-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ra0279Ebi4GO0uWUEE7IR/fby7aPN5wvVnG+XG6p5sVOnEysXJo5pIHh/okRD7Tq 8FostGO5bzvUvHJUdqcX5A== 0000950130-99-002649.txt : 19990505 0000950130-99-002649.hdr.sgml : 19990505 ACCESSION NUMBER: 0000950130-99-002649 CONFORMED SUBMISSION TYPE: 424B4 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19990504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAPQUEST COM INC CENTRAL INDEX KEY: 0001078284 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 363949110 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B4 SEC ACT: SEC FILE NUMBER: 333-72667 FILM NUMBER: 99610063 BUSINESS ADDRESS: STREET 1: 3710 HEMPLAND ROAD CITY: MOUNTVILLE STATE: PA ZIP: 17554 BUSINESS PHONE: 7172858500 MAIL ADDRESS: STREET 1: 3710 HEMPLAND ROAD CITY: MOUNTVILLE STATE: PA ZIP: 17554 424B4 1 FORM S-1 Filing Pursuant to Rule 424(b)(4) Registration No. 333-72667 [LOGO]MAPQUEST.COM/TM/ 4,600,000 Shares Common Stock We are offering 4,600,000 shares of our common stock. This is our initial public offering, and no public market currently exists for our shares. The shares we are offering have been approved for quotation on the Nasdaq National Market under the symbol "MQST." Shares of common stock may be reserved for sale at the initial public offering price to our employees, directors and other persons with relationships with us. These employees, directors and other persons may purchase, in the aggregate, not more than 11% of the common stock in this offering. See "Underwriting." --------------------- Investing in our common stock involves risks. See "Risk Factors" beginning on page 8. ---------------------
Per Share Total --------- ----- Public Offering Price.................................... $15.00 $69,000,000 Underwriting Discounts and Commissions................... $ 1.05 $ 4,830,000 Proceeds to MapQuest..................................... $13.95 $64,170,000
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. We have granted the underwriters a 30-day option to purchase up to an additional 690,000 shares of common stock to cover over-allotments. --------------------- BancBoston Robertson Stephens Thomas Weisel Partners LLC U.S. Bancorp Piper Jaffray Volpe Brown Whelan & Company The date of this prospectus is May 3, 1999 [Picture of the mapquest.com home page and logos of representative customers] [Sequential pictures illustrating MapQuest's Connect Services and logos of representative customers] [Pictures of MapQuest maps on various web portals and third party websites and logos of representative customers] [Back cover--Picture of various Digital Mapping Services products and logos of representative customers.] You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Until May 28, 1999, all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. --------------------- TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 4 Risk Factors............................................................. 8 Forward-Looking Statements; Market Data.................................. 15 Use of Proceeds.......................................................... 16 Dividend Policy.......................................................... 16 Capitalization........................................................... 17 Dilution................................................................. 18 Selected Financial Data.................................................. 19 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 20 Business................................................................. 28 Management............................................................... 38 Optional Grants in Last Fiscal Year...................................... 43 Aggregated Stock Option Exercises in Fiscal 1998 and Fiscal Year-End Option Values ......................................................... 44 Certain Transactions..................................................... 48 Principal Stockholders................................................... 51 Description of Capital Stock............................................. 53 Shares Eligible for Future Sale.......................................... 55 Underwriting............................................................. 57 Legal Matters............................................................ 59 Experts.................................................................. 59 Where You Can Find More Information...................................... 60 Index to Financial Statements............................................ F-1
--------------------- MapQuest and GeoSystems are registered trademarks and service marks of MapQuest.com. This prospectus contains other trade names, trademarks and service marks of MapQuest.com and of other companies. 3 PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding our company, the common stock being sold in this offering and our financial statements and the notes relating to these financial statements appearing elsewhere in this prospectus. MapQuest We are a leading online provider of mapping and destination information. By effectively employing over 30 years of traditional and digital mapping experience together with our proprietary integration and editing of geographic databases, we provide comprehensive online mapping solutions to businesses and customized maps, destination information and driving directions to consumers. During February 1999, we delivered over 76.2 million maps and over 14.2 million driving directions through our website and through third-party websites. According to Media Metrix, Inc., in February 1999 mapquest.com had over 2.7 million unique visitors making it the number five travel/tourism Internet property in terms of audience reach. Our online products and services enable businesses to: . Provide customized maps, destination information and driving directions to potential customers; . Expand the service offerings of their websites to attract and retain users; . Use outside sources to meet their map-generating and destination information needs, thereby avoiding a significant portion of the expenses normally associated with establishing and maintaining a map- generating personnel and technology organization; and . Provide potential customers with information regarding which of a business' multiple locations is closest to the potential customer. Our online products and services enable consumers to: . Receive maps and destination information on a real-time basis based on the specific location provided by the consumer; . Generate detailed door-to-door driving directions at any time; and . Create and retrieve customized maps based on the consumer's preferences. We are also a leading U.S. provider of traditional and digital mapping products and services to the educational, reference, directory, travel and governmental markets. In addition, companies that incorporate call centers, CD- ROMs or driving direction kiosks into their information delivery strategy often require non-Internet customized mapping solutions. We have developed our map- generating software to provide mapping applications in these environments. 4 Strategy Our objective is to be the leading online provider of destination solutions for businesses and consumers. Key elements of our strategy include: . Building brand awareness by engaging in a number of advertising, public relations and other marketing programs designed to promote our global brand and build loyalty among our business and consumer customers; . Expanding and enhancing our service by providing comprehensive, cost- effective, accurate and easily accessible destination information and value-added tools and features; . Growing sales channels aggressively by building our direct field sales force and developing strategic value-added reseller channel relationships to target U.S. and international markets; . Developing additional advertising opportunities by offering new methods of targeted advertising based on a consumer's geographic information; . Effectively employing our integrated geographic data in developing future services and products; and . Pursuing international opportunities to expand our access to additional business customers seeking to improve the service offerings of their websites and consumers seeking online map-related information. The Offering Common stock offered............ 4,600,000 shares Common stock to be outstanding after this offering............ 32,166,699 shares Over-allotment option........... 690,000 shares Use of proceeds................. We intend to use approximately $8.6 million of the net proceeds to redeem all outstanding shares of our series B preferred stock. We intend to use the remaining net proceeds for expansion of sales and marketing capabilities, product development, working capital and other general corporate purposes. Proposed Nasdaq National Market MQST symbol......................... Additional shares may be issued after this offering upon the exercise of options and warrants. You should be aware that we are permitted, and in some cases obligated, to issue shares of common stock in addition to the common stock to be outstanding after this offering. If and when we issue these shares, the percentage of common stock you own may be diluted. The following is a summary of these additional shares of common stock: . 4,739,433 shares of common stock issuable upon exercise of outstanding options, with a weighted average exercise price of $0.26 per share; . 1,346,160 shares of common stock issuable upon exercise of outstanding options, with an exercise price of the per share offering price of this offering; 5 . 2,314,611 shares of common stock issuable upon exercise of outstanding warrants, with a weighted average exercise price of $0.69; . 10,819 shares of common stock reserved for future issuance under MapQuest's 1995 stock option plan; . 3,645,000 shares of common stock that have been reserved for future issuance under MapQuest's 1999 stock plan; and . 1,755,000 shares of common stock that have been reserved for future issuance under MapQuest's employee stock purchase plan. Unless otherwise indicated, all information in this prospectus: . reflects a 2.7-for-1 stock split of our common stock was effected on April 29, 1999. This stock split of our common stock will not impact the number of shares being offered and will not have any impact on the purchasers of the shares in this offering; . reflects the automatic conversion of all outstanding shares of our series A preferred stock and series C preferred stock into 27,122,455 shares of our common stock at the same time as the closing of this offering; . reflects the redemption of all outstanding shares of our series B preferred stock at the same time as the closing of this offering; and . assumes that the underwriters do not exercise their option to purchase additional shares after the closing of this offering. -------------------- Our headquarters are located at 3710 Hempland Road, Mountville, Pennsylvania 17554. Our telephone number at that location is (717) 285-8500. Our website address is www.mapquest.com. The information contained on our website is not part of this prospectus. 6 Summary Financial Data (in thousands, except per share data) The following table sets forth our summary financial data. You should read this information together with the financial statements and the notes to those statements appearing elsewhere in this prospectus and the information under "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The pro forma as adjusted data reflect the automatic conversion of all outstanding shares of our series A preferred stock and series C preferred stock into 27,122,455 shares of our common stock upon the closing of this offering. The pro forma as adjusted data also reflect the sale of the common stock offered by this prospectus, after deducting underwriting discounts, estimated offering expenses payable by us, and the redemption of all outstanding shares of our series B preferred stock. See the financial statements and the notes to those statements appearing elsewhere in this prospectus for the determination of shares used in computing basic and diluted loss per share and pro forma basic and diluted loss per share.
Year Ended December 31, -------------------------- 1996 1997 1998 ------- -------- ------- Statement of Operations Data: Revenues Business......................................... $ 7,020 $ 4,763 $ 6,536 Consumer......................................... 140 1,276 1,376 ------- -------- ------- Total business and consumer revenues............ 7,160 6,039 7,912 Digital mapping.................................. 12,417 15,377 16,805 ------- -------- ------- Total revenues................................. 19,577 21,416 24,717 Cost of revenues: Business and consumer............................ 4,325 4,535 4,809 Digital mapping.................................. 7,995 10,767 12,837 ------- -------- ------- Total costs of revenues........................ 12,320 15,302 17,646 ------- -------- ------- Gross profit...................................... 7,257 6,114 7,071 Operating expenses: Sales and marketing.............................. 4,455 7,257 5,243 Product development.............................. 2,619 5,048 2,955 General and administrative....................... 1,902 1,811 2,326 ------- -------- ------- Total operating expenses....................... 8,976 14,116 10,524 ------- -------- ------- Operating loss ................................... (1,719) (8,002) (3,453) Interest income and expense, net.................. 199 136 54 Other income...................................... 244 267 244 ------- -------- ------- Loss before provision for income taxes............ (1,276) (7,599) (3,155) Provision for income taxes........................ -- -- -- ------- -------- ------- Net loss.......................................... (1,276) (7,599) (3,155) Less preferred stock dividends and accretion...... (525) (5,834) (667) ------- -------- ------- Net loss applicable to common stockholders........ $(1,801) $(13,433) $(3,822) ======= ======== ======= Basic and diluted loss per share.................. $ (8.84) $ (64.43) $(12.09) Shares used to compute basic and diluted loss per share........................................... 204 208 316 ======= ======== ======= Pro forma basic and diluted loss per share........ $ (0.11) ======= Shares used to compute pro forma basic and diluted loss per share.................................. 27,994 =======
December 31, 1998 --------------------- Pro Forma Actual As Adjusted -------- ----------- Balance Sheet Data: Cash and cash equivalents............................... $ 564 $55,102 Working capital......................................... 4,301 58,839 Total assets............................................ 11,450 65,988 Cumulative redeemable preferred stock................... 8,332 -- Convertible redeemable preferred stock.................. 17,854 -- Stockholders' equity (deficit).......................... (19,768) 60,956
7 RISK FACTORS You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones facing our company. If any of the following risks actually occur, our business, financial condition and results of operations would likely suffer. In this case, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock. We have a limited Internet-related operating history We introduced our first Internet products and services in 1995 and launched our website in February 1996. Accordingly, we have a limited Internet-related operating history from which you can evaluate our business and prospects. As a new entrant to the Internet business, we face risks and uncertainties relating to our ability to successfully implement our business plan. If we are unsuccessful in addressing these risks and uncertainties, our business, results of operations and financial condition will be materially adversely affected. We have a history of losses and we expect to continue to lose money in the foreseeable future We have not generated enough revenues to exceed the substantial amounts we have spent to grow our business. We expect to continue to lose money for the foreseeable future because we plan to continue to incur significant expenses. Moreover, we base current and future expense levels on our operating plans and our estimates of future revenues. If our revenues grow at a slower rate than we anticipate, or if our spending levels exceed our expectations or cannot be adjusted to reflect slower revenue growth, we may not generate sufficient revenues to achieve profitability. If we do achieve profitability, we may be unable to sustain or increase profitability on a quarterly or annual basis in the future. We are dependent on a limited number of third parties for a significant portion of our primary geographic data Our products and services rely on the availability and accuracy of primary geographic data. We have licensed a significant portion of our primary geographic data from a limited number of sources through non-exclusive, short- term contractual arrangements. In particular, we license a substantial portion of our data from Navigation Technologies Corporation ("NavTech") pursuant to a short-term data license. Given the short terms of our primary geographic data licenses, we will have to renegotiate our contracts in the foreseeable future which may result in contractual terms that are not as favorable to us as the existing data licenses. If we cannot maintain these data licenses or any other third-party license arrangement on commercially reasonable terms, the accuracy of our products and services would suffer. As a result, the marketability of our products and services would be reduced. The success of our business depends on the accuracy of our products and services The accuracy of our products and services is substantially dependent on the accuracy of data we license from third parties. We plan to update our geographic databases periodically. However, in view of the complexity of updating several databases, revising software and the need to obtain geocoding for address data from third parties, we may not be able to perform these updates as planned. This would adversely affect the accuracy of our products and services. The development of our brand is essential to our future success Establishing and maintaining our brand identity is critical to our efforts to attract users to our website and to build market acceptance of our mapping and destination information products and services. In order to build our brand awareness, we must succeed in our brand marketing efforts, provide high-quality services and increase user traffic on mapquest.com. These efforts have required, and will continue to require, significant 8 expenses. If we do not generate a corresponding increase in revenue as a result of our branding efforts or otherwise fail to promote our brand successfully, our business, results of operations and financial condition will be adversely affected. Fluctuations in our operating results may negatively impact our stock price Our quarterly operating results may fluctuate significantly in the future due to a variety of factors that could affect our revenues or our expenses in any particular quarter. It is possible that in some future periods our results of operations may be below the expectations of public market analysts and investors. In this event, the price of our common stock is likely to fall. You should not rely on quarter-to-quarter comparisons of our results of operations as an indication of future performance. Factors that may affect our quarterly results include: . demand for our products and services from businesses and consumers; . our relative mix of Internet and traditional and digital mapping businesses; . the timing and amount of license and service payments from our business customers; . traffic levels on mapquest.com; . development of competitive websites and businesses; . the relatively short terms of our advertising agreements; . advertising budget decisions by our clients; and . technical difficulties or system downtime affecting the Internet generally or the operation of our website specifically. Seasonal factors may affect our operating results Seasonality of our traffic on mapquest.com and our advertising revenues may cause our revenues to fluctuate. Traffic levels on websites are typically lower during the summer and year-end vacation and holiday periods. We believe that advertising sales in traditional media, such as television and radio, generally are lower in the first and third calendar quarters of each year. Similar seasonal or other patterns may develop in the Internet industry. Our limited Internet-related operating history and the rapid growth of our Internet products and services makes it difficult to assess the impact of seasonal factors on the Internet and therefore whether our Internet products and services are susceptible to cyclical or seasonal economic fluctuations. We will not be able to execute our business plan if the market for our Internet products and services does not develop To date, sales of our traditional and digital mapping products and services have accounted for a significant portion of our revenues. However, our business plan assumes that our Internet products and services will account for a significant and growing portion of our revenues in the foreseeable future. Given that markets for our Internet products and services have only recently begun to develop, are rapidly evolving and are characterized by a large number of entrants, it is difficult to predict what pricing models, if any, for Internet- related products and service will emerge as the industry standard. The markets for our Internet products and services may not develop and demand for our Internet products and services may not emerge or become economically sustainable or customer turnover rates may be higher than expected. Our Internet business is dependent on a small number of customers In 1998, revenues from a limited number of business customers accounted for a substantial portion of our Internet products and services revenues. The loss, without replacement, of one or more of these customers could have a material adverse effect on our revenues. 9 We will not be able to execute our business plan if we cannot increase our direct and indirect sales channels In order to support our growth, we need to substantially increase our direct and indirect sales channels. Our business would be harmed if we fail to maintain an effective internal sales force. Our ability to increase our internal sales force involves a number of risks, including: . the competition we face in hiring and retaining qualified sales personnel; . the length of time it takes new sales personnel to become productive; and . our ability to integrate and motivate additional sales personnel and sales support personnel. In addition, we are seeking to develop relationships with partners such as value-added resellers in order to leverage their sales organizations to distribute our Internet products and services. Sales through these indirect sales channels accounted for less than 0.4% of our revenues in 1998. We may be unsuccessful in our efforts to develop increased indirect sales in the future. We may be unable to protect our intellectual property rights and we may be liable for infringing the intellectual property rights of others If we fail to adequately protect our proprietary rights, third parties may infringe or misappropriate our ownership of our intellectual property and this could erode our market position and our operating results. Currently we are a defendant in two pending litigations involving allegations of infringements of third-party patents by our technologies. On May 3, 1999, we agreed to settle one of these proceedings and acquire a license under the claimant's patents. While we intend to defend the other action vigorously, our efforts may not be successful. In addition, in the ordinary course of business we have been, and we expect to continue to be, subject to claims, including claims of alleged infringement of patents, trademarks and other proprietary rights of third parties. We expect that infringement claims in our markets will increase in number as more participants enter the market. These claims and any resultant litigation could subject us to significant liability for damages and could result in the invalidation of our proprietary rights. In addition, even if we prevail, litigation could be time-consuming and expensive to defend, and could result in the diversion of our time and attention. Any claims from third parties may also result in limitation on our ability to use the trademarks and other intellectual property subject to claims unless we enter into agreements with the third parties responsible for claims, which may be unavailable on commercially reasonable terms. Please see "Business--Legal Proceedings." We may not be able to compete successfully Competition could result in reduced margins on our products and services, loss of market share or less user traffic to our website. The markets for MapQuest's products and services are highly competitive. We compete for customers with companies offering online map-enabling technology, publishers and distributors of traditional print media that use or license their content for use on the Internet, commercial publishing companies, corporate materials and information market companies, and governmental authorities. We expect competition to continue to increase because these markets, particularly the markets for Internet-related products and services, pose no substantial barriers to entry. Competition may also increase as a result of industry consolidation. We will only be able to execute our business plan if use of the Internet grows Our business would be adversely affected if Internet usage does not continue to grow. Internet usage may be inhibited for any of the following reasons: . the Internet infrastructure may not be able to support the demands placed on it or its performance and reliability may decline as usage grows; 10 . the ability of websites to provide security and authentication of confidential information contained in transmissions over the Internet; . the quality of Internet products and services may not continue to generate user interest; and . the ability of websites to respond to privacy concerns of potential users, including concerns related to the placement by websites of information on a user's hard drive without the user's knowledge or consent. The performance of mapquest.com is critical to our business and our reputation Any system failure, including network, software or hardware failure, that causes an interruption in the delivery of our products and services or a decrease in responsiveness of our website service could result in reduced revenue, and could impair our reputation and brand. In May 1998, we entered into a one-year Internet hosting agreement with Qwest to maintain all of our production servers at its Denver data center. Qwest does not guarantee that our Internet access will be uninterrupted, error free or secure. Any disruption in the Internet access provided by Qwest could have a material adverse effect on our business, results of operations and financial condition. We have experienced system interruptions in the past and believe that these interruptions will continue to occur from time to time in the future. Our insurance may not adequately compensate us for any losses that may occur due to any failures in our system or interruptions in our service. Our servers and software must be able to accommodate a high volume of traffic and we have in the past and may in the future experience slower response times for a variety of reasons. Any substantial increase in demands on our servers will require us to expand and adapt our network infrastructure. If we were unable to add additional software and hardware to accommodate increased demand, this could cause unanticipated system disruptions and result in slower response times. An increase in the volume of consumers accessing mapquest.com or the websites of our business customers could lead to systems failures or slower response times. Business and consumer customers may become dissatisfied by any system failure that interrupts our ability to provide our products and services to them or results in slower response time. Consumers visiting mapquest.com and other websites depend on Internet service providers, online service providers and other website operators for access to particular websites. Many of these providers have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. We may not be able to hire and retain qualified employees Our future success depends on our ability to attract, train, motivate and retain highly skilled employees. Competition for employees in our industries is intense. We may be unable to retain our key employees or attract, assimilate or retain other highly qualified employees in the future. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. We may not be able to successfully manage our expansion In order to execute our business plan, we must grow significantly. As of January 31, 1996, we had a total of 167 employees and, as of January 31, 1999, we had a total of 222 employees. We expect that the number of our employees will continue to increase for the foreseeable future, in particular with respect to our Internet-related business. This growth has placed, and our anticipated future growth combined with the requirements we will face as a public company will continue to place, a significant strain on our management systems and resources. We expect that we will need to continue to improve our financial and managerial controls and reporting systems and procedures. We will also need to continue to expand and maintain close coordination among our technical, accounting, finance and sales and marketing organizations. Our inability to manage growth effectively could have a material adverse effect on our business, financial condition and results of operations. 11 We are dependent on our key management personnel for our future success Our future success depends to a significant extent on the continued service and coordination of our management team, particularly Michael Mulligan, our Chief Executive Officer. The departure of any of our officers or key employees could materially adversely affect our ability to implement our business plan. In addition, certain members of our management team, including our Chief Executive Officer, have joined us within the last year. These individuals have not previously worked together and are becoming integrated into our management team. They may not be able to work together effectively or successfully manage our growth. We do not currently have employment agreements with members of management other than our Chief Executive Officer and William Muenster, our Senior Vice President of Development and Production. We may not be able to execute our business plan if we are not able to expand internationally In order to execute our business plan, we must expand our business internationally. To date, we have limited experience in marketing our products and services internationally, and we cannot predict our success in these international markets. Our plans to expand internationally are subject to inherent risks, including: . the impact of economic fluctuations in economies outside of the United States; . greater difficulty in accounts receivable collection and longer collection periods; . unexpected changes in regulatory requirements, tariffs and other trade barriers; . difficulties and costs of staffing and managing foreign operations; . political instability; . currency exchange fluctuations; . potentially adverse tax consequences; and . reduced protection for intellectual property rights outside the United States. We may not be able to successfully introduce new products and services We expect to introduce new and enhanced products and services, and in particular, Internet products and services in order to generate additional revenues, attract more business customers to our products and services, attract more consumers to our website and respond to competition. Any new product or service we introduce that is not favorably received could damage our reputation and the perception of our brand name. The failure of our new products and services to achieve market acceptance and generate revenue could result in a material adverse effect on our business, financial condition and results of operations. We may not be able to adapt as Internet technologies and customer demands continue to evolve To be successful, we must adapt to our rapidly changing market by continually enhancing the technologies used in our Internet products and services, and introducing new technology to address the changing needs of our business and consumers. If we are unable, for technical, legal, financial or other reasons, to adapt in a timely manner in response to changing market conditions or business and consumer customer requirements, our business, financial condition and results of operations could be materially adversely affected. We are susceptible to breaches of online commerce security Online commerce on our website relies on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure transmission of credit card numbers and other proprietary information. The misappropriation of credit card numbers or other proprietary personal information or the purchase of products through the fraudulent use of credit cards could expose us to a risk of loss or litigation and possible liability from the vendors of our products or from cardholders themselves. 12 We are susceptible to breaches of database security A party who is able to circumvent our security measures could misappropriate proprietary database information or cause interruptions in our operations. As a result we may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches, which could have a material adverse effect on our business, financial condition and results of operations. Regulatory and legal uncertainties could harm our business Any new legislation or regulation, or the application or interpretation of existing laws, may decrease the growth in the use of the Internet, which could in turn decrease the demand for our products and services, increase our cost of doing business or otherwise have a material adverse effect on our business, financial condition and results of operations. There is an increasing number of laws and regulations pertaining to the Internet. In addition, a number of legislative and regulatory proposals are under consideration by federal, state, local and foreign governments and agencies. Laws or regulations may be adopted with respect to the Internet relating to liability for information retrieved from or transmitted over the Internet, domain name registration, online content regulation, user privacy, taxation and quality of products and services. Moreover, the applicability to the Internet of existing laws governing issues including intellectual property ownership and infringement, copyright, patent, trademark, trade secret, obscenity, libel, employment and personal privacy is uncertain and developing. Please see "Business--Government Regulation and Legal Uncertainties." We would lose revenues and incur significant costs if our systems or material third-party systems are not Year 2000 compliant The failure of our internal systems, or any material third-party systems, to be Year 2000 compliant would have a material adverse effect on our business, results of operations and financial condition. Although we believe that each of our material systems is Year 2000 compliant, we do not yet know whether our internal system, as a whole, is Year 2000 compliant. We are also contacting our third-party vendors, licensors and providers of hardware, software and services regarding their Year 2000 readiness. Their failure to be compliant would adversely affect our ability to deliver our service. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000." We cannot predict our future capital needs and we may not be able to secure additional financing We may need to raise additional funds in the future in order to fund more aggressive marketing programs or to acquire complementary businesses, technologies or services. Any required additional financing may be unavailable on terms favorable to us, or at all. If we raise additional funds by issuing equity securities, you may experience significant dilution of your ownership interest and such securities may have rights senior to those of the holders of our common stock. If additional financing is not available when required or is not available on acceptable terms, we may be unable to fund our expansion, successfully promote our brand name, develop or enhance our products and services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our products and business, financial condition and results of operations. We currently anticipate that the net proceeds from this offering, together with available funds, will be sufficient to meet our anticipated needs for at least the next 12 months. We may not be able to successfully make acquisitions of or investments in other companies If we make an acquisition, we could have difficulty assimilating the acquired company's operations and personnel. If we make other types of acquisitions, we could have difficulty in assimilating any acquired products, services, and technologies into our operations. These difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and materially adversely affect our business, financial condition and results of operations due to increased operating expenses and charges, such as amortization of goodwill. We have no present understanding or agreement relating to any acquisition of or investment in another company or its business. 13 Future sales of our common stock may negatively affect our stock price Following the offering, we will have a large number of shares of common stock outstanding and available for resale beginning at various points in time in the future. The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market following this offering, or the perception that such sales could occur. These sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. Please see "Shares Eligible for Future Sale." Our executive officers, directors and existing stockholders will have the ability to exercise significant control over us Our executive officers and directors and entities affiliated with them will, in the aggregate, beneficially own approximately 82.0% of our common stock following this offering. These stockholders will be able to exercise control over all matters requiring approval by our stockholders, including the election of directors and the approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control of our company, which could negatively affect our stock price. Please see "Principal Stockholders." You will suffer immediate and substantial dilution The initial public offering price per share will exceed the net tangible book value per share. Accordingly, investors purchasing shares in this offering will incur immediate and substantial dilution in their investments. To the extent outstanding options or warrants to purchase common stock are exercised, there will be further dilution. Please see "Dilution." Our management will have broad discretion in use of proceeds Our management will have broad discretion with respect to the expenditure of proceeds. Investors will be relying on the judgment of our management regarding the application of the proceeds of this offering. 14 FORWARD-LOOKING STATEMENTS; MARKET DATA Many statements made in this prospectus under the captions "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" and elsewhere are forward- looking statements that are not based on historical facts. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including those discussed under "Risk Factors." This prospectus contains market data related to MapQuest and the Internet. This market data includes projections that are based on a number of assumptions. The assumptions include that: . no catastrophic failure of the Internet will occur; . currency exchange fluctuations may occur; . the number of people online and the total number of hours spent online will increase significantly over the next five years; . the value of online advertising dollars spent per online user hour will increase; . the download speed of content will increase dramatically; and . Internet security and privacy concerns will be adequately addressed. If any one or more of the foregoing assumptions turns out to be incorrect, actual results may differ from the projections based on these assumptions. The failure of these markets to grow at these projected rates may have a material adverse effect on MapQuest's business, results of operations and financial condition, and the market price of MapQuest's stock. 15 USE OF PROCEEDS The net proceeds to MapQuest from the sale of the shares offered by this prospectus are $62.9 million ($72.5 million if the over-allotment option is exercised in full) after deducting the underwriting discount and estimated offering expenses payable by MapQuest. The principal purposes of this offering are to obtain additional capital, to create a public market for the common stock and to facilitate future access by MapQuest to public securities markets. MapQuest intends to use approximately $8.6 million of the net proceeds to redeem the 1,398,835 outstanding shares of MapQuest's series B preferred stock. MapQuest intends to use the remaining net proceeds to execute its business plan. As part of this plan, MapQuest expects to increase its sales and marketing efforts by hiring additional internal sales personnel and by increasing its promotional and advertising spending. MapQuest estimates that its capital expenditures will be approximately $4.0 million in 1999, which is expected to be used for technical infrastructure improvements and for the expansion of MapQuest's office space. A portion of the net proceeds also may be used to acquire or invest in complementary businesses, products or services. MapQuest has not yet determined the amount of net proceeds to be used specifically for each of the preceding purposes. Accordingly, management will have significant flexibility in applying the net proceeds of this offering. Pending use of the net proceeds for the above purposes, MapQuest intends to invest such funds in short-term, interest-bearing, investment-grade securities. See "Description of Capital Stock--Preferred Stock" and Note 5 to the Financial Statements. DIVIDEND POLICY MapQuest has never declared or paid any cash dividends on its common stock. MapQuest intends to retain any future earnings to support operations and to finance the growth and development of MapQuest's business and does not anticipate paying cash dividends for the foreseeable future. 16 CAPITALIZATION The following table sets forth, as of December 31, 1998, the capitalization of MapQuest on an actual basis, on a pro forma basis to reflect the automatic conversion of all outstanding shares of series A preferred stock and series C preferred stock into 27,122,455 shares of common stock upon the closing of this offering, and on a pro forma as adjusted basis to reflect the sale of 4,600,000 shares offered by this prospectus, after deducting the underwriting discount and the estimated offering expenses payable by MapQuest, and the redemption of the series B preferred stock. This information should be read together with MapQuest's financial statements and the notes relating to those statements appearing elsewhere in this prospectus.
