursuant to this Agreement only (i) for DoubleClick's reporting purposes
(consisting of the compilation of aggregated statistics about the DART Service
(e.g., the aggregate number of ads delivered) that may subsequently be provided
to customers, potential customers and disclosed to the general public; (ii) if
required by court order, law, or governmental agency (including but not limited
to, the Securities and Exchange Commission); and (iii) to the extent necessary
to integrate operation and management of the Services for the Web Site within
the operation and management of the DART Service by DoubleClick for all its
customers and otherwise for the DoubleClick Network.
ARTICLE III
ADVERTISING SALES REPRESENTATION
3.1 Compaq's Reservation of Rights. Other than the rights expressly granted to
DoubleClick in this Article III, Compaq reserves to itself and its Permitted
Designees the sole and exclusive right to sell Advertising of any type and
nature on the Web Site.
3.2 Scope of Ad Sales Representation. During the Term, subject to the
limitations stated herein, DoubleClick and its authorized representatives,
licensees and assigns shall be Compaq's sole and exclusive representative with
respect only to the following types of
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Advertising for the following types of Advertisers, and shall have the exclusive
right to enter into agreements for such Advertising on behalf of Compaq:
(a) Standard Ad Units located on the Home Page, Search Results Pages, Directory
Pages, and subject to Section 3.7(a), Content Zone Pages, offered to U.S.
Advertisers to target Users who are located in any of six or more U.S. states
specified by such U.S. Advertiser ("National Ads");
(b) Standard Ad Units and Beyond-the-Banner Arrangements on any Page, offered to
Non-U.S. Advertisers (the "International Ads"); and
(c) Standard Ad Units on any DoubleClick Represented Page, offered to U.S.
Advertisers to target Users who are located in any of five or fewer U.S. states
specified by such U.S. Advertiser ("Local Ads").
3.3 Exceptions. During the Term, DoubleClick's exclusive rights set forth above
shall be subject to the following exceptions, provided that Compaq may only
solicit and enter into the arrangements described in this Section 3.3 through
its own or its Permitted Designees efforts:
(a) With respect to the International Ads, Compaq shall have the right to enter
into Beyond-the-Banner Arrangements with Non-U.S. Advertisers;
(b) With respect to the National Ads, Compaq shall have the right to sell
listings on Yellow Page-type Directory Pages, to the extent that such Directory
Pages are not currently in existence as of the date hereof;
(c) Compaq shall have the right to sell Standard Ad Units on any Search Results
Page so long as such Standard Ad Units are but one component of a
Beyond-the-Banner Arrangement with an Advertiser that is valued for at least
$50,000 in revenue in twelve (12) month period ("Strategic Advertising
---------------------
Arrangement"); provided, however, that the aggregate number of Impressions for
- ----------- -------- -------
each type of Standard Ad Unit sold by Compaq on such Search Results Page in any
calendar month shall not exceed five percent (5%) of the total Impressions in
that month for that type of Standard Ad Unit on that Search Results Page; and
provided, further, that the restrictions in this Section 3.3 (c) shall not apply
- -------- -------
to Standard Ad Units sold by Compaq in Year 2 to Year 2 Excluded Advertisers,
and in Year 3 to Year 3 Excluded Advertisers;
(d) Compaq shall have the right to sell Standard Ad Units on any Directory Page
so long as such Standard Ad Units are but one component of a Strategic
Advertising Arrangement; provided, however, that the aggregate number of
-------- -------
Impressions for each type of Standard Ad Unit sold by Compaq on such Directory
Page in any calendar month shall not exceed five percent (5%) of the total
Impressions in that month for that type of Standard Ad Unit on that Directory
Page; and provided, further, that the restrictions in this Section 3.3 (d) shall
-------- -------
not apply to Standard Ad Units sold by Compaq in Year 2 to Year 2 Excluded
Advertisers, and in Year 3 to Year 3 Excluded Advertisers; and
(e) Compaq shall have the right to sell Standard Ad Units on any Home Page
so long as such Standard Ad Units are but one component of a Strategic
Advertising Arrangement; provided, however, that the aggregate number of
-------- -------
Impressions for each type of Standard Ad Unit sold by Compaq on such Home Page
in any calendar month shall not exceed ten percent (10%) of the total
Impressions in that month for that type of Standard Ad Unit on that Home Page;
and provided, further, that the restrictions in this Section 3.3 (e) shall not
-------- -------
apply to Standard Ad Units sold by Compaq in Year 2 to Year 2 Excluded
Advertisers, and in Year 3 to Year 3 Excluded Advertisers.
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3.4 No Other Rights. Other than as set forth in this Article III, DoubleClick
shall not have the right to place Advertising on the Web Site.
3.5 New Web Site Areas. The parties recognize that Compaq will regularly update
the design and content of the Web Site. Compaq shall keep DoubleClick informed
of all planned changes to the Web Site. As early in the process as is feasible,
Compaq shall also identify to DoubleClick the additional Standard Ad Units ("New
Inventory") in any newly-created area of the Web Site ("New Web Site Area").
Compaq and DoubleClick shall cooperate in identifying those portions, if any, of
the New Inventory that DoubleClick would have the right to sell on behalf of
Compaq and shall confirm any such arrangements by completing and signing a New
Inventory Addendum, based on the form of which that appears as Exhibit C
attached hereto. The parties will also determine and specify in the New
Inventory Addendum whether DoubleClick's right to act on behalf of Compaq in
respect of such portions of the New Inventory is exclusive, and the
circumstances under which Compaq could terminate DoubleClick's right to place
such portions of the New Inventory on behalf of Compaq.
3.6 Unsold Inventory. All unsold inventory of Standard Ad Units may be Bartered
by Compaq, subject to the fees set forth in Article IV.
3.7 Termination of Ad Sales Representation.
(a) Content Zones. Compaq shall have the option of terminating DoubleClick's
--------------
right to sell National Ads on behalf of Compaq on a Content Zone (or any Content
Zone thereof) by providing, within thirty (30) days of the Effective Date of
this Agreement, a schedule listing each Content Zone (or Content Zone page) that
Compaq wishes to terminate, together with the date of termination for the Ad
Sales Service with respect to each such Content Zone Page; provided that no
termination shall become effective less than ninety (90) days from the date of
DoubleClick's receipt of such notice. After the first thirty(30) days of the
Term, Compaq shall have the right to terminate DoubleClick's right to place
National Ads on a Content Zone (or Content Zone Page) by giving at least 120
days prior written notice to DoubleClick. Following such termination,
DoubleClick shall continue to have the exclusive right to place Standard Ad
Units on any Search Results Pages located within a terminated Content Zone,
unless otherwise specifically prohibited by Compaq's contractual obligation
with respect to that Content Zone. Any termination pursuant to this Section
3.7(a) shall only terminate the specific rights specified in this Section and
all other rights and obligations of the parties shall continue, notwithstanding
such termination.
(b) Year 2 Excluded Advertisers. Compaq shall have the right to terminate
----------------------------
DoubleClick's right to sell National Ads on behalf of Compaq in Year 2 to the
"Year 2 Excluded Advertisers" (as defined below) by giving notice to DoubleClick
by December 1, 1999. Together with such notice, Compaq shall identify the "Year
----
2 Excluded Advertisers," which shall be comprised of the following: (i) no more
- ----------------------
than 90 Strategic Advertisers, provided that each such Strategic Advertiser
shall have had prior to December 1, 1999 entered into agreements to purchase at
least $50,000 worth of Advertising directly from Compaq on the Web Site during
Year 1 or run on the Web Site during Year 1 (based on Year 1 year-to-date data
as of November 30, 1999) at least $50,000 worth of Advertising purchased
directly from Compaq; and (ii) no more than 10 Advertisers (which need not be
Strategic Advertisers or even then-current Advertisers on the Web Site) so long
as none of these named Advertisers is one of DoubleClick's 1999 (based on Year 1
year-to-date data as of October 31, 1999) top ten Web Site Advertisers.
Commencing January 1, 2000, Compaq would have the exclusive right to sell
National Ads (including Banners on the Search Results Pages) to the Year 2
Excluded Advertisers. Other than to the Year 2 Excluded Advertisers, and subject
to Compaq's right to terminate pursuant to Section 3.7(a) above, in Year 2,
DoubleClick would continue to sell on behalf of Compaq National Ads,
International Ads and Local Ads.
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(c) Year 3 Excluded Advertisers. Compaq would have the right to terminate
DoubleClick's right to sell National Ads on behalf of Compaq in Year 3 to the
"Year 3 Excluded Advertisers" (as defined below) by giving notice to DoubleClick
by December 1, 2000. Together with such notice, Compaq shall identify no more
than 200 Advertisers (which need not be Strategic Advertisers or even Year 2
Excluded Advertisers) to become the "Year 3 Excluded Advertisers". Beginning on
---------------------------
January 1, 2001, Compaq would have the exclusive right to sell National Ads
(including Banners on the Search Results Pages) to the Year 3 Excluded
Advertisers. Other than to the Year 3 Excluded Advertisers, and subject to
Compaq's right to terminate pursuant to Section 3.7(a) above, in Year 3,
DoubleClick would continue to sell on behalf of Compaq National Ads,
International Ads and Local Ads.
3.8 Compaq's Ad Sales Service Obligations.
(a) Compaq agrees to effect all necessary HTML programming with respect to the
Web Site and Pages in accordance with the HTML modifications (the "HTML
Modifications") designated by DoubleClick so as to enable DoubleClick to perform
its obligations under this Agreement.
(b) At all times during the Term, each Search Results Page and Directory Page
shall include substantially the same number and type of Standard Ad Units as
were included on the corresponding or most closely analogous Search Results Page
or Directory Page prior to the Effective Date of this Agreement, as illustrated
on Exhibit A.
(c) Compaq agrees that DoubleClick has no responsibility to review the contents
of Pages or the Web Site.
(d) Compaq shall have the right at any time to ban and remove Advertising from
the Web Site and to establish domain restrictions to prevent delivery of
Advertising linked to certain domains, by accessing the "Manage Site
Application" (located at www.doubleclick.net) of the DART Service interface or
otherwise.
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(e) Compaq acknowledges and agrees that all Standard Ad Units sold by
DoubleClick under the Existing Agreement for delivery after the Effective Date
shall be governed by the terms and conditions of this Agreement and Compaq shall
pay DoubleClick the DART Service fee, sales commission, billing and collections
fees and other fees specified under Article IV of this Agreement for all such
Standard Ad Units delivered after the Effective Date.
3.9 Dedicated Sales Specialists. Until the end of Year 2, no fewer than four
DoubleClick sales specialists, reasonably acceptable to Compaq, shall be
designated by DoubleClick as the Web Site's dedicated sales team. Promptly after
the Effective Date, DoubleClick shall use commercially reasonable efforts to
staff Web Site's dedicated sales team.
3.10 DoubleClick's Ad Sales Service Obligations.
(a) Use of Information. DoubleClick shall have the right to use for
DoubleClick's own use or for use in connection with potential Advertisers on the
Ad Sales Service, information concerning Pages, Impressions and Users accessing
Pages obtained through the Service, provided DoubleClick does not reproduce any
Pages without Compaq's prior consent.
(b) Reporting. In addition to the daily DART Service reports made available to
Compaq through DoubleClick's Web site (www.doubleclick.net), DoubleClick shall
furnish to Compaq on a monthly basis the following reports: (i) a list of the
Advertisers that have purchased Standard Ad Units through DoubleClick, together
with a summary of the nature of the order (type of Standard Ad Unit and
Impressions) and revenue generated from such Advertiser; and (ii) a four-month
and twelve-month forecast of the Standard Ad Units scheduled to run on the Web
Site. During the Term, DoubleClick agrees also to provide Compaq with such other
reports as Compaq may reasonably request; provided that DoubleClick shall not be
required to provide reports that are, in DoubleClick's view, unduly burdensome
to prepare. All reports and data provided by DoubleClick to Compaq are subject
to the confidentiality obligations set forth herein, and access to such reports
and data online is subject to DoubleClick's customary security procedures.
(c) Excluded Advertisers. DoubleClick agrees (i) in Year 2, not to solicit any
of the Year 2 Excluded Advertisers for the placement of Standard Ad Units on the
Web Site; and (ii) in Year 3, not to solicit any of the Year 3 Excluded
Advertisers for the placement of Standard Ad Units on the Web Site. DoubleClick
shall have the right to solicit, in Year 3, those Year 2 Excluded Advertisers
that are not also Year 3 Excluded Advertisers.
3.11 Rate Card. During the Term of this Agreement, Compaq, in consultation with
DoubleClick, shall set the rate card for all Advertising sold by DoubleClick.
The current rate card as of the Effective Date is attached hereto as Exhibit D.
In addition, Compaq, in consultation with DoubleClick, shall set the minimum and
maximum term for Advertiser Contracts and such other Advertising sales policies
and parameters for sales of Advertising on the Web Site as Compaq may notify
DoubleClick in writing from time to time, which policies and parameters shall
include credit and collections policies applicable to Advertisers (collectively,
the "Sales Policies"). Except as otherwise provided in this Agreement, the rate
card and Sales Policies for Advertising to be sold by DoubleClick on behalf of
Compaq must be
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the same as those applied by Compaq to its own Advertising sales for the Web
Site. The parties acknowledge that the credit policies included in the Sales
Policies are not applicable to Advertising sales made by DoubleClick on Compaq's
behalf prior to the date this Agreement was fully executed by the parties.
ARTICLE IV
COMPENSATION
4.1 Payments. During the Term of this Agreement, Compaq shall pay to DoubleClick
(i) a DART Services fee for all advertising delivered by DoubleClick to the Web
Site, (ii) a sales commission based on the Net Revenues generated from all
Standard Ad Units sold by DoubleClick on behalf of Compaq, for all sales,
customer support and other services (other than billing and collections
services) that DoubleClick performs on behalf of Compaq and (iii) a billing and
collections fee for all billing and collections services performed by
DoubleClick on behalf of Compaq in relation to Standard Ad Units sold by
DoubleClick, based on the Net Revenues generated from such Standard Ad Units.
(a) Delivery of U.S. Ads. Compaq shall pay a DART fee for all Advertising that
is delivered by DoubleClick during the Term to the Web Site. For all Advertising
delivered by servers located in the U.S., DoubleClick shall charge one of the
following, as applicable:
(i) A DART Banner and Badge delivery fee of $(***) CPM for the first billion
Impressions served in each calendar month, and $(***) CPM for all Impressions in
excess of a billion served in that calendar month (for average file sizes no
larger than 12K bytes; a customary surcharge would apply to average file sizes
in excess of 12K bytes);
(ii) A DART redirect fee of $(***) CPM for Unpaid Advertisements; or
(iii) A DART Button delivery fee of $(***) CPM (for file sizes no larger than 2K
bytes).
(***) Denotes language for which AltaVista has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as amended.
