SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED
BY RULE 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
quepasa.com, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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QUEPASA.COM, INC.
5115 N. SCOTTSDALE ROAD, SUITE 101
SCOTTSDALE, ARIZONA 85250
(480) 949-3749
, 2002
To Our Shareholders:
On behalf of your board of directors, I am pleased to announce that
quepasa.com, inc. has agreed to a merger that will result in quepasa becoming a
wholly-owned subsidiary of Great Western Land and Recreation, Inc. Great Western
is an Arizona-based privately-held real estate development company with holdings
in Arizona, New Mexico and Texas. Great Western and its predecessors, including
its sole shareholder, Amortibanc Investments, L.C., have been in land and
related businesses since 1928. Great Western focuses primarily on condominiums,
apartments, residential lots and recreational property development.
As a result of the merger, quepasa shareholders participating in the merger
will receive one share of Great Western common stock for each share of quepasa
common stock held by such shareholder. At the closing of the merger, the
ownership of Great Western will be based upon the amount of cash held by
quepasa. If quepasa has at least $2.5 million of cash at the closing (including
a $500,000 loan to Great Western described in the enclosed proxy
statement/prospectus) and if all current quepasa shareholders participate in the
merger, quepasa shareholders will own approximately 48% of Great Western and the
sole Great Western shareholder before the merger, Amortibanc Investments, will
own approximately 52% of Great Western (assuming the conversion of all
outstanding quepasa stock options with an exercise price at or below $0.15 per
share). In the event quepasa has less than the required amount of cash at the
closing, Great Western may either terminate the merger agreement or issue to
Amortibanc Investments a number of shares of Great Western common stock equal to
the difference between the required amount of cash and quepasa's actual cash on
hand divided by the average of the last sale price of quepasa common stock over
the 20 business day period ending three business days prior to the closing date.
For instance, if quepasa has $500,000 less than the required amount of cash at
the closing of the merger and the average of the last sale price of quepasa
common stock over the 20 business day period ending three business days prior to
the closing is $0.15, Great Western will issue 3,333,333 shares of Great Western
common stock to Amortibanc Investments. In such event, following the merger, the
current quepasa shareholders will own approximately 44% of Great Western and
Amortibanc Investments will own approximately 56% of Great Western (assuming the
conversion of all outstanding quepasa stock options with an exercise price at or
below $0.15 per share). In addition, Amortibanc Investments holds a warrant to
purchase 14,827,175 shares of Great Western common stock following the merger
that, if exercised, will increase Amortibanc Investments' percentage ownership
of Great Western.
At the closing of the merger, quepasa expects to have a short-fall in the
required amount of cash of up to approximately $600,000. This expected decrease
in quepasa's cash balance is primarily due to the costs and expenses associated
with defending the lawsuits filed against quepasa by a dissident shareholder
group (See "Possible Proxy Contest") and the increased costs and expenses
associated with preparing this proxy statement/prospectus and soliciting proxies
because of the possible proxy contest.
We request your approval of the merger by voting by proxy or in person at
our annual meeting of shareholders to be held on February 28, 2002, at Glen
Eagles, 3700 North Carson Street, Carson City, Nevada, at 10:00 a.m. local time.
The board of directors of quepasa believes that the merger is advisable, fair
and in the best interests of its shareholders and unanimously recommends that
you vote in favor of the merger agreement.
The accompanying proxy statement/prospectus describes the merger agreement
and the proposed merger. Please read this information carefully before you vote.
Approval of the merger requires the affirmative vote of the holders of a
majority of quepasa's issued and outstanding shares of common stock present and
entitled to vote at the meeting. January 7, 2002 has been fixed as the record
date for shareholders entitled to notice of and to vote at the meeting.
The enclosed proxy statement/prospectus describes in detail the process your
board of directors went through to find a strategic transaction for quepasa. At
the annual meeting we will also be electing directors. Each of quepasa's
directors has agreed to be nominated for reelection. Your board consists of:
- L. William Seidman, former chairman of the Federal Deposit Insurance
Corporation and the Resolution Trust Company and currently chief business
commentator on CNBC-TV;
- Jerry J. Colangelo, president and chief executive officer of the Phoenix
Suns and Managing Partner of the Arizona Diamondbacks;
- Louis Olivas, a professor at Arizona State College of Business and former
director of the Center for Executive Development at Arizona State;
- Jose Maria Figueres, the Managing Director of the Centre for Global Agenda
at the World Economic Forum and the former president of Costa Rica; and
- Gary L. Trujillo, quepasa's former chief executive officer.
A group of dissident shareholders has informed quepasa that it intends to
nominate a slate of directors in opposition to the board of directors' nominees
and solicit proxies from you. QUEPASA'S BOARD OF DIRECTORS AND MANAGEMENT
BELIEVE STRONGLY FOR THE REASONS SET FORTH IN THE ENCLOSED PROXY
STATEMENT/PROSPECTUS THAT THESE DISSIDENTS HAVE GOALS THAT ARE AT ODDS WITH THE
INTERESTS OF THE MAJORITY OF QUEPASA'S SHAREHOLDERS AND THAT ELECTING THE
DISSIDENT GROUP'S NOMINEES IS NOT IN YOUR BEST INTERESTS. I urge you to review
the information set forth in the enclosed proxy statement/prospectus under the
caption "Possible Proxy Contest" on page 14 for the reasons that your board of
directors believes this.
You are cordially invited to attend the annual meeting in person. Regardless
of whether you plan to attend the meeting, please complete, sign and date the
enclosed proxy card and return it as promptly as possible in the enclosed
envelope. No postage is required if the proxy is mailed in the United States. If
you attend the meeting and wish to vote in person, you can withdraw your proxy
before the meeting.
YOUR VOTE IS VERY IMPORTANT. PLEASE SUBMIT YOUR PROXY ACCORDING TO THE
INSTRUCTIONS ON THE ATTACHED PROXY CARD. PLEASE DO NOT SEND US YOUR STOCK
CERTIFICATES.
Sincerely,
Robert J. Taylor
President
QUEPASA.COM, INC.
5115 N. SCOTTSDALE ROAD, SUITE 101
SCOTTSDALE, ARIZONA 85250
(480) 949-3749
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NOTICE OF ANNUAL MEETING
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quepasa.com, inc. will hold its annual meeting of shareholders at Glen
Eagles, 3700 North Carson Street, Carson City, Nevada at 10:00 a.m. local time,
on February 28, 2002, or at any adjournment or postponement of the meeting. The
purpose of the meeting is to consider proposals to:
(1) Elect five directors to serve a one-year term, with the understanding
that if the merger agreement is approved, the directors elected at the
annual meeting shall resign as of the closing of the merger;
(2) Approve and adopt the merger agreement pursuant to which quepasa will
become a wholly-owned subsidiary of Great Western Land and
Recreation, Inc., and the transactions contemplated by the merger
agreement;
(3) Authorize the Great Western board of directors to effect a reverse stock
split of one share for up to 20 shares of Great Western common stock
outstanding at any time prior to or during the 24 month period following
the closing of the merger;
(4) Authorize the quepasa board of directors to elect to completely
liquidate quepasa in the event the merger is not approved by the quepasa
shareholders or the merger agreement is terminated and, at the discretion
of the board of directors, to distribute all remaining cash after payment
of all debts and expenses, to the quepasa shareholders and to dissolve
quepasa;
(5) Ratify the appointment of KPMG LLP as quepasa's independent auditors
through the closing date of the merger; and
(6) Transact any other business that may properly come before the annual
meeting and any adjournments or postponements thereof.
The accompanying proxy statement/prospectus describes the merger agreement
and the proposed merger. Please read this information carefully before you vote.
Only holders of record of shares of our common stock outstanding on
January 7, 2002, will be entitled to vote at the annual meeting and any
adjournments or postponements thereof.
Under Nevada law dissenting shareholders who were record shareholders of
quepasa immediately prior to the effectiveness of the merger may seek an
appraisal of the fair value of their shares, exclusive of any element of value
arising from the expectation or accomplishment of the merger, together with a
fair rate of interest, if any, to be paid thereon. Any dissenting shareholder
who wishes to exercise this right to an appraisal must do so by making written
demand to quepasa at the address set forth in the proxy statement/prospectus,
which must be received before the taking of the vote on the merger, and by
following certain other procedures set forth in Section 92A of the Nevada
General Corporation Law. In the event that holders of more than 20% of the
outstanding common stock of quepasa on the record date dissent from approval of
the merger, Great Western is not required to consummate the merger. This Notice
of Annual Meeting of Shareholders is being mailed on or about , 2001
to record shareholders of quepasa on the record date.
YOUR VOTE IS VERY IMPORTANT. PLEASE SUBMIT YOUR PROXY ACCORDING TO THE
INSTRUCTIONS ON THE ATTACHED PROXY CARD. PLEASE DO NOT SEND US YOUR STOCK
CERTIFICATES.
By order of the Board of Directors,
Robert J. Taylor
Secretary
, 2002
, 2002
PROXY STATEMENT OF QUEPASA.COM, INC.
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 28, 2002
AND
PROSPECTUS OF GREAT WESTERN LAND AND RECREATION, INC.
FOR UP TO 17,163,291 SHARES OF COMMON STOCK
This proxy statement/prospectus is furnished to the holders of
quepasa.com, inc. common stock in connection with the solicitation of proxies by
quepasa's board of directors for an annual meeting of shareholders to be held at
Glen Eagles, 3700 North Carson Street, Carson City, Nevada, at 10:00 a.m., local
time, on February 28, 2002, or at any adjournment or postponement thereof. This
proxy statement/prospectus and the accompanying form of proxy was first mailed
or given to shareholders on or about , 2002.
At the annual meeting, holders of quepasa common stock will be asked to
consider and vote upon a merger agreement pursuant to which quepasa will become
a wholly-owned subsidiary of Great Western Land and Recreation, Inc. As a result
of the merger, quepasa shareholders participating in the merger will receive one
share of Great Western common stock for each share of quepasa common stock held
by such shareholder. At the closing of the merger, the ownership of Great
Western will be based upon the amount of cash held by quepasa. If quepasa has at
least $2.5 million of cash at the closing (including a $500,000 loan to Great
Western described in the enclosed proxy statement/prospectus) and if all current
quepasa shareholders participate in the merger, quepasa shareholders will own
approximately 48% of Great Western and the sole Great Western shareholder before
the merger, Amortibanc Investments, will own approximately 52% of Great Western
(assuming the conversion of all outstanding quepasa stock options with an
exercise price at or below $0.15 per share). In the event quepasa has less than
the required amount of cash at the closing, Great Western may either terminate
the merger agreement or issue to Amortibanc Investments a number of shares of
Great Western common stock equal to the difference between the required amount
of cash and quepasa's actual cash on hand divided by the average of the last
sale price of quepasa common stock over the 20 business day period ending three
business days prior to the closing date. For instance, if quepasa has $500,000
less than the required amount of cash at the closing of the merger and the
average of the last sale price of quepasa common stock over the 20 business day
period ending three business days prior to the closing is $0.15, Great Western
will issue 3,333,333 shares of Great Western common stock to Amortibanc
Investments. In such event, following the merger, the current quepasa
shareholders will own approximately 44% of Great Western and Amortibanc
Investments will own approximately 56% of Great Western (assuming the conversion
of all outstanding quepasa stock options with an exercise price at or below
$0.15 per share). In addition, Amortibanc Investments holds a warrant to
purchase 14,827,175 shares of Great Western common stock following the merger
that, if exercised, will increase Amortibanc Investments' percentage ownership
of Great Western.
At the closing of the merger, quepasa expects to have a short-fall in the
required amount of cash of up to approximately $600,000. This expected decrease
in quepasa's cash balance is primarily due to the costs and expenses associated
with defending the lawsuits filed against quepasa by a dissident shareholder
group (See "Possible Proxy Contest") and the increased costs and expenses
associated with preparing this proxy statement/prospectus and soliciting proxies
because of the possible proxy contest.
PLEASE READ THIS PROXY STATEMENT/PROSPECTUS AND ITS APPENDICES CAREFULLY. IN
PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION ENTITLED
"RISK FACTORS" BEGINNING ON PAGE 23 OF THIS PROXY STATEMENT/PROSPECTUS.
If the merger is not completed by March 1, 2002, either quepasa or Great
Western may terminate the merger agreement. The closing date of the merger may
be extended upon the mutual agreement of Great Western and quepasa.
Prior to the merger, there has been no public market for Great Western's
common stock. Following the merger, Great Western intends to have an application
filed to have its common stock listed for trading on the OTC Bulletin Board
under the symbol "GWLR".
quepasa common stock is listed on the Pink Sheets under the symbol "PASA."
As of the record date for the quepasa annual meeting, there were outstanding
17,163,291 shares of quepasa common stock entitled to vote. In addition, quepasa
has outstanding warrants and stock options, none of which entitle the holders
thereof to vote at the annual meeting or to exercise appraisal rights.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the securities to be issued under this
proxy statement/prospectus or determined if this proxy statement/prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
You are cordially invited to attend the quepasa annual meeting. To ensure
your representation at the meeting, however, you are urged to mark, sign, date
and return the enclosed proxy card in the accompanying envelope, whether or not
you expect to attend the annual meeting. No postage is required if mailed in the
United States. You may vote in person even if you have returned a proxy card.
THIS PROXY STATEMENT/PROSPECTUS AND THE INFORMATION CONTAINED HEREIN IS SUBJECT
TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY THESE SECURITIES BE ACCEPTED
UNTIL THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROXY
STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
The date of this Prospectus is , 2001
TABLE OF CONTENTS
PAGE
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SUMMARY..................................................... 1
THE COMPANIES........................................... 1
THE QUEPASA ANNUAL MEETING.............................. 3
THE ELECTION OF DIRECTORS............................... 5
THE MERGER.............................................. 5
THE REVERSE STOCK SPLIT................................. 13
THE AUTHORIZATION FOR THE BOARD OF DIRECTORS OF QUEPASA
TO
PURSUE THE LIQUIDATION AND DISSOLUTION OF QUEPASA..... 13
THE RATIFICATION OF THE APPOINTMENT OF THE AUDITORS..... 13
POSSIBLE PROXY CONTEST...................................... 14
COMPARATIVE PER SHARE DATA.................................. 19
MARKET PRICE DATA........................................... 20
SELECTED FINANCIAL DATA..................................... 21
RISK FACTORS................................................ 23
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS............ 33
THE QUEPASA ANNUAL MEETING.................................. 34
TIME, DATE, PLACE AND RECORD DATE....................... 34
VOTING OF THE ANNUAL MEETING............................ 34
PROXIES................................................. 34
PROPOSAL 1. ELECTION OF DIRECTORS........................... 35
PROPOSAL 2. APPROVAL OF THE MERGER.......................... 37
BACKGROUND OF AND REASONS FOR THE MERGER................ 37
RECOMMENDATION OF QUEPASA'S BOARD OF DIRECTORS.......... 41
OPINION OF FINANCIAL ADVISOR............................ 41
REGULATORY APPROVALS.................................... 45
ACCOUNTING TREATMENT.................................... 45
MATERIAL TAX CONSEQUENCES TO THE SHAREHOLDERS OF
QUEPASA................................................. 45
INTERESTS OF CERTAIN PERSONS IN THE MERGER.............. 46
EFFECT OF THE MERGER ON QUEPASA'S SHAREHOLDERS.......... 47
PLANS FOR OPERATION OF QUEPASA FOLLOWING THE MERGER..... 48
THE MERGER CLOSING DATE AND EFFECTIVE TIME OF THE
MERGER.................................................. 48
DEREGISTRATION OF QUEPASA'S COMMON STOCK AND LISTING OF
GREAT WESTERN COMMON STOCK............................. 48
THE MERGER AGREEMENT.................................... 48
APPRAISAL RIGHTS........................................ 59
AMENDMENT TO THE MERGER AGREEMENT AND LOAN TO GREAT
WESTERN................................................. 60
i
PAGE
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF GREAT WESTERN................ 61
OVERVIEW................................................ 61
RESULTS OF OPERATIONS................................... 61
LIQUIDITY AND CAPITAL RESOURCES......................... 64
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK.................................................... 65
GREAT WESTERN'S BUSINESS.................................... 66
OVERVIEW................................................ 66
INDUSTRY OVERVIEW....................................... 66
GREAT WESTERN'S PROPERTIES.............................. 66
ACQUISITION OF LAND INVENTORY........................... 68
MARKETING AND SALE OF INVENTORY......................... 69
CUSTOMER FINANCING...................................... 69
REGULATION.............................................. 70
COMPETITION............................................. 70
GREAT WESTERN'S NOTES RECEIVABLE........................ 70
GREAT WESTERN'S DEBT.................................... 71
MANAGEMENT.............................................. 71
BOARD OF DIRECTORS OF GREAT WESTERN FOLLOWING THE
MERGER.................................................. 72
AUDIT COMMITTEE......................................... 73
KEY EMPLOYEES........................................... 73
EMPLOYEES............................................... 73
EXECUTIVE COMPENSATION.................................. 73
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS............. 73
AGGREGATED OPTIONS/SAR EXERCISES........................ 74
EMPLOYMENT CONTRACTS.................................... 74
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................. 74
LEGAL PROCEEDINGS....................................... 76
DESCRIPTION OF GREAT WESTERN CAPITAL STOCK.............. 76
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......... 77
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF QUEPASA...................... 78
OVERVIEW.................................................... 78
INTRODUCTION TO RESULTS OF OPERATIONS....................... 79
RESULTS OF OPERATIONS....................................... 82
LIQUIDITY AND CAPITAL RESOURCES............................. 89
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK... 90
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS.............. 90
SYSTEM ISSUES............................................... 91
ii
PAGE
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QUEPASA'S BUSINESS.......................................... 92
OVERVIEW................................................ 92
QUEPASA'S MARKET IN THE U.S............................. 92
THE QUEPASA.COM SITE.................................... 93
MARKETING OF THE QUEPASA.COM SITE....................... 93
ADVERTISING ON THE QUEPASA.COM SITE..................... 93
QUEPASA'S ON-LINE AUCTION AND CREDIT COMMUNITIES........ 94
QUEPASA'S ON-LINE REAL ESTATE SERVICES COMMUNITY........ 94
COMPETITORS AND COMPETITIVE FACTORS AFFECTING QUEPASA'S
BUSINESS............................................... 94
SALE OF ASSETS.......................................... 95
EMPLOYEES............................................... 95
PROPERTIES.............................................. 95
LEGAL PROCEEDINGS....................................... 95
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................... 96
MANAGEMENT.............................................. 97
EXECUTIVE COMPENSATION.................................. 97
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS............. 99
AGGREGATED OPTIONS/SAR EXERCISES........................ 99
EMPLOYMENT AGREEMENT AND CHANGE OF CONTROL
ARRANGEMENTS............................................ 99
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................. 100
DESCRIPTION OF QUEPASA CAPITAL STOCK.................... 101
AUDIT COMMITTEE REPORT.................................. 102
QUEPASA STOCK PERFORMANCE GRAPH......................... 103
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......... 104
COMPARISON OF THE RIGHTS OF HOLDERS OF QUEPASA COMMON
STOCK AND GREAT WESTERN COMMON STOCK................... 106
PROPOSAL 3. AUTHORIZATION TO REVERSE SPLIT GREAT WESTERN'S
COMMON STOCK.............................................. 115
PROPOSAL 4. AUTHORIZATION FOR THE BOARD OF DIRECTORS OF
QUEPASA TO PURSUE THE LIQUIDATION AND DISSOLUTION OF
QUEPASA IN THE EVENT THE MERGER IS NOT CONSUMMATED........ 116
PROPOSAL 5. RATIFICATION OF THE APPOINTMENT OF THE
AUDITORS.................................................. 118
OTHER BUSINESS TO BE TRANSACTED............................. 119
EXPERTS..................................................... 119
LEGAL MATTERS............................................... 119
WHERE YOU CAN FIND MORE INFORMATION......................... 120
INDEX TO FINANCIAL INFORMATION.............................. F-1
iii
APPENDICES
Appendix A-- Amended and Restated Merger Agreement dated as of October 11,
2001, among quepasa.com, inc., Great Western Land and
Recreation, Inc., GWLAR, Inc., and GWLR, LLC
Appendix B--Fairness Opinion of Friedman Billings Ramsey & Co., Inc.
Appendix C--Certificate of Incorporation of Great Western Land and
Recreation, Inc.
Appendix D--Bylaws of Great Western Land and Recreation, Inc.
Appendix E--Nevada Dissenters' Rights Statute
iv
SUMMARY
This summary highlights material information contained elsewhere in this
proxy statement/ prospectus. You should read the entire proxy
statement/prospectus carefully, including the financial statements and notes to
the financial statements, and the exhibits, before voting. Portions of this
proxy statement/prospectus contain certain "forward-looking" statements which
can be identified by the use of forward-looking terms such as "expect,"
"estimate," "anticipate," and "believe" or by discussions of strategy, future
operating results or events. These forward-looking statements are subject to
risks and uncertainties that may cause quepasa's and Great Western's actual
results, performance or achievements to differ materially from those discussed
in the forward-looking statements. These risks and uncertainties include factors
as detailed throughout this proxy statement/prospectus and in quepasa's reports
filed with the Securities and Exchange Commission. Forward-looking statements
are made as of the date of this proxy statement/prospectus, and quepasa and
Great Western cannot assure that the future results covered by the
forward-looking statements will be achieved.
THE COMPANIES
Great Western Land and Recreation, Inc.
5115 N. Scottsdale Road, Suite 101
Scottsdale, Arizona 85250
(480) 949-6007
Great Western is an Arizona-based privately-held real estate development
company with holdings in Arizona, New Mexico and Texas. Great Western, its
wholly-owned subsidiary GWLR, LLC, and their predecessors, including Great
Western's sole shareholder, Amortibanc Investments, L.C., have been in land and
related businesses since 1928. Great Western focuses primarily on condominiums,
apartments, residential lots and recreational property development. Great
Western owns and is currently developing the Wagon Bow Ranch in northwest
Arizona and the Willow Springs Ranch in central New Mexico. Great Western owns
nine properties and $3.0 million of promissory notes (as of September 30, 2001)
secured by three additional properties. Five of Great Western's properties have
been appraised within the last three years for an aggregate of $19.3 million.
All references within this proxy statement/ prospectus to Great Western reflect
the operations of Great Western and its wholly-owned subsidiary GWLR, LLC.
quepasa.com, inc.
5115 N. Scottsdale Road, Suite 101
Scottsdale, Arizona 85250
(480) 949-3749
quepasa is an Arizona-based publicly-held bilingual (Spanish/English)
Internet portal focused on the United States Hispanic market. quepasa provides
users with information and content centered around the Spanish language. Because
the language preference of many U.S. Hispanics is English, quepasa also offers
its users the ability to access information in the English language.
In May 2000, quepasa's board of directors announced the engagement of
Friedman, Billings, Ramsey & Co., an investment banking firm, to assist quepasa
in developing strategic alternatives to maximize shareholder value. Following
the announcement and during the remainder of 2000 and the first six months of
2001, in order to conserve cash, quepasa terminated most of its strategic
relationships with its third party content and service providers, significantly
reduced the products and content it provides, outsourced the hosting and
administration of its quepasa.com and realestateespanol.com websites, suspended
the operation of its credito.com and eTrato.com websites, reduced its work force
to three employees and one contractor, and sold substantially all of its
furniture, fixtures and equipment, including its internal computer and server
equipment.
KPMG LLP, quepasa's independent accountant, issued its audit report dated
May 8, 2001 (except as to the second paragraph of Note 10(a) and Note 16 to the
consolidated financial statements, which
1
are dated as of August 6, 2001) stating that quepasa had suffered recurring
losses from operations, had an accumulated deficit, had not been able to
successfully execute its business plan, and was considering liquidating the
company, all of which raised substantial doubt about quepasa's ability to
continue as a going concern.
On August 6, 2001, quepasa executed the merger agreement with Great Western
and on October 11, 2001, quepasa and Great Western amended the merger agreement.
As a result of the merger, quepasa will become a wholly-owned subsidiary of
Great Western. quepasa shareholders participating in the merger will receive one
share of Great Western common stock for each share of quepasa common stock held
by such shareholder.
At the closing of the merger, the ownership of Great Western will be based
upon the amount of cash held by quepasa. If quepasa has at least $2.5 million of
cash at the closing (including a $500,000 loan to Great Western described below)
and if all current quepasa shareholders participate in the merger, quepasa
shareholders will own approximately 48% of Great Western and the sole Great
Western shareholder before the merger, Amortibanc Investments, will own
approximately 52% of Great Western (assuming the conversion of all outstanding
quepasa stock options with an exercise price at or below $0.15 per share). In
the event quepasa has less than the required amount of cash at the closing,
Great Western may either terminate the merger agreement or issue to Amortibanc
Investments a number of shares of Great Western common stock equal to the
difference between the required amount of cash and quepasa's actual cash on hand
divided by the average of the last sale price of quepasa common stock over the
20 business day period ending three business days prior to the closing date. For
instance, if quepasa has $500,000 less than the required amount of cash at the
closing of the merger and the average of the last sale price of quepasa common
stock over the 20 business day period ending three business days prior to the
closing is $0.15, Great Western will issue 3,333,333 shares of Great Western
common stock to Amortibanc Investments. In such event, following the merger, the
current quepasa shareholders will own approximately 44% of Great Western and
Amortibanc Investments will own approximately 56% of Great Western (assuming the
conversion of all outstanding quepasa stock options with an exercise price at or
below $0.15 per share). In addition, Amortibanc Investments holds a warrant to
purchase 14,827,175 shares of Great Western common stock following the merger
that, if exercised, will increase Amortibanc Investments' percentage ownership
of Great Western.
In connection with the amendment to the merger agreement, quepasa loaned
Great Western $500,000 on October 11, 2001. This loan bears interest at the
prime rate plus 1% and is secured by a pledge of limited liability company
interests representing a 25% interest in an apartment project in Glendale,
Arizona. See "Proposal 2. Approval of the Merger--Amendment of the Merger
Agreement and Great Western Loan."
At the closing of the merger, quepasa expects to have a short-fall in the
required amount of cash of up to approximately $600,000. This expected decrease
in quepasa's cash balance is primarily due to the costs and expenses associated
with defending the lawsuits filed against quepasa by a dissident shareholder
group (See "Possible Proxy Contest") and the increased costs and expenses
associated with preparing this proxy statement/prospectus and soliciting proxies
because of the possible proxy contest.
POSSIBLE PROXY CONTEST
A group of dissident shareholders collectively holding approximately
4 million shares of quepasa's common stock (approximately 23% of the outstanding
shares) has informed quepasa that it intends to nominate a slate of candidates
for election to the board of directors. This dissident group has also informed
quepasa that it may solicit proxies from quepasa's shareholders.
quepasa's board of directors and management believe strongly that for the
reasons set forth in this proxy statement/prospectus these dissidents have goals
that are at odds with the interests of the majority of quepasa's shareholders
and that electing the dissident group's nominees is not in the best interests of
quepasa's shareholders. quepasa's shareholders should not sign any proxy card
that the dissidents may send them. See "Possible Proxy Contest."
2
THE QUEPASA ANNUAL MEETING
TIME, DATE AND PLACE
quepasa's annual meeting of shareholders will be held on February 28, 2002,
at Glen Eagles, 3700 North Carson Street, Carson City, Nevada, commencing at
10:00 a.m. local time.
MATTERS TO BE CONSIDERED AT THE MEETING
At the meeting, quepasa's shareholders will be asked to consider and vote
upon proposals to:
(1) Elect five directors to serve a one-year term, with the understanding
that if the merger agreement is approved, the directors elected at the
annual meeting shall resign as of the closing of the merger;
(2) Approve and adopt the merger agreement pursuant to which quepasa will
become a wholly-owned subsidiary of Great Western and the transactions
contemplated by the merger agreement;
(3) Authorize the Great Western board of directors to effect a reverse stock
split of one share for up to 20 shares of Great Western common stock
outstanding at any time prior to or during the 24 month period following
the closing of the merger;
(4) Authorize the quepasa board of directors to elect to completely
liquidate quepasa in the event the merger is not approved by the quepasa
shareholders or the merger agreement is terminated and, at the discretion
of the board of directors, to distribute all remaining cash after payment
of all debts and expenses to the quepasa shareholders and to dissolve
quepasa.
(5) Ratify the appointment of KPMG LLP as quepasa's independent auditors
through the closing date of the merger; and
(6) Transact any other business that may properly come before the annual
meeting and any adjournments or postponements thereof.
quepasa's board of directors has the right to abandon the merger and adjourn
the meeting, subject to the terms and conditions of the merger agreement and
applicable law.
RECORD DATE, SHARES ENTITLED TO VOTE
Holders of record of shares of quepasa's common stock at the close of
business on January 7, 2002 are entitled to notice of and to vote at the annual
meeting. On the record date, quepasa had 17,713,291 shares of common stock
outstanding and entitled to vote.
Each holder of shares of quepasa's common stock is entitled to one vote per
share with respect to all matters to be voted upon at the annual meeting.
Approval of the following proposals requires the affirmative vote of the holders
of a majority of quepasa's issued and outstanding shares of common stock present
and entitled to vote at the meeting;
- The merger agreement;
- The reverse stock split; and
- The authorization for the quepasa board of directors to elect to pursue
the liquidation and dissolution of quepasa in the event the merger is not
consummated.
If necessary, directors will be elected by a plurality of the shares present
and entitled to vote at the meeting. The presence in person or by proxy of
shareholders owning a majority of the issued and outstanding shares of quepasa's
common stock constitutes a quorum for the meeting. Abstentions (votes withheld
by shareholders who are present and entitled to vote at the meeting) and broker
non-
3
votes (shares held by a broker for its customers that are not voted because the
broker does not receive instructions from the customer or because the broker
does not have discretionary voting power with respect to the matter under
consideration) will have the same effect as votes against the approval of the
merger agreement, the reverse stock split and the authorization for the quepasa
board of directors to pursue the liquidation and dissolution of quepasa in the
event the merger is not consummated.
REVOCABILITY OF PROXIES
Any shareholder may revoke a proxy at any time before it is exercised by
delivering a written revocation to quepasa, by substituting a new proxy executed
at a later date, or by requesting, in person, before the meeting, that the proxy
be returned.
4
THE ELECTION OF DIRECTORS
The shareholders will be asked to elect members to the board of directors of
quepasa. The board of directors of quepasa proposes that the following members
be elected for a term of one year and until their successors are duly elected
and qualified: Gary L. Trujillo, L. William Seidman, Jerry J. Colangelo, Louis
Olivas and Jose Maria Figueres. The directors elected at the annual meeting will
serve as members of the quepasa board of directors immediately following the
election. In the event the merger is approved, each director of quepasa will
resign at the closing of the merger and Gary L. Trujillo and L. William Seidman
will be become members of the board of directors of Great Western.
The board of directors of quepasa recommends the election of these
individuals to the quepasa board of directors. A vote in favor by the holders of
at least a plurality of the shares of quepasa common stock present and entitled
to vote at the annual meeting is required to approve this proposal.
THE MERGER
RECOMMENDATION OF QUEPASA'S BOARD OF DIRECTORS
The board of directors of quepasa believes that the merger is in the best
interests of quepasa and its shareholders, has unanimously approved the merger
agreement and recommends that quepasa's shareholders vote "FOR" approval of the
merger agreement.
In reaching its conclusions, quepasa's board of directors considered:
- A wide range of alternative transactions and options, none of which were
as attractive as the merger;
- quepasa's current financial position, historic financial performance,
business operations and prospects;
- The terms and conditions of the merger agreement;
- The track record and potential for expansion of Great Western's business;
- The experience and reputation of Great Western and its management and
shareholder;
- The recommendation of quepasa's management with respect to the merger;
- The effect of the merger on quepasa's shareholder value; and
- The opinion of quepasa's financial advisor that the consideration to be
received by quepasa's shareholders in the merger is fair from a financial
point of view.
OPINION OF FINANCIAL ADVISOR
In deciding to approve and recommend the merger, quepasa's board of
directors considered the opinion of Friedman, Billings, Ramsey & Co., Inc.,
quepasa's financial advisor, as to the fairness of the consideration to be
received in the merger. This opinion is attached as Appendix B to this proxy
statement/prospectus. You are urged to read it in its entirety.