December 31, 1998 ------------------------------- Pro Forma Actual Pro Forma As Adjusted -------- --------- ----------- (In thousands) Cumulative Redeemable Preferred Stock Series B Preferred Stock, par value $0.01 per share, nonvoting, $6.15 per share redemption value, aggregate liquidation preference of $8,332,036. 2,000,000 shares authorized; 1,354,802 shares issued and outstanding, actual and pro forma; no shares issued and outstanding pro forma as adjusted........... $ 8,332 $ 8,332 $ -- Convertible Redeemable Preferred Stock Series A Preferred Stock, par value $0.01 per share voting, $1.00 per share redemption value, aggregate liquidation preference of $6,550,000. 6,550,000 shares authorized; 6,550,000 shares issued and outstanding, actual; no shares issued and outstanding pro forma and pro forma as adjusted............. 6,550 -- -- Series C Preferred Stock, par value $0.01 per share voting, $3.51 per share redemption value, aggregate liquidation preference of $12,268,292. 3,800,000 shares authorized; 3,495,354 shares issued and outstanding, actual; no shares issued and outstanding pro forma and pro forma as adjusted............. 11,595 -- -- Notes receivable for convertible preferred stock........................................ (291) -- -- Stockholders' Equity (Deficit) -- Preferred stock, par value $0.01 per share. 2,650,000 shares authorized, no shares issued and outstanding, actual, pro forma and pro forma as adjusted................... -- -- -- Common stock, par value $0.001 per share. 20,000,000 shares authorized, 336,028 shares issued and outstanding, actual; 27,458,483 shares issued and outstanding pro forma; and 32,058,483 shares issued and outstanding pro forma as adjusted........................... -- 27 32 Notes receivable for common stock............. -- (291) (291) Additional paid-in capital.................... 140 18,258 81,123 Retained deficit.............................. (19,908) (19,908) (19,908) -------- ------- ------- Total stockholders' equity (deficit).......... (19,768) (1,914) 60,956 -------- ------- ------- Total capitalization........................ $ 6,418 $ 6,418 $60,956 ======== ======= =======
17 DILUTION The pro forma net tangible book value of MapQuest as of December 31, 1998, after giving effect to the conversion of preferred stock, was $6.2 million, or $0.23 per share of common stock. "Pro forma net tangible book value per share" is determined by dividing the number of outstanding shares of common stock into the net tangible book value of MapQuest. Pro forma net tangible book value is equal to total tangible assets less total liabilities. After giving effect to the application of the estimated net proceeds from the sale of the shares of common stock offered by this prospectus, based upon an initial public offering price of $15.00 per share, after deducting the underwriting discounts, estimated offering expenses payable by MapQuest, and the redemption of the series B preferred stock, the pro forma net tangible book value of MapQuest as of December 31, 1998 would have been $60.8 million, or $1.90 per share. This represents an immediate increase in net tangible book value of $1.67 per share to existing stockholders and an immediate dilution of $13.10 per share to new investors purchasing shares at the initial public offering price. The following table illustrates the per share dilution: Initial public offering price.................................... $15.00 Pro forma net tangible book value as of December 31, 1998....... $.23 Pro forma increase in net tangible book value attributable to new investors................................................. 1.67 ---- Pro forma net tangible book value per share after this offering.. 1.90 ------ Pro forma dilution per share to new investors.................... $13.10 ======
The following table summarizes on a pro forma basis, the total number of shares of common stock purchased from MapQuest, the total consideration paid to MapQuest and the average price per share paid by existing stockholders and by new investors, based upon the number of shares of common stock outstanding as of December 31, 1998 and assuming conversion of shares of preferred stock.
Shares Purchased Total Consideration Average ------------------ ----------------------Price-Per Number Percent Amount Percent Share ---------- ------- ------------ ------------------ % $ % $ Existing stockholders........ 27,458,483 85.7 16,449,676 19.3 .60 New Investors................ 4,600,000 14.3 69,000,000 80.7 15.00 ---------- ----- ------------ ------- ----- Total...................... 32,058,483 100.0 85,449,676 100.0 2.67 ========== ===== ============ ======= =====
If the underwriters' over-allotment is exercised in full, the number of shares held by new investors will increase to 5,290,000, or 16.2% of the total shares of common stock to be outstanding after this offering. 18 SELECTED FINANCIAL DATA The following selected financial data set forth below should be read together with the financial statements and the notes relating to those statements and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. The selected financial data set forth below for each of the years ended December 31, 1996, 1997 and 1998 and at December 31, 1997 and 1998 are derived from financial statements of MapQuest, audited by Ernst & Young LLP, independent auditors, which are included elsewhere in this prospectus. The selected financial data for the year ended December 31, 1995 and at December 31, 1994, 1995 and 1996 are derived from financial statements of MapQuest audited by Ernst & Young LLP, which are not included in this prospectus. The selected financial data for the year ended December 31, 1994 are derived from the unaudited financial statements of MapQuest, which are not included in this prospectus. For an explanation of the methods used to determine the number of shares used to compute historical and pro forma basic and diluted loss per share see Note 7 to the Financial Statements. Pro forma as adjusted data give effect to the completion of this offering and the application of the net proceeds from this offering. Basic and diluted earnings (loss) per share amounts are not presented for 1994; MapQuest was not an independent entity until October 31, 1994. In addition, there was no common stock outstanding from October 31, 1994 to December 31, 1994.
Year Ended December 31, --------------------------------------------- 1994 1995 1996 1997 1998 ------- ------- ------- -------- -------- (In thousands, except per share data) Statement of Operations Data: Revenues Business.............. $ 4,226 $ 3,095 $ 7,020 $ 4,763 $ 6,536 Consumer.............. -- -- 140 1,276 1,376 Digital mapping....... 6,243 10,982 12,417 15,377 16,805 ------- ------- ------- -------- -------- Total revenues...... 10,469 14,077 19,577 21,416 24,717 Costs of revenues....... 9,189 8,556 12,320 15,302 17,646 ------- ------- ------- -------- -------- Gross profit............ 1,280 5,521 7,257 6,114 7,071 Operating expenses Sales and marketing... 3,027 2,738 4,455 7,257 5,243 Product development... 642 1,395 2,619 5,048 2,955 General and administrative...... 1,897 1,373 1,902 1,811 2,326 ------- ------- ------- -------- -------- Total operating expenses.......... 5,566 5,506 8,976 14,116 10,524 ------- ------- ------- -------- -------- Operating income (loss)................ (4,286) 15 (1,719) (8,002) (3,453) Interest income and expense, net.......... (72) 271 199 136 54 Other income............ 168 258 244 267 244 ------- ------- ------- -------- -------- Income (loss) before provision for income taxes................. (4,190) 544 (1,276) (7,599) (3,155) Provision for income taxes................. -- 20 -- -- -- ------- ------- ------- -------- -------- Net income (loss)....... (4,190) 524 (1,276) (7,599) (3,155) Less preferred stock dividends and accretion............. (10) (458) (525) (5,834) (667) ------- ------- ------- -------- -------- Net income (loss) applicable to common stockholders.......... $(4,200) $ 66 $(1,801) $(13,433) $ (3,822) ======= ======= ======= ======== ======== Basic earnings (loss) per share............. $ -- $ 0.79 $ (8.84) $ (64.43) $ (12.09) Diluted earnings (loss) per share............. $ -- $ 0.00 $ (8.84) $ (64.43) $ (12.09) Shares used to compute basic earnings (loss) per share............. -- 84 204 208 316 Shares used to compute diluted earnings (loss) per share...... -- 19,313 204 208 316 Pro forma basic and diluted loss per share................. $ (0.11) ======== Shares used to compute pro forma basic and diluted loss per share................. 27,994 ======== December 31, ---------------------------------------------------------- Pro Forma 1994 1995 1996 1997 1998 as adjusted ------- ------- ------- -------- -------- ----------- (In thousands) Balance Sheet Data: Cash and cash equivalents......... $ 4,646 $ 4,619 $ 1,904 $ 2,482 $ 564 $55,102 Working capital....... 5,687 6,066 4,085 7,460 4,301 58,839 Total assets.......... 9,169 9,601 9,526 13,221 11,450 65,988 Long-term obligations, less current portion............. -- -- -- 48 -- -- Redeemable preferred stock............... 6,486 6,877 7,331 25,711 26,186 -- Stockholders' equity (deficit)........... 89 213 (1,553) (16,237) (19,768) 60,956
19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview MapQuest is a leading online provider of mapping and destination information. MapQuest provides comprehensive online mapping solutions to businesses and provides customized maps, destination information and driving directions to consumers. MapQuest has three lines of business: Internet business products and services, Internet consumer products and services and digital mapping products and services. MapQuest was formed in 1967 as a business unit of R.R. Donnelley & Sons Company. In 1994, R.R. Donnelley & Sons Company created a subsidiary into which it transferred the MapQuest business unit. Also in 1994, MapQuest sold shares to third parties. R.R. Donnelley & Sons Company sold all of its shares of MapQuest to third parties in 1998. See "Certain Transactions." Since 1967, MapQuest has provided traditional cartographic products and services. In 1989, MapQuest began offering digital mapping products and services. Beginning in 1991, MapQuest introduced map-generating products and services which evolved into online mapping and routing applications. During the first quarter of 1996, MapQuest launched mapquest.com and initiated sales and marketing efforts to build brand awareness and to generate advertising revenues from its website. In the third quarter of 1996, MapQuest began providing online mapping and destination information products and services from its website to companies with an Internet presence and to high-traffic websites offering users a wide range of information and services on their websites, which are commonly referred to as portal websites. In 1997, MapQuest increased its focus on its Internet business and consumer lines of business by devoting significant resources to mapquest.com and to its other Internet products and services. During the fourth quarter of 1997 and the first quarter of 1998, MapQuest decreased its Internet-related sales and marketing activities as it revised its overall business strategy. During the remainder of 1997, MapQuest continued its product development efforts and increased its sales and marketing efforts across all of its lines of business. During the second quarter of 1998, MapQuest introduced its MapQuest Enterprise Server. MapQuest's Enterprise Server is designed to provide mapping and routing capability to high volume websites. As part of its Internet strategy, MapQuest appointed a new chief executive officer in the second half of 1998. MapQuest derives its revenues from the following three lines of business: Business Products and Services. MapQuest provides Internet products and services to companies with an Internet presence and to portal websites. These companies typically contract for MapQuest's services on an annual basis in consideration for a service fee based on usage and an initial set-up fee. MapQuest recognizes service fees ratably over the period of the service. In addition, MapQuest recognizes revenues from the set-up fee upon completion of the related installation services. Typically, MapQuest completes the installation service in less than a month from the signing of a contract with a customer. As part of MapQuest's Enterprise Server, MapQuest licenses its data and sub-licenses third-party data to its business customers. Revenues for software and data licenses relating to MapQuest Enterprise Server and other licensed products are recognized upon delivery of the product. In addition, MapQuest has entered into revenue sharing arrangements for advertising revenues generated by a MapQuest business customer's website. Any revenues MapQuest receives from these revenue sharing arrangements are recognized by MapQuest upon notification by its business customers of advertising revenues on their websites. However, revenues from these arrangements have not been material to date. Further, under those agreements where MapQuest has a maintenance or upgrade obligation, MapQuest recognizes revenue for these obligations over the period of the obligation. Revenues from systems integration contracts, typically long-term fixed-price contracts, are recognized on the percentage-of- completion method. The percentage-of-completion method measures the number of labor hours incurred to date as a percentage of estimated total labor hours for each contract. MapQuest has also historically provided business products and services for non-Internet applications by licensing software and data and by providing professional services on a time and materials basis or a fixed fee basis. Revenues from non-Internet applications as a percent of business products and services revenues has declined over the last three years and, in 1998, they accounted for less than 20 30.5% of revenues from the business products and services line of business. Revenues from all other services provided are recognized when the services are rendered or delivery of the product is made. Revenues from MapQuest's business products and services line of business accounted for 26.4% of total revenues in 1998. Consumer Products and Services. Through mapquest.com, MapQuest derives revenues primarily from the sale of advertising and sponsorships. Advertising rates vary depending on whether the advertisements are delivered to a general audience or a targeted audience based on specific geographic location. Advertising revenues are typically recognized ratably over the period in which the advertisements are displayed, provided that no significant obligations remain and the collection of the resulting receivable is likely. The average term of MapQuest's advertising contracts is between one to two months. MapQuest may guarantee its advertisers a pre-set level of impressions on mapquest.com. Impression refers to a delivery of an advertisement to a user. If the guaranteed impressions are not met, MapQuest defers recognition of the corresponding revenue until the guaranteed impressions are achieved. Sponsorship contracts may have longer terms and may allow sponsors to be exclusive sponsors of portions of mapquest.com or particular advertising categories. Barter transactions in which MapQuest received advertising or other goods and services in exchange for content or advertising on mapquest.com accounted for no more than 2.0% of total revenue in each of 1996, 1997 and 1998. Revenues from MapQuest's consumer products and services business line accounted for 5.6% of total revenues in 1998. Digital Mapping Products and Services. In its digital mapping business, MapQuest derives substantially all of its revenues from providing digital mapping services to businesses and from the sale of mapping products to distributors, retailers and corporate customers. MapQuest typically receives fees and payments on a time and materials basis or a fixed fee basis. Revenues from these services are recognized when the services are rendered. In addition, revenues from long-term contracts are recognized on the percentage-of- completion method, measured by the number of labor hours incurred to date as a percentage of estimated total labor hours for each contract. MapQuest also licenses software and data for a license fee and/or royalties. License fees are recognized upon delivery of the software and data. Royalty revenue is recognized upon payment received. Revenues from all other services provided are recognized when the services are rendered. With respect to the sale of mapping products, MapQuest is paid negotiated amounts, depending on volume, from retailers and distributors, subject to minimum sales and return arrangements. Revenues from MapQuest's digital mapping line of business accounted for approximately 68.0% of total revenues in 1998. Year ended December 31, 1997 compared to year ended December 31, 1998 Revenues Total revenues increased by $3.3 million from $21.4 million in 1997 to $24.7 million in 1998. Revenue for the top 10 customers of MapQuest as a percent of total revenue decreased from 44.5% in 1997 to 27.2% in 1998. Business Revenues. Business revenues increased by $1.7 million from $4.8 million in 1997 to $6.5 million in 1998. This increase was primarily due to an increase in the number of businesses using MapQuest's products and services and the introduction of additional products and services. In addition, during 1998 MapQuest introduced its Enterprise Server products and services. MapQuest expects its business products and services revenues to become a greater percentage of its total revenue in the future. As a percent of total revenues, business revenues increased from 22.2% in 1997 to 26.4% in 1998. Consumer Revenues. Consumer revenues increased $0.1 million from $1.3 million in 1997 to $1.4 million in 1998. This increase was due to increased advertising sales, including advertisements placed on its website and sponsorship advertisements. During 1998, MapQuest changed its third-party advertising sales representative organization. Consequently, MapQuest did not recognize revenues from third-party advertising sales representative organizations during this transition. MapQuest expects to continue to derive revenue from selling advertisements on mapquest.com and also expects that revenues from its consumer business will increase as a percentage of its total revenue. As a percent of total revenues, consumer revenues decreased from 6.0% in 1997 to 5.6% in 1998. 21 Digital Mapping Revenues. Digital mapping revenues increased by $1.4 million from $15.4 million in 1997 to $16.8 million in 1998. This increase was primarily due to increased sales of printed products, including the National Geographic Road Atlas and the National Geographic American Road Atlas. MapQuest expects digital mapping revenues will decrease as a percentage of total revenue as MapQuest believes the growth in this business line to be slower than that of the Internet consumer and business lines of business. As a percent of total revenues, digital mapping revenues decreased from 71.8% in 1997 to 68.0% in 1998. Cost of Revenues Cost of revenues consists primarily of compensation for operations personnel and related operations costs, including depreciation of operating assets, third-party royalties, print and paper costs for printed products, and subcontractor costs. Cost of revenues increased by $2.3 million from $15.3 million in 1997 to $17.6 million in 1998. This increase was primarily due to the increased cost of printed products for distributors, retailers and corporate customers, including National Geographic, and higher depreciation costs associated with computer hardware purchases. Operating Expenses Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions, travel related expenses, sales promotion expenses, public relations expenses and costs of marketing materials. Sales and marketing expenses decreased by $2.1 million from $7.3 million in 1997 to $5.2 million in 1998. This decrease reflects lower promotional costs and personnel expenses as MapQuest implemented expense reduction efforts in early 1998. These expense reductions included a reduction in personnel, decreased travel expenses and lower spending for sales promotions involving trade shows and public relations. These expense reduction efforts were undertaken as MapQuest revised its business strategy. MapQuest expects to incur significant increased sales and marketing expenses on an absolute dollar basis and as a percentage of revenues as it hires additional sales and marketing personnel and as it expands its sales and marketing campaigns. Product Development. Product development expenses are primarily the costs of developing new products and services and modifying existing products and services, including software and data. These expenses consist primarily of salaries for product development personnel and related expenses, contract labor expense, and consulting fees. Product development expenses decreased by $2.0 million from $5.0 million in 1997 to $3.0 million in 1998. The decrease from 1997 to 1998 was primarily due to decreases in personnel and related expenses as MapQuest implemented the expense reduction efforts described in the preceding paragraph in early 1998. MapQuest plans to increase product development expenditures significantly for MapQuest's business and consumer products and services in absolute dollars in future periods. General and Administrative. General and administrative expenses consist primarily of payroll and related expenses for MapQuest's executive, accounting and administrative personnel, professional services and other general corporate expenses. These expenses increased by $0.5 million from $1.8 million in 1997 to $2.3 million in 1998. The increase from 1997 to 1998 was primarily due to costs associated with the hiring of a new Chief Executive Officer and for additional professional services. MapQuest anticipates hiring additional personnel and incurring additional costs related to being a publicly held entity, including directors' and officers' liability insurance, investor relations programs and professional service fees. Interest Income and Expense, Net Interest income was $0.1 million in 1997 and 1998. Other Income Other income decreased $0.1 million from $0.3 million in 1997 to $0.2 million in 1998. This decrease was primarily due to lower equity in the earnings of a joint venture that serves a number of automobile clubs with trip routing services. 22 Income Taxes MapQuest paid no income taxes in 1997 or 1998. MapQuest has incurred a net loss for each period since incorporation, except for 1995. As of December 31, 1998, MapQuest had approximately $11.7 million of net operating loss carryforwards for federal income tax purposes, which expire beginning in 2009. Due to the uncertainty of future profitability, a valuation allowance equal to the deferred tax asset has been recorded. Changes in ownership resulting from transactions among MapQuest's stockholders and sales of common stock may limit the future annual realization of the tax net operating loss carryforwards under Section 382 of the Internal Revenue Code of 1986. Year ended December 31, 1996 compared to year ended December 31, 1997 Revenues Total revenues increased $1.8 million from $19.6 million in 1996 to $21.4 million in 1997. Revenue for the top ten customers of MapQuest as a percent of total revenue declined from 58.3% in 1996 to 44.5% in 1997. Business Revenues. Business revenues decreased $2.2 million from $7.0 million in 1996 to $4.8 million in 1997 as MapQuest transitioned its focus from non-Internet client/server based products and services to Internet products and services. Consumer Revenues. Consumer revenues increased $1.2 million from $0.1 million in 1996 to $1.3 million in 1997. This increase was primarily due to increased advertising sales on mapquest.com. Digital Mapping Revenues. Digital mapping revenues increased $3.0 million from $12.4 million in 1996 to $15.4 million in 1997. The increase reflects increased sales from printed products for retail, wholesale and corporate customers, particularly the introduction of the National Geographic Road Atlas. Cost of Revenues Cost of revenues increased $3.0 million from $12.3 million in 1996 to $15.3 million in 1997. The increase was primarily due to the increased costs of printed products for distributors, retailers and corporate customers and increased costs for operational personnel and related costs. Operating Expenses Sales and Marketing. Sales and marketing expenses increased by $2.8 million from $4.5 million in 1996 to $7.3 million in 1997. This increase was primarily due to increased expenses for the hiring of additional personnel and for increased promotional expenses. Product Development. Product development expenses increased $2.4 million from $2.6 million in 1996 to $5.0 million in 1997. This increase was primarily the result of the development of the National Geographic Road Atlas and the hiring of additional personnel for MapQuest Internet products and services. General and Administrative. General and administrative expenses decreased $0.1 million from $1.9 million in 1996 to $1.8 million in 1997. This decrease was primarily due to lower personnel costs resulting from expense reduction efforts as MapQuest revised its business strategy. Interest Income and Expense, Net Interest income decreased by $0.1 million from $0.2 million in 1996 to $0.1 million in 1997. The decrease from 1996 to 1997 was the result of changes in average cash and cash equivalent balances. 23 Other Income Other income remained relatively constant at $0.2 million in 1996 and in 1997. Income Taxes MapQuest paid no income taxes in 1997. Income taxes paid in 1996 were less than $0.1 million. Selected Unaudited Quarterly Results of Operations The following table sets forth selected unaudited quarterly statement of operations data for each of the eight quarters ended December 31, 1998. The selected statement of operations data has been prepared substantially on the same basis as the financial statements appearing elsewhere in this prospectus and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information set forth in the data. The quarterly data should be read together with the financial statements and the notes to those statements appearing elsewhere in this prospectus. The results of operations for any quarter are not necessarily indicative of results to be expected in any future period.
