-----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, BylWSvVbsTTaH4KIkEztLr/o3vdXsMNTdWP6Vn+/ntErRsHk2/K4GVSh8Bdbp3Bg eesKb8W57yFDM0Y8Rb2HQg== 0000950153-99-001417.txt : 19991117 0000950153-99-001417.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950153-99-001417 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUEPASA COM INC CENTRAL INDEX KEY: 0001078099 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 860879433 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25565 FILM NUMBER: 99753821 BUSINESS ADDRESS: STREET 1: ONE ARIZONA CENTER STREET 2: 400 E VAN BUREN CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6027160100 MAIL ADDRESS: STREET 1: ONE ARIZONA CENTER STREET 2: 400 E VAN BUREN CITY: PHOENIX STATE: AZ ZIP: 85004 10-Q 1 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) For the quarterly period ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _________ Commission File Number ________ quepasa.com, inc. (Exact name of registrant as specified in its charter) Nevada 86-0879433 (State or other jurisdiction of (I.R.S. Employer Identification) incorporation or organization) One Arizona Center 400 East Van Buren 4th Floor Phoenix, AZ 85004 (Address of principal executive offices) (602) 716-0100 (Registrant's telephone number, including area code) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ ] Yes [X] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 8, 1999 - ------------------------------------ --------------------------------------- Common stock, $_.001______ par value 14,652,921 Transitional Small Business Disclosure Format: [ ] Yes [X] No 2 QUEPASA.COM, INC. INDEX
PART I. FINANCIAL INFORMATION PAGE NO. --------------------- -------- Item 1. Financial Statements Balance Sheets at September 30, 1999 (unaudited) and December 31, 1998..................................... 3 Statements of Operations for the Three Months Ended September 30, 1999 and 1998 (unaudited) and the Nine Months Ended September 30, 1999 and 1998 (unaudited)................................................................... 4 Statement of Changes in Stockholders' Equity for the Period from Inception (June 25, 1997) to the Year Ended December 31, 1998 and the Nine Months Ended September 30, 1999 (unaudited)............................................. 5 Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 (unaudited)................................................................... 7 Notes to Financial Statements (unaudited).................................................................. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................................ 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................ 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings......................................................................................... 18 Item 2. Changes in Securities and Use of Proceeds................................................................. 18 Item 6. Exhibits and Reports on Form 8-K.......................................................................... 19 Signatures .......................................................................................................... 20
3 QUEPASA.COM, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS ITEM 1. FINANCIAL STATEMENTS
September 30, December 31, 1999 1998 ------------ ------------ ASSETS (Unaudited) Current assets Cash and cash equivalents $ 37,411,713 $ 2,199,172 Deposits receivable -- 1,533,632 Stock subscription receivable -- 125,000 Accounts receivable (net of allowance of $2,766) 227,904 Forgivable loans 439,030 396,540 Prepaid expenses 2,502,480 -- ------------ ------------ Total current assets 40,581,127 4,254,344 Property and equipment, net of accumulated depreciation of $156,354 (September 30, 1999) and $6,532 (December 31, 1998) 1,880,840 354,620 Deposits and other assets 2,058 2,500 ------------ ------------ Total assets $ 42,464,025 $ 4,611,464 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 2,511,354 $ 71,222 Stock subscription -- 337,500 Allowance for legal disputes 400,000 -- Accrued liabilities 895,508 282,320 ------------ ------------ Total current liabilities 3,806,862 691,042 Long-term liabilities Note payable - Stockholder 2,245,082 -- ------------ ------------ Total liabilities 6,051,944 691,042 ------------ ------------ Commitments and contingencies Redeemable common stock (Note 4) 2,000,000 -- Deferred advertising expense (Note 4) (2,000,000) -- Stockholders' equity Preferred stock, authorized 5,000,000 shares - none issued or outstanding Common stock, authorized 50,000,000 shares, $.001 par value: Issued and outstanding 14,375,833 (September 30, 1999) and 9,075,833 shares (December 31, 1998) 14,376 9,076 Additional paid-in capital 69,347,965 10,427,477 Deferred advertising services (Note 4) (5,300,000) -- Deficit accumulated during the development stage (27,650,260) (6,516,131) ------------ ------------ Total stockholders' equity 36,412,081 3,920,422 ------------ ------------ $ 42,464,025 $ 4,611,464 ============ ============
See notes to financial statements. -3- 4 QUEPASA.COM, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS (unaudited)
Cumulative from Inception Three Months Ended Nine Months Ended (June 25, September 30, September 30, 1997) to ---------------------------- ---------------------------- September 30, 1999 1998 1999 1998 1999 ------------ ------------ ------------ ------------ ------------ Gross revenue $ 153,582 $ -- $ 170,144 $ -- $ 170,144 Less commissions (25,898) -- (34,017) -- (34,017) ------------ ------------ ------------ ------------ ------------ Net revenue 127,684 -- 136,127 -- 136,127 Operating expenses Product and content development expenses 798,844 75,459 1,264,407 86,149 1,679,280 Advertising and marketing expenses 6,195,737 45,480 11,321,185 50,558 11,571,604 Stock based compensation expenses -- -- 4,770,615 4,986,614 10,035,979 General and administrative expenses 1,879,233 171,387 4,214,380 196,808 4,752,715 ------------ ------------ ------------ ------------ ------------ Total operating expenses 8,873,814 292,326 21,570,587 5,320,129 28,039,578 ------------ ------------ ------------ ------------ ------------ Loss from operations (8,746,130) (292,326) (21,434,460) (5,320,129) (27,903,451) Other income (expense) Interest expense (79,465) -- (212,587) (2,500) (261,581) Interest income and other 494,972 (28,430) 512,918 (28,430) 514,772 ------------ ------------ ------------ ------------ ------------ Net other income (expense) 415,507 (28,430) 300,331 (30,930) 253,191 ------------ ------------ ------------ ------------ ------------ Net loss $ (8,330,623) $ (320,756) $(21,134,129) $ (5,351,059) $(27,650,260) ============ ============ ============ ============ ============ Net loss per share, basic and diluted $ (.58) $ (.04) $ (1.91) $ (.59) $ (2.84) (Note 5) ============ ============ ============ ============ ============ Weighted average number of shares outstanding, basic and diluted 14,251,920 9,075,833 11,089,569 9,075,833 9,741,390 ============ ============ ============ ============ ============
See notes to financial statements. -4- 5 QUEPASA.COM, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (unaudited)
Deficit Accumulated Additional Deferred During the Common Stock Paid-in Advertising Development Shares Amount Capital Services Stage Total ------------ ------------ ------------ ------------ ------------ ------------ Balance, December 31, 1997 5,680,000 $ 5,680 $ (5,660) $ -- $ (2,903) $ (2,883) Issuance of common stock and stock based compensation, May 1998 1,420,000 1,420 4,985,294 -- -- 4,986,714 Issuance of common stock in conversion of note payable ($1.56 per share), November 1998 666,666 667 1,039,113 -- -- 1,039,780 Issuance of common stock in conversion of note payable ($1.00 per share), November 1998 50,000 50 49,950 -- -- 50,000 Issuance of common stock for cash at $3.75 per share, net of $640,587 of offering costs, November and December 1998 1,259,167 1,259 4,080,030 -- -- 4,081,289 Issuance of compensatory stock options to employees, October through December 1998 -- -- 278,750 -- -- 278,750 Net loss for the year -- -- -- -- (6,513,228) (6,513,228) --------- ------ ----------- -------- ------------ ------------ Balance, December 31, 1998 9,075,833 9,076 10,427,477 -- (6,516,131) 3,920,422 Issuance of compensatory stock options to employees, January 1999 -- -- 52,500 -- -- 52,500 Issuance of compensatory stock options and common stock to officers and directors, March through June 1999 50,000 50 4,718,065 -- -- 4,718,115 Issuance of common stock for advertising services, April 1999 (Note 4) 650,000 650 5,499,350 (5,300,000) -- 200,000
See notes to financial statements. -5- 6 QUEPASA.COM, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED (unaudited)
Deficit Accumulated Additional Deferred During the Common Stock Paid-in Advertising Development Shares Amount Capital Services Stage Total ------------ ------------ ------------ ------------ ------------ ------------ Proceeds from initial public offering, net of $5,631,700 of offering costs, June 1999 (Note 3) 4,000,000 4,000 42,364,300 -- -- 42,368,300 Proceeds from underwriter overallotment, net of $913,127 of offering cost, July 1999 (Note 3) 600,000 600 6,286,273 -- -- 6,286,873 Net loss for the period (unaudited) -- -- -- -- (21,134,129) (21,134,129) ------------ ------------ ------------ ------------ ------------ ------------ Balance, September 30, 1999 (unaudited) 14,375,833 $ 14,376 $ 69,347,965 $ (5,300,000) $(27,650,260) $ 36,412,081 ============ ============ ============ ============ ============ ============
See notes to financial statements. -6- 7 QUEPASA.COM, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (UNAUDITED)
Cumulative from Inception (June Nine Months Ended 25, 1997) to September 30, September 30 1999 1998 1999 ------------ ------------ --------------- Cash flows from operating activities Net loss $(21,134,129) $ (5,351,059) $(27,650,260) ------------ ------------ ------------ Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 149,822 -- 156,354 Stock based compensation 4,770,615 4,986,614 10,035,979 Accrued interest on convertible notes payable -- -- 39,780 Change in assets, liabilities and other Accounts receivable (227,904) -- (227,904) Deposits receivable 1,533,632 -- -- Forgivable loans (42,490) (109,881) (439,030) Prepaid expenses (2,502,480) -- (2,502,480) Deposits and other assets 442 (2,500) (2,058) Accounts payable 2,440,132 33,500 2,511,354 Provision for legal disputes 400,000 -- 400,000 Accruals 828,421 310 895,508 Deferred advertising services 200,000 -- 200,000 ------------ ------------ ------------ 7,550,190 4,908,043 11,067,503 ------------ ------------ ------------ Net cash used in operating activities (13,583,939) (443,016) (16,582,757) ------------ ------------ ------------ Cash flows from investing activities Purchase of fixed assets (1,676,042) (42,985) (2,037,194) ------------ ------------ ------------ Net cash used in investing activities (1,676,042) (42,985) (2,037,194) ------------ ------------ ------------ Cash flows from financing activities Net proceeds from private placements -- -- 4,081,289 Proceeds from convertible note payable -- 1,100,000 1,100,000 Stock subscription receivable 125,000 -- -- Proceeds from issuance of note payable - Stockholder 2,245,082 -- 2,245,082 Accrued commissions (215,233) -- -- Stock subscription (337,500) -- -- Proceeds from initial public offering, & overallotment, net of offering costs 48,655,173 -- 48,655,173 Proceeds from issuance of common stock -- -- 120 Payments on notes payable -- (50,000) (50,000) ------------ ------------ ------------ Net cash provided by financing activities 50,472,522 1,050,000 56,031,664 ------------ ------------ ------------ Net increase in cash and cash equivalents 35,212,541 563,999 37,411,713 Cash and cash equivalents, beginning of period 2,199,172 2,582 -- ------------ ------------ ------------ Cash and cash equivalents, end of period $ 37,411,713 $ 566,581 $ 37,411,713 ============ ============ ============