(b) Tracking and Trafficking Fees. In addition to one of the payments required
by Section 4.2(a) above, Compaq shall also pay the following fees to the extent
that the following Services from DoubleClick are utilized during the Term:
(i) A tracking fee of $(***) CPM for optional pixel tracking services (which
fee is applicable only to Advertising sold by Compaq); and
(ii) A trafficking fee of $(***) CPM for all advertising not placed by
DoubleClick that is trafficked by DoubleClick.
(***) Denotes language for which AltaVista has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as amended.
(c) Delivery of International Ads. Due to varying and higher bandwidth costs
outside of the U.S., different DART fees shall be charged for Advertising
delivered during the Term by servers located outside of the U.S. The Year 1
international DART fee for each country is set forth on Schedule 1 attached
hereto. Compaq shall have the right to designate the country
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from which International Ads are served. Thereafter, commencing on each December
1 during the Term (other than on December 1, 2000), Compaq and DoubleClick shall
meet to determine the international DART fee for Year 2 or Year 3, as the case
may be.
(d) Pricing for Delivery of Ads Placed by Compaq. The parties shall meet,
commencing on December 1, 1999, to determine whether the DART fees specified in
Section 4.2(a) to be in effect for Year 2 for the delivery of Advertising placed
by Compaq should be adjusted. The parties would also meet, commencing on
December 1, 2000, to determine whether the DART fees in effect in Year 3 should
be adjusted.
4.3 Ad Sales Commission and Billing/Collections Fees. Compaq shall pay to
DoubleClick (i) the sales commissions set forth below for all the Ad Sales
Service, support, and other services (other than billing and collections
services) that DoubleClick performs on behalf of Compaq and (ii) the billing and
collections fees set forth below for all billing and collections services
performed by DoubleClick in relation to Standard Ad Units sold by DoubleClick on
behalf of Compaq, in each case based on the Net Revenues generated from all
Standard Ad Units sold by DoubleClick on behalf of Compaq:
- --------------------------------------------------------------------------------
Billing and Sales Commission to DoubleClick
Collections ---------------------------------------------
Period During Term Fee National Ads International Ads Local Ads
- --------------------------------------------------------------------------------
Year 1 (***) (***) (***) (***)
- --------------------------------------------------------------------------------
Year 2 (***) (***) (***) (***)
- --------------------------------------------------------------------------------
Year 3 (***) (***) (***) (***)
- --------------------------------------------------------------------------------
All sales commissions and billing and collections fees based on Net Revenue
shall be determined using the above chart and based upon the date upon which the
Standard Ad Units are sold. If a campaign continues from one calendar year into
the next, the rates applicable at the start of the campaign shall apply for the
whole campaign. For National Ads sold before any termination by Compaq of
DoubleClick's rights under this Agreement, DoubleClick shall be entitled to
receive the sales commission and billing and collections fees for those National
Ads over the life of the campaign, even if the campaign continues to run after
the effective date of Compaq's termination of those rights.
(***) Denotes language for which AltaVista has requested confidential treatment
pursuant to the rules and regulations of the Securities Act of 1933, as amended.
4.4 Most Favored Nation. During the Term, subject to the requirements of this
-------------------
section, Compaq shall have the option of receiving any lower Average DART Only
Fee or Average Combined Pricing agreed to by DoubleClick with any Comparable
Customer in an Advertiser Contract that is either signed or renewed after the
Effective Date. If DoubleClick believes, on the basis of the past quarter's
payments to DoubleClick, that another DoubleClick customer is such a Comparable
Customer, DoubleClick shall promptly notify Compaq in writing of such fact.
Within thirty (30) days of such notice, Compaq shall have the right to elect to
substitute the lower DART fees or sales commission and billing and collections
fees, as the case may be, agreed to by DoubleClick with the Comparable Customer
effective as of the beginning of the current calendar quarter, provided that (i)
all payments due to DoubleClick prior to the commencement of the current quarter
shall be non-refundable and non-creditable and (ii) Compaq and DoubleClick agree
to provisions, restrictions, obligations and limitations that, compared as a
whole, are substantially comparable to those imposed on the Comparable Customer.
For purposes of this section, the following terms shall have the following
meanings:
(a) "Comparable Customer" shall mean any DoubleClick Web site publisher
customer that enters into an agreement with DoubleClick after the date this
Agreement is fully executed, pursuant to which such DoubleClick Web site
publisher customer receives overall pricing for services (calculated as the
effective pricing for all services provided by DoubleClick to such customer
after taking into account such customer's actual account experience) that is
more favorable than the overall pricing for services received by Compaq under
this agreement; provided that such DoubleClick Web site publisher customer shall
only be deemed a "Comparable Customer" if comparable to Compaq in terms of the
Banner size and bandwidth required for the Banners delivered or to be delivered.
(b) "Average DART Only Fee" shall mean the average DART Service fees paid by a
Comparable Customer for all Advertising delivered by DoubleClick but not sold by
DoubleClick during a calendar quarter.
(c) "Average Combined Pricing" shall mean the average DART Service fees, sales
commissions, billing and collections fees and other fees paid by a Comparable
Customer for all Advertising delivered and sold by DoubleClick as the Comparable
Customer's representative during a calendar quarter.
In addition, on a quarterly basis, DoubleClick shall furnish to Compaq a
certificate of an officer of DoubleClick confirming that, based on the events
and results of the prior calendar quarter, either (i) one or more Comparable
Customers exist, describing the terms relating to such Comparable Customer, or
(ii) no Comparable Customers exist.
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4.5 Training; Sales Engineer Services. DoubleClick shall provide one training
session on the DART Service at DoubleClick's offices in New York City at no
charge to Compaq. All additional training and other DoubleClick personnel days
shall be charged for at DoubleClick's customary rates.
4.6 Invoicing. On a monthly basis, DoubleClick shall remit to Compaq the Net
---------
Payable. The "Net Payable" shall mean the sum of the cash collections for
Advertising actually received by DoubleClick during the month, less amounts
payable to DoubleClick for services rendered in respect of or based on
Advertising delivered and/or sold by DoubleClick on behalf of Compaq during the
month or still owed to DoubleClick in respect of past months: the DART Service
fees, sales commissions on amounts received, and billing and collection fees and
any other fees payable to DoubleClick pursuant to this Agreement in total. The
Net Payable will be remitted to Compaq accompanied by a bill for services
rendered on or before the fifteenth day following the end of the month (or on
the next business day if the fifteenth day following the end of the month falls
on a weekend or holiday).
On a calendar quarterly basis, Compaq may charge DoubleClick an amount equal
to the applicable ad sales commission multiplied by the amount of Bad Debt
charged in the applicable quarter; provided that such information shall not
exceed 1.5% of Net Revenues recorded in such quarter. Compaq shall notify
DoubleClick of the amount of such charge within thirty (30) days after the end
of calendar quarter and DoubleClick shall pay the Company the amount of such
charge within forty-five (45) days of DoubleClick's receipt of such notice.
Notwithstanding the foregoing, DoubleClick shall be charged the full amount of
Bad Debt associated with any Advertising sales made by DoubleClick on Compaq's
behalf in violation of Compaq's Sales Policies (other than deviations made with
Compaq's prior consent at the time of the sale.)
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4.7 Opportunity Cost. All Advertising placed by Compaq shall normally be subject
to existing Advertising placements made by DoubleClick. In the unusual event
that (i) DoubleClick is required by Compaq to cancel any Advertising campaign
sold by DoubleClick on behalf of Compaq to avoid a conflict with an advertising
agreement entered into by Compaq and (ii) no alternative Advertising programs
acceptable to Advertiser are available through DoubleClick, Compaq shall remit
to DoubleClick the sales commission to which DoubleClick would have been
entitled had the campaign run its full course, by the dates such payments would
have been due hereunder assuming the cancelled Advertising had been paid when
due and Compaq shall be solely responsible for any compensation due to the
Advertiser whose Advertising campaign has been cancelled. However, the foregoing
provision shall not apply to Advertising that Compaq has identified to
DoubleClick in good faith in advance in a written notice as being unavailable,
if DoubleClick nonetheless sells such Advertising after its receipt of such
notice; it being understood that in this instance only, DoubleClick shall be
solely responsible for any compensation due to the Advertiser whose Advertising
campaign has been cancelled.
4.8 [***]
[***] Denotes language for which AltaVista has requested confidential
treatment pursuant to the rules and regulations of the Securities Act of 1933,
as amended.
4.9 Compaq's Costs. Compaq shall be solely responsible for any costs or expenses
it incurs in connection with the Services or performance of its obligations
under this Agreement including, without limitation, expenses associated with any
HTML programming and linking Pages to the DART Service.
4.10 DoubleClick's Costs. DoubleClick shall be solely responsible for any costs
or expenses it incurs in connection with the provision of the Services or
performance of its
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obligations under this Agreement including, without limitation, expenses
associated with any costs of operating and maintaining the DART Service.
ARTICLE V
TERM & TERMINATION
5.1 Term. This Agreement shall be for a term of three (3) years from the
Effective Date, unless terminated earlier in accordance with the terms set forth
below or until the end of the notice period required by Section 5.2 (the
"Term"). The Term shall be automatically renewed for additional twelve (12)
month periods unless there is a notice pursuant to Section 5.2 below.
5.2 Notice of Non-Renewal. In the event either party decides not to renew this
Agreement at the expiration of three (3) years from the Effective Date, or at
the expiration of any renewal period, the party that desires to terminate shall
provide the other with notice of such decision no earlier than the commencement
of Year 3 and no later than (i) ninety (90) days prior to the expiration of Year
3, for termination at the end of Year 3 and (ii) 180 days prior to the
expiration of any renewal term; provided, however, that if Compaq fails to give
the notice required by this Section, the Term and this Agreement shall continue
until DoubleClick has received the applicable period of days advance written
notice of Compaq's decision not to renew.
5.3 Termination for Breach. In the event of a material breach of a material
provision of this Agreement, the non-breaching party may give written notice of
such breach to the breaching party and if the breaching party fails to cure such
breach within ninety (90) days of receipt of such notice, the non-breaching
party may terminate this Agreement once the cure period has expired.
5.4 Termination for Certain Changes. In addition to its right to terminate
specified above, Compaq shall also have the right to terminate this Agreement if
any of the following events occur:
(a) DoubleClick is found by reputable independent sources on the basis of
verifiable data based on an analysis of a period of not less than 180 days, to
no longer be one of the top three Centralized Internet Ad Delivery Companies
measured on the basis of the aggregate number of Impressions served by each
Centralized Internet Ad Delivery Companies in such period (the "Top Three")
(b) DoubleClick ceases to operate or provide technical support for the DART
Service for a period in excess of five (5) business days;
(c) DoubleClick is adjudged insolvent or bankrupt;
(d) Institution of any proceeding by DoubleClick seeking relief, reorganization
or arrangement under any laws relating to insolvency;
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(e) Institution of any proceeding against DoubleClick seeking relief,
reorganization or arrangement under any laws relating to insolvency that is not
dismissed within sixty (60) days;
(f) The making of any assignment for the benefit of creditors;
(g) Upon the appointment of a receiver, liquidator or trustee of any of
DoubleClick's property or assets, or upon liquidation, dissolution or winding up
of the DoubleClick's business; or
(h) In the event that a Person who owns, either directly or indirectly, a Web
site that is widely regarded by recognized Internet industry analysts as a
direct competitor of the Web Site acquires (i) through a merger or consolidation
pursuant to which the stockholders of DoubleClick immediately prior to such
merger or consolidation will not own, immediately after such merger or
consolidation, at least forty percent (40%) of the voting power of the surviving
Person's voting securities, whether or not such Person is DoubleClick, (ii)
securities representing a majority of DoubleClick's voting securities as a
result of a tender or exchange offer, open market purchase, privately negotiated
purchases, share exchange, extraordinary dividend, acquisition, disposition or
recapitalization (or series of related transactions of such nature) (other than
a merger or consolidation), and (iii) all or substantially all of DoubleClick's
assets.
5.5 Effect of Termination.
(a) Notwithstanding anything to the contrary contained herein, in the event this
Agreement is terminated and DoubleClick, prior to said termination, has entered
into any Advertiser Contracts for the delivery of Standard Ad Units to the
Pages, the duration of which Advertiser Contracts extend beyond the date on
which this Agreement has been terminated, and such Standard Ad Units continue to
be delivered after the termination of this Agreement, then DoubleClick shall be
entitled to receive (i) sales commissions and billing and collections fees for
such Standard Ad Units calculated on the basis of the applicable sales
commission and billing and collections fees that would have been due under
Section 4.3 above as of the effective date of the Advertising Contract for the
type of Standard Ad Units in question and (ii) where the parties mutually agree
that DoubleClick should continue to deliver said Standard Ad Units on behalf of
Compaq, the applicable DART Service fees specified in Section 4.2.
(b) The following provisions of this Agreement and any causes of action arising
in relation to this Agreement prior to termination, shall survive such
termination: Sections 7.1 through 7.3, 9.1, 9.2, and 10.1 and Article V.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 Compaq's Representations and Warranties. Compaq represents and warrants at
all times that Compaq (i) owns the Web Site, and (ii) has the right and full
power and authority to enter into this Agreement, to grant the rights herein
granted and fully to perform its obligations hereunder. Compaq acknowledges that
the System can be used to target, measure and traffic advertisements in many
different ways and based on many difference types of data. Compaq represents and
warrants that it will not use the System or the DART Service in a way or
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for any purpose that infringes or misappropriates any third party's copyrights,
patents issued as of the Effective Date, trademarks or trade secrets.
6.2 DoubleClick's Representations and Warranties. DoubleClick represents and
warrants that (i) it owns the DART Service and the System, (ii) it has the right
and full power and authority to enter into this Agreement, to grant the rights
herein granted and fully to perform its obligations hereunder, and (iii) the
System was developed by DoubleClick without infringement or misappropriation of
any third party's copyrights, U.S. patents issued as of the Effective Date,
trademarks or trade secrets.
ARTICLE VII
INDEMNITIES
7.1 Compaq's Indemnities. Compaq agrees to indemnify and hold DoubleClick and
its Affiliates, officers, directors, employees and agents (each a "DoubleClick
Indemnitee") harmless from and against any and all claims, actions, losses,
damages, liability, costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements incurred by a DoubleClick
Indemnitee in any action between Compaq and the DoubleClick Indemnitee, or
between the DoubleClick Indemnitee and any third party or otherwise) arising out
of or in connection with any breach of any of Compaq's representations,
warranties or obligations set forth in this Agreement. DoubleClick shall
promptly notify Compaq of all claims and proceedings related thereto of which
DoubleClick becomes aware.
7.2 DoubleClick's Indemnities. DoubleClick agrees to indemnify and hold Compaq
and its Affiliates, officers, directors, employees and agents (each a "Compaq
Indemnitee") harmless from and against any and all claims, actions, losses,
damages, liability, costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements incurred by a Compaq Indemnitee in
any action between DoubleClick and the Compaq Indemnitee, or between the Compaq
Indemnitee and any third party or otherwise) arising out of or in connection
with any breach of DoubleClick's representations, warranties or obligations set
forth in this Agreement. Compaq shall promptly notify DoubleClick of all claims
and proceedings related thereto of which Compaq becomes aware.