REGULATORY APPROVALS
No federal or state regulatory requirements must be complied with or
approval obtained by quepasa or Great Western in connection with the merger
except that the issuance of the securities by Great Western to quepasa's
shareholders will require certain filings pursuant to state and federal
securities laws and the filing of a Form 211 with the OTC Bulletin Board Service
to initiate quotation of Great Western's common stock in the OTC Bulletin Board.
5
ACCOUNTING TREATMENT
The merger will be accounted for using the purchase method of accounting.
The assets and liabilities of quepasa will be recorded at fair value on the
closing date of the merger.
MATERIAL TAX CONSEQUENCES TO THE SHAREHOLDERS OF QUEPASA
The merger is intended to qualify as a reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended. If it is so qualified, it will
be a non-taxable transaction to quepasa that will not result in any direct
federal income tax consequences to quepasa shareholders. quepasa has obtained a
tax opinion from its legal counsel, Brownstein Hyatt & Farber, P.C., that the
merger will qualify as a reorganization under Section 368(a) of the Internal
Revenue Code. If the merger fails to qualify as a tax-free reorganization,
quepasa's shareholders will recognize gain or loss equal to the excess of the
fair market value of the Great Western stock they receive in the merger over the
tax basis in their quepasa stock.
The foregoing discussion is intended only as a general summary of the
material provisions of the tax opinion prepared for quepasa and its shareholders
by Brownstein Hyatt & Farber, P.C. and does not purport to be a complete
analysis or listing of all potential tax effects relevant to the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of quepasa's board of directors with
respect to the merger agreement, shareholders should be aware that certain
members of quepasa's current board of directors and management have or may have
interests in the merger that are in addition to or different from the interests
of shareholders generally. These interests include:
- Gary L. Trujillo, quepasa's Chairman, holds 75,000 unvested stock options
(as of December 15, 2001) that will become fully vested and exercisable as
a result of the merger;
- Robert J. Taylor, quepasa's President and Chief Financial Officer, holds
160,000 unvested stock options (as of December 15, 2001) that will become
fully vested and exercisable as a result of the merger and under
Mr. Taylor's employment agreement payment of a $100,000 stay bonus payable
on March 8, 2002 will be accelerated to the closing date of the merger. In
addition, following the merger, Mr. Taylor may become a senior officer of
Great Western;
- Upon the closing of the merger, 200,000 unvested stock options with an
exercise price of $0.15 per share held by quepasa's directors (except Mr.
Trujillo) will become fully vested and exercisable and each director of
quepasa (except Mr. Trujillo) will receive a payment of $50,000 for
services rendered as a director of quepasa;
- Upon the closing of the merger, Mr. Trujillo and L. William Seidman,
members of the quepasa board of directors, will become members of the
board of directors of Great Western;
- Great Western has agreed to grant up to 350,000, 300,000 and 300,000 stock
options to purchase shares of Great Western common stock to
Messrs. Taylor, Trujillo and Seidman, respectively, prior to the closing
of the merger in connection with Mr. Taylor's anticipated employment with,
and Messrs. Trujillo and Seidman's anticipated service on the board of
directors of, Great Western; and
- GWLAR, Inc., a wholly-owned subsidiary of Great Western, has agreed to
indemnify each present quepasa officer, director, employee and agent to
the fullest extent permitted by law with respect to all acts and omissions
arising out of such individual's services to quepasa and its subsidiaries
occurring at or prior to the closing of the merger.
6
EFFECT OF THE MERGER ON QUEPASA'S SHAREHOLDERS
If the merger is consummated, the shareholders of quepasa will exchange
their quepasa common stock for common stock in Great Western and their ownership
will be reduced from 100% of the outstanding common stock of quepasa to up to
48% of the outstanding common stock of Great Western (assuming the conversion of
all outstanding quepasa stock options with an exercise price at or below $0.15
per share) depending upon the amount of cash held by quepasa at the closing of
the merger. See "Proposal 2. Approval of the Merger--Amendment to the Merger
Agreement and Loan to Great Western." Accordingly, Amortibanc Investments, the
holder of 100% of Great Western's common stock immediately prior to the merger,
will hold at least 52% of Great Western's outstanding common stock following the
consummation of the merger (assuming the conversion of all outstanding quepasa
stock options with an exercise price at or below $0.15 per share) depending upon
the amount of cash held by quepasa at the closing of the merger. See
"Proposal 2. Approval of the Merger--Amendment to the Merger Agreement and Loan
to Great Western". In addition, Amortibanc Investments holds a warrant to
purchase 14,827,175 shares of Great Western common stock that, if exercised,
will increase its ownership interest in Great Western following the merger.
Under the terms of the warrant, commencing at midnight on the closing date of
the merger and ending ten years thereafter, Amortibanc Investments may purchase:
- 4,942,392 shares of Great Western common stock for $0.30 per share;
- 4,942,392 shares of Great Western common stock for $0.60 per share; and
- 4,942,391 shares of Great Western common stock for $1.20 per share.
Amortibanc Investments may purchase shares by paying cash for such shares or by
surrendering the right to receive a number of shares having an aggregate market
value equal to the purchase price for such shares.
PLANS FOR OPERATION OF QUEPASA FOLLOWING THE MERGER
Following the consummation of the merger, Great Western will continue to
operate quepasa's website and intends to market its real estate projects to the
U.S. Hispanic community on the website. Great Western currently markets to the
U.S. Hispanic community. Great Western may also use quepasa's subsidiaries'
websites, eTrato.com, credito.com and realestateespanol.com, in its current
Wagon Bow and Willow Springs projects as well as to integrate them into other
new projects initiated by Great Western. In addition, Great Western intends to
sell advertising and sponsorships on the quepasa.com website.
THE MERGER CLOSING DATE
The closing of the merger will take place as soon as practicable following
the quepasa shareholder meeting.
DEREGISTRATION OF QUEPASA'S COMMON STOCK AND LISTING OF GREAT WESTERN COMMON
STOCK
If the merger is consummated, quepasa's common stock will be delisted from
the Pink Sheets and deregistered under the Securities Exchange Act of 1934, as
amended, and Great Western will apply to have its common stock listed for
trading on the OTC Bulletin Board under the symbol "GWLR."
THE MERGER AGREEMENT
THE MERGER.
The merger agreement provides that, subject to the satisfaction or the
waiver of certain conditions described below, GWLAR, Inc., a recently formed,
wholly-owned subsidiary of Great Western, will be
7
merged with and into quepasa and quepasa shall survive the merger as a
wholly-owned subsidiary of Great Western.
THE MERGER CONSIDERATION.
Upon closing of the merger, each issued share of quepasa common stock (other
than dissenting shares and shares held in quepasa's treasury, which shall
automatically be cancelled at the closing of the merger) shall be converted into
and exchanged solely for the right to receive one share of common stock of Great
Western.
CONVERSION OF QUEPASA STOCK OPTIONS AND WARRANTS.
As of December 31, 2001, quepasa had 2,542,500 stock options and warrants
outstanding, of which 400,000 are stock options with an exercise price of $0.15
per share, 37,500 are stock options with the exercise price of $1.50 per share
and 2,105,000 are stock options and warrants with exercise prices between $7.00
per share and $19.80 per share.
Upon closing of the merger, each outstanding option and warrant to purchase
quepasa common stock, whether or not then exercisable or vested, shall be
converted into an option or a warrant, as the case may be, to purchase common
stock of Great Western on substantially the same terms. Great Western has agreed
to register on Form S-8 or another appropriate form under the Securities Act of
1933 all Great Western stock options issued to replace outstanding quepasa stock
options with an exercise price of $0.15 and all shares of Great Western common
stock issuable pursuant to all such Great Western substitute options.
REPRESENTATIONS, WARRANTIES AND COVENANTS.
The merger agreement contains customary representations, warranties and
covenants by quepasa, Great Western and its subsidiaries. The representations,
warranties and covenants do not survive beyond the closing of the merger.
REVERSE STOCK SPLIT.
The merger agreement requires that in addition to the approval of the merger
agreement, quepasa's shareholders also approve the delegation of authority to
the Great Western board of directors to effect a reverse stock split on the
basis of one share for up to each 20 shares of Great Western common stock
outstanding at any time prior to or during the 24 month period following the
closing of the merger. The purpose for the proposed reverse stock split is to
attempt to increase the market price of Great Western's common stock following
the merger in order to meet the minimum requirements for listing of Great
Western's common stock on the Nasdaq SmallCap Market or another securities
exchange. Great Western has no current specific plans to reverse split its
common stock and is under no obligation to do so. Following the merger, Great
Western's common stock is expected to be traded on the OTC Bulletin Board. One
of the several requirements of Nasdaq to move from the OTC Bulletin Board to the
Nasdaq SmallCap Market is a market price of at least $4.00 per share. Other
requirements for listing on the Nasdaq SmallCap Market include:
- Stockholder's equity of $5 million or net income of $750,000 in the latest
fiscal year;
- Public float of at least one million shares;
- Market value of the public float of at least $5 million;
- At least three market makers;
- At least 300 shareholders holding at least 100 shares each;
8
- One year of operating history; and
- Certain corporate governance provisions.
NON-SOLICITATION.
Non-Solicitation by quepasa. Unless and until the merger agreement is
terminated in accordance with its terms, quepasa has agreed that it will not:
- Solicit, initiate or knowingly encourage the submission of any takeover
proposal (as described below);
- Enter into any agreement providing for a takeover proposal; or
- Directly or indirectly participate in any discussions or negotiations
regarding, or furnish to any person any non-public information with
respect to, or take any other action to knowingly facilitate any inquiries
or the making of any proposal that constitutes, or may reasonably be
expected to lead to, a takeover proposal.
- quepasa may engage in any of these otherwise prohibited acts, other than
solicitation, initiation or encouragement of any takeover proposal, if:
- quepasa's board of directors believes in good faith after consultation
with counsel that a particular takeover proposal will result in a
transaction that is superior from a financial point of view to quepasa's
shareholders than the merger;
- quepasa's board of directors determines in good faith after consultation
with counsel that the failure to engage in the prohibited acts or provide
non-public information is inconsistent with the fiduciary duties of the
board of directors under applicable law; and
- quepasa's board of directors is not prohibited from taking and disclosing
to quepasa's shareholders a position with respect to a tender offer
pursuant to Rule 14e-2(a) under the Securities Exchange Act of 1934.
- quepasa has agreed to provide Great Western with detailed information
about any takeover proposal it receives.
A takeover proposal is:
- Any proposal or offer for a merger, consolidation, recapitalization or
other business combination involving quepasa;
- Any proposal for the issuance of 35% or more of the equity securities of
quepasa as consideration for the assets or securities of another person;
- Any proposal or offer to acquire in any manner, directly or indirectly,
35% or more of the equity securities of quepasa or any of its subsidiaries
or assets that represent 20% or more of the consolidated total assets of
quepasa; or
- An expression of interest believed by the board of directors of quepasa in
good faith to be a bona fide indication of a third party's interest in
pursuing the making any of the foregoing proposals, in each case other
than the merger.
Non-Solicitation by Great Western. Unless and until the merger agreement is
terminated in accordance with its terms, Great Western has agreed that it shall
not, nor shall it permit its subsidiaries to:
- Enter into any agreement, agreement in principle or other commitment
(whether or not legally binding) relating to a competing transaction (as
described below);
9
- Solicit, initiate or encourage the submission of any proposal or offer
from any person or entity (including quepasa's officers, partners,
employees and agents) relating to a competing transaction; or
- Participate in any discussions or negotiations regarding, or furnish to
any other person or entity any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person or entity to effect a
competing transaction.
Great Western and its subsidiaries have agreed to immediately cease any and
all contacts, discussions and negotiations with third parties regarding any
competing transaction. Great Western has agreed that it will, and it shall cause
its subsidiaries to, notify quepasa if any proposal regarding a competing
transaction (or any inquiry or contact with any person or entity with respect
thereto) is made and shall advise quepasa of the contents thereof (and, if in
written form, provide quepasa with copies thereof).
A competing transaction is:
- Any business combination or recapitalization involving Great Western's
business; or
- Any acquisition or purchase of all or a significant portion of the assets
of Great Western's business, or any material equity interest in Great
Western's business or any other similar transaction with respect to Great
Western and its subsidiaries involving any person or entity other than
quepasa or its affiliates.
CONDITIONS TO CONSUMMATION OF THE MERGER.
The obligations of quepasa and Great Western to consummate the merger are
subject to the prior satisfaction, or the waiver (to the extent permitted by
applicable law), of certain customary conditions including, among others, that:
- The shareholders of quepasa shall have approved the merger;
- There shall have been no material adverse effect on the financial
condition, assets, profits, liabilities, results of operations or business
of quepasa or any of its subsidiaries;
- Holders of not more than 20% of quepasa common stock shall have demanded
appraisal for such shares; and
- quepasa and its subsidiaries shall have at least $2.5 million in cash on
hand (including the $500,000 loan to Great Western) in its bank accounts
net of all liabilities of any kind or nature whatsoever on the closing
date of the merger.
TERMINATION AND ABANDONMENT.
The merger agreement may be terminated and the merger abandoned at any time
prior to the closing of the merger by the mutual written consent of quepasa and
Great Western.
The merger agreement may be terminated and the merger abandoned at any time
prior to the closing of the merger by quepasa if:
- There has been a material breach by Great Western or its subsidiaries of
any of its representations or warranties, covenants or agreements set
forth in the merger agreement;
- In the event that quepasa enters into a definitive agreement concerning a
takeover proposal made by a third party on terms that the board of
directors of quepasa determines in good faith to be superior from a
financial point of view to quepasa's shareholders than the merger;
10
- Friedman, Billings withdraws its fairness opinion at any time prior to the
closing of the merger; or
- All of the conditions to closing the merger shall not have been satisfied
or waived on or prior to March 1, 2002; provided, that quepasa may
terminate the merger agreement on December 31, 2001, if Great Western is
in material breach of any representation, warranty or covenant set forth
in the agreement as of such date; provided, further, that quepasa shall
not have the right to terminate the merger if such conditions have not
been satisfied due to quepasa's willful failure to fulfill or willful
breach of any of its obligations under the merger agreement.
The merger agreement may be terminated and the merger abandoned at any time
prior to the closing of the merger by Great Western if:
- There has been a breach by quepasa of any of its representation or
warranties, or covenants or agreements set forth in the merger agreement
the effect of which has a material adverse effect on the financial
condition, assets, profits, liabilities, results of operations, or
business of quepasa or any of its subsidiaries;
- The board of directors of quepasa fails to recommend the approval of the
merger to quepasa's shareholders, or withdraws or amends or modifies in a
manner adverse to Great Western its recommendation for approval of the
merger; or
- A meeting of quepasa's shareholders was held and the shareholders of
quepasa failed to approve the merger.
- quepasa and its subsidiaries have less than $2.5 million in cash on hand
(including the $500,000 loan to Great Western) in its bank accounts net of
all liabilities of any kind or nature whatsoever on the closing date of
the merger.
- All of the conditions to closing the merger have not been satisfied or
waived on or prior to March 1, 2002; provided, that Great Western may
terminate the merger agreement on December 31, 2001, if quepasa is in
material breach of any representation, warranty or covenant set forth in
the agreement as of such date; provided, further, that Great Western does
not have the right to terminate the merger if such conditions have not
been satisfied due to any of Great Western's, or its subsidiaries' willful
failure to fulfill or willful breach of any of its obligations under the
merger agreement.
MERGER TERMINATION FEE.
Great Western shall be entitled to receive a cash fee of $500,000 in the
event that Great Western terminates the merger agreement as a result of:
- Breach by quepasa of any of its representations or warranties, or
covenants or agreements set forth in the merger agreement the effect of
which has a material adverse effect on the financial condition, assets,
profits, liabilities, results of operations, or business of quepasa or any
of its subsidiaries;
- The board of directors of quepasa fails to recommend the approval and
adoption of the merger agreement and the transactions contemplated thereby
to quepasa's shareholders, or withdraws or amends or modifies in a manner
adverse to Great Western its recommendation or approval in respect of the
merger agreement or the transactions contemplated thereby; or
- If a meeting of quepasa's shareholders shall have been held and the
shareholders of quepasa shall have failed to approve the merger.
In addition, in the event that quepasa terminates the merger agreement in
connection with entering into a definitive agreement concerning a takeover
proposal made by a third party on terms
11
that the board of directors of quepasa determines in good faith to be superior
from a financial point of view to quepasa's shareholders than the merger, Great
Western shall be entitled to receive a cash fee in cash of $500,000 plus the
aggregate amount of fees and expenses (including all attorney's fees,
accountants' fees, and financial advisory fees) incurred by Great Western and
its subsidiaries in connection with the merger.
In the event that quepasa terminates the merger agreement because Friedman,
Billings withdraws its fairness opinion at any time prior to the closing of the
merger, Great Western shall be entitled to receive a sum equal to the amount of
its actual expenses incurred for attorneys, accountants and appraisers incurred
in connection with the merger agreement and the transactions contemplated
thereby, up to a maximum of $250,000.
quepasa shall be entitled to receive a cash fee of $500,000 in the event
that quepasa terminates the merger agreement as a result of a breach by Great
Western or its subsidiaries of any of their representation or warranties, or
covenants or agreements set forth in the merger agreement the effect of which
has a material adverse effect on the financial condition, assets, profits,
liabilities, results of operations, or business of Great Western or any of its
subsidiaries.
APPRAISAL RIGHTS
Record holders of quepasa common stock that follow the appropriate
procedures are entitled to dissent from the consummation of the merger and
receive payment in cash of the fair value of their shares under the Nevada
General Corporation Law. In the event that the holders of more than 20% of the
outstanding common stock of quepasa dissent from the consummation of the merger,
Great Western has the right to terminate the merger agreement.
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THE REVERSE STOCK SPLIT
The shareholders will be asked to authorize the Great Western board of
directors to effect a reverse stock split of one share for up to 20 shares of
Great Western common stock outstanding at any time prior to or during the
24 month period following the closing of the merger. The purpose for the
proposed reverse stock split is to attempt to increase the market price of Great
Western's common stock following the merger in order to meet the minimum
requirements for listing of Great Western's common stock on the Nasdaq National
Market System or another securities exchange. Great Western has no current
specific plans to reverse split its common stock and is under no obligation to
do so. Following the merger, Great Western's common stock is expected to be
traded on the OTC Bulletin Board. One of the several requirements of Nasdaq to
move from the OTC Bulletin Board to the Nasdaq National Market System is a
market price of at least $5.00 per share.
The board of directors of quepasa recommends the authorization of the Great
Western board of directors to effect a reverse stock split of Great Western's
common stock at any time prior to or during the 24 month period following the
closing of the merger. A vote in favor by the holders of at least a majority of
the shares of quepasa common stock present and entitled to vote at the annual
meeting is required to approve this proposal. If this proposal is not approved
at the annual meeting, Great Western may make a similar proposal to its
shareholders following the closing of the merger.
THE AUTHORIZATION FOR THE BOARD OF DIRECTORS OF QUEPASA TO
PURSUE THE LIQUIDATION AND DISSOLUTION OF QUEPASA
The shareholders will be asked to authorize the quepasa board of directors
to elect to completely liquidate quepasa in the event the merger is not approved
by the quepasa shareholders or the merger agreement is terminated and, at the
discretion of the board of directors, to distribute all remaining cash after
payment of all debts and expenses to the quepasa shareholders and to dissolve
quepasa.
The board of directors of quepasa recommends approval of the granting of
authority to the board of directors to elect to completely liquidate quepasa in
the event the merger is not approved by the quepasa shareholders or the merger
agreement is terminated and, at the discretion of the board of directors, to
distribute all remaining cash after payment of all debts and expenses to the
quepasa shareholders and to dissolve quepasa. A vote in favor by the holders of
at least a majority of the shares of quepasa common stock present and entitled
to vote at the annual meeting is required to approve this proposal.
While quepasa's board of directors will consider all alternatives available
to quepasa if the merger does not close, it believes that liquidation and
dissolution may be the best alternative available for the shareholders.
Liquidation and dissolution require shareholder approval, and approval of this
proposal will permit a liquidation and dissolution to proceed more quickly and
save the significant costs of convening another shareholder meeting, leaving
more cash available for distribution to the shareholders.
THE RATIFICATION OF THE APPOINTMENT OF THE AUDITORS
The shareholders will be asked to ratify the appointment of KPMG LLP as
quepasa's independent auditors through the closing date of the merger.
The board of directors of quepasa recommends the ratification of the
appointment of KPMG as quepasa's independent auditors through the closing date
of the merger. A vote in favor by the holders of at least a majority of the
shares of quepasa common stock present and entitled to vote at the annual
meeting is required to approve this proposal.
13
POSSIBLE PROXY CONTEST
A group of dissident shareholders collectively holding approximately 4
million shares of quepasa's common stock (approximately 23% of the outstanding
shares) has informed quepasa that it may nominate a slate of candidates for
election to the board of directors. This dissident group has also informed
quepasa that it may solicit proxies from quepasa's shareholders.
QUEPASA'S BOARD OF DIRECTORS AND MANAGEMENT BELIEVE STRONGLY FOR THE REASONS
SET FORTH BELOW THAT THESE DISSIDENTS HAVE GOALS THAT ARE AT ODDS WITH THE
INTERESTS OF THE MAJORITY OF QUEPASA'S SHAREHOLDERS AND THAT ELECTING THE
DISSIDENT GROUP'S NOMINEES IS NOT IN THE BEST INTERESTS OF QUEPASA'S
SHAREHOLDERS. QUEPASA'S SHAREHOLDERS SHOULD NOT SIGN ANY PROXY CARD THAT THE
DISSIDENTS MAY SEND THEM.
quepasa believes that the dissident group includes:
- Jeffrey Peterson, quepasa's former President whose employment terminated
in 1999;
- Michael Silberman and Jennifer Ferlaino, former quepasa employees who are
currently working with Mr. Peterson in Mr. Peterson's new venture
according to the website for Mr. Peterson's venture and conversations
between Mr. Peterson and quepasa's management;
- Mark Kucher, who lists his occupation in his Forms 13-D filings with the
Securities and Exchange Commission as a financier and financial consultant
and who began accumulating quepasa common stock less than a year ago,
paying between $0.09 and $0.15 per share according to his filings with the
Securities and Exchange Commission;
- Kevin Dieball, a former principal stockholder of quepasa who provided
strategic planning and business development services to quepasa prior to
quepasa's initial public offering;
- Michael Weck, a stockbroker closely associated with Mr. Kucher as set
forth below, who resigned as a quepasa director in June 2001 in order to
promote an alternative transaction that was rejected by the quepasa board;
and
- Gregory Steers, Nick Tintor and Bruce Randle, of whom quepasa has no
information other than that they, like Mr. Kucher, are residents of
Canada.
Messrs. Kucher, Silberman, Steers, Tintor and Randle commenced a legal
proceeding against quepasa in the First Judicial District Court, Carson City,
Nevada on October 31, 2001 seeking to compel quepasa to hold a separate
shareholder meeting to elect directors PRIOR to the shareholder meeting at which
the merger would be voted upon. This action was commenced several months after
quepasa had announced that a shareholder meeting would be called and several
weeks after quepasa announced that preliminary proxy materials for the meeting
had been filed with the Securities and Exchange Commission. quepasa believes
that there is no legal basis under the federal securities laws, the corporate
statutes of Nevada or in quepasa's by-laws for separating these meetings. More
importantly, quepasa believes that holding two meetings several weeks apart
would be unnecessarily costly to quepasa, confusing to shareholders and could
cause Great Western to terminate the merger agreement. quepasa and the
plaintiffs in that legal action have now stipulated that one meeting will be
held on February 28, 2002.
Messrs. Kucher and Silberman commenced a legal proceeding against quepasa,
each of its officers and directors, and Great Western in the Superior Court of
Arizona, Maricopa County, on December 19, 2001 seeking, among other things, an
injunction to prohibit Great Western and Mr. Trujillo from voting any quepasa
stock acquired by Great Western or Mr. Trujillo using monies provided by
quepasa. Specifically, Messrs. Kucher and Silberman allege that quepasa
(a) loaned Great Western $500,000 and (b) re-priced Mr. Trujillo's options to
$0.15 per share and provided Mr. Trujillo
14
with $700,000 in compensation in order to enable Great Western and
Mr. Trujillo, respectively, to purchase shares of quepasa stock so that Great
Western and Mr. Trujillo could vote such stock in favor of the merger at
quepasa's annual meeting.
quepasa did loan Great Western $500,000 on October 11, 2001 in connection
with an amendment to the merger agreement that was requested by quepasa because
the merger was taking longer than anticipated to close. Great Western required
that quepasa make the loan in order to amend the merger agreement. Pursuant to
the amendment, the termination date of the merger agreement was extended from
December 31, 2001 to March 1, 2002 and in the event quepasa has less than
$2.5 million in cash at the closing of the merger (including the $500,000 loan
to Great Western) and Great Western waives its right to terminate the merger
agreement, at the closing Great Western will issue to Amortibanc Investments
additional shares of Great Western common stock. The loan is secured and bears
interest at the prime rate plus 1%. See "Proposal 2. Approval of the
Merger--Amendment to Merger Agreement and Loan to Great Western."
With respect to the allegations regarding Mr. Trujillo, quepasa has never
re-priced any of its outstanding options, including those issued to
Mr. Trujillo. quepasa did pay Mr. Trujillo $700,000 in October 2001 in
connection with the termination of Mr. Trujillo's employment agreement, which
was entered into in 1999. Under the terms of the termination, Mr. Trujillo
resigned as chief executive officer of quepasa and received a lump sum payment
which resulted in a savings to quepasa of approximately $500,000 because at the
time of termination there was approximately $1.2 million remaining to be paid
under Mr. Trujillo's employment agreement. Mr. Trujillo has never exercised any
options to purchase quepasa stock nor, to quepasa's knowledge, has Mr. Trujillo
purchased any quepasa stock with the proceeds from the termination of his
employment agreement.
Mr. Kucher and his group insisted in their pleadings that if their nominees
are elected to the board of directors, they need time to evaluate the Great
Western merger before the quepasa shareholders vote to approve it. You should
evaluate these statements in light of the following:
- The merger agreement has been publicly available on the Securities and
Exchange Commission's website since early August 2001;
- The preliminary version of this proxy statement has been publicly
available on the Securities and Exchange Commission's web site since
mid-October 2001;
- Mr. Kucher has refused numerous offers from quepasa and Great Western,
beginning in early September, to meet with officers of both companies to
educate himself about the merger; and
- In conversations with Great Western and quepasa management, Mr. Kucher has
said that his goal is to gain control of quepasa and to devote quepasa's
remaining assets to revive quepasa's original business plan--in other
words, the board of directors of quepasa believes that it is fair to
assume that the dissident group has already decided not to complete the
Great Western merger.
In its lawsuits, the dissident group makes much of quepasa's statements in
quepasa's Forms 10-K, 10-Q and 8-K filings with the Securities and Exchange
Commission and press releases over the last 18 months that quepasa has been
unable to execute its business plan, while ignoring the catastrophic decline of
the Internet sector in general, particularly website and portal businesses. As
described under "Proposal 2. Approval of the Merger--Background of and Reasons
for the Merger", quepasa's board of directors recognized the unfavorable market
conditions early in 2000 and took action to reduce quepasa's costs and commence
a search for a strategic transaction. quepasa or its investment banking firm had
discussions with over 75 companies about a strategic transaction. quepasa's
board has been very involved throughout this process, often meeting several
times a month to evaluate the status of the available opportunities. The
dissident group appears to consist of the last handful of people who believe
that quepasa's original business plan is viable.
15
The dissident group alleges in its lawsuits that quepasa's board and
management will receive or have received undeserved windfall payments related to
the Great Western merger. All payments or other benefits that are triggered by
the closing of the merger are explained under "Proposal 2. Approval of the
Merger--Interests of Certain Persons in the Merger" on page 44. quepasa's
non-management directors have served since 1999 with no compensation other than
worthless stock options issued in 1999 with exercise prices of $7.00 or higher.
In order to compensate quepasa's outside directors for their services and to
retain their services through the closing of a significant transaction, in
March, 2001 the four non-management directors were each granted (a) 50,000 $0.15
options that will vest upon any change of control and (b) a cash payment of
$50,000 to be paid upon any change of control. In addition and as discussed
above, in order to conserve cash, quepasa's board negotiated the cancellation of
Gary Trujillo's employment agreement, whereby he resigned as chief executive
officer and received a lump sum payment of $700,000, a substantial discount to
the approximately $1.2 million remaining to be paid under the employment
agreement.
In its lawsuits, the dissident group also makes much of the fact that
quepasa's election of directors was ten months overdue under the Nevada
corporate statutes when they commenced their legal action. Hoping to avoid the
cost of two meetings in close proximity, quepasa did delay calling a meeting for
the election of directors until the Great Western merger agreement was signed.
This decision saved quepasa several hundred thousand dollars. Under the Nevada
corporate statutes, if an election of directors is overdue, holders of 15% or
more of a company's voting stock may seek to have a judge compel a shareholder
meeting. This statute was the basis of the Nevada action commenced by
Mr. Kucher and the other plaintiffs on October 31, 2001.
In evaluating any proxy materials sent to you by the dissident group, you
should consider the following:
- Over the past several months, Mr. Kucher has engaged in several
conversations with Great Western's management in which Mr. Kucher has
offered to sell the shares owned by the five plaintiffs in the
October 31, 2001 complaint for a substantial premium over the current
trading value of the shares;
- Under the federal securities laws, when two or more persons are acting as
a group for purposes of acquiring, holding or disposing of securities of
an issuer, they are required to disclose certain information with respect
to the group in filings with the Securities and Exchange Commission.
Messrs. Kucher, Silberman and Dieball are the only members of the
dissident shareholder group to have made filings under this provision.
Mr. Kucher filed an initial and an amended Schedule 13-D on September 7,
2001 and another amended Schedule 13-D on December 4, 2001. In each of
these filings, Mr. Kucher denied that he was a part of a group.
Mr. Silberman filed a Schedule 13-D on December 10, 2001 in which he
denied that he was a part of a group. Finally, Messrs. Kucher, Silberman
and Dieball filed an amended Schedule 13-D on January 4, 2002, nearly one
month after a preliminary version of this proxy statement/prospectus was
filed with the Securities and Exchange Commission notifying quepasa
shareholders that Mr. Kucher was the only person to have filed a
Schedule 13-D as of December 11, 2001 and that, in his earlier filings,
Mr. Kucher did not identify himself as a member of a group. The
January 4, 2002 Schedule 13-D identified only Messrs. Kucher, Silberman
and Dieball as members of a group.