See notes to financial statements. -7- 8 QUEPASA.COM, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS, CONTINUED (UNAUDITED) Supplemental disclosure of cash flow information: Cash paid for interest was $212,587, $2,500 and $261,581 for the nine months ended September 30, 1999 and 1998 and cumulative from inception (June 25, 1997) to September 30, 1999, respectively. Supplemental schedule of non-cash investing and financing activities: In 1999, the Company issued a total of 650,000 shares of common stock and a warrant to purchase 1,000,000 shares of common stock at $14.40 per share in exchange for advertising credits valued at $5.5 million. In 1999, the Company issued a total of 156,863 shares of redeemable common stock at $12.75 per share in conjunction with a spokesperson/marketing agreement. During 1998, convertible notes of $1.1 million were converted into common stock. See notes to financial statements. -8- 9 QUEPASA.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (unaudited) NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION Quepasa.com, inc. (the Company), a Nevada Corporation, was incorporated in June 1997. The Company is a Spanish-language Internet portal and community. The Company's web site contains several features including a search engine, news, maps, free web pages, chat and free e-mail. The Company's portal draws viewers to its Web site by providing a one-stop destination for identifying, selecting and accessing resources, services, content and information on the Web. The Company provides users with information and interactive content centered around the Spanish language. The Company is a development-stage company that has not had any significant revenue since inception. During 1998, the Company changed its name from Internet Century, Inc. to quepasa.com, inc. The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. The enclosed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Registration Statement on Form S-1 including the related prospectus dated June 24, 1999. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was originally to be effective for the Company's financial statements as of January 1, 2000. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of Effective Date of FASB Statement No. 133." The SFAS No. 137 defers the effective date of SFAS No. 133 by one year in order to give companies more time to study, understand and implement the provisions of SFAS No. 133 and to complete information system modifications. The SFAS No. 133 established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that entities record all derivatives as either assets or liabilities, measured at fair value, with any change in fair value recognized in earnings or in other comprehensive income, depending on the use of the derivative and whether it qualifies for hedge accounting. If certain conditions are met, a derivative may be specifically designated as (a) a liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, and available-for-sale security, or a foreign-currency-denominated forecasted transaction. -9- 10 Under this Statement, an entity that elects to apply hedge accounting is required to establish at the inception of the hedge the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the entity's approach to managing risk. The Company is in the process of evaluating the effects that this Statement will have on its financial reporting and disclosures. Certain reclassification have been made to the 1998 financial statements and notes to conform to the statement classifications used in 1999. NOTE 2 - CASH AND CASH EQUIVALENTS The Company invests certain of its excess cash in debt instruments of the U.S. Government, its agencies, and of high quality corporate issuers. All instruments are highly liquid with an original maturity of three months or less and are considered cash equivalents. NOTE 3 - SHAREHOLDERS' EQUITY On June 24, 1999, the Company completed its initial public offering of 4,000,000 shares of its Common Stock. Net proceeds to the Company aggregated approximately $42.4 million. In July 1999, the underwriters exercised an overallotment option and purchased 600,000 shares with net proceeds aggregating approximately $6.3 million. NOTE 4 - REDEEMABLE COMMON STOCK AND DEFERRED ADVERTISING In April 1999, the Company issued 650,000 shares of common stock and a warrant to purchase 1,000,000 shares of common stock at $14.40 per share in exchange for television advertising and other advertising services valued at $5.5 million. The amounts are expensed as advertising as the other advertising services are rendered. As of September 30, 1999, $5.3 million of this amount is included in stockholders' equity as deferred advertising services. This was previously classified as prepaid expenses. In September 1999, the Company paid $2.0 million in cash and an additional $2.0 million of common stock (valued at $12.75 per share) to Estefan Enterprises, Inc. (Estefan) in connection with an agreement whereby Gloria Estefan will act as spokesperson for the Company through December 31, 2000 and the Company will sponsor her United States concert tour. The Company is obligated to pay an additional $2.0 million in 2000 under this agreement. If the closing price of the Company's common stock on September 1, 2000 is less than $12.75 per share Estefan will have the option to return the stock to the Company in exchange for $2.0 million cash. If Estefan sells its shares of common stock of the Company for more than $18.75 per share they are obligated to return to the Company a number of shares which, when multiplied by the sales price, equals 50% of the difference between the sale price and $18.75 multiplied by the number of shares being sold on such date (up to a maximum value of $6.0 million). As of September 30, 1999, $2.0 million is reported -10- 11 as redeemable common stock and is offset by deferred advertising expense of $2.0 million. The deferred advertising expense will be recognized as an expense over the term of the contract. NOTE 5 - NET LOSS PER SHARE - BASIC AND DILUTED Basic net loss per share is computed on the weighted average number of common shares outstanding during each period. Diluted net loss per share is computed based on the weighted average number of common and common stock equivalent shares outstanding during each period, except in those circumstances where common equivalent shares would be antidilutive. Common equivalent shares are antidilutive at September 30, 1999 and 1998 and therefore basic and diluted net loss per share are the same. NOTE 6 - LEGAL PROCEEDINGS AND SUBSEQUENT EVENTS On October 12, 1999, a lawsuit was filed against the Company in the United States District Court for the Northern District of California in San Francisco (No. C 99 4530 WHO) by Whatshappenin.com, Inc., the operator of an Internet Web site titled "whatshappenin.com." The lawsuit alleges, among other things, that "whatshappenin.com" is a trademark of the plaintiff, that "que pasa" is the Spanish language equivalent of "what's happening" or "what's happenin'" and that the Company's use of "quepasa.com" infringes the plaintiff's trademark and constitutes unfair competition and false advertising. The lawsuit asks the court to enjoin the Company from using the name "quepasa.com," to order the United States Commissioner for Patents and Trademarks to refuse any pending application for the trademark "QuePasa.com" or cancel any existing registration for the trademark "QuePasa.com," and to order the Company to assign its registration of the domain name "quepasa.com" to the plaintiff. The lawsuit also seeks unspecified amounts for compensatory damages, punitive damages, attorneys' fees, and costs. The Company intends to vigorously defend this lawsuit and believes it is without merit. On November 1, 1999, the Company announced the settlement of a lawsuit with Jeffrey Peterson, the Company's co-founder and former Chief Executive Officer, and David Hansen, a former employee. In connection with the settlement, Mr. Peterson has resigned as a Director of the Company, he will retain 37,500 stock options, exercisable at $1.50 per share, his other stock options have been canceled and the Company has paid him $200,000. The terms of Mr. Peterson's lock-up agreement with the Company, entered into at the time of its initial public offering, remain in effect. Under the lock-up, Mr. Peterson may not sell any shares, including the shares underlying his options, until June 2001. In addition, the Company repaid the loan from Mr. Peterson totaling approximately $2.3 million and has forgiven notes from Mr. Peterson and Mr. Hansen totaling approximately $50,000. At the same time, the Company also settled a dispute with MCW Holdings, L.L.C. with respect to office space in Tempe, Arizona. The Company paid $150,000 in conjunction with the settlement of this dispute. -11- 12 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding the Company's expectations, beliefs, intentions or future strategies that are signified by the words "Expects", "Anticipates", "Intends", "Believes", or similar language. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. In evaluating the Company's business, prospective investors should carefully consider the information set forth below and under the caption "Risk Factors" contained in the registration statement on Form S-1 as filed on March 10, 1999. The Company cautions investors that its business and financial performance are subject to substantial risks and uncertainties. OVERVIEW The Company is a development stage company that commenced operations on June 25, 1997. The operations for the period June 25, 1997 through approximately May 1998 were limited to organizing the Company, raising operating capital, hiring initial employees and drafting a business plan. From May 1998 to present, the Company was engaged primarily in product development. For these reasons, the Company believes that period to period comparisons of its operating results are not meaningful and the results for any period should not be relied upon as an indication of future performance. The Company currently expects to significantly increase its operating expenses to expand its advertising and marketing efforts and to fund greater levels of product development. As a result of these factors, the Company expects to continue to incur significant losses on a quarterly and annual basis for the foreseeable future. RESULTS OF OPERATIONS REVENUE Gross and net revenue were $154,000 and $128,000 respectively for the three months ended September 30, 1999. The Company launched its Web site in the fourth quarter 1998 and first generated revenue during the second quarter 1999. During the third quarter 1999 revenue was derived from two sources; 1) banner advertising arrangements under which we receive revenue based on cost per thousand ad impressions (CPM) and on cost per clicks and 2) sponsor agreements which allow advertisers to sponsor an area or receive an exclusivity on an area within our Web site. Approximately 50% of the gross revenue was generated from each of these two sources. Banner advertising is sold by an independent agent who receives a commission, which varies from 30% to 50% of gross banner advertising depending on the volume of ad impressions during a month. Effective March 1, 2000, the Company will terminate its agreement with this independent sales agent. The Company currently plans to hire its own internal sales force to sell banner advertising -12- 13 and generate sponsorship agreements. In addition, the Company plans to supplement its sales efforts through the use of an independent sales agent for run of network banner advertising and additional site specific advertising sales. No single advertiser utilizing banner ads amounted to over 10% of total gross revenue. Two companies accounted for all the sponsor agreement revenue and each was over 10% of gross revenue. One of these sponsorships was with Telemundo and totaled approximately 23% of gross revenue. Telemundo is a shareholder in the Company and its Chief Operating Officer is on the Company's Board of Directors. Sponsor revenues are recognized ratably over the term of the agreement. PRODUCT AND CONTENT DEVELOPMENT Product and content development expenses were $799,000 for the quarter ended September 30, 1999 as compared to $75,000 for the quarter ended September 30, 1998. For the nine months ended September 30, 1999 product and content development expenses totaled $1.3 million compared to $86,000 for the nine months ended September 30, 1998. For the nine months ended September 30, 1999, this amount was comprised of approximately $530,000 of salaries and $560,000 of Internet connection charges and payments under the terms of the Company's search technology licensing agreement. ADVERTISING AND MARKETING Advertising and marketing expenses were $6.2 million for the quarter ended September 30, 1999 compared to $45,000 for the quarter ended September 30, 1998. For the nine months ended September 30, 1999, advertising and marketing expenses totaled $11.3 million compared to $51,000 for the nine months ended September 30, 1998. For the nine months ended September 30, 1999 advertising and marketing expenses were primarily comprised of the following; 1) $3.3 million paid in connection with a nationwide advertising campaign with a Spanish-language radio broadcaster, 2) $1.8 million for an outdoor advertising campaign (billboards, buses, etc.), 3) $1.6 million for television advertising ($980,000 of which was paid to Telemundo), 4) $1.5 million paid to the Arizona Diamondbacks under a marketing, promotions and sports information plan for the 1999 major league baseball season (a member of the Company's Board of Directors is Chief Executive Officer of the Arizona Diamondbacks), 5) $1.3 million for advertising services paid to an entity partially owned by a former director of the Company and 6) $1.2 million for promotional items and other miscellaneous advertising. STOCK BASED COMPENSATION Stock based compensation for the quarters ended September 30, 1999 and 1998 were zero. For the nine months ended September 30, 1999 stock based compensation totaled $4.8 million compared to $5.0 million for the nine months ended September 30, 1998. During the second quarter 1999 the Company issued a total of 350,000 options to the President and 50,000 common shares to an entity owned by the President. As a result of this transaction approximately $2.5 million of compensation expense was recognized. Additionally, during the first -13- 14 and second quarters of 1999, the Company recognized $2.3 million for the issuance of options to employees and directors. In May 1998, 1,420,000 of shares of common stock were issued to a former officer of the Company. As a result of these issuances, approximately $5.0 million of stock based compensation was recognized during the nine months ended September 30, 1998. GENERAL AND ADMINISTRATIVE General and administrative expenses were $1.9 million for the quarter ended September 30, 1999 compared to $171,000 for the quarter ended September 30, 1998. For the nine months ended September 30, 1999, general and administrative expenses totaled $4.2 million compared to $197,000 for the nine months ended September 30, 1998. The expense for the nine months ended September 30, 1999 consists primarily of $2.7 million for salaries, benefits and recruiting, $400,000 provision for settlement of certain legal disputes, $320,000 for facilities rent and utilities, $250,000 for professional fees and $150,000 for depreciation. INTEREST EXPENSE Interest expense was $79,000 for the quarter ended September 30, 1999 compared to zero for the quarter ended September 30, 1998. For the nine months ended September 30, 1999, interest expense totaled $213,000 compared to $2,500 for the nine months ended September 30, 1998. Interest expense is from a note payable to stockholder and was paid off in conjunction with the settlement of legal disputes described in Note 6. INTEREST INCOME AND OTHER Interest income and other was $495,000 for the quarter ended September 30, 1999 compared to $(28,000) for the quarter ended September 30, 1998. For the nine months ended September 30, 1999, interest income and other totaled $513,000 compared to $(28,000) for the nine months ended September 30, 1998. For the nine months ended September 30, 1999 interest income and other consists primarily of interest income from investments of certain of the Company's excess cash in debt instruments of the U.S. Government, its agencies, and of high quality corporate issuers. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1999, the Company had $37.4 million in cash and cash equivalents. On June 24, 1999, the Company raised approximately $42.4 million, net of offering costs, through an initial public offering (IPO) of its common stock and during July 1999 the Company raised an additional $6.3 million, net of offering costs, from the exercise of an option granted to its underwriters to cover overallotments from the IPO. Prior to the IPO, the Company primarily financed its operations through private placements of common stock and convertible debt which totaled approximately $5.2 million, a $2.0 loan advanced by a former principal stockholder (repaid from proceeds of the IPO) and approximately $2.7 million advanced from the Company's co-founder and former Chief Executive Officer (which has been repaid). -14- 15 Net cash used in operating activities was $13.6 million for the nine months ended September 30, 1999 and $443,000 for the comparable period in 1998. Net cash used by operations for the 1999 period consisted of the net loss of $21.1 million and an increase in prepaid expenses of $2.5 million offset by a non-cash expense for stock based compensation of $4.8 million and changes in assets and liabilities, primarily from a decrease in deposits receivable of $1.5 million and an increase in accounts payable of $2.4 million. Net cash used in operations for the 1998 period primarily resulted from a $5.4 million loss offset by a $5.0 million non-cash expense for stock based compensation. Net cash used in investing activities was $1.7 million for the nine months ended September 30, 1999 and $43,000 for the comparable period in 1998. For the 1999 and 1998 period the amounts were used for the purchase of fixed assets. Net cash provided by financing activities was $50.5 million for the nine months ended September 30, 1999 and $1.1 million for the comparable 1998 period. In the nine months ended June 30, 1999 the cash provided was comprised of $48.7 million of net proceeds from the IPO (including the exercise of an option granted to the underwriters to cover overallotments), and from the issuance of a note payable to its co-founder and former Chief Executive Officer for $2.3 million. The amount provided during the 1998 period was from the issuance of convertible notes payable, which have since been converted to common stock. Currently, the Company has commitments under non-cancelable operating leases for office facilities and office equipment requiring payments of approximately $80,000 through December 1999 and $889,000 thereafter. The Company is obligated to pay $2.0 million in 2000 under an agreement with Estefan Enterprises, Inc. (Estefan). In addition, if the closing price of the Company's common stock on September 1, 2000 is less than $12.75 per share Estefan will have the option to return 156,863 shares of the Company's common stock (issued to Estefan in September, 1999) to the Company in exchange for $2.0 million cash. The Company is required to pay $500,000 pursuant to the terms of its search technology licensing agreement with Inktomi through September 2001. The Inktomi agreement may require additional payments based upon the level of use; however, the Company believes the additional payments, if any, will not be material. The Company is also obligated to pay approximately $145,000 in 1999 and $435,000 through 2001 for technology and content used on its Web site portal provided by Reuters, GTE, Zacks, Associated Press, Screaming Media and Exodus. The Company is required to pay approximately $750,000 under an advertising agreement with Telemundo for broadcasts over 26 weeks commencing in August 1999, $215,000 under an agreement with the Miami Herald paid monthly through June 2000 and $160,000 under an agreement with Fox Sports Espanol for advertising through December 1999. The Company is also obligated under an agreement with a company owned by a former Director to provide advertising and marketing advisory services through July 2000. The total remaining commitment under this agreement is $450,000 in 1999 and $1.1 million in 2000. The Company will recognize the expense related to advertising, content and technology agreements in a manner consistent with the timing of the services provided for under the terms of the respective agreements. Generally, the services are received evenly over the terms of the agreements. The Company currently believes that cash and cash equivalents will be sufficient to meet its current operating, development, capital improvement and any other needs for the next fifteen months. There -15- 16 can be no assurance, however, that the Company will not require additional financing in the future. Although the Company does not believe it will be necessary to raise additional funds in the next three months, it may need additional funds at a later date to respond to competitive pressures or to acquire complimentary products, features, businesses or technology. If