7.3 Procedure. The indemnitee ("Indemnitee") that intends to claim
indemnification under this Agreement shall promptly notify the other party (the
"Indemnitor") of any claim, demand, action or other proceeding for which the
Indemnitee intends to claim such indemnification, and the Indemnitor shall have
the right to participate in, and, to the extent the Indemnitor so desires, to
assume sole control of the defense thereof with counsel selected by the
Indemnitor; provided, however, that the Indemnitee shall have the absolute right
to retain its own counsel, with the fees and expenses to be paid by the
Indemnitee. The indemnity obligations under this Agreement shall not apply to
amounts paid in settlement of any loss, claim, damage, liability or action if
such settlement is effected without the consent of the Indemnitor, which consent
shall not be unreasonably withheld or delayed. The failure to deliver notice to
the Indemnitor within a reasonable time after the commencement of any such
action, if prejudicial to Indemnitor's ability to defend such action, shall
relieve the Indemnitor of any liability to the Indemnitee under this Article
VII. The Indemnitee, its employees, agents, officers, directors and
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partners shall cooperate fully with the Indemnitor and its legal representatives
in the investigation of any action, claim or liability covered by an
indemnification from the Indemnitor.
ARTICLE VIII
ANCILLARY OBLIGATIONS
8.1 Web Site Co-Marketing. Each party shall have the right to create promotional
materials for the Web Site and Advertising on the Web Site, provided that each
party's use of the other party's trade name and trademarks is subject to (i) the
other party's approval, which shall not be unreasonably withheld or delayed and
(ii) compliance with the other party's standards and guidelines as to proper use
of such party's trade name and trademarks ("Trademark Use Guidelines"). Each
party's Trademark Use Guidelines are attached hereto as Exhibits E-1 and E 2.
All use of the other party's trade name and trademarks is by way of license only
and only for the limited purposes of creating and distributing the promotional
materials during the Term. Each party shall comply with the requests of the
other party in relation to correct usage of the other party's trademarks and
shall promptly make any changes to the use being made of the other party's
trademarks and trade names if such change is requested by other party.
8.2 Non-Solicitation. During the Term and for a one-year period following
expiration or termination of this Agreement:
(a) Compaq agrees for itself and for its Affiliates not to (i) solicit for
employment (whether directly or indirectly) any employee of DoubleClick or (ii)
employ any former employee of DoubleClick within sixty (60) days of such former
employee leaving DoubleClick; and
(b) DoubleClick agrees not to (i) solicit for employment (whether directly or
indirectly) any employee of Compaq or (ii) employ any former employee of Compaq
within sixty (60) days of such former employee leaving the Compaq.
ARTICLE IX
DISCLAIMERS AND LIMITATIONS ON LIABILITY
(a) DOUBLECLICK DISCLAIMER. EXCEPT AS SET FORTH IN THIS AGREEMENT, DOUBLECLICK
MAKES NO WARRANTIES OF ANY KIND TO ANY PERSON WITH RESPECT TO THE SERVICES, THE
SYSTEM, ANY ADVERTISING OR ANY DATA SUPPLIED, WHETHER EXPRESS OR IMPLIED,
INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR NONINFRINGEMENT.
(b) COMPAQ DISCLAIMER. EXCEPT AS SET FORTH TN THIS AGREEMENT, COMPAQ MAKES NO
WARRANTIES OF ANY KIND TO ANY PERSON WITH RESPECT TO THE WEB SITE, ANY
ADVERTISING OR ANY DATA SUPPLIED, WHETHER EXPRESS OR IMPLIED, INCLUDING ANY
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
NONINFRINGEMENT.
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9.2 Limitation and Exclusion of Liability. Neither party shall be liable to the
other party, any Advertisers or any other third party for any loss, cost, damage
or expense incurred in connection with the unavailability or inoperability of
the System, the Services or the Internet, technical malfunction, computer error
or loss or corruption of data, or other injury, damage or disruption of any kind
related thereto. In no event shall either party be liable for any indirect,
incidental, consequential, special or exemplary damages, including, but not
limited to, loss of profits, or loss of business opportunity, even if such
damages are foreseeable and whether or not the other party has been advised of
the possibility thereof. Except in relation to a claim against a party based on
its breach of its representations and warranties in this Agreement as to
infringement and misappropriation of third party copyrights, patents, trademarks
or trade secrets, each party's maximum aggregate liability shall not exceed the
total amount paid by Compaq to DoubleClick under this Agreement or the Existing
Agreement during the twelve (12) month period prior to the first date the
liability arose. In all Advertiser Contracts the parties shall use reasonable
efforts to include a provision that will state that the other party is a third
party beneficiary of any disclaimers and limitations or exclusions of liability
that such party has agreed to with the Advertiser in the Advertiser Contract.
ARTICLE X
CONFIDENTIALITY
10.1 Confidentiality. The terms of this Agreement and information and data that
either party has received or will receive from the other party about the
Services, the System and other matters relating to the respective businesses of
the parties is proprietary and confidential information of the disclosing party
("Confidential Information"), including without limitation any information that
is marked as "confidential" or should be reasonably understood to be
confidential or proprietary to the disclosing party and any reference manuals
compiled or provided hereunder. Each party agrees that for the Term and for two
(2) years thereafter, it will not disclose to any third party nor use for any
purpose not permitted under this Agreement any Confidential Information
disclosed to it by the other party. The nondisclosure obligations set forth in
this Section shall not apply to information that the receiving party can
document is generally available to the public (other than through breach of this
Agreement by the receiving party) or was already lawfully in the receiving
party's possession at the time of receipt of the information from the disclosing
party.
ARTICLE XI
GENERAL PROVISIONS
11.1 Independent Contractor Status. Each party shall be and act as an
independent contractor and not as partner, joint venturer or agent of the other.
11.2 Governing Law. This Agreement shall be governed by, and construed in
accordance with the laws of the State of New York, without regard to the
principles of conflicts or choice of law of any jurisdiction.
11.3 Dispute Resolution. The parties shall attempt to settle any claim or
controversy arising out of this Agreement through consultation and negotiation
in good faith and spirit of mutual cooperation. In the event that any dispute
arises between the parties in connection with
21
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any subject matter of this Agreement, the dispute will be referred to a
senior-level manager of each party involved in the day-to-day performance of
this Agreement, who shall promptly meet and endeavor to resolve the dispute in a
timely manner. In the event such individuals are unable to resolve such dispute
within ten (10) days from the commencement of the dispute, the matter shall be
referred to the Chief Executive Officer ("CEO") of each party, who shall
promptly meet and endeavor to resolve the dispute. In the event that the
respective CEOs of the parties are unable to resolve such dispute within ten
(10) days, the dispute shall be deemed an unresolved dispute and either party
may commence litigation in a court having proper jurisdiction to resolve such
dispute.
11.4 Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the minimum extent necessary without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provisions in any other jurisdiction.
11.5 Force Majeure. No failure or omission by the parties hereto in the
performance of any obligation of this Agreement shall be deemed a breach of this
Agreement nor create any liability if the same shall arise from any cause or
causes beyond the control of the parties, including but not limited to the
following which, for the purposes of this Agreement, shall be regarded as beyond
the control of the party in question: acts of God, acts or omissions of any
government or any rules, regulations or orders of any governmental authority or
any officer, department, agency or instrument thereof; fire, storm, flood,
earthquake, accident, acts of the public enemy, war, rebellion, Internet brown
out, insurrection, riot, invasion, strikes, or lockouts.
11.6 Notices. All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
If to DoubleClick, to:
DoubleClick Inc.
41 Madison Avenue
New York, NY 10010
Attention: Chief Executive Officer
Telecopier No.: (212) 889-0029
With a copy to:
DoubleClick Inc.
41 Madison Avenue
New York, NY 10010
Attention: General Counsel
Telecopier No.: (212) 497-4397
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If to Compaq, to:
Compaq Computer Corporation
P0 Box 692000
MS 130705
Houston, TX 77269-2000
Attention: General Manager of Alta Vista
Telecopier No.: (281) 514-2962
With a copy to:
Compaq Computer Corporation
P0 Box 692000
MS 110701
Houston, TX 77269-2000
Attention: Law Department
Telecopier No.: (281) 514-8332
or to such other address or attention of such other Person as such party shall
advise the other party in writing.
All such notices and communications shall be deemed to have been duly given when
delivered by hand, if personally delivered; when delivered by courier, if
delivered by commercial courier service; five (5) business days after being
deposited in the mail, postage prepared, if mailed; and when receipt is
mechanically acknowledged, if telecopied.
11.7 Entire Agreement. This Agreement, together with the schedules, exhibits and
addenda hereto, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth herein. This Agreement, together with
the schedules, exhibits and addenda hereto, supercedes and terminates all prior
agreements and understandings between the parties with respect to such subject
matter, including, but not limited to the Existing Agreement.
11.8 Successors and Assigns; Third Party Beneficiaries. This Agreement shall
inure to the benefit of and be binding upon the successors and permitted assigns
of the parties hereto. This Agreement and the rights hereunder are not
transferable without the prior written consent of the non-assigning party;
provided, however, that DoubleClick may assign this Agreement and its rights and
obligations hereunder to (a) a purchaser of substantially all of DoubleClick's
stock or business by sale, merger or otherwise and (b) an Affiliate of
DoubleClick; and provided, further, however, that Compaq may assign this
Agreement and its rights and obligations hereunder to (a) a Person who acquires
the Web Site or the Web Site's assets or business, by sale, merger or otherwise
or (b) an Affiliate of Compaq. Compaq further covenants that it shall not in any
circumstance transfer the Web Site or its business involving the Web Site to any
Affiliate or third party, without also assigning to such Affiliate or third
party (if approved by DoubleClick) Compaq's rights and obligations under this
Agreement. Except as provided in Article VII, no
23
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Person other than the parties hereto and their successors and permitted assigns
is intended to be a beneficiary of this Agreement. No assignment to any
permitted assign shall be effective until such permitted assign agrees in
writing to be bound by and comply with the terms of this Agreement.
11.9 Amendment and Waiver. No failure or delay on the part of any party hereto
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise hereof or the exercise of any
other right, power or remedy. The remedies provided herein are cumulative and
are not exclusive of any remedies that may be available to the parties hereto at
law, in equity or otherwise. Any amendment, supplement or modification of or to
any provision of this Agreement, any waiver of any provision of this Agreement
and any consent to any departure by the parties hereto from the terms of any
provision of this Agreement, shall be effective only if it is made or given in
writing and signed by each of the parties hereto.
11.10 Counterparts. This Agreement may be executed in any number of counterparts
and by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
11.11 Publicity. None of the parties hereto shall issue a press release or
public announcement or otherwise make any disclosure concerning this Agreement
or the terms hereof, without prior approval by the other party hereto (which
approval shall not be unreasonably withheld); provided, however, that nothing in
this Agreement shall restrict any party from disclosing information (a) that is
already publicly available, except as a result of a breach of this provision by
the disclosing party, (b) that is required to be disclosed by law, provided that
if such disclosing party is required to file a copy of this Agreement with a
governmental authority, such party shall seek confidential treatment to the
extent reasonably available and (c) to its attorney's accountant, consultants
and other advisers. Prior to issuing any press release, public announcement or
disclosure, the disclosing party will deliver a draft of such press release,
public announcement or disclosure to the other party and shall give such party a
reasonable opportunity to comment thereon.
DOUBLECLICK INC. COMPAQ COMPUTER CORPORATION
Signature: /s/ Kevin O'Connor Signature: /s/ Rod Schrock
--------------------------- ----------------------
Kevin O'Connor Printed Name: Rod Schrock
Chief Executive Officer -------------------
Title: Senior Vice President
--------------------------
Dated: January 18, 1999. Dated: January 18, 1999.
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EXHIBIT 10.16
07/02/99
FINAL Rev. 8
- -----
STRATEGIC BUSINESS AGREEMENT
BY AND BETWEEN
COMPAQ COMPUTER CORPORATION
AND
CMGI, INC.
This Strategic Business Agreement (the "Agreement") is entered into as of
this 29th day of June, 1999 by and between Compaq Computer Corporation, a
Delaware corporation (hereinafter referred to as "Compaq," as such term is
defined below), and CMGI, Inc., a Delaware corporation (hereinafter referred to
as "CMGI," as such term is defined below).
WHEREAS, Compaq is the largest global supplier of computer systems and a
market leader in delivering Internet-enabled personal computers to consumers;
WHEREAS, CMGI is a recognized leader in the Internet economy with a
portfolio of synergistic Internet enterprises focused on providing solutions
and creating compelling Internet user experiences;
WHEREAS, Compaq and CMGI desire to work together to define mutually
beneficial vehicles for the strategic bundling, distribution, and promotion of
CMGI products and services on Compaq's products.
NOW THEREFORE, in consideration of the premises, the mutual agreements and
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1.0 DEFINITIONS
The following definitions shall apply throughout this Agreement:
1.1 "Affiliate" shall mean, with respect to any specified Person, any
other Person that directly or indirectly through one or more
intermediaries, Controls, is Controlled by, or is under common
Control with, such specified Person.
1.2 "Aggregate User Data" shall mean (i) general User transactional or
behavioral tracking data that is not Registration Data (including
1
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without limitation clickstreams, purchasing patterns, connect time
and number of visits); (ii) anonymous User data, which may include
individual User information without personal identification; and
(iii) any data consisting of any combination of Registration Data,
anonymous User data, and/or general User transactional or behavioral
data that does not contain or constitute Registration Data. All such
data in all instances shall be aggregated over all relevant Users
redirected from Products or Compaq Sites.
1.3 "Agreement" shall have the meaning set forth in the preamble.
1.4 "Appliance" shall mean any consumer-oriented device designed or
intended for execution of a specific application or related set of
applications.
1.5 "Closing Date" shall be the date on which the transactions
contemplated by the Purchase and Contribution Agreement between the
parties dated of even date herewith have been satisfied or waived.
1.6 "CMGI" shall mean CMGI, Inc. and its Affiliates.
1.7 "CMGI Site" shall mean any Site owned by CMGI or any CMGI Affiliate.
1.8 "Compaq" shall mean Compaq Computer Corporation and its Affiliates.
1.9 "Compaq's Area of Business" shall mean all business segments in
which Compaq sells goods or services during the applicable period.
1.10 "Compaq Labs" shall mean the Compaq research and development
facilities in the Research and Advanced Development Group currently
known as the Systems Research Center Lab, Cambridge Research Lab,
Western Research Lab and the Network Systems Lab.
1.11 "Compaq Site" shall mean any Site owned by Compaq or any Compaq
Affiliate, excluding any CMGI Site.
1.12 "Control" or "Controlled" shall mean that a corporation or entity
owns or directly or indirectly controls more than fifty percent
(50%) of the voting stock or other ownership interest of another
corporation or entity.
1.13 "including" shall mean including without limitation.