Quarter Ended ----------------------------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, 1997 1997 1997 1997 1998 1998 1998 1998 --------- -------- --------- -------- --------- -------- --------- -------- (Unaudited, in thousands) Revenues Business............... $1,192 $ 1,054 $ 1,251 $ 1,266 $1,720 $1,334 $1,834 $ 1,648 Consumer............... 117 180 465 514 292 259 245 580 Digital mapping........ 4,093 3,593 3,758 3,933 3,538 4,729 3,896 4,642 ------ ------- ------- ------- ------ ------ ------ ------- Total revenues......... 5,402 4,827 5,474 5,713 5,550 6,322 5,975 6,870 Costs of revenues....... 3,479 3,574 3,994 4,255 3,654 4,618 4,283 5,091 ------ ------- ------- ------- ------ ------ ------ ------- Gross profit............ 1,923 1,253 1,480 1,458 1,896 1,704 1,692 1,779 Operating expenses Sales and marketing.... 1,351 1,718 1,990 2,198 1,483 1,067 1,163 1,530 Product development.... 1,143 1,633 1,138 1,134 877 813 728 537 General and administrative....... 422 526 440 423 465 527 529 805 ------ ------- ------- ------- ------ ------ ------ ------- Total operating expenses............. 2,916 3,877 3,568 3,755 2,825 2,407 2,420 2,872 ------ ------- ------- ------- ------ ------ ------ ------- Operating income loss... (993) (2,624) (2,088) (2,297) (929) (703) (728) (1,093) Interest income and expense, net.......... 17 6 61 52 23 14 8 9 Other income............ 49 118 74 26 47 70 117 10 ------ ------- ------- ------- ------ ------ ------ ------- Net loss................ $ (927) $(2,500) $(1,953) $(2,219) $ (859) $ (619) $ (603) $(1,074) ====== ======= ======= ======= ====== ====== ====== =======
MapQuest's total revenues fluctuated on a quarter-to-quarter basis during the periods presented primarily due to changes in the mix of products and services sold. During the quarter ended March 31, 1998, MapQuest recognized business revenues of $0.4 million resulting from the license of its software and data to a third-party. During the quarter ended March 31, 1998, revenues from MapQuest's consumer line of business decreased as a result of difficulties with its then third-party advertising sales organization. During the quarter ended September 30, 1997, MapQuest began recognizing digital mapping revenues attributable to an agreement entered into with National Geographic Holdings, Inc. to develop and publish mapping products for retail distribution with the National Geographic brand name. During the quarter ended June 30, 1998, MapQuest began providing the American Road Atlas to National Geographic for sale to its members. This resulted in increased digital mapping revenues partially offset by increased cost of revenues relating to print and paper costs for printed product. 24 During the quarters ended December 31, 1997 and March 31, 1998, MapQuest temporarily reduced its sales and marketing and product development activities, including reducing its number of employees, as it revised its overall business strategy. As part of its revised Internet strategy, MapQuest reduced its non- Internet product development activities in the quarter ended December 31, 1998. During the same quarter, MapQuest incurred additional general and administrative expenses in connection with hiring its Chief Executive Officer. As a result of MapQuest's relatively recent focus on the Internet and the emerging nature of the Internet markets in which it competes, MapQuest is limited in its ability to accurately forecast its revenue. MapQuest's current and future expense levels are based largely on its estimates of future revenue and are to a large extent fixed. Accordingly, MapQuest may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall, and a shortfall in revenue in relation to MapQuest's expectations could have a material adverse effect on MapQuest's business, financial condition and results of operations. In addition, MapQuest currently intends to significantly increase its operating expenses to develop and enhance its technology, to create, introduce and enhance its products and services offerings, to fund increased sales and marketing expenses and to enter into new strategic agreements. To the extent that these expenses precede or are not subsequently followed by increased revenue, MapQuest's business, financial condition and results of operations could be materially adversely affected. MapQuest's quarterly and annual operating results are likely to fluctuate significantly in the future due to a variety of factors, many of which are outside MapQuest's control. See "Risk Factors--Fluctuations in our operating results may negatively impact our stock price." Liquidity and Capital Resources MapQuest has financed its operations to date primarily through the private placement of equity securities, funds from operations and bank borrowings. As of December 31, 1998, MapQuest had $0.6 million of cash and cash equivalents. MapQuest's days sales outstanding in accounts receivable, calculated on a quarterly basis, were 86 days and 87 days for the fourth quarter ended December 31, 1997 and 1998, respectively. However, due to revenues fluctuating on a quarter-to-quarter basis, average days sales outstanding in accounts receivable may periodically exceed 90 days. The average collection period is a result of the payment practices of some of MapQuest's customers. Net cash used in operating activities was $9.5 million in 1997 and $0.8 million in 1998. In 1997, cash used by operating activities was primarily a result of a net loss and increased working capital. In 1998, cash used by operating activities was primarily a result of a net loss. Net cash provided by financing activities was $11.4 million in 1997. In 1997, cash provided by financing activities was primarily attributable to net proceeds from the issuance of convertible preferred stock. Net cash used in investing activities was $1.5 million in 1996, $1.3 million in 1997 and $1.1 million in 1998. Cash used in investing activities in each period was primarily related to purchases of property and equipment. In addition, in 1996 MapQuest acquired the assets of a map specialty supplier. MapQuest's material capital commitments consisted of obligations under facilities and operating leases. Management anticipates that it will experience an increase in its capital expenditures and lease commitments consistent with its anticipated growth in operations, infrastructure and personnel and additional resources devoted to building its brand name and building its marketing and sales force. See Note 10 to Financial Statements. MapQuest has a revolving demand credit facility with First Union Bank, N.A. in the amount of $5.0 million which bears interest at First Union Bank's prime rate or fixed rates as offered by First Union Bank or 25 LIBOR plus 1.75%. Borrowings are secured by MapQuest's accounts receivable and are limited to the lesser of $5.0 million or 80% of the net amount of eligible accounts receivable which are within 90 days of invoice. As of December 31, 1998, there were no borrowings under this credit facility. MapQuest believes that the net proceeds of this offering, together with its existing cash and cash equivalents and available borrowings, will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for at least the next twelve months. There can be no assurance that the underlying assumed levels of revenues and expenses will prove to be accurate. MapQuest may seek additional funding through public or private financings or other arrangements prior to such time. Adequate funds may not be available when needed or may not be available on terms favorable to MapQuest. If additional funds are raised by issuing equity securities, dilution to existing stockholders will result. If funding is insufficient at any time in the future, MapQuest may be unable to develop or enhance its products or services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on MapQuest's business, financial condition and results of operations. Year 2000 The Year 2000 issue is the potential for system and processing failures of date-related data as a result of computer-controlled systems using two digits rather than four to define the applicable year. For example, computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operations, including, among other things, an inability to process transactions, send invoices or engage in similar normal business activities. MapQuest may be affected by Year 2000 issues related to non-compliant information technology ("IT") systems or non-IT systems operated by MapQuest or third parties. MapQuest's IT systems consist of software and data developed either in-house or purchased from third parties, and hardware purchased from vendors. State of Readiness. MapQuest has completed a preliminary assessment of its information technology systems, which includes but is not limited to, the hardware and software necessary to provide and deliver mapquest.com. MapQuest is continuing to perform assessments of its non-information technology systems, which include many of the building and office equipment and systems. To date, MapQuest's assessment has consisted of the following steps: . establishing a Year 2000 Committee in the third quarter of 1998 consisting of managers from all relevant functional areas of the company; . identifying and evaluating all software and hardware upon which MapQuest is dependent; . contacting third-party vendors of hardware, software and services, including database providers that MapQuest utilizes; . contacting material non-information technology systems and service providers; . developing and formalizing procedures to implement necessary remedial measures; and . assessing the need for and developing a business contingency plan. As of the end of the first quarter of 1999 MapQuest has performed the following: . the Committee has reviewed all functional areas of MapQuest and has identified various systems and software programs that are not Year 2000 compliant; . MapQuest has performed a Year 2000 simulation on a majority of its proprietary systems, products and services to test system and product readiness; . based on the results of its Year 2000 simulation tests, MapQuest has revised and continues to revise its code as necessary to improve the Year 2000 compliance of its proprietary systems; . MapQuest is continuing to upgrade and test all other hardware and software used in its operations; 26 . MapQuest's hosting service provider, Qwest, has stated that it has established a dedicated Year 2000 Program Office to address the compliance functions of its affected systems and is actively preparing its systems for the Year 2000; . MapQuest has identified all vendors of material hardware and software components of its IT systems, and has contacted its principal vendors of hardware, software, and data providers; . Management is continuing the process of working with its hardware and software providers to assure that MapQuest is prepared for the Year 2000; and . MapQuest is currently assessing its non-IT systems. At this point in its assessment, MapQuest is not currently aware of any Year 2000 problems relating to these systems which would have a material effect on its business, financial condition or results of operations, without taking into account its efforts to avoid such problems. MapQuest plans to complete its Year 2000 assessment during the summer of 1999. Cost. To date, MapQuest has not incurred any material costs in connection with identifying and evaluating Year 2000 compliance issues. Most of its expenses have been related to, and are expected to continue to relate to, the operating costs associated with time spent by employees in the evaluation process and Year 2000 compliance matters generally. At this time, MapQuest does not possess the information necessary to estimate the potential costs of the replacement of third party software, hardware or services that are determined not to be Year 2000 compliant. Although MapQuest does not anticipate those amounts will be material, such expenses, if higher than anticipated, could have a material adverse effect on MapQuest's business, financial condition and operating results. Risks. Although MapQuest's assessment may be finalized without identifying any additional material non-compliant IT or systems operated by MapQuest or by third parties, a systemic failure beyond the control of MapQuest, such as a prolonged telecommunications or electrical failure is possible. This type of failure could prevent MapQuest from operating its business, prevent users from accessing its website, or change the behavior of advertising customers or persons accessing its website. MapQuest believes that the primary business risks, in the event of such systemic failure, would include but not be limited to, lost advertising revenues, lost business revenues, increased operating costs, loss of customers or persons accessing its website and servers, or other business interruptions of a material nature, as well as claims of mismanagement, misrepresentation, or breach of contract. Contingency Plan. As discussed above, MapQuest is engaged in an ongoing Year 2000 assessment. The results of MapQuest's further testing and the responses received from third-party vendors, service providers and customers will be taken into account in determining the nature and extent of any contingency plans. 27 BUSINESS Overview MapQuest is a leading online provider of mapping and destination information. By effectively employing its over 30 years of traditional and digital mapping experience together with its proprietary integration and editing of geographic databases, MapQuest provides comprehensive online mapping solutions to businesses and provides customized maps, destination information and driving directions to consumers. During February 1999, MapQuest delivered over 76.2 million maps and over 14.2 million driving directions through its own website and through third-party websites. According to Media Metrix, Inc., in February 1999 mapquest.com had over 2.7 million unique visitors, making it the number five travel/tourism Internet property in terms of audience reach. Industry Background Growth of the Internet The Internet is an increasingly significant global medium for distributing and collecting information, conducting commerce and communicating. International Data Corporation estimates that the number of Internet users worldwide exceeded 69.0 million in 1997 and will grow to over 320.0 million by 2002, representing a compounded annual growth rate of over 35%. According to Forrester Research, Inc., by 2002 approximately 50% of U.S. businesses will have an online presence. The growth of the Internet is being driven by a number of factors, including: . increased use of personal computers and modems; . improvements in network systems and infrastructure; . more readily available and lower cost access to the Internet; . increased awareness of the Internet among businesses and consumers; . increased volume of information and services offered on the Internet; . more compelling interactive content available on the Internet; and . increased acceptance of conducting transactions online. Convergence of the Traditional and Digital Mapping Industries and the Internet Geographically-relevant information has traditionally been provided through a variety of reference materials, including road maps, atlases, travel guides, telephone directories and textbooks. According to a 1998 International Map Trade Associations' United States consumer survey, the annual market for published map, atlas and travel guide products in the United States is estimated to be in excess of $1.6 billion. The development of technology has allowed companies to effectively employ their databases of information across a greater number of platforms such as CD-ROMs, client/server systems and the Internet. Further, with the development of the Internet, users are able to easily and cost-effectively access information on a 24-hour basis. MapQuest believes that the Internet presents a significant opportunity to provide users with comprehensive and reliable geographically relevant information through the delivery of highly customized maps, destination information and driving directions on a real-time basis. Online Destination Information for Businesses Businesses must be able to cost-effectively communicate their existence and physical locations to potential customers. This information has historically been provided through traditional print media, such as newspapers and the yellow pages, which generally target only narrow geographic audiences and have a limited ability to provide updated destination information that is tailored to the specific routing needs of a potential customer. MapQuest believes that the Internet presents a significant opportunity for businesses to provide potential customers with real-time physical location information and customized driving directions to such locations. 28 In addition, highly trafficked websites such as portals, which provide users with a wide range of information and services at a single site, need to continually enhance and expand their service offerings to promote and extend usage among existing and new users. Many of these sites have expanded their websites through the addition of a variety of features such as stock quotes, news, yellow pages, and mapping and destination information. However, many of these websites do not have the personnel or technical infrastructure necessary to provide these expanded service offerings on a cost-effective basis. MapQuest believes that businesses will increasingly seek to outsource products and services to expand the service offerings of their websites. Online Destination Information for Consumers Consumers and travelers have traditionally located businesses and other points of interest by using maps, telephone and general information inquiries. As the availability of travel-related information on the Internet becomes more available, consumers and travelers are increasingly obtaining location information online. MapQuest believes there is a significant opportunity to provide consumers and travelers with easily accessible, reliable and comprehensive door-to-door driving directions available 24 hours a day. Geographically Targeted Online Advertising Forrester Research, Inc. estimates that online advertising revenues will grow from approximately $1.0 billion in 1998 to approximately $8.1 billion in 2002. Advertisers on the Internet desire cost-effective means of targeting their advertising and direct marketing efforts. MapQuest believes that specific location information provided by a consumer on a real-time basis would improve these efforts. MapQuest believes there is a significant opportunity to provide accurate and reliable products and services designed to meet the mapping and destination information needs of businesses and consumers on the Internet. Businesses must be able to accurately direct a potential customer to their physical location(s). Further, to successfully attract and retain users, highly trafficked websites need to continually and cost-effectively expand the service offerings of their websites. In addition, consumers using the Internet need a reliable source of real-time customized destination information available 24 hours a day. The MapQuest.com Solution MapQuest is a leading online provider of mapping and destination information for businesses and consumers. MapQuest's online products and services enable businesses to: . Provide customized maps, destination information and driving directions to potential customers; . Expand the service offerings of their websites to attract and retain users; . Use outside sources to meet their map-generating and destination information needs, thereby avoiding a significant portion of the expenses normally associated with establishing and maintaining a map- generating personnel and technology organization; and . Provide potential customers with information regarding which of a business' multiple locations is closest to the potential customer. MapQuest's online products and services enable consumers to: . Receive maps and destination information on a real-time basis based on specific location parameters provided by the customer; . Generate detailed door-to-door driving directions at anytime; and . Create and retrieve customized maps based on the consumer's preferences. 29 MapQuest is also a leading U.S. provider of traditional and digital mapping products and services to the educational, reference, directory, travel and governmental markets. In addition, companies that incorporate call centers, CD- ROMs or driving direction kiosks into their information delivery strategy require non-Internet customized mapping solutions. MapQuest has developed its map-generating software to promote the rapid development of mapping applications in these environments. Strategy MapQuest's objective is to be the leading online provider of destination solutions for businesses and consumers. Key elements of MapQuest's strategy include: Build Brand Awareness. MapQuest intends to further its position as an industry leader for online destination information for businesses and consumers by enhancing its brand name recognition. In addition to branding on its website, MapQuest currently co-brands its products and services on each of its business customer's websites. MapQuest intends to expand its use of advertising, public relations and other marketing programs designed to promote its global brand and build loyalty among its business and consumer customers. In the future, MapQuest intends to expand both its online and offline marketing programs. Expand and Enhance the MapQuest Service. MapQuest intends to continue to broaden and deepen its services by providing comprehensive, cost-effective, accurate and easily accessible information and value-added tools and features. MapQuest is developing product and service enhancements aimed at its business customers, including enhancing their opportunity to offer geographically targeted advertising programs on their websites. MapQuest's planned enhancements to its consumer service include introducing greater personalization features to mapquest.com. Grow Sales Channels Aggressively. MapQuest intends to build its sales capabilities in order to broaden penetration of its products and services and generate increased revenues. MapQuest intends to build its direct field sales force to target U.S. and international markets. MapQuest also seeks to develop strategic relationships in the value-added-reseller ("VAR") channels. MapQuest also intends to build its own advertising sales force in order to augment the current third-party representative sales force it engages to sell advertisements on mapquest.com. Develop Additional Advertising Opportunities. MapQuest intends to increase and expand its advertising revenue opportunities by offering new methods of targeted advertising based on a consumer's geographic information. MapQuest will use consumer-provided information to provide advertisers with the ability to base their advertising and promotions on a consumer's geographic information. Use Existing Integrated Geographic Data as a Platform. MapQuest intends to develop new products and services by effectively employing the comprehensive integrated geographic databases it has been developing since 1967. MapQuest has utilized proprietary editing software tools to create its geographic data from multiple providers in a variety of data formats. Pursue International Opportunities. MapQuest believes that significant opportunities exist to expand MapQuest's products and services internationally. As of December 1998, approximately 10.8% of the maps that MapQuest generates from its own website represent international locations. MapQuest intends to expand its international marketing efforts to gain access to additional business customers seeking to improve the service offerings of their websites and consumers seeking online map-related information. 30 MapQuest Products and Services Internet Business
Application Name of and Product/Service Data Host Description --------------------- ----------------- ------------------------------------- MapQuest Connect MapQuest . Enables businesses to display user- requested maps based on any combination of city, state, street address and ZIP code in the United States. MapQuest InterConnect MapQuest . Enhances MapQuest Connect. . Enables consumers who visit a business' website to find the closest location to a user's point of origin. MapQuest Locator MapQuest . Enhances MapQuest InterConnect. . Enables more advanced location searching by integrating MapQuest with specific geographic search parameters contained in its business customer's database, such as "find closest gas station with a car wash." MapQuest TripConnect MapQuest . Enables businesses to provide consumers with door-to-door driving instructions, including a route- highlighted map, trip mileage and estimated driving time. MapQuest Enterprise MapQuest . Provides mapping and routing Service capability designed primarily for high volume websites. . Enables business customers to integrate generated map pages into their websites. MapQuest Enterprise Business Customer . Provides mapping and routing Server capability designed primarily for high volume websites. . Enables business customers to integrate generated map pages into websites. MapQuest Server for Business Customer . Provides mapping and routing Windows NT capability designed primarily for low volume websites. . Enables business customers to customize their own mapping solutions.