the Company were required to obtain additional financing in the future, there can be no assurance that such sources of capital will be available on terms favorable to the Company, if at all. YEAR 2000 ISSUE The Company depends on the delivery of information over the Internet, a medium which is susceptible to the Year 2000 Issue. The "Year 2000 Issue" is typically the result of limitations of certain software written using two digits rather than four to define the applicable year. If software with date-sensitive functions is not Year 2000 compliant, it may recognize a date using "00" as the year 1900 rather than the year 2000. The Year 2000 Issue could result in a system failure or miscalculations causing significant disruption of our operations, including, among other things, interruptions in Internet traffic, accessibility of our Web site, delivery of our service, transaction processing or searching and other features of our services. It is possible that this disruption will continue for an extended period of time. The Company depends on information contained primarily in electronic format, in databases and computer systems maintained by third parties and the Company. The disruption of third-party systems or the Company's systems interacting with these third party systems could prevent the Company from delivering search results or other services in a timely manner which could materially adversely affect the Company's business and results of operations. The Company has assessed its information technology equipment and systems, which includes its development servers and workstations and production server monitoring software. The Company also uses multiple software systems for internal business purposes, including accounting, e-mail, human resources and development. Most of this equipment and software has been purchased within the last 18 months. The Company has obtained Year 2000 compliance information from the vendors of this equipment and software. Based on this research the Company's management does not believe that these systems contain Year 2000 deficiencies. However, the Company has not conducted its own tests to determine to what extent software running on any of our hardware platforms fails to properly recognize Year 2000 dates. The Company has reviewed the current version of its internally developed free e-mail application to determine Year 2000 compliance. The Company's management has searched through the software code for this application and has determined that it correctly recognizes Year 2000 date codes. The Company has identified and has begun assessing non-information technology embedded systems such as voice mail, office security, fire prevention and other systems. Management generally believes that the Company's non-information technology embedded systems do not present Year 2000 issues. Although management believes that the Company will be Year 2000 compliant, the Company uses third party equipment and software that may not be Year 2000 compliant. Management has -16- 17 contacted substantially all of the Company's critical third party service suppliers regarding the status of their Year 2000 program. The Company has received responses from substantially all of its third party suppliers. The Company has received a written response from GTE and has been referred to information made publicly available by Reuters, Exodus, Microsoft, Dell Computer, Sun Microsystems and Oracle. Management intends to contact the remaining third party service suppliers regarding their Year 2000 readiness. All suppliers who have responded have asserted that their products will be or are Year 2000 compliant. In the event the Company does not receive satisfactory commitments from a key supplier, management will make plans for continuing availability of service through alternate channels To date, the Company has not incurred any material expenditures in connection with evaluating Year 2000 issues. All of the Company's expenditures have related to the opportunity cost of time spent by the employees identifying and evaluating Year 2000 compliance matters. The Company has not developed a Year 2000 specific contingency plan. If Year 2000 compliance issues are discovered, management will evaluate the need for contingency plans relating to such issues. The Company intends to actively work with its suppliers to minimize the risks of business disruptions resulting from Year 2000 issues and develop contingency plans where necessary. Such plans may include using alternative suppliers and service providers. The Company expects to have such plans in place by the fourth quarter of 1999. The worst case scenario related to Year 2000 issues would involve a major shutdown of the Internet, which would result in a total loss of revenue to the Company until it was resolved. SYSTEM CONVERSION The Company intends to migrate its production system from Microsoft Windows NT to Sun Solaris in the fourth quarter of 1999. While the Company may experience interruptions in service in the course of this migration, it is taking all reasonable steps to minimize such interruptions. The Company estimates it will spend $1.5 million on this migration in 1999. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's exposure to market risk for changes in interest rates relates primarily to the increase or decrease in the amount of interest income it can earn on its investment portfolio. The Company does not plan to use derivative financial instruments in its investment portfolio. Management plans to ensure the safety and preservation of our invested principal funds by limiting default risks, market risk and reinvestment risk. Management plans to mitigate default risk by investing in high-credit quality securities. -17- 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings See description of legal proceedings in Note 6 to the Notes to Financial Statements contained herein. Item 2. Changes in Securities and use of proceeds On June 24, 1999 the Company completed a public offering of 4,000,000 shares of Common Stock at an initial public offering price of $12.00 per share, resulting in net proceeds to the Company of $42.4 million. The gross proceeds of the offering were $48.0 million and the expenses incurred were $4.3 million for underwriting discounts and commissions and $1.3 for other expenses including legal, accounting and printing costs. In July 1999 the Company sold an additional 600,000 shares of Common Stock at an offering price of $12.00 per share, from the exercise of an option granted to its underwriter to cover overallotments from its initial public offering. The gross proceeds of the offering were $7.2 million and the expenses incurred were $650,000 for underwriting discounts and commissions and $250,000 for other expenses including legal, accounting and other offering costs. The Company used the net proceeds of the offering as follows: (1) $2.5 million repayment of a working capital loan and a bridge loan, (2) $6.9 million for marketing and advertising expenses, (3) $2.3 million for general and administrative expenses, (4) $496,000 for development and acquisition of additional content and features for the Company's Website and (5) $412,000 to purchase equipment. In addition, $36.1 million is expected to be used for marketing and advertising, to develop and acquire additional content and features, for general and administrative expenses, to purchase additional technology and equipment and for working capital. As of the date of the Quarterly Report, the balance of the net proceeds was invested in short-term, investment grade, interest-bearing securities. In September 1999, the Company issued 156,863 shares of redeemable common stock to Estefan Enterprises, Inc. (Estefan) in connection with an agreement whereby Gloria Estefan will act as spokesperson for the Company through December 31, 2000 and the Company will sponsor Ms. Estefan's concert tour. The securities were issued to Estefan in a transaction not involving a public offering that was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. In addition to the terms described in Note 4 to the accompanying notes to financial statements, after the first anniversary of this agreement Estefan will have demand and piggyback registration rights. -18- 19 Item 6. Exhibits and Reports on Form 8K a. The exhibits listed in the accompanying Index to Exhibits are filed as part of this Report on Form 10-Q. b. Reports on Form 8-K: 1) On August 2, 1999, the Company filed a report on Form 8-K announcing (i) termination of employment of the Chief Technology Officer. 2) On August 9, 1999, the Company filed a report on Form 8-K announcing that it had hired three vice presidents. 3) On September 3, 1999, the Company filed a report on Form 8-K announcing that it had replaced Ehrhardt Keefe Steiner & Hottman, P.C. with Deloitte & Touche LLP as its independent accountants. 4) On November 1, 1999, the Company filed a report on Form 8-K announcing the settlement of its lawsuit against Jeffrey Peterson, the Company's co-founder and former Chief Executive Officer. -19- 20 Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIGNATURES Date November 14, 1999 Signature /s/ Gary L. Trujillo ---------------------------- Gary L. Trujillo President Date November 14, 1999 Signature /s/ Allen R. Dunaway ---------------------------- Allen R. Dunaway Chief Financial Officer -20- 21 EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- 10.1 Agreement with Estefan Enterprises, Inc. 10.2 Registration Rights Agreement with Estefan Enterprises, Inc. 27.1 Financial Data Schedule