1.14 "Instant Internet Keyboard Button" shall mean a single button,
accessible by means of
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a keyboard or other input device as agreed between the parties, that
enables the functionality to access and direct an end-user to a
designated URL and/or a designated URLs redirector.
1.15 "Internet Browser" shall mean programs that allow for browsing the
Internet including but not limited to Microsoft Internet Explorer(R)
and Netscape Navigator(R). "Internet Browser" shall not include
browsers that are embedded or included with proprietary networks
such as AOL, Compuserve or Prodigy.
1.16 "Link" shall mean a URL (or an icon, logo, highlighted or colored
text, figure or image representing a URL) on which a user may point
and click, or otherwise send a command, to hyperlink to another Site
or page.
1.17 "Marks" shall mean trademarks, service marks, Internet domain names,
trade names, logos and designs, together with applications and
registrations of the foregoing.
1.18 "Marketing Addendum" shall mean a statement of the marketing
strategies of both parties, including joint marketing and promotion
plans, which shall be agreed to and implemented by the Executive
Coordinators prior to each Compaq product sales cycle, in accordance
with the schedules determined by the Executive Coordinators.
Marketing Addenda shall, at a minimum, contain reference to the
number and configuration of any Instant Internet Keyboard Buttons on
Products intended for sale in the next product cycle, including
where appropriate reference to the intended Links to CMGI Sites.
1.19 "Person" shall mean any individual, bank, partnership, firm,
corporation, limited liability company, association, trust, or any
other entity or organization.
1.20 "Product" shall mean Presario-branded (including successor brands or
sub-brands) consumer desktop and portable personal computers.
"Product" as used herein shall not include commercial or enterprise
computing devices, networking equipment, or consumer Appliances,
unless otherwise specified.
1.21 "Proprietary Online Service Provider" shall mean any provider of
Internet access or other network bandwidth to end-user customers for
whom the definition, allocation, distribution or programming of the
Instant Internet Keyboard Buttons or other Internet addressing
functionality is a defined requirement of distribution or resale of
its service.
1.22 "Redirect Script" shall mean a set of instructions that accepts
Internet traffic and redirects the traffic to another location.
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1.23 "Registration Data" shall mean any data collected by a party,
through registration or by any other means, that contains
information that could be used to determine the identity of a User.
1.24 "Search Engine" shall mean a general electronic information location
tool that (i) is accessible through the World Wide Web; (ii) accepts
a query in the form of words; and (iii) responds to the query by
indexing World Wide Web pages and using such index to present URL
addresses of World Wide Web pages that are relevant to the asserted
query.
1.25 "Site" shall mean a page or group of pages on the World Wide Web or
any successor online network organized under a single domain name.
1.26 "Term" shall have the meaning set forth in Section 6.1.
1.27 "User" shall mean any person who navigates to a Site.
2.0 COMPAQ OBLIGATIONS
2.1 Internet Traffic
----------------
2.1.1 Obligations of Compaq. During the Term, Compaq shall
---------------------
preprogram each Product prior to sale so that activation of
any Instant Internet Keyboard Button automatically loads only
the Compaq Redirect Script URLs. For Products with seven (7)
or more Instant Internet Keyboard Buttons, Compaq shall
program Compaq Redirect Script URLs to immediately direct
traffic from four (4) Instant Internet Keyboard Buttons to
the applicable CMGI Site as directed by CMGI, provided that
such CMGI Sites shall be subject to Compaq's review and
approval for suitability and appropriateness for Compaq
customers, which approval shall not be unreasonably denied.
The process for such approval shall be defined in the
Marketing Addenda. In the event that a Product is equipped
with fewer than seven (7) Instant Internet Keyboard Buttons,
the number of Redirect Script URLs directed to CMGI Sites may
be fewer than four (4), but in any event shall comprise not
less than fifty percent (50%) of the total number of Instant
Internet Keyboard Buttons. Users shall be able to reconfigure
the Instant Internet Keyboard Buttons. For any Product for
which an Instant
4
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Internet Keyboard Button is programmed or redirected to a
default portal start page, the "Home" Link of the Internet
Browser shall also be linked or redirected to the same
default portal start page.
2.1.2 Additional Obligations. It is Compaq's intention to redirect
----------------------
Internet traffic to appropriate CMGI Sites from all Compaq
products that are equipped with Instant Internet Keyboard
Buttons (including commercial PC products and Appliances) to
the same extent as described in Section 2.1.1, subject to
availability and suitability of appropriate CMGI Sites for
the specific customer segment targeted. Subject to the
applicable obligations and exclusions set forth in this
Article 2, for Compaq-only branded Appliances, Compaq shall
program Instant Internet Keyboard Buttons, if any, in the
same manner and quantity as set forth in Section 2.1.1, to
the extent that CMGI Sites are applicable and competitive in
price and performance.
2.1.3 Excluded Products. The products subject to the provisions of
-----------------
Sections 2.1.1 and 2.1.2 shall not include (i) products that
cannot be configured pursuant to this Article because of
local law restrictions, (ii) products intended for sale in
geographic regions in which CMGI does not have a local Site
that is translated, localized, relevant and fully operational
in the specific international market, (iii) products designed
or manufactured specifically for a sponsor or affinity
program that requires the programming of a proprietary
default start page, or (iv) products for which Compaq's
customers have requested that pre-programmed Internet
functionality not be included. The parties shall work
together to coordinate international expansion and roll-out
plans, including identification of specific local
requirements and time frames for implementation.
2.1.4 Exclusions. Compaq's obligations pursuant to this Section 2:
----------
(i) are subject to contractual obligations with third parties
existing as of the date of execution of this Agreement, and
(ii) shall not apply to products or services provided by or
for a Proprietary Online Service Provider. Compaq shall
provide CMGI with a list of all such contractual obligations
within 30 days of the execution of this Agreement, and Compaq
shall use its best efforts to minimize the adverse impact of
such contractual obligations upon Compaq's obligations
hereunder. If Compaq engages in a distribution agreement with
any Proprietary Online Service provider, Compaq shall as part
of the process use its best efforts to explore opportunities
with CMGI and the Proprietary Online Service Provider to
engage CMGI as a preferred provider of portal solutions or
other content.
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In addition, Compaq's obligations pursuant to this Section 2
shall terminate, at Compaq's election, if after January 1,
2000, the Primary CMGI Portal Site fails to be one of the
twelve (12) most trafficked web sites for four (4)
consecutive months as measured in terms of unique visitors by
Media Metrix, or such other comparable industry metric as may
be agreed between the parties. The Primary CMGI Portal Site
shall mean, for purposes of this Agreement, the AltaVista,
Shopping.com, and Zip2 Sites (and any future Sites owned by
AltaVista or any subsidiary owned or Controlled by AltaVista)
considered in the aggregate. Within twenty-four (24) months
of the Closing Date, CMGI intends that AltaVista will be
among the top three (3) portal Sites as measured by Media
Metrix.
2.2 Sale of Compaq Equipment. Subject to CMGI entering into Compaq's
------------------------
standard reseller agreement, during the Term, Compaq shall make
available to CMGI Compaq hardware and equipment for resale through
any CMGI Site at terms no less favorable than Compaq's then-current
most favored Internet Reseller pricing.
2.3 Premier Internet Technology Supplier. Compaq hereby designates CMGI
------------------------------------
as a "Premier Internet Technology Supplier." It is Compaq's
intention to promote, demonstrate, and display CMGI's companies and
Sites on Compaq Sites and/or Compaq products, as further defined by
mutual agreement of the parties.
2.4 Designation of Internet Search Service. Subject to contractual
--------------------------------------
obligations existing as of the date of execution of this Agreement,
Compaq shall, and shall cause its Affiliates to, designate the Alta
Vista Search Engine as the only Search Engine offered by, linked to,
or promoted by each Compaq Site, provided that AltaVista maintains a
competitive Search Engine service, as determined by mutually agreed
upon industry competitiveness standards. Compaq shall provide CMGI
with a list of all such contractual obligations within 30 days of
the execution of this Agreement, and Compaq shall use its best
efforts to minimize the adverse impact of such contractual
obligations upon Compaq's obligations hereunder. Compaq shall state
on each Compaq Site that searches are "Powered By AltaVista." For
all products that contain Instant Internet Keyboard Buttons or other
features (including the Internet Browser, subject to authorization
from the Internet Browser licensor) that are specifically labeled or
otherwise identifiable as dedicated to a Search Engine, Compaq shall
not redirect users to any other Search Engine.
2.5 Distribution of Dial-Up Internet Access. Compaq shall designate
---------------------------------------
NaviNet as a provider of dial-up Internet access, subject to
negotiation of acceptable terms and conditions including pricing and
technical feasibility, including but not limited to
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availability and performance, scope of coverage, broadband
upgradability support, and infrastructure support (e.g., billing
services, service and support, and e-mail support).
2.6 Product Qualification, Optimization, and Licensing. It is Compaq's
--------------------------------------------------
intent to distribute certain CMGI products (e.g., the "iCaster"
player client software) on Compaq platforms, subject to Compaq's
then-current testing, qualification and acceptance criteria and
product marketing requirements and further subject to negotiation of
acceptable terms and conditions including license rights, pricing,
compatibility, co-branding and customizations. Such distribution may
include the display and/or promotion of the CMGI products as an icon
on the desktop.
2.7 Distribution Through Compaq Site Links. It is Compaq's intent to
--------------------------------------
promote certain CMGI Sites through Links on Compaq Sites, subject to
Compaq's qualification and acceptance criteria and product marking
requirements, and further subject to negotiation of acceptable terms
and conditions including license rights, pricing, and compatibility.
3.0 CMGI OBLIGATIONS
3.1 Revenue Share
-------------
3.1.1 During the Term, CMGI shall pay to Compaq a fee based on the
number of redirect messages directed to CMGI Sites from Compaq, either directly
or through Compaq's Redirect Script Server (the "Redirect Fee"). The amount of
the Redirect Fee due to Compaq shall be as follows:
<TABLE>
<CAPTION>
Time Period $ per redirect
----------- --------------
<S> <C>
Closing Date - 5/30/00 .01875
6/1/00 - 5/30/01 .02000
6/1/01 - 5/30/02 .0225
</TABLE>
3.1.2 Payment of the Redirect Fee shall be due to Compaq on a
monthly basis, no later than the last day of each month for
the previous month's traffic. CMGI shall provide to Compaq,
with each payment, a full report of User traffic in a level
of detail adequate to support the accuracy of the monthly
payment.
3.1.3 No later than March 31, 2001, the parties shall agree to an
appropriate revenue target for the time period June 1, 2001
through March 31, 2002. CMGI shall have the option to extend
the Agreement for one additional year
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<PAGE>
based on the same Redirect Fee schedule listed in Section
3.1.1 in effect as of the previous year if the agreed upon
revenue target is met or exceeded, and if the Primary CMGI
Portal Site is among the top five (5) trafficked Sites, as
determined by MediaMetrix. If the revenue target is not met,
CMGI may, at its option, pay to Compaq an "option fee,"
calculated as the difference between the revenue target and
the actual revenue for the period. Upon payment of the option
fee, CMGI may extend the Agreement for one additional year on
the same terms as if the revenue target was achieved. Each
subsequent year, prior to March 31, the parties shall agree
to an appropriate revenue and traffic target for
qualification for an additional one-year renewal option.
3.1.4 Compaq shall have the right to inspect and audit, upon five
(5) days notice, during normal business hours and not more
than four times per year, all of CMGI's records and books of
account insofar as they relate to Redirect Fee, provided that
any such audit and inspection shall be conducted by an
independent third-party accounting firm on Compaq's behalf.
The costs of said inspection and audit shall be borne solely
by Compaq unless accounting errors amounting to five percent
(5%) or more of the applicable total are found to Compaq's
disadvantage, in which case CMGI shall promptly pay the
entire cost of said inspection and audit. CMGI shall at all
times maintain such books and records, or true duplicates
thereof, at its primary or registered offices.
3.2 The Sites to which Compaq redirects CMGI traffic shall be co-branded
and customized in accordance with marketing plans to be determined
by the parties. CMGI will not display any advertisement or include
any other promotional element of any party (other than Compaq) in
Compaq's Area of Business on any pages or CMGI products that are
linked directly to or redirected directly from Compaq Sites or
Products.
3.3 CMGI shall provide web-site and software application development,
design and customization services to Compaq on terms no less
favorable than such services are provided to CMGI's most favored
customers.
3.4 CMGI shall, through its AdSmart subsidiary, monetize Compaq's
advertising inventories at most favored commission rates.
3.5 CMGI shall designate Compaq as a "Premier IT Partner." Compaq is
hereby designated as a preferred provider of information technology
products, services, and solutions. It is CMGI'S intent to utilize,
demonstrate, and promote Compaq's
8
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products and services to the extent that such products and services
meet CMGI's technical requirements and competitive price/performance
specifications, subject to negotiation of acceptable terms and
conditions including license rights, pricing, and availability, and
further subject to existing contractual commitments. Each year
during the Term, CMGI shall purchase goods and services from Compaq
constituting no less than thirty-three percent (33%) of CMGI's total
annual IT spending for product categories in which Compaq provides
products. CMGI shall provide reports to Compaq on an annual basis
sufficient to permit Compaq to confirm CMGI's compliance with this
Section.
3.6 During the Term, the AltaVista Search Engine (or its successor)
shall be run exclusively on a Compaq hardware platform, subject to
ability of the hardware to meet competitive price/performance
specifications.
3.7 CMGI agrees to work with Compaq to develop a portal Site optimized
for broadband Internet access, with the goal that CMGI shall launch
the new Site during the fourth quarter of 1999.
4.0 MUTUAL OBLIGATIONS
4.1 Most Favored Customer. Compaq and CMGI each agree that for all
---------------------
products and services provided by one party to the other under this
Agreement, such products and/or services, including without
limitation the services for which CMGI pays Redirect Fees to Compaq
under Section 3.1, shall be provided on terms, including pricing, no
less favorable than the terms afforded to the respective supplier's
most favored customer under similar conditions, including but not
limited to purchasing patterns and volumes, type of product, service
and support or maintenance considerations, and warranty terms.
4.2 Relationship Management.
4.2.1 Executive Coordinator. Compaq and CMGI shall each designate a
---------------------
corporate officer who is at least a Vice President as an
Executive Coordinator who shall be responsible for all
overall matters pertaining to this Agreement. The initial
Executive Coordinator for CMGI shall be David Andonian. The
initial Executive Coordinator for Compaq shall be Robert
Lund. The responsibilities of the Executive Coordinators are
as follows:
4.2.1.1 Administer and coordinate the overall aspects of
this Agreement and the strategic relationship
between the parties;
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4.2.1.2 Arrange meetings, visits and consultations between
the parties concerning matters related to this
Agreement, including but not limited to all
required quarterly and/or annual business reviews;
and
4.2.1.3 Review and approve plans for marketing programs to
be administered under the Joint Marketing Fund.