- Each plaintiff in the Nevada action, including Mr. Kucher, signed and
filed with the court a verification on October 31, 2001, under penalty of
perjury, that he owned a specified number of shares that in the aggregate
represented 16.37% of quepasa's outstanding common stock;
- On December 4, 2001 Mr. Kucher signed and filed a new verification in
which he admitted that he actually owned 335,888 fewer shares than he had
verified, under perjury, on October 31, 2001, because he had included
shares that he believed that he had an agreement to purchase but had not
yet purchased;
16
- The Nevada statutes do not permit a shareholder to count shares intended
to be acquired in the future in determining if the ownership threshold for
commencing the legal action is satisfied, and without those shares the
plaintiffs did not meet the threshold for bringing the action;
- Verifications signed and filed with the Nevada court by Mr. Kucher and
Mr. Silberman on December 4, 2001 disclose that they each acquired
additional shares of quepasa common stock on November 30, 2001 that
resulted in the plaintiffs collectively owning enough shares to commence
the action for the first time, MORE THAN FIVE WEEKS AFTER THEY IMPROPERLY
COMMENCED THE ACTION;
- Jeffrey Peterson, a member of the dissident group and quepasa's former
President, agreed earlier this year to testify on quepasa's behalf in its
arbitration against Telemundo Network Group and spent several days with
quepasa's counsel preparing for the arbitration. Two business days before
the arbitration commenced, Mr. Peterson demanded in writing a substantial
cash payment and a written statement that quepasa would not bring any
litigation against him for any reason in the future in exchange for his
testimony. quepasa believes that Mr. Peterson's last minute refusal to
appear at the arbitration contributed to the unfavorable result in the
arbitration;
- Just before quepasa's initial public offering was scheduled to commence in
1999, Nasdaq denied quepasa's listing application because of
Mr. Peterson's prior business association with several persons who
(a) had been fined and sanctioned for violating regulations of the
National Association of Securities Dealers and the Arizona Corporate
Commission and (b) in at least one case, became the subject of a civil
action brought by the Securities and Exchange Commission. Mr. Peterson had
previously testified about some of the events leading to the fines,
sanctions and civil action, which had occurred at a brokerage firm where
he was employed. Mr. Peterson hired one of these persons at quepasa and
accepted investments from others and their affiliates;
- Nasdaq reversed its decision and agreed to list quepasa's common stock
only after Mr. Peterson had been demoted, several shareholders associated
with the persons referred to in the preceding paragraph, including
Mr. Dieball, sold all their shares, quepasa's chief operating officer, who
had previously been associated with those persons, resigned and
Mr. Peterson's shares were placed in a five year voting trust;
- quepasa's independent auditors in 1999, BDO Seidman, L.L.P., resigned upon
learning of the background of the person Mr. Peterson had hired;
- In early January, 2001, a week after he purchased a small amount of
quepasa common stock, Mr. Kucher asked for a meeting with quepasa's
management through Mr. Weck, another member of the dissident group.
quepasa's senior management met with Mr. Kucher and Mr. Weck on
January 10, 2001;
- Mr. Kucher and Mr. Weck said at the January 10 meeting that they
represented a group of shareholders who believed that quepasa should not
liquidate its assets and distribute the cash to shareholders because they
believed that there were attractive merger opportunities for quepasa once
its assets were reduced to cash that would provide more value to
shareholders;
- Mr. Kucher and Mr. Weck said at the January 10 meeting that their group
held at least 20% of quepasa's common stock, but no filings with respect
to such a group were ever made with the Securities and Exchange
Commission;
- Mr. Kucher and Mr. Weck said at the January 10 meeting that they intended
to submit a transaction proposal to the quepasa board of directors,
although no such proposal has ever been submitted;
17
- Mr. Kucher and Mr. Weck asked at the January 10 meeting that one or both
of them be appointed to the quepasa board of directors;
- Mr. Weck was subsequently appointed to the quepasa board and served during
the several months that the merger with Great Western was negotiated; and
- Mr. Weck resigned as a director in June 2001, disclosing to the board for
the first time that he was the financial advisor to a company that had
submitted a competing bid to merge with quepasa. This bid was felt to be
significantly inferior to the Great Western proposal and was rejected by
quepasa's board of directors. See "Proposal 2. Approval of the
Merger--Background of and Reasons for the Merger."
quepasa believes that if elected to the board on January 31, 2001, the
dissenting group's nominees will delay either the shareholder vote on the merger
or the closing of the merger, which will permit Great Western to cancel the
merger agreement and receive a $500,000 break-up fee. Based upon conversations
with Great Western and quepasa management, their agenda appears to be to revive
quepasa's failed business; unless of course Great Western agrees to make the
greenmail payment that Mr. Kucher has repeatedly requested.
THE BOARD OF DIRECTORS URGES QUEPASA'S SHAREHOLDERS TO COMPLETE AND RETURN
THE ENCLOSED PROXY CARD AND NOT TO SIGN ANY PROXY CARD SENT TO THEM BY THE
DISSIDENT GROUP. IF QUEPASA'S SHAREHOLDERS HAVE SIGNED ANY OTHER PROXY CARD,
THEY MAY REVOKE THAT PROXY BY DELIVERING TO QUEPASA A WRITTEN NOTICE OF
REVOCATION OR A LATER DATED PROXY CARD IN THE ENCLOSED ENVELOPE.
18
COMPARATIVE PER SHARE DATA
The following tables include selected historical per share data and the
corresponding unaudited pro forma per share amounts for Great Western common
stock and quepasa common stock for the periods indicated, giving effect to the
merger. As a result of the merger, quepasa shareholders participating in the
merger will receive one share of Great Western common stock for each share of
quepasa common stock held by such shareholder. The data presented is based upon
the financial statements and related notes of each of Great Western and quepasa
appearing elsewhere in this proxy statement/prospectus. This information is only
a summary and should be read in conjunction with the historical financial
statements of Great Western and quepasa and the related notes thereto. The
comparative per share data does not necessarily indicate results of the future
operations of the combined organization or the actual results that would have
occurred if the merger had occurred at the beginning of the periods indicated.
GREAT WESTERN PER SHARE DATA
Per share data is not presented in the historical financial statements of
Great Western, as these operations were conducted by a group of limited
liability companies and there were no common shares authorized, issued or
outstanding. Book value per share is provided below as of December 31, 2000 and
September 30, 2001, and earnings per share is provided for the year ended
December 31, 2000 and the nine months ended September 30, 2001, as if the
18,904,649 common shares issued subsequent to September 30, 2001, for the
members' interest in Great Western's predecessor companies had been issued and
outstanding as of those dates.
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 2000 SEPTEMBER 30, 2001
----------------- ------------------
Book Value Per Share:..................... $ 0.12 $0.16
Cash Dividends Per Share:................. $ -- $ --
Income (Loss) Per Share:.................. $(0.04) $0.04
QUEPASA PER SHARE DATA
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 2000 SEPTEMBER 30, 2001
----------------- ------------------
Book Value Per Share:..................... $ 0.44 $ 0.27
Cash Dividends Per Share:................. $ -- $ --
Loss Per Share:........................... $(3.52) $(0.16)
PRO FORMA PER SHARE DATA
The per share data below is derived from the Great Western pro forma balance
sheet at September 30, 2001, and its statements of operations for the year ended
December 31, 2000 and the nine months ended September 30, 2001, based on the
total number of shares of common stock expected to be outstanding after the
merger with quepasa.
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 2000 SEPTEMBER 30, 2001
----------------- ------------------
Book Value Per Share:..................... $ N/A $ 0.20
Cash Dividends Per Share:................. $ -- $ --
Loss Per Share:........................... $(1.68) $(0.06)
19
MARKET PRICE DATA
MARKET PRICE DATA
QUEPASA.
quepasa's common stock traded under the symbol "PASA" on the Nasdaq National
Market from June 24, 1999, the date of quepasa's initial public offering, until
December 26, 2000. On December 27, 2000, following the announcement that
quepasa's board of directors approved the development of a plan of liquidation
and sale of its assets, the Nasdaq Stock Market halted trading in quepasa's
common stock. On January 18, 2001, quepasa's common stock was delisted from the
Nasdaq National Market. quepasa's common stock has traded under the symbol
"PASA" on the Pink Sheets for the period between December 27, 2000 and
March 13, 2001, and the period between May 24, 2001 and the present, and on the
OTC Bulletin Board for the period between March 13, 2001 and May 23, 2001.
The following table shows the range of high and low sale prices of quepasa's
common stock from June 24, 1999 through September 30, 2001:
STOCK PRICE
-------------------
HIGH LOW
-------- --------
1999
Second Quarter (effective June 24, 1999)................ $14.625 $13.750
Third Quarter........................................... $25.875 $ 7.750
Fourth Quarter.......................................... $15.000 $ 6.250
2000
First Quarter........................................... $12.500 $ 5.375
Second Quarter.......................................... $ 6.625 $ 1.563
Third Quarter........................................... $ 1.688 $ 0.840
Fourth Quarter.......................................... $ 0.938 $ 0.094
2001
First Quarter........................................... $ 0.170 $ 0.070
Second Quarter.......................................... $ 0.160 $ 0.110
Third Quarter........................................... $ 0.260 $ 0.045
On August 3, 2001, the last full trading day prior to the signing of the
merger agreement, quepasa common stock closed at $0.11. On January 11, 2002, the
last practicable trading day for which information was available prior to the
date of this proxy statement/prospectus, quepasa common stock closed at $0.15.
GREAT WESTERN.
Great Western's capital stock is not listed on an exchange or quoted on the
Nasdaq National Market, OTC or the Pink Sheets. Accordingly, there is no
established public trading market for Great Western's common stock. However,
following the consummation of the merger, Great Western will cause an
application to be filed to have its common stock listed on the OTC Bulletin
Board and Great Western is expected to file periodic and other reports and
information with the Securities and Exchange Commission pursuant to
Section 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended. In
addition, Great Western will be subject to the annual and quarterly reporting
requirements of Section 13 of the Securities Exchange Act, the proxy
requirements of Section 14 and the Section 16 requirement to report transactions
in the company's securities by directors, officers and principal shareholders.
20
DIVIDEND INFORMATION
Neither quepasa nor Great Western has ever paid any cash dividends on its
common stock and Great Western anticipates that it will continue to retain any
earnings for the foreseeable future for use in the operation of its business.
NUMBER OF SHAREHOLDERS
As of December 1, 2001, quepasa had approximately 363 shareholders of
record.
As of December 1, 2001, Great Western had one shareholder. In the event
Great Western reverse splits its common stock following the consummation of the
merger, the number of shareholders of Great Western is expected to remain the
same because fractional shares as a result of the split will be rounded up to
the next whole share.
SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA OF GREAT WESTERN
The following table sets forth selected historical financial data of Great
Western at and for the periods indicated. In the opinion of Great Western's
management, all adjustments necessary for a fair presentation have been
included. Such data should be read in conjunction with Great Western's combined
financial statements and the notes thereto appearing elsewhere in this proxy
statement/ prospectus.
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1998 1999 2000 2000 2001
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
Selected Statement of Operations Data:
Revenue................................ $2,335,360 $3,052,802 $9,859,371 $8,518,699 $7,932,187
Gross profit on sales.................. 192,750 1,036,264 1,710,373 1,555,672 3,219,144
Net income (loss)...................... (522,017) (593,797) (781,514) (198,279) 672,025
DECEMBER 31,
--------------------------------------- SEPTEMBER 30,
1998 1999 2000 2001
----------- ----------- ----------- -------------
(UNAUDITED)
Selected Balance Sheet Data:
Total assets............................ $11,615,135 $12,931,295 $14,023,883 $12,705,966
Notes receivable........................ 1,337,072 -- 1,827,417 3,012,257
Land held for development and sale...... 8,818,830 11,398,950 11,073,049 8,267,040
Total liabilities....................... 12,450,867 14,360,824 11,734,926 9,600,145
Notes payable........................... 6,605,478 6,878,376 6,273,808 4,264,754
Subordinated debt....................... 5,291,855 7,052,173 4,333,199 4,608,050
Shareholder's equity (deficit).......... (835,732) (1,429,529) 2,288,957 3,105,821
SELECTED HISTORICAL FINANCIAL DATA OF QUEPASA
The following is a summary of selected financial data of quepasa as of and
for each of the years in the three-year period ended December 31, 2000, 1999 and
1998, the period from inception, June 25, 1997 through December 31, 1997, and
the nine-month periods ended September 30, 2001 and 2000. This data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operation of quepasa," quepasa's consolidated financial
statements and the notes thereto appearing elsewhere in this proxy
statement/prospectus.
21
NINE MONTHS ENDED
SEPTEMBER 30,
INCEPTION TO --------------------------
2000 1999 1998 1997 2001 2000
------------ ------------ ----------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
Selected Statement of Operations Data:
Net revenue............................. $ 2,611,748 $ 556,244 $ -- $ -- $ 174,698 $ 2,242,821
Loss from operations.................... (61,926,199) (30,038,037) (6,465,288) (3,703) (3,065,072) (27,711,477)
Net loss................................ (60,962,934) (29,261,363) (6,513,228) (2,903) (2,852,660) (26,873,301)
Basic and diluted loss per share........ $ (3.52) $ (2.44) $ (0.98) $ -- $ (0.16) $ (1.57)
Selected Balance Sheet Data:
Cash and cash equivalents............... $ 3,940,232 $ 6,961,592 $ 2,199,172 $ 2,582 $5,098,318 $ 2,296,752
Trading securities...................... 2,393,964 22,237,656 -- -- -- 7,192,470
Working capital (deficit)............... 7,312,625 28,141,206 3,563,302 (2,883) 4,871,459 14,824,740
Total assets............................ 8,404,248 44,350,992 4,611,464 2,582 5,239,185 42,880,461
Total stockholders' equity (deficit).... 7,697,869 40,066,244 3,920,422 (2,883) 4,876,459 42,173,997
SELECTED PRO FORMA FINANCIAL DATA
The following table sets forth selected pro forma financial data of Great
Western and quepasa, had the merger been consummated on January 1, 2000, at and
for the periods indicated. The selected pro forma financial data was derived
from the unaudited pro forma data presented elsewhere in this proxy
statement/prospectus and is not necessarily indicative of operating results or
financial position that would have been achieved had the merger been consummated
as of January 1, 2000 and should not be construed as representative of future
operating results or financial position.
PRO FORMA
--------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 2000 SEPTEMBER 30, 2001
----------------- ------------------
(UNAUDITED) (UNAUDITED)
Selected Statement of Operations Data:
Revenue................................... $12,675,189 $8,109,521
Gross profit on sales..................... 4,322,121 3,393,842
Net loss.................................. (61,679,865) (2,180,635)
PRO FORMA SEPTEMBER 30, 2001
----------------------------
(UNAUDITED)
Selected Balance Sheet Data:
Total assets..................................... $17,175,151
Notes receivable................................. 3,012,257
Land held for development and sale............... 8,267,040
Total liabilities................................ 9,962,871
Notes payable.................................... 4,264,754
Subordinated debt................................ 4,608,050
Shareholders' equity............................. 7,212,280
22
RISK FACTORS
The merger involves a high degree of risk. Voting in favor of the merger is
a choice to invest in Great Western common stock which involves a high degree of
risk. In deciding whether to vote for the merger, quepasa shareholders should
consider the following risk factors carefully in addition to the information and
financial data contained elsewhere in this proxy statement/prospectus.
RISK FACTORS RELATING TO THE MERGER
QUEPASA'S SHAREHOLDERS WILL RECEIVE A FIXED RATIO OF ONE SHARE OF GREAT WESTERN
COMMON STOCK FOR EACH SHARE OF QUEPASA COMMON STOCK EVEN IF THERE ARE CHANGES IN
THE MARKET VALUE OF QUEPASA COMMON STOCK BEFORE THE CLOSING OF THE MERGER
There will be no adjustment to this exchange ratio if the market price of
quepasa common stock fluctuates. The specific dollar value of the Great Western
common stock you will receive in the merger will depend on the market value of
Great Western's common stock at the time of the merger. quepasa and Great
Western cannot predict the market price for quepasa common stock before the
merger or Great Western common stock after the merger.
GREAT WESTERN MAY TERMINATE THE MERGER AGREEMENT
Pursuant to the merger agreement, since quepasa will have less than
$2.5 million of cash on hand at the closing of the merger (including the
$500,000 loan to Great Western), Great Western has the right to terminate the
merger agreement after March 1, 2002. In the event Great Western waives its
termination right, it will issue Amortibanc Investments, its sole shareholder
prior to the merger, additional shares of Great Western common stock based upon
the difference between the required amount of cash and the amount of cash held
by quepasa at the closing of the merger. See "Proposal 2. Approval of the
Merger--Amendment to the Merger Agreement and Loan to Great Western."
Great Western may also assert that the filing of the Arizona litigation by
the dissident shareholder group constitutes a material adverse change entitling
Great Western to terminate the merger agreement and receive a $500,000 break-up
fee.
GREAT WESTERN WILL FACE OPERATIONAL AND STRATEGIC CHALLENGES AS A RESULT OF THE
MERGER THAT COULD PREVENT GREAT WESTERN FROM SUCCESSFULLY CAPITALIZING ON THE
INTEGRATION OF QUEPASA WITH GREAT WESTERN
Great Western intends to continue the operation of the quepasa website.
Management of Great Western has no experience operating an internet business.
The operation of two unrelated businesses may put a strain on Great Western's
officers and employees. Following the merger, Great Western will be subject to
the requirements of the federal securities laws, including the filing of period
reports. Great Western does not have any experience operating as a public
company.
FOLLOWING THE MERGER, QUEPASA'S SHAREHOLDERS WILL NOT HAVE THE ABILITY TO
CONTROL GREAT WESTERN
Current quepasa shareholders will not have control over the future direction
of Great Western. A majority of Great Western's board of directors have been
designated by Amortibanc Investments under the merger agreement. Because
Amortibanc Investments will own a majority of the outstanding shares of Great
Western following the merger and for the foreseeable future, Amortibanc
Investments will be able to approve most actions requiring shareholder approval,
including the election of directors, adopting amendments to Great Western's
certificate of incorporation and approving or disapproving additional sales of
common stock, mergers or sales of all or substantially all of Great Western's
assets. As a result, Amortibanc Investments will be able to control all of Great
Western's major policy decisions. Great Western's bylaws permit shareholder
action to be taken by written consent signed by
23
the holders of a majority of the shares entitled to vote. Therefore, Amortibanc
Investments will be able to take shareholder action without calling a meeting of
Great Western's shareholders.
GREAT WESTERN'S MAJORITY SHAREHOLDER IS ALSO GREAT WESTERN'S LARGEST LENDER AND
MAY HAVE INTERESTS THAT CONFLICT WITH THOSE OF GREAT WESTERN'S OTHER
SHAREHOLDERS
Approximately $4.4 million of Great Western's approximately $8.7 million of
indebtedness is owed to Amortibanc Investments. Following the merger, Amortibanc
Investments will own a majority of Great Western's common stock and as Great
Western's largest lender, may have interests that may conflict with those of
Great Western's other shareholders. Great Western does not intend to use
quepasa's cash to be acquired in the merger to pay any amounts to Great
Western's affiliates.
QUEPASA AND GREAT WESTERN WILL INCUR SIGNIFICANT COSTS IN CONNECTION WITH THE
MERGER THAT WILL AFFECT THE FINANCIAL RESULTS OF GREAT WESTERN
The substantial expenses associated with the merger will affect the
financial results of Great Western. Great Western and quepasa expect to incur
significant merger-related costs such as financial advisory, legal and
accounting fees and financial printing and other related charges. Great Western
may incur additional material charges in subsequent quarters to reflect
additional costs associated with the merger.
FAILURE TO COMPLETE THE MERGER WOULD HAVE SIGNIFICANT CONSEQUENCES TO QUEPASA
If the merger is not completed quepasa may be subject to a number of
material risks, including the following:
- quepasa may be required to pay Great Western a termination fee;
- quepasa would not receive the benefits arising from the merger;
- The price of quepasa common stock may decline to the extent that the
current market price of quepasa common stock reflects a market assumption
that the merger will be completed; and
- The costs related to the merger, such as legal accounting and printing
costs, must be paid even if the merger is not completed.
OFFICERS AND DIRECTORS OF QUEPASA HAVE DIFFERENT INTERESTS FROM YOURS AND
OFFICERS AND DIRECTORS WHO ARE ALSO SHAREHOLDERS MAY BE MORE LIKELY TO VOTE TO
APPROVE THE MERGER
The directors and officers of quepasa have certain interests in the merger
that are different than or in addition to, those of quepasa shareholders
generally. These interests are described in "Proposal 2. Approval of the
Merger--Interests of Certain Persons in the Merger." As a result, directors and
officers who are also shareholders could be more likely to vote to approve the
merger than if they did not hold these interests.
QUEPASA'S SHAREHOLDERS COULD INCUR TAX LIABILITY IF THE MERGER DOES NOT QUALIFY
AS A TAX-FREE REORGANIZATION
The merger is intended to be treated as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code and to be generally tax free to
the shareholders of quepasa and Great Western. quepasa has received a tax
opinion from its legal counsel that, in the best judgment of such counsel, the
merger should qualify as a tax-free reorganization. If the merger fails to
qualify as a tax-free reorganization, quepasa's shareholders will recognize gain
or loss equal to the excess of the fair market value of the Great Western stock
they receive in the merger over the tax basis in their quepasa stock.
24
THE BOARD OF DIRECTORS OF GREAT WESTERN HAS THE AUTHORITY TO ISSUE PREFERRED
STOCK WITHOUT SHAREHOLDER CONSENT FOLLOWING THE MERGER
Great Western's Articles of Incorporation authorize Great Western's board of
directors, without further action required on the part of shareholders, to issue
one or more classes of preferred stock and to designate the rights, preferences
and privileges of such preferred stock, including voting, dividend and
liquidation rights that may be superior to those of the common stock following
the merger.
GREAT WESTERN MAY BE UNABLE TO UTILIZE QUEPASA'S NET OPERATING LOSS
CARRY-FORWARD
As a result of the merger, Great Western may be unable to utilize any part
or all of quepasa's net operating loss carry-forward or other tax attribute of
quepasa.
RISK FACTORS RELATING TO GREAT WESTERN
Unless otherwise indicated, references in this section to real estate and
inventories collectively encompass Great Western's residential and recreational
land activities and Great Western's other operations.
GREAT WESTERN'S BUSINESS IS SUBJECT TO THE RISKS INHERENT IN THE REAL ESTATE
MARKET AND GENERAL ECONOMIC CONDITIONS AND GREAT WESTERN WILL BE REQUIRED TO
MAKE SIGNIFICANT CAPITAL EXPENDITURES TO DEVELOP ITS EXISTING LAND INVENTORY
Real estate markets are cyclical in nature and highly sensitive to changes
in national and regional economic conditions, including, among other factors,
levels of employment and discretionary disposable income, consumer confidence,
available financing and interest rates. A downturn in the economy in general or
in the market for residential land or recreational property could have a
material adverse effect on Great Western's business, operating results and
financial condition. In addition, concentration in a given region may increase
Great Western's susceptibility to a downturn in such region. Great Western has
in recent years been dedicating greater resources to more capital intensive
residential and recreational land projects and the level of its inventory has
increased materially.
Great Western will be required to make material capital expenditures to
develop its existing inventory as currently planned. There are substantial risks
associated with a large investment in residential and recreational land
inventory at any given time. These include the risks that:
- Residential and recreational land inventories will decline in value due to
changing market and economic conditions;
- Development and carrying costs may exceed those anticipated;
- There may be delays in bringing inventories to market due to, among other
things, changes in regulations, adverse weather conditions or changes in
the availability of development financing on terms acceptable to Great
Western; and
- Banks and other lenders will cease financing residential and recreational
land sold by Great Western with respect to which Great Western does not
provide financing.
During the last five years, Great Western has not experienced any significant
deterioration of the markets where it operates. Furthermore, the increase in
prices for Great Western's products has been dramatic over the last five years.
However, Great Western may not be able to continue sales at its current levels,
its gross margins may decline or its past performance may not compare to Great
Western's future performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Great Western" and "Great
Western's Business."
25
GREAT WESTERN MAY BE UNABLE TO SERVICE ITS DEBT OR TO INCUR ADDITIONAL DEBT TO
FINANCE ITS OPERATIONS
Following the Merger, Great Western will continue to have significant
interest expense and principal repayment obligations. Moreover, Great Western is
required to seek external sources of liquidity to support its operations,
finance the acquisition and development of residential and recreational land
inventory, finance a substantial percentage of its sales and satisfy its debt
and other obligations. Great Western anticipates that it will continue to
require external sources of liquidity to support its operations in the future.
Great Western's ability to service or to refinance its indebtedness or to obtain
additional financing depends on its future performance, which is subject to a
number of factors, including Great Western's business, results of operations,
leverage, financial condition and business prospects, the performance of its
receivables, prevailing interest rates, general economic conditions and
perceptions about the residential and recreational land industries. In the
future, Great Western will be required to negotiate new credit facilities for
the acquisition and development and the financing and sale of its mortgage loans
of residential land properties. Great Western may not be able to obtain
sufficient external sources of liquidity on attractive terms, or at all, to meet
its capital needs. Great Western's existing credit facilities and its future
facilities, if consummated, will include, among other things, various
representations and warranties, conditions to funding, eligibility requirements
for collateral, affirmative, negative and financial covenants and events of
default. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Great Western--Liquidity and Capital Resources," "Great
Western's Business--Great Western's Debt."
Great Western's level of debt and debt service requirements will have
several important effects on its future operations, including the following:
- Great Western will have significant cash requirements to service debt,
reducing funds available for operations and future business opportunities
and increasing Great Western's vulnerability to adverse economic and
industry conditions;
- Great Western's leveraged position will increase its vulnerability to
competitive pressures; and
- Funds available for working capital, capital expenditures, acquisitions
and general corporate purposes may be limited.
Great Western's historic and pro forma debt service was approximately
$4.0 million for the 12 months ended December 31, 2000, and approximately
$3.8 million for the nine months ended September 30, 2001.
GREAT WESTERN IS DEPENDENT UPON FUTURE ACQUISITIONS OF LAND INVENTORY THAT MAY
BE DIFFICULT TO MAKE OR MAY BE MORE COSTLY THAN ANTICIPATED
Great Western's strategy with respect to the growth of its business depends
in large part on its continued ability to successfully acquire and develop new
residential and recreational property. Great Western actively seeks land
acquisition opportunities in the regular course of its business and is engaged
in ongoing evaluations of and discussions regarding potential land acquisitions.
Great Western completed 11 acquisitions from 1998 through 2000. Such land
acquisitions involve numerous short-term and long-term risks, including
diversion of management's attention and adverse consequences to cash flow until
the acquired property is integrated and developed. In addition, Great Western
may be required to comply with laws and regulations of jurisdictions that differ
from those in which it currently operates and may face competitors with greater
knowledge of such local markets. Great Western's land acquisition program could
be adversely affected if Great Western is unable to identify and consummate
suitable acquisitions, is unable to integrate acquisitions successfully into its
operations or does not generate sufficient cash for future acquisitions from
existing operations or through additional debt or equity financings.
26
Because most of Great Western's acquisitions are of land assets only, the
risk associated with its assets is limited primarily to the risks associated
with the land. Such risks include undisclosed liabilities, potential claims
against the seller for which indemnification will not be available (by virtue of
caps or otherwise), uncertainty as to future financial results, the failure of
the seller of a property or project to comply with applicable law in connection
with such property or project or otherwise (including the risks of monetary
liabilities and governmental liens and forfeiture), integrating distinct
business operations and projects, the increased demands acquisitions place on
management resources and other similar factors. If one or more of these risks
materialize Great Western's land acquisitions may not be profitable.
GREAT WESTERN HAS BEEN INFORMED THAT ITS ACCOUNTANTS HAVE DISCOVERED WEAKNESSES
IN GREAT WESTERN'S FINANCIAL CONTROLS THAT COULD HAVE A MATERIAL ADVERSE EFFECT
ON GREAT WESTERN'S ABILITY TO PROVIDE RELIABLE FINANCIAL INFORMATION
Great Western's independent certified public accountants reported to it
that, in the course of audits of Great Western's financial statements for the
two years ended December 31, 2000, they discovered various conditions that they
believe constitute material weaknesses in the financial controls of Great
Western but which did not cause them to modify their reports on such financial
statements. These conditions consist of the following:
- Lack of adequate segregation of duties;
- Lack of adequate documentation of journal entry transactions;
- Lack of adequate controls in the accounting software used by Great
Western; and
- Lack of formal documentation of filing and record retention procedures.
Great Western is addressing these weaknesses in its financial controls.
However, if Great Western is unable to remedy these weaknesses, such failure to
do so may have a material adverse effect on Great Western's ability to provide
reliable financial information.
GREAT WESTERN MAY BE UNABLE TO CONDUCT ITS DEVELOPMENT ACTIVITIES ON TERMS
ACCEPTABLE TO IT AND MAY BE REQUIRED TO ABANDON CERTAIN OF ITS DEVELOPMENT
ACTIVITIES
Great Western's growth strategy involves certain inherent risks including
the following:
- Great Western may be required to make material capital expenditures to
develop its residential and recreational land property inventory (Great
Western estimates that the total cash required to complete preparation for
the sale of its residential and recreational land property inventory as of
September 15, 2001 was approximately $6.5 million);
- Planned development may be delayed or abandoned and development and
carrying costs may exceed those anticipated, possibly making the project
uneconomical or unprofitable;
- Great Western may experience a fluctuation in quarterly results due to an
increase or decrease in the number of residential or recreational land
projects subject to percentage of completion accounting that requires net
profit on such projects to be recognized on a pro rata basis as
development is completed;
- The period between acquisition and sale of property may increase and Great
Western may experience delays in bringing inventories to market, resulting
in decreased revenue and increased interest expense and carrying charges;
and
- Inventories may decline in value due to changing market and economic
conditions.
27
In addition, Great Western's construction activities typically are performed by
third-party contractors, and, accordingly, the timing, quality and completion of
such activities cannot be controlled by Great Western. Nevertheless,
construction claims may be asserted against Great Western for construction
defects and such claims may give rise to liabilities. New development
activities, regardless of whether or not they are ultimately successful,
typically require a substantial portion of management's time and attention.
Development activities are also subject to risks relating to:
- The inability to obtain, or delays in obtaining, all necessary zoning,
land-use, building, occupancy and other required governmental permits and
authorizations;
- The ability of Great Western to coordinate construction activities with
the process of obtaining such permits and authorizations; and
- The ability of Great Western to obtain the financing necessary to complete
the necessary acquisition, construction, and/or conversion work at its
projects. In addition, certain states and local laws may impose liability
on property developers with respect to construction defects discovered or
repairs made by future owners of such property.
GREAT WESTERN BEARS THE RISKS ASSOCIATED WITH INCREASES IN INTEREST RATES,
DELINQUENCIES AND DEFAULTS ON THE REPAYMENT OF LOANS BY BUYERS AND EARLIER THAN
ANTICIPATED PREPAYMENT OF LOANS
Great Western offers financing of up to 90% of the purchase price to all
purchasers of its ranch land properties who qualify for such financing. These
loans are collateralized by liens on the underlying property. As noted above,
Great Western requires external sources of liquidity in order to offer financing
to its customers. These loans generally are sold to third parties for
approximately 85% to 100% of the principal balance of eligible loans. Great
Western is required to replace loans that become delinquent or to pay down the
amounts paid against such loans to remain within required ratios. Approximately
$1.2 million of the loans that have been sold are outstanding. To date, Great
Western has not experienced any defaults or delinquencies in connection with its
customer financing activities. As of November 30, 2001, none of the ranch land
receivables that were held by Great Western or by third parties under sales
transactions where Great Western had a recourse liability were more than
30 days past due. Great Western's receivables generally bear interest at a fixed
rate and its borrowings generally bear interest at a variable rate. Therefore
Great Western bears the risk of increases in interest rates.
General economic conditions have an impact on the ability of borrowers to
repay loans. If the real estate market should experience an overall decline in
values such that the outstanding balances of these loans are greater than the
value of the mortgaged properties, the actual rates of delinquencies,
foreclosures and losses could be materially higher. An increase in delinquency
rates or defaults on Great Western's receivables could have a material adverse
effect on Great Western's business, operating results and financial condition.
Great Western may incur substantial costs and delays in connection with its
servicing of receivables, including costs in foreclosing or realizing on its
collateral and additional marketing and sales costs with respect to reacquired
property. Should Great Western reacquire a property it may not be able to sell
the reacquired property at a profit.
All of Great Western's residential lot sales are to corporate customers, all
of which are believed by Great Western to be in the top 25 builders in the city
in which they operate based upon a variety of factors, including volume, credit
worthiness, experience and reputation. Generally, these builders purchase lots
under contracts that require the purchase of a specified minimum number of lots.
The builders often rely upon their lines of credit to purchase the lots. A
market contraction or credit contraction could cause the builders to be unable
to honor their purchase commitments.
28
GREAT WESTERN IS HIGHLY DEPENDENT ON ITS KEY PERSONNEL, INCLUDING ITS PRESIDENT
AND CHIEF EXECUTIVE OFFICER AND ITS BUSINESS PROSPECTS MAY SUFFER IF IT LOSES
ONE OR MORE OF SUCH PERSONNEL
Great Western's success depends to a significant extent upon the experience
and abilities of Great Western's senior management, including the experience and
abilities of its President and Chief Executive Officer, Jay N. Torok. The loss
of the services of Mr. Torok or the loss of one or more other members of senior
management could have a material adverse effect on Great Western and its
business prospects. Great Western has entered into employment agreements with
Mr. Torok and another member of senior management. Great Western's continued
success is also dependent upon its ability to hire, train and retain qualified
marketing, sales, development, acquisition, finance, management and
administrative personnel. Such personnel are in substantial demand and the cost
of attracting or retaining such key personnel could escalate over time.
Therefore, Great Western may not be able to successfully attract and retain such
personnel. See "Great Western's Business--Management."
GREAT WESTERN'S EARNINGS ARE SUBJECT TO VARIABLE QUARTERLY RESULTS
Great Western's earnings may be impacted by, among other things, the timing
of the completion of the acquisition and development of its residential and
recreational land projects, a shortage of ready-for-sale inventory in its key
market areas, inventory write-downs, levels of loan losses, and the potential
impact of adverse weather and other natural disasters at Great Western's
properties. In addition, Great Western is subject to any negative effect from
adverse fluctuations in the market generally, the credit markets or local
employment conditions that negatively impact Great Western's earnings.