-21- EX-10.1 2 EX-10.1 1 Exhibit 10.1 September 1, 1999 Mr. Frank J. Amadeo President Estefan Enterprises, Inc. 420 Jefferson and 5th Street Miami Beach, Florida 33139 This letter agreement (the "Agreement") between quepasa.com, inc. ("quepasa"), Estefan Enterprises, Inc. ("EEI") fso Gloria Estefan and Gloria Estefan ("Gloria") sets forth the terms and conditions upon which Gloria will act as spokesperson for quepasa through December 31, 2000 and quepasa will sponsor Gloria's upcoming United States concert tour ("Tour 2000"). 1. Spokesperson Relationship and Sponsorship. Upon execution of this Agreement, Gloria shall act as quepasa's spokesperson and quepasa shall sponsor Tour 2000 as follows: A. ADVERTISING AND BRANDING Gloria will act as quepasa's spokesperson for all electronic media to include but not limited to: - Eight unique 30-second TV spots (to be produced in both Spanish and English for a total of sixteen spots) - Eight unique 30-second radio spots (to be produced in both Spanish and English for a total of sixteen spots) These spots will be produced around Gloria's songs and music. The TV spots will be based on your existing videos as follows: - One imaging spot using the song "Reach" - Two imaging spots using other mutually approved uplifting and inspirational Gloria songs - One spot exclusively promoting Gloria's Tour 2000 o One spot exclusively promoting the New Year's Eve Gala (the "Millenium Concert") - Three imaging spots incorporating newly recorded music from Gloria's upcoming Spanish-language album 1 2 The radio spots would be equivalent to the TV spots. Each 30-second spot will be edited to contain a five second tag promoting Tour 2000. These spots will be produced throughout the contract term. The use of Gloria's name, image, likeness, voice or music in each spot shall be subject to EEI's prior written approval (subject to the use of the music described above). Quepasa will use its best efforts to promote Tour 2000, including the Millennium Concert in Miami on New Year's Eve 1999 (the "Millennium Concert"), through a portion of its existing Spanish and English-language media plan. EEI will cause Foreign Imported Productions & Publishing, Inc. and Estefan Music Publishing, Inc. to waive all mechanical, sychronization or fixed fees to the musical compositions owned or controlled by these entities, except that quepasa agrees to pay a one-time fee of $5,000 to The 1992 Diane Warren Trust dba Realsongs for the use of the song "Reach". Quepasa agrees that if any musical compositions not owned or controlled by these two companies are used in any of the television spots, quepasa will be responsible for payment of any such fees, provided that EEI will use its best efforts to negotiate favorable fees for quepasa. There will be no license or other fees required for the use of the videos used in the spots. Gloria will be quepasa's spokesperson for all types of print and online media to include but not limited to: - Magazine, newspaper, direct mail, outdoor billboards - All out-of-home media to include buses, bus shelters, benches, subways, subway shelters, in-store point-of-purchase in record, video and computer stores - Online advertising All magazine, newspaper, direct mail, outdoor billboards, buses, bus shelters, benchs, etc. will use the likeness of Gloria when it relates solely to the advertising campaign as described above. All media that contains Gloria's name, image or likeness will be striped with panels promoting Tour 2000. The image of Gloria as quepasa's spokesperson shall be tacit. The use of Gloria's name, image, likeness, voice or music in all print and online advertising shall be subject to EEI's prior written approval. 2 3 Quepasa has provided EEI with its current media plan, which is subject to change through the term of the agreement. Quepasa agrees to consult with EEI about the location of its advertising that uses Gloria's name, image, likeness, voice or music, but quepasa maintains the sole right to make final determinations on media mix, location and spending. On-line advertising that contains Gloria's name, image, likeness, voice or music shall be subject to EEI's prior written approval and shall be limited to advertising either supporting the quepasa sponsorship ads or promoting Tour 2000. B. CO-BRANDED WEB PAGE AND ONLINE STORE - Quepasa will create a co-branded web page and online store ("web-page"), hosted by quepasa, which will be devoted exclusively to the Gloria/quepasa relationship and will contain pertinent information and purchasing opportunities including the items set forth below - Gloria's name, image, likeness, voice or music will not be used on the co-branded web page to endorse any other products; however, quepasa will be entitled to sell routine banner advertising on the page consistent with other run-of-site advertising - EEI will grant quepasa certain exclusive rights, including but not limited to the following: - Premiering Gloria videos from her forthcoming album prior to broadcast airing , subject to the approval of Sony Music/Epic Records, which approval may not be unreasonably withheld; EEI will use its best efforts to obtain this approval of Sony Music/Epic Records - Announcement of Tour 2000 dates - Preferred seating by ordering Tour 2000 tickets online through quepasa 3 4 - Purchase of co-branded merchandise (specific items to be mutually agreed upon) from [name of merchandising company]; EEI will use its best efforts to negotiate favorable purchasing 1terms from [name of merchandising company]; two items will be created and sold on the web-page where profits will be split 50/50 between quepasa and EEI - Links between quepasa's web-site and Gloria's website (gloriafan.com) and up to four additional websites designated by EEI, but not to include any website in direct competition with quepasa (including, but not limited to, starmedia.com, yupi.com and elsitio.com) - All on-line contesting for Tour 2000 tickets, backstage passes, etc. will be conducted exclusively on quepasa.com or gloriafan.com; EEI is not required to provide any tickets to quepasa for such contests other than those tickets mentioned elsewhere in this Agreement (and all front-row tickets mentioned in this Agreement must be contested), although EEI will use its best efforts to enable quepasa to purchase additional tickets at favorable prices for contesting; any user registering for a contest on gloriafan.com will be required to enroll with quepasa.com in order to enter the contest (there will be no charge to the user to enroll with quepasa.com) - Purchase of Gloria's CD's, including the new "Millennium CD", if one is recorded, and new Spanish CD, to be purchased through Sony Music/Epic Records; EEI will use its best efforts to have Sony Music/Epic Records make these CD's available - Lyrics to all songs on the new "Millennium CD" - Online promotion of Gloria's Educational Foundation in conjunction with Quepasa.com Foundation 4 5 C. THE ANNOUNCEMENT AND TOUR 2000 - The press release in the form of Exhibit A hereto will be distributed on the date of execution of this Agreement, or another business day selected by quepasa and reasonably acceptable to EEI but in no event later than five days after the signing of this Agreement, provided that the initial cash payment of $2 million and the issuance of the stock, each as described in Section H below, has occurred. - Gloria will appear at a press conference to announce that she is a spokesperson for, partner with, and investor in quepasa in New York City on or about September 14, 1999, but no later than September 15, 1999. - The exclusive sponsorship of Tour 2000 will be billed as "quepasa.com proudly presents" on all media material produced in connection with Tour 2000 (including but not limited to concert tickets, print ads, posters, and radio and television spots); except that where this phrase cannot reasonably be placed on concert tickets or other media, EEI will use its best efforts to place a shorter sponsorship phrase on such media that is reasonably satisfactory to quepasa; Tour 2000 will appear in at least 20 U.S. cities, and California, Texas, New York, Florida, Illinois and Arizona will be included in the tour - Kick-off for the tour will be the Millenium Concert; Quepasa will receive 50 tickets to the Millenium Concert, two of which will be front row seats (EEI will use its best efforts to provide two additional front row seats), and EEI will use its best efforts to provide the remainder in the best seats available; quepasa will receive backstage passes for 20 people and, if Gloria holds a Millenium party, 10 invitations (each for two people) to the party. 5 6 Other Tour Commitments: - Quepasa will receive visual sponsorship presence at each concert on video screens prior to and at the end of the concerts - Quepasa to receive 50 tickets for each concert, four of which will be front row seating, the remainder in the best 10% of the house excluding the first 15 rows - Quepasa will be granted the exclusive right to webcast one song in its entirety from the Millenium Concert and one song from the first concert performance of Tour 2000 following the Millenium Concert, provided that the webcast songs, or any components of the songs, including but not limited to sound bytes, may not be saved or stored to any user's hard-drive directly from the webcast and neither quepasa nor any of its internet partners may create a master recording or MP3 from the webcasts. - National contest with up-front concert tickets and a "meet and greet " for quepasa.com contest winners and quepasa employees and guests with Gloria on December 30, 1999 for the Millenium Concert and each other concert on the tour (only applies to contest winners of the tickets provided to quepasa under this Agreement); EEI will use its best efforts to have Gloria attend these "meet and greet" sessions; however, if she is unable to attend for a legitimate reason outside of her control (such as serious illness or unavoidable travel delays), a substitute session will be arranged. - Quepasa will have an exclusive right of first negotiation for 15 business days to negotiate with EEI the financial terms (in equivalent detail to those set forth in paragraph H below) for any Gloria Latin American tour sponsorship. 6 7 D. ONLINE CHAT SESSIONS - Gloria will appear on three chat sessions hosted by quepasa: - To announce the partnership - To announce the release of her Spanish Language album in early 2000 - To announce the commencement of Tour 2000 E. PERSONAL APPEARANCES BY GLORIA - In addition to the personal appearance in New York described in paragraph C above, Gloria will make at least two personal community appearances to promote the Internet, Tour 2000, her music and educational opportunities for Hispanics; one of these appearances will be in Phoenix at the Roosevelt School District and EEI will use its best efforts to arrange for the other appearance to be in Los Angeles and to coordinate Tour 2000 around these appearances; however, if Gloria is unable to attend for a legitimate reason outside of her control (such as serious illness or unavoidable travel delays), a substitute appearance will be arranged by mutual agreement. - These appearances would be filmed and webcast on the quepasa website; EEI may also use this footage provided that it is not edited in any way without quepasa's consent. - Gloria and EEI will use their best efforts to have Gloria do an additional "meet and greet" appearance at quepasa's headquarters in Phoenix, or at another mutually agreed upon location in Phoenix. F. TERM - Quepasa would have the rights to use Gloria's name, image and likeness as described in this Agreement through midnight, December 31, 2000 7 8 G. EXCLUSIVITY - Quepasa will be the exclusive primary sponsor for Tour 2000 (including the Millennium Concert) and EEI will use its best efforts to include quepasa in all local advertising by various promoters and identified as "quepasa.com proudly presents"; an isolated, inadvertent failure by EEI to secure this advertising shall not constitute a breach of this Agreement. - Quepasa will permit secondary sponsorships as long as they appear below Gloria's name on all printed advertising and are not competitive with quepasa. - Gloria and EEI will not agree for Gloria to be a spokesperson for any other Internet company for the term of this Agreement and will not enter into any agreement of any nature that involves Gloria with any Internet company that is in competition with quepasa; provided that this limitation does not apply to any other EEI artists or businesses. H. REMUNERATION - Quepasa will pay EEI $6.0 million ($4.0 million in cash and $2.0 million in unregistered common stock of quepasa) for the terms and conditions of this contract to be paid as follows: - $2 million in cash and $2 million in