All expenditures from the Joint Marketing Fund
must be approved by both Executive Coordinators.
4.2.1 Quarterly Business Reviews. Both parties agree to meet at
--------------------------
least once every calendar quarter to review the basic
business terms and the business and marketing plans for the
next quarter. Topics to be addressed in each Quarterly
Business Review shall include, but shall not be limited to
the following: Strategic Plans/New Products and Services,
Advertising and Promotion Opportunities, Use of Joint
Marketing Funds, Performance Measurement of Existing Joint
Programs, Contract or Relationship Issues, including
negotiation and performance of Marketing Addenda.
4.2.2 Changes in Coordinators. Either party may replace any of the
-----------------------
people referenced in this Section by delivering written
notice of the change to the other party. The notice must be
signed by either the Executive Coordinator of the party
making the change, or by an authorized signatory of that
party. The notice shall set forth the name, business address
and telephone number of the replacement.
4.2.3 Program Management. Each party shall make available
------------------
sufficient facilities, resources and access to permit the
establishment of an on-site dedicated program management
office, as mutually agreed by the Executive Coordinators.
4.3 Joint Marketing Efforts. The parties shall identify and implement
-----------------------
strategies for jointly identifying market opportunities and jointly
marketing the products and services offered by both Compaq and CMGI.
Joint marketing opportunities shall be identified in Quarterly
Business Reviews, or more often as required. Joint marketing efforts
may be funded through the Compaq/CMGI Joint Marketing Fund, in
accordance with the terms of this Agreement and such policies or
procedures as may be developed by mutual agreement of the Executive
Coordinators. The parties shall explore opportunities for co-
branding products and services, where appropriate.
4.4 Joint Marketing Fund. Compaq and CMGI agree to fund a Joint
--------------------
Marketing Fund for use in market research, advertising, marketing,
and promoting Compaq and CMGI
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products and services, including promotion of this strategic
relationship. Each party commits to spend fifty million dollars
($50,000,000) over the first six (6) quarters of the Term of this
Agreement on activities funded by the Joint Marketing Fund. The
scope of funded activities, and the extent to which each activity
shall contribute toward a party's funding obligations, shall be
determined by the Executive Coordinators at each Quarterly Business
Review.
The parties agree to contribute a minimum of ten million dollars
($10,000,000) to the Joint Marketing Fund, following the initial six
(6) quarter period. The percentage contribution by each party to
this secondary stage of the Joint Marketing Fund will be determined
based on the relative revenue share to Compaq from Redirect Scripts
directed to CMGI Sites as a percentage of the total CMGI gross
advertising revenue generated from such Redirect Scripts. In no
event will Compaq's contribution to the Joint Marketing Fund be less
than fifty percent (50%).
4.5 Joint Promotions. Compaq and CMGI each agree to promote the
----------------
respective services and products of the other. For example, each
party shall use the products and services of the other, where
appropriate, when demonstrating, displaying, or advertising its own
products. Where appropriate, Compaq shall be referred to as a
"Preferred Platform" for operation of CMGI products or services.
4.6 Future Investment Opportunities
-------------------------------
4.6.1 Subject to approval by the Engage Board of Directors, Engage
shall seek to reserve for offer to Compaq, in its initial
public offering, a number of shares equal to 2% of the
outstanding shares of Engage common stock at the initial
public offering price. If Engage determines, in its sole
discretion, that such offer might interfere with or delay
such offering, it may reduce or eliminate the shares reserved
for offer to Compaq. In addition, to the extent that the SEC
requires any legal opinion or imposes any restrictions on
Compaq as a condition to the registration of such shares to
be offered to Compaq, Compaq shall agree to such restrictions
and/or provide such legal opinion as a condition to CMGI's
obligations hereunder.
4.6.2 In the event that CMGI seeks external equity investment for
its NaviNet subsidiary prior to the initial public offering
of shares of NaviNet, and upon completion of a substantive
strategic business relationship as contemplated in Section
2.5, Compaq shall have the right, in its sole discretion, in
the first such external investment opportunity for such
Subsidiary to invest an amount up to 4.9% of the then-current
pre-
11
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investment valuation of NaviNet.
4.6.3 In the event that any CMGI majority-owned subsidiary seeks to
raise external equity investments prior to its initial public
offering of shares or acquisition by a third party, Compaq
may make an investment in such subsidiary (subject to the
approval of the Board of Directors of such subsidiary)
provided that the parties mutually agree on a substantive
strategic business relationship agreement in connection with
such investment for the benefit of such subsidiary.
4.6.4 If, during the Term, CMGI forms an entity for the purpose of
pursuing a free or ad-subsidized ISP service, Compaq may
invest in such company prior to an initial public offering of
shares (subject to the approval of the Board of Directors of
such subsidiary) provided that the parties mutually agree on
a substantive strategic business relationship agreement in
connection with such investment for the benefit of such
subsidiary.
4.6.5 If, during the Term, CMGI forms a new investment fund similar
to its "@Venture" holdings, Compaq may invest in such venture
to the same extent and on terms at least as favorable as any
other investor in the same fund, subject to the mutual
agreement of the parties.
4.7 User Data. Each party shall provide to the other any Aggregate
---------
User Data that it collects from Users who are directed to CMGI Sites
from Compaq Sites or Products. All Aggregate User Data shall be made
available without the imposition of additional fees or obligations.
Subject to mutual agreement of the parties, the parties further intend
to share Registration Data to the extent such information is collected
from or related to the CMGI Sites directed from Compaq Sites or
Products, provided that sharing of Registration Data shall be limited
by and subject to the respective company privacy policies.
4.8 Compaq Labs.
-----------
4.8.1 Ongoing Meetings. Compaq and CMGI may meet on a mutually
----------------
agreeable ongoing basis to discuss topics of common interest
(e.g., research ideas, projects, and search-related
requirements for services and technology). Although the parties
may discuss various cooperative arrangements, potential new
research projects, search technologies and/or other matters,
neither party shall be obligated to the other unless such
obligation is in writing and executed by both parties. It is
anticipated that such meetings shall be pursuant to an
appropriate non-disclosure agreement to protect the
12
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confidential nature of the information disclosed by either
party. It is understood that these ongoing meetings are
entirely voluntary and that neither party is required to
disclose any specific information to the other.
4.8.2 New Search Technology. From time to time Compaq may disclose
---------------------
to CMGI new search technology which might be of interest to
AltaVista or CMGI for incorporation on the AltaVista Site. CMGI
shall promptly make its interest known. CMGI shall have an
option period of thirty (30) days, from the date of disclosure,
to acquire a non-exclusive license to use such search
technology on the AltaVista Site for a one-time payment which
will be identified by Compaq. Compaq and CMGI each agree to use
reasonable best efforts to enter into a mutually acceptable
license agreement within such thirty (30) day period. If CMGI
wants to obtain rights beyond a non-exclusive license to use
the identified search technology, the parties will use
reasonable best efforts to complete a mutually acceptable
license agreement within sixty (60) days. Unless extended by
mutual agreement in writing, after the option period lapses
Compaq can offer such search technology to any third parties
under any terms and conditions. In no event shall this
Agreement be interpreted as requiring Compaq to provide any
research and development services for CMGI, unless set forth in
a separate agreement.
4.8.3 Technology Transfers and Engineering Services. In addition to
---------------------------------------------
the option to acquire license rights to new search technology,
CMGI may request a technology transfer, which might require
engineering services beyond the transfer of existing results
from a research project. These additional tasks may include
programming, contracting, testing, installation help and
documentation. CMGI and Compaq will negotiate a mutually
acceptable agreement for such engineering services, which will
reimburse Compaq in full for the costs of such engineering
services.
4.8.4 Credits and Acknowledgements. If a Compaq Lab is the source
----------------------------
for a particular technology, at Compaq's request, CMGI shall
cite or acknowledge the contribution of the Compaq Labs by a
suitable phrase such as "Photofinder technology from Compaq's
Cambridge Research Lab."
5. TRADEMARKS
5.1 Use of CMGI Marks. CMGI hereby grants to Compaq a non-exclusive,
-----------------
royalty-free license, in jurisdictions in which CMGI has such
rights, to use, reproduce, distribute and display the Marks owned by
CMGI in connection with its
13
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performance of the terms of this Agreement.
5.2 Use of Compaq Marks. Compaq and its Affiliates hereby grant to CMGI
-------------------
a non-exclusive, royalty-free license, in jurisdictions in which
Compaq has such rights, to use the Marks owned by Compaq in
connection with its performance of the terms of this Agreement.
5.3 Quality Control. Each party shall have the right to exercise quality
---------------
control over the use of its Marks and the products and services with
which the Marks are used by the other party to the degree necessary,
in the sole opinion of the owner of such Marks, to maintain the
validity and enforceability of such Marks and to protect the rights
in such Marks and the goodwill associated therewith. Each party
shall, in their use of the other's Marks adhere to a level of
quality, at least as high as that used by such party in connection
with its use of its own Marks. In the event that the owner of a Mark
finds that use of the Mark by the other party in the reasonable
opinion of owner of such Mark materially threatens the goodwill of
the Mark or the rights in the Mark, the licensee of such Mark shall,
upon notice from such owner, immediately, and no later than ten (10)
days after receipt of such owner's notice, take all measures
reasonably necessary to correct the deviations or misrepresentations
in, or misuse of, the respective items.
5.4 Trademark Usage. Each party shall use the other's Marks in
---------------
accordance with sound trademark and trade name usage principles and
in compliance with all applicable laws and regulations of the United
States, including without limitation all laws and regulations
relating to the maintenance of the validity and enforceability of
such Marks and shall not use the Marks in any manner which might
tarnish, disparage, or reflect adversely on the Marks or the owners
of such Marks. Each party shall use, in connection with the other's
Marks, all legends, notices and markings as required by law. Neither
party may materially alter the appearance of another's Marks in any
advertising, marketing, distribution, or sales materials, or any
other publicly distributed materials.
6.0 TERM AND TERMINATION
6.1 Term. This Agreement will become effective as of the Closing Date
----
and shall, unless sooner terminated as provided below or as
otherwise agreed, remain effective until May 30, 2002.
6.2 Termination by Mutual Consent. This Agreement may be terminated by
-----------------------------
mutual written consent.
14
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6.3 Termination for Insolvency. Notwithstanding the foregoing, this
--------------------------
Agreement may be terminated by either party immediately upon notice
if the other party: (i) becomes insolvent; (ii) files a petition in
bankruptcy; or (iii) makes an assignment for the benefit of its
creditors.
7.0 REPRESENTATIONS AND WARRANTIES
7.1 Compaq Warranties. Compaq hereby represent and warrant to CMGI as of
-----------------
the date hereof that:
7.1.1 Compaq is a corporation duly organized and validly existing
under the laws of the state of its incorporation, and has all
corporate powers and all material governmental licenses,
authorizations, permits, consents and approvals required to
carry on its business as now conducted;
7.1.2 The execution, delivery and performance by Compaq of this
Agreement are within the corporate powers of Compaq and has
been duly authorized by all necessary corporate action on the
part of Compaq. This Agreement constitutes a valid and
binding agreement of Compaq enforceable against Compaq in
accordance with its terms;
7.1.3 The execution, delivery and performance by Compaq of this
Agreement requires no action by or in respect of, or filing
with, any governmental body, agency or official; and
7.1.4 The execution, delivery and performance by Compaq of this
Agreement do not and will not (i) violate the organizational
documents of Compaq, (ii) violate any applicable law,
judgment, injunction, order or decree, or (iii) require any
notice or consent or other action by any person or entity
under, constitute a default under, or give rise to any right
of termination, cancellation or acceleration of any right or
obligation of Compaq or to a loss of any benefit to which
Compaq is entitled under, any agreement or other instrument
binding upon Compaq or any license, franchise, permit or
other similar authorization held by Compaq.
7.2 CMGI Warranties. CMGI hereby represents and warrants to Compaq as of
---------------
the date hereof that:
7.2.1 CMGI is a corporation duly organized and validly existing
under the laws of the state of its incorporation and has all
corporate powers and all material governmental licenses,
authorizations, permits, consents and approvals
15
<PAGE>
required to carry on its business as now conducted;
7.2.2 The execution, delivery and performance by CMGI, Inc.
(excluding its Affiliates) of this Agreement are within the
corporate powers of CMGI, Inc. (excluding its Affiliates) and
have been duly authorized by all necessary corporate action
on the part of CMGI, Inc. (excluding its Affiliates). This
Agreement constitutes a valid and binding agreement of CMGI,
Inc. (excluding its Affiliates) enforceable against CMGI,
Inc. (excluding its Affiliates) in accordance with its terms;
7.2.3 CMGI, Inc. shall cause its Affiliates to adhere to the terms
of this Agreement;
7.2.4 The execution, delivery and performance by CMGI of this
Agreement require no action by or in respect of, or filing
with, any governmental body, agency or official; and
7.2.5 The execution, delivery and performance by CMGI of this
Agreement do not and will not (i) violate the organizational
documents of CMGI, (ii) violate any applicable law, judgment,
injunction, order or decree, or (iii) require any notice or
consent or other action by any person under, constitute a
default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of
CMGI or to a loss of any benefit to which CMGI is entitled
under, any agreement or other instrument binding upon CMGI or
any license, franchise, permit or other similar authorization
held by CMGI.
8.0 LIMITATIONS OF LIABILITY
8.1 Limitation of Liability. except for indemnification obligations, if
-----------------------
any, of a party pursuant to Article 10 , no party shall be liable to
another party or any other person or entity for special, incidental,
consequential, or indirect damages (including loss of good will or
business profits), or exemplary or punitive damages. No officer,
director, manager, member, or employee of any party shall have any
personal liability under this Agreement and the other parties hereby
hold such persons harmless for any liability hereunder.
8.2 Limitation of Warranties. Except as expressly set forth in this
------------------------
Agreement, each party expressly disclaims all warranties, express or
implied, including warranties of merchantability and fitness for a
specific purpose. Except as expressly set forth in
16
<PAGE>
this Agreement, no party endorses, warrants, or guarantees any
product or service provided hereunder.
9.0 INDEMNIFICATION
9.1 Indemnification by CMGI. Except as provided in this Article, CMGI
-----------------------
will indemnify and hold Compaq and its Affiliates, officers,
directors and employees harmless from and against any and all
damages resulting from or arising out of (a) the CMGI Sites or any
other activities of CMGI, including infringement of any intellectual
property rights of any third person; (b) any misrepresentation or
breach of representation or warranty of CMGI contained herein; or
(c) any breach of any covenant or agreement to be performed by CMGI
hereunder. Notwithstanding anything to the contrary in this Section,
CMGI shall not have any obligation to indemnify Compaq for any
damages for which Compaq is obligated to indemnify CMGI under the
Assignment Agreement dated of even date herewith.