THE COST OF COMPLIANCE WITH OR VIOLATION OF, GOVERNMENT REGULATIONS, INCLUDING
ENVIRONMENTAL REGULATIONS, COULD BE SIGNIFICANT TO GREAT WESTERN
Many of Great Western's projects are subject to extensive and complex
federal, state and local regulation, and Great Western is required to comply
with various federal, state and local environmental, zoning, land use, consumer
protection, anti-fraud, labor, usury, truth-in-lending, equal opportunity, land
sales, licensing and other laws and regulations which govern its operations.
Existing or future regulations may have a material adverse impact on Great
Western's operations by, among other things, imposing additional compliance
costs, delaying the period in which projects are brought to market and limiting
the interest rate which Great Western may charge to customers who utilize its
financing. Great Western believes that it is in material compliance with all
applicable laws and regulations to which it is currently subject. However, laws
and regulations applicable to Great Western in any specific jurisdiction may be
revised or other laws or regulations (including without limitation with respect
to tax matters) may be adopted which could increase Great Western's cost of
compliance or prevent Great Western from marketing or selling its residential
and recreational land properties or conducting other operations in such
jurisdictions or otherwise have a material adverse impact on Great Western's
operations. The costs of future compliance may be significant. Any failure of
Great Western to comply with applicable laws or regulations or any increase in
the costs of compliance could have a material adverse effect on Great Western's
business, operating results and financial condition.
GREAT WESTERN OPERATES IN A HIGHLY COMPETITIVE BUSINESS AND MAY NOT BE ABLE TO
COMPETE AS EFFECTIVELY AS SOME OF ITS COMPETITORS
Great Western believes it can effectively compete in its market areas. Great
Western's future ability to locate, develop and sell attractive properties in
the markets in which it wishes to operate or that the entrance of high profile
and well-established operators into Great Western's market areas may have a
material adverse effect on Great Western's operations. With respect to its real
estate development operations, Great Western competes with builders and
developers, and with respect to its finance operations, Great Western competes
with banks, mortgage companies, other financial
29
institutions and government agencies offering financing of real estate, which in
each case may be more firmly established, have greater economic resources, more
depth of management and operate in wider geographic markets.
NATURAL DISASTERS AND UNINSURED LOSS MAY IMPAIR GREAT WESTERN'S ABILITY TO SELL
ITS PROPERTIES
Certain of Great Western's residential and recreational land projects are
located in areas that are susceptible to flooding, fire and violent rain storms.
Great Western's properties could suffer damage as a result of wind, storms,
floods and other natural disasters. Any such damage could impair Great Western's
ability to sell its residential or recreational lots and to collect on
outstanding notes receivable and adversely affect Great Western's business,
operating results and financial condition.
There are certain types of losses that are not generally insured because
they are either uninsurable or not economically feasible to insure and for which
Great Western does not have insurance coverage. Should an uninsured loss or a
loss in excess of insured limits occur, Great Western could lose a significant
percentage of its investment in any improvements at a particular project site,
particularly at its residential development projects.
POSSIBLE ENVIRONMENTAL LIABILITIES MAY IMPAIR THE VALUE OR SALABILITY OF GREAT
WESTERN'S PROPERTIES
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner, manager or operator of real property may be liable
for the costs of removal or remediation of certain hazardous or toxic substances
located on or in, or emanating from, such property, as well as related costs of
investigation and property damage. Such laws often impose liability without
regard to whether the owner, manager or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances. Under the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, a lender may be liable either to the government or to private parties
for cleanup costs on property securing a loan, even if the lender does not cause
or contribute to the contamination. Certain states impose a statutory lien for
associated costs on property that is the subject of a cleanup action by the
state on account of hazardous wastes or hazardous substances released or
disposed of on the property. Such a lien will generally have priority over all
subsequent liens on the property and, in certain of these states, will have
priority over prior recorded liens including the lien of a mortgage or deed of
trust. In addition, under federal environmental legislation and possibly under
state law in a number of states, a secured party which takes a deed in lieu of
foreclosure or acquires a mortgaged property at a foreclosure sale or otherwise
is deemed an "owner" or "operator" of the property and may be liable for the
full costs of cleaning up a contaminated site. Such costs could be substantial
and are not limited to the value of property. Great Western believes that it is
in compliance in all material respects with all federal, state and local laws,
ordinances and regulations regarding hazardous or toxic substances.
RISK FACTORS RELATING TO QUEPASA
QUEPASA HAS INCURRED SUBSTANTIAL OPERATING LOSSES AND HAS RECEIVED A "GOING
CONCERN" AUDIT OPINION
quepasa's consolidated financial statements as of December 31, 2000 have
been prepared on the assumption that it will continue as a going concern. KPMG
LLP, quepasa's independent accountant, has issued a report dated May 8, 2001
(except as to the second paragraph of Note 10(a) and Note 16 to the consolidated
financial statements, which are dated as of August 6, 2001) stating that quepasa
has suffered recurring losses from operations, has an accumulated deficit, has
not been able to successfully execute its business plan, and is considering
liquidating the company, all of which raise substantial doubt about quepasa's
ability to continue as a going concern.
30
FAILURE TO COMPLETE THE MERGER COULD HAVE SUBSTANTIAL CONSEQUENCES TO QUEPASA
quepasa's merger with Great Western can only be completed if quepasa and
Great Western meet all the closing conditions set forth in the merger agreement,
including, but not limited to, approval by quepasa's shareholders, as well as
completion of required filings with the Securities and Exchange Commission.
quepasa and Great Western may not be able to meet all the closing conditions set
forth in the merger agreement. Regardless of whether an actual merger is
consummated, quepasa has incurred and will continue to incur significant
expenses negotiating and executing the merger agreement and attempting to comply
with all the closing conditions. In light of quepasa's limited cash reserves and
negative operating cash flow, if the merger fails to be completed quepasa may
have no option other than to liquidate.
QUEPASA HAS FAILED TO EXECUTE ITS BUSINESS PLAN, IS NOT CURRENTLY GENERATING NEW
REVENUE AND EXPECTS FUTURE LOSSES
quepasa has never been profitable and has failed to execute its business
plan or develop a revenue stream. quepasa has incurred losses and experienced
negative operating cash flow for each month since its formation. As of
September 30, 2001, quepasa had an accumulated deficit of approximately
$99.6 million. quepasa's operating history and the general downturn of the
Internet market in which it operates its business makes predictions of quepasa's
future results of operations difficult or impossible. In addition, because
quepasa elected to substantially reduce its operations and terminate most of its
employees, it is not currently generating any new revenue, nor does it have
employees, equipment, or any plan in place which would allow it to begin
generating any new revenue in the foreseeable future. The limited revenue
quepasa does have will not cover its expenses in the foreseeable future and
quepasa does not believe it will be able to raise additional capital or debt
financing. As a result, quepasa will continue to incur significant losses and
eventually may be required to liquidate if its proposed merger is not
consummated.
QUEPASA HAS SUBSTANTIALLY REDUCED ITS OPERATIONS AND TERMINATED MOST OF ITS
EMPLOYEES
During the period from December 31, 2000 through March 31, 2001 quepasa
substantially reduced the extent and scope of its operations. In order to
conserve cash and limit the services and content it provides, quepasa terminated
most of its strategic relationships with third-party content and service
providers, suspended operations of the eTrato.com and credito.com websites,
outsourced the hosting and administration of the quepasa.com website and sold
substantially all of its furniture, computer and server equipment and office
equipment. quepasa discontinued the use of its banner advertising software and
sought a third-party outsourcer for its banner advertising sales and service,
but has been unsuccessful in retaining such a third-party outsourcer. There are
no current negotiations taking place with any potential outsourcers at this time
and the prospect of obtaining future revenue from this kind of arrangement in
the near future is doubtful. In addition, quepasa reduced its employee count
from 20 to 3 professionals, as compared to 104 professionals as of March 31,
2000. As a result of these events, quepasa is currently receiving no new revenue
from its website operations.
COMPETITION FOR INTERNET USERS MAY LIMIT TRAFFIC ON, AND THE VALUE OF, QUEPASA'S
WEBSITE
The market for Internet products and services and the market for Internet
advertising and electronic commerce arrangements are extremely competitive, and
quepasa expects that competition will continue to intensify for the limited
number of customers in its market. There are many companies that provide
websites and online destinations targeted to Spanish-language Internet users.
Competition for visitors and advertisers is intense and is expected to increase
significantly in the future because there are no substantial barriers to entry
in quepasa's market. quepasa believes that the principal competitive factors in
these markets are name recognition, distribution arrangements, functionality,
performance, ease of use, the number of services and features provided and the
quality of support.
31
quepasa's primary competitors are other companies providing portal or other
online services, especially to Spanish-language Internet users such as
StarMedia, Terra Lycos, El Sitio, Yahoo! Espanol, America Online Latin America,
MSN and Univision online. Most of quepasa's competitors, as well as a number of
potential new competitors, have significantly greater financial, technical and
marketing resources than quepasa. quepasa's competitors may offer Internet
products and services that are superior to quepasa's or that achieve greater
market acceptance.
QUEPASA WILL BE ADVERSELY AFFECTED IF THE INTERNET DOES NOT BECOME WIDELY
ACCEPTED AS A MEDIUM FOR ADVERTISING
For its website to have value, quepasa must be able to generate revenue from
the sale of advertising. Many advertisers have not devoted a substantial portion
of their advertising expenditures to web-based advertising, and may not find
web-based advertising to be effective for promoting their products and services
as compared to traditional print and broadcast media.
No standards have yet been widely accepted for the measurement of the
effectiveness of web-based advertising. Such standards may not be developed or
adopted sufficiently to sustain web-based advertising as a significant
advertising medium. Similarly banner advertising, the predominant revenue
producing mode of advertising currently used on the web, may be accepted as an
effective advertising medium. Software programs are available that limit or
remove advertisements from an Internet user's desktop. This software, if
generally adopted by users, may materially and adversely affect web-based
advertising and the value of quepasa's website.
SYSTEM FAILURE COULD DISRUPT QUEPASA'S WEBSITE OPERATIONS
quepasa may, from time to time, experience interruptions in the transmission
of its website due to several factors including hardware and operating system
failures. Because the value of quepasa's website depends on the number of users
of its network, quepasa will be adversely affected if it experience frequent or
long system delays or interruptions. If delays or interruptions continue to
occur, quepasa's users could perceive quepasa's network to be unreliable,
traffic on its website could deteriorate and its brand could be adversely
affected. Any failure on quepasa's part to minimize or prevent capacity
constraints or system interruptions could have an adverse effect on quepasa's
brand.
QUEPASA'S WEBSITE MAY BE LIMITED BY GOVERNMENTAL REGULATION
Government regulations have not materially restricted use of the Internet in
quepasa's markets to date. However, the legal and regulatory environment related
to the Internet remains relatively undeveloped and may change. New laws and
regulations could be adopted, and existing laws and regulations could be applied
to the Internet and, in particular, to e-commerce. In addition, new laws and
regulations may be adopted with respect to the Internet covering, among other
things, sales and other taxes, user privacy, pricing controls, characteristics
and quality of products and services, consumer protection, cross-border
commerce, libel and defamation, intellectual property matters and other claims
based on the nature and content of Internet materials. Any laws or regulations
adopted in the future affecting the Internet could subject quepasa to
substantial liability. Such laws or regulations could also adversely affect the
growth of the Internet generally, and decrease the acceptance of the Internet as
a communications and commercial medium. In addition, the growing use of the
Internet has burdened the existing telecommunications infrastructure. Areas with
high Internet use relative to the existing telecommunications structure have
experienced interruptions in phone service leading local telephone carriers to
petition regulators to govern Internet service providers and impose access fees
on them. Such regulations, if adopted in the U.S. or other places, could
increase significantly the costs of communicating over the Internet, which could
in turn decrease the value of quepasa's website. The adoption of various
proposals to impose additional taxes on the sale of goods and services through
the Internet could also reduce the demand for web-based commerce.
32
QUEPASA MAY FACE LIABILITY FOR INFORMATION CONTENT AND COMMERCE-RELATED
ACTIVITIES
Because materials may be downloaded by the services that quepasa operates or
facilitates and the materials may subsequently be distributed to others, quepasa
could face claims for errors, defamation, negligence, or copyright or trademark
infringement based on the nature and content of such materials. Even to the
extent that claims made against quepasa do not result in liability, quepasa may
incur substantial costs in investigating and defending such claims.
Although quepasa carries general liability insurance, its insurance may not
cover all potential claims to which it is exposed or may not be adequate to
indemnify quepasa for all liabilities that may be imposed. Any imposition of
liability that is not covered by insurance or is in excess of insurance coverage
could have a material adverse effect on quepasa's financial condition, results
of operations and liquidity. In addition, the increased attention focused on
liability issues as a result of these lawsuits and legislative proposals could
impact the overall growth of Internet use.
QUEPASA'S STOCK PRICE IS HIGHLY VOLATILE
In the past, quepasa's common stock has traded at volatile prices. quepasa
believes that the market prices of its common stock will continue to be subject
to significant fluctuations due to various factors and events that may or may
not be related to quepasa's performance. quepasa's common stock is no longer
traded on the Nasdaq National Market but is traded on the Pink Sheets. This may
make it more difficult to buy or sell quepasa common stock. In addition,
quepasa's shareholders could find it difficult or impossible to sell their stock
or to determine the value of their stock.
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus and the information incorporated by
reference may include "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Each of
quepasa and Great Western intends the forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements in these sections.
Great Western's operating plans for quepasa following the merger, and the
outcome of any contingencies are forward-looking statements. These statements
can sometimes be identified by the use of forward-looking words such as "may,"
"believe," "plan," "will," "anticipate," "estimate," "expect," "intend" and
other phrases of similar meaning. Known and unknown risks, uncertainties and
other factors could cause the actual results to differ materially from those
contemplated by the statements. The forward-looking information is based on
various factors and was derived using numerous assumptions.
Although each of quepasa and Great Western believes that its expectations
expressed in these forward-looking statements are reasonable, neither can
promise that its expectations will turn out to be correct. The actual results of
either corporation could be materially different from these expectations,
including, without limitations, the possibility that the merger may not be
consummated, risks associated with real estate development, and those factors
set forth in quepasa's documents filed with the Securities and Exchange
Commission.
This list is intended to identify some of the principal factors that could
cause actual results to differ materially from those described in the
forward-looking statements included elsewhere in this proxy
statement/prospectus. These factors are not intended to represent a complete
list of all risks and uncertainties inherent in the businesses conducted by
quepasa and Great Western, and should be read in conjunction with the more
detailed cautionary statements included in this proxy statement/prospectus under
the caption "Risk Factors."
The provisions of Section 27A of the Securities Act and Section 21E of the
Exchange Act apply only to forward looking statements made by an issuer who at
the time that the statement is made is a reporting company. Great Western will
not be a reporting company until the merger is completed.
33
THE QUEPASA ANNUAL MEETING
TIME, DATE, PLACE AND RECORD DATE
quepasa's annual meeting of shareholders will be held on February 28, 2002,
at Glen Eagles, 3700 North Carson Street, Carson City, Nevada, commencing at
10:00 a.m. local time. Holders of record of quepasa's common stock on the close
of business on January 7, 2002, are entitled to notice of and to vote at the
annual meeting. On the record date, quepasa had 17,163,291 shares of common
stock outstanding and entitled to vote.
VOTING AT THE ANNUAL MEETING
Each shareholder on the record date is entitled to cast one vote per share,
exercisable in person or by a properly executed proxy at the meeting.
A quorum is necessary to hold a vote on the proposals presented at the
quepasa annual meeting. The presence in person or by proxy of the holders of
record of a majority of the voting power of the outstanding shares of quepasa
voting stock is necessary for there to be a quorum for purposes of voting on the
merger agreement.
"Abstentions" and "broker non-votes" will be counted as present for purposes
of determining whether there is a quorum for the transaction of business. An
abstention is a vote that is withheld by a shareholder who is present and
entitled to vote at the meeting. A broker non-vote occurs when shares held by a
broker for a customer are not voted because the broker does not receive
instructions from the customer or because the broker does not have discretionary
voting power with respect to the proposal under considerations.
Once a quorum is present for purposes of the quepasa annual meeting, the
affirmative vote of a majority of the votes present at the meeting is required
to approve the merger agreement, the reverse stock split and the authorization
for the board of directors of quepasa to pursue the liquidation and dissolution
of quepasa in the event the merger is not consummated and, if necessary, the
affirmative vote by a plurality of the shares present and entitled to vote at
the meeting is required to elect directors. Abstentions and broker non-votes
will have the same effect as votes against the approval of the merger agreement,
the reverse stock split and the authorization for the board of directors of
quepasa to pursue the liquidation and dissolution of quepasa in the event the
merger is not consummated.
quepasa will appoint one or more inspectors, who may be employees of
quepasa, to determine, among other things, the number of shares of quepasa
voting stock represented at the annual meeting and the validity of the proxies
submitted for voting at the meeting. quepasa has retained Corporate Stock
Transfer, Inc. as its transfer agent and as proxy tabulator to assist the
inspectors in the performance of their duties. Corporate Stock Transfer can be
reached at (303) 282-4800, facsimile no. (303) 777-3094, Attention: Carylyn
Bell.
PROXIES
All shares of common stock represented at the meeting by properly executed
proxies received prior to or at the meeting (or any adjournment or postponement
thereof), and not duly and timely revoked, will be voted at the meeting in
accordance with the choices marked by the shareholders. If no instructions are
indicated, or if the proxy is left blank as to choice, the shares will be voted
for approval of each of the proposals.
In the event that there is a motion to adjourn or postpone the annual
meeting to another time or place (including for the purpose of soliciting
additional votes in favor of the approval of the merger agreement), then
(a) proxies of holders of quepasa voting stock who vote in favor of approval of
the
34
merger agreement and proxies of holders of quepasa voting stock that contain no
voting instructions will be voted in favor of the motion to adjourn or postpone
the annual meeting, (b) proxies of holders of quepasa voting stock who vote
against the approval of the merger agreement will be voted against the motion to
adjourn or postpone the annual meeting, and (c) proxies of holders of quepasa
voting stock who abstain from voting on the approval of the merger agreement
will abstain on the vote on adjournment or postponement, which will have no
effect on a vote regarding adjournment or postponement.
The board of directors of quepasa is not aware of any matters other than the
proxy proposals to be presented at the meeting. If other matters properly come
before the meeting, the persons designated in the proxy intend to vote the
shares represented thereby in accordance with their best judgment.
Any proxy may be revoked by the person giving it at any time before it is
voted. Proxies may be revoked by submitting a written revocation to the
Corporate Secretary of quepasa, by returning a subsequently dated proxy card to
the proxy tabulator or to the Corporate Secretary of quepasa, or by voting in
person at the annual meeting. Attendance at the annual meeting will not in and
of itself revoke a proxy card.
The proxies being solicited hereby are being solicited by quepasa's board of
directors. The cost of soliciting proxies in the enclosed form will be borne by
quepasa. quepasa has retained Morrow & Co., Inc., 445 Park Avenue, New York, NY
10022, to aid in its solicitation. For these services, quepasa will pay
Morrow & Co. a base fee of $7,500, plus $5.00 per shareholder solicited and any
out of pocket disbursements and expenses incurred by Morrow & Co. on quepasa's
behalf. Officers and employees of quepasa and Great Western may, but without
compensation other than their regular compensation, solicit proxies by further
mailing or personal conversations, or by telephone, facsimile or email. quepasa
will, upon request, reimburse brokerage firms and others for their reasonable
expenses in forwarding solicitation material to the beneficial owners of stock.
quepasa will also make arrangements with brokerage houses and other custodians,
nominees and fiduciaries to forward solicitation materials to the beneficial
owners of the shares held of record by such persons. quepasa may reimburse such
persons for reasonable out-of-pocket expenses they incur in doing so.
PROPOSAL 1. ELECTION OF DIRECTORS
The board of directors of quepasa currently consists of five directors. The
term of each director expires at the annual meeting. The board of directors of
quepasa proposes that the five nominees described below, all of whom are
currently serving as directors, be elected for a term of one year and until
their successors are duly elected and qualified. The directors elected at the
annual meeting will serve as members of the quepasa board of directors
immediately following the election. If the merger is approved, the directors
elected at the annual meeting shall resign as of the closing of the merger.
Under the terms of the merger agreement, in the event the merger is approved,
Gary L. Trujillo and L. William Seidman will be appointed to the Great Western
board of directors.
Each of the nominees has consented to serve a one-year term in the event the
merger is not approved. If any of them should become unavailable to serve as a
director, the board of directors may designate a substitute nominee. In that
case, the persons named as proxies will vote for the substitute nominee
designated by the board of directors.
The directors standing for election are:
GARY L. TRUJILLO. Mr. Trujillo, 40, joined quepasa in April 1999 as
President and a director and was appointed Chairman, Chief Executive Officer and
President in June 1999. In October 2001, Mr. Trujillo agreed to terminate his
employment agreement with quepasa. Mr. Trujillo remains Chairman and a director
of quepasa. In 1990, Mr. Trujillo founded Southwest Harvard Group, a
Hispanic-owned and operated business consulting firm and served as its Chief
Executive Officer and
35
President from inception until April 1999. From April 1999 until the present, he
has served as Chairman of Southwest Harvard Group. Mr. Trujillo is a director of
Southwest Harvard Group, Blue Cross and Blue Shield of Arizona, Wells Fargo &
Co., Arizona (Advisory Board), The Arizona Community Foundation and South
Mountain Community College ACE Entrepreneur Program. Mr. Trujillo is a member of
the Greater Phoenix Leadership and The Young Presidents Organization. In 1998,
Mr. Trujillo received the Individual Business Minority Advocate Award and was
voted by Arizona Business Journal as one of the most influential members of the
Arizona Hispanic business community. Mr. Trujillo started his career as an
investment banker with Salomon Brothers, Inc. in New York City. Mr. Trujillo
holds a B.S. degree in Accounting from Arizona State University and an M.B.A.
degree from Harvard Business School.
L. WILLIAM SEIDMAN. Mr. Seidman, 80, joined quepasa as a director in
June 1999. He is the Chief Business Commentator on cable network's CNBC-TV, the
publisher of Bank Director magazine and the founder of Board Member magazine.
Since 1991, he has consulted with numerous organizations, including Deposit
Corporation of Japan, Tiger Management, J.P. Morgan, Inc., The World Bank, BDO
Seidman, Nippon Credit Bank of Japan and The Capital Group. He is currently a
member of the Board of Directors of Fiserv. Inc., Intelidata, Inc., and Clark
Bardes. From 1985 to 1991, he served as the fourteenth chairman of the Federal
Deposit Insurance Corporation (FDIC). Mr. Seidman became the first chairman of
the Resolution Trust Corporation in 1989 and served as such until 1991. While at
the Resolution Trust Corporation, he supervised the creation of an 8,000 person
agency handling over $500 billion in assets from failed Savings and Loans. Prior
to serving as Chairman of the FDIC, he was Dean of the College of Business at
Arizona State University, Tempe, Arizona, one of America's largest business
colleges.
Mr. Seidman served under President Gerald Ford as Assistant for Economic
Affairs from 1974 to 1977 and under President Ronald Reagan as co-chair of the
White House Conference on Productivity from 1983 to 1984. Mr. Seidman was
Vice-Chairman and Chief Financial Officer of Phelps Dodge Corporation from 1977
to 1982. He was a director of Phelps Dodge Corporation, The Conference Board and
United Bancorp of Arizona. In the 1960s, Mr. Seidman founded Sumercom, a TV,
radio and newspaper company, where he was Chief Executive Officer until 1974,
when the company was sold. Mr. Seidman was managing partner of Seidman and
Seidman, certified public accountants (now BDO Seidman), from 1968 to 1974.
Under his management, the firm expanded from a small family enterprise to become
one of the largest public accounting firms in the nation. Mr. Seidman also
served as chairman (1970) and director of the Detroit Bank of the Federal
Reserve Bank of Chicago from 1966 to 1970. Mr. Seidman holds an A.B. degree from
Dartmouth (Phi Beta Kappa) and an LL.B. degree from Harvard Law School, and is
an honors graduate with an MBA degree from the University of Michigan.
JERRY J. COLANGELO. Mr. Colangelo, 61, joined quepasa as a director in
April 1999. He has served as the President and Chief Executive Officer of the
Phoenix Suns professional basketball team since 1987 and was the Suns' General
Manager from 1968 to 1987. He has also served as Chief Financial Officer and
Managing General Partner of the Arizona Diamondbacks professional baseball team
since 1995. Mr. Colangelo is a director of US West, Inc. and Stratford American
Corporation, a holding company for real estate property.
LOUIS OLIVAS. Mr. Olivas, 54, joined quepasa as a director in June 1999. He
has been employed by Arizona State University since 1979, first as Arizona
State's assistant director for the Center for Executive Development and then as
the Center's director from 1982 to 1986. He is a tenured associate professor in
the Management Department, College of Business. He has published nearly 50
articles in the fields of personnel, management, training and small business
operations. Dr. Olivas has served on numerous national boards and commissions,
including Chairman of the Hispanic Caucus and the American Association for
Higher Education and Dean of the National Hispanic Corporate Council Institute.
For the past eleven years, Dr. Olivas has also served as the assistant vice
president for
36
academic affairs at Arizona State. Previously he served as the director of
Executive Development and Education for Western Savings and Loan Association,
director of Employee Development for the City of Phoenix, and as a consultant,
instructor and developer of various executive development programs involving
Fortune 500 companies.
JOSE MARIA FIGUERES. Mr. Figueres, 44, joined quepasa as a director in
May 1999. He served as the elected President of Costa Rica from 1994 to 1998,
and has served as Managing Director of the Centre for Global Agenda at the World
Economic Forum since August 2000. Between 1998 and August 2000, he served as
president of the Costa Rican Foundation for Sustainable Development. He also
serves in executive positions with numerous charities in Costa Rica and
elsewhere. Mr. Figueres studied industrial engineering at the United States
Military Academy at West Point and earned a Masters degree in Public
Administration from Harvard University.
The quepasa board of directors recommends the election of these individuals
to the quepasa board of directors. The nominees must be elected by a plurality
of the shares of quepasa common stock present and entitled to vote at the annual
meeting.
PROPOSAL 2. APPROVAL OF THE MERGER
The following information describes the material aspects of the merger and
the merger agreement. This description does not purport to be complete and is
qualified in its entirety by reference to the exhibits hereto, including the
merger agreement, which is attached to this proxy statement/prospectus as
Appendix A and is incorporated herein by reference. You are urged to read
Appendix A in its entirety.
BACKGROUND OF AND REASONS FOR THE MERGER
quepasa's initial public offering closed in June 1999. quepasa's business
plan at that time required substantial additional capital. In early 2000, when
investment into the capital markets and the Internet sector in particular were
beginning to decline sharply, quepasa's board of directors directed quepasa's
management to begin reducing spending in order to ensure the longevity of the
company. quepasa believes that it was one of the first Internet sector companies
to proactively cut expenses at this early stage of market decline. As a result
of this directive, in March 2000 management proposed a revised budget for the
year 2000 that reduced operating expenses by approximately 45%. quepasa's board
also directed management to evaluate all alternatives available to bring the
highest value to the shareholders.
Management developed a plan for employee layoffs in stages, and in
May 2000, one-third of quepasa's 101 employees (already reduced from 110 earlier
in 2000) were terminated. During the period from May through December 2000,
quepasa continued to reduce cash operating expenses.
Also in May 2000, quepasa announced that Friedman, Billings had been
retained to seek strategic alternatives for the company, including a sale of
part or substantially all of quepasa's business. Friedman, Billings made a
detailed presentation to the board of directors at its May 4, 2000 meeting. The
presentation included potential parties for a merger, acquisition of quepasa or
significant investment in quepasa.
Also in May, Friedman, Billings completed a confidential memorandum that
described quepasa and each of its subsidiaries. Friedman, Billings immediately
began actively contacting companies about a merger or sale transaction, and the
memorandum was distributed to many of the companies expressing an interest in a
transaction. Friedman, Billings had discussions with over 75 companies. These
companies ranged from very large, publicly-traded and non-publicly traded
diversified companies to small, privately-held, start-up companies. Friedman,
Billings contacted numerous technology companies, including: large internet
service providers and content providers and companies that competed against
quepasa in the Hispanic-focused internet portal sector. Other large companies
that
37
were contacted included: diversified media companies, print media companies,
radio media companies, Spanish-speaking television companies and
English-speaking television companies, entertainment companies, beverage
companies, consumer products companies, fast food conglomerates, automobile
manufacturers and their captive finance companies, and domestic and
international bank holding companies. Friedman, Billings contacted companies in
the United States, South America, Europe and Asia.
During the first two weeks of May 2000, Friedman, Billings met with four of
the parties that expressed interest in a transaction. Company A was a mature,
private company in the Hispanic television broadcast industry. Company A
expressed interest in a transaction, but did not have sufficient cash available
for a cash transaction and did not believe that its shareholders would agree to
a stock transaction. Company B was a Spanish-language website and portal whose
initial public offering was cancelled in early May because of poor market
conditions. Because both quepasa and Company B required additional capital to
continue in business, no viable transaction could be arranged between them.
Company C was a private Hispanic-focused website and portal owned by large
companies with significant assets. Company C was in the process of an initial
public offering at this time. Company C expressed strong interest in a
transaction with quepasa at first; however, it was unable to proceed until its
public offering was completed. Company D was a public Hispanic-focused Internet
media company. Company D also expressed strong interest in a transaction with
quepasa; however its stock price was declining and its financial condition
precluded a transaction with quepasa.
Throughout the summer, Friedman, Billings and quepasa's management met with
many of the companies that had expressed an interest in quepasa. Several of
these companies conducted extensive legal, financial and business due diligence
on quepasa and its subsidiaries. The general decline in stock prices,
particularly in the Internet sector, during the summer of 2000, resulted in an
increasing number of Internet companies seeking a strategic transaction. At the
same time, the uncertainty in the financial markets and the continuing decline
in the market value of Internet companies, led many potential acquirors to defer
acquisition decisions.
In late August, three companies had shown significant interest in acquiring
quepasa. Company C, first approached in May, had continued to express interest
in a transaction. Company E was a public Internet service provider operating on
a national level. Company F was a public telecommunications and media company.
In addition, Company G, a South American online service and Internet service
provider, expressed interest in a transaction in late August.
Company F submitted a draft memorandum of understanding describing the terms
of an acquisition of quepasa by Company F for Company F's stock. quepasa
management met extensively with Company E and Company F. At the end of August,
Company F was the only company to have submitted a transaction proposal in
writing. Company E continued to express interest but was uncertain internally on
the direction of its investment strategy for the U.S. Hispanic community.
quepasa's board authorized management to negotiate the memorandum of
understanding with Company F while Friedman, Billings continued to negotiate
with the other interested companies to determine if any of them would submit a
written transaction proposal.
On September 1, 2000, quepasa's board met to review the status of
negotiations with Companies C, E, F and G. Company G was no longer interested in
pursuing a transaction. While Companies C and E continued to express interest in
a transaction, they were not prepared to make a proposal. Negotiations with
Company F had continued, although the memorandum of understanding had not been
finalized. The proposed transaction was a merger in which case each quepasa
share would be exchanged for shares of Company F's stock with a market value of
$1.30. quepasa's board directed management to continue to negotiate with Company
F and to enter into a definitive merger agreement by September 30, 2000.
38
quepasa and Company F each conducted extensive legal, financial and business
due diligence during September, and a definitive merger agreement was prepared.
Near the end of September, Company F management informed quepasa that it would
not be able to sign the agreement by September 30 because it had not completed
renegotiating a significant portion of its debt, and its board could not approve
the quepasa acquisition until this was completed. On October 27, 2000, Company F
informed quepasa that its board of directors had approved the acquisition of
quepasa at a 30% premium over quepasa's then current share price, with the
acquisition structured as an all stock transaction with a $1.0 million break-up
fee. quepasa and its legal, accounting and financial advisors worked with
Company F's management and advisors to finalize the merger agreement and to
complete their respective due diligence reviews. On November 9, 2000, Company F
informed quepasa that it had decided not to move forward with the transaction,
due in part to Company F's sharply declining stock price.