stock to be paid upon the signing of this Agreement - $1 million in cash (or certified or bank check) to be paid no later than 1:00 am (east coast time) on January 1, 2000 - $0.5 million in cash to be paid by wire transfer or certified or bank check on April 1, 2000 - $0.5 million in cash to be paid by wire transfer or certified or bank check on the day after the final concert tour performance 8 9 - The $2 million payable in quepasa common stock will equal 156,863 shares (the Shares) of unregistered common stock issued in the name "Estefan Enterprises, Inc. fso Gloria Estefan" (determined by dividing $2 million by the lowest common stock closing price as reported on Nasdaq on August 5, 1999 ($12.75) or August 6, 1999 ($12.8125); thus the lowest price is $12.75 (the "Stock Price")) - The shares must be held by EEI or an affiliate of EEI for one year from the date of this Agreement - If quepasa's common stock's closing price as reported on Nasdaq on the one year anniversary of this Agreement is below the Stock Price, you may "put" the entire amount of the Shares back to quepasa for $2 million to be paid by wire transfer or certified or bank check within five business days of delivery to quepasa of your put notice and upon surrender of your stock certificate(s) representing the Shares; provided that if quepasa merges with or is acquired by another company or effects a "going private" transaction and as a result quepasa is not the surviving corporation or quepasa's common stock is no longer traded on Nasdaq (the "Transaction"), and the consideration you receive for the Shares has a fair market value below $2 million (such differential, the "Shortfall"), you will receive the Shortfall at the same time you receive the consideration payable in the Transaction and quepasa will use its best efforts to ensure that the surviving corporation satisfies this obligation. 9 10 - Upon the actual sale date of any of the Shares (including in connection with a merger or acquisition of quepasa), if the gross price per share received for such Shares (whether in cash or other consideration)(the "Sale Price") is more than $18.75, EEI must return to quepasa a number of whole Shares which, when multiplied by the Sale Price, equals 50% of the difference between the Sale Price and $18.75 multiplied by the number of Shares being sold on such date; provided, that EEI will have no further obligation to return Shares to quepasa pursuant to this paragraph upon the earlier to occur of: (i) quepasa receiving shares from EEI having an aggregate value as calculated under this paragraph at each sale date of Shares equal to $6 million or (ii) EEI shall have sold all of the Shares and complied with the provisions of this paragraph with respect to each sale of Shares. o Simultaneously with the signing of this Agreement, quepasa and EEI will sign the Registration Rights Agreement in the form of Exhibit B hereto. 2. Representations and Warranties of Quepasa. - Quepasa has full corporate authority and has taken all necessary corporate action to authorize this Agreement and the Registration Rights Agreement, and when executed and delivered they will constitute valid and binding obligations of quepasa, enforceable against quepasa in accordance with their terms. - This Agreement and the Registration Rights Agreement do not violate the terms of, or cause a default under, any other agreement or instrument binding on quepasa or any of its property, and no consent is required of any person that has not been obtained for the execution and delivery of, and performance by, quepasa under the Agreement and the Registration Rights Agreement. - The Shares have been duly authorized, and when issued in accordance with the terms of this Agreement, will be validly issued, fully-paid and non-assessable. - Quepasa's relationship with Telemundo Network Group, LLC ("Telemundo"), an investor in and strategic partner of quepasa, will not limit quepasa's responsibilities and obligations hereunder, and quepasa will not permit Telemundo to assert any relationship or "tie-in" to EEI or Gloria. 10 11 - Quepasa will defend and indemnify EEI and Gloria against all claims, losses, damages and liabilities (or actions in respect thereto) ("Losses") arising under federal or state securities laws arising from Gloria's identification as a "spokesperson", "partner", and/or "investor" in quepasa; provided that quepasa will not be liable for any Losses suffered by EEI or Gloria upon its or her sale of the Shares (except as specifically provided for elsewhere in this Agreement) or for any Losses arising from EEI's or Gloria's knowing fraudulent or grossly negligent conduct. Quepasa will use its best efforts to cause the coverage under its now or hereafter existing directors' and officers' liability insurance policy to include Gloria as an additional named insured, for federal and/or state securities laws, for losses suffered by Gloria arising from Gloria's indemnification as a "spokesperson", "partner", and/or "investor" in quepasa. 3. Representations and Warranties of EEI and Gloria. - EEI has full corporate authority and has taken all necessary corporate action, and Gloria has taken all action, to authorize this Agreement and the Registration Rights Agreement, and when executed and delivered they will constitute valid and binding obligations of each of EEI and Gloria, enforceable against each of them in accordance with their terms. - This Agreement and the Registration Rights Agreement do not violate the terms of, or cause a default under, any other agreement or instrument binding on EEI, Gloria or any of their respective property and no consent is required of any person that has not been obtained for the execution and delivery of, and performance by EEI and Gloria under, the Agreement and the Registration Rights Agreement. - Each of EEI and Gloria is an "accredited investor" as defined in Regulation 501 under the Securities Act of 1933, as amended, and the Shares are being acquired by EEI for its own account and for investment purposes only and not with a view to any resale or distribution thereof, in whole or in part, to others. - EEI has reviewed a copy of quepasa's prospectus dated June 24, 1999 and its Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 16, 1999, and has had an opportunity to ask questions of, and receive satisfactory answers from, duly designated representatives of quepasa concerning quepasa. 11 12 4. Public Announcements; Confidentiality. All press releases, trade releases or other public announcements with respect to the transactions contemplated herein shall be jointly prepared by quepasa and EEI, to the extent required by law and except that the parties hereby agree to the press release attached hereto as Exhibit A. Except for the information contained in the press release attached hereto as Exhibit A and except as required by law, including the disclosure requirements of applicable securities laws, the terms of this Agreement shall not be disclosed to any other person without the consent of each of the parties hereto; provided, if such disclosure is so required by law, the party producing or directing the production of such information will use all reasonable efforts to provide the other parties hereto with notice of such disclosure and a reasonable opportunity to comment upon, limit or contest such disclosure. 5. Expenses. Each of the parties hereto shall pay its own expenses in connection with the transactions contemplated herein, including travel and other related expenses associated with the execution and fulfillment of this Agreement. 6 Notices. Either party may give notice to the other in writing at the addresses set forth below or by facsimile at the facsimile number set forth below, unless a change of address or facsimile number has been provided in writing to the other party; notices in writing shall be deemed delivered upon actual receipt and by facsimile upon generation of a standard transmission confirmation: If to EEI or Gloria: Estefan Enterprises, Inc. 420 Jefferson and 5th Street Miami Beach, FL 33139 Attention: Frank J. Amadeo Facsimile No.: 305-695-7108 If to quepasa: One Arizona Center 400 East Van Buren Fourth Floor Phoenix, AZ 85004 Attention: Gary L. Trujillo Facsimile No.: 602-716-0200 7. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Arizona. If any portion of this Agreement is held to be invalid or unenforceable, the remainder of this Agreement shall remain in full force and effect and shall be valid and enforceable according to its terms. 12 13 8. Entire Agreement. This Agreement and the Registration Rights Agreement contain the full and final understanding between the parties hereto and are intended as an integration of all prior negotiations and understandings unless otherwise provided for herein. No change or modification to this Agreement shall be valid unless in writing and signed by all parties hereto. No waiver of any provision of this Agreement shall be valid unless in writing and signed by the party granting such waiver. 9. Non-Waiver. No waiver of any default shall constitute a waiver of default on a future occasion, and no delay or omission shall preclude the exercise of any remedy provided herein, or exercise of any other right or remedy. 10. Binding Effect; No Assignment. The terms, conditions, representations and warranties of this Agreement shall survive the execution hereof and shall be binding upon the parties, their respective successors and assigns, heirs and personal representatives. This Agreement may not be assigned, in whole or in part, to any other person without the express written consent of the other parties hereto. 11. Attorney's Fees. If either party breaches any provision of this Agreement, or the representations, warranties or covenants contained herein or the performance required herein does not occur, or legal action is require to enforce a party's rights hereunder, then the prevailing party in such action shall be entitled to reimbursement from the non-prevailing party for the prevailing party's attorney's fees incurred in connection with such breach, or the enforcement or protection of rights herein, whether such attorney's fees are incurred in or out of court, on appeal, in arbitration, in bankruptcy court or otherwise. 12. Arbitration. Any controversy or claim arising out of or relating to this Agreement that arises after the full execution of the Agreement shall be settled by binding arbitration conducted in Phoenix, Arizona in accordance with, and by three arbitrators appointed pursuant to, the Rules of the American Arbitration Association then in effect, unless the parties otherwise agree, and judgment upon the award rendered pursuant thereto may be entered in any court having jurisdiction hereof, and all rights or remedies of the parties hereto, or any of them, to the contrary are hereby expressly waived. 13. Counterparts. This Agreement may be signed in multiple counterparts, and when signed by all parties, all counterparts shall be considered as a single document. 