9.2 Indemnification by Compaq. Compaq will indemnify and hold CMGI and
-------------------------
its Affiliates, officers, directors and employees harmless from and
against any and all damages resulting from or arising out of (a) the
Compaq Sites or any other activities of Compaq, including
infringement of any intellectual property rights of any third
person; (b) any misrepresentation or breach of representation or
warranty of Compaq contained herein; or (c) any breach of any
covenant or agreement to be performed by Compaq or its respective
Affiliates hereunder.
9.3 Notice of Indemnification. A party seeking indemnification pursuant
-------------------------
to this Article (an Indemnified Party) from or against the assertion
of any claim by a third person (a Third Person Assertion) will give
prompt notice to the party from whom indemnification is sought (the
Indemnifying Party); provided that failure to give prompt notice
--------
will not relieve the Indemnifying Party of any liability hereunder
(except to the extent the Indemnifying Party has suffered actual
material prejudice by such failure).
9.4 Assumption of Defense. Within five (5) business days of receipt of
---------------------
notice from the Indemnified Party pursuant to this Section, the
Indemnifying Party will have the right, exercisable by written
notice to the Indemnified Party, to assume the defense of a Third
Person Assertion. If the Indemnifying Party assumes such defense,
the Indemnifying Party may select counsel, which counsel will be
reasonably acceptable to the Indemnified Party.
9.5 Appointment of Counsel. After notice from the Indemnifying Party to
----------------------
the Indemnified
17
<PAGE>
Party of its election to assume the defense of such Third Party
Assertion, the Indemnifying Party shall not be liable to the
Indemnified Party under this Article for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation,
provided, that if there may be reasonable legal defenses available
--------
to it that are different from or in addition to those available to
the Indemnifying Party the reasonable fees, disbursements and other
charges of counsel for the Indemnified Party will be at the expense
of the Indemnifying Party or parties. It is understood that the
Indemnifying Party or parties shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be
liable for the reasonable fees, disbursements and other charges of
more than one separate firm of attorneys (in addition to any local
counsel) at any one time for all such Indemnified Party or parties.
9.6 Failure to Defend. If the Indemnifying Party (a) does not assume the
-----------------
defense of any Third Person Assertion in accordance with this
Article; or (b) having so assumed such defense, unreasonably fails
to defend against such Third Person Assertion, then, upon five (5)
days written notice to the Indemnifying Party, the Indemnified Party
may assume the defense of such Third Person Assertion. In such
event, the Indemnified Party will be entitled under this Article as
part of its damages to indemnification for the costs of such
defense.
9.7 Settlement. The party controlling the defense of a Third Person
----------
Assertion will have the right to consent to the entry of judgment
with respect to, or otherwise settle, such Third Person Assertion
with the prior written consent of the other party, which consent
will not be unreasonably withheld; provided that such other party
-------------
may withhold its consent if any such judgment or settlement imposes
a monetary obligation on such other party that is not covered by the
indemnification, imposes any material non-monetary obligation, or
does not include an unconditional release of such other party and
its Affiliates from all claims of the Third Person Assertion.
9.8 Participation. The Indemnifying Party and the Indemnified Party will
-------------
cooperate, and cause their Affiliates to cooperate, in the defense
or prosecution of any Third Person Assertion. The Indemnifying Party
or the Indemnified Party, as the case may be, will have the right to
participate, at its own expense, in the defense or settlement of any
Third Person Assertion.
10.0 CONFIDENTIAL INFORMATION.
10.1 Definition of Confidential Information. Confidential Information
--------------------------------------
shall mean any
18
<PAGE>
information (whether or not in writing) relating to
or disclosed in the course of the performance of this Agreement,
which is marked as "confidential" or which is not generally known to
the public or in the trade and is or should be reasonably understood
to be confidential or proprietary to the disclosing party, including
without limitation (i) marketing and sales information and (ii)
other documentation and any analyses, compilations, studies or other
documents incorporating or developed from Confidential Information.
Confidential Information shall not include information (a) already
known to the receiving party lawfully and not in violation of any
agreement or understanding (whether or not in writing) relating to
the confidentiality thereof, (b) disclosed in published materials,
(c) obtained from any third party lawfully and not in violation of
any agreement or understanding (whether or not in writing) relating
to the confidentiality thereof, or (d) independently developed by
the receiving party without the use or inclusion of any Confidential
Information. The receiving party shall not be in breach of its
obligations with respect to Confidential Information hereunder in
the event the disclosure of any Confidential Information is required
by law, provided that prior to any such disclosure by a receiving
--------
party, the disclosing party is given ample notice to enable it to
move for a protective order.
10.2 Confidential Information. Each party hereto acknowledges that all
------------------------
title and interest, including all patents, copyrights, trade secrets
and other intellectual property rights, in the disclosing party's
(the "Disclosing Party") Confidential Information is the exclusive
property of the Disclosing Party. Each party further acknowledges
that the Disclosing Party's Confidential Information is proprietary
and a trade secret of the Disclosing Party. Each party agrees
neither to do nor to permit any act which may in any way jeopardize
or be detrimental to the validity of the Disclosing Party's patent,
copyright, trade secret or other rights in the Confidential
Information.
10.3 Confidentiality. Each party shall use its best efforts to maintain
---------------
the confidentiality of any Confidential Information it receives,
including taking such steps as such party takes to maintain the
confidentiality of its own Confidential Information.
10.4 Return of Confidential Information. Upon the termination or
----------------------------------
expiration of this Agreement for any reason, each party shall at the
direction of the discloser of such Confidential Information (the
"Disclosing Party") either return all Confidential Information in
its possession or destroy such Confidential Information and certify
in writing to the Disclosing Party that it has done so.
10.5 Remedies for Breach of Confidentiality. It is understood and agreed
--------------------------------------
by both parties
19
<PAGE>
that in the event of a breach of this Article, damages may not be an
adequate remedy and either party shall be entitled to injunctive
relief to restrain any such breach, threatened or actual.
10.6 Survival. Each party's respective obligations hereunder to protect
--------
Confidential Information shall survive any termination or expiration
of this Agreement or any license granted hereunder for any reason.
11.0 MISCELLANEOUS
11.1 Governing Law. Any question as to the validity, construction,
-------------
performance or effect of this Agreement and the transactions to
which it relates shall be construed in accordance with and subject
to the substantive laws (as opposed to the conflicts of law
provisions) of the State of Delaware and, where applicable, the laws
of the United States.
11.2 Further Assurances. Subject to the terms and conditions herein
------------------
provided, each of the parties hereto agrees to use their respective
reasonable best efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement. If
at any time after the Closing Date any further action is necessary
or desirable to carry out the purposes of this Agreement, the
parties hereto shall take or cause to be taken all such necessary
action, including, without limitation, the execution and delivery of
such further instruments and documents as may be reasonably
requested by the other party for such purposes or otherwise to
consummate and make effective the transactions contemplated hereby.
11.3 Entire Agreement. This Agreement contains the entire understanding
----------------
between CMGI and Compaq with respect to its subject matter and the
transactions contemplated hereby, supercedes all previous or
contemporaneous oral or written agreements, negotiations,
representations or understandings between them with respect thereto,
and shall not be modified except by a writing of subsequent date
hereto signed by all parties hereto. Neither the course of conduct
between the parties nor trade usage shall act to modify or alter the
provisions of this Agreement.
11.4 No Waiver. No waiver by any party of a breach of any provision of
---------
this Agreement shall operate as or be deemed to be a waiver of any
other preceding, or subsequent breach of that provision or of any
breach of any other provision of this Agreement. The failure of a
party to insist upon strict adherence to any
20
<PAGE>
term of this Agreement on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this
Agreement. Any waiver must be in a writing of subsequent date hereto
executed by the waiving party.
11.5 Partial Invalidity. If any portion of the Agreement, or the
------------------
application thereof in any circumstances, shall be held to be
illegal, invalid or unenforceable in any respect by a final or
unappealable order, decree or judgment of any court, this Agreement
shall be constructed as if such invalid, illegal or unenforceable
provision had never been contained herein within the jurisdiction of
such court and the Agreement shall otherwise remain in full force
and effect in such jurisdiction and in its entirety in other
jurisdictions. Additionally, in lieu of each such illegal, invalid
or unenforceable provision, there shall, within the jurisdiction of
such court finding such illegality, invalidity or unenforceability,
be added automatically as part of this Agreement a provision as
similar to such former provision as shall be legal, valid and
enforceable.
11.6 Section Headings. Section headings used herein are for informational
----------------
purposes only and shall not define nor limit the provisions of this
Agreement.
11.7 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of CMGI, Inc. and its successors and assignees
and Compaq and its successors and assignees permitted hereunder;
provided, however, that neither party hereto may assign,
subcontract, transfer or otherwise delegate its rights or
obligations hereunder, in whole or in part, by operation of law or
otherwise, without the prior written consent of the other party,
which consent shall not be unreasonably withheld. Notwithstanding
the foregoing, either Compaq or CMGI, Inc. may assign its rights or
obligations hereunder in connection with the sale of all or
substantially all of the assets of its business related to this
Agreement, whether by asset purchase, merger or otherwise, unless
the intended assignee is a competitor of the non-assigning party. In
the event of a change of Control of the CMGI entity that holds the
assets of the Alta Vista Search Engine Site, the provisions
contained in Section 2.4 hereof shall immediately terminate at
Compaq's election.
11.8 Independent Contractors. Each party agrees it is and will be an
-----------------------
independent contractor as to the other party and not an agent,
employee, partner or joint venturer of or with the other party.
Without limiting the foregoing, no party nor any officer or employee
of such will have any right to bind any other party, to make any
representations or warranties on behalf of any other party, to
accept service of process, to receive notice, or to perform any act
or thing
21
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on behalf of any other party other than as expressly authorized by
such other party in its sole discretion.
11.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each such counterpart shall be an original instrument,
and all such counterparts shall together constitute the same
agreement. Execution may be effectuated by delivery of facsimiles of
signature pages (and the parties shall follow such delivery by
prompt delivery or originals of such pages).
11.10 Press Releases/Statements. Except as may be required by law or by
-------------------------
the rules of any national securities exchange, no party hereto shall
issue a press release or other similar public announcement making
reference to any other party, such other party's products, or the
services provided hereunder, unless such party has received the
approval of the other party with respect to the proposed text of
such press release or announcement, which approval shall not be
unreasonably withheld or delayed. No party shall make or publish any
statement which is, or may be reasonably considered to be,
disparaging of any other party or its Affiliates, directors,
employees, products or services.
11.11 Remedies Cumulative. No remedy conferred upon any of the parties by
-------------------
this Agreement is intended to be exclusive of any other remedy, and
each and every such remedy shall be cumulative and shall be in
addition to any other remedy given hereunder or now or hereafter
existing at law or in equity.
11.12 Export Control. Each party acknowledges that data and materials if
--------------
any, supplied by one party to the other may be subject to export
controls under United States law and the applicable export controls
in other territories. Accordingly, neither party shall export or re-
export any technical data supplied by the other party, directly or
through third parties, to any source for use in any country or
countries in contravention of any export laws, regulations or
decrees of the United States Government or any agency thereof. Each
party shall be solely responsible for identifying and complying with
all laws of any jurisdiction outside the United States regarding use
of technical data and materials supplied by the other party. Each
party agrees to obtain all licenses, permits or approvals required
by any government at that party's sole cost. Each party's
obligations under this Section shall survive the expiration or
termination of this Agreement for any reason whatsoever.
11.13 Force Majeure. Except for the failure to make payments when due,
-------------
neither party shall be liable to the other by reason of any failure
of or delay in performance of its obligations under this Agreement
to the extent such failure or delay is due to circumstances beyond
its reasonable control, including, without
22
<PAGE>
limitation, acts of God, acts of the other party, acts of a public
enemy, fires, floods, wars, civil disturbances, sabotage, accidents,
insurrections, blockades, embargoes, storms, other acts of nature,
explosions, damage to its plants, labor disputes (whether or not the
employees' demands are reasonable and within the party's power to
satisfy), or acts of any governmental body (whether civil or
military, foreign or domestic) collectively referred to herein as
"Force Majeure", nor shall any such failure or delay give the other
party the right to terminate this Agreement. Each party shall use
its best efforts to minimize the duration and consequences of any
failure of or delay in performance resulting from a Force Majeure
event.
11.14 Non-solicitation. Compaq agrees that, during the Term, it will not,
-----------------
without CMGI's written consent, solicit for employment any employee
of CMGI until at least six (6) months after any such employee ceases
to be employed by CMGI. CMGI agrees that, during the Term, it will
not, without Compaq's written consent, solicit for employment any
employee of Compaq until at least six (6) months after any such
employee ceases to be employed by Compaq.
11.15 No Third-Party Beneficiaries. This Agreement is for the sole benefit
----------------------------
of the parties hereto, their Affiliates, and their permitted
successors and assigns. Nothing herein, express or implied, is
intended to or shall confer upon any person or entity, other than
the parties hereto, their Affiliates and their permitted successors
and assigns, any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
Strategic Business Agreement as of the day and year first above written.
CMGI, INC.
By: /s/ David S. Wetherell
-----------------------------------------------
Name: David S. Wetherell
---------------------------------------------
Title: Chairman of the Board, President and Chief
-------------------------------------------
Executive Officer
-------------------------------------------
COMPAQ COMPUTER CORPORATION
By: /s/ Harold F. Enright, Jr.
-----------------------------------------------
Name: Harold F. Enright, Jr.
---------------------------------------------
Title: Vice President
-------------------------------------------
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EXHIBIT 10.17
STRATEGIC ALLIANCE AGREEMENT
This Strategic Alliance Agreement ("Agreement") is made and entered into as of
the 25th day of June, 1999 (the "Effective Date"), by and between 1stUp.Com
Corporation, a corporation organized and existing pursuant to the laws of the
State of Delaware, with principal offices at 930 Montgomery Street, Suite 200,
San Francisco, California 94133 ("1stUp") and AltaVista Company, a corporation
organized and existing pursuant to the laws of the State of Delaware, with
principal offices at 529 Bryant Street, Palo Alto, California 94301
("AltaVista"), with respect to the following facts and circumstances:
WHEREAS:
1stUp has developed a free Internet access service and AltaVista desires to
offer such service in accordance with the terms of this Agreement;
1stUp is willing to customize a version of such service with AltaVista
branding in accordance with the terms of this Agreement;
AltaVista is willing to promote this service to users of AltaVista's World
Wide Web sites in accordance with the terms of this Agreement; and
AltaVista is willing to make an investment in 1stUp in accordance with the
terms of this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS
1.1 "AltaVista Platform" shall mean a generic set of web pages (or
customized version thereof) that may operate as a Web site. The AltaVista
Platform may contain any or all of the following: an internet index, a search
tool, advertising, or any other feature that might be desirable on an internet
homepage. AltaVista (itself or through its Affiliates) has and will enter into
third party agreements that provide for one or more of the AltaVista Platforms
to be customized and then posted live on the Internet. The customized
AltaVista Platforms may be branded using third parties' names or any
combination of AltaVista's, AltaVista's Affiliates and third parties' names.