At the direction of the board, management then began an analysis of
quepasa's liquidation alternatives. On November 15, 2000, quepasa reduced its
staff from 58 to 19 to further reduce the company's operating expenses and
provide additional time to evaluate future opportunities for the business as
alternatives to liquidation. Beginning in September 2000, Friedman, Billings
commenced an independent effort to sell quepasa's three subsidiaries, as Company
F did not want to acquire those businesses. These efforts continued, but did not
result in any proposals.
During the two weeks following Company F's termination of negotiations, two
companies expressed interest in an acquisition of quepasa for the first time.
Company H, a public company with a Hispanic website and portal, submitted a
letter of intent and met for two days with management and Friedman, Billings,
but ultimately chose not to proceed with a transaction. After an initial
meeting, Company I, a public company that owns radio stations in the United
States and two Hispanic websites, did not pursue its interest in quepasa.
On December 27, 2000, quepasa announced in a press release and through its
website that its board had approved the development of a plan of liquidation and
sale of its assets in the event that no strategic transaction could be achieved.
In January 2001, quepasa announced a process whereby bids were to be submitted
by January 30, 2001 for any assets of quepasa. Friedman, Billings assisted in
the solicitation and evaluation of bids. In January and February of 2001,
several parties expressed interest in acquiring quepasa for the first time, one
of which was Great Western.
On February 27, 2001, the board reviewed with management and Friedman,
Billings all of the proposals that had been received. Other than Great Western,
the companies interested in a combination with quepasa were small or
thinly-capitalized private companies that were operating at a loss and had
limited opportunities to raise capital in the current market. After reviewing
the proposals, on February 27, 2001 the board directed management to continue
negotiations with Great Western, as it was considerably more financially sound
than the other interested parties.
Friedman, Billings and quepasa's management and legal counsel met with Great
Western's management and legal counsel over the next several weeks to structure
a transaction, conduct due diligence and begin negotiation of the merger
agreement. Great Western engaged Grant Thornton LLP as its independent auditors.
Because Great Western is a private company whose operations were historically
held in separate limited liability companies, considerable effort was required
to prepare financial statements in accordance with generally accepted accounting
principles and to complete audits of those financial statements. Great Western
also agreed to obtain third-party appraisals of its two ranch properties.
All of quepasa's office furniture and equipment, including its internal
computer and server equipment, were sold in the first quarter of 2001. Also in
the first quarter of 2001, the hosting and administration of the quepasa.com and
realestateespanol.com websites were outsourced. No interest had been expressed
in acquiring the credito.com and eTrato.com websites, and to conserve cash their
39
operations were suspended in the first quarter of 2001. quepasa's workforce was
reduced to three employees and one contractor.
In mid-April, due diligence and negotiation of the merger agreement with
Great Western were substantially completed. Several additional inquiries about
acquiring quepasa were received in March and April, but none of them were
determined to be financially viable. quepasa's board continued to believe that
the Great Western merger was the most favorable transaction for the
shareholders, but did not want to sign the merger agreement until the audited
financial statements and appraisals were delivered by Great Western.
On April 17, 2001, quepasa announced that it had reached an agreement in
principal for the merger. The announcement briefly described the terms of the
transaction and Great Western's business, but did not identify Great Western.
On April 27, 2001, Company J, a privately owned furniture manufacturer and
retail marketer, submitted a proposal for a merger with quepasa. This proposal
required that quepasa have a minimum amount of cash at closing that was several
million dollars higher than could realistically be expected. Company J was
operating at a loss, and the proposal did not show that the combined company
could become profitable without additional equity investment. On June 7, 2001,
Company J informed quepasa that quepasa's minimum cash requirement was
negotiable. On June 21, 2001 Michael Weck, who had become a quepasa director in
March, 2001, resigned as a director because he was acting as a financial advisor
to Company J and wished to avoid any conflicts of interest. In the first week of
July 2001, Friedman, Billings and quepasa management met with Mr. Weck and
representatives of Company J. Company J provided additional financial
information to quepasa on July 17, 2001. Company J proposed a stock merger
whereby quepasa's shareholders would own approximately 40% of the combined
companies. Financial statements provided by Company J showed an operating loss
of $573,000 in the year ended at June 30, 2001 and $1.9 million of accounts
payable on that date. Company J's stockholders equity consisted principally of
$1.3 million of preferred stock held by an insider. Friedman, Billings and
quepasa's counsel informed Company J's representatives that quepasa had
significant concerns about the ultimate profitability of a combination with
Company J, particularly if no additional equity investments were made. Company
J's proposal did not contain any commitment or specific plan for additional
equity financing. Shortly thereafter Mr. Weck informed Friedman, Billings that
he was no longer advising Company J.
On July 21, 2001, Friedman, Billings made detailed presentations of the
transaction negotiated to date with Great Western and Company J's proposal to
quepasa's board. Great Western's audited financial statements for 1999 and 2000
had been delivered to quepasa and the audits were complete for those years. An
extended discussion of the two transactions was held. Following this discussion,
the board approved the merger with Great Western and determined to recommend it
to quepasa's shareholders. The factors considered by quepasa included:
- The need for additional capital in the Company J transaction;
- The additional expense and time required to conduct due diligence and
negotiate a merger agreement with Company J;
- Company J had not conducted due diligence on quepasa yet and could
terminate negotiations with quepasa at any time; and
- quepasa's alternatives if it terminated negotiations with Great Western
and was unable to complete a transaction with Company J.
On August 6, 2001, Great Western and quepasa executed the merger agreement
and publicly announced the agreement to merge the following day.
40
RECOMMENDATION OF QUEPASA'S BOARD OF DIRECTORS
The board of directors of quepasa believes that the merger is in the best
interests of quepasa's shareholders, has unanimously approved the merger
agreement and recommends that quepasa's shareholders vote "FOR" approval of the
merger agreement.
In reaching its conclusions, quepasa's board of directors considered:
- A wide range of alternative transactions and options, none of which were
as attractive as the merger;
- quepasa's current financial position, historical financial performance,
business operations and prospects, which the board of directors believed
could be improved as a result of the merger;
- The terms and conditions of the merger agreement, which were fair to
quepasa and in the best interest of its shareholders;
- The track record and potential for expansion of Great Western's business,
which were favorable;
- The experience and reputation of Great Western and its management and
shareholder, which were impressive and which would be valuable assets to
quepasa following the merger;
- The recommendation of quepasa's management with respect to the merger,
which was based on significant due diligence and was in favor of the
merger;
- The effect of the merger on quepasa's shareholder value, which would be
accretive; and
- The opinion of quepasa's financial advisor that the consideration to be
received by quepasa's shareholders in the merger is fair from a financial
point of view, which provided independent support for the merger.
The quepasa board of directors considered Great Western's lack of history of
operating as a public company and preparing audited financial statements in
accordance with generally accepted accounting principles as potential factors
for not approving the merger. The board concluded that Great Western's
engagement of Grant Thornton as its auditors and quepasa's ability to designate
two of Great Western's directors provides adequate safeguards to address this
lack of experience.
OPINION OF FINANCIAL ADVISOR
Friedman, Billings, Ramsey & Co., Inc. was retained by quepasa in December
1999 to act as its financial advisor in connection with quepasa's potential sale
of all or substantially all of the assets and liabilities or capital of quepasa.
Friedman, Billings delivered its written opinion to quepasa's board of directors
to the effect that as of October 12, 2001, the proposed consideration to be
received by the holders of quepasa common stock pursuant to the merger agreement
was fair, from a financial point of view, to quepasa's shareholders.
The full text of the Friedman, Billings opinion, which sets forth the
assumptions made, procedures followed, matters considered and limits on the
review undertaken, is attached as Appendix B to this proxy statement/prospectus
and is incorporated herein by reference. The description of the Friedman,
Billings opinion set forth herein is qualified in its entirety by reference to
Appendix B. quepasa's shareholders are urged to read the Friedman, Billings
opinion in its entirety. Friedman Billings' opinion is addressed only to
quepasa's board of directors and directed only to the consideration to be
received in the merger by the holders of quepasa's common stock and does not
constitute a recommendation to any shareholder as to how such shareholder should
vote at the annual meeting.
Friedman, Billings is a nationally recognized investment banking firm and
was selected by quepasa based on the firm's reputation and experience in
investment banking in general, its recognized expertise in the valuation of
businesses and because of its familiarity with quepasa. quepasa's board of
directors
41
and management researched and interviewed several investment banking firms
before selecting Friedman, Billings. Friedman, Billings, as part of its
investment banking business, is frequently engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
In connection with rendering its opinion, Friedman, Billings, has among
other things, completed the following tasks: (a) reviewed the merger agreement;
(b) reviewed publicly available information concerning quepasa that it believes
to be relevant to its analysis, including the quepasa annual report on form 10-K
for the fiscal year ended December 31, 1999, as amended on May 18, 2001, and
annual report on form 10-K for the fiscal year ended December 31, 2000, as filed
on September 20 2001; (c) reviewed quepasa's unaudited, quarterly financial
statements contained in quepasa's quarterly reports on form 10-Q for the three
months ended March 31, 2000, June 30, 2000 and September 30, 2000, all as
amended on August 15, 2001,and quarterly reports on form 10-Q for the three
months ended March 31, 2001 and June 30, 2001, as filed on September 21, 2001
and September 24, 2001, respectively; (d) reviewed estimated expenses and cash
flow projections through October 31, 2001 prepared by quepasa's managment;
(e) discussed the financial condition, future cash flow position and business
prospects of quepasa with quepasa's management and quepasa's board of directors;
(f) discussed the reasonableness of quepasa's remaining legal obligations with
quepasa's management, the quepasa board of directors and committees of quepasa's
board of directors and, with the board's consent, have relied upon their
conclusion that such expenses are reasonable, including the resolution of
quepasa's leased office space and management contracts; (g) reviewed the trading
history of quepasa's common stock from June 24, 1999 through October 11, 2001
and the trading history of other companies that Friedman, Billings deemed
relevant over the same period; (h) contacted potential merger partners beginning
in May 2000 through July 2001 to discuss the sale of quepasa and reviewed the
results of its efforts to solicit indications of interest from third parties
with respect to a purchase of quepasa with the management of quepasa and the
quepasa board of directors; (i) reviewed a possible liquidation of quepasa,
including the cash that would be distributed to the shareholders in connection
with such liquidation; (j) reviewed and analyzed the merger agreement and the
specific terms of the merger; (k) reviewed appraisals of properties owned by
Great Western conducted by independent appraisal firms and a report by another
independent appraisal firm delivered to quepasa which opines on the completeness
of the appraisals, the reasonableness of the methodology utilized in the
appraisals and the value conclusions outlined in the appraisals, including an
opinion that a value indication in the range of $5.0 million is appropriate for
Great Western's Willow Springs ranch; (l) had discussions with the management of
Great Western and quepasa concerning the business, operations, assets, financial
condition and prospects of Great Western; (m) reviewed audited financial and
operating information with respect to the business, operations and prospects of
Great Western for the fiscal years ended December 31, 1999 and 2000 and the
unaudited financial results for the three and six months ended March 31, 2001
and June 30, 2001, respectively; and (n) performed such other analyses and
reviewed and analyzed such other information as Friedman, Billings deemed
appropriate.
In connection with rendering its opinion, Friedman, Billings assumed and
relied upon, without independent verification, the accuracy and completeness of
all the financial information, analyses and other information reviewed by and
discussed with it, and did not make an independent evaluation or appraisal of
the specific assets, the collateral securing assets or the liabilities of Great
Western or quepasa or any of their subsidiaries, or the collectibility of any
such assets (relying, where relevant, on the analyses and estimates of Great
Western and quepasa). Friedman, Billings also assumed that there has been no
material change in Great Western's or quepasa's assets, financial condition,
results of operations, business or prospects since the date of the last
financial statements noted above.
quepasa provided Friedman, Billings and Great Western with estimated
expenses and cash flow projections through October 31, 2001 to assist Friedman,
Billings with rendering its opinion. The
42
forecasts and projections furnished were prepared by the management of quepasa.
As a matter of policy, quepasa does not publicly disclose internal management
forecasts, projections or estimates of the type furnished to Friedman, Billings
in connection with its analysis of the merger, and such forecasts, projections
and estimates were not prepared with a view towards public disclosure. These
forecasts, projections and estimates were based on numerous variables and
assumptions which are inherently uncertain and which may not be within the
control of management including, without limitation, general economic,
regulatory and competitive conditions. Accordingly, actual results could vary
materially from those set forth in such forecasts, projections and estimates.
Friedman, Billings' opinion was necessarily based upon economic, market,
financial, and other conditions as they existed and could be evaluated as of the
date of its opinion. Events occurring after the date of the opinion could
materially affect the assumptions used in preparing such opinion and Friedman,
Billings assumed no responsibility to update or revise its opinion based upon
events or circumstances occurring after the date of its opinion. Friedman,
Billings was not requested to consider, and its opinion does not in any manner
address, the prices at which quepasa's common stock would trade following either
the announcement or consummation of the merger.
No limitations were imposed on and no instructions were furnished to
Friedman, Billings by the quepasa board with respect to the investigation made
or procedures followed by Friedman, Billings in rendering the opinion. In
connection with rendering its fairness opinion to the quepasa board of
directors, Friedman, Billings performed a variety of financial analyses. The
following is a summary of the material financial analyses performed by Friedman,
Billings, but does not purport to be a complete description of Friedman,
Billings' analyses or presentations to the quepasa board of directors. Friedman,
Billings believes that its analyses must be considered as a whole and that
selecting portions of such analyses and the factors considered therein, without
considering all factors and analyses, could create an incomplete view of the
analyses and the processes underlying the opinion. The preparation of a fairness
opinion is a complex process involving subjective judgments and is not
necessarily susceptible to partial analyses or summary description. Any
estimates contained in Friedman, Billings' analyses are not necessarily
indicative of future results or values, which may be significantly more or less
favorable than such estimates. Estimates of values of companies do not purport
to be appraisals or necessarily reflect the prices at which the companies or
their securities may actually be sold.
PRO FORMA MERGER ANALYSIS.
Friedman, Billings made adjustments to quepasa's June 30, 2001 cash
position, based upon cash flow projections provided by quepasa's management, to
reflect the payoff of all liabilities and obligations between June 30, 2001 and
the date the merger is expected to close. These adjustments had a significant
impact on the equity of quepasa. The resulting book value per share and tangible
book value per share for quepasa was $0.16 and $0.16, respectively. Friedman,
Billings then performed pro forma merger analyses that combined the adjusted
quepasa balance sheet and Great Western's balance sheet at June 30, 2001. Based
on the consideration to be received by the quepasa shareholders, the resulting
pro forma book value per share and tangible book value per share is expected to
be $0.20 and $0.16, respectively. Therefore, the merger is expected to be 25%
accretive to book value per share. Additionally, if the analysis assumes that
the real estate properties owned by Great Western are marked to market value
according to the appraisals plus the suggested adjustment to the Willow Springs
appraisal, the resulting book value per share and tangible book value per share
is expected to be $0.39 and $0.35, respectively, a 243% improvement in book
value per share and a 219% improvement in tangible book value per share. The
actual results achieved by the combined company may vary from the projected
results and such variations may be material.
43
ASSET LIQUIDATION ANALYSIS.
An asset liquidation analysis is most relevant when a company cannot be sold
as a going concern and is likely to be liquidated. In an asset liquidation
analysis, the liquidation value of a company is derived by estimating the value
of the company's assets and assuming their conversion into cash, then deducting
all of the liabilities of the company from the total cash that could be
received, and then adding (or deducting) the net operating profits (or losses)
incurred by the company through the liquidation process. Liquidation value can
be determined by assuming either an orderly liquidation or a more rapid, forced
liquidation of the business. Ordinarily, the latter approach results in a lower
value.
quepasa management and Friedman, Billings conducted an analysis of the
liquidation value of quepasa and the proceeds which could be distributed to the
shareholders. Based upon this analysis and the estimated expenses and cash flow
projections through October 31, 2001 prepared by quepasa management,
approximately $2.5 million or $0.15 per share could be distributed to the
shareholders in a liquidation. Friedman, Billings compared this estimate of the
net proceeds available in a liquidation of quepasa's assets to the consideration
to be received by the quepasa shareholders in the merger. The results of the
analyses achieved in the pro forma merger analyses described above showed that
the pro forma book value per share and tangible book value per share should
provide more value to the quepasa shareholders. Accordingly, Friedman, Billings
recommended the merger with Great Western (and not a liquidation) as the best
course of action for the quepasa shareholders.
As described above, Friedman, Billings' opinion was among the many factors
that the quepasa board of directors took into consideration in making its
determination to approve, and to recommend that the shareholders of quepasa
approve, the merger. Consequently, the Friedman, Billings analyses as described
above should not be viewed as determinative of the opinion of the quepasa board
of directors with respect to the value of quepasa or of whether quepasa's board
of directors would have been willing to agree to a different consideration. The
merger consideration to be received by the holders of quepasa common stock
pursuant to the merger agreement and other terms of the merger agreement were
determined through arm's-length negotiations between quepasa and Great Western
and were approved by quepasa's board of directors.
quepasa retained Friedman, Billings to act as independent financial advisor,
to render general advisory services and also to specifically advise quepasa in
connection with its strategic planning and merger and acquisition activities.
For its services as financial advisor to quepasa in connection with the merger,
Friedman, Billings will receive a minimum fee of $150,000, payable in cash plus
a fee based upon the aggregate consideration to be paid to quepasa's
shareholders in the merger. If the aggregate amount of the fee owing to
Friedman, Billings is greater than $350,000, then quepasa shall pay Friedman,
Billings $350,000 in cash, plus warrants to purchase common stock of the
combined company in an amount equal to the fee in excess of $350,000. The number
of shares subject to the warrant shall be determined by dividing the dollar
amount of the fee in excess of $350,000 by quepasa's closing stock price on the
day the merger closes. The exercise price of the warrant shall equal the closing
price of quepasa's stock on the closing day of the merger. There are no resale
restrictions associated with the warrant or the shares underlying the warrant
nor are there registration rights associated with the warrant or the shares
underlying the warrant. The fee payable to Friedman, Billings is only due upon
closing of the merger. quepasa also has agreed to reimburse Friedman, Billings
for its reasonable out-of-pocket expenses in connection with its engagement
regardless of whether the merger closes and to indemnify Friedman, Billings and
its affiliates and their respective partners, directors, officers, employees,
agents and controlling persons against certain expenses and liabilities,
including liabilities under securities laws.
44
REGULATORY APPROVALS
No federal or state regulatory requirements must be complied with or
approval obtained by quepasa or Great Western in connection with the merger
except that the issuance of the securities by Great Western to quepasa's
shareholders will require certain filings pursuant to state and federal
securities laws and the filing of a Form 211 with the OTC Bulletin Board Service
to initiate quotation of Great Western's common stock in the OTC Bulletin Board.
ACCOUNTING TREATMENT
The merger will be accounted for using the purchase method of accounting.
The assets and liabilities of quepasa will be recorded at fair value on the date
of the merger.
MATERIAL TAX CONSEQUENCES TO THE SHAREHOLDERS OF QUEPASA
The merger is intended to qualify as a reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended. If it is so qualified, it will
be a non-taxable transaction to quepasa that will not result in any direct
federal income tax consequences to quepasa shareholders. quepasa has obtained a
tax opinion from its legal counsel, Brownstein Hyatt & Farber, P.C., that the
merger will qualify as a reorganization under Section 368(a) of the Internal
Revenue Code. If the merger fails to qualify as a tax-free reorganization,
quepasa's shareholders will recognize gain or loss equal to the excess of the
fair market value of the Great Western stock they receive in the merger over the
tax basis in their quepasa stock.
The aggregate tax basis of the Great Western common stock received by
quepasa shareholders in the merger will be the same as the aggregate tax basis
of the quepasa stock surrendered in exchange therefor. The holding period of the
Great Western common stock received by each quepasa shareholder in the merger
will include the period for which the quepasa stock surrendered in exchange
therefor was considered to be held, provided that the quepasa stock so
surrendered is held as a capital asset at the time of the merger.
quepasa shareholders who exercise their dissenters' rights should recognize
gain or loss for United States federal income tax purposes with respect to the
cash they receive for their quepasa common stock. The gain or loss will be
measured by the difference between the amount of cash they receive and the tax
basis of their shares of quepasa common stock. This gain or loss will be capital
gain or loss and will be long-term capital gain or loss if the shares of quepasa
common stock have been held for more than one year at the time the merger is
completed. It is possible that for some shareholders, the distribution of cash
may be treated as a dividend taxable as ordinary income.
In the event Great Western reverse splits its common stock following the
merger, fractional shares received by former quepasa shareholders will be
rounded up to the nearest whole share. This shall not result in the recognition
of gain or loss to the former quepasa shareholders. In the aggregate, such
shareholders' basis in the Great Western common stock received in the reverse
stock split will equal the holders' basis in the Great Western common stock
exchanged in the reverse stock split.
Neither quepasa nor Great Western is requesting and will not request a
ruling from the Internal Revenue Service in connection with the merger.
quepasa's shareholders should be aware that the tax opinion rendered by
Brownstein Hyatt & Farber, P.C. with respect to the material tax consequences of
the merger does not bind the Internal Revenue Service or the courts. There is no
assurance that the Internal Revenue Service will not assert a contrary position
regarding the tax consequences of the merger, nor is there any assurance that
the Internal Revenue Service would not prevail in the event the tax consequences
of the merger were litigated. The tax opinion does not address the tax
consequences of the merger to the shareholders of Great Western under applicable
foreign, state or local income tax laws. The tax opinions is subject to certain
assumptions and qualifications, including but not limited to
45
the truth and accuracy of representations made by quepasa and Great Western,
including representations in certain certificates to be delivered to counsel by
the respective management of quepasa and Great Western.
quepasa shareholders should be aware that the Internal Revenue Service may
examine transactions taking place before, contemporaneously with, or after a
reorganization to determine whether reorganization treatment is appropriate, or
in some cases to determine whether shareholders will be taxed on other economic
benefits that are included as part of the overall transaction. Thus, loan
transactions between parties, compensation arrangements and other transactions
could be reviewed by the Internal Revenue Service. Gain could also have to be
recognized by all quepasa shareholders in the merger if any quepasa shareholder
was treated as receiving (directly or indirectly) in the merger consideration
other than Great Western common stock in exchange for the shareholder's stock.
Furthermore, if the Internal Revenue Service were to establish as to some
shareholders that part of the Great Western common stock received in the merger
is severable, resulting in a proportionally increased equity interest being
received by other shareholders, the shareholders whose equity interests were
deemed to be constructively increased may be treated as having received a
taxable stock dividend.
A successful Internal Revenue Service challenge to the reorganization status
of the merger would result in quepasa shareholders recognizing taxable gain or
loss with respect to each share of stock surrendered equal to the difference
between the shareholder's basis in such shares and the fair market value, as of
the effective time of the transaction, of the Great Western common stock
received in exchange therefor. In such event, a shareholder's aggregate basis in
the Great Western common stock received would equal its fair market value, and
the shareholder's holding period for such stock would begin the day after the
transaction is completed.
Pursuant to Section 1.368-3(b) of the Treasury Regulations, the shareholders
of quepasa must file with their income tax returns for the year in which the
transaction is consummated, a statement which provides details pertinent to the
nonrecognition of gain or loss arising from the merger, including the cost or
other basis of stock transferred in the merger and the amount of stock received
in the merger.
The foregoing discussion is intended only as a general summary of the
material provisions of the tax opinion prepared for quepasa and its shareholders
by Brownstein Hyatt & Farber, P.C. and does not purport to be a complete
analysis or listing of all potential tax effects relevant to the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of quepasa's board of directors with
respect to the merger agreement, shareholders should be aware that certain
members of quepasa's current board of directors and management have or may have
interests in the merger that are in addition to or different from the interests
of shareholders generally. The members of quepasa's board of directors were
aware of these interests and considered them, among other matters, in
supporting, approving and adopting the merger agreement and the transactions
contemplated thereby. These interests include the following:
- Gary L. Trujillo, quepasa's Chairman, holds 75,000 unvested stock options
(as of December 15, 2001) that will become fully vested and exercisable as
a result of the merger;
- Robert J. Taylor, quepasa's President and Chief Financial Officer, holds
160,000 unvested stock options (as of December 15, 2001) that will become
fully vested and exercisable as a result of the merger and under
Mr. Taylor's employment agreement payment of the $100,000 bonus payable on
March 8, 2002 will be accelerated to the closing date of the merger. In
addition, following the merger, Mr. Taylor may become a senior officer of
Great Western;
- Upon the closing of the merger, 200,000 unvested stock options with an
exercise price of $0.15 per share held by quepasa's four non-management
directors will become fully vested and
46
exercisable and each director of quepasa (except Mr. Trujillo) will
receive a payment of $50,000 for services rendered as a director of
quepasa;
- Upon the closing of the merger, Mr. Trujillo and L. William Seidman,
members of the quepasa board of directors, will become members of the
board of directors of Great Western;
- Great Western has agreed to grant up to 350,000, 300,000 and 300,000 stock
options to purchase shares of Great Western common stock to
Messrs. Taylor, Trujillo and Seidman, respectively, prior to the closing
of the merger in connection with Mr. Taylor's anticipated employment with,
and Messrs. Trujillo and Seidman's anticipated service on the board of
directors of, Great Western; and
- GWLAR, Inc., a wholly-owned subsidiary of Great Western, has agreed to
indemnify each present quepasa officer, director, employee and agent to
the fullest extent permitted by law with respect to all acts and omissions
arising out of such individual's services to quepasa and its subsidiaries
occurring at or prior to the closing of the merger.
EFFECT OF THE MERGER ON QUEPASA'S SHAREHOLDERS
If the merger is consummated with all shareholders participating, the
shareholders of quepasa will exchange their quepasa common stock for common
stock in Great Western and their ownership will be reduced from 100% of the
outstanding common stock of quepasa to up to 48% of the outstanding common stock
of Great Western (assuming the conversion of all outstanding quepasa stock
options with an exercise price at or below $0.15 per share) depending upon the
amount of cash held by quepasa at the closing of the merger. See "Proposal 2.
Approval of the Merger--Amendment to the Merger Agreement and Loan to Great
Western." Accordingly, Amortibanc Investments, the holder of 100% of Great
Western common stock immediately prior to the merger will hold at least 52% of
Great Western's outstanding common stock following the consummation of the
merger (assuming the conversion of all outstanding quepasa stock options with an
exercise price at or below $0.15 per share) depending upon the amount of cash
held by quepasa at the closing of the merger. See "Proposal 2. Approval of the
Merger--Amendment to the Merger Agreement and Loan to Great Western." In
addition, Amortibanc Investments holds a warrant to purchase 14,827,175 shares
of Great Western common stock that, if exercised, would increase its ownership
interest in Great Western following the merger. Under the terms of the warrant,
commencing at midnight on the closing date of the merger and ending ten years
thereafter, Amortibanc Investments may purchase 4,942,392 shares of Great
Western common stock for $.30 per share, 4,942,392 shares for $.60 per share and
4,942,391 shares for $1.20 per share. Amortibanc Investments may purchase shares
by paying cash for such shares or by surrendering the right to receive a number
of shares having an aggregate market value equal to the purchase price for such
shares.
The following table sets forth shares, options and warrants that will be
outstanding upon closing of the merger, assuming all of quepasa's shareholders
participate in the merger:
HOLDER NUMBER
------ ----------
Shares owned by Amortibanc Investments...................... 18,904,649
Shares owned by former quepasa shareholders................. 17,163,291(1)
Warrant owned by Amortibanc Investments..................... 14,827,125
Options with exercise prices at or below fair market
value..................................................... 3,178,000
Options and warrants with exercise prices at or above $7.00
per share................................................. 2,092,500(2)
------------------------
(1) Does not include 600,000 shares of quepasa common stock held by quepasa as
treasury shares that will be canceled as a result of the merger. Prior to
the merger, these shares may not be considered outstanding shares for any
purpose and do not carry voting rights.
47
(2) Includes 37,500 options with an exercise price of $1.50 per share.
PLANS FOR OPERATION OF QUEPASA FOLLOWING THE MERGER
Following the consummation of the merger, Great Western will continue to
operate quepasa's website. Great Western currently markets to the U.S. Hispanic
community and may market its real estate projects on the website to the U.S.
Hispanic community. Great Western may also use quepasa's subsidiaries' websites,
eTrato.com, credito.com and realestateespanol.com, in its current Wagon Bow and
Willow Springs Ranch projects as well as to integrate them into other new
projects initiated by Great Western. In addition, Great Western intends to sell
advertising and sponsorships on the quepasa.com website.
THE MERGER CLOSING DATE AND EFFECTIVE TIME OF THE MERGER
The closing of the merger will take place at 3:00 P.M., Phoenix time, on a
date to be specified by the parties, which shall be as soon as practicable, but
in no event later than the second business day after the satisfaction or waiver
of all of the conditions set forth in the merger agreement. Subject to the terms
and conditions of the merger agreement, the merger will become effective upon
the filing and acceptance of the Articles of Merger with the Secretary of State
of the State of Nevada.
DEREGISTRATION OF QUEPASA'S COMMON STOCK AND LISTING OF GREAT WESTERN COMMON
STOCK
If the merger is consummated, quepasa's common stock will be delisted from
the Pink Sheets and deregistered under the Securities Exchange Act of 1934, as
amended, and Great Western will apply to have its common stock listed for
trading on the OTC Bulletin Board under the symbol "GWLR."
THE MERGER AGREEMENT
THE MERGER.
The merger agreement provides that, subject to the satisfaction or the
waiver of certain conditions described below, GWLAR, Inc., a newly formed,
wholly-owned subsidiary of Great Western, will be merged with and into quepasa
and quepasa will survive the merger as a wholly-owned subsidiary of Great
Western.
THE MERGER CONSIDERATION.
Upon closing of the merger, each issued share of quepasa common stock (other
than dissenting shares and shares held in quepasa's treasury, which shall
automatically be cancelled at the closing of the merger) shall be converted into
and exchanged solely for the right to receive one share of common stock of Great
Western. In lieu of any such fractional share of Great Western common stock,
Great Western will pay an amount in cash (without interest) rounded to the
nearest whole cent, determined by multiplying the closing sales price of Great
Western common stock on any principal exchange or market in which such stock is
traded on the first day of trading thereof following the closing of the merger
by the fractional interest in a share of Great Western common stock to which
such holder would otherwise be entitled.
CONVERSION OF QUEPASA STOCK OPTIONS.
As of December 1, 2001, quepasa had 2,542,500 stock options and warrants
outstanding, of which 400,000 are stock options with an exercise price of $0.15
per share, 37,500 are stock options with an exercise price of $1.50 per share
and 2,105,000 are stock options and warrants with exercise prices between $7.00
per share and $19.80 per share.
Upon closing of the merger, each outstanding option to purchase quepasa
common stock, whether or not then exercisable or vested, will be converted into
an option to purchase common stock of Great
48
Western on substantially the same terms under the 2001 Stock Option Plan of
Great Western. Great Western has agreed to register on Form S-8 or another
appropriate form under the Securities Act of 1933 all Great Western stock
options issued to replace outstanding quepasa stock options with an exercise
price of $0.15 and all shares of Great Western common stock issuable pursuant to
all such Great Western substitute options.
TREATMENT OF QUEPASA WARRANTS.
Upon the closing of the merger, each outstanding warrant to purchase quepasa
common stock will be converted into a warrant to purchase common stock of Great
Western on substantially the same terms.
REPRESENTATIONS AND WARRANTIES.
REPRESENTATIONS AND WARRANTIES OF QUEPASA. The merger agreement contains
various representations and warranties by quepasa that are customary in similar
transactions relating to, among other things (a) Securities and Exchange
Commission filings, (b) corporate authorization to enter into, perform and
consummate the merger agreement, (c) absence of conflicts, (d) financial
statements, (e) absence of certain changes, (f) compliance with laws,
(g) taxes, (h) intellectual property, (i) litigation, (j) consents,
(k) employee benefit plans, (l) brokers, (m) information in disclosure documents
and registration statements, (n) opinion of financial advisor, (o) quepasa's
board of directors recommendation, (p) required shareholder vote, (q) labor
matters, (r) insurance, (s) certain business practices, (t) contracts,
(u) related party transactions, and (v) assets.