Internet Consumer The mapquest.com website offers several menu options for consumers: . Maps--enables map generation either based on detailed supplied information or a more general location request; . Driving Directions--provides the most direct route from a point of origin to a destination using a variety of options and formats, including door-to-door, city-to-city, overview map with text, text only or turn-by-turn; . Travel Guide--provides access to lodging, dining, city and weather information for most consumer-requested destinations, all of which can be tailored by the consumer to fit his or her particular information needs; . Buy A Map--provides access to the MapStore to buy U.S. and international maps, road atlases, travel guides and other map and travel-related products; and . Membership--by becoming a member, the consumer is able to save generated maps, place his or her personalized icons on generated maps that can be stored for future use, receive advance notice of new MapQuest features and enhancements and become eligible for promotional offers. 31 Traditional and Digital Mapping Products and Services MapQuest publishes or provides the relevant geographic data for printed road maps, atlases, travel guides, hotel and telephone directories, maps used in textbooks and reference books, and CD-ROMs. In addition, MapQuest's products and services include software applications incorporating customized mapping solutions for publishers and producers of CD-ROMs. MapQuest also provides extensive cartography, geographic database development, comprehensive map data maintenance, advanced mapping technology and consultation services to a wide variety of customers on a fee for service basis. MapQuest's traditional and digital mapping customers include National Geographic, Galileo International, Ryder, Exxon, Best Western and the Alamo and National car rental units of Republic Industries. MapQuest's product development strategy is to enhance the technology and features of its Internet, client/server network applications and traditional and digital mapping applications and to further expand its core geographical database assets. MapQuest has numerous development projects in process. MapQuest expects to continue to devote substantial resources to its product development activities. Sales and Marketing MapQuest sells its Internet business products and services in the United States through a sales organization of 17 employees as of January 31, 1999. This sales organization consists of 12 direct field salespeople based throughout the United States and five telemarketers located at MapQuest's Denver office. In addition, MapQuest sells its Internet products and services through indirect sales channels, including value-added resellers such as Moore Data, SABRE BTS and Three-X Communications. Sales of advertisements on mapquest.com have been generated by third-party advertising sales representatives and to a lesser extent by MapQuest's internal advertising sales force, which consisted of two persons as of January 31, 1999. MapQuest sells its traditional and digital mapping products through a direct sales force consisting of 11 field salespersons and telemarketers. MapQuest markets its products and services online by placing advertisements on third-party websites. In addition, MapQuest advertises through traditional offline media and utilizes public relations campaigns, trade shows and ongoing customer communications programs. 32 Customers As of January 31, 1999, MapQuest had licensed its products and services to over 380 business customers. No one customer accounts for over 10% of MapQuest's overall revenues. The following is a representative list of customers as of December 31, 1998: Telecommunications/Directories Content Providers Ameritech Excite APIL Partnership (Don Tech) Infoseek GTE Lycos Pacific Bell Ticketmaster-Citysearch Southwestern Bell Yahoo! US West Travel/Entertainment Retail/Services American Automobile Association Blockbuster American Express Border's Group Avis Cybermeals Bass Hotel and Resorts Home Depot Best Western Kinko's Budget Rent-A-Car Sears Galileo International Hertz Publishers/Advertising Agencies Republic Industries Ryder Transportation Services Classical Atlas Sabre Group (Travelocity) DDB Needham Sierra On-Line Harte Hanks McGraw-Hill Media Modem Media . Poppe Tyson R.R. Donnelley Denver Post Los Angeles Times Real Estate National Geographic Cendant Other Moore Data Citgo Petroleum Exxon Technology and Infrastructure Geographic Data MapQuest has licensed a significant portion of its primary geographic data from a limited number of sources through non-exclusive, short-term contractual arrangements. MapQuest currently relies on United States street level data drawn from the U.S. government and through agreements with NavTech and Geographical Data Technologies ("GDT"). Data covering Canada is supplied by Desktop Mapping Technologies Inc. MapQuest obtains Western European street and major road data from TeleAtlas, NavTech and AND Mapping NV. Major road data for the rest of the world is obtained from AND Mapping NV. If MapQuest lost access to these sources of third-party data or should the terms of these contractual arrangements materially change, MapQuest would need to substitute alternative sources of data or attempt to develop substitute sources of data internally, and MapQuest's business, financial condition and results of operations could be materially and adversely affected. MapQuest's own proprietary data assets also support its online and traditional and digital mapping products and services. MapQuest has spent approximately six years developing a United States major road database. MapQuest also maintains a graphical image database that contains over 190,000 archived files to serve as an internal reference library. In addition, MapQuest has developed a suite of international city map data that includes over 300 metropolitan maps and over 500 downtown maps of most major international tourist and business destinations. 33 Software and Editing Tools MapQuest's proprietary software development toolkit, GeoLocate, employs scalable object-oriented technology and comprises the core tools used to perform high-speed mapping while maintaining high-quality cartographic display. Designed with an open architecture, GeoLocate offers platform flexibility in converting a variety of data formats. GeoLocate has been used in the development of MapQuest's Internet technology, resulting in the creation of a scalable platform that is designed to serve millions of maps and driving directions on a daily basis. An easy-to-use consumer interface overlays MapQuest's variety of integrated data formats and personalization tools, enabling consumers to save and display customized maps and driving directions. MapQuest has also developed numerous software tools and has customized existing commercial applications to create and maintain its digital map databases. System Architecture Maps and driving directions delivered by MapQuest are generated utilizing a UNIX operating system, Apache web server software and MapQuest's proprietary mapping applications. User activity is distributed and load-balanced across multiple servers via our proprietary software and third-party equipment, which maintain replicated, local storage of underlying software and data, resulting in minimal interdependencies among servers. Each server has its own local storage, and all data and software are replicated across all servers. The system's flexible architecture is designed to be scalable to meet anticipated future demand. In addition to built-in redundancies, MapQuest operates automated internal monitoring tools seven days a week/24 hours a day and independent third parties continuously monitor MapQuest's website from at least 10 different cities on at least eight different national Internet backbone providers. MapQuest's network, hosting facilities, internal architecture and monitoring are deployed to provide high availability, efficiency and redundancy. MapQuest's Internet map and driving direction applications are located in Denver, Colorado in a Qwest Communications Cyber Center hosting facility tied to Qwest's nationwide, dedicated high speed OC-48 IP network. mapquest.com is connected to Qwest's backbone via Cisco routers and multiplexers. Qwest does not guarantee that our Internet access will be uninterrupted, secure, or error free and MapQuest's operations are dependent on Qwest's ability to protect its and MapQuest's systems against damage from fire, power loss, water damage, telecommunications failure, vandalism, and other malicious acts. Any disruption in the Internet access provided by Qwest could have a material adverse effect on MapQuest's business, financial condition and results of operations. Competition The markets for MapQuest's products and services are highly competitive. MapQuest competes for customers with companies offering online map-enabling technology and publishers and distributors of traditional print media that use or license their content for use on the Internet, commercial publishing companies, corporate materials and information market companies, and governmental authorities. In addition, the information supplied by MapQuest on mapquest.com is available for free through other websites. MapQuest expects competition to continue to increase because these markets, particularly the markets for Internet-related products and services, pose no substantial barriers to entry. Competition may also increase as a result of industry consolidation. In addition, MapQuest's licensees may develop products and services that are equal or superior to MapQuest's or that achieve greater market acceptance than those of MapQuest. Similarly there can be no assurance that MapQuest's data suppliers will not develop products and services competitive with those of MapQuest or will continue licensing data to MapQuest. Increased competition could result in reduced markets, loss of market share or less traffic to MapQuest's website, any of which could have a material adverse effect on MapQuest's business, financial condition and results of operations. MapQuest believes that its ability to compete depends upon many factors, many of which are beyond its control. These factors include MapQuest's ability to provide depth and accuracy of destination information, to 34 increase its sales force and to implement its sales and marketing initiatives, the introduction and acceptance of new and enhanced products and services developed either by MapQuest or its competitors and the ease of use of products and services developed either by MapQuest or its competitors. Government Regulation There is an increasing number of laws and regulations pertaining to the Internet including laws or regulations relating to user privacy, liability for information retrieved from or transmitted over the Internet, online content regulation, user privacy, taxation and domain name registration. Moreover, the applicability to the Internet of existing laws governing issues such as intellectual property ownership and infringement, copyright, patent, trademark, trade secret, obscenity, libel, employment and personal privacy is uncertain and developing. Privacy Concerns. Government agencies are considering adopting regulations regarding the collection and use of personal identifying information obtained from individuals when accessing websites. While MapQuest has implemented and intends to implement additional programs, designed to enhance the protection of the privacy of its users, these programs may not conform with any regulations adopted by these agencies. In addition, these regulatory and enforcement efforts may adversely affect the ability to collect demographic and personal information from users, which could have an adverse effect on MapQuest's ability to provide advertisers with geocentric information. The European Union (the "EU") has adopted a directive that imposes restrictions on the collection and use of personal data. The directive could impose restrictions that are more stringent than current Internet privacy standards in the United States. The directive may adversely affect the activities of entities such as MapQuest that plan to engage in data collection from users in EU member countries. Internet Taxation. A number of legislative proposals would impose additional taxes on the sale of goods and services over the Internet which may substantially impair the growth of commerce on the Internet and, as a result, adversely affect MapQuest's opportunity to derive financial benefit from these activities. Domain Names. Domain names are the user's Internet "addresses." The current system for registering, allocating and managing domain names has been the subject of litigation and of proposed regulatory reform. Although MapQuest has applied to register "mapquest.com" as a trademark, third parties may bring claims for infringement against MapQuest for the use of this trademark. There can be no assurance that MapQuest's domain name will not lose its value, or that MapQuest will not have to obtain entirely new domain names in addition to or in lieu of its current domain names if reform efforts result in a restructuring in the current system. Jurisdictions. Due to the global nature of the Internet, it is possible that, although transmissions by MapQuest over the Internet originate primarily in Denver, the governments of other states and foreign countries might attempt to regulate MapQuest's business activities. In addition, as MapQuest's service is available over the Internet in multiple states and foreign countries, these jurisdictions may require MapQuest to qualify to do business as a foreign corporation in each of these states or foreign countries, which could subject MapQuest to taxes and other regulations. Liability for Information Retrieved from mapquest.com and from the Internet Content may be accessed on mapquest.com or on the websites of MapQuest's business customers, and this content may be downloaded by users and subsequently transmitted to others over the Internet which could result in claims against MapQuest based on a variety of theories, including negligence, copyright, patent or trademark infringement. It is also possible that if any destination information provided on or through mapquest.com contains errors, third parties could make claims against MapQuest for losses incurred in reliance on such information. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on MapQuest's business, financial condition and results of operations. 35 Intellectual Property We rely upon a combination of patent, trademark, copyright law, trade secret protection and contractual restrictions with employees, customers, partners and others to protect our proprietary rights. We do not currently hold any patents, but we have filed one patent application with the United States Patent and Trademark Office, and intend to file a second patent application in the near future. There can be no assurance that our patent applications will be approved and, if approved, that they will not be successfully challenged by others or invalidated through administrative process or litigation. Patent, trademark, copyright and trade secret protection may not be available in every country in which our products and services are distributed or made available. If we fail to adequately protect our proprietary rights, our business, financial condition and results of operations could be materially and adversely affected. Legal standards relating to the validity, enforceability and scope of protection of certain proprietary rights in Internet-related industries are uncertain and still evolving, and no assurance can be given as to the future viability or value of any of our proprietary rights or those of other companies within the industry. Despite our efforts to protect our proprietary rights, third parties may infringe or misappropriate these rights, which could result in a material adverse effect on our business, financial condition and results of operation. Currently we are a defendant in two pending litigations involving allegations of infringements of third-party patents by our technologies. Both litigations are in the early stages. While we intend to defend these actions vigorously, our efforts may not be successful. In addition, in the ordinary course of business we have been, and we expect to continue to be, subject to claims, including claims of alleged infringement of the patents, trademarks and other proprietary rights of third parties. We expect that infringement claims in our markets will increase in number as more participants enter the market. These claims and any resultant litigation could subject us to significant liability for damages and could result in the invalidation of our proprietary rights. In addition, even if we prevail, such litigation could be time- consuming and expensive to defend, and could result in the diversion of our time and attention, any of which could materially adversely affect our business, financial condition and results of operations. Any claims from third parties may also result in limitation on our ability to use the trademarks, patents, copyrights and other intellectual property subject to such claims unless we enter into agreements with the third parties responsible for such claims, which may be unavailable on commercially reasonable terms. Employees As of January 31, 1999, MapQuest employed 222 persons, including 63 cartographers, 16 GIS/database analysts, 59 software/systems/Internet engineers, 46 persons in sales, marketing and customer-support, and 38 persons in general and administrative areas. None of MapQuest's employees is represented by a labor union and MapQuest believes it has good employee relations. MapQuest believes that its future success will depend in part on its continued ability to attract, integrate, retain and motivate highly qualified sales, technical, and managerial personnel, and upon the continued service of MapQuest's senior management and key sales and technical personnel. MapQuest may not successfully attract, integrate, retain and motivate a sufficient number of qualified personnel to conduct its business in the future. Please see "Risk Factors--We may not be able to successfully manage our expansion." Facilities MapQuest's headquarters are located in Mountville, Pennsylvania, where MapQuest currently leases approximately 62,000 square feet under a ten-year lease expiring in March 2007. MapQuest also leases approximately 7,200 square feet in Columbia, Maryland under a two-year lease expiring in June 2000, approximately 11,000 square feet in Denver, Colorado under a three-year lease expiring in October 1999, approximately 11,600 square feet in Mount Joy, Pennsylvania under a three-year lease expiring December 2000, and approximately 4,200 square feet in New York, New York under a seven-year lease expiring January 2006. MapQuest intends to expand its sales and marketing staff and therefore may require additional facilities in the foreseeable future. 36 Legal Proceedings On December 14, 1998, Mark Tornetta filed a lawsuit against Moore U.S.A., Inc. in the United States District Court for the Eastern District of Pennsylvania. MapQuest is defending this matter pursuant to an indemnity provision in its contract with Moore U.S.A., Inc. Mr. Tornetta's patent describes a specific method for searching real estate properties, which Mr. Tornetta alleges is infringed by Moore U.S.A., Inc.'s online real estate service. MapQuest believes that the claims of the patent are not infringed by MapQuest, and/or the patent is invalid. While the litigation is in the early stage, and its outcome cannot be predicted, MapQuest believes that this litigation is without merit, and intends to defend this action vigorously. On January 26, 1999, Civix-DDI, LLC filed a lawsuit in the United States District Court for the District of Colorado against twenty different defendants, including MapQuest. Seven of these defendants are licensees of MapQuest technology and may have rights to indemnification under their respective agreements or at law. The complaint alleges infringement by MapQuest of two patents, by manufacture, use, sale, and offers to sell MapQuest electronic yellow page services, systems and products. MapQuest believes that the claims of the patents are not infringed by MapQuest, and/or the patents are invalid. While the litigation is in the early stage, and its outcome cannot be predicted, MapQuest believes that this litigation is without merit, and intends to defend this action vigorously. MapQuest is not party to any other material legal proceedings. 37 MANAGEMENT Executive Officers and Directors and Key Employees The following table sets forth certain information with respect to the executive officers, key employees and directors of MapQuest as of the date of this prospectus.
Name Age Position(s) ---- --- ----------- *Michael Mulligan................ 48 Chief Executive Officer, Chairman and Director *James Thomas.................... 48 Chief Operating Officer, Chief Financial Officer, Chief Accounting Officer, Treasurer and Secretary *William Muenster................ 46 Senior Vice President of Development and Production James Hilliard................... 47 Vice President of Digital Mapping Services James Killick.................... 36 Vice President of Product Management Michael Nappi.................... 44 Vice President of Business Solutions David Ingerman................... 36 Vice President of Marketing Michael Crosson.................. 46 Vice President of Advertising Sales Robert Binford................... 44 Corporate Controller, Assistant Treasurer and Assistant Secretary Robert McCormack (1)............. 59 Director John Moragne (2)................. 42 Director Daniel Nova (2).................. 37 Director Carlo von Schroeter (1).......... 35 Director C. Richard Allen................. 45 Director
- -------- * Denotes executive officer. (1) Member of Audit Committee. (2) Member of Compensation Committee. Michael Mulligan has served as Chief Executive Officer and Chairman of MapQuest since August 1998. From May 1995 to June 1998, Mr. Mulligan was Senior Vice President and General Manager of Corporate Services Interactive at American Express Travel Related Services, where he was responsible for developing and implementing American Express' interactive travel strategy. Mr. Mulligan was an independent consultant to various companies from October 1994 to April 1995. From September 1993 to October 1994, Mr. Mulligan served as Chief Operating Officer of Official Airline Guide, an airline information publishing company. Mr. Mulligan holds a B.A. from Wheeling College and an M.B.A. from Harvard Business School. James Thomas has served as Chief Financial Officer of MapQuest since July 1995 and as Chief Operating Officer of MapQuest since June 1997. From September 1994 to June 1995, Mr. Thomas was an independent consultant. From July 1993 to August 1994, Mr. Thomas was President of the publishing division of Sierra On- Line, Inc., a multimedia entertainment publisher and developer. Mr. Thomas holds a B.S. from the Florida Institute of Technology and an M.B.A. from the University of Virginia. William Muenster has served as Senior Vice President of Development and Production of MapQuest since September 1997. From February 1995 to August 1997, Mr. Muenster served as Unit President of MapQuest's Mapping Products and Services Group. From November 1993 to February 1995, Mr. Muenster served as MapQuest's Vice President of Operations. Mr. Muenster holds a B.A. from the University of Virginia and an M.I.M. from the American Graduate School. James Hilliard has served as Vice President of Digital Mapping Services of MapQuest since October 1998. From June 1996 to October 1998, Mr. Hilliard served as MapQuest's Vice President of Sales and Marketing for Mapping Products and Services. From July 1993 to June 1996, Mr. Hilliard served as MapQuest's Director of Publisher Services. Mr. Hilliard holds a B.B.A. and an M.S. from the University of Wisconsin. 38 James Killick has served as Vice President of Product Management of MapQuest since January 1998. From January 1997 to January 1998, Mr. Killick was MapQuest's Director of Product Management. From January 1996 to January 1997, Mr. Killick served as MapQuest's Director of Data Products. From January 1995 to January 1996, Mr. Killick was Director of Product Marketing at Etak, Inc., a mapping database company. From January 1994 to January 1995, Mr. Killick served as Director of Map Data Products at Etak, Inc. Mr. Killick holds a B.Sc. from the University of York, England. Michael Nappi has served as Vice President of Business Solutions of MapQuest since October 1997. From September 1995 to October 1997, Mr. Nappi served as MapQuest's Director of Business Development. Mr. Nappi held various sales positions with MapQuest from May 1992 to September 1995. Mr. Nappi holds a B.A. and a B.S. from Kent State University. David Ingerman has served as Vice President of Marketing of MapQuest since January 1999. From June 1998 to December 1998, Mr. Ingerman was President of Internet Marketing Associates Consulting, a consulting firm focusing on applying direct marketing disciplines to the Internet. From August 1984 to May 1998, Mr. Ingerman held various marketing positions at American Express. Mr. Ingerman holds a B.A. from the University of Pennsylvania and an M.B.A. from Columbia Business School. Michael Crosson has served as Vice President of Advertising Sales of MapQuest since January 1999. From March 1998 to January 1999, Mr. Crosson served as the Managing Director of Eastern Sales for NetRatings, a web audience measurement company. From January 1993 to March 1998, Mr. Crosson operated his own consulting business, developing strategic advertising and partnerships for websites. From April 1992 to August 1996, Mr. Crosson served as Director of Online Publishing at Scholastic, Inc., a publishing company. Mr. Crosson holds a B.A. from the University of Arizona. Robert Binford has served as Corporate Controller of MapQuest since January 1995. From February 1991 to January 1995, Mr. Binford served as a Financial Manager of MapQuest. Mr. Binford holds a B.S. from the University of Kentucky. Robert McCormack has served as a director of MapQuest since May 1998 and previously served as a director of MapQuest from November 1994 to July 1997. Since 1993, Mr. McCormack has been a managing director of Trident Capital, Inc., the general partner of Trident Capital, L.P., a private equity investment firm. Mr. McCormack serves on the boards of directors of Illinois Tool Works, Inc. and DeVry, Inc. Mr. McCormack holds a B.A. from the University of North Carolina and an M.B.A. from the University of Chicago. Mr. McCormack was elected to the board of directors pursuant to a voting agreement between MapQuest and some of MapQuest's stockholders which will be terminated upon the closing of this offering. John Moragne has served as a director of MapQuest since November 1994 and was Chairman of the board of directors of MapQuest from November 1994 until July 1997. Since 1993, Mr. Moragne has been a managing director of Trident Capital, Inc., the general partner of Trident Capital, L.P., a private equity investment firm. Mr. Moragne serves on the boards of directors of Daou Systems, Inc. Mr. Moragne holds a B.A. from Dartmouth College, an M.S. from Stanford University and an M.B.A. from Stanford Business School. Mr. Moragne was elected to the board of directors pursuant to a voting agreement between MapQuest and some of MapQuest's stockholders which will be terminated upon the closing of this offering. Daniel Nova has served as a director of MapQuest since July 1997. Since August 1996, Mr. Nova has served as a general partner of Highland Capital Partners, a venture capital firm. Previously, he was a general partner of CMG@Ventures from January 1995 to August 1996 and a Senior Associate at Summit Partners from June 1991 to January 1995. Mr. Nova is a director of eToys, an online retailer of toys, Lycos, Inc., an online portal and several private companies. Mr. Nova received a Bachelor of Science in Computer Science and Marketing with honors from Boston College and a Masters in Business Administration from Harvard Business School. Mr. Nova was elected to the board of directors pursuant to a voting agreement between MapQuest and some of MapQuest's stockholders which will be terminated upon the closing of this offering. 39 Carlo von Schroeter has served as a director of MapQuest since July 1997. Mr. von Schroeter is a General Partner of Weston Presidio Capital, a private equity partnership with over $900 million under management. Prior to joining Weston Presidio Capital at its inception in September 1992, Mr. von Schroeter was a Vice President with Security Pacific Capital. Mr. von Schroeter serves on the boards of directors of NOVA Pb, U.S. Netting, Star International Holdings, and The Lion Brewery. Mr. von Schroeter holds a B.S. from Queen's University, Canada and an M.B.A. from Harvard Business School. Mr. von Schroeter was elected to the board of directors pursuant to a voting agreement between MapQuest and some of MapQuest's stockholders which will be terminated upon the closing of this offering. C. Richard Allen has served as a director of MapQuest since May 1998. Since December 1997, Mr. Allen has served as the President and Chief Executive Officer of National Geographic Holdings, Inc. Mr. Allen is also the Chief Executive Officer of National Geographic Ventures, a position he has held since October 1997. From December 1995 to October 1997, Mr. Allen was a Senior Vice President of Discovery Communications, Inc., and from February 1993 to December 1995, Mr. Allen was Deputy Assistant to the President of the United States. Mr. Allen serves on the boards of directors of National Geographic Ventures, National Geographic Television, National Geographic Holdings, Inc., National Geographic Channel and Destination Cinema, Inc. Mr. Allen holds a B.A. from Dartmouth College and a J.D. from the University of Chicago. Mr. Allen is the nominee of the National Geographic Society to the board of directors pursuant to an agreement between MapQuest and the National Geographic Society which will be modified upon the closing of this offering so as to terminate the National Geographic Society's right to nominate a director to the board of directors. Please see "Certain Transactions--National Geographic Alliance" for a description of this agreement. Each officer serves at the discretion of MapQuest's board of directors. Within 90 days following this offering, MapQuest expects to nominate and elect an additional independent director. Director Terms and Compensation The members of the board of directors of MapQuest are divided into three classes, each of whose members will serve for a staggered three-year term. Upon the expiration of the term of a class of directors, directors in that class will be elected for three-year terms at the annual meeting of stockholders in the year in which their term expires. Independent, non-institutional investor directors are paid an annual retainer and will be granted stock options exercisable for shares of common stock. Directors who are also employees of MapQuest or who are affiliated with institutional investors do not receive any additional compensation for serving on the board of directors. Compensation Committee Interlocks and Insider Participation Pursuant to a voting agreement which will be terminated upon the closing of this offering, MapQuest's compensation committee is comprised of one director designated by Highland Capital Partners and Weston Presidio Capital, one director designated by Trident Capital Partners Fund - I, L.P. and Trident Capital Partners Fund - I, C.V. and one director designated by all of the directors other than those nominated by members of management. MapQuest's compensation committee currently has two members. In the past, compensation of executive officers of MapQuest has been determined by directors of MapQuest who were not officers of MapQuest. No interlocking relationship exists between MapQuest's board of directors and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed in the past. 40 Limitation of Liability and Indemnification Matters MapQuest's certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. The Delaware General Corporation Law provides that the personal liability of a director for monetary damages for breach of his or her fiduciary duties as a director may be eliminated, except for liability for: . any failure to act in good faith in the best interests of the corporation or its stockholders; . acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; . unlawful payments of dividends or unlawful stock repurchases or redemptions; or . any transaction from which the director derives an improper personal benefit. MapQuest's bylaws provide that MapQuest will indemnify its directors and officers and may indemnify its employees and agents to the fullest extent permitted by Delaware law. In addition to the indemnification provided for in its certificate of incorporation and bylaws, MapQuest intends to enter into agreements to indemnify its directors and officers. Under these agreements, MapQuest will be obligated to indemnify its directors and officers for expenses, attorneys' fees, judgments, fines and settlement amounts incurred by any director or officer in any action or proceeding arising out of the director's or officer's services as a director or officer of: . MapQuest; . any subsidiary of MapQuest; or . any other company or enterprise to which the person provides services at the request of MapQuest. MapQuest believes that these provisions and agreements are necessary to attract and retain qualified individuals to serve as directors and officers. 41 Executive Compensation and Employment Agreements The following table sets forth information concerning the compensation received for services rendered to MapQuest by its current Chief Executive Officer and each of the other four most highly-compensated executive officers of MapQuest for the year ended December 31, 1998, whose total compensation in 1998 equaled or exceeded $100,000: SUMMARY COMPENSATION TABLE
Long-Term Annual Compensation Compensation Awards --------------- Securities Salary Bonus Underlying All Other Name and Principal Position ($) ($) Options Compensation --------------------------- ------- ------- ------------ ------------ Michael Mulligan, Chief Executive Officer (1).... 94,769 100,000 1,944,000 -- James Thomas, Chief Operating Officer and Chief Financial Officer........................ 150,000 -- -- -- William Muenster, Senior Vice President of Development and Production..................... 140,004 -- -- -- James Hilliard, Vice President of Digital Mapping Services....... 115,008 28,177(2) 94,500 -- Michael Nappi, Vice President of Business Solutions............. 107,508 69,814(3) 243,000 -- Barry Glick, Former Chief Executive Officer (4).......... 131,256 -- -- 56,041(5)
- -------- (1) Mr. Mulligan was appointed Chief Executive Officer and Chairman of MapQuest on August 10, 1998. He received salary payments for the period August 10, 1998 through December 31, 1998. (2) Consists of a $23,177 bonus accrued in 1997 and paid in 1998 and a $5,000 sales bonus earned and paid in 1998. (3) Reflects sales commissions paid to Mr. Nappi. (4) Mr. Glick served as MapQuest's Chief Executive Officer prior to Mr. Mulligan's appointment and received salary payments for the period January 1, 1998 through September 30, 1998. (5) Represents payments made in connection with Mr. Glick's voluntary termination of employment. See "Certain Transactions--Other Transactions." David Ingerman was hired by MapQuest on January 15, 1999 to serve as Vice President of Marketing. His base salary is $130,008 and he may earn a bonus of up to 50% of his base salary upon the attainment of performance goals set by the board of directors. Mr. Ingerman also received options to purchase 270,000 shares of common stock at an exercise price of the per share price of this offering. These options vest over four years and expire on January 15, 2009. Michael Crosson was hired by MapQuest on January 20, 1999 to serve as Vice President of Advertising. His base salary is $125,004 and he received a bonus of $10,000 upon commencing his employment with MapQuest. Mr. Crosson is also entitled to sales commissions equal to 5% of any recognized personal sales, 1.5% of any sales made for MapQuest through third-party advertising sales representatives and 1.5% of any recognized sales made by Mr. Crosson's sales staff. Mr. Crosson also received options to purchase 160,000 shares of common stock at an exercise price of the per share price of this offering. These options vest over four years and expire on January 20, 2009. 42 OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth information as to options granted to the named executive officers during the year ended December 31, 1998. MapQuest has not granted any stock appreciation rights.