Furthermore, in customizing the AltaVista Platforms, any amount of content,
advertising or other features may be added or deleted. For purposes of this
Agreement, the term AltaVista Platform shall also include the portal site
currently located at AltaVista.Com and/or AV.Com, and other similar sites
branded with AltaVista's or its Affiliates' names or trademarks (e.g. any and
all My AltaVista pages).
1.2 "Affiliate" shall mean any person or entity directly or
indirectly controlling, controlled by or under common control with a given
person or entity.
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1.3 "Impression" is generated when a visitor clicks on a button on
the Button Bar (as described in Exhibit A) in the Service Offering Window.
---------
1.4 "Service Offering Window" shall have the meaning set forth in
Section 3.1 below.
1.5 "Service Offering" shall mean the customized Internet access
services further described in Exhibit A.
---------
1.6 "Specifications" means the specifications for the Service
Offering as set forth in Exhibit A.
---------
1.7 "Web Page" means a single file displayed through Web browser
software and made available for viewing, by means of a download to local cache
memory, over the Internet through a common protocol.
1.8 "Web Site" means any number of associated Web Pages.
2. DEVELOPMENT OF THE SERVICE OFFERING
2.1 1stUp's Obligations. 1stUp will use best commercial efforts to
-------------------
design, develop and deliver on or before July 11, 1999, a fully functioning
version of the Service Offering with all of the features and components
described in Exhibit A and conforming to the Specifications. Should 1stUp fail
to do so by July 11, 1999, AltaVista reserves the right to terminate this
Agreement immediately.
2.2 AltaVista's Obligations. AltaVista will use best commercial
-----------------------
efforts to assist in the design development and prototyping of the Service
Offering.
2.3 The parties agree that any delay by either party in providing the
deliverables for which it is the responsible party will extend the delivery date
for subsequent deliverables by either party on a one-for-one basis for each day
of the delay.
3. THE SERVICE OFFERING
3.1 Service Offering Window. The Service Offering will include the
-----------------------
Service Offering Window as described in Exhibit A, on which 3 buttons will be
---------
links to an AltaVista Web Site portal, search or e-commerce site, at
AltaVista's discretion. The Service Offering will begin with 8 buttons total
displayed in the Button Row (as described in Exhibit A). Any increase in the
---------
number of buttons is subject to mutual agreement. The 3 buttons for AltaVista
will not diminish in prominence from inital implementation without AltaVista's
consent. Additional buttons shall have functionalities designated by 1stUp,
provided that no links shall be provided to Web Sites belonging to the
following networks: Yahoo, Lycos, Go network companies, Excite@home; NBCi
companies; Microsoft, AOL, Goto.com, Google. AltaVista maintains right to
modify list of excluded sites at its sole discretion. Also, any
functionalities displayed in the Service Offering Window must comply with
AltaVista's existing contracts or commitments; for example, 1stUp can only
provide links to AltaVista's current bookseller and travel partners. Also, any
web-based e-mail, messaging, chat, and personalized home pages must be
approved by AltaVista. AltaVista shall have the right to match any 3rd party
terms for buttons it does not control.
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3.2 Service Offering Hosting and Features. 1stUp will maintain the
-------------------------------------
Service Offering at all times during the term of this Agreement. The Service
Offering will be designed so that the first Web Page viewed by users of the
Service Offering shall be a page designated by AltaVista. 1stUp will use best
commercial efforts to fix non-conformities and bugs in the software. The
Service Offering will include the most current version of 1stUp's software.
1stUp will use best efforts to make a technical contact available to AltaVista
twenty-four hours (24) per day, three-hundred sixty-five (365) days per year,
to support the Service Offering. Initially, the technical contact shall be:
Charles Katz. 1stUp and AltaVista shall work jointly to provide hosting of the
Service Offering during the term of this Agreement.
4. SERVICE OFFERING MARKETING AND USER INFORMATION
4.1 Registration of Users. 1stUp shall enlist up to one million
---------------------
(1,000,000) users of the Service Offering from the period commencing on or
before July 11, 1999 and ending December 31, 1999. If during that period 1stUp
enlists one million (1,000,000) users, 1stUp may enlist additional users of
the Service Offering as mutually agreed by the parties. A user shall be
"enlisted" if the user downloads the Service Offering software and selects the
dial-up service.
4.2 Rights in User Information. Subject to the license grant below,
--------------------------
1stUp and AltaVista will jointly own all right, title and interest in and to
all user information collected by 1stUp in the course of implementing the
Service Offering ("User Information"). 1stUp and AltaVista will establish
mutually acceptable policies for the use of that information.
4.3 Promotion of the Service Offering by AltaVista. AltaVista shall
----------------------------------------------
promote the Service Offering in the broadest manner that AltaVista determines
is consistent with its business and the business of its Affiliates, provided,
however, that AltaVista's only commitment with respect to promotion is that it
will include on its homepage located at www.altavista.com, a link to
-----------------
1stUp.com's Service Offering. Such link shall be formatted and placed at
AltaVista's sole discretion.
5. JOINT ACTIVITIES
5.1 Press Release. AltaVista and 1stUp will work together to develop
-------------
a product launch press release, citing 1stUp as the technology provider for
the Service Offering. AltaVista and 1stUp will make the release available on
their respective web sites and will distribute the release via their standard
press release avenues, provided, that the timing, placement and format of the
release will be subject to the sole discretion of the disclosing party.
AltaVista and 1stUp shall use commercially reasonable efforts to develop press
releases of new developments (such as system and software upgrades, end-user
growth milestones, etc.) and agree not to make any public announcement or
disclosure without giving the other party reasonable opportunity to comment
thereon.
6. COMPENSATION FOR SERVICE OFFERING WINDOW
6.1 Service Offering Window Compensation. AltaVista shall pay to
------------------------------------
1stUp an amount equal to $0.005 for each Impression leading to an AltaVista
source generated by the
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Service Offering Window during the term of this Agreement, commencing after
the date on which the Service Offering is accepted by AltaVista in accordance
with this Agreement.
6.2 Reports. After the end of each calendar quarter during the term
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of this Agreement, 1stUp shall provide to AltaVista a report of the total
number of Impressions for all buttons generated by the Service Offering
Window. 1stUp shall also submit to AltaVista an invoice for the amounts due
under Section 6.1 for the reported calendar quarter. During the term of this
Agreement AltaVista shall pay such amounts no later than sixty (60) days after
receipt of the invoice.
6.3 No Other Costs. Subject to AltaVista's payment obligations under
--------------
this Section 6, the Service Offering shall be developed, customized and
maintained by 1stUp at its sole cost and expense. Although 1stUp and AltaVista
shall work jointly to provide hosting of the Service Offering, hosting also
shall be at 1stUp's sole cost and expense, except for hosting of the software
download, which will be at AltaVista's expense.
7. COMPENSATION FOR ALTAVISTA ACTIVITIES
7.1 Payments. During the term of this Agreement 1stUp shall pay to
--------
AltaVista the amount of twenty-five percent (25%) of all revenues actually
received from third party advertisers and sponsors on the Service Offering
Window (other than AltaVista) less total accrued (a) access charges from
1stUp's access service provider; (b) e-mail charges from service providers;
and (c) third party call and customer support charges.
7.2 Reports. After the end of each calendar quarter during the term
-------
of this Agreement, 1stUp shall provide to AltaVista a report of the total
amounts due under Section 7.1. 1stUp shall pay to AltaVista the amounts due
under Section 7.1 for the reported month no later than thirty (30) days after
the end of the reported month.
8. INVESTMENT BY ALTAVISTA
8.1 Stock Purchase Agreement. Concurrently with the execution of
------------------------
this Agreement, the parties are entering into a Stock Purchase Agreement (the
"Stock Purchase Agreement"), pursuant to which, at the closing, which will
occur on or before thirty (30) days after the Effective Date, AltaVista shall
make a cash payment of two million, four hundred ninety nine thousand, nine
hundred ninety eight dollars and eighty five cents ($2,499,998.85) (the
"Payment") to 1stUp in exchange for an aggregate of 2,171,809 shares (after
giving effect to a contemplated ten-for-one stock split and as adjusted to
reflect all other stock splits, combinations or similar events occurring after
the date hereof) of Series C Preferred Stock of 1stUp (which represents
19.999% of the currently outstanding capital stock of 1stUp.com), having
substantially the rights, preferences and privileges set forth in the Stock
Purchase Agreement and subject to all of the terms and conditions set forth
therein.
8.2 Upon closing of this agreement and Stock Purchase Agreement,
AltaVista has right to name one member to 1stUp Board of Directors. AltaVista
maintains right to this position as long as AltaVista holds a investment stake
in 1stUp worth more than 9.99%.
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8.3 Additional Investors. 1stUp shall be entitled to issue to
--------------------
additional individual investors up to the number of shares of its Series C
Preferred Stock equal to an aggregate value of $200,000.
8.4 Option. 1stUp hereby grants AltaVista a one-time option,
------
exercisable at any time prior to December 31, 2000, to purchase a majority
ownership stake in 1stUp, at an exercise price to be negotiated at the time of
exercise (the "Option"), subject to the following conditions:
(a) AltaVista and 1stUp agree to negotiate in good faith
regarding the exercise price of the Option and the rights, preferences and
privileges of the capital stock underlying the Option;
(b) The Option shall terminate upon the earlier to occur of (A)
the closing of a merger of 1stUp with or into another entity in which the
holders of voting securities of the 1stUp immediately prior to such
transaction will hold less than 50% of the voting securities of the surviving
entity or the entity that controls such surviving entity and (B) the closing
of the first registered public offering of Common Stock of 1stUp pursuant to a
firm commitment underwriting; provided, however, that AltaVista receives
notice of such transaction at least 20 days prior thereto; and
(c) Upon exercise of the Option, AltaVista shall sign such
additional documentation as 1stUp.com may reasonably request, including
investment representations, a right of first refusal with respect to transfers
of stock by AltaVista and a 180-day market stand-off agreement in connection
with an initial public offering.
9. WARRANTIES.
9.1 1stUp. 1stUp represents, warrants and covenants to AltaVista
-----
that (i) 1stUp has the power and authority to enter into this Agreement, to
grant the licenses contained herein, and to otherwise perform its obligations
hereunder, and (ii) the Service Offering does not and will not violate any
third party right, and its use by AltaVista and its Affiliates in accordance
with the license granted hereunder will not violate any third party right.
EXCEPT AS SET FORTH ABOVE, 1STUP MAKES NO WARRANTIES TO ALTAVISTA, EITHER
EXPRESS OR IMPLIED, AND HEREBY DISCLAIMS ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT.
9.2 AltaVista. AltaVista represents, warrants and covenants to 1stUp
---------
that it has the power and authority to enter into this Agreement, to grant the
licenses contained herein, and to otherwise perform its obligations hereunder.
EXCEPT AS SET FORTH ABOVE, ALTAVISTA MAKES NO WARRANTIES TO 1STUP, EITHER
EXPRESS OR IMPLIED, AND HEREBY DISCLAIMS ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT.
10. INDEMNIFICATION
10.1 Each party ("Indemnitor") shall indemnify, defend and hold
harmless the other party and its Affiliates and each of their respective
officers, directors, employees and agents
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(each, an "Indemnified Party") against any claim, suit, damages, losses,
expenses and costs incurred by such Indemnified Party (i) in connection with a
claim by any third party for alleged infringement of any U.S. patent,
trademark, copyright, or other intellectual property right relating to the
promotion, representation or use of the products provided by the Indemnitor
hereunder (which, in the case of 1stUp, means the Service Offering, and in the
case of AltaVista, means any of its deliverables hereunder), or (ii) as a
result of the breach of the representation and warranty provided in Section 9;
but only if the Indemnified Party (a) promptly notifies Indemnitor in writing
of the action (provided that any failure to do so shall operate as a bar to
indemnification hereunder only to the extent the failure is materially
prejudicial to the Indemnitor); (b) permits Indemnitor full authority to
defend or settle the action (except to the extent that the action would impose
any restrictions upon the Indemnified Party, in which case consent is
required); and (c) cooperates with, and provide all available information,
assistance and authority to, Indemnitor to defend or settle the action.
11. MANAGEMENT OF RELATIONSHIP.
11.1 Press Committee Meetings. AltaVista and 1stUp will establish a
------------------------
press committee which, during system downtimes, will meet to jointly develop
and deliver public statements regarding the downtime.
11.2 Press Committee Members. The press committee members shall
-----------------------
serve as the primary source of communication with the other party on press
release matters. The members shall have first tier responsibility for
resolving disputes that may arise hereunder with respect to the scope or
direction of the relationship contemplated by this Agreement. The initial
committee members for 1stUp and AltaVista shall be selected by each party
separately and specified prior to launch of the Service Offering. Each party
shall promptly advise the other of any change of member or of his or her
address, telephone number, or E-mail address.
12. TERM AND TERMINATION.
--------------------
12.1 Term. This Agreement shall become effective on the Effective
----
Date and shall remain in full force and effective for a period of 2 years from
the Effective Date or until terminated pursuant to this Section 12.
12.2 Events of Default by AltaVista. 1stUp shall have the right to
------------------------------
terminate this Agreement and its further obligations hereunder upon the
occurrence of any of the following events of default (subject to AltaVista's
ability to cure or remedy such event as described in Section 12.4):
(a) AltaVista is involved in any voluntary or involuntary
bankruptcy proceeding or any other proceeding concerning insolvency,
dissolution, cessation of operations, or reorganization of indebtedness and
the proceeding is not dismissed within 60 days;
(b) AltaVista becomes unable to pay its debts as they mature
in the ordinary course of business or makes an assignment for the benefit of
its creditors; or
(c) AltaVista is in material default of any provision of this
Agreement.
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12.3 Events of Default by 1stUp. In addition to AltaVista's
--------------------------
termination rights under Section 2.1 of this Agreement, AltaVista shall have
the right to terminate this Agreement and its further obligations hereunder
upon the occurrence of any of the following events (subject to 1stUp's ability
to cure or remedy such events as described in Section 12.4):
(a) 1stUp becomes involved in any voluntary or involuntary
bankruptcy proceeding or any other proceeding concerning insolvency,
dissolution, cessation of operations, or reorganization of indebtedness and
the proceeding is not dismissed within 60 days;
(b) 1stUp becomes insolvent or unable to pay its debts as they
mature in the ordinary course of business or makes an assignment for the
benefit of its creditors; or
(c) 1stUp is in material default of any provision of this
Agreement.
12.4 Right to Cure Event of Default. Upon the occurrence of any
------------------------------
event of default entitling a party to terminate this Agreement, the non-
defaulting party may send notice of termination, specifying the nature of the
default, to the other party. The non-defaulting party shall permit 30 calendar
days, following the date of such notice to enable the other party to cure the
default to the non-defaulting party's satisfaction (assuming that the default
is susceptible of cure). Failure to cure the default shall result in
termination without further notice by the non-defaulting party, unless such
non-defaulting party extends the cure period by written notice or withdraws
the default notice.