REPRESENTATIONS AND WARRANTIES OF GREAT WESTERN AND ITS SUBSIDIARIES. The
merger agreement contains various representations and warranties by Great
Western and its subsidiaries that are customary in similar transactions relating
to, among other things (a) corporate authorization to enter into, perform and
consummate the merger agreement, (b) absence of conflicts, (c) Great Western's
financial statements, (d) absence of certain changes or events, (e) compliance
with laws, (f) taxes, (g) intellectual property, (h) litigation, (i) consents,
(j) employee benefit plans, (k) brokers, (l) information in disclosure documents
and registration statements, (m) labor matters, (n) insurance, (o) certain
business practices, (p) contracts, (q) related party transactions, and
(r) assets.
The representations and warranties described above will not survive beyond
the closing of the merger.
COVENANTS.
COVENANTS OF QUEPASA. quepasa has agreed that, until the closing of the
merger, except as contemplated or permitted by the merger agreement or to the
extent that Great Western shall otherwise consent in writing, quepasa shall
conduct its business and the businesses of its subsidiaries in the ordinary
course as currently conducted and use commercially reasonable efforts to
(a) preserve intact its business organizations, (b) keep available the services
of its officers and employees, and (c) preserve its relationships with
customers, suppliers, governmental authorities and others having business
dealings with it.
In addition, until the closing of the merger, except as contemplated by the
merger agreement or to the extent that Great Western shall otherwise consent in
writing, quepasa has agreed that, except pursuant to existing agreements or
arrangements, neither it nor any of its subsidiaries will:
- Acquire (by merger, consolidation, acquisition of stock or assets, joint
venture or otherwise of a direct or indirect ownership interest or
investment) any corporation, partnership or other business organization or
division thereof, or sell, lease or otherwise dispose of a material amount
of assets (excluding sales of inventory or other assets in the ordinary
course of business) or securities;
49
- Waive, release, grant, or transfer any rights of material value;
- Modify or change in any material respect any material permit;
- Incur, assume or prepay any indebtedness or borrowed money except in the
ordinary course of business, consistent with past practice;
- Assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, continently or otherwise) for any indebtedness for
borrowed money or trade payables of any other person or entity;
- Make any loans, advances or capital contributions to, or investments in,
any other person or entity, except in the ordinary course of business,
consistent with past practice;
- Except as set forth in the budget provided to Great Western and attached
to the merger agreement, authorize any expenditures in excess of $5,000
individually or $15,000 in the aggregate;
- Pledge or otherwise encumber shares of capital stock of quepasa or any of
its subsidiaries;
- Mortgage or pledge any of its material assets, tangible or intangible, or
create or suffer to exist any material lien thereupon;
- Enter into any contract other than in the ordinary course of business
consistent with past practice that would be material to quepasa or any of
its subsidiaries; or
- Amend, modify or waive in any material respects any right under any
material contract.
In addition, until the closing of the merger, except as contemplated by the
merger agreement or to the extent that Great Western shall otherwise consent in
writing, quepasa has agreed that neither it nor any of its subsidiaries will:
- Adopt any change in its amended and restated certificate of incorporation
or bylaws or comparable organizational documents;
- Take any action that would result in any representation and warranty of
quepasa or any of its subsidiaries under the merger agreement becoming
untrue in any material respects as of the closing of the merger;
- Split, combine or reclassify any shares of, declare, set aside or pay any
dividend (including, without limitation, an extraordinary dividend) or
other distribution (whether in cash, stock or property or any combination
thereof) in respect of quepasa common stock or redeem, repurchase or
otherwise acquire or offer to redeem, repurchase, or otherwise acquire any
quepasa common stock;
- Adopt or amend any employee benefit plan or other arrangement for the
benefit and welfare of any director, officer or employee, or increase in
any manner the compensation or fringe benefits of any director, officer or
any class of employees (or support any portion thereof) or pay any benefit
not required by any existing employee benefit plan (including, without
limitation, the granting of stock options or stock appreciation rights or
the removal of existing restrictions in any benefit plans or agreements);
- Revalue in any material respect any of its assets, including writing down
the value of inventory in any material manner or write-off of notes or
accounts receivable in any material manner;
- Pay, discharge or satisfy any material claims, liabilities or obligations
(whether absolute, accrued, asserted or unasserted, contingent or
otherwise) other than the payment, discharge or satisfaction in the
ordinary course of business, consistent with past practices, or as
otherwise required by the terms thereof;
50
- Make any material tax election or settle or compromise any material tax
liability;
- Make any change in accounting methods, principles or practices materially
affecting the reported combined assets, liabilities or results of
operations of quepasa or any of its subsidiaries, except insofar as may
have been required by a change in generally accepted accounting
principles;
- Authorize for issuance, issue, sell, deliver or agree or commit to issue
sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
quepasa common stock or equity equivalents;
- Adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
quepasa or any of its subsidiaries (other than the merger);
- Alter through merger, liquidation, reorganization, restructuring or any
other fashion the corporate structure of ownership of quepasa or any of
its subsidiaries; or
- Agree or commit to do any of the foregoing.
COVENANTS OF GREAT WESTERN AND ITS SUBSIDIARIES. Great Western has agreed
that, until the closing of the merger, except as contemplated or permitted by
the merger agreement or to the extent that quepasa shall otherwise consent in
writing, Great Western shall conduct its business and the businesses of its
subsidiaries in the ordinary course as currently conducted and use commercially
reasonable efforts to:
- Preserve intact its business organizations;
- Keep available the services of its officers and employees; and
- Preserve its relationships with customers, suppliers, governmental
authorities and others having business dealings with it.
In addition, until the closing of the merger, except as contemplated or
permitted by the merger agreement or to the extent that quepasa shall otherwise
consent in writing, Great Western has agreed that, except pursuant to existing
agreements or arrangements, neither it nor any of its subsidiaries will:
- Acquire (by merger, consolidation, acquisition of stock or assets, joint
venture or otherwise of a direct or indirect ownership interest or
investment) any corporation, partnership or other business organization or
division thereof, or sell, lease or otherwise dispose of a material amount
of assets (excluding sales of inventory or other assets in the ordinary
course of business) or securities;
- Waive, release, grant, or transfer any rights of material value;
- Modify or change in any material respect any material permit;
- Incur, assume or prepay any indebtedness for borrowed money except in the
ordinary course of business, consistent with past practice;
- Assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for any indebtedness for
borrowed money or trade payables of any other person or entity;
- Make any loans, advances or capital contributions to, or investments in,
any other person or entity, except in the ordinary course of business,
consistent with past practice;
- Authorize any capital expenditure or expenditures not in the ordinary
course of business that have not been authorized and approved prior to the
date hereof or in the aggregate which individually is in excess of
$100,000 or in excess of $250,000 in the aggregate;
51
- Pledge or otherwise encumber the equity interests of Great Western's
subsidiaries;
- Mortgage or pledge any of its material assets, tangible or intangible, or
create or suffer to exist any material lien thereupon;
- Enter into any contract other than in the ordinary course of business
consistent with past practice that would be material to any of Great
Western and its subsidiaries; or
- Amend, modify or waive in any material respects any right under any
material contract.
Until the closing of the merger, except as contemplated or permitted by the
merger agreement or to the extent that quepasa shall otherwise consent in
writing, Great Western has agreed that neither it nor any of its subsidiaries
will:
- Adopt any change in its articles of formation or operating agreement or
comparable organizational documents;
- Take any action that would result in any representation and warranty of
Great Western and its subsidiaries under the merger agreement becoming
untrue in any material respects as of the closing of the merger;
- Split, combine or reclassify any shares or units of, declare, set aside or
pay any dividend (including, without limitation, an extraordinary
dividend) or other distribution (whether in cash, stock or property or any
combination thereof) in respect of the Great Western common stock or
redeem, repurchase or otherwise acquire or offer to redeem, repurchase, or
otherwise acquire any of the Great Western common stock;
- Adopt or amend any employee benefit plan or other arrangement for the
benefit and welfare of any director, officer or employee, or increase in
any manner the compensation or fringe benefits of any director, officer or
any class of employees (or support any portion thereof) or pay any benefit
not required by any existing employee benefit plan (including, without
limitation, the granting of stock options or stock appreciation rights or
the removal of existing restrictions in any benefit plans or agreements);
- Revalue in any material respect any of its assets, including writing down
the value of inventory in any material manner or write-off of notes or
accounts receivable in any material manner;
- Pay, discharge or satisfy any material claims, liabilities or obligations
(whether absolute, accrued, asserted or unasserted, contingent or
otherwise) other than the payment, discharge or satisfaction in the
ordinary course of business, consistent with past practices, or as
otherwise required by the terms thereof;
- Make any material tax election or settle or compromise any material tax
liability;
- Make any change in accounting methods, principles or practices materially
affecting the reported consolidated assets, liabilities or results of
operations of any of Great Western and its subsidiaries, except insofar as
may have been required by a change in generally accepted accounting
principles;
- Authorize for issuance, issue, sell, deliver or agree or commit to issue
sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
of the Great Western common stock;
- Adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
Great Western or any of its subsidiaries;
- Alter through merger, liquidation, reorganization, restructuring or any
other fashion the corporate structure of ownership of Great Western and
its subsidiaries; or
52
- Agree or commit to do any of the foregoing.
Great Western has agreed that all rights to indemnification, exculpation,
advancement of expenses and the like now existing in favor of any employee,
agent, director or officer of quepasa and its subsidiaries as provided in their
respective charters or by-laws, or in an agreement between an employee, agent,
director or officer of quepasa and its subsidiaries and quepasa or one of its
subsidiaries are contract rights and shall survive the merger. In addition, and
without limiting the foregoing, GWLAR, Inc., a wholly-owned subsidiary of Great
Western, has agreed to indemnify all employees, agents, directors and officers
of quepasa and its subsidiaries to the fullest extent permitted by law with
respect to all acts and omissions arising out of such individuals' services as
officers, directors, employees or agents of quepasa or any of its subsidiaries
or as trustees or fiduciaries of any plan for the benefit of employees, or
otherwise on behalf of, quepasa or any of its subsidiaries, occurring at or
prior to the closing of the merger including, without limitation, the
transactions contemplated by the merger agreement. In the event any employee,
agent, director or officer of quepasa and its subsidiaries is or becomes
involved in any capacity in any action, proceeding or investigation in
connection with any matter, including, without limitation, the transactions
contemplated by the merger agreement, occurring at or prior to, and including,
the closing of the merger, GWLAR, Inc. will pay such person's legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith so long as such party enters into an undertaking with
GWLAR, Inc. to reimburse Great Western, to the extent required by law, for all
amounts advanced if a court of competent jurisdiction shall ultimately
determine, in a judgment which is not subject to appeal or review, that
indemnification of such officer or director is prohibited by law. GWLAR, Inc.
shall pay all expenses, including reasonable attorneys' fees, that may be
incurred by any employee, agent, director or officer of quepasa and its
subsidiaries in enforcing these indemnity and other obligations.
In addition, GWLAR, Inc. has agreed that it shall cause to be maintained in
effect for six years from the closing of the merger the current policies of the
directors' and officers' liability insurance maintained by quepasa; provided
that GWLAR, Inc. may substitute therefor policies of at least the same coverage
containing terms and conditions which are no less advantageous to the
indemnified parties and provided that such substitution shall not result in any
gaps or lapses in coverage with respect to matters occurring prior to the
closing of the merger.
REVERSE STOCK SPLIT.
The merger agreement requires that in addition to the approval of the merger
agreement, quepasa's shareholders also approve the delegation of authority to
the Great Western board of directors to effect a reverse stock split on the
basis of one share for up to 20 shares of Great Western common stock outstanding
at any time prior to or during the 24 month period following the closing of the
merger. The purpose for the proposed reverse stock split is to attempt to
increase the market price of Great Western's common stock following the merger
in order to meet the minimum requirements for listing of Great Western's common
stock on the Nasdaq SmallCap or another securities exchange. Great Western has
no current specific plans to reverse split its common stock and is under no
obligation to do so. Following the merger, Great Western's common stock is
expected to be traded on the OTC Bulletin Board. One of the several requirements
of Nasdaq to move from the OTC Bulletin Board to the Nasdaq SmallCap is a market
price of at least $4.00 per share. Other requirements for listing on the Nasdaq
SmallCap Market include (a) stockholder's equity of $5 million or net income of
$750,000 in the latest fiscal year; (b) public float of at least one million
shares; (c) market value of the public float of at least $5 million; (d) at
least three market makers; (e) at least 300 shareholders holding at least 100
shares each; (f) one year of operating history; and (g) certain corporate
governance provisions.
53
NON-SOLICITATION.
NON-SOLICITATION BY QUEPASA. Unless and until the merger agreement is
terminated in accordance with its terms, quepasa has agreed that it will not,
nor will it authorize or permit any of its subsidiaries, or any executive
officer, director or employee of, or any investment banker, attorney, accountant
or other advisor or representative of, quepasa or any subsidiary of quepasa to:
- Directly or indirectly solicit, initiate or knowingly encourage the
submission of;
- Enter into any agreement providing for; or
- Directly or indirectly participate in any discussions or negotiations
regarding, or furnish to any person any non-public information with
respect to, or take any other action to knowingly facilitate any inquiries
or the making of any proposal that constitutes, or may reasonably be
expected to lead to takeover proposal.
A takeover proposal is defined in the merger agreement as (a) any proposal
or offer for a merger, consolidation, recapitalization or other business
combination involving quepasa, (b) any proposal for the issuance of 35% or more
of the equity securities of quepasa as consideration for the assets or
securities of another person, (c) any proposal or offer to acquire in any
manner, directly or indirectly, 35% or more of the equity securities of quepasa
or any of its subsidiaries or assets that represent 20% or more of the
consolidated total assets of quepasa, or (d) an expression of interest believed
by the board of directors of quepasa in good faith to be a bona fide indication
of a third party's interest in pursuing the making any of the foregoing
proposals, in each case other than the merger.
Notwithstanding the foregoing, quepasa may, in response to an unsolicited
bona fide takeover proposal that did not result from of the foregoing
provisions, which the quepasa board of directors determines, in good faith,
after consultation with its legal counsel and financial advisors, may reasonably
be expected to lead to a superior proposal. A superior proposal is defined in
the merger agreement as a written takeover proposal made by a third party on
terms that the board of directors of quepasa determines in good faith, after
consultation with its financial advisors, to be superior from a financial point
of view to quepasa's shareholders than the merger, taking into account all the
terms and conditions of such proposal and the merger agreement, and to be
reasonably capable of being completed, taking into account all financial, legal
and other aspects of such proposal, including its proposed financing,
(a) furnish information with respect to quepasa and its subsidiaries to the
person or entity making such takeover proposal and its representatives pursuant
to a confidentiality agreement, and (b) participate in discussions or
negotiations with such person or entity and its representatives regarding such
takeover proposal.
quepasa has agreed that its board of directors will not (a) withdraw or
modify in a manner adverse to Great Western, or publicly propose to withdraw or
modify in a manner adverse to Great Western, the approval or recommendation by
its board of directors of the merger agreement and the merger, (b) approve any
letter of intent, agreement in principle, acquisition agreement or similar
agreement providing for any takeover proposal or (c) approve or recommend, or
publicly propose to approve or recommend, any takeover proposal, in each case,
except as set forth in the next succeeding sentence, unless the merger agreement
is terminated pursuant to its terms. If the board of directors of quepasa
determines in good faith, after consultation with outside counsel, that failure
to do so could reasonably be expected to cause its board of directors to violate
its fiduciary duties to quepasa's shareholders, the board of directors of
quepasa may withdraw or modify its approval or recommendation of the merger
agreement and the merger without terminating the merger agreement. quepasa has
agreed that it will, promptly following receipt of any takeover proposal, notify
Great Western of the receipt thereof and any stated material terms (other than
the identity of the person making such takeover proposal). Notwithstanding the
foregoing, quepasa shall not be prohibited from taking and disclosing to its
shareholders a position contemplated by Rule 14e-2(a) of the Securities Exchange
Act of 1934 or from
54
making any required disclosure to quepasa's shareholders if the board of
directors of quepasa determines in good faith, after consultation with outside
counsel, that such disclosure is necessary or advisable to comply with its
obligations under applicable law.
NON-SOLICITATION BY GREAT WESTERN. Unless and until the merger agreement is
terminated in accordance with its terms, Great Western has agreed that it will
not, and will not permit its subsidiaries to, directly or indirectly through any
officer, director, member, manager, employee, agent, affiliate or otherwise,
enter into any agreement, agreement in principle or other commitment (whether or
not legally binding) relating to a competing transaction. A competing
transaction is defined in the merger agreement as any business combination or
recapitalization involving Great Western's business of or any acquisition or
purchase of all or a significant portion of the assets of its business, or any
material equity interest in Great Western's business or any other similar
transaction with respect to Great Western involving any person or entity other
than quepasa or its affiliates, or solicit, initiate or encourage the submission
of any proposal or offer from any person or entity (including quepasa's
officers, partners, employees and agents) relating to any competing transaction,
nor participate in any discussions or negotiations regarding, or furnish to any
other person or entity any information with respect to, or otherwise cooperate
in any way with, or assist or participate in, facilitate or encourage, any
effort or attempt by any other person or entity to effect a competing
transaction. Great Western and its subsidiaries shall immediately cease any and
all contacts, discussions and negotiations with third parties regarding any
competing transaction. Great Western shall, and shall cause its subsidiaries to,
notify quepasa if any proposal regarding any competing transaction (or any
inquiry or contact with any person or entity with respect thereto) is made and
shall advise quepasa of the contents thereof (and, if in written form, provide
quepasa with copies thereof).
CONDITIONS TO CLOSING OF THE MERGER.
QUEPASA'S CLOSING CONDITIONS. The obligations of quepasa to consummate the
merger are subject to the prior satisfaction, or the waiver by quepasa (to the
extent permitted by applicable law), of certain conditions including, among
others, that:
- The shareholders of quepasa shall have approved the merger, the merger
agreement and the transactions contemplated thereby;
- Each of Great Western and its subsidiaries shall have performed in all
material respects all their respective obligations under the merger
agreement;
- The consummation of the merger shall not be restrained, enjoined or
prohibited by any order, judgment, decree or ruling of a court of
competent jurisdiction or any governmental authority entered after the
parties have used reasonable best efforts to prevent such entry and there
shall not have been any statute, rule or regulation enacted, promulgated
or deemed applicable to the merger by any governmental authority which
prevents the consummation of the merger;
- The aggregate value of the real property owned by Great Western and its
subsidiaries, as determined by an appraiser, less any liabilities of Great
Western and its subsidiaries, shall not be less than $10.0 million;
- All representations and warranties of Great Western and its subsidiaries
are true and correct in all material respects as of the closing of the
merger;
- Great Western shall have in effect directors' and officers' liability
insurance with coverage comparable to that maintained by quepasa prior to
the closing of the merger; and
- Great Western shall deliver to quepasa documents demonstrating that all
action necessary to elect and appoint the individuals designated to the
board of directors of Great Western has taken place.
55
quepasa may elect to waive a condition to the closing of the merger if the
quepasa board of directors believes that such a waiver is in the best interests
of the shareholders. In the event of a material change to the terms of the
merger (including the waiver of a material condition to the closing of the
merger), quepasa will re-solicit shareholders' votes.
GREAT WESTERN'S CLOSING CONDITIONS. The obligations of each of Great
Western and its subsidiaries to consummate the merger are subject to the prior
satisfaction, or the waiver by Great Western for itself and on behalf of each of
its subsidiaries (to the extent permitted by applicable law), of certain
conditions including, among others, that:
- All representations and warranties of quepasa are true and correct in all
material respects as of the closing of the merger;
- quepasa shall have performed in all material respects all obligations
required under the merger agreement to be performed by it;
- All consents, waivers, authorizations and approvals required to be filed
or obtained by quepasa prior to the closing of the merger shall have been
duly obtained and all notices or filings required prior to the closing of
the shall have been given or made;
- There shall not be pending any action or proceeding by any governmental
authority or any other person or entity before any court or governmental
authority that has reasonable likelihood of success seeking to (1) make
illegal, to delay or otherwise to restrain or prohibit the consummation of
the merger or seeking to obtain material damages, (2) restrain or prohibit
Great Western's ownership or operation of all or any material portion of
the business or assets of quepasa, or to compel Great Western to dispose
of or hold separate all or any material portion of the business or assets
of quepasa (as the surviving corporation to the merger), (3) impose or
confirm material limitations on the ability of Great Western to control
the business or operations of quepasa (as the surviving corporation to the
merger) or to exercise full rights of ownership of the quepasa common
stock after the closing of the merger, or (4) require divestiture by Great
Western of any material amount of quepasa common stock, and no court,
arbitrator or governmental authority shall have issued any judgment,
order, decree or injunction, and there shall not be any statute, rule or
regulation, that is likely to result in any of the consequences referred
to in the preceding clauses (1) through (4);
- During the period from the date of quepasa's most recent balance sheet
provided to Great Western to the closing date of the merger, there shall
have been no material adverse effect on the financial condition, assets,
profits, liabilities, results of operations or business of quepasa or any
of its subsidiaries;
- Holders of not more than 20% of quepasa common stock outstanding at the
close of business on the record date relating to quepasa's shareholders
meeting, shall have demanded appraisal for such shares in accordance with
Nevada law;
- quepasa and its subsidiaries shall have not less than $2.5 million in cash
on hand (including the $500,000 loan to Great Western) in its bank
accounts net of all liabilities on the closing date of the merger;
- Great Western shall be satisfied in its sole reasonable judgment that all
issues raised by the Securities and Exchange Commission (other than issues
previously addressed in quepasa's informal submission of responses to the
SEC staff prior to August 6, 2001) were resolved with the Securities and
Exchange Commission to Great Western's satisfaction and quepasa shall have
made all filings and any amendments with the Securities and Exchange
Commission required to comply with such resolutions;
56
- Great Western shall have in effect directors' and officers' liability
insurance with coverage comparable to that maintained by quepasa prior to
the closing of the merger; and
- The shareholders of quepasa shall have duly approved the merger, the
merger agreement and the transactions contemplated thereby.
TERMINATION AND ABANDONMENT.
TERMINATION BY MUTUAL CONSENT. The merger agreement may be terminated and
the merger abandoned at any time prior to the closing of the merger by the
mutual written consent of quepasa and Great Western, for itself and on behalf of
its subsidiaries.
TERMINATION BY QUEPASA. The merger agreement may be terminated by quepasa
(a) if there has been a breach by Great Western or its subsidiaries of any of
their representations or warranties, covenants or agreements set forth in the
merger agreement the effect of which has a material adverse effect on the
financial condition, assets, profits, liabilities, results of operations or
business of Great Western and its subsidiaries, which breach is not curable;
provided that if such breach is curable by Great Western and its subsidiaries
through the exercise of their reasonable best efforts and for so long as Great
Western or its subsidiaries continues to exercise such reasonable best efforts,
quepasa shall not have the right to terminate the merger agreement in accordance
with the foregoing, (b) in connection with entering into a definitive agreement
concerning a takeover proposal made by a third party on terms that the board of
directors of quepasa determines in good faith after consultation with its
financial advisors to be superior from a financial point of view to quepasa's
shareholders than the merger, taking into account all the terms and conditions
of such proposal and the merger agreement, and to be reasonably capable of being
completed, taking into account all financial, legal and other aspects of such
proposal, including its proposed financing, (c) if Friedman, Billings withdraws
its fairness opinion at any time after its issuance and prior to the closing of
the merger, and (d) if all of the conditions to closing the merger shall not
have been satisfied or waived on or prior to March 1, 2002; provided, that
quepasa may terminate the merger agreement on December 31, 2001 if Great Western
is in material breach of any representation, warranty or covenant set forth in
the merger agreement as of such date; provided, further, that quepasa shall not
have the right to terminate the merger agreement in accordance with the
foregoing if such conditions have not been satisfied due to quepasa's willful
failure to fulfill or willful breach of any of its obligations under the merger
agreement.
TERMINATION BY GREAT WESTERN. The merger agreement may be terminated by
Great Western, for itself and on behalf of its subsidiaries, if (a) there has
been a breach by quepasa of any of its representation or warranties, or
covenants or agreements set forth in the merger agreement the effect of which
has a material adverse effect on the financial condition, assets, profits,
liabilities, results of operations or business of quepasa or any of its
subsidiaries, which breach is not curable; provided that if such breach is
curable by quepasa through the exercise of its reasonable best efforts and for
so long as quepasa continues to exercise such reasonable best efforts, Great
Western shall not have the right to terminate the merger agreement in accordance
with the foregoing, (b) the board of directors of quepasa (1) fails to recommend
the approval and adoption of the merger agreement and the transactions
contemplated thereby to quepasa's shareholders, or (2) withdraws or amends or
modifies in a manner adverse to Great Western its recommendation or approval in
respect of the merger agreement or the transactions contemplated thereby, (c) a
meeting of quepasa's shareholders (including any adjournment or postponement
thereof) shall have been held and the shareholders of quepasa shall have failed
to approve the merger, (d) quepasa and its subsidiaries have less than
$2.5 million in cash on hand (including the $500,000 loan to Great Western) in
its bank accounts net of all liabilities of any kind or nature whatsoever on the
closing date of the merger, or (e) all of the conditions to closing the merger
have not been satisfied or waived on or prior to March 1, 2002; provided, that
Great Western may terminate the merger agreement on December 31, 2001 if quepasa
is in material breach of any representation, warranty or covenant set forth in
the agreement as of such date; provided, further, that
57
Great Western does not have the right to terminate the merger if such conditions
have not been satisfied due to any of Great Western's, or its subsidiaries'
willful failure to fulfill or willful breach of any of its obligations under the
merger agreement.
MERGER TERMINATION FEE.
In the event that Great Western, for itself and on behalf of its
subsidiaries, terminates the merger agreement because (a) of a breach by quepasa
of any of its representation or warranties, or covenants or agreements set forth
in the merger agreement the effect of which has a material adverse effect on the
financial condition, assets, profits, liabilities, results of operations or
business of quepasa or any of its subsidiaries, (b) the board of directors of
quepasa (1) fails to recommend the approval and adoption of the merger agreement
and the transactions contemplated thereby to quepasa's shareholders, or
(2) withdraws or amends or modifies in a manner adverse to Great Western its
recommendation or approval in respect of the merger agreement or the
transactions contemplated thereby; or (c) a meeting of quepasa's shareholders
(including any adjournment or postponement thereof) was held and the
shareholders of quepasa failed to approve the merger, Great Western shall be
entitled to receive a fee in cash in an amount equal to $500,000 payable in
immediately available funds, the next business day following the termination of
the merger agreement as liquidated damages incurred by Great Western in
connection with the transactions contemplated thereby. Notwithstanding the
foregoing, no termination fee shall be payable by quepasa if Great Western was
in material breach of its representations, warranties or covenants under the
merger agreement at the time of its termination. In addition, in the event that
quepasa terminates this Agreement in connection with entering into a definitive
agreement concerning a takeover proposal made by a third party on terms that the
board of directors of quepasa determines in good faith (after consultation with
its financial advisors) to be superior from a financial point of view to
quepasa's shareholders than the merger with GWLAR, Inc., a wholly-owned
subsidiary of Great Western, taking into account all the terms and conditions of
such proposal and the merger agreement, and to be reasonably capable of being
completed, taking into account all financial, legal and other aspects of such
proposal, including its proposed financing, Great Western shall be entitled to
receive a fee in cash in an amount equal to $500,000 plus the aggregate amount
of fees and expenses (including all attorney's fees, accountants' fees, and
financial advisory fees) incurred by Great Western and its subsidiaries in
connection with the merger, payable in immediately available funds, the next
business day following the termination of the merger agreement as liquidated
damages incurred by Great Western and its subsidiaries in connection with the
transactions contemplated hereby.
In the event that quepasa terminates the merger agreement because Friedman,
Billings withdraws its fairness opinion at any time after its issuance and prior
to the closing of the merger, Great Western shall be entitled to receive a sum
equal to the amount of its actual expenses incurred for attorneys, accountants
and appraisers incurred in connection with the merger agreement and the
transactions contemplated thereby, up to a maximum of $250,000.
In the event that quepasa terminates the merger agreement because of a
breach by Great Western or its subsidiaries of any of its representation or
warranties, or covenants or agreements set forth in the merger agreement the
effect of which has a material adverse effect on the financial condition,
assets, profits, liabilities, results of operations or business of Great Western
or any of its subsidiaries; quepasa shall be entitled to receive a fee in cash
in an amount equal to $500,000, payable in immediately available funds, the next
business day following the termination of the merger agreement as liquidated
damages incurred by quepasa in connection with the transactions contemplated
hereby. Notwithstanding the foregoing, no termination fee shall be payable by
Great Western if quepasa was in material breach of its representations,
warranties or covenants under the merger agreement at the time of its
termination.
58
APPRAISAL RIGHTS
Record holders of quepasa common stock that follow the appropriate
procedures are entitled to dissent from the consummation of the merger and
receive payment of the fair value of their shares under Sections 92A.300 through
92A.500 of the Nevada General Corporation Law. In the event that the holders of
more than 20% of the outstanding common stock of quepasa dissent from the
consummation of the merger, Great Western has the right to terminate the merger
agreement.
The following discussion summarizes the material applicable provisions of
the Nevada dissenters' rights statute. You are urged to read the full text of
the Nevada dissenters' rights statute, which is reprinted in its entirety and
attached as Appendix E to this proxy statement/prospectus. A person having a
beneficial interest in shares of quepasa common stock that are held of record in
the name of another person, such as a bank, broker or other nominee, must act
promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner if such person wishes to perfect any dissenters'
rights such person may have.
This discussion and Appendix E should be reviewed carefully by any
shareholder of quepasa who wishes to exercise statutory dissenters' rights or
who wishes to preserve the right to do so, because failure to strictly comply
with any of the procedural requirements of the Nevada dissenters' rights statute
may result in a termination or waiver of dissenters' rights under the Nevada
dissenters' rights statute.
Under the Nevada dissenters' rights statute, each quepasa shareholder has
the right to dissent from the merger and demand payment of the fair value of his
or her shares of quepasa common stock. If a shareholder elects to dissent, the
shareholder must file with quepasa a written notice of dissent stating that such
shareholder intends to demand payment for his or her shares if the merger is
consummated. Such written notice of dissent must be filed with quepasa before
the vote of quepasa shareholders on the merger. If a shareholder fails to comply
with this notice requirement or votes in favor of the proposed transaction at
the annual meeting, the shareholder will not be entitled to appraisal rights. A
dissenting shareholder's failure to vote against the merger will not constitute
a waiver of the shareholder's right to dissent from the merger. The "fair value"
of the shares as used in the Nevada dissenters' rights statute is determined as
of the day prior to the quepasa shareholder meeting being held to vote upon the
merger.
Within 10 days after the effective date of the merger, Great Western will
give written notice of the effective date of the merger by certified mail to
each shareholder who filed a written notice of dissent, except for any
shareholder who voted for or consented in writing to the merger. The notice must
also state where demand for payment must be sent and where share certificates
shall be deposited, among other information. Within the time period set forth in
the notice, which may not be less than 30 days nor more than 60 days following
the date notice is delivered, the dissenting shareholder must make a written
demand on Great Western for payment of the fair value of his or her shares and
deposit his or her share certificates in accordance with the notice.
Within 30 days after the receipt of demand for the fair value of the
dissenter's shares, Great Western will mail to each dissenting shareholder
quepasa's financial statements as of the end of the last fiscal year ending not
more than 16 months before the date of payment and the latest available interim
financial statements, if any. These financial statements will be accompanied by
payment in cash of fair value of such shareholder's shares as determined by
Great Western, plus accrued interest.
A dissenting shareholder, within 30 days following receipt of payment for
the shares, may send Great Western a notice containing such shareholder's own
estimate of fair value and accrued interest, and demand payment for that amount
less the amount received pursuant to Great Western's payment of fair value to
such shareholder.
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If a demand for payment remains unsettled, Great Western shall petition the
court to determine fair value and accrued interest. If Great Western fails to
commence an action within 60 days following the receipt of the shareholder's
estimate of fair value, Great Western shall pay to the shareholder the amount
demanded by the shareholder in the shareholder's notice containing the
shareholder's estimate of fair value and accrued interest.
All dissenting shareholders, whether residents of Nevada or not, must be
made parties to the action and the court shall render judgment for the fair
value of their shares. Each party must be served with the petition. The judgment
shall include payment for the amount, if any, by which the court finds the fair
value of such shares, plus interest, exceeds the amount already paid. If the
court finds that the demand of any dissenting shareholder for payment was
arbitrary, vexatious or otherwise not in good faith, the court may assess costs,
including reasonable fees of counsel and experts, against such shareholder.