13 14 If the foregoing correctly sets forth our understanding please sign and return a copy of this Letter of Intent to the undersigned. Very truly yours, quepasa.com, inc. /s/ Gary L. Trujillo -------------------------------- By: Gary L. Trujillo Its: Chairman/CEO Estefan Enterprises, Inc. /s/ Frank J. Amadeo -------------------------------- By: Frank J. Amadeo Its: President /s/ Gloria Estefan -------------------------------- Gloria Estefan 14 EX-10.2 3 EX-10.2 1 Exhibit 10.2 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of August __, 1999, by and between QUEPASA.COM, INC., a Nevada corporation (the "Company"), and ESTEFAN ENTERPRISES, INC., a _______________ corporation ("EEI"). WHEREAS, pursuant to the terms of the Agreement (the "EEI Agreement"), dated as of the date hereof, between the Company, EEI and Gloria Estefan, the Company issued to EEI 156,863 shares (the "Shares") of the Company's common stock, $.001 par value per share ("Common Stock"); and WHEREAS, in order to induce EEI to enter into the EEI Agreement, the Company agreed to provide EEI with certain registration rights relating to the Shares. NOW THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Definitions. As used herein, the following defined terms shall have the following respective meanings: "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Act Registration Statement" means a registration statement filed with the SEC pursuant to the Exchange Act. "Indemnified Party" has the meaning set forth in subparagraph 6(c). "Indemnifying Party" has the meaning set forth in subparagraph 6(c). The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act or the Exchange Act and the declaration or ordering of the effectiveness of such registration statement. "Registrable Securities" means the Shares and all other securities issued or issuable with respect to the Shares by way of a stock dividend or stock 2 split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Registrable Securities, such Registrable Securities shall cease to be Registrable Securities when (i) a registration statement registering such Registrable Securities under the Securities Act has been declared effective and such Registrable Securities have been sold or otherwise transferred by a Shareholder pursuant to such effective registration statement or (ii) such Registrable Securities are sold to the public in accordance with Rule 144. "Rule 144" means Rule 144 under the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Shareholder(s)" means EEI and any affiliates thereof who agree to become bound by the provisions of this Agreement in accordance with paragraph 9 hereof. 2. Demand Registrations. (a) If at any time following the first anniversary of the date hereof, the Company receives a written request that the Company effect a registration under the Securities Act with respect to the Registrable Securities from Shareholders holding at least a majority of the Registrable Securities, the Company will use its diligent best efforts to effect such registration, which registration may be under any form of registration statement eligible for use by the Company for such purpose, and as would permit or facilitate the sale and distribution of all or such portion of the Registrable Securities as are specified in such request; provided, however, that the Company shall not be obligated to take any action to effect such registration pursuant to this subparagraph 2(a): (i) after the Company has effected two such registrations pursuant to this subparagraph 2(a) and such registrations have been declared or ordered effective or (ii) to effect a registration for less than 500,000 shares. The Company shall not be required to cause a registration statement requested pursuant to this subparagraph 2(a) to become effective prior to 120 days following the effective date of a registration statement initiated by the Company or a Shareholder. The Company shall have the right to include in a registration statement filed pursuant to this subparagraph 2(a) shares of Common Stock to be offered and sold for the account of the Company or any other security holders of the Company. 3 (b) Subject to subparagraph 2(a) above and the other terms and conditions contained herein, the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practical, but in any event within 120 days after receipt of the request or requests of the Shareholder or Shareholders; provided, however, that the Company may postpone for up to 180 days, the filing or the effectiveness (which may include the withdrawal of an effective registration statement) of such a registration statement if the Company's Board of Directors reasonably determines in its good faith judgment that it would be materially disadvantageous to the Company for such a registration statement to be filed and become effective, or be maintained effective; and, provided further, that in such event, the Shareholders will be entitled to withdraw such demand for registration and, if such demand is withdrawn, such registration will not count as one of the demand registrations the Shareholders are entitled to hereunder. (c) The Company shall have the right to select the investment banker(s) and manager(s) to administer and underwrite the offering, subject to the approval of a majority of the Shareholders proposing to distribute their securities through such underwriting, which will not be unreasonably withheld. In connection with any registration statement that pertains to Registrable Securities, all Shareholders proposing to distribute their securities through such underwriting shall (i) enter into any reasonable underwriting agreement required by the proposed underwriter for the registration of Registrable Securities and (ii) immediately notify the Company, at any time when a prospectus relating to the Registrable Securities is required to be delivered under the Securities Act, of the occurrence of any event relating to information respecting such Shareholders as a result of which the prospectus which forms a part of such registration statement contains an untrue statement of a material fact or omits to state any material fact necessary to make the statement therein not misleading. 4 2. Piggyback Registrations. (a) If at any time following the first anniversary of the date hereof, the Company shall determine to register any of its securities (other than pursuant to a demand registration in accordance with Paragraph 2 hereof), either for its own account or the account of a security holder or holders, in a registration statement covering the sale of Common Stock to the general public pursuant to an underwritten public offering (except with respect to any registration filed on Form S-8, Form S-4 or any successor forms thereto), the Company will: (i) give to each Shareholder written notice thereof at least 15 days before the initial filing of such registration statement; and (ii) use its best efforts to include in such registration (and any related qualification under blue sky laws) and in any underwriting involved therein all the Registrable Securities specified in a written request or requests, made within 10 days after receipt of such written notice from the Company, except as set forth in subparagraph 3(b) below. 5 (b) The right of any Shareholder to registration pursuant to this Paragraph 3 shall be conditioned upon such Shareholder's participation in the underwriting, to the extent provided herein. All Shareholders proposing to distribute their securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. If requested by the underwriter, the Shareholders will agree, for themselves and their affiliates, not to sell or offer to sell any shares of their Common Stock for a reasonable period of time (not to exceed 180 days) after the effective date of the registration statement. Notwithstanding any other provision of this Paragraph 3, if the underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the Company shall so advise all holders of Registrable Securities that would otherwise be registered and underwritten pursuant hereto and the Company shall include in such registration, prior to the inclusion of any securities that are not Registrable Securities (other than the securities the registration of which gave rise to the right of any Shareholder to include Registrable Securities in such registration), the number of shares of Registrable Securities requested to be included in the registration which in the opinion of such underwriter can be sold, pro rata among all Shareholders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Shareholder at the time of filing the registration statement, with further proportional allocations among the Shareholders and if any such Shareholder has requested less than all such Registrable Securities it is entitled to register. 3. Expenses of Registration. All expenses incurred in connection with any registration or qualification pursuant to this Agreement, including, without limitation, all registration, filing and qualification fees, printing expenses, fees and disbursements of counsel for the Company, and expenses and fees of any special audits incidental to or required by such registration, shall be borne by the Company; provided, however, that the Company shall not be required to pay fees of legal counsel of the Shareholders, or underwriters' discounts or commissions relating to Registrable Securities (such underwriters' fees, discounts or commissions to be borne by the Shareholders, on a pro rata basis, based upon the number of shares of Registrable Securities sold by each Shareholder). 6 4. Registration Procedures. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company will use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company will as promptly as practicable: (a) prepare and file with the Securities and Exchange Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective; (b) prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than six months and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things that may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Subsection, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); 7 (e) promptly notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (f) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on the NASD automated quotation system if the Common Stock so qualifies; (g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, effecting a stock split or a combination of shares); (i) make available for inspection by any seller of Registrable Securities any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; 8 (j) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and (k) obtain a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters. 5. Indemnification. The Company will indemnify each Shareholder, each of the Shareholder's officers, directors, partners and employees, and each person controlling such Shareholder, with respect to such registration or qualification effected pursuant to this Agreement and in which Registrable Securities are included, against all claims, losses, damages, and liabilities (or actions in respect thereto) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, registration statement or other document incident to any such registration or qualification, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated pursuant to any Federal, state or common law rule or regulation including' without limitation, the Securities Act, applicable to the Company and relating to action or inaction required of the Company in connection with any such registration qualification or compliance and will reimburse each such Shareholder, each of the Shareholder's officers, directors, partners and employees, and each person controlling such Shareholder, for any legal and any other reasonable expenses incurred in connection with investigating, or defending any such claim, loss, damage, liability or action, including reasonable attorneys' fees and expenses; provided, however, that the Company will not be liable in any such case to the extent that any such claim, loss, damage or liability arises out of or is based on any untrue statement or omission based upon and in conformity with written information furnished to the Company by such Shareholder in a signed document. Such indemnity shall be effective notwithstanding any investigation made by or on behalf of any Shareholder or any such officer, director, partner, employee, or controlling person and shall survive any transfer by the same of the Registrable Securities. 