12.5 Duties Upon Termination. Upon expiration or termination of this
-----------------------
Agreement, each party shall return or destroy the Confidential Information (as
defined herein) of the other party. All amounts owing shall be accelerated and
shall become immediately payable. Either party may request in writing that the
other party certify that it has complied with its obligations hereunder. Upon
expiration of this Agreement, in the event that AltaVista desires to continue
to offer the Service Offering or a similar offering, AltaVista will offer
1stUp the opportunity to continue providing the Service Offering on terms
acceptable to AltaVista, before offering a similar opportunity to any third
party. If agreement is not reached, AltaVista and 1stUp will work together to
migrate customers to the new solution.
12.6 Survival. The rights and obligations of the parties pursuant to
--------
Sections 1, 4, 7, 8, 9, 10, 12.6, 13, 14, 15, 17 18, and 18 shall survive
termination or expiration of this Agreement for any reason.
13. LICENSES AND OWNERSHIP.
----------------------
13.1 Service Offering Software License. 1stUp hereby grants to
---------------------------------
AltaVista and its Affiliates, during the term of this Agreement, a non-
exclusive, worldwide, non-transferable, royalty-free and irrevocable license,
under all of 1stUp's intellectual and other proprietary rights, to store,
copy, publicly display, publicly perform, distribute and transmit the Service
Offering, in object code format, throughout the Web Pages generated or served
from the AV Platforms and to make the Information available to users of the AV
Platforms to be viewed, downloaded or copied, for their personal, non-
commercial use in any form deemed appropriate by AltaVista.
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13.2 Trademark License. Each of AltaVista and 1stUp grants to the
-----------------
other party and their respective Affiliates, during the term of this
Agreement, a non-exclusive, non-transferable, royalty free right to display
during the term of this Agreement the trademarks and logos made available by
such party for the purposes expressly outlined in this Agreement, subject to
the terms of this Agreement and such party's standard trademark usage. In the
event either party determines that the other's use of the applicable
trademarks or service marks is inconsistent with the applicable trademark or
service mark holder's quality standards, then upon written request and within
a reasonable time, the applicable party shall conform such trademark or
service mark usage to the appropriate party standards. If either party fails
to conform the applicable trademark use or service mark usage, then the owner
of the marks shall have the right to suspend use under the terms of this
Agreement.
13.3 Retained Rights. Except as otherwise provided in this
---------------
Agreement, 1stUp shall own and retain all right, title, and interest in and to
any technology or information otherwise developed or created solely by 1stUp,
including any intellectual property rights therein.
13.4 AltaVista Intellectual Property Rights. Except as otherwise
--------------------------------------
provided herein, AltaVista shall own and retain all right, title, and interest
in and to any technology or information otherwise developed or created solely
by AltaVista, including any intellectual property rights therein.
13.5 Joint Intellectual Property Rights. The parties shall agree on
----------------------------------
the ownership of any jointly developed intellectual property rights prior to
commencing with the development of work that is likely to lead to the creation
of such rights.
14. LIMITATION OF LIABILITY.
-----------------------
EXCEPT FOR ANY LIABILITY ARISING OUT OF A BREACH OF THE CONFIDENTIALITY
PROVISIONS OF THIS AGREEMENT SET FORTH IN SECTION 15 HEREOF AND SECTION 9
HEREOF, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY LOST PROFITS, LOSS OF
MARKET OR OPPORTUNITY AND/OR INCIDENTAL OR CONSEQUENTIAL LOSS OR DAMAGE
HOWSOEVER ARISING (WHETHER OR NOT ARISING OUT OF THE NEGLIGENCE OF 1STUP OR
ALTAVISTA, OR THEIR RESPECTIVE EMPLOYEES OR AGENTS) IN CONNECTION WITH THE
SUBJECT MATTER OF THIS AGREEMENT, PURSUANT TO ANY CLAIM IN CONTRACT, NEGLIGENCE,
TORT, STRICT LIABILITY, OR OTHER THEORY.
15. CONFIDENTIALITY.
---------------
15.1 Confidentiality Obligations.
---------------------------
(a) "Confidential Information" is any information disclosed by
one party to the other in connection with this Agreement and which the
receiving party knows or has reason to know is regarded as confidential
information by the disclosing party. The Confidential Information will
include, but will not be limited to, trade secrets, the structure, sequence
and organization of the source code of computer software, marketing plans,
techniques, processes, procedures and formulae. For each item of Confidential
Information, the party disclosing the item shall be called the "Disclosing
Party," and the party receiving the item shall be called the "Receiving
Party."
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(b) The Receiving Party shall hold all Confidential
Information of the Disclosing Party in trust and confidence, and protect it as
the Receiving Party would protect its own confidential information (which, in
any event, shall not be less than reasonable protection) and shall not use
such Confidential Information for any purpose other than that contemplated by
this Agreement. Unless agreed by the Disclosing Party in writing, the
Receiving Party shall not disclose any Confidential Information of the
Disclosing Party, by publication or otherwise, to any person other than
employees and contractors (such as contract manufacturers or software
developers) who (i) are bound to written confidentiality obligations
consistent with and at least as restrictive as those set forth herein and (ii)
have a need to know such Confidential Information for purposes of enabling a
party to exercise its rights and perform its obligations pursuant to this
Agreement. The foregoing confidentiality obligation shall be effective for a
period of three (3) years after first disclosure of the Confidential
Information pursuant to the terms of this Agreement, provided however, that
each party will comply with any obligations of confidentiality as may be
imposed pursuant to agreements with third parties for longer periods if the
Disclosing Party discloses to the other in writing such obligations of
confidentiality that may be imposed pursuant to such agreements with third
parties at the time of disclosure.
15.2 Exceptions. The obligations specified in Section 15.1 shall not
----------
apply to any Confidential Information to the extent that:
(a) it is already known to the Receiving Party without
restriction prior to the time of disclosure by the Disclosing Party;
(b) it is acquired by the Receiving Party from a third party
without confidentiality restriction;
(c) it is independently developed or acquired by the Receiving
Party by employees or contractors without access to such Confidential
Information;
(d) it is approved for release by written authorization of the
Disclosing Party;
(e) it is in the public domain at the time it is disclosed or
subsequently falls within the public domain through no wrongful action of the
Receiving Party;
(f) it is disclosed pursuant to the requirement of a
governmental agency or disclosure is permitted or required by operation of
law, provided that the Receiving Party use its best efforts to notify the
Disclosing Party in advance of such disclosure and seeks confidential
treatment for such Confidential Information.
15.3 Confidentiality of Agreement. Each party agrees that the terms
----------------------------
and conditions of this Agreement shall be treated as Confidential Information;
provided that each party may disclose the terms and conditions of this
Agreement: (a) to legal counsel; (b) in confidence, to accountants, banks, and
financing sources and their advisors; (c) in connection with promotional and
marketing activities permitted by this Agreement; and (d) in confidence, in
connection with the enforcement of this Agreement or rights under this
Agreement.
16. Related Agreements. Both parties are entering into the Rewards
Software agreement. In addition, the parties agree to enter into a Source Code
Escrow Agreement with a
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mutually agreed escrow agent (the "Source Code Escrow Agreement") on or before
the closing under the Stock Purchase Agreement, relying upon Section 365(n) of
the Bankruptcy Code to support the escrow. 1stUp agrees that its consent on
the terms and provisions of the Source Code Escrow Agreement will not be
unreasonably withheld.
17. JURISDICTION AND APPLICABLE LAW.
-------------------------------
17.1 Arbitration. Any claim, dispute, or controversy arising out of
-----------
or in connection with or relating to this Agreement or the breach or alleged
breach thereof will be addressed first by mediation and, if not resolved, will
be submitted by the parties to arbitration by the American Arbitration
Association in the County of Santa Clara, State of California, United States
of America under the commercial rules then in effect for that Association,
except as provided herein. Each party will choose one arbitrator within 30
days of receipt of the notice of intent to arbitrate. Within 60 days of
receipt of the notice of intent to arbitrate, the two arbitrators will choose
a neutral third arbitrator who will act as chairman. All chosen arbitrators
must have experience related to the subject of the dispute. If no arbitrator
is appointed within the times herein provided, or any extension of time that
is mutually agreed upon, the Association will make such appointment within 30
days of such failure. The parties will be entitled to discovery as provided in
Sections 1283.05 and 1283.1 of the Code of Civil Procedure of the State of
California or any successor provision, whether or not the California
Arbitration Act is deemed to apply to the arbitration. The award rendered by
the arbitrators will include costs of arbitration, reasonable attorneys' fees,
and reasonable costs for expert and other witnesses, and judgment on such
award may be entered in any court having jurisdiction thereof. Nothing in this
Agreement will be deemed as preventing either party from seeking injunctive
relief (or any other provisional remedy) from any court having jurisdiction
over the parties and the subject matter of the dispute as necessary to protect
either party's name, proprietary information, trade secrets, know how, or any
other proprietary rights.
17.2 Choice of Forum. The parties hereby submit to the jurisdiction
---------------
of, and waive any venue objections against, the United States District Court
for the Northern District of California, San Jose Branch and the Superior and
Municipal Courts of the State of California, Santa Clara County, in any
litigation arising out of the Agreement.
17.3 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the United States and the State of California,
without regard to choice of law provisions.
18. MISCELLANEOUS.
-------------
18.1 Event of Force Majeure. If the performance of this Agreement or
----------------------
any obligations hereunder is prevented, restricted, or interfered with by
reason of acts of God, acts of an governmental authority, riot, revolution,
fires, or war, or other cause beyond the reasonable control of the parties
hereto ("Force Majeure"), the party so effected shall be excused from such
performance until such Force Majeure is removed, provided that the party so
effected shall use its best efforts to avoid or remove such causes of non-
performance and shall continue performance hereunder with the utmost dispatch
whenever such causes are removed. In no event shall this provision apply to
excuse a party from any payment obligations under this Agreement.
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18.2 Compliance with Export Control. The parties agree not to export
------------------------------
or re-export, directly or indirectly, (i) any technical data received from the
other party pursuant to this Agreement, or (ii) any product, process, or
technical data using such received technical data, to any country to which
such export or re-export is restricted or prohibited by United States or other
relevant laws, without obtaining prior written authorization from the relevant
government authorities as required by such laws.
18.3 Waiver. Any waiver of breach or default pursuant to this
------
Agreement shall not be a waiver of any other subsequent default. Failure or
delay by either party to enforce any term or condition of this Agreement shall
not constitute a waiver of such term or condition.
18.4 Severability. To the extent that any provision of this
------------
Agreement is found by a court of competent jurisdiction to be invalid or
unenforceable, that provision notwithstanding, the remaining provisions of
this Agreement shall remain in full force and effect and such invalid or
unenforceable provision shall be deleted.
18.5 Assignment. Neither party may assign, voluntarily, by operation
----------
of law, or otherwise, any rights or delegate any duties under this Agreement
(other than third-party technical infrastructure and the right to receive
payments) without the other party's prior written consent, and any attempt to
do so without that consent will be void; provided, however, that AltaVista may
assign any of its rights or obligations under this Agreement in connection
with a sale of substantially all of its assets, merger, public offering or
other reorganization transaction. 1stUp may also assign any of its rights or
obligations under this Agreement, except to the following companies listed
below, in connection with a sale of substantially all of its assets, merger,
public offering or other reorganization transaction. 1stUp cannot assign any
of its rights or obligations to the following companies: Yahoo, Lycos, Go
network companies, Excite@home; NBCi companies; Microsoft, AOL, Goto.com,
Google. AltaVista maintains right to modify list of excluded sites at its sole
discretion. This Agreement will bind and inure to the benefit of the parties
and their respective successors and permitted assigns.
18.6 Authority. Each party warrants to the other party that it has
---------
the authority to enter into this Agreement and that all necessary corporate or
other approvals have been obtained.
18.7 Notices. Any notice required or permitted pursuant to this
-------
Agreement shall be in writing delivered by hand, overnight courier, telecopy,
facsimile, or certified or registered mail to the address listed below and
shall be effective upon receipt:
Notices to 1stUp:
1stUp.Com
Attn: Charles Katz
930 Montgomery Street, Suite 200
San Francisco, California 94133
Notices to AltaVista:
AltaVista
Attn: Bill Keenan
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529 Bryant Street
Palo Alto, California 94301
With a copy "Attn: Legal Department"
18.8 Amendment. No alteration, waiver, cancellation, or any other
---------
change or modification in any term or condition of this Agreement shall be
valid or binding on either party unless made in writing and signed by duly
authorized representatives of both parties.
18.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts, including facsimiles, each of which shall be deemed to be a
duplicate original, but all of which, taken together, shall be deemed to
constitute a single instrument.
18.10 Entire Agreement. The terms and conditions herein contained,
----------------
including all Exhibits hereto, constitute the entire agreement between the
parties with respect to the subject matter of this Agreement and supersede any
previous and contemporaneous agreements and understandings, whether oral or
written, between the parties hereto with respect to the subject matter hereof,
including without limitation the Initial Term Sheet, but not including the
Stock Purchase Agreement and the Rewards Software agreement. There are no
other agreements, understandings, representations, or promises between the
parties with respect to the subject matter of this Agreement.
18.11 Construction. This Agreement is the product of negotiation
------------
between the parties and their respective counsel. This Agreement will be
interpreted fairly in accordance with its terms and conditions and without any
strict construction in favor of either party. Any ambiguity shall not be
interpreted against the drafting party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized representatives as of the Effective
Date.
<TABLE>
<CAPTION>
1stUp.com Corporation AltaVista Company
<S> <C>
By: /s/ Charles Katz By: /s/ [Signature Illegible]
--------------------- ----------------------------
Name: Charles Katz Name:
-------------------- -------------------------
Title: President, CEO Title:
------------------- -------------------------
Date: June 25, 1999 Date: June 25, 1999
--------------------- --------------------------
</TABLE>
12
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EXHIBIT 10.22
ALTAVISTA COMPANY
AMENDED AND RESTATED
1999 EQUITY INCENTIVE PLAN
1. Purpose
The purpose of the AltaVista Company 1999 Amended and Restated 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 time, or any successor law.
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"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 28,000,000 shares of Common Stock, including shares
issued under the 1999 AltaVista Stock Option Plan. If any Award expires or is
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,
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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, 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.
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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.
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
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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 (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
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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.
_________________________________________
This Plan was approved by the Board of Directors on March 31, 2000.
This Plan was approved by the Stockholders on April 3, 2000.
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Exhibit 23.1
The Board of Directors
The AltaVista Business:
The audits referred to in our report dated February 22, 2000, included the
related financial statement schedule as of July 31, 1999, and for the seven-
month period then ended, and as of August 18, 1999, 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 audits. In our
opinion, such financial statement schedule, when considered in relation to the
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
San Francisco, California
April 7, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Amendment No. 5 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
April 7, 2000
<PAGE>
Exhibit 23.3
Consent of Independent Accountants
We hereby consent to the use in this Amendment No. 5 to the 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 2, 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.
PricewaterhouseCoopers LLP
San Jose, California
April 7, 2000