Otherwise the costs and expenses of bringing the appraisal action will be
determined by the court and will be apportioned and assessed as the court may
find equitable upon the parties or any of them. In addition, reasonable fees and
expenses of counsel and experts may be assessed against Great Western if the
court finds that it did not substantially comply with the requirements of the
Nevada dissenters' rights statute or that it acted arbitrarily, vexatiously or
not in good faith.
AMENDMENT TO THE MERGER AGREEMENT AND LOAN TO GREAT WESTERN
On October 11, 2001, quepasa and Great Western amended and restated the
merger agreement in order to extend the termination date of the merger agreement
from December 1, 2001 to March 1, 2002. In addition, the merger agreement was
amended to reflect that in the event that quepasa has less than $2.5 million in
cash on hand (including the $500,000 loan to Great Western discussed below) in
its bank accounts at the closing of the merger and Great Western waives its
right to terminate the merger agreement, at the closing of the merger Great
Western will issue to Amortibanc Investments additional shares of Great Western
common stock. In such event, Great Western may issue to Amortibanc Investments
the number of shares equal to (a) the difference between $2.5 million and the
actual cash on hand (including the $500,000 loan to Great Western) in quepasa's
bank accounts divided by (b) the average closing share price of quepasa common
stock over the 20 business day period ending three business days prior to the
closing.
In connection with the amendment to the merger agreement, quepasa loaned
Great Western $500,000 on October 11, 2001. The loan bears interest at the prime
rate plus 1% and is secured by a pledge of limited liability company interests
owned by an affiliate of Great Western that represent a 25% interest in an
apartment project in Glendale, Arizona. Interest on the loan is payable
quarterly and the first quarter's interest payment was prepaid on October 11,
2001. The loan matures on the earlier of April 11, 2002 or the date the merger
agreement is terminated. Great Western may use the proceeds of the loans for
working capital, investment in new properties, capital expenditures, purchases
of quepasa common stock in open-market or privately negotiated transactions and
payment of merger transaction costs.
60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF GREAT WESTERN
The following discussion of Great Western's financial condition and results
of operations for the years ended December 31, 2000, 1999 and 1998 and for the
nine months ended September 30, 2001 should be read in conjunction with Great
Western's combined financial statements, the notes related thereto, and the
other financial data included in this proxy statement/prospectus.
OVERVIEW
Great Western was formed in 2001 as a result of the contribution of assets
to GWLR, LLC, a wholly-owned subsidiary of Great Western, by Amortibanc. In
exchange for the contribution of assets, which are comprised of membership
interests in special purpose limited liability companies that had been formed to
carry out individual real estate development projects, Great Western issued
18,904,649 shares of common stock and a warrant to purchase 14,827,175 shares of
Great Western common stock to Amortibanc.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000.
LAND AND LOT SALES.
Great Western's land and lot sales decreased $586,000 or 7% to $7.9 million
during the nine-month period ended September 30, 2001 from $8.5 million for the
nine-month period ended September 30, 2000. The decrease was primarily the
result of less bulk land sales of $1.3 million, a decline in residential lot
sales of $514,000 and an increase in ranch land sales of $1.2 million. The
period-to-period decline in residential lot sales is the result of the
contraction in consumer spending that has been experienced nationwide during
2001. Ranch land sales are increasing as the properties are readied for sale and
as selling and promotional activities are expanded.
Great Western's land and lot sales are affected by numerous factors
including mortgage interest rates, demand for new housing starts and the
availability of finished lots within a particular area. Generally, the pace of
sales and the price per lot increase over the life of a project as the
development gains popularity and as contract price escalators become effective.
COST OF LAND AND LOT SALES.
Cost of land and lot sales decreased $2.2 million or 32% to $4.7 million for
the nine-month period ended September 30, 2001 compared to $6.9 million from the
comparable period in the prior year. This decrease is primarily due to improved
gross margins on bulk land sales.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Great Western's operating, selling, general and administrative expenses
increased $800,000 to $1.9 million for the nine months ended September 30, 2001
compared to $1.1 million in the same period of 2000. The increase was driven by
increases in staffing, advertising and sales costs needed to support the ranch
land sales effort and by costs incurred in connection with Great Western's
preparation for its merger with quepasa and the filing of this proxy
statement/prospectus.
INTEREST EXPENSE.
Interest expense increased $102,000 or 18% to $685,000 for the period ended
September 30, 2001 from $583,000 for the nine months ended September 30, 2000.
The increase is the result of a full nine
61
months of interest expense on the Willow Springs Ranch property offset by
declining interest rates on loans associated with the residential lot sales
business.
INTEREST INCOME.
Interest income increased $108,000 for the nine months ended September 30,
2001, compared to the nine months ended September 30, 2000, primarily due to the
accrual of interest on the installment notes received in connection with the
sale of the Morningside Farms properties.
NET INCOME (LOSS).
Great Western recorded net income of $672,000 for the nine months ended
September 30, 2001 compared to a net loss of $198,000 for the period ended
September 30, 2000. This increase is attributable to profits from the bulk land
sale by Morningside Farms, L.L.C. and an improved relationship in the price/cost
ratio due to improved gross margins on ranch land sales.
INCOME TAXES.
For all periods through August 6, 2001, all of Great Western's operations
were conducted through limited liability companies for which any taxable income
(losses) were passed through to the owner member. The owner member or one of its
affiliates has paid or will pay any income taxes or received or will receive any
loss deductions. Income from Great Western's operations for the period from
August 6, 2001 to September 30, 2001 was $393,000 for which income tax of
$133,000 was provided.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999.
LAND AND LOT SALES.
Great Western's land and lot sales increased $6.8 million, or 219%, to
$9.9 million during the year ended December 31, 2000 from $3.1 million in the
prior calendar year. This increase is a result of several bulk land sales
totaling $5.6 million and $1.3 million of ranch land sales offset by a slight
decrease in residential lot sales of $152,000.
Great Western's land and lot sales are affected by numerous factors
including mortgage interest rates, demand for new housing starts and the
availability of finished lots within a particular area. Generally, the pace of
sales and the price per lot increase over the life of a project as developments
gain popularity and as contract price escalators become effective.
COST OF LAND AND LOT SALES.
Cost of land and lot sales increased from $2.0 million for the year ended
December 31, 1999 to $8.1 million for the year ended December 31, 2000, or from
65% to 82% as a percentage of land and lot sales, respectively. The increase in
cost of land and lot sales as a percentage of land and lot sales is due
principally to the significant amount of bulk land sales during 2000 that were
sold at lower margins. This price/cost relationship was further impacted by the
use of "advertised leaders" or lower priced parcels to stimulate initial sales
in the two ranch developments.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Great Western's operating, selling, general and administrative expenses
increased from $1.3 million for the year ended December 31, 1999 to
$1.8 million in the year ended December 31, 2000, or by 38%. This increase was
due to increases in staffing, advertising and professional service costs that
were incurred to start up the ranch division's land sales efforts.
62
INTEREST EXPENSE.
Great Western's interest expense increased from $541,000 for the year ended
December 31, 1999 to $754,000 for the year ended December 31, 2000, or by 39%.
The increase in interest expense was due to additional debt incurred by Great
Western to finance the construction of new projects and the start up of the
ranch division. On December 31, 2000, $4.5 million of debt was converted to
equity.
INTEREST INCOME.
Interest income decreased from $137,000 in 1999 to $34,000 in 2000 as a
result of Great Western's foreclosure on the mortgage notes receivable relating
to the Wagon Bow Ranch in January 2000.
NET LOSS.
Great Western's net loss increased from $594,000 for the year ended
December 31, 1999 to $782,000 for the year ended December 31, 2000, or by 32%.
The increase in Great Western's loss is due mainly to the increase in the cost
of land and lot sales that resulted from both the bulk land sales and initial
ranch division sales discussed above.
INCOME TAXES.
For all periods through August 6, 2001, 2001, all of Great Western's
operations were conducted through limited liability companies for which any
taxable income (losses) were passed through to the owner member. The owner
member or one of its affiliates has paid or will pay any income taxes or
received or will receive any loss deductions. Income or loss from Great
Western's operations will be attributed to Great Western starting on August 6,
2001, the date that Amortibanc contributed the operations of Great Western.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998.
LAND AND LOT SALES.
Great Western's land and lot sales have increased $717,000, or 30%, to
$3.1 million during the year ended December 31, 1999 from $2.3 million in the
prior calendar year. This increase is primarily the result of strong lot sales
at the Brookside Court development during 1999.
Great Western's land and lot sales are affected by numerous factors
including mortgage interest rates, demand for new housing starts and the
availability of finished lots within a particular area. Generally, the pace of
sales and the price per lot increase over the life of a project as developments
gain popularity and as contract price escalators become effective.
COST OF LAND AND LOT SALES.
The cost of land and lot sales decreased from $2.1 million for the year
ended December 31, 1998 to $2.0 million for the year ended December 31, 1999, or
from 91% to 65% as a percentage of land and lot sales, respectively. This
decrease in cost of land and lot sales as a percentage of land and lot sales is
due principally to the recognition of gains on installment sales of $340,000
offset by debt forgiveness of $194,000 included as a reduction of cost of land
and lot sales for 1999 and lower margin lot sales in 1998.
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Great Western's operating, selling, general and administrative expenses
increased from $584,000 for the year ended December 31, 1998 to $1.3 million for
the year ended December 31, 1999, or by
63
123%. This increase was due primarily to increased personnel costs, professional
expenses and other operating expenses commensurate with an increase in
operations.
INTEREST EXPENSE.
Great Western's interest expense increased from $257,000 for the year ended
December 31, 1998 to $541,000 for the year ended December 31, 1999, or by 111%.
The increase in interest expense was due to additional debt incurred by Great
Western to finance operations and land held for development and sale.
INTEREST INCOME.
Interest income increased from $82,000 in 1998 to $137,000 in 1999 primarily
as a result of the receipt of interest income from the Wagon Bow Ranch mortgage
note receivable.
NET LOSS.
Great Western's net loss increased from $522,000 for the year ended
December 31, 1998 to $594,000 for the year ended December 31, 1999, or 14%. The
increase in Great Western's loss from 1998 to 1999 is primarily due to the
increase in operating, selling, general and administrative expense and the
increase in interest expense, which exceeded the improved gross profit on sales
for 1999.
INCOME TAXES.
For all periods through August 6, 2001, 2001, all of Great Western's
operations were conducted through limited liability companies for which any
taxable income (losses) were passed through to the owner member. The owner
member or one of its affiliates has paid or will pay any income taxes or
received or will receive any loss deductions. Income or loss from Great
Western's operations will be attributed to Great Western starting on August 6,
2001, the date that Amortibanc contributed the operations of Great Western.
LIQUIDITY AND CAPITAL RESOURCES
Great Western has financed its operations and growth with cash flow from
operations, mortgage financing obtained from financial institutions and funds
contributed by its sole shareholder in exchange for notes receivable and equity.
Great Western has used these funds to finance operations, to purchase and
develop new properties, and to service its debt. During the year ended
December 31, 2000, Great Western's continuing operating activities used $354,000
in cash. The most significant items affecting cash used in operations were the
increase in notes receivable in the amount of $1.8 million that was received as
a portion of land/lot sales and the net loss of $782,000. These outflows were
offset by cash inflows from decreases in assets and increases in liabilities
totaling $1.7 million, and the non-cash accrued interest expense on subordinated
debt of $515,000. Cash provided by financing activities of $607,000 is due to
borrowings on notes payable of $4.3 million and an increase of subordinated debt
of $1.2 million, offset by cash payments on notes payable of $4.9 million. Cash
obtained through subordinated debt was primarily used for financing activities
to repay indebtedness and other obligations associated with land sales and for
the purchase of property and equipment such as real estate taxes, closing costs
and commissions.
Great Western anticipates that during fiscal 2001 its operations will
generate sufficient cash to fund its operations and purchases and development of
new properties. Great Western projects that its capital expenditures for
property and development will be $5.8 million in the year ending December 31,
2001 but that only a portion of that amount will need to be funded internally
(the majority of the $5.8 million is reserved for the possible purchase of an
identified piece of property). The remainder will be borrowed from banks and
other financial institutions. On October 11, 2001, quepasa loaned
64
Great Western $500,000 bearing interest at the prime rate plus 1%. Great Western
may use the proceeds of the loan for working capital, investment in new
properties, capital expenditures, purchases of quepasa common stock in
open-market or privately negotiated transactions and payment of merger
transaction costs. See "Proposal 2. Approval of the Merger--Amendment of the
Merger Agreement and Great Western Loan."
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Great Western does not have any derivative financial instruments as of
December 31, 2000 or as of September 30, 2001. Great Western has entered into
loan agreements and accepted notes receivable in partial payment of its land
sales that subject its portfolio to interest rate risk. At September 30, 2001,
Great Western held notes receivable in the amount of $3.0 million that
management expects to hold until maturity. An increase in interest rates would
result in a decline in the market value of these notes but no reserve for this
contingency is considered necessary as Great Western intends to hold these notes
until maturity. These notes currently bear interest at or near market rates. The
schedule below details these exposures at December 31, 2000, summarizes the
maturities and provides data on the calculated average interest rate that is
applicable to each segment.
FAIR VALUE
AT
TOTAL 2001 2002 2003 2004 2005 THEREAFTER 12/31/2000
--------- --------- -------- -------- -------- --------- ---------- ----------
Variable interest rate debt... 4,343,469 1,221,454 362,221 661,667 60,496 2,037,631 -- 4,343,469
Average interest rate......... 11.73% 12.06% 9.55% 10.15% 10.15% --
Fixed interest rate debt...... 1,930,339 1,930,339 -- -- -- -- -- 1,930,339
Average interest rate......... 8.29% -- -- -- -- --
Subordinated debt............. 4,333,199 -- -- -- -- -- 4,333,199 4,333,199
Average interest rate......... -- -- -- -- -- 8.00%
Fixed interest rate
receivables................. 1,827,417 780,219 343,467 244,976 21,648 299,371 137,736 1,827,417
Average interest rate......... 9.06% 10.51% 10.51% 10.70% 10.06% 12.46%
Great Western has determined that an increase of 100 basis points in the
prime or base interest rate on the variable rate indebtedness that was
outstanding at December 31, 2000 would result in an increase of $43,435 in
interest expense on an annual basis. At September 30, 2001, the variable rate
indebtedness has been reduced to $2,584,859 thereby reducing the effect of an
increase in interest expense from a 100 basis point change in the prime or base
rate to an increase of $25,849 in interest expense on an annual basis.
65
GREAT WESTERN'S BUSINESS
OVERVIEW
Great Western is currently wholly-owned by Amortibanc Investments.
Amortibanc Investments' predecessor business was founded in 1928 by H. Ray
Garvey and is one of Kansas's oldest mortgage and investment banking
institutions. Through the years, it has served as the financial servicing arm of
a number of the Garvey family ventures, including World Homes, Inc. (in the
early 1960's it was the largest home-building company in the world with
operations in 23 countries), Builders, Inc. (commercial construction) and
extensive Garvey agricultural entities. Amortibanc, Inc., through its affiliates
and subsidiaries includes in its portfolio a number of residential and
commercial investments in real estate including apartment complexes, commercial
shopping centers, and extensive ranching properties. Great Western has often
been used by Amortibanc Investments as a vehicle to manage certain enterprises
and new ventures. Great Western currently is one of the largest residential land
developers in the Houston area with several thousand acres of land currently in
various stages of development. Today, Great Western acquires, develops, markets,
sells and finances residential and recreational property in the southwestern
United States. Great Western's properties are primarily located in Arizona,
Texas and New Mexico and consist of a variety of lifestyle choices including
homes for first-time homebuyers, vacant lots for commercial homebuilders and
ranch lots for those seeking recreational and investment properties. Subdivided
residential lots are marketed principally to builders seeking to build homes in
quality residential settings in the low- to mid-price range and ranch properties
are marketed to purchasers seeking a long-term investment in up-scale vacant
ranch land. In addition, Great Western engages in ranching and agricultural
activities on some of its properties until the properties are either developed
or sold. These activities include the planting of tree farms, the ownership of a
modest cattle herd on one of its ranches and the leasing of another ranch
property for cattle grazing. As an additional marketing incentive to its
customers for the recreational land, Great Western finances individual purchases
of ranch lots. The majority of these loans are then sold to third parties.
INDUSTRY OVERVIEW
The real estate industry is fragmented and highly competitive. In each of
its markets, Great Western competes with numerous builders, developers and
others for the acquisition of property and with local, regional and national
developers, homebuilders and others with respect to the sale of residential
lots. Competition also occurs with regard to obtaining, among other things,
desirable financing, raw materials and skilled labor. Great Western believes it
can effectively compete in its market areas and has confidence in its ability to
locate, develop and sell attractive properties in the markets in which it wishes
to operate.
GREAT WESTERN'S PROPERTIES
Following is a description of Great Western's major properties.
TEXAS.
WHEATSTONE III--BROOKSIDE COURT SUBDIVISION. Wheatstone III is a 30 acre
gated community in Northwest Houston, Texas designed for garden style homes.
Phase I consisted of 76 lots that were completed in 1998. All of the 20 lots in
Phase II are under contract. The development is convenient to shopping,
including grocery shopping, and entertainment.
COVENTRY SUBDIVISION. Coventry consists of approximately 300 lots located
in northwest Houston. Two major homebuilders are actively building in this
development. Sales of these lots commenced in 1997 and there are currently
approximately 123 lots remaining, all of which are under contract.
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Coventry consists of heavily wooded lots and is surrounded by forest. The
development is convenient to shopping, dining and golf. The Houston Open Golf
Tournament is held annually in the neighboring Woodlands golf community.
WHEATSTONE I SUBDIVISION. Wheatstone I consists of approximately 45 acres
located near the West Houston Energy corridor. Approximately 80 of the 180 lots
have been sold. The lots are being sold for $19,600 per lot with an annual 8%
price escalation. The property is convenient to shopping, including grocery
shopping, and entertainment. The property is surrounded by an established
upscale residential neighborhood adjoining the West Houston YMCA.
ARIZONA.
WAGON BOW RANCH. Wagon Bow Ranch is a commercial cattle ranch located in
Mohave County in the Aquarius Mountains in northwest Arizona, consisting of
approximately 48,000 acres, 34,000 of which are deeded land and 14,000 are
state-leased land. The ranch is accessible by highway and country road that are
maintained year round. The property is made of diverse topography, ranging from
mountainous slopes in the west to sloping mesas and flats in the majority of the
Ranch. The Ranch supports over 600 animal units year long with ample water in
running streams and springs that run year round. There is abundant wildlife
including mule deer, antelope, bear, mountain lion and javelina. By car the
Ranch is approximately two and a half-hours from Las Vegas, three hours from
Phoenix, and four hours from Los Angeles. The property has a main residence,
foreman's house, guesthouse, bunkhouse, owner's house, outbuildings and corrals.
Great Western has sold approximately 12,000 acres during the last 18 months.
Great Western is marketing for sale the balance in 40 acre ranch parcels.
GLENDALE SPRINGS CONDOMINIUMS. Glendale Springs Condominiums is a planned
80 unit condominium project located in Glendale, Arizona. Great Western has
obtained the necessary zoning permits and entitlements for the project and
expect to begin construction in Spring of 2002. Great Western expects that the
aggregate sales price for the Glendale Springs Condominiums will be
approximately $8,000,000.
WRIGHT PLACE CONDOMINIUMS. Wright Place Condominiums is a planned 14 unit
condominium project designed as an infill project in Phoenix, Arizona. Great
Western has obtained the zoning permits and entitlements for the project and
expect to begin construction in the Spring of 2002. Great Western expects that
the aggregate sales price for the Wright Place Condominiums will be
approximately $1,400,000.
NEW MEXICO.
WILLOW SPRINGS RANCH. Willow Springs Ranch is a commercial cattle ranch
located on the west side of Interstate 25, approximately 25 miles south of
Socorro. The ranch consists of the northwest portion of the Pedro Armendaris
Land Grant No. 34 deeded by the King of Spain in 1819. The remainder of the
grant is owned by Ted Turner. The property is approximately 50,000 acres of
deeded land with elevations ranging from 4,700 feet in the south to 6,400 feet
in the north. The Ranch supports over 600 animal units year long with annual
rainfall from 12 to 14 inches in the higher elevations to eight inches in the
lower elevations. Large herds of pronghorn antelope and trophy mule deer, as
well as a large quail population, reside on the land. The property has
approximately 118 miles of pipeline, 68 drinking troughs, storage tanks, seven
dirt tanks, pipe corrals and loading chute, main shipping pens with scales, 88
miles of fencing and six holding traps. Great Western has sold approximately
8,000 acres since June 2000 in parcels of 160 acres or more. Great Western has
obtained approvals for smaller lots for a portion of the ranch that it is
marketing currently. Great Western intends to develop and is currently marketing
an additional subdivision in Fall of 2001. Great Western anticipates that the
remainder of this property will be sold in parcels ranging from 15 to 50 acres
at prices ranging from $295 per acre to over $1,000 per acre.
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ACQUISITION OF LAND INVENTORY
Great Western acquires property in Arizona, Texas and New Mexico. Great
Western's principal criteria for acquiring ranch land is location, the
proportion of deeded land to leased land, the availability of water, the
elevation of the property and the property's accessibility to populated areas.
For non-ranch property, Great Western considers location, availability of
municipal services, including water, sewer and electricity, zoning,
determination of highest and best use and marketability. Prior to making an
acquisition, Great Western conducts extensive due diligence, typically utilizing
market research, including obtaining direct input from builders and real estate
professionals and analyzing market depth and forecasting market absorption.
Once Great Western identifies a desirable property and completes its initial
due diligence procedures, it enters into a purchase agreement with the seller to
acquire the property. Generally, Great Western advances a down payment
negotiated with the seller in order to secure the ultimate purchase of the
property and limit its exposure resulting from any termination of the purchase
agreement to the amount of the down payment and any costs associated with Great
Western's preliminary due diligence and development expenses. Great Western's
down payments are generally small and by requiring that regulatory approvals be
obtained prior to closing, Great Western is often able to place a number of
properties under contract without expending significant amounts of capital. This
strategy enables Great Western to reduce the time during which it actually owns
specific properties, the market risk associated with holding such properties and
the risk of acquiring properties for which Great Western is unable to obtain the
applicable regulatory approvals. Great Western is typically not required to
advance the full purchase price or enter into a note payable obligation for the
purchase of the property until it has completed a full due diligence review and,
in most cases, until regulatory approvals for the subdivision are obtained and
the sale of at least the initial phase of the project is consummated. While it
is seeking local approvals, Great Western customarily engages in pre-selling
marketing activity and, with the consent of the seller, occasionally pre-sells
properties, subject to closing on Great Western's purchase of the property. Once
Great Western obtains the necessary regulatory approvals, it closes on the
property and obtains title. The timing between signing a purchase agreement and
closing on a property generally takes between six and 12 months. Historically,
few executed purchase agreements have been canceled.
Before closing on the purchase of property that will be subdivided and sold
in lots, Great Western completes its own environmental assessment of the
property. The purpose of this assessment is to evaluate the impact the proposed
subdivision will have on such items as flora and fauna, wetlands, endangered
species, open space, scenic vistas, recreation, transportation and community
growth and character. To obtain this information, Great Western consults with
various groups and agencies including the appropriate county and state planning
agencies, environmental groups, state heritage programs, soil conservation
agencies and forestry groups. In urban and suburban areas Great Western obtains
a Phase I environmental report. If Great Western's environmental due diligence
indicates that the proposed subdivision meets environmental criteria and
complies with zoning, building, health and other laws, it develops a formal land
use plan, which forms a basis for determining an appropriate purchase price for
the property. When possible, Great Western attempts to accommodate the existing
topographical features of the land, such as streams, hills, wooded areas, stone
walls, farm buildings and roads. In addition, before closing on a purchase,
Great Western generally has the property surveyed by a professional surveyor
and, where appropriate, has soil analyses conducted to determine the suitability
of the site for septic systems. Great Western obtains title insurance on the
property at the time of closing.
Generally land purchases are financed with a combination of
bank/institutional debt, seller financing and equity capital. The relationships
of each component vary with the type of project. At June 30, 2001, Great Western
has outstanding debt to Amortibanc Investments of approximately $4.4 million and
does not expect this amount to increase. Any additional borrowings from
Amortibanc
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Investments will be on terms no less favorable than from third party lenders.
Amortibanc Investments has informed Great Western and quepasa that it is not
likely to provide any further subordinated indebtedness to Great Western.
In addition, Great Western has formed an operating subsidiary, GWLR, LLC in
order to give Great Western the ability in connection with future acquisitions
of property, to purchase the properties with cash or with units of limited
liability interests. Great Western believes that many potential sellers of
target properties have a low tax basis in their properties and would be
unwilling to sell their properties except in transactions that defer a portion
of the Federal income taxes otherwise payable. Offering units of limited
partnership interests instead of cash for properties may, in certain
circumstances, offer potential sellers partial or complete capital gain
deferral.
MARKETING AND SALE OF INVENTORY
Great Western focuses its marketing efforts in certain core markets where it
has developed substantial marketing expertise and has a strong track record of
success in Phoenix and Scottsdale in Arizona, central New Mexico and the greater
metropolitan Houston, Texas area. Great Western markets residential subdivisions
locally to builders through its network of contacts, prior purchasers and real
estate professionals who specialize in marketing similar properties and it
markets ranch land locally, regionally and nationally, through conventional
methods, such as newspaper, radio and television advertisements, and over the
Internet. Sales offices and on-site sales representatives are maintained at each
property in order to provide consistent service to potential customers and
markets its condominium projects.
Great Western uses a variety of marketing techniques to sell its properties,
including pre-selling a significant portion of its planned residential lots to
builders before investing extensive capital to build infrastructure or develop
the properties. Great Western markets its recreational properties using its
internal sales force coupled with independent commissioned salespersons as
available. The internal marketing staff designs advertising campaigns and other
marketing materials including Internet web sites, brochures and newsprint
advertisements. Great Western also works closely with its professional marketing
consultants in developing materials and campaigns.
Great Western's apartment projects are managed by professional leasing
companies that specialize in managing and marketing apartment units to the
public.
CUSTOMER FINANCING
Great Western frequently provides financing to purchasers of its ranch
property. During fiscal 2000 and the first six months of 2001, Great Western
financed approximately 46% and 62%, respectively of the aggregate purchase price
of its ranch lot sales. Sales of ranch lots accounted for 14% and 22% of total
sales during fiscal 2000 and the first six months of 2001, respectively. These
loans generally are sold to third parties for 85% to 100% of the principal
balance of eligible loans, depending upon market conditions. Great Western is
required to replace loans that become delinquent or to pay down the amounts paid
against such loans to remain within required ratios. Approximately $1.2 million
of the loans that have been sold are outstanding. To date, Great Western has not
experienced any defaults or delinquencies in connection with its customer
financing activities.
Great Western believes that its financing is attractive to purchasers of its
ranch property because financing for this type of property is not readily
available and Great Western offers a convenient, single source for the purchase
and financing of the property. Great Western offers competitive interest rates
and requires down payments similar to those that might be required by banks and
mortgage companies offering this type of credit. Great Western uses standard
underwriting criteria acceptable to most mortgage lenders and purchasers of
mortgage deeds of trust and land contracts so Great Western can later sell the
mortgages.
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REGULATION
The real estate industry is subject to extensive complex regulation. Great
Western must comply with various federal, state and local environmental, zoning
and other statutes and regulations regarding the purchase, subdivision and sale
of real estate and various aspects of Great Western's financing operations. In
addition Great Western's customer financing activities are subject to extensive
regulation, which may include regulation under the Truth-in-Lending Act and
Regulation Z, the Fair Housing Act, the Fair Debt Collection Practices Act, the
Equal Credit Opportunity Act and Regulation B, the Electronic Funds Transfer Act
and Regulation E, the Home Mortgage Disclosure Act and Regulation C, Unfair or
Deceptive Acts or Practices and Regulation AA and the Right to Financial Privacy
Act.
Great Western believes that it is in compliance in all material respects
with applicable regulations. However, these regulations are subject to change
and Great Western cannot assess the cost of complying with all of the applicable
laws and regulations. The failure by Great Western to comply with applicable
laws or regulations could subject Great Western to large fines or other costly
activities to come into compliance.
Land owners are subject to liability for the costs of removal and
remediation of certain hazardous or toxic substances on their property, as well
as for the related costs of investigation and property damage under various
federal, state and local laws, ordinances and regulations. These laws often
impose liability without regard to whether the owner knew or was responsible for
the presence of the hazardous or toxic substances. If there are hazardous or
toxic substances on Great Western's properties that it is not aware of and Great
Western is unable to remediate the property, or the cost of remediation is too
high, Great Western may not be able to sell or lease its property or to borrow
against and use the property as collateral. In addition to remediation of land,
other federal and state laws require the removal or encapsulation of
asbestos-containing material when the material is in poor condition or in the
event of construction, demolition, remodeling or renovation. Other statutes may
require the removal of underground storage tanks. If Great Western fails to
comply with these and other environmental, health or safety requirements it may
be required to cease or change its operations at a property.
COMPETITION
The real estate industry is fragmented and highly competitive. Great Western
competes against numerous builders, developers and others in the real estate
business in each of its markets. Great Western competes mainly with builders and
developers for the acquisition of property and with local, regional and national
developers and homebuilders in the sale of residential lots such as Arizona Land
and Ranches, Inc. and First United Realty, Inc. in Arizona and Hometown
Concepts, Inc. and Arete Development Company in Texas. In general, there is less
competition in the smaller, more rural markets where Great Western operates.
Great Western believes that it is competitive in its markets based on its strong
reputation and the price, location and quality of its products, as well as on
the basis of its experience in land acquisition, development, marketing and
sale.
In its customer financing activities, Great Western competes with banks,
mortgage companies, other financial institutions and government agencies
offering financing of real estate. However, Great Western offers customer
financing as a marketing incentive to facilitate its recreational land sales
and, therefore, does not view its activities as being in competition with other
lenders.
GREAT WESTERN'S NOTES RECEIVABLE
At September 30, 2001, Great Western holds approximately $3.0 million of
third party notes receivable from the sale of property. These notes are
generally secured by the property sold and bear
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interest at rates ranging between 8% and 12.75% per year. See "Great Western
Land and Recreation--Notes to Consolidated Financial Statements--Note B--Notes
Receivable."
GREAT WESTERN'S DEBT
Great Western has approximately $2.8 million of senior indebtedness to
institutions bearing interest at variable rates from 1% to 4% over either the
prime rate or a similar base rate such as the annualized average weekly yield of
U.S. Treasury securities. This debt matures on various dates through June 2005.
Great Western has an additional $1.5 million of seller-financed senior
indebtedness bearing interest at fixed rates varying between 8% and 9.5% and
maturing on various dates in 2001 and 2002. Great Western has $4.4 million of
subordinated indebtedness to Amortibanc Management bearing interest at rates
between 8% and 10% and maturing on various dates through July 2003. This
indebtedness is subordinated to all of Great Western's institutional
indebtedness. The institutional and seller financed indebtedness is secured by
Deeds of Trust on the properties associated with the borrowing and a portion of
the subordinated debt is secured by notes receivable from the sale of other
properties.
On October 11, 2001, quepasa loaned Great Western $500,000 in connection
with an amendment to the merger agreement. The loan bears interest at the prime
rate plus 1% and is secured by a pledge of the membership interest of one of
Great Western's affiliates in Laguna Investments, L.L.C. Laguna Investments owns
a 25% interest in an apartment project in Glendale, Arizona. Interest on the
loan is payable quarterly and the first quarter's interest payment was prepaid
on October 11, 2001. The loan matures on the earlier of April 11, 2002 or the
date the merger agreement is terminated.
MANAGEMENT
CURRENT EXECUTIVE OFFICERS AND DIRECTORS OF GREAT WESTERN.