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants Option Term (1) ------------------------------------------- ----------------------- Percent of Total Number of Options Securities Granted to Exercise Underlying Employees Price Options in Fiscal Per Expiration Name Granted Year (2) Share Date 5% 10% ---- ---------- ---------- -------- ---------- --------- ---------- Michael Mulligan (3).... 1,944,000 67.9% $0.37 8/10/08 $452,351 $1,146,347 James Thomas............ -- -- -- -- -- -- William Muenster........ -- -- -- -- -- -- James Hilliard.......... 54,000 1.9 0.37 2/1/08 12,565 31,843 40,500 1.4 15.00(4) 12/31/08 382,053(4) 968,199(4) Michael Nappi........... 81,000 2.8 0.37 2/1/08 18,848 47,764 162,000 5.7 15.00(4) 12/31/08 1,528,214(4) 3,872,794(4) Barry Glick............. -- -- -- -- -- --
- -------- (1) Potential realizable values are net of exercise price, but before the payment of taxes associated with exercise. Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission and do not represent MapQuest's estimate or projection of MapQuest's future common stock prices. These amounts represent certain assumed rates of appreciation in the value of the common stock from the fair market value on the date of grant. Actual gains, if any, on stock option exercises are dependent on the future performance of the common stock and overall stock market conditions. The amounts reflected in the table may not necessarily be achieved. (2) Based on options to purchase an aggregate of 2,863,620 shares of common stock granted to MapQuest employees during the year ended December 31, 1998. (3) These options vest over four years as follows: 16.67% on August 10, 1998, 16.67% on the date of this offering, and 16.67% on each of August 10, 1999, August 10, 2000, August 10, 2001 and August 10, 2002. (4) The exercise price of these options is the initial public offering price in this offering. For purposes of calculating the potential realizable value, the exercise price is assumed to be $15.00 per share. 43 AGGREGATED STOCK OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES The following table sets forth information with respect to unexercised options held by the named executive officers as of December 31, 1998. No options were exercised by the named executive officers during 1998.
Number of Securities Underlying Value of Unexercised Unexercised Options In-the-Money Options at December 31, 1998 at December 31, 1998(1) ------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- ------------- Michael Mulligan............ 324,064 1,619,936 $4,740,948 $23,699,052 James Thomas................ 202,769 312,905 3,019,358 4,634,580 William Muenster............ 224,940 287,977 3,351,114 4,261,567 James Hilliard.............. 47,250 155,250 702,050 1,685,950 Michael Nappi............... 16,200 253,800 242,400 1,346,600 Barry Glick................. 508,914 -- 7,603,042 --
- -------- (1) There was no public trading market for the common stock as of December 31, 1998. Accordingly, these values have been calculated on the basis of the initial public offering price of $15.00 per share, less the applicable exercise price per share, multiplied by the number of shares underlying such options. Employment Agreements William Muenster Employment Agreement. In October 1994, MapQuest entered into an employment agreement with Mr. Muenster providing for: . an initial base salary of $82,500, subject to annual increases at the discretion of MapQuest's board of directors; . incentive compensation of an immediately payable bonus of $10,000 and the right to participate in MapQuest's annual bonus program; . an annual bonus of 15% of his base salary if MapQuest achieves its annual budget; and . an additional bonus of up to 15% of his base salary for any other target that the board of directors establishes. If MapQuest terminates Mr. Muenster's employment without cause or if he voluntarily terminates his employment, he is entitled to receive severance benefits equal to: . any salary and bonus earned through the date of his termination; . base salary for the six-month period after the date of his termination; and . health plan benefits for one year following the date of his termination. If Mr. Muenster is terminated by MapQuest for cause, he is entitled to receive: . his base compensation; . all earned and unpaid bonus compensation through the termination date of his employment; and . health plan benefits for one year following the date of his termination. In addition, Mr. Muenster has agreed to confidentiality, non-competition and non-solicitation provisions. Michael Mulligan Employment Agreement. On August 10, 1998, MapQuest entered into an employment agreement with Mr. Mulligan providing for: . an initial base salary of $240,000, subject to annual increases at the discretion of MapQuest's board of directors; and 44 . incentive compensation of an immediately payable bonus of $145,000 per year, based on objectives and according to a plan to be agreed by Mr. Mulligan and MapQuest's board of directors. If MapQuest terminates Mr. Mulligan's employment without cause, he is entitled to receive severance benefits equal to: . any salary and bonus earned through the date of his termination; and . health insurance benefits for one year following the date of is termination. If Mr. Mulligan is terminated by MapQuest for cause or if he resigns following the first anniversary of his employment, he is entitled to receive: . his base salary; and . all earned and unpaid bonus compensation through his termination date. In addition, Mr. Mulligan has agreed to confidentiality, non-competition and non-solicitation provisions. In addition, MapQuest granted Mr. Mulligan options to purchase 1,944,000 shares of common stock at an exercise price of $0.37 per share. The options granted under the employment agreement, subject to certain contingencies, vest over four years as follows: 16.67% on August 10, 1998, 16.67% on the date of this offering, 16.67% on each of August 10, 1999, August 10, 2000, August 10, 2001 and August 10, 2002. All of Mr. Mulligan's options will vest immediately in the event of the takeover of MapQuest by another person or corporation. Employee Benefit Plans 1995 Stock Option Plan An aggregate of 6,233,627 shares are reserved for issuance under the 1995 stock option plan. MapQuest may grant stock options under the 1995 stock option plan to its employees and officers and consultants. The board of directors selects the individuals to whom options are granted and specifies the terms of the options. Stock options granted under the 1995 stock option plan may either be incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986 or stock options that do not qualify as incentive stock options. As of December 31, 1998, options to purchase an aggregate of 4,847,650 shares of common stock had been granted, at a weighted average exercise price of $0.26 per share and options to purchase an aggregate of 645,570 shares of common stock had been granted, at an exercise price equal to the price per share in this offering. Since December 31, 1998, MapQuest has granted options to purchase an aggregate of 700,590 shares of common stock at an exercise price equal to the price per share of this offering. Options to purchase 1,484,954 shares of common stock will vest and become exercisable on the closing of this offering. Incentive stock options granted under the 1995 stock option plan may not be exercised more than 10 years after the date of grant. If an optionee leaves MapQuest, the optionee generally may exercise only those options vested as of the date of termination of service. Unless otherwise specified in the option agreement, if an optionee desires to exercise an option, the optionee must exercise within 90 days of termination of service for any reason other than death or disability, and within one year after termination due to death or disability. The exercise price of incentive stock options granted under the stock option plan cannot be less than the fair market value of the common stock of MapQuest on the date of grant. The exercise price of nonqualified stock options cannot be less than the lesser of $0.04 per share or the fair market value of the common stock as of the date of the stock option grant. An optionee may pay the exercise price in cash or in shares of MapQuest's common stock having a total fair market value equal to the aggregate exercise price. 45 The 1995 stock option plan provides for adjustments if a recapitalization or other change in the common stock of MapQuest dilutes the rights of stock option plan participants. If any person, directly or indirectly, acquires securities of MapQuest representing 50% or more of the voting power of MapQuest or other specified events constituting a change of control, each outstanding option automatically vests and becomes fully exercisable. Employee Stock Purchase Plan Concurrently with this offering, MapQuest established an employee stock purchase plan under which a total of 1,755,000 shares of common stock are available for sale. The purchase plan, which is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code of 1986 is administered by the board of directors or by a committee appointed by the Board. All employees of MapQuest or any present or future subsidiary of MapQuest designated by the Board of Directors may participate in the purchase plan. The purchase plan permits eligible employees to purchase common stock through payroll deductions, which may not exceed 10% of an employee's compensation, subject to certain limitations. The purchase plan will be implemented in a series of consecutive, overlapping offering periods, each approximately six months in duration. The purchase price of each share of common stock under the purchase plan will be equal to the lesser of 85% of the closing price per share of the common stock on the NASDAQ National Market System on the start date of that offering period or on the date of termination of the offering period. Employees may modify or end their participation in the purchase plan at any time prior to the termination date of an offering period. An employee's participation ends on the employee's termination of employment with MapQuest. The purchase plan will terminate in 2009 unless sooner terminated by MapQuest's Board of Directors. 1999 Stock Plan MapQuest has adopted a 1999 stock plan concurrently with this Offering. MapQuest has reserved 3,645,000 shares of common stock for the 1999 stock plan. Pursuant to the 1999 stock plan, MapQuest may grant any combination of the following to employees, officers and directors of MapQuest and its subsidiaries: . stock options; . stock appreciation rights; . restricted or unrestricted share awards; . phantom stock; and . performance awards. However, incentive stock options may only be granted to employees of MapQuest. The plan is administered by a committee appointed by the board of directors. The committee will select the individuals to whom options are granted and will specify the terms of the options. . Incentive Stock Options. These options may not be exercised more than 10 years after the date of grant. The exercise price must be at least equal to the fair market value of MapQuest's common stock on the date of grant. The purchase price of the shares issued upon exercise of these options may be paid in cash or shares of common stock having a total fair market value equal to the aggregate purchase price. . Non-Qualified Stock Options. These options may not be exercised more than 10 years after the date of grant. The exercise price will be determined by the stock option plan committee. The purchase price of shares issued upon exercise of these options may be paid in cash or shares of common stock having a total fair market value equal to the aggregate purchase price. . Stock Appreciation Rights. These rights may be granted on a free-standing or tandem basis. The term of exercise will be determined by the board of directors, but in no event will be more than 10 years 46 from the date of grant. These rights entitle the holder to receive a payment having an aggregate value equal to the product of the excess of the fair market value over the exercise price per share specified in the grant multiplied by the number of shares specified in the award. Payment by MapQuest of the amount receivable in respect of the stock appreciation right may be paid in any combination of cash and common stock. . Phantom Stock, Restricted Shares and Performance Awards. These grants and awards may be made at the discretion of the committee. The method of payment of the exercise price will be determined by the committee and may include a combination of cash and common stock having a fair market value equal to the aggregate exercise price. The 1999 stock plan provides for adjustments if a recapitalization or other change in the common stock of MapQuest which dilutes the rights of 1999 stock plan participants. 401(k) Plan MapQuest has a tax-qualified employee savings plan which covers all of MapQuest's full-time employees who are at least 21 years of age and who have been employed with MapQuest for at least one month. Eligible employees may defer up to 15% of their pre-tax earnings, subject to the Internal Revenue Service's annual contribution limit. The MapQuest 401(k) plan permits additional discretionary matching contributions by MapQuest on behalf of all participants in the MapQuest 401(k) plan in an amount determined by MapQuest. The MapQuest 401(k) plan is intended to qualify under Section 401 of the Internal Revenue Code of 1986 so that contributions by employees or by MapQuest to the MapQuest 401(k) plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the plan, and so that contributions by MapQuest, if any, will be deductible by MapQuest when made. 47 CERTAIN TRANSACTIONS Equity Transactions Equity Sale by R.R. Donnelley & Sons Company and 77 Capital Corporation On May 8, 1998, R.R. Donnelley & Sons Company and 77 Capital Corporation sold their respective equity positions in MapQuest to Highland Capital Partners III Limited Partnership, Highland Entrepreneurs' Fund III Limited Partnership, Weston Presidio Capital II, L.P., Trident Capital Partners Fund-I, L.P. and Trident Capital Partners Fund-I, C.V. R.R. Donnelley & Sons Company sold 3,000,000 shares of series A preferred stock and 1,321,033 shares of series B preferred stock, which included accrued Series B preferred stock dividends. 77 Capital Corporation sold 220,798 shares of series C preferred stock. The aggregate sale price for the shares sold in these transactions was $7 million and the aggregate redemption value of all of the shares of series A preferred stock, series B preferred stock and series C preferred stock sold was $11,899,354, which included accrued series B preferred stock dividends. Series C Preferred Stock. In July 1997, MapQuest sold an aggregate of 3,431,498 shares of series C preferred stock for an aggregate purchase price of $12,044,558, or $3.51 per share, to various investors, including Highland Capital Partners III Limited Partnership, Highland Entrepreneurs' Fund III Limited Partnership, Weston Presidio Capital II, L.P., Trident Capital Partners Fund-I, L.P., Trident Capital Partners Fund-I, C.V., The Roman Arch Fund, L.P., the Roman Arch Fund II, L.P., and Stet & Query, L.P. Rights Agreement. Series A preferred stock investors and series C preferred stock investors entered into a rights agreement concurrent with the sale of the series C preferred stock. Pursuant to the rights agreement, holders of not less than 35% of either the outstanding series A preferred stock or outstanding series C preferred stock or any common stock issued or issuable upon conversion of series A preferred stock or series C preferred stock may request that MapQuest cause their shares of common stock to be registered under the Securities Act. See "Description of Capital Stock--Registration Rights of Certain Holders." In November 1997, James Thomas, MapQuest's Chief Financial Officer, and William Muenster, its Senior Vice President of Development and Production, each purchased 31,928 shares of series C preferred stock from MapQuest for $112,067.28, or $3.51 per share, paid in each case by delivery to MapQuest of a non-recourse promissory note. Each promissory note bears interest at 7.0% accruing as and from November 1, 1999. Payments under the promissory notes are due beginning November 1, 2000 in an amount that is the lesser of one-fifth of the principal balance together with any accrued interest or 50% of any bonus to which such person is entitled while an employee of MapQuest. Each of these promissory notes is payable in full on November 1, 2004. The promissory notes are secured by the shares purchased, with shares released to the extent each promissory note is paid. At December 31, 1998, $112,067.28 remained outstanding on Mr. Thomas's promissory note and $112,067.28 remained outstanding on Mr. Muenster's promissory note. Each of Mr. Thomas and Mr. Muenster have the right to cause MapQuest to purchase their series C preferred stock at the fair market value upon the earlier of each person's death or disability or November 1, 2007. Other Transactions Related Party Transactions. During 1998, MapQuest paid $16,597 to R.R. Donnelley & Sons Company, a then stockholder. MapQuest recorded sales to R.R. Donnelley & Sons Company of $513,626 during 1998. Also, MapQuest recorded sales to an affiliate, the National Geographic Society, of $2,022,000 during 1998. Evans 1996 Stock Purchase. In March 1996, pursuant to the terms of an employment agreement dated October 31, 1994, MapQuest sold an aggregate of 35,000 shares of series A preferred stock at an aggregate purchase price of $35,000, or $1.00 per share, to Perry Evans, MapQuest's then Vice President of Sales and Marketing. The purchase price was paid as $3,500 in cash and $31,500 as a promissory note due October 31, 2000. The promissory note bears interest at a rate of 7.5% per annum. The promissory note is secured by the shares purchased with shares released to the extent the promissory note is paid. At December 31, 1998, $31,500 in principal amount remained outstanding under this promissory note. 48 Evans Separation Agreement. In September 1997, upon the voluntary termination of Mr. Evans' employment as Vice President of Sales and Marketing, MapQuest agreed to engage Mr. Evans as an independent consultant and paid him a separation fee of approximately $93,656, forgave him $27,000 in respect of unearned bonus payments he had received and agreed to provide him with his then current medical and certain other benefits until November 7, 1997. Glick Separation Agreement. In June 1998, upon the voluntary termination of Mr. Glick's employment as Chief Executive Officer and pursuant to a transition agreement and general release, MapQuest agreed to pay Mr. Glick a total of approximately $43,752, representing separation and salary payments for the period between July 1, 1998 and September 30, 1998, inclusive. National Geographic Alliance MapQuest, the National Geographic Society, and a subsidiary of the National Geographic Society, National Geographic Holdings, Inc. ("National Geographic"), entered into a Cartographic Product Development, Publishing, Marketing and Distribution Agreement in April 1997 (the "National Geographic Agreement") which established a five-year alliance, commencing May 1997, to pursue commercial opportunities involving mapping products and services using trademarks and copyrighted materials of National Geographic. MapQuest is authorized to be the primary, and in limited cases, exclusive, commercial publisher of National Geographic mapping products and services, including products such as maps, globes, road atlases, reference atlases, historical atlases, and map guide products which are distributed other than by National Geographic to its members or in promotion to prospective members. Pursuant to its rights under the National Geographic Agreement, National Geographic has designated C. Richard Allen to serve as its nominee director on MapQuest's Board of Directors. As part of this arrangement, National Geographic Holdings, Inc. received warrants to purchase 954,147 shares of common stock with an exercise price of $1.04 per share. The warrants were valued at $0 on the date of grant using the "Black Scholes" option pricing model. Under the National Geographic Agreement, MapQuest has guaranteed minimum annual royalty payments to National Geographic for each year of the initial five-year term of the agreement. MapQuest must pay additional royalties on the net revenues derived by MapQuest from the sale of National Geographic related products and services. The National Geographic Agreement's initial five-year term automatically extends provided that: .MapQuest has not elected to terminate; .MapQuest has not breached the National Geographic Agreement; . National Geographic has received a minimum aggregate royalty payment of $2.0 million from MapQuest in each of the last three years of the initial term; and .minimum royalties have been negotiated in accordance with the National Geographic Agreement. Warrants As of December 31, 1998, warrants to purchase 2,314,611 shares of common stock were outstanding at a weighted-average exercise price of $0.69 per share. Generally, each warrant contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant in the event of stock dividends, stock splits, reorganizations, reclassifications, consolidations and dilutive issuances of securities at prices below the then existing warrant exercise price. Set forth below is a summary of the outstanding warrants. Prudential Warrant. In connection with the sale of the series C preferred stock, MapQuest issued to Prudential Securities Incorporated a warrant for an aggregate purchase price of $1,000 to purchase 406,709 shares of MapQuest's common stock at an exercise price of $1.30 per share. The warrant is exercisable prior to July 2002. 49 National Geographic Warrant. In April 1997, in connection with the National Geographic Agreement, MapQuest issued National Geographic warrants (the "National Geographic Warrants") to purchase 954,147 shares of common stock at an exercise price of $1.04 per share. The warrants were valued at $0 on the date of grant using the "Black Scholes" option pricing model. The National Geographic Warrant expires on April 22, 2002, or earlier in the event of a termination of the National Geographic Agreement without cause by National Geographic or termination by MapQuest for material breach by National Geographic. If National Geographic has exercised the National Geographic Warrant prior to MapQuest terminating the National Geographic Agreement due to a breach of the agreement by National Geographic, MapQuest has the option to purchase the shares of common stock issued upon exercise of the warrant for a period of 60 days after the termination of the National Geographic Agreement at a purchase price equal to the lesser of $1.77 or the then fair market value of such shares. Warrants to Series C Investors. In May 1998, MapQuest and some of the series C preferred stock investors entered into an agreement to preserve these investors' fully diluted ownership percentage in MapQuest as a result of the increase in the number of options to purchase shares of common stock eligible for award under the 1995 stock option plan and the appointment of Mr. Michael Mulligan as Chief Executive Officer of MapQuest. Pursuant to this agreement, the series C preferred stock investors were issued an aggregate of 522,231 warrants to purchase common stock at an exercise price of $0.004 per share. The warrants are exercisable prior to April 30, 2008. Executive Search Firm Warrants. Effective September 22, 1998, MapQuest issued to Ramsey/Beirne Associates a warrant to purchase 41,266 shares of MapQuest common stock in partial consideration for executive search firm services Ramsey/Beirne Associates performed. The warrant is exercisable at any time prior to September 22, 2003 at an exercise price of $1.30 per share. 50 PRINCIPAL STOCKHOLDERS The following table sets forth information with respect to the beneficial ownership of MapQuest's common stock as of December 31, 1998: . each person or entity who is known by MapQuest to beneficially own five percent or more of the outstanding shares of MapQuest's common stock; . each director; . each named executive officer; and . all directors and executive officers of MapQuest as a group. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options and warrants held by that person that are currently exercisable or exercisable within 60 days of April 7, 1999, are treated as outstanding. These shares, however, are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Except as indicated in the footnotes to this table the following individuals have sole voting and investment power with respect to the shares they beneficially own.