9 (a) Each Shareholder will, if Registrable Securities held by or issuable to such Shareholder are included in the securities as to which such registration or qualification is being effected, indemnify the Company, each of its directors, officers and employees, each person who controls the Company, and each other such Shareholder, each of such Shareholder's officers, directors, partners and employees, and each person controlling such other Shareholder, against all claims, losses, damages and liabilities (or actions in respect thereto) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such other Shareholders, each such Shareholder's directors, officers, partners, employees or persons for any legal or any other reasonable expenses incurred in connection with investigating or defending any such claim, loss, damage, liability or action, including reasonable attorneys' fees and expenses, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus or other document in reliance upon and in conformity with written information furnished to the Company by such Shareholder. Notwithstanding the foregoing, the liability of any such Shareholder shall not exceed an amount equal to the net proceeds realized by each such Shareholder sold as contemplated herein. Such indemnity shall be effective notwithstanding any investigation made by or on behalf of the Company, any such director, officer, partner, employee, or controlling person and shall survive the transfer of such securities by such Shareholder. 10 (b) Each party entitled to indemnification under this Paragraph 6 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought. Unless in the reasonable judgment of the Indemnified Party a conflict of interest may exist between the Indemnifying Party and the Indemnified Party, the Indemnifying Party shall be permitted to assume the defense of any such claim or any litigation resulting therefrom; provided, however, that in any event counsel for the Indemnifying Party or Indemnified Party who shall conduct the defense of such claim or litigation as provided above shall be approved by the other Party (which approval shall not be unreasonably withheld), and such other Party may participate in such defense at such Party's expense; provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying party of its obligations under this Paragraph 6 unless such failure shall have had a material adverse effect on the Indemnifying Party's ability to defend such claim. 11 (c) The Indemnified Party shall make no settlement of any claim or litigation which would give rise to liability on the part of the Indemnifying Party under any indemnity contained in this Paragraph 6 without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed, and no Indemnifying Party shall make any settlement of any such claim or litigation without the consent of the Indemnified Party, which consent shall not be unreasonably withheld or delayed. If a firm offer is made to settle a claim or litigation defended by the Indemnified Party and the Indemnified Party notifies the Indemnifying Party in writing that the Indemnified Party desires to accept and agree to such offer, but the Indemnifying Party elects not to accept or agree to such offer within ten days after receipt of written notice from the Indemnified Party of the terms of such offer, then, in such event, the Indemnified Party shall continue to contest or defend such claim or litigation and, if such claim or litigation is within the scope of the Indemnifying Party's indemnity contained in this Paragraph 6, the Indemnified Party shall be indemnified pursuant to the terms hereof. If a firm offer is made to settle a claim or litigation defended by the Indemnifying Party and the Indemnifying Party notifies the Indemnified Party in writing that the Indemnifying Party desires to accept and agree to such offer, but the Indemnified Party elects not to accept or agree to such offer within ten days after receipt of written notice from the Indemnifying Party of the terms of such offer, then, in such event, the Indemnified Party may continue to contest or defend such claim or litigation and, in such event, the total maximum liability of the Indemnifying Party to indemnify or otherwise reimburse the Indemnified Party in accordance with this Agreement with respect to such claim or litigation shall be limited to and shall not exceed the amount of such settlement offer, plus reasonable out-of-pocket costs and expenses (including reasonably fees and disbursements of counsel) to the date of notice that the Indemnifying Party desired to accept such settlement offer. (d) The indemnification payments required pursuant to this Paragraph 6 for expenses of the investigation or defense of a claim or lawsuit shall be made from time to time during the course of the investigation or defense, as the case may be, upon submission of reasonably sufficient documentation that any such expenses have been incurred. 12 6. Information to be Provided by Shareholders. The Shareholders whose securities are included in any registration shall furnish to the Company such written information regarding such Shareholder or Shareholders and the distribution proposed by such Shareholder or Shareholders as the Company may reasonably request and as shall be required in connection with any registration or qualification referred to in this Agreement. The Company agrees to include in any such registration statement all information concerning the Shareholders and their distribution which the Shareholders shall reasonably request. 7. Rule 144 Reporting. With a view to making available to the Shareholders benefits of certain rules and regulations of the SEC which may permit the sale of the Shares to the public without registration, after the completion of any registration pursuant to Paragraph 2 or 3 above, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144, or any successor provision thereto, at all times; (b) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; (c) so long as a Shareholder owns any Registrable Securities, to furnish to such Shareholder forthwith upon its request a written statement by the Company as to the Company's compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as such Shareholder may reasonably request in availing itself of any rule or regulation of the SEC allowing such Shareholder to sell any such securities without registration; and (d) take any further action reasonably requested by a Shareholder to enable such Shareholder to sell its Registrable Securities without registration under Rule 144, under any successor provision, or any similar rule or regulation promulgated by the SEC from time to time. 13 8. Transfer of Registration Rights. The rights to cause the Company to register Registrable Securities that are granted by the Company under Paragraphs 2 and 3 may be assigned by a Shareholder to an affiliate of EEI upon transfer of such Registrable Securities to such affiliate other than pursuant to a registration statement, Rule 144 or Rule 145; provided, however, that (i) at or before the time of the transfer the transferee or assignee agrees in writing for the benefit of the Company to be bound by all of the provisions contained in this Agreement and (ii) the Company is given written notice by the Shareholder at the time of or within a reasonable time after the transfer, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned. Subject to the foregoing provision, this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. 9. Changes. The terms and provisions of this Agreement may only be modified, amended or waived with the written consent of the Company and EEI. 10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF ARIZONA WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF ARIZONA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF ARIZONA. 11. Notice. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered personally, one business day after being sent via a nationally recognized overnight courier, or when sent, when sent via facsimile promptly confirmed in writing to the recipient. Such notices, demands and other communications will be sent to the address indicated below: (i) If to the Company, to: quepasa.com, inc. One Arizona Center 400 E. Van Buren, 4th Floor Phoenix, Arizona 85004 Attention: Gary L. Trujillo Telecopy No.: (602) 716-0200 14 with copies to: Brownstein, Hyatt & Farber, P.C. 410 Seventeenth Street, 22nd Floor Denver, Colorado 80202 Attention: Jeffrey M. Knetsch, Esq. Telecopy No.: (303) 223-1111 (ii) If to EEI, to: Estefan Enterprises, Inc. 420 Jefferson and Fifth Street Miami Beach, Florida Attention: Frank J. Amadeo Telecopy No.: (___) ___-____ with a copy to: _________________________ _________________________ _________________________ _________________________ or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. 12. Termination. This Agreement shall terminate on the first day that all the Shares cease to be Registrable Securities. 13. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and which together shall constitute a single agreement. 14. Headings. The headings of the Paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute a part hereof. 15. Severability. If any provision or any portion of any provision of this Agreement shall be held to be void or unenforceable, the remaining portions of this Agreement shall continue in full force and effect. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 15 IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed by their authorized officers as of the date first above written. QUEPASA.COM, INC. By: /s/ Gary L. Trujillo Gary L. Trujillo Chairman and Chief Executive Officer ESTEFAN ENTERPRISES, INC. By: /s/ Frank J. Amadeo Frank J. Amadeo President EX-27.1 4 EX-27.1
5 9-MOS DEC-31-1999 SEP-30-1999 37,411,713 0 230,670 2,766 0 40,581,127 2,037,194 156,354 42,464,025 3,806,862 0 0 0 14,376 36,397,705 42,464,025 136,127 136,127 0 21,570,587 0 0 212,587 (21,134,129) 0 (21,434,461) 0 0 0 (21,134,129) (1.91) (1.91)
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