Beneficially Owned Securities ----------------------------------------------------------------------- Number of Shares Percentage of Shares Beneficially Owned Includes Beneficially Owned Total --------------------------- ------------------------ Number of Shares Securities Securities Beneficially Underlying Underlying Before After Name (1) Owned Warrants Options Offering Offering - -------- ---------------- ------------- ------------- ---------- ---------- Trident Capital Partners Fund - I, L.P.(1)..... 9,684,802 352,755 34.7% 29.8% Trident Capital Partners Fund - I, C.V.(1)..... 1,915,844 69,781 6.9 5.9 Robert McCormack(2)(3)..... 11,600,646 422,536 41.4 35.6 John Moragne(2)(3).... 11,600,646 422,536 41.4 35.6 Rockwell Schnabel(3).. 11,600,646 422,536 41.4 35.6 Stephen Hall(3)....... 11,600,646 422,536 41.4 35.6 Donald Dixon(3)....... 11,600,646 422,536 41.4 35.6 Weston Presidio Capital II, L.P.(4)........... 6,844,479 223,827 24.6 21.1 Carlo von Schroeter(2)(5)..... 6,844,479 223,827 24.6 21.1 Michael Cronin(5)..... 6,844,479 223,827 24.6 21.1 Michael Lazarus(5).... 6,844,479 223,827 24.6 21.1 James McElwee(5)...... 6,844,479 223,827 24.6 21.1 Philip Halperin(5).... 6,844,479 223,827 24.6 21.1 Highland Capital Partners III Limited Partnership(5)........ 6,570,698 214,874 23.7 20.3 Highland Entrepreneurs' Fund III, L.P.(5)..... 273,779 8,953 1.0 0.9 Daniel Nova(2)(7)..... 6,844,476 223,827 24.6 21.1 Robert Higgins(7)..... 6,844,476 223,827 24.6 21.1 Paul Maeder(7)........ 6,844,476 223,827 24.6 21.1 Wycliffe Grousbeck(7)........ 6,844,476 223,827 24.6 21.1 Michael Mulligan ....... 958,608 648,064 3.4 2.9 James Thomas ........... 803,767 4,770 515,675 2.9 2.6 William Muenster ....... 806,393 4,770 512,915 2.9 2.6 James Hilliard ......... 162,000 162,000 0.6 0.5 Michael Nappi .......... 108,000 108,000 0.4 0.3 C. Richard Allen(2)(8).. 954,147 954,147 3.3 2.8 Barry Glick ............ 778,912 508,912 2.8 2.4 Directors & Executive Officers as a group (fifteen persons) .... 30,084,185 1,833,877 2,678,317 94.4 82.0
51 - -------- (1) The address of each of Trident Capital Partners Fund - I, L.P. and Trident Capital Partners Fund - I, C.V. is 2480 Sand Hill Road, Suite 100, Menlo Park, California 94025. (2) Director of MapQuest. (3) Includes 9,684,802 shares held by Trident Capital Partners and 1,915,844 shares held by Trident Capital Partners Fund--I, C. V. Messrs. McCormack, Moragne, Schnabel, Hall and Dixon are officers of Trident Capital, Inc., the general partner of Trident Capital, L.P., which is the general partner of Trident Capital Partners Fund-I, L.P. and the investment general partner of Trident Capital Partners Fund-I, C.V., and therefore may be considered to share beneficial ownership of the shares held by each of Trident Capital Partner Fund-I, L.P. and Trident Capital Partners Fund-I, C.V. Messrs. McCormack, Moragne, Schnabel, Hall and Dixon disclaim beneficial ownership of shares held by Trident Capital, Inc. and its affiliates, except to the extent of their pecuniary interests, if any. (4) The address of Weston Presidio Capital II, L.P. is One Federal Street, 21st Floor, Boston, Massachusetts 02110. (5) Includes 6,844,480 shares held by Weston Presidio Capital II, L.P. Messrs. Cronin, Lazarus, McElwee, von Schroeter and Halperin are the general partners of Weston Presidio Capital Management II, L.P. the general partner of Weston Presidio Capital II, L.P. and therefore may be considered to share the beneficial ownership of the shares held by Weston Presidio Capital II, L.P. Messrs. Cronin, Lazarus, McElwee, von Schroeter and Halperin disclaim beneficial ownership of these shares, except to the extent of their pecuniary interests, if any. (6) The address of each of Highland Capital Partners III, L.P. and Highland Entrepreneurs' Fund III, L.P. is Two International Place, Boston, Massachusetts 02110. (7) Includes 6,570,698 shares held by Highland Capital Partners III Limited Partnership and 273,780 shares held by Highland Entrepreneur's Fund III, L.P. Messrs. Higgins, Maeder, Nova and Grousbeck are the general partners of Highland Management Partners III, L.P., the general partner of Highland Capital Partners III Limited Partnership, and the members of HEF III, L.L.C., the general partner of Highland Entrepreneurs' Fund III, L.P. and therefore may be considered to share the beneficial ownership of the shares held by each of Highland Capital Partners III, Limited Partnership and Highland Entrepreneurs' Fund III, L.P. Messrs. Higgins, Maeder, Nova and Grousbeck disclaim beneficial ownership of these shares, except to the extent of their pecuniary interests if any. (8) Includes 954,147 shares held by National Geographic Holdings, Inc., a wholly-owned indirect subsidiary of National Geographic Society. Mr. Allen disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest, if any. The address of National Geographic Holdings, Inc. is 1145 17th Street, N.W., Washington, DC 20036. 52 DESCRIPTION OF CAPITAL STOCK Following this offering, MapQuest will have the authority to issue an aggregate of 105,000,000 shares of capital stock, consisting of 100,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.01 per share. Common Stock Voting Rights. Each outstanding share of common stock is entitled to one vote on all matters submitted to a vote of MapQuest's stockholders, including the election of directors. There is no cumulative voting in the election of directors. Dividends. Holders of common stock are entitled to receive dividends if and when declared by MapQuest's board of directors out of assets legally available for the payment of dividends, subject to the preferential rights of shares of preferred stock, if any. Liquidation. In the event of any dissolution, liquidation, or winding up of the affairs of MapQuest, whether voluntary or involuntary, after payment of the debts and other liabilities of MapQuest and after making provision for the holders of preferred stock, if any, the remaining assets of MapQuest will be distributed ratably among the holders of the common stock. Preferred Stock Following this offering, the board of directors will have the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the designations, powers, preferences, privileges, and relative participating, options, or special rights and the qualifications, limitations, or restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock. Preferred stock could thus be issued with terms that may delay or prevent a change in control of MapQuest or make removal of management more difficult. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of the common stock. Upon the completion of this offering, there will be no shares of preferred stock outstanding and MapQuest has no current plans to issue any preferred stock. Registration Rights After this offering, the holders of approximately 27,122,455 shares of common stock and the holders of 954,147 warrants to purchase shares of common stock will be entitled to have their shares registered under the Securities Act of 1933. If MapQuest proposes to register any of its securities under the Securities Act, either for its own account or for the account of other securities holders exercising registration rights, these holders are entitled to notice of the registration and are entitled to include their shares as part of that registration. Holders of registration rights may also require MapQuest to file a registration statement under the Securities Act at MapQuest's expense with respect to their shares of common stock. Further, holders may require MapQuest to file registration statements on Form S-3 at MapQuest's expense when MapQuest is eligible to use the form. All registration rights are subject to conditions and limitations, including the right of the underwriters of an offering to limit the number of shares to be included in the registration. Delaware Anti-Takeover Law and Charter and Bylaw Provisions MapQuest is subject to the provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, the statute prohibits a publicly-held Delaware corporation, which MapQuest will be after the offering, from engaging in a business combination with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes a merger, asset 53 sale or other transaction resulting in a financial benefit to the stockholder. For purposes of Section 203, an "interested stockholder" is defined to include any person that is: . the owner of 15% or more of the outstanding voting stock of the corporation; . an affiliate or associate of the corporation and was the owner of 15% or more of the voting stock outstanding of the corporation, at any time within three years immediately prior to the relevant date; and . an affiliate or associate of the persons described in the foregoing bullet points. Stockholders may, by adopting an amendment to the corporation's certificate of incorporation or bylaws, elect for the corporation not to be governed by Section 203, effective 12 months after adoption. Annual meetings of stockholders will be held to elect the board of directors of MapQuest and transact such other business as may be properly brought before the meeting. Special meetings of stockholders may be called by the Chairman or the Chief Executive Officer or by a majority of the board of directors. MapQuest's certificate of incorporation may be amended with the approval of a majority of the board and the holders of a majority of MapQuest's outstanding voting securities. The number of directors is determined by the board of directors. The size of the board of directors is currently six members and is divided into three classes of directors serving staggered three-year terms. The directors will be elected at the annual meeting of the stockholders, except for filling vacancies. Directors may be removed with the approval of the holders of a majority of MapQuest's voting power present and entitled to vote at a meeting of stockholders. Vacancies and newly-created directorships resulting from any increase in the number of directors may be filled by (1) a majority of the directors then in office, (2) a sole remaining director, or (3) the holders of a majority of the voting power present and entitled to vote at a meeting of stockholders. The presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast by the stockholders entitled to vote generally shall constitute a quorum for stockholder action at any meeting. Limitation of Liability and Indemnification Matters MapQuest's certificate of incorporation contains provisions permitted under the Delaware General Corporation Law relating to the liability of directors. These provisions eliminate a director's personal liability for monetary damages resulting from a breach of fiduciary duty, except for liability for: . any failure to act in good faith in the best interests of MapQuest or its stockholders; . acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; . unlawful payments of dividends or unlawful stock repurchases or redemptions; or . any transaction from which the director derives an improper personal benefit. These provisions do not limit or eliminate the rights of MapQuest or any stockholder to seek non- monetary relief, such as an injunction or rescission, in the event of a breach of a director's fiduciary duty. These provisions will not alter a director's liability under federal securities laws. MapQuest's bylaws also contain provisions indemnifying the directors and officers of MapQuest to the fullest extent permitted by the Delaware General Corporation Law. MapQuest believes that these provisions are necessary to attract and retain qualified individuals to serve as directors and officers. Listing The common stock has been approved for quotation on the Nasdaq National Market under the trading symbol "MQST." Transfer Agent and Registrar The transfer agent and registrar for the common stock will be American Securities Transfer & Trust Company, Denver, Colorado. 54 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has not been any public market for the common stock, and MapQuest cannot predict the effect, if any, that market sales of shares of common stock or the availability of shares of common stock for sale will have on the market price of the common stock prevailing from time to time. Nevertheless, sales of substantial amounts of common stock in the public market, or the perception that such sales could occur, could adversely affect the market price of the common stock and could impair MapQuest's future ability to raise capital through the sale of its equity securities. Upon completion of this offering, MapQuest will have an aggregate of 32,166,699 shares of common stock outstanding, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options or warrants. Of the outstanding shares, the 4,600,000 shares sold in this offering will be freely tradeable, except that any shares held by "affiliates" of MapQuest, as that term is defined in Rule 144 promulgated under the Securities Act of 1933, may only be sold in compliance with the limitations described below. The remaining 27,566,699 shares of common stock will be deemed "restricted securities" as defined under Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules are summarized below. Subject to the lock-up agreements described below and the provisions of Rules 144, 144(k) and 701, additional shares will be available for sale in the public market as follows:
Number of Shares Date ---------- ---- 566,770 After the date of this prospectus 322,974 After 90 days from the date of this prospectus 26,676,955 After 180 days from the date of this prospectus (subject, in some cases, to volume limitations)
In general, under Rule 144, as currently in effect, a person, including an affiliate, who has beneficially owned shares for at least one year is entitled to sell, within any three-month period commencing 90 days after the date of this prospectus, a number of shares that does not exceed the greater of (1) 1% of the then outstanding shares of common stock (approximately 321,667 shares immediately after this offering) or (2) the average weekly trading volume in the common stock during the four calendar weeks preceding the date on which notice of such sale is filed, subject to certain restrictions. In addition, a person who is not deemed to have been an affiliate of MapQuest at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years would be entitled to sell such shares under Rule 144(k) without regard to the requirements described above. To the extent that shares were acquired from an affiliate of MapQuest, that person's holding period for the purpose of selling under Rule 144 commences on the date of transfer from the affiliate. Notwithstanding the foregoing, to the extent the shares were acquired through the cashless exercise of a stock option or a warrant, that person's holding period for effecting a sale under Rule 144 commences on the date of the option or warrant grant. In general, under Rule 701 of the Securities Act as currently in effect, any employee, consultant or advisor of MapQuest who purchased shares from MapQuest in connection with a compensatory stock or option plan or other written agreement is eligible to resell such shares after the effective date of this offering in reliance on Rule 144, but without compliance with certain restrictions, including the holding period, contained in Rule 144. As of the date of this prospectus, options to purchase a total of 6,085,593 shares of common stock are outstanding, of which 3,443,438 will be exercisable concurrent with this offering (without regard to the 180-day lock up period). Not sooner than 180 days after the closing of this offering, MapQuest intends to file a registration statement to register for resale all shares of common stock issued or issuable under its 1995 stock option plan, the 1999 stock plan, and the employee stock purchase plan and not otherwise freely transferable. Accordingly, shares covered by that registration statement will be eligible for sale in the public markets, unless those options are subject to vesting restrictions. Upon the closing of this offering, 2,314,611 shares of common stock will be issuable upon the exercise of outstanding warrants. 55 MapQuest's directors and officers and certain stockholders who hold 30,363,386 shares and options in the aggregate, and the holders of warrants to purchase 2,273,346 shares of common stock, have agreed that they will not sell, directly or indirectly, any shares of common stock (other than shares of common stock purchased as part of the directed share program in connection with this offering) without the prior written consent of BancBoston Robertson Stephens, Inc. for a period of 180 days from the date of this prospectus. See "Underwriting." MapQuest has agreed not to sell or otherwise dispose of any shares of common stock during the 180-day period following the date of the prospectus, except MapQuest may issue, and grant options to purchase, shares of common stock under its stock option plan. Following this offering, under certain circumstances and subject to certain conditions, holders of 27,122,455 shares of MapQuest's outstanding common stock and the holders of 954,147 warrants to purchase shares of common stock will have certain demand registration rights with respect to their shares of common stock (subject, in certain cases, to the 180-day lock-up arrangement described above) to require MapQuest to register their shares of common stock under the Securities Act, and they will have certain rights to participate in any future registration of securities by MapQuest. MapQuest is not required to effect more than an aggregate of four demand registrations on behalf of such holders. See "Description of Capital Stock--Registration Rights." 56 UNDERWRITING The underwriters named below, acting through their representatives, BancBoston Robertson Stephens Inc., Thomas Weisel Partners LLC, U.S. Bancorp Piper Jaffray Inc. and Volpe Brown Whelan & Company, LLC have severally agreed with MapQuest, subject to the terms and conditions of the underwriting agreement, to purchase from MapQuest the number of shares of common stock set forth opposite their names below. The underwriters are committed to purchase and pay for all of the shares if any are purchased.
Number of Underwriter Shares ----------- --------- BancBoston Robertson Stephens Inc. ................................ 1,732,000 Thomas Weisel Partners LLC......................................... 866,000 U.S. Bancorp Piper Jaffray Inc. ................................... 866,000 Volpe Brown Whelan & Company, LLC.................................. 866,000 Dain Rauscher Wessels.............................................. 90,000 First Albany Corporation........................................... 90,000 Wit Capital Corporation............................................ 90,000 --------- Total............................................................ 4,600,000 =========
The representatives have advised MapQuest that the underwriters propose to offer the shares of common stock to the public at the initial public offering price set forth on the cover page of this prospectus and to dealers at such price less a concession of not in excess of $0.63 per share, of which $0.10 may be reallowed to other dealers. After this offering, the public offering price, concession, and reallowance to dealers may be reduced by the representatives. No reduction shall change the amount of proceeds to be received by MapQuest as set forth on the cover page of this prospectus. The common stock is offered by the underwriters as stated in this prospectus, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. Over-allotment Option MapQuest has granted to the underwriters an option, exercisable during the 30-day period after the date of this prospectus, to purchase up to 690,000 additional shares of common stock at the same price per share as MapQuest will receive for the 4,600,000 shares that the underwriters have agreed to purchase. To the extent that the underwriters exercise this option, each of the underwriters will have a firm commitment to purchase approximately the same percentage of the additional shares that the number of shares of common stock to be purchased by it shown in the above table represents as a percentage of the 4,600,000 shares offered in this prospectus. If purchased, these additional shares will be sold by the underwriters on the same terms as those on which the 4,600,000 shares are being sold. MapQuest will be obligated, pursuant to the option, to sell shares to the extent the option is exercised. The underwriters may exercise this option only to cover over-allotments made in connection with the sale of the shares of common stock offered by this prospectus. If the option is exercised in full, the total public offering price, underwriting discounts and commissions and net proceeds to MapQuest will be approximately $79,350,000 million, $5,554,500 million and $73,795,500 million, respectively. Directed Share Program At the request of MapQuest, the underwriters have reserved up to 493,333 shares of common stock to be issued by MapQuest and offered by this prospectus for sale, at the initial public offering price, to directors, officers, employees, business associates and related persons of MapQuest. The number of shares of common stock available for sale to the general public will be reduced to the extent these individuals purchase such reserved shares. Any reserved shares which are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. 57 Thomas Weisel Partners LLC Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners has co-managed six public offerings of equity securities and has acted as an underwriter in an additional seven public offerings of equity securities. Thomas Weisel Partners does not have any material relationship with MapQuest or any of MapQuest's officers, directors or controlling persons, except with respect to its contractual relationship with MapQuest pursuant to the underwriting agreement entered into in connection with this offering. Indemnity The Underwriting Agreement contains covenants of indemnity among the underwriters and MapQuest against civil liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement. Lock-Up Agreements Each officer and director of MapQuest and substantially all other holders of shares of common stock, including those issuable upon the exercise of outstanding options or warrants, have agreed, during the period ending 180 days after the date of this prospectus ("the lock-up period"), subject to limited exceptions, not to engage in particular activities without the prior written consent of BancBoston Robertson Stephens Inc. Specifically they have agreed not to offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of common stock, any options or warrants to purchase any shares of common stock, or any securities convertible into or exchangeable for shares of common stock owned as of the date of this prospectus or acquired after the date of this prospectus directly by such holders or with respect to which they have the power of disposition. However, BancBoston Robertson Stephens Inc. may, in its sole discretion and at any time without notice, release all or any portion of securities subject to the lock-up agreement. There are no existing agreements between the representatives of the underwriters and any of MapQuest's stockholders providing consent to the sale of shares prior to the expiration of the lock-up period. Future Sales. In addition, MapQuest has agreed that during the lock-up period MapQuest will not, without the prior written consent of BancBoston Robertson Stephens Inc., subject to limited exceptions: . consent to the disposition of any shares held by stockholders or option holders subject to lock-up agreements prior to the expiration of the lock-up period; . issue, sell, contract to sell, or otherwise dispose of, any shares of common stock, any options to purchase any shares of common stock or any securities convertible into or exercisable for or exchangeable for shares of common stock other than MapQuest's sale of shares in this offering, the issuance of common stock upon the exercise of outstanding options and the issuance of options under existing stock option and incentive plans, provided the options do not vest prior to the expiration of the lock-up period; or . file a Form S-8 registration statement. See "Shares Eligible for Future Sale." No Prior Public Market. Prior to this offering, there has been no public market for MapQuest's common stock. Consequently, the public offering price for the common stock offered by this prospectus was determined through negotiations among MapQuest and the representatives of the underwriters. Among the factors considered in such negotiations were the prevailing market conditions, financial information of MapQuest, market valuations of other companies that MapQuest and the representatives believe to be comparable to MapQuest, estimates of the business potential of MapQuest, the present state of MapQuest's development and other factors deemed relevant. 58 Stabilization. The representatives of the underwriters have advised MapQuest that, pursuant to Regulation M under the Securities Act of 1933, particular persons participating in this offering may engage in transactions, including stabilizing bids, syndicate covering transactions or the imposition of penalty bids, that may have the effect of stabilizing or maintaining the market price of the common stock at a level above that which might otherwise prevail in the open market. A "stabilizing bid" is a bid for or the purchase of common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. A "syndicate covering transaction" is the bid for or the purchase of common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with this offering. A "penalty bid" is an arrangement permitting the representatives to reclaim the selling concession otherwise accruing to an underwriter or syndicate member in connection with this offering if the common stock originally sold by such underwriter or syndicate member is purchased by the representatives in a syndicate covering transaction and has not been effectively placed by such underwriter or syndicate member. The representatives have advised MapQuest that these transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for MapQuest by Mayer, Brown & Platt, New York, New York, and for the underwriters by Brobeck, Phleger & Harrison LLP, New York, New York. Certain other legal matters will be passed upon for MapQuest by Venable, Baetjer & Howard, LLP. EXPERTS The financial statements of MapQuest.com, Inc. at December 31, 1997 and 1998, and for each of the three years in the period ended December 31, 1998, appearing in this prospectus and Registration Statement of which it forms a part, and the related financial statement schedule included elsewhere in this Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 59 WHERE YOU CAN FIND MORE INFORMATION MapQuest has filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act of 1933 with respect to the shares of common stock offered by this prospectus. This prospectus does not contain all of the information set forth in the registration statement and its exhibits and schedules. Particular items are omitted in accordance with the rules and regulations of the Securities and Exchange Commission. For further information with respect to MapQuest and the common stock offered by this prospectus, reference is made to the registration statement and its exhibits and schedules. A copy of the registration statement, and the exhibits and schedules to the registration statement, may be inspected without charge at the public reference facilities maintained by the Securities and Exchange Commission in Room 1024, 450 Fifth Street., N.W., Washington, D.C. 20549, and at the Securities and Exchange Commission's regional offices located at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of all or any part of the registration statement may be obtained from such offices upon the payment of the fees prescribed by the Securities and Exchange Commission. The Securities and Exchange Commission maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. The address of the site is http://www.sec.gov. This prospectus includes statistical data regarding Internet usage and the advertising and marketing industry that were obtained from industry publications, including reports generated by Forrester Research Inc., International Data Corporation and Media Metrix, Inc. These industry publications generally indicate that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. While MapQuest believes these industry publications to be reliable, MapQuest has not independently verified their data. MapQuest also has not sought the consent of any of these organizations to refer to their reports in this prospectus. 60 INDEX TO FINANCIAL STATEMENTS Report of Independent Auditors............................................. F-2 Balance Sheets at December 31, 1997 and 1998............................... F-3 Statements of Operations for the Years ended December 31, 1996, 1997 and 1998..................................................................... F-4 Statements of Changes in Redeemable Preferred Stock, Common Stock, and Other Stockholders' Equity (Deficit) for the Years ended December 31, 1996, 1997 and 1998...................................................... F-5 Statements of Cash Flows for the Years ended December 31, 1996, 1997 and 1998..................................................................... F-6 Notes to Financial Statements.............................................. F-7
F-1 REPORT OF INDEPENDENT AUDITORS Board of Directors MapQuest.com, Inc. We have audited the accompanying balance sheets of MapQuest.com, Inc. (formerly GeoSystems Global Corporation) as of December 31, 1997 and 1998, and the related statements of operations, changes in redeemable preferred stock, common stock, and other stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MapQuest.com, Inc. at December 31, 1997 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Ernst & Young LLP Harrisburg, Pennsylvania February 18, 1999, except for the matters discussed in the next to last paragraph of Note 14 and all of Note 15, as to which the date is May 3, 1999 F-2 MAPQUEST.COM, INC. BALANCE SHEETS
December 31 Pro Forma -------------------------- December 31 1997 1998 1998 ------------ ------------ ------------ (Unaudited) (Note 15) ASSETS Current assets: Cash and cash equivalents.......... $ 2,482,090 $ 564,087 $ 564,087 Accounts receivable, net of allowance for doubtful accounts (1997--$407,136; 1998-- $469,726)........................ 5,468,654 6,646,882 6,646,882 Accounts receivable--affiliates.... 57,500 127,989 127,989 Inventories........................ 1,686,117 1,364,608 1,364,608 Contract work in progress.......... 385,778 147,317 147,317 Prepaid expenses and other current assets........................... 1,079,347 481,921 481,921 ------------ ------------ ------------ Total current assets........... 11,159,486 9,332,804 9,332,804 Property and equipment, net of accumulated depreciation (1997-- $2,420,561; 1998--$3,433,368)...... 1,830,324 1,844,324 1,844,324 Goodwill, net........................ 208,763 178,212 178,212 Other assets......................... 22,650 94,901 94,901 ------------ ------------ ------------ Total assets................... $ 13,221,223 $ 11,450,241 $ 11,450,241 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable................... $ 1,332,656 $ 1,715,133 $ 1,715,133 Current portion of note payable.... 51,716 48,108 48,108 Accrued personnel costs............ 450,287 561,714 561,714 Advance billings on contracts...... 346,383 498,108 498,108 Deferred revenue................... 505,238 1,207,867 1,207,867 Other accrued liabilities.......... 1,012,809 1,000,940 1,000,940 ------------ ------------ ------------ Total current liabilities...... 3,699,089 5,031,870 5,031,870 ------------ ------------ ------------ Note payable, less current portion... 48,108 -- -- Convertible Redeemable Preferred Stock--Series A, voting, $1.00 per share redemption value, aggregate liquidation preference of $6,550,000: Issued and outstanding shares-- actual, 6,550,000 in 1997 and 1998; pro forma, none............ 6,550,000 6,550,000 -- Cumulative Redeemable Preferred Stock--Series B, nonvoting, $6.15 per share redemption value, aggregate liquidation preference of $7,815,737 in 1997 and $8,332,036 in 1998: Issued and outstanding shares-- actual, 1,270,851 in 1997 and 1,354,802 in 1998; pro forma, 1,354,802 ....................... 7,815,737 8,332,036 8,332,036 Convertible Redeemable Preferred Stock--Series C, voting, $3.51 per share redemption value, aggregate liquidation preference of $12,268,292: Issued and outstanding shares-- actual, 3,495,354 in 1997 and 1998; pro forma, none............ 11,636,252 11,595,176 -- Notes receivable arising from issuance of preferred stock........ (290,835) (290,835) -- Stockholders' deficit: Common Stock--$.001 par value: Authorized shares--20,000,000 Issued and outstanding shares-- actual, 216,419 in 1997 and 336,028 in 1998; pro forma, 27,458,483 216 336 27,458 Notes receivable for common stock............................ -- -- (290,835) Additional paid-in capital......... -- 140,170 18,258,224 Retained deficit................... (16,237,344) (19,908,512) (19,908,512) ------------ ------------ ------------ Total stockholders' deficit.... (16,237,128) (19,768,006) (1,913,665) ------------ ------------ ------------ Total liabilities and stockholders' deficit........ $ 13,221,223 $ 11,450,241 $ 11,450,241 ============ ============ ============
See accompanying notes. F-3 MAPQUEST.COM, INC. STATEMENTS OF OPERATIONS
Year ended December 31 -------------------------------------- 1996 1997 1998 ----------- ------------ ----------- Revenues Business............................ $ 7,019,461 $ 4,762,627 $ 6,536,153 Consumer............................ 140,200 1,275,900 1,375,900 ----------- ------------ ----------- Total business and consumer revenues.......................... 7,159,661 6,038,527 7,912,053 Digital mapping..................... 12,417,232 15,377,141 16,805,149 ----------- ------------ ----------- Total revenues................... 19,576,893 21,415,668 24,717,202 Cost of Revenues Business and consumer............... 4,325,166 4,535,153 4,808,764 Digital mapping..................... 7,994,347 10,767,256 12,837,036 ----------- ------------ ----------- Total cost of revenues........... 12,319,513 15,302,409 17,645,800 ----------- ------------ ----------- Gross profit.......................... 7,257,380 6,113,259 7,071,402 Operating expenses Sales and marketing................. 4,454,791 7,256,519 5,243,377 Product development................. 2,619,443 5,047,744 2,954,510 General and administrative.......... 1,901,857 1,811,391 2,326,191 ----------- ------------ ----------- Total operating expenses......... 8,976,091 14,115,654 10,524,078 Operating loss........................ (1,718,711) (8,002,395) (3,452,676) Interest income and expense, net...... 198,632 135,888 53,916 Other income.......................... 243,900 267,384 243,891 ----------- ------------ ----------- Loss before provision for income taxes............................... (1,276,179) (7,599,123) (3,154,869) Provision for income taxes............ -- -- -- ----------- ------------ ----------- Net loss......................... (1,276,179) (7,599,123) (3,154,869) Less preferred stock dividends and accretion........................... (525,320) (5,833,651) (667,223) ----------- ------------ ----------- Net loss applicable to common stockholders........................ $(1,801,499) $(13,432,774) $(3,822,092) =========== ============ =========== Basic and diluted loss per share...... $ (8.84) $ (64.43) $ (12.09) =========== Shares used to compute basic and diluted loss per share.............. 203,779 208,499 316,202 =========== ============ =========== Pro forma basic and diluted loss per share............................... $ (0.11) =========== Shares used to compute pro forma basic and diluted loss per share.......... 27,994,126
See accompanying notes. F-4 MAPQUEST.COM, INC. STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK, COMMON STOCK, AND OTHER STOCKHOLDERS' EQUITY (DEFICIT)
Notes Convertible Cumulative Convertible Receivable Redeemable Redeemable Redeemable Arising from Convertible Preferred Preferred Preferred Issuance of Preferred Additional Stock-- Stock-- Stock-- Preferred Stock-- Common Paid Retained Series A Series B Series C Stock Series A Stock in Capital Deficit ----------- ----------- ------------ ------------ ----------- ------ ----------- ------------- Balance at December 31, 1995.................. $ -- $ 6,877,136 $ -- $ (87,500) $ 65,150 $ 199 $ 1,238,435 $ (1,003,071) Net loss............... -- -- -- -- -- -- -- (1,276,179) Payment on notes receivable........... -- -- -- 31,168 -- -- -- -- Dividends.............. -- 454,295 -- -- -- -- -- (525,320) Issuance of 35,000 shares convertible preferred stock-- Series A............. -- -- -- (31,500) 350 -- 34,650 -- Exercise of 7,074 options.............. -- -- -- -- -- 7 255 -- ----------- ----------- ------------ ---------- -------- ----- ----------- ------------- Balance at December 31, 1996.................. -- 7,331,431 -- (87,832) 65,500 206 1,273,340 (2,804,570) Net loss............... -- -- -- -- -- -- -- (7,599,123) Payment on notes receivable........... -- -- -- 21,132 -- -- -- -- Dividends.............. -- 484,306 -- -- -- -- -- (560,025) Exercise of 10,314 options.............. -- -- -- -- -- 10 775 -- Addition of redemption feature to Series A preferred stock...... 6,550,000 -- -- -- (65,500) -- (1,274,115) (5,210,383) Issuance of 3,495,354 shares convertible preferred stock-- Series C, net........ -- -- 11,573,009 (224,135) -- -- -- -- Accretion of redeemable preferred stock to redemption value..... -- -- 63,243 -- -- -- -- (63,243) ----------- ----------- ------------ ---------- -------- ----- ----------- ------------- Balance at December 31, 1997.................. $ 6,550,000 $ 7,815,737 $ 11,636,252 $ (290,835) $ -- $ 216 $ -- $ (16,237,344) Net loss............... -- -- -- -- -- -- -- (3,154,869) Dividends.............. -- 516,299 -- -- -- -- -- (516,299) Exercise of 119,610 options.............. -- -- -- -- -- 120 7,444 -- Issuance of 522,234 warrants............. -- -- (192,000) -- -- -- 192,000 -- Issuance of 41,266 warrants for services............. -- -- -- -- -- -- 53,650 -- Accretion of redeemable preferred stock to redemption value..... -- -- 150,924 -- -- -- (150,924) -- Compensation related to stock options........ -- -- -- -- -- -- 38,000 -- ----------- ----------- ------------ ---------- -------- ----- ----------- ------------- Balance at December 31, 1998.................. $ 6,550,000 $ 8,332,036 $ 11,595,176 $ (290,835) $ -- $ 336 $ 140,170 $ (19,908,512) =========== =========== ============ ========== ======== ===== =========== =============
See accompanying notes. F-5 MAPQUEST.COM, INC. STATEMENTS OF CASH FLOWS
Year ended December 31 ------------------------------------- 1996 1997 1998 ----------- ----------- ----------- Operating activities Net loss................................ $(1,276,179) $(7,599,123) $(3,154,869) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation........................... 527,990 816,369 1,074,875 Amortization........................... 30,550 30,550 30,551 Provision for doubtful accounts........ 232,500 262,388 271,598 Issuance of warrants for services...... -- -- 53,650 Compensation expense related to options.............................. -- -- 38,000 Equity in earnings of joint venture.... (282,461) (256,068) (291,558) Dividends received from joint venture.. 285,273 288,556 285,976 Loss (gain) on disposal of property and equipment............................ -- 59,758 (3,089) Changes in operating assets and liabilities, net of effects from acquisition of a business: Accounts receivable................... (1,505,806) (1,115,351) (1,449,823) Accounts receivable--affiliates....... 10,154 72,400 (70,489) Inventories........................... (20,778) (1,182,649) 321,509 Contract work in progress............. (151,563) (60,575) 238,461 Prepaid expenses...................... (231,318) (724,940) 597,426 Other assets.......................... (16,694) 14,659 (94,638) Accounts payable...................... 448,974 448,374 382,447 Advance billings on contracts......... 471,473 (688,387) 151,726 Deferred revenue...................... -- 396,807 702,629 Accrued personnel costs and other liabilities......................... 316,892 (257,500) 99,557 ----------- ----------- ----------- Net cash used in operating activities... (1,160,993) (9,494,732) (816,061) Investing activities Property and equipment purchases........ (1,190,210) (1,354,690) (1,062,126) Proceeds from disposal of property and equipment............................. -- 32,264 4,340 Purchase of Interarts' assets........... (328,600) -- -- ----------- ----------- ----------- Net cash used in investing activities... (1,518,810) (1,322,426) (1,057,786) Financing activities Proceeds from note payable.............. -- 131,468 -- Principal payments on debt.............. -- (32,499) (51,716) Proceeds from issuance of Series A convertible preferred stock........... 3,500 -- -- Net proceeds from issuance of Series C convertible preferred stock........... -- 11,348,874 -- Exercise of common stock options........ 262 785 7,560 Principal payments received on notes receivable arising from issuance of preferred stock....................... 31,168 21,132 -- Cash dividends paid..................... (69,889) (74,506) -- ----------- ----------- ----------- Net cash provided by (used in) financing activities............................ (34,959) 11,395,254 (44,156) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents........................... (2,714,762) 578,096 (1,918,003) Cash and cash equivalents at the beginning of the year................. 4,618,756 1,903,994 2,482,090 ----------- ----------- ----------- Cash and cash equivalents at the end of the year.............................. $ 1,903,994 $ 2,482,090 $ 564,087 =========== =========== =========== Supplemental cash flow information Stock dividends paid on Preferred Stock Series B.............................. $ 454,294 $ 484,306 $ 516,299 =========== =========== =========== Dividends accrued on Preferred Stock Series B.............................. $ 18,329 $ 19,540 $ -- =========== =========== =========== Notes receivable received for stock..... $ 31,500 $ 224,135 $ -- =========== =========== ===========
See accompanying notes. F-6 MAPQUEST.COM, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1998 1. Business and Accounting Policies Business In February 1999, GeoSystems Global Corporation changed its name to MapQuest.com, Inc. MapQuest.com, Inc. ("MapQuest" or the "Company") is an online provider of mapping and destination information through its Web site, mapquest.com. MapQuest's proprietary integration and editing of geographic databases enable it to provide comprehensive mapping solutions to businesses and provide customized maps, destination information and driving directions to consumers. Consumers can also purchase maps and cartography information from MapQuest's MapStore located on mapquest.com. MapQuest is also a United States provider of traditional digital mapping products and services to the educational, reference, directory, travel and governmental markets. In addition, companies that incorporate call centers, CD- ROMs or stand-alone driving direction kiosks into their information delivery strategy require non-Internet customized mapping solutions. MapQuest has developed its map-enabling software to promote the rapid development of mapping applications in these environments. Revenue Recognition Contracts with businesses for Internet products and services are generally on an annual basis and consist of a one-time setup fee and annual service or license fee. The one-time setup fee is based on costs incurred to initially integrate the Web site connection and is recognized upon installation of the connection. The remaining service or license fee is recognized ratably over the contract period. Revenues recognized under this method are included in the statements of operations as business revenues. Royalty revenues are recognized when earned based on the revenues generated by the sale of a licensed product or based on the minimum royalty provisions in the related contract. Revenue from the sale of licenses to its customers for the use of MapQuest's geographic systems or products are generally recognized upon delivery of the licensed systems or products if no significant obligations exist. If a maintenance or upgrade obligation exists, revenues are recognized ratably over the obligation period. MapQuest's license agreements have terms generally ranging from one to three years. Substantially all revenues recognized under this method are included in the statements of operations as business revenues. Revenues from long-term fixed price contracts for the development of customized geographic and cartographic data are recognized on the percentage of completion method, measured by the percentage of labor hours incurred to date to estimated total labor hours for each contract. Revenues recognized in excess of amounts billed are classified as contract work in progress. Amounts billed to clients for contracts in excess of revenues recognized to date are classified as advance billings on contracts. Revenues recognized under this method are included in the statements of operations as digital mapping revenues. Advertising revenue is recognized ratably over the period in which the advertisements are displayed, provided that no significant obligations remain and collection of the resulting receivable is probable. The average duration of MapQuest's advertising arrangements is one to two months. MapQuest may guarantee its advertisers a pre-set level of impressions during the contract period. To the extent minimum guaranteed impression levels are not met ratably over the contract period, MapQuest defers recognition of the corresponding pro- rata portion of the revenues relating to such unfulfilled obligations until the guaranteed impression levels are achieved. Revenues recognized under this method are included in the statements of operations as consumer revenues. Barter revenues are recognized in connection with agreements in which MapQuest receives advertising or other goods and services in exchange for content or advertising on mapquest.com. Barter transactions are F-7 MAPQUEST.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) recorded at the lower of estimated fair value of the goods or services received or the estimated fair value of the content or advertisements given. Barter transactions accounted for approximately 0%, 1% and 2% of revenues during 1996, 1997 and 1998, respectively. Revenues recognized under this method are included in the statements of operations as consumer revenues. Revenues from all other services provided and products sold or licensed are recognized when the services are rendered or delivery of the product is made and no significant MapQuest obligations remain outstanding. Revenues recognized under this method are included in the statements of operations as digital mapping and business revenues. Product Development Product development expenses in the accompanying statements of operations include the costs to develop new products and services and to modify existing products and services, including software and data. These costs consist primarily of salaries for product development personnel and related expenses, contract labor expense, and consulting fees. Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based upon MapQuest's product development process, technological feasibility is established upon completion of a working model. Costs incurred by MapQuest between completion of the working model and the point at which the product is ready for general release have been insignificant. As a result, MapQuest has expensed software development costs. Statements of Cash Flows For purposes of the statements of cash flows, MapQuest considers all cash and highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Fair Values of Financial Instruments The carrying amounts of cash and cash equivalents, notes receivable and notes payable approximate fair value because of the short-term maturity of these instruments. Inventories Inventories are carried at the lower of cost or market using the first-in, first-out (FIFO) method. Property and Equipment Property and equipment consisting primarily of computer hardware are stated at historical cost. Depreciation is computed principally using the straight- line method over the estimated useful life of assets ranging from 3 to 5 years. Goodwill Goodwill, principally from the acquisition of Maryland Cartographics, Inc. in July 1994, represents the excess of cost over fair value of net assets acquired and is being amortized over 10 years using the straight-line method. As of December 31, 1997 and 1998, accumulated amortization was $96,744 and $127,295, respectively. Accounting for Stock-Based Compensation In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 prescribes accounting and reporting standards for all stock-based compensation plans, including F-8 MAPQUEST.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123 requires compensation expense to be recorded (i) using the new fair value method or (ii) using existing accounting rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", ("APB 25") and related interpretations with pro forma disclosure of what net income and earnings per share would have been had the Company adopted the fair value method. The Company accounts for its stock- based compensation plans in accordance with the provisions of APB 25. Advertising Costs Advertising costs are expensed as incurred. Advertising costs for 1996, 1997 and 1998 amounted to $332,300, $779,000 and $741,600, respectively, and include barter advertising costs for 1997 and 1998 of $148,000 and $538,000, respectively. Investment in Joint Venture The Company's 50 percent-owned joint venture, Donnelly Spatial Data Partnership, is accounted for by the equity method. The joint venture is engaged in providing, among other things, highway trip routing products and services. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. Inventories Inventories are comprised of the following:
December 31 --------------------- 1997 1998 ---------- ---------- Materials.............................................. $ 240,000 $ 96,006 Work-in-process........................................ 207,838 336,123 Finished goods......................................... 1,238,279 932,479 ---------- ---------- $1,686,117 $1,364,608 ========== ==========
3. Asset Purchase--Interarts Effective April 1, 1996, MapQuest acquired certain assets, primarily inventory, of Interarts, Ltd. (Interarts) for $328,600. Interarts is an upscale niche publisher of reference maps, atlases and products that use map images. This transaction was accounted for in accordance with the purchase method of accounting for business combinations. No goodwill has been recognized by MapQuest in connection with this transaction. The operating results of Interarts are included in MapQuest's results of operations from the effective date of the acquisition. Pro forma information about operating results assuming Interarts was acquired at the beginning of 1996 is not presented because it would not differ materially from reported results. 4. Debt Arrangements MapQuest has a $5,000,000 secured line of credit payable on demand with a financial institution. Borrowings under the line of credit are limited to 80% of MapQuest's qualified accounts receivable that are within 90 days of invoice. Under the agreement, MapQuest may choose an interest rate based on the following options: prime rate, a fixed rate as offered by the Bank from time to time for varying periods up to 180 days or at the LIBOR Rate plus 1.75% for periods of 30, 60, 90 or 180 days. No amount was drawn on the line at December 31, 1997 or 1998. F-9 MAPQUEST.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) MapQuest entered into a promissory note during 1997. Terms of repayment require thirty consecutive monthly payments of principal and interest. Interest on the outstanding principal is fixed at a rate of 9%. 5. Preferred Stock and Stockholders' Equity Restated Certificate of Incorporation On July 17, 1997, MapQuest filed a Restated Certificate of Incorporation with the State of Delaware in conjunction with the purchase and sale of Series C Preferred Stock. The Restated Certificate of Incorporation authorizes MapQuest to issue 35,000,000 shares, of which 20,000,000 shares are designated Common Stock and 15,000,000 shares are designated Preferred Stock. Of the Preferred Stock, 6,550,000 shares are designated Series A Preferred, 2,000,000 shares are designated Series B Preferred, 3,800,000 shares are designated Series C Preferred and 2,650,000 shares are undesignated as to series. Series A Preferred Stock MapQuest is authorized to issue 6,550,000 shares (10,000,000 shares as of December 31, 1996) of noncumulative, convertible, voting Series A Preferred Stock. Effective July 17, 1997, a redemption feature was added and the issued and outstanding shares were reclassified outside of stockholders' equity. At the option of the Holder, each share of Series A Preferred Stock is convertible into Common Stock at a conversion rate of 2.7 shares of Common Stock for each share of Series A Preferred Stock. Each share of Series A Preferred Stock automatically converts into shares of Common Stock, either (i) immediately prior to the closing of MapQuest's initial underwritten public offering pursuant to a Registration Statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended, and having an aggregate offering to the public of not less than $15,000,000 or (ii) upon the affirmative vote of the holders of at least two- thirds of the then outstanding shares of Series A Preferred Stock, whichever is earlier. The Series A Preferred Stock ranks senior to the Common Stock as to dividend, liquidation, and redemption rights. The Series A Preferred Stock ranks junior to the Series B Preferred Stock and the Series C Preferred Stock as to dividend, liquidation and redemption rights. Each share of Series A Preferred Stock issued and outstanding has a number of votes equal to the number of shares into which such share of Series A Preferred Stock is then convertible. Subject to the prior and superior rights of the holders of the shares of Series B Preferred Stock and shares of Series C Preferred Stock, upon written notice at least 120 days prior to December 31 of any calendar year from, and including, the year 2002, by the holders of at least two-thirds of the then outstanding shares of Series A Preferred Stock, MapQuest shall be required to redeem all of the issued, outstanding and nonredeemed shares of Series A Preferred Stock held by each holder of Series A Preferred Stock at a redemption price per share of $1.00 plus an amount equal to all declared but unpaid dividends on the Series A Preferred Stock. The redemption would be payable in three annual installments. No dividends may be paid on the Series A Preferred Stock unless MapQuest has fulfilled its dividend obligations on the Series B Preferred Stock and Series C Preferred Stock. The Series A Preferred Stock has an annual cash dividend rate of $.075 per share when and as declared by the Board of Directors. MapQuest has reserved 17,685,000 shares of Common Stock for issuance upon conversion of Series A Preferred Stock. Pursuant to the terms of the stock purchase agreement dated October 31, 1994, MapQuest sold 215,000 shares of its Series A Preferred Stock at a purchase price of $1 per share to MapQuest's then existing management. The aggregate purchase price of $215,000 was paid $127,500 in cash and $87,500 in notes due October 31, 1999. The notes bear interest at a rate of 7.5% compounded annually. Payments are due annually in an amount that is the lesser of one-fifth of the principal balance or 50% of any bonus to which each employee is entitled. The notes are secured by the shares purchased, with shares released to the extent each note is paid. At December 31, 1997 and 1998, outstanding notes receivable in conjunction with this stock purchase was $35,200. F-10 MAPQUEST.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) On March 26, 1996, pursuant to the terms of an Employment Agreement dated October 31, 1994, the Company sold 35,000 shares of its Series A Preferred Stock at a purchase price of $1 per share to a member of MapQuest's then existing management. The aggregate purchase price of $35,000 was paid $3,500 in cash and $31,500 in a note due October 31, 2000. The note bears interest at a rate of 7.5% compounded annually. The repayment terms were modified pursuant to a severance agreement in 1997. The payment of the note, inclusive of interest, is due on the earlier of September 30, 2000 or the date on which the severed employee transfers all shares of the employee's Series A Preferred Stock. The note is secured by the shares purchased with shares released to the extent the note is paid. At December 31, 1997 and 1998, outstanding notes receivable in conjunction with this stock purchase was $31,500. Series B Preferred Stock MapQuest is authorized to issue 2,000,000 shares of cumulative, redeemable, nonvoting Series B Preferred Stock. Holders of shares of Series B Preferred Stock are entitled to a cumulative dividend, payable semiannually, at the annual rate of $.46125 per share with respect to dividends payable on or prior to December 31, 1997 and $.39975 per share with respect to dividends payable after December 31, 1997. The dividend may be paid in cash or a combination of cash and additional shares of Series B Preferred Stock; however, at least 13.33% of the dividend payable in any period on or prior to December 31, 1997 shall be payable in cash. As of December 31, 1997 and 1998, there were no dividends in arrears. Subject to the prior written consent of the holders of a majority of the shares of Series C Preferred Stock then issued and outstanding, the Series B Preferred Stock is redeemable at the option of MapQuest at any time at a price of $6.15 per share, payable in cash or a combination of cash and subordinated convertible debentures. Subject to the prior and superior rights of holders of Series C Preferred Stock, the Series B Preferred Stock is also redeemable at the option of the holders upon written notice at least 120 days prior to December 31 of any calendar year from and including the year 2002, by the holders of at least two-thirds of the then outstanding shares of Series B Preferred Stock, at a price of $6.15 per share payable in cash, plus an amount equal to all dividends accrued and unpaid thereon to the redemption date. The redemption would be payable in three annual installments. The Series B Preferred Stock ranks senior to the Series A Preferred Stock and the common stock as to dividend, liquidation and redemption rights. The Series B Preferred Stock ranks senior to the Series C Preferred Stock as to dividend rights and junior to the Series C Preferred Stock as to liquidation and redemption rights. During 1996, 1997 and 1998 MapQuest recorded dividends totaling $524,183, $558,812 and $516,299, respectively, on Series B Preferred Stock. These dividends included cash dividends of $69,889, $74,506 and -0- and stock dividends of $454,295, $484,306 and $516,299, during 1996, 1997 and 1998, respectively. The stock dividends were based on the issuance of additional shares of Series B Preferred Stock of 73,869, 78,749 and 83,951 shares during 1996, 1997 and 1998, respectively, using a value of $6.15 per share. Series C Preferred Stock MapQuest is authorized to issue 3,800,000 shares (0 shares as of December 31, 1996) of noncumulative, redeemable, convertible, voting Series C Preferred Stock. At the option of the holder, each share of Series C Preferred Stock is convertible into Common Stock at a conversion rate of 2.7 shares of Common Stock for each share of Series C Preferred Stock. Each share of Series C Preferred Stock automatically converts into shares of Common Stock, immediately prior to the closing of MapQuest's initial underwritten public offering pursuant to a Registration Statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended, in which the aggregate proceeds to MapQuest equal at least $15,000,000 and in which the price per share of Common Stock equals or exceeds $2.60 per share (as adjusted for stock splits, stock dividends, recapitalizations and similar events). Each share of Series C Preferred Stock F-11 MAPQUEST.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) issued and outstanding has a number of votes equal to the number of shares into which such share of Series C Preferred Stock is then convertible. The Series C Preferred Stock ranks senior to the Common Stock, the Series A Preferred Stock and the Series B Preferred Stock as to liquidation and redemption rights and ranks senior to the Common Stock and the Series A Preferred Stock with respect to the payment of dividends. The Series C Preferred Stock ranks junior to the Series B Preferred Stock with respect to the payment of dividends. The Series C Preferred Stock has an annual cash dividend rate of $.26325 per share when and as declared by the Board of Directors. Upon written notice at least 120 days prior to December 31 of any calendar year from, and including, the year 2002, by the holders of at least two-thirds of the then outstanding shares of Series C Preferred Stock, the Company shall be required to redeem all of the issued, outstanding and nonredeemed shares of Series C Preferred Stock held by each holder of Series C Preferred Stock at a redemption price per share of $3.51 plus an amount equal to all declared but unpaid dividends on the Series C Preferred Stock. The redemption would be payable in three annual installments. The Company has reserved 9,437,456 shares of Common Stock for issuance upon conversion of Series C Preferred Stock. Pursuant to the terms of the stock purchase agreement dated July 17, 1997, MapQuest sold 3,431,498 shares of its Series C Preferred Stock at a purchase price of $3.51 per share. The aggregate purchase price of $12,044,558 was paid in cash. The difference between the aggregate purchase price net of the warrants issued during 1998 is being accreted to the redemption value through 2002. Accretion totaled $63,243 and $150,924 during 1997 and 1998, respectively. On November 1, 1997, MapQuest sold 63,856 shares of its Series C Preferred Stock at a purchase price of $3.51 per share to members of the Company's then existing management. The aggregate purchase price of $224,135 was paid by $224,135 in notes due November 1, 2004. The notes bear interest at a rate of 7.0% compounded annually. Payments are due annually, commencing in the year 2000, in an amount that is the lesser of one-fifth of the principal balance or 50% of any bonus to which each employee is entitled. The note is secured by the shares purchased with shares released to the extent the note is paid. At December 31, 1997 and 1998, outstanding notes receivable in connection with this stock purchase were $224,135. Common Stock As of December 31, 1998, MapQuest has a total of 35,778,701 shares of Common Stock reserved for future issuance. 6. Stock Options and Warrants 1995 Stock Option Plan As of December 31, 1998, 6,233,627 shares of MapQuest's Common Stock were reserved for issuance under the GeoSystems Global Corporation 1995 Stock Option Plan (the Plan), under which the Company may grant stock options to key employees and consultants. Each option entitles the holder to purchase from MapQuest one share of Common Stock at an exercise price which shall not be less than the fair market value of one share of stock on the date of grant. These options vest generally over five years and expire ten years from the date of grant. F-12 MAPQUEST.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Changes during the years ended December 31, 1996, 1997 and 1998 in options outstanding were as follows:
Number of Exercise Price Options Per Option --------- -------------- Balance at January 1, 1996......................... 1,375,515 $ 0.04 Granted during 1996................................ 1,071,179 $ 0.04 Granted during 1996................................ 365,310 $ 0.06 Granted during 1996................................ 429,300 $ 0.37 Exercised.......................................... (7,074) $ 0.04 Forfeited.......................................... (27,216) $ 0.04 --------- ----------- Outstanding at December 31, 1996................... 3,207,014 $ .04-$0.37 Granted during 1997................................ 933,678 $ 0.37 Exercised.......................................... (3,240) $ 0.04 Exercised.......................................... (6,210) $ 0.06 Exercised.......................................... (864) $ 0.37 Forfeited.......................................... (268,855) $ 0.04 Forfeited.......................................... (24,840) $ 0.06 Forfeited.......................................... (80,022) $ 0.37 --------- ----------- Outstanding at December 31, 1997................... 3,756,661 $ .04-$0.37 Granted during 1998................................ 2,218,050 $ 0.37 Exercised.......................................... (78,570) $ 0.04 Exercised.......................................... (33,750) $ 0.06 Exercised.......................................... (7,290) $ 0.37 Forfeited.......................................... (551,855) $ 0.04 Forfeited.......................................... (135,000) $ 0.06 Forfeited.......................................... (320,596) $ 0.37 --------- ----------- Outstanding at December 31, 1998................... 4,847,650 $0.04-$0.37 ========= ===========
During June, 1998 MapQuest accelerated the vesting and extended the exercise period of options in connection with a severance agreement for the former President and recorded compensation expense of $38,000. Pro forma information regarding net loss and net loss per share is required by SFAS 123, and has been determined as if MapQuest had accounted for its employee stock options under the fair value method of that statement. As permitted under the provisions of SFAS No. 123, and based on the historical lack of a public market for MapQuest.com, Inc. options, no factor for volatility has been reflected in the option pricing calculation. The fair value of the options was estimated at date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
1996 1997 1998 ------- ------- ------- Assumptions Volatility factor of the expected market price of MapQuest's common stock........................... 0% 0% 0% Average risk free interest rate.................... 6.1% 6.1% 5.24% Dividend yield..................................... 0.0% 0.0% 0.0% Average life....................................... 5 years 5 years 5 years
F-13 MAPQUEST.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because MapQuest stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. MapQuest's pro forma information is as follows:
1996 1997 1998 ----------- ------------ ----------- Pro forma net loss applicable to common stockholders.............. $(1,801,499) $(13,432,774) $(3,822,092) Pro forma basic and diluted loss per share........................ $ (8.84) $ (64.43) $ (12.09)
Additional information with respect to outstanding options as of December 31, 1998 is as follows:
Options Options Outstanding Exercisable ----------------------- ----------- Weighted Average Remaining Number of Contractual Number of Exercise Prices Options Life Options --------------- ---------- ----------- ----------- $0.04.................................... 1,509,883 6.7 1,043,163 $0.06.................................... 165,510 7.5 89,640 $0.37.................................... 3,172,257 8.5 669,394 ---------- --------- $0.04 - $0.37............................ 4,847,650 1,802,197 ========== =========
The weighted average fair value of options granted during 1996, 1997 and 1998 was $0 in each year. On December 31, 1998 MapQuest granted 645,570 options for which the exercise price per share will be the initial public offering price determined upon completion of the offering MapQuest intends to make (see Note 15). These options are excluded from the disclosures in this Note 6. Warrants As of December 31, 1998, there were 390,258 warrants outstanding under which each warrant entitles the holder to purchase one share of MapQuest's Common Stock for $.04 per share. The warrants were issued for $.004 per warrant in connection with the original Series A Preferred Stock Purchase Agreement dated October 31, 1994. The warrants expire upon the earlier of October 31, 2004 or the fifth anniversary of an initial public offering. MapQuest has reserved 390,258 shares of common stock for issuance upon exercise of the warrants. As of December 31, 1998, there were 406,709 warrants outstanding under which each warrant entitles the holder to purchase one share of MapQuest's common stock for $1.30. The warrants were issued for $1,000 in connection with the Purchase and Sale of Series C Preferred Stock Agreement. The warrants expire on July 18, 2002. MapQuest has reserved 406,709 shares of common stock for issuance upon exercise of the warrants. F-14 MAPQUEST.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) As of December 31, 1998, there were 954,147 warrants outstanding under which each warrant entitles the holder to purchase one share of MapQuest's common stock for $1.04 per share. The warrants were issued in connection with a distribution agreement MapQuest executed in 1997. These warrants were valued at $0 on the date of grant using the "Black Scholes" option pricing model. The warrants expire on the earlier of April 22, 2002 or upon termination of the agreement. In the event that the holder shall have exercised the warrants prior to the Company terminating the distribution agreement due to a breach of the agreement by the holder, the Company shall have the option to purchase these shares of common stock for a period of 60 days after the termination of the distribution agreement at a purchase price which is the lesser of $1.77 or the then fair market value of such shares. The Company has reserved 954,147 shares of common stock for issuance upon exercise of the warrants. As of December 31, 1998, there were 522,231 warrants outstanding under which each warrant entitles the holder to purchase one share of MapQuest's common stock for $.004 per share. The warrants were issued during May 1998 to certain holders of Series C Preferred Stock in connection with the original issuance of the Series C Preferred Stock. The warrants expire on April 30, 2008. MapQuest has reserved 522,231 shares of common stock for issuance upon exercise of the warrants. As of December 31, 1998, there were 41,266 warrants outstanding under which each warrant entitles the holder to purchase one share of MapQuest's common stock for $1.30. The warrants were issued for services rendered by an outside party. The warrants expire in September 2003. 7. Loss Per Share The following table sets forth the computation of basic and diluted loss per share:
1996 1997 1998 ----------- ------------ ----------- Numerator: Net loss......................... $(1,276,179) $ (7,599,123) $(3,154,869) Preferred stock dividends........ (525,320) (560,025) (516,299) Accretion of redeemable preferred stock........................... -- (63,243) (150,924) Addition of redemption feature to preferred stock................. -- (5,210,383) -- ----------- ------------ ----------- Numerator for loss per share ap- plicable to common stockhold- ers............................. $(1,801,499) $(13,432,774) $(3,822,092) =========== ============ =========== Denominator: Denominator for basic and diluted loss per share--weighted-average shares.......................... 203,779 208,499 316,202 Basic and diluted loss per common share............................. $ (8.84) $ (64.43) $ (12.09) =========== ============ ===========
The following securities and number of shares have been excluded from the diluted per share computation as they are antidilutive:
1996 1997 1998 --------- --------- --------- Convertible redeemable preferred stock Se- ries A..................................... -- 6,550,000 6,550,000 Convertible redeemable preferred stock Se- ries C..................................... 3,495,354 3,495,354 Convertible preferred stock Series A........ 6,550,000 -- -- Stock options............................... 3,207,014 3,756,661 4,847,650 Stock warrants.............................. 390,258 1,751,114 2,314,611
F-15 MAPQUEST.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) The following table sets forth the computation of pro forma basic and diluted loss per share, assuming conversion of the shares of Series A Preferred Stock and Series C Preferred Stock to shares of common stock and the redemption of the shares of Series B Preferred Stock outstanding at December 31, 1998 using an initial public offering price of $15 per share at the beginning of the year ended December 31, 1998.
1998 ----------- Numerator: Net loss applicable to common stockholders.................. $(3,822,092) Redeemable preferred stock--Series C accretion.............. 150,924 Preferred stock dividends on cumulative preferred stock--Se- ries B..................................................... 516,299 ----------- Numerator for pro forma basic and diluted loss per share.... $(3,154,869) Denominator: Weighted average number of common shares.................... 316,202 Assumed conversion of preferred shares to common shares..... 27,122,455 Assumed issuance of common shares to redeem Series B Pre- ferred Stock............................................... 555,469 ----------- Denominator for pro forma basic and diluted loss per share.. 27,994,126 Pro forma basic and diluted loss per share.................. $ (.11)
8. Income Taxes No provision for income taxes has been recorded as MapQuest has incurred net operating losses during 1996, 1997 and 1998. The tax effects of temporary differences and net operating loss and credit carryforwards that give rise to MapQuest's deferred tax assets and liabilities are as follows:
December 31 ------------------------ 1997 1998 ----------- ----------- Deferred tax liabilities: Depreciation................................... $ (385,093) $ (347,306) Deferred tax assets: Allowance for doubtful accounts................ 84,040 146,324 Other.......................................... 481,607 496,126 Net operating loss and credit carryforwards.... 3,486,589 4,746,255 ----------- ----------- Total deferred tax assets........................ 4,052,236 5,388,705 ----------- ----------- Net deferred tax assets.......................... 3,667,143 5,041,399 Valuation allowances for deferred tax assets..... (3,667,143) (5,041,399) ----------- ----------- Net deferred taxes............................. $ -- $ -- =========== ===========
Due to the uncertainty of the realization of the assets, a valuation allowance has been provided. The valuation allowance was increased by $1,239,780, $2,618,565 and $1,374,256 for the years ended December 31, 1996, 1997 and 1998, respectively. As of December 31, 1998, MapQuest has net operating loss carryforwards of approximately $11,680,000, which expire between 2009 and 2018, and research and development tax credit carryforwards of approximately $623,000, which expire during 2010 and 2013. The utilization of approximately $10,035,000 of such net operating loss carryforwards and $561,000 of such research and development tax credit carryforwards is subject to an annual limitation of approximately $1,300,000, pursuant to Section 382 of the Internal Revenue Code. F-16 MAPQUEST.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) 9. Segment Information MapQuest has two reportable segments: MapQuest Business/Consumer and Digital Mapping Services. The MapQuest Business/Consumer segment provides products and services to address the web-based destination information needs of both businesses and consumers. Business and Consumer revenues and costs are combined for this segment because a significant portion of the costs, primarily compensation for operations personnel and related operations costs, are common to both Business and Consumer revenues and are not allocated. The Digital Mapping Services segment provides non-internet mapping products and services to the education, reference, directory, travel and governmental markets as well as providing customized mapping solutions to various other customers. Revenues are derived principally from the United States. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. MapQuest evaluates performance based on gross profit and does not allocate assets to the reportable segments since management does not evaluate segment performance based on asset information and common assets are used in the segments. Accordingly, depreciation expense is not included in the information set forth below. MapQuest's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies.
Year ended December 31 ------------------------------- 1996 1997 1998 --------- --------- --------- In thousands Business segment revenues: MapQuest consumer/business-trade......... $ 7,159.7 $ 6,038.6 $ 7,912.0 Digital mapping services-trade........... 12,417.2 15,377.1 16,805.1 --------- --------- --------- Total...................................... $19,576.9 $21,415.7 $24,717.1 ========= ========= ========= Business segment profit: MapQuest consumer/business............... 2,834.5 1,503.4 3,103.2 Digital mapping services................. 4,422.9 4,609.9 3,968.1 --------- --------- --------- Total segment profit....................... 7,257.4 6,113.3 7,071.3 Reconciling items: Operating expenses....................... (8,976.1) (14,115.7) (10,524.1) Other and interest income................ 442.5 403.3 297.9 --------- --------- --------- Pre-tax loss............................... $(1,267.2) $(7,599.1) $(3,154.9) ========= ========= =========
10. Leases MapQuest leases certain office and warehouse space from one of its stockholders under operating leases. MapQuest also leases other office space and office equipment from unrelated parties under operating leases. Future lease commitments are as follows: 1999........................................................... $1,039,000 2000........................................................... 848,000 2001........................................................... 754,000 2002........................................................... 758,000 2003........................................................... 762,000 Thereafter..................................................... 2,351,000 ---------- $6,512,000 ==========
F-17 MAPQUEST.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Rental expense for the years ended December 31, 1996, 1997 and 1998, was $683,000, $1,131,000 and $1,033,000, respectively. 11. Retirement Savings Plan MapQuest sponsors a defined contribution retirement savings plan for substantially all of its employees. Employees may elect to defer up to 15% of their salary. MapQuest has the option to match up to 100% of the employees' contribution up to 2% of their salary. The expense incurred related to this plan was $161,549, $209,235 and $189,512 during the years ended December 31, 1996, 1997 and 1998, respectively. 12. Related Party Transactions MapQuest paid a management fee of $75,000 to a stockholder during 1996 and 1997, respectively. In connection with the Purchase and Sale of Series C Preferred Stock Agreement, the $75,000 annual management fee arrangement was terminated effective July 17, 1997. MapQuest incurred rent expense of $112,000, $35,591 and $16,597 related to leases with one of its stockholders during 1996, 1997 and 1998, respectively. MapQuest recorded sales to its stockholders of $475,000, $432,320 and $513,626 during 1996, 1997 and 1998, respectively. Also, MapQuest recorded sales to other affiliates of $181,000, $1,290,900 and $2,022,000 during 1996, 1997 and 1998, respectively. As of December 31, 1998, MapQuest's accounts receivable - affiliates was $127,989. 13. Concentration of Credit Risk For the years ended December 31, 1996, 1997 and 1998, sales to MapQuest's top four customers represented 38%, 25% and 18% of total sales, respectively. During 1996, one customer represented 16% of total sales. 14. Commitments and Contingencies Minimum Annual Royalties MapQuest has guaranteed payment of the following minimum annual royalties under a distribution agreement for each of the following years:
Minimum Year ended December 31 Annual Royalty ---------------------- -------------- 1997...................................................... $ 166,667 1998...................................................... 345,833 1999...................................................... 462,500 2000...................................................... 500,000 2001...................................................... 500,000 2002...................................................... 125,000 ---------- Total................................................... $2,100,000 ==========
Contingencies On December 14, 1998, Mark Tornetta filed a lawsuit against Moore U.S.A., Inc. in the United States District Court for the Eastern District of Pennsylvania. The Company is defending this matter pursuant to an indemnity provision in its contract with Moore U.S.A., Inc. Mr. Tornetta's patent describes a specific method for searching real estate properties, which Mr. Tornetta alleges is infringed by Moore U.S.A., Inc.'s online and other real estate services. The Company believes that the claims of the patent are not infringed by Moore U.S.A. and the patent is invalid. While the litigation is in the early stage, and its outcome cannot be predicted, MapQuest believes that this litigation is without merit, and intends to defend this action vigorously. F-18 MAPQUEST.COM, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) On January 26, 1999, Civix-DDI, LLC filed a lawsuit in the United States District Court for the District of Colorado against twenty different defendants, including MapQuest. Eight of these defendants are licensees of MapQuest's technology and may have rights to indemnification under their respective agreements or at law. The complaint alleges infringement by MapQuest of two patents, through, for example, the manufacture, use, sale, and offer to sell MapQuest's Electronic Yellow Page Services systems and products. On May 3, 1999, MapQuest and Civix entered into a license agreement, dated May 3, 1999, pursuant to which MapQuest acquired a license under the Civix patents. The license agreement also provides certain rights to customers and end users of MapQuest products and services. The license agreement provides for MapQuest to pay a license fee of $500,000. In connection with the acquisition of the license, MapQuest and Civix agreed to settle the lawsuit and to jointly seek entry in the lawsuit of an agreed-upon order dismissing MapQuest from the lawsuit and dismissing certain claims against MapQuest's co-defendant customers relating to their use and sale of MapQuest products and services. MapQuest periodically receives notices of claims arising out of the normal course of business. In the opinion of management, these matters will not have a material effect on MapQuest's financial position, results of operations, or liquidity. 15. Subsequent Events and Unaudited Pro Forma Adjustments During February 1999, the Board of Directors authorized MapQuest to file a registration statement with the Securities and Exchange Commission for an initial public offering of shares of its common stock. In connection with the above, in April 1999, the Board of Directors authorized MapQuest to do the following: (1) amend its Certificate of Incorporation such that it will have the authority to issue an aggregate of 105,000,000 shares of capital stock, consisting of 90,000,000 shares of common stock, par value $0.001 per share, and 15,000,000 shares of preferred stock, par value $0.01 per share; (2) effect a 2.7 for 1 common stock split; (3) adopt the 1999 Stock Plan for which 3,645,000 shares of common stock will be reserved for future issuances; and (4) establish an employee stock purchase plan under which a total of 1,755,000 shares of common stock will be made available for sale. The above items were approved by the stockholders during April 1999. The change to authorized shares and the stock split became effective on April 29, 1999. The 1999 Stock Plan and employee stock purchase plan take effect upon and subject to the effectiveness of the registration statement. All references to common shares, per common share and par value per common share, except for references to authorized common shares, in the financial statements have been restated to give effect to the common stock split and change in par value per common share. In addition, during April 1999, the Board of Directors authorized and the stockholders approved MapQuest to amend and restate its Certificate of Incorporation such that it will have the authority to issue an aggregate of 105,000,000 shares of capital stock, consisting of 100,000,000 shares of common stock, par value $0.001 per share and 5,000,000 shares of preferred stock, par value $0.01 per share. This amended and restated Certificate of Incorporation is to only be adopted and filed upon and subject to the effectiveness of MapQuest's registration statement. MapQuest intends to use a portion of the proceeds of the offering to redeem the outstanding shares of Series B Preferred Stock. Also, upon the completion of an initial public offering in which the gross proceeds paid by the public are at least $15,000,000 and, with respect to the Series C Preferred Stock at a per share price to the public of not less than $2.60, all outstanding redeemable preferred shares of Series A Preferred Stock and Series C Preferred Stock will automatically be converted into shares of common stock in the manner described in Note 5. The pro forma balance sheet at December 31, 1998 gives effect to such conversion as if it occurred on that date. The pro forma loss per share (Note 7) for the year ended December 31, 1998 gives effect to the conversion of such shares and the redemption of the outstanding shares of Series B Preferred Stock as if the conversion and redemption occurred at the beginning of 1998. F-19 [LOGO] MAPQUEST.COM/TM/ -----END PRIVACY-ENHANCED MESSAGE-----