The following table sets forth information regarding Great Western's current
executive officers and directors:
OFFICER OR
DIRECTOR
NAME AGE OFFICE SINCE
---- -------- ------ ----------
Jay N. Torok.............................. 62 President, Chairman, Chief Executive 1993
Officer, Secretary, Treasurer and
Director
William Szilagyi.......................... 56 Senior Vice President 1995
Jay N. Torok has served as the President and Chief Executive Officer of
Amortibanc Management, L.C. since 1993 and as Chairman of the Board, President
and Chief Executive Officer of Great Western since its inception. In addition
Mr. Torok has served as Executive Vice President of Amortibanc, Inc. and
President of Amortibanc Land and Cattle, L.L.C., Southwest Land and Cattle,
L.L.C. and Firebird Financial, L.L.C., as well as other Amortibanc affiliates
engaged in real estate development or venture capital. Prior to joining the
Amortibanc group of companies, from 1986 to 1992, Mr. Torok served as President
and Chief Executive Officer of Lone Pine Capital, a venture capital company
specialized in acquisitions management. Prior to joining Lone Pine Capital, from
1981 to 1985, Mr. Torok served as President and Chief Executive Officer of
Merrill Lynch Realty, Inc. Under Mr. Torok's management, Merrill Lynch
Realty, Inc. grew from 100 offices to over 380 offices in 38 cities in the
United States and 4 foreign cities, becoming the world's largest real estate
brokerage firm. Prior to joining Merrill Lynch Realty, Inc., Mr. Torok served in
various positions, including President of the Container and Core Division of
Clevepak Corporation, a former NYSE listed company, President of Associated
Forest
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Products, Inc., Vice President of Finance of Wausau Paper Mills, a Nasdaq quoted
company and Controller of the Forest Products Division and the Land Development
Division of Owens Illinois, Inc., a Fortune 100 company. Mr. Torok received his
M.B.A. from Dartmouth in 1962 and attended law school at Temple University.
William Szilagyi has served as the Vice President of Operations of
Amortibanc Management since 1996 and as Senior Vice President of Great Western
since its inception. In addition, Mr. Szilagyi has agreed to serve as a director
of Great Western upon completion of the Merger. Since 1998, Mr. Szilagyi has
also served as the President of UniLoan, a mortgage brokerage company
specializing in the needs of new homebuilders and since 1998 as Vice President
and Director of Firebird Financial, L.L.C., a mortgage investment company. Prior
to joining the Amortibanc group of companies, Mr. Szilagyi served as President
of Merrill Lynch Realty, Inc. / Beach Cities Company in California. During his
tenure with the Merrill Lynch Realty, Inc., Mr. Szilagyi developed a Real Estate
Owned Division to address the needs of bank owned properties, turned around
multiple unprofitable subsidiaries and created a Resorts Division that managed
and marketed resort properties throughout the West. In addition, while with the
Merrill Lynch, Mr. Szilagyi created a multilingual international real estate
network that targeted properties in Central and South America, Mexico, Canada
and the Pacific Rim. Mr. Szilagyi, also served as Marketing Director with
Merrill Lynch Realty Associates, Inc. where he wrote the company's Policy and
Procedure Manual and New Sales Associate Training and Marketing Manual. Prior to
that, Mr. Szilagyi was employed by the Forest E. Olsen Company, a Coldwell
Banker company, where he supervised 18 real estate offices in the greater Los
Angeles metropolitan area. Mr. Szilagyi received his degree in business from
California State University in 1967. Mr. Szilagyi has written two books and
given numerous seminars on the advantages of real property ownership and
investment.
BOARD OF DIRECTORS OF GREAT WESTERN FOLLOWING THE MERGER
The board of directors following the closing of the merger will consist of
the following individuals:
JAY N. TOROK. Mr. Torok's biography is set forth above under
"Management--Current Executive Officers and Directors of Great Western."
WILLIAM SZILAGYI. Mr. Szilagyi's biography is set forth above under
"Management--Current Executive Officers and Directors of Great Western."
GARY L. TRUJILLO. Mr. Trujillo's biography is set forth above under
"Proposal 1. Election of Directors."
L. WILLIAM SEIDMAN. Mr. Seidman's biography is set forth above under
"Proposal 1. Election of Directors."
HAROLD DICK. Mr. Dick, 58, has agreed to serve as a director of Great
Western upon completion of the merger with quepasa. In 1988, Mr. Dick founded
The Summit Group of Hutchinson, Kansas, a private investment and consulting
firm. During the period from 1986 to the present, Mr. Dick also served as an
advisor to various companies owned by the Garvey family. Prior to this, from
1985 to 1988, Mr. Dick was the President and CEO of the Doskocil Companies.
During this period, the Doskocil Companies was named by Inc. Magazine in its
list of fastest growing public companies. Prior to 1985, Mr. Dick served in
various positions including Vice President of Norton Simon, Inc. where his
duties included oversight of the operations of a number of companies including
Hunt Wesson Foods, Max Factor, McCall Pattern and Halston Enterprises. Mr. Dick
received his M.B.A. with Distinction from Harvard University in 1968 and his
B.A. in Mathematics and Psychology Magna Cum Laude from Washburn University in
1966.
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AUDIT COMMITTEE
Great Western intends to create an audit committee of its board of directors
within 90 days following the closing of the merger. The audit committee will
consist solely of independent, non-employee directors.
KEY EMPLOYEES
Edward W. Dietrich, 58, has served as Vice President and General Counsel of
Amortibanc Management since 1999 and as General Counsel of Great Western since
its inception. From 1993 through 1998, Mr. Dietrich served as the Chief
Operating Officer of Pyrethrum, Ltd., a research and development company.
Mr. Dietrich negotiated the sale of the company in 1998. From 1984 to 1993,
Mr. Dietrich was active in real estate development, including development of
subdivisions, single-family home lots, strip shopping centers, apartment
complexes and office buildings. Prior to that, from 1970 to 1984, Mr. Dietrich
was in private law practice, specializing in real estate. Mr. Dietrich received
his J.D. degree from Syracuse University, College of Law in 1969.
James Wesley, 58, has served as the head of ranch operations of Amortibanc
Management and its affiliates, Southwest Land and Cattle, L.L.C. and Amortibanc
Land and Cattle, L.L.C., since 1999 and as the head of ranch operations of Great
Western since its inception. From 1987 through 1998, Mr. Wesley served as the
general manager of the Bumble Bee Ranch located north of Phoenix, Arizona.
Mr. Wesley received his BS from University of Arizona in Animal Science and
Animal Nutrition in 1965. Mr. Wesley is affiliated with the National Cattlemen's
Association, Arizona Cattle Growers Association, Yavapai County Cattle Growers
Association, National Association of Realtors and Yavapai County Sheriff's
Mounted Posse.
Great Western intends to undertake a search to identify qualified candidates
to fill the positions of Vice President of Finance and Vice President of
Engineering. Great Western hopes to fill these positions within 120 days from
the closing of the merger.
EMPLOYEES
Great Western currently has 25 employees, seven of which are involved in
marketing activities and eight of which serve in management and administration
roles.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned by Great Western's Chief Executive Officer. None of Great
Western's employees earned more than $100,000 in 1998, 1999 or 2000.
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -----------------------
--------------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS
---------------------------- -------- -------- -------- ------------ ---------- ----------
Jay N. Torok................................. 2000 $74,400 $6,800 -- -- --
President, Chairman, Chief Executive 1999 $71,940 $3,720 -- -- -- -- -- --
Officer, Secretary, Treasurer and Director 1998 $65,720 $100
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
Great Western did not grant any stock options or stock appreciation rights
during the fiscal year ended December 31, 2000.
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In 2001, Great Western granted Mr. Torok and Mr. Szilagyi options to
purchase 750,000 shares of common stock and 350,000 shares of common stock,
respectively. These options have an exercise price of $0.15 per share and vest
monthly over 36 months following the date of grant, contingent upon completion
of the merger.
AGGREGATED OPTIONS/SAR EXERCISES
Mr. Torok did not exercise options to purchase Great Western common stock
during the fiscal year ended December 31, 2000.
EMPLOYMENT CONTRACTS
Great Western has entered into a five year employment agreement with Jay
Torok, effective as of September 1, 2001, that provides for an annual salary of
$125,000, adjustable annually at the discretion of Great Western's board of
directors, with a minimum annual increase of 4%. In the event that the merger
with quepasa is consummated, Mr. Torok's annual salary will be increased to
$175,000. Mr. Torok's agreement also provides for payments to Mr. Torok in the
event that his employment is terminated for any reason within its five year
term, including payment of the remaining annual salary at a rate of 50% of the
rate provided for under the employment agreement, payable for a period double
the remaining term under the employment agreement. Under the terms of
Mr. Torok's employment agreement, the agreement shall be automatically extended
for one year at the end of each year during the term of the agreement, expiring
when Mr. Torok reaches the age of 70. Upon reaching the age of 70, should either
party wish to terminate the agreement, Mr. Torok shall be entitled to receive
payment of 50% of his last annual salary, each year for five years, provided
that Mr. Torok agrees and has made himself available to provide at least
90 days of consulting services to Great Western in each of the five years.
Great Western intends to enter into an employment agreement with William
Szilagyi to be effective October 1, 2001 that will provide for a five year term
with an annual salary of $90,000. In the event that the merger with quepasa is
consummated, Mr. Szilagyi's annual salary will be increased to $129,000.
Mr. Szilagyi's annual salary shall be subject to a cost of living adjustment at
the end of each year under the agreement with a maximum adjustment of 4% per
year. At the end of the first four years of Mr. Szilagyi's employment agreement,
Great Western's board of directors shall have the right to extend the term of
the agreement for an additional three years. At the end of the extended period
the agreement may only be extended if both Great Western and Mr. Szilagyi agree
to the extension. If Mr. Szilagyi is terminated prior to the expiration of his
employment agreement for any reason other than cause, he shall be entitled to
receive payments equal to 50% of his last annual salary, yearly, for a period of
twice the remaining term of his employment agreement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 15, 2001
concerning stock ownership of Great Western's common stock by each director and
officer, by all persons who hold of record or are known by Great Western to hold
beneficially of record 5% or more of the outstanding shares of Great Western
common stock and by all directors and officers as a group.
Except as otherwise noted, the persons named in the table own the shares
beneficially and of record and have sole voting and investment power with
respect to all shares of common stock shown as owned by them, subject to
community property laws, where applicable. The table also reflects all shares
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of common stock which each individual has the right to acquire within 60 days
from December 15, 2001 upon exercise of stock options or common stock purchase
warrants.
PERCENT OF SHARES PERCENT OF SHARES
OUTSTANDING OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED BEFORE THE MERGER(1) AFTER THE MERGER(1)
------------------------------------ ------------------------- -------------------- -------------------
Amortibanc Investments, L.C. (2)(3)... 34,536,774(5)(6) 100% 65.5%(5)
Directors and Executive Officers:
Jay N. Torok (4)(7)................. -- -- *
William Szilagyi (4)(8)............. -- -- *
All Directors and Executive Officers
as a Group (2 persons).............. -- -- *
------------------------
* Represents beneficial ownership of less than one percent of the outstanding
shares of common stock.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is deemed to be the beneficial owner, for purposes of this table, of
any shares of common stock if such person has or shares voting power or
investment power with respect to such security, or has the right to acquire
beneficial ownership at any time within 60 days after December 15, 2001. In
calculating the percentage of ownership, such shares are deemed to be
outstanding for the purpose of computing the percentage of shares of common
stock owned by such shareholder, but are not deemed outstanding for the
purpose of computing the percentage of shares of common stock owned by any
other shareholder. For purposes of this table, "voting power" is the power
to vote or direct the voting of shares and "investment power" is the power
to dispose or direct the disposition of shares.
(2) The address for Amortibanc Investments is 300 West Douglas, Suite 422,
Wichita, KS 67202.
(3) Amortibanc Investments disclaims beneficial ownership of these shares. The
Willard W. Garvey Revocable Trust and the Willard W. Garvey Trust Number
Thirteen are the only members of Amortibanc Investments and thereby share
beneficial ownership of these shares.
(4) The address for Messrs. Torok and Szilagyi is 5115 North Scottsdale Road,
Suite 101, Scottsdale, AZ 85250.
(5) Includes a warrant to purchase 14,827,125 shares of Great Western common
stock held by Amortibanc Investments. Under the terms of the warrant,
commencing at midnight on the closing date of the merger and ending ten
years thereafter, Great Western may purchase 4,942,392 shares of Great
Western common stock for $.30 per share, 4,942,392 shares for $.60 per share
and 4,942,391 shares for $1.20 per share.
(6) Includes 805,000 shares of quepasa common stock currently owned by Great
Western, that will be distributed as a dividend prior to the merger.
(7) Includes 20,000 shares of quepasa common stock owned by Western Reserve
Environmental Co., a company controlled by Mr. Torok and 62,500 shares of
common stock issuable upon exercise of stock options that will vest within
60 days of December 15, 2001, contingent upon the consummation of the
merger.
(8) Includes 26,167 shares of common stock issuable upon exercise of stock
options that will vest within 60 days of December 15, 2001, contingent upon
the consummation of the merger.
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LEGAL PROCEEDINGS
Great Western is from time to time involved in various legal proceedings
incidental to the conduct of its business. Neither Great Western nor any of its
properties is involved in any legal proceedings as of the date of this proxy
statement/prospectus.
DESCRIPTION OF GREAT WESTERN CAPITAL STOCK
GREAT WESTERN AUTHORIZED AND OUTSTANDING CAPITAL STOCK.
Great Western's authorized capital stock consists of 50,000,000 shares of
common stock, par value $.001 per share, and 20,000,000 shares of serial
preferred stock, par value $.001 per share. As of the date hereof, there are
outstanding 18,904,649 shares of Great Western common stock, and no shares of
Great Western preferred stock. After the merger, there will be 36,667,940 shares
of Great Western common stock and no shares of Great Western preferred stock
outstanding if all of the shares of quepasa common stock are exchanged in the
merger.
GREAT WESTERN COMMON STOCK.
The holders of shares of Great Western common stock are entitled to one vote
for each share held of record on all matters submitted to a vote of
shareholders. Subject to the preferences of any shares of Great Western
preferred stock that may be outstanding, the holders of Great Western common
stock will be entitled to receive dividends, if any, as may be declared by the
board of directors from time to time out of legally available funds. Upon
liquidation, dissolution, or winding up of Great Western, the holders of Great
Western common stock will be entitled to share ratably in all assets that are
legally available for distribution, after payment of all debts and other
liabilities and the liquidation preference of any outstanding shares of Great
Western preferred stock. The holders of Great Western common stock have no
preemptive, subscription, redemption, or conversion rights.
GREAT WESTERN PREFERRED STOCK.
Great Western's certificate of incorporation authorizes it to issue up to
20,000,000 shares of serial Great Western preferred stock. The board of
directors is authorized to issue Great Western preferred stock in one or more
series and denominations and to fix the rights, preferences, privileges, and
restrictions, including dividend, conversion, voting, redemption, liquidation
rights or preferences, sinking fund provisions, and the number of shares
constituting any series or the designation of such series, without any further
vote or action by the shareholders. The issuance of Great Western preferred
stock may have the effect of delaying, deferring, or preventing a change of
control of Great Western without further action by the shareholders. The
issuance of Great Western preferred stock with voting and conversion rights may
adversely affect the voting power of the holders of Great Western common stock.
The issuance of Great Western preferred stock in the future could adversely
affect the rights of the holders of Great Western preferred stock or Great
Western common stock and, therefore, reduce the value of the Great Western
preferred stock or Great Western common stock. As of the date of this proxy
statement/prospectus, Great Western has no plans to issue any shares of Great
Western preferred stock.
GREAT WESTERN STOCK OPTIONS AND WARRANTS.
Stock Options. Great Western has an aggregate of 3,500,000 shares of common
stock reserved for issuance under its 2001 Stock Option Plan. As of the date
hereof, Great Western has issued stock options to purchase 1,825,000 shares of
Great Western common stock to employees and directors of Great Western with an
exercise price of $0.15 per share. Great Western has agreed to grant stock
options to purchase up to 953,000 shares of Great Western common stock to
employees and directors of quepasa prior to the closing of the merger. As part
of the merger, 2,143,500 outstanding options for quepasa common stock issued
under quepasa's stock option plan will be converted to
76
similar options to purchase Great Western common stock under the Great Western's
stock option plan on the same terms as such options were provided under
quepasa's stock option plan. 400,000 of the outstanding quepasa options have an
exercise price of $0.15, 37,500 have an exercise price of $1.50 and the balance
have exercise prices of $7.00 or higher.
Warrants. Amortibanc Investments holds a warrant to purchase 14,827,125
shares of Great Western common stock. Under the terms of the warrant, commencing
at midnight on the closing date of the merger and ending ten years thereafter,
Great Western may purchase 4,942,392 shares of Great Western common stock for
$.30 per share, 4,942,392 shares for $.60 per share and 4,942,391 shares for
$1.20 per share. Great Western may purchase shares by paying cash for such
shares or by surrendering the right to receive a number of shares having an
aggregate market value equal to the purchase price for such shares. As part of
the merger, outstanding warrants for 400,000 quepasa common stock (exercise
price $19.80) will be converted to similar warrants to purchase Great Western
common stock on the same terms as such warrants were issued by quepasa.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the incorporation and capitalization of Great Western,
Amortibanc Investments and its wholly-owned subsidiary, Amortibanc Management,
contributed assets and liabilities to Great Western in exchange for 18,904,649
shares of Great Western common stock. Amortibanc Investments has partially
financed Great Western's operations with periodic advances of funds. The
advances are subordinated to Great Western's institutional financing, bear
interest at varying rates ranging from 8% to 10% and mature on various dates. In
general, interest is accrued and added to the subordinated debt balance, while
payments are made only when cash flow, after payment of bank debt, is available
from proceeds from land sales. At September 30, 2001, the total subordinated
debt from Amortibanc Investments to Great Western was approximately
$4.6 million, of which approximately $1.5 million was collateralized with a note
receivable on the proceeds of the sale of land.
Great Western has made advances to 1st Realty Investments, Inc., a company
affiliated with Great Western through common ownership with Amortibanc
Investments. The advances are payable on demand, bear interest at 8% and are not
collateralized. At September 30, 2001, Great Western had advanced approximately
$1,026,269 to 1st Realty Investments. 1st Realty Investments is the guarantor of
Great Western's $500,000 loan from quepasa.
In 2001, Great Western entered into an employment agreement with Mr. Torok.
At that time, Mr. Torok was the sole director of Great Western.
Great Western owns 840,000 shares of quepasa common stock, all of which were
acquired after the execution of the merger agreement with quepasa in
privately-negotiated and open-market transactions.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF QUEPASA
The following discussion of quepasa's financial condition and results of
operations for the years ended December 31, 2000, 1999 and 1998 and for the nine
months ended September 30, 2001 should be read in conjunction with its
consolidated financial statements, the notes related thereto, and the other
financial data included elsewhere in this proxy statement/prospectus.
OVERVIEW
Prior to May 1998, quepasa's operations were limited to organizing its
website, raising operating capital, hiring initial employees and drafting a
business plan. From May 1998 through May 1999, quepasa was engaged primarily in
content development and acquisition. In May 1999, quepasa launched its first
media-based branding and advertising campaign in the United States. Significant
revenue from quepasa's business activities did not commence until the fourth
quarter of 1999. In the first half of 2000, quepasa significantly increased its
operating expenses as it expanded its sales, marketing and advertising efforts.
In May 2000, quepasa's board of directors announced the engagement of Friedman,
Billings, Ramsey & Co. to assist quepasa in developing strategic alternatives to
maximize shareholder value. Following such announcement and during the remainder
of 2000, in order to conserve cash, quepasa reduced its work force by
approximately 80% and significantly reduced the products and content it provided
and its marketing, sales and general operating expenses. quepasa has been
unsuccessful in executing its business plan, has incurred substantial losses
since inception and has an accumulated deficit of $99.6 million as of
September 30, 2001. For these reasons, quepasa 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.
In the first quarter of 2000 quepasa acquired the following three companies:
- In January 2000, quepasa acquired eTrato.com, an online auction site
linking Hispanic buyers and sellers of goods and services.
- In January 2000, quepasa acquired credito.com, a Spanish language Internet
company providing personal credit content and information.
- In March 2000, quepasa acquired realestateespanol.com, a real estate
services site providing the Hispanic-American community with home buying
services in both English and Spanish.
In March 2000, quepasa issued 1,428,571 shares of its common stock to
Gateway Companies, Inc. valued at $5.38 per share for an aggregate
$10.0 million in cash. Simultaneously, quepasa purchased 7,300 of Gateway's
Aster computers and paid Gateway a nonrefundable $1.0 million for related
co-marketing/co-branding services. However, the Gateway agreement did not
obligate Gateway to render any specific marketing or advertising services to
quepasa; instead, any services that Gateway would provide were to be determined
and mutually agreed upon at a later, unspecified date. Accordingly, because
Gateway was not obligated to provide any services, never indicated that it would
provide any such services, and in fact, never provided any co-marketing or
co-branding services, quepasa determined that the marketing/advertising
component of the arrangement with Gateway had no value and reduced the
$10.0 million received in cash by the $1.0 million cash payment to Gateway.
quepasa committed itself to use a substantial portion of the proceeds of
Gateway's investment to further its community and educational initiative
program, which included distributing computers purchased from Gateway
accompanied with Spanish language technical support, providing Internet access,
and training for its subscribers. Pursuant to the agreement, quepasa purchased
$5.8 million of computers, net of $928,500 of a volume purchase discount, for
promotional activities. quepasa took title to the computers upon the close of
the transaction. However, since quepasa did not have any warehousing facilities,
the computers were segregated from Gateway's inventory in third-party warehouse
locations. quepasa remained responsible for the payment of warehouse storage
charges. The
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computers were recorded as computer promotions inventory in other current assets
on the accompanying balance sheet and expensed as donated.
quepasa also granted Gateway additional substantive rights under the
agreement, including, among other things (a) a warrant to acquire up to 483,495
additional shares of quepasa's common stock for cash, valued at $386,000, at the
same purchase price per share paid for the original 1,428,571 shares, which
option expired, unexercised, on May 30, 2000, (b) a right of first refusal,
(c) a right of participation in future stock issuances, (d) registration rights,
(e) an exclusive sales right, and (f) a "right of resale" pursuant to which, in
the event of a change in quepasa's ownership in excess of 30% prior to
September 30, 2000, and for a price per share less than $7.00, Gateway had a
right to be reimbursed for the differential in the per share amount, which right
expired on its own terms.
In May 2000 and again in November 2000, quepasa announced layoffs that would
ultimately reduce its work force by approximately 80% between April 1, 2000 and
December 31, 2000. The purpose of these staff reductions was to conserve cash.
As of the date hereof, quepasa has three employees and one contractor.
On December 27, 2000, quepasa announced that its board of directors approved
the development of a plan of liquidation and sale of its assets in the event
that no strategic transaction can be achieved. As a result, quepasa performed an
impairment analysis of all long-lived assets and identifiable intangibles in
accordance with accounting principles generally accepted in the United States of
America. As a result, quepasa recorded a $24.9 asset impairment charge in
December 2000.
During the first quarter of 2001, quepasa actively pursued the sale of its
assets and responded to numerous inquiries from interested parties. On
August 6, 2001, quepasa executed the merger agreement with Great Western.
Following consummation of the merger, with all shareholders participating,
quepasa's shareholders will own 49% of Great Western and Great Western's sole
shareholder, Amortibanc Investments, will own 51% (assuming the conversion of
all outstanding quepasa stock options with an exercise price at or below $0.15
per share). In addition, Amortibanc Investments will receive warrants to
purchase additional shares of Great Western's shares that, if exercised, would
increase its ownership interest up to a maximum of 65% of Great Western
(assuming the conversion of all outstanding quepasa stock options with an
exercise price at or below $0.15 per share). Great Western's common stock will
be publicly traded following the merger under the symbol "GWLR". The merger is
subject to certain closing conditions and shareholder approval. quepasa's board
of directors has unanimously approved the merger with Great Western. There can
be no assurance that quepasa will consummate the merger transaction.
quepasa continues to review the products and content it provides and its
marketing, sales and general operating costs with a view to conserve cash.
quepasa reduced its work force from 80 employees on December 31, 1999 to 20
employees on December 31, 2000, and again, to three employees as of April 30,
2001.
quepasa's independent accountants, KPMG LLP, issued their auditors' report
dated May 8, 2001 (except as to the second paragraph of Note 10(a) and Note 16
to the consolidated financial statements, which are dated as of August 6, 2001)
stating that quepasa has suffered recurring losses from operations, has an
accumulated deficit, has been unable to successfully execute its business plan,
and is considering alternatives for quepasa, all of which raise substantial
doubt about its ability to continue as a going concern.
INTRODUCTION TO RESULTS OF OPERATIONS
NET REVENUE.
quepasa expects to derive future net revenue from one principal source: the
sale of advertising on its website. Because quepasa has suspended operation of
its eTrato.com and credito.com websites, outsourced the operation of its
quepasa.com website, reduced its workforce to three employees,
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terminated its relationships with its third party content and service providers
and sold substantially all of its assets, quepasa is currently not generating
any new revenue.
ADVERTISING REVENUE.
In 2000, quepasa derived approximately 62.4% of its net revenue from the
sale of advertisements on its website which was received principally from:
- advertising arrangements under which quepasa received fixed fees for
banners placed on its website for specified periods of time or for a
specified number of delivered advertisement impressions; and
- reciprocal services arrangements, under which quepasa exchanged
advertising space on its website for advertising or services from other
parties.
Advertising revenue is recognized ratably based on the number of impressions
displayed, provided that quepasa has no obligations remaining at the end of a
period and collection of the resulting receivable is probable. quepasa's
obligations typically include guarantees of a minimum number of impressions. To
the extent that minimum guaranteed impressions are not met, quepasa defers
recognition of the corresponding revenue until the remaining guaranteed
impression levels are achieved. Payments received from advertisers prior to
displaying their advertisements on quepasa's website are recorded as deferred
revenue.
SPONSORSHIP REVENUE.
In 2000, quepasa also derived revenue from the sale of sponsorships or
exclusive sponsorship rights for certain areas within its website. These
sponsorships typically cover periods up to one year. quepasa recognized revenue
during the initial setup, if required under the unique terms of each sponsorship
agreement (e.g., co-branded website), ratably over the period of time of the
related agreement. Payments received from sponsors prior to displaying their
advertisements on quepasa's website are recorded as deferred revenue.
E-COMMERCE REVENUE.
quepasa derived an insignificant amount of revenue in 2000 from e-commerce
related transactions. Although it offered various e-commerce related services to
its user base in the form of auctions and third-party affiliate relationships,
quepasa did not recognize significant revenue from these services.
BARTER REVENUE.
In the ordinary course of business, quepasa has entered into reciprocal
service arrangements (barter transactions) whereby it provided advertising
service to third parties in exchange for advertising services in other media.
Revenue and expenses from these agreements are recorded at the fair value of
services provided or received, whichever is more determinable under the
circumstances. The fair value represents market prices negotiated on an
arm's-length basis. Revenue from reciprocal service arrangements is recognized
as income when advertisements are delivered on quepasa's website. Expense from
reciprocal services arrangements is recognized when quepasa's advertisements are
run in other media, which are typically in the same period when the reciprocal
service revenue is recognized. Related expenses are classified as advertising
and marketing expenses. During 2000 and 1999, revenue and related expenses
attributable to reciprocal services totaled approximately $1.3 million and
$119,000, respectively. In 2000 and 1999, barter revenue represented 45.9% and
17.7%, respectively, of total gross revenue.
In addition, the barter advertising was conducted in the same media (i.e.,
quepasa's website). In evaluating "similarity," quepasa ensured reasonableness
of the target market, circulation, timing, medium, size, placement and location
of the advertisement. In cases where the total dollar amount of
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barter revenue exceeded the total amount of the "similar" cash transaction, the
total barter amount was capped at the lower cash amount.
OPERATING EXPENSES.
quepasa's principal operating expenses consisted of:
- Product and content development expenses;
- Advertising and marketing expenses;
- General and administrative expenses; and
- Amortization of goodwill and asset impairment charges.
Product and Content Development Expenses.
Product and content development expenses consisted of personnel costs
associated with the development, testing and upgrading of quepasa's website and
systems, purchases of content and specific technology, particularly software,
and telecommunications links and access charges. quepasa continues to reduce the
products and content quepasa provides as it reduces its operating expenses and
conserves cash.
ADVERTISING AND MARKETING EXPENSES.
quepasa's advertising and marketing expenses consisted primarily of salaries
and expenses of marketing and sales personnel, and other marketing-related
expenses including quepasa's mass media-based branding and advertising
activities and its distribution agreement with NetZero. quepasa has continued to
reduce its marketing and sales expenses as it reduces its operating expenses and
conserves cash.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses consisted primarily of costs related to
corporate personnel, occupancy costs, general operating costs and corporate
professional fee expenses, such as legal and accounting fees. Because quepasa
has reduced its personnel and general operating expenses, it expects that future
period expenses will be less than those in 2000. However, because quepasa
operates as a public company, it anticipates that certain significant legal and
accounting expenses will continue in future periods.
AMORTIZATION OF GOODWILL AND ASSET IMPAIRMENT CHARGES.
During the fourth quarter of 2000, quepasa performed an impairment analysis
of all long-lived assets and its identifiable intangibles. quepasa determined
that the fair value of certain acquired assets and certain identifiable
intangibles was significantly below their respective carrying values. As a
result, quepasa recorded a $24.9 million impairment charge related to goodwill
and domain and license agreements, prepaid marketing services and property and
equipment. In addition, quepasa realized amortization of goodwill expenses
totaling $5.8 million in 2000.
OTHER INCOME (EXPENSE).
Other income (expense) consists primarily of interest expense, net of
interest earned. Following its initial public offering in 1999 and continuing
through 2000, quepasa invested most of its assets in cash or cash equivalents,
which are either debt instruments of the U.S. Government, its agencies, or high
quality commercial paper. Interest income will decrease over time as cash is
used to fund operations.
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RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2000.
In January 2001, quepasa received a cash payment from Gateway, Inc. in an
amount equal to approximately $1.0 million for computers that quepasa sold back
to Gateway in December 2000. During the first nine months of 2001, in order to
conserve cash and limit the services and content quepasa provides, quepasa
terminated most of its strategic relationships with third-party content and
service providers, suspended operations of the eTrato.com and credito.com web
sites, outsourced the hosting and administration of the quepasa.com web site for
approximately $2,000 per month, and sold substantially all of its furniture,
computer and server equipment and office equipment for $277,000 in cash. In
addition, quepasa reduced its work force from 20 employees at December 31, 2000,
to three employees, and one full-time and several part-time contractors as of
September 30, 2001.
NET REVENUE.
Gross and net revenue were $177,000 and $175,000, respectively, in the first
nine months of 2001, and $2.4 million and $2.2 million, respectively, in the
first nine months of 2000. Quepasa launched its website in the fourth quarter of
1998 and first generated revenue during the second quarter of 1999. During 2001,
revenue was derived from two principal sources (1) banner advertising
arrangements under which quepasa recognizes revenue based on cost per thousand
advertisement impressions or for advertisement campaigns that run for specified
periods of time and (2) sponsorship agreements which allow advertisers to
sponsor an area or receive sponsorship exclusivity on an area within quepasa's
website. Approximately 58% of the gross revenue was generated from banner
advertising and 42% was generated from sponsorship agreements in the first nine
months of 2001 compared to 57% and 43%, respectively, in the first nine months
of 2000. During the first quarter of 2000, quepasa hired an internal sales force
to sell banner advertising placements and sponsorship campaigns on quepasa's
website. Banner advertising inventory was previously sold by an independent
agent, who received a commission through an exclusive agreement, which varied
from 30% to 50% of gross banner advertising depending on the volume of
advertisement impressions during a month. Effective February 29, 2000, quepasa
terminated its exclusive agreement with this independent sales agent. In
addition to hiring quepasa's own internal sales force, quepasa supplemented its
sales efforts through the use of an independent sales agent for run of network
banner advertising and additional site-specific advertising sales. Sponsor
revenue is recognized ratably over the term of the agreement. During the nine
months ended September 30, 2001, quepasa did not recognize any barter revenue.
During the nine months ended September 30, 2000, quepasa recognized
$1.2 million of barter revenue which is included in the amounts noted above. In
the first nine months of 2001, barter revenue represented 0% of total gross
revenue compared to 48% in the first nine months of 2000.
OPERATING EXPENSES.
Product and Content Development Expenses. quepasa's product and content
development expenses decreased to $392,000 in the first nine months of 2001 from
$5.1 million in the first nine months of 2000. The period-to-period decrease was
principally attributable to:
- A decrease in personnel costs relating to the development of content and
technological support from $2.3 million for the first nine months of 2000
to $85,000 for the first nine months of 2001;
- Termination of most of quepasa's strategic relationships with third party
content and service providers;
- A reduction in the products and content quepasa provides;
- The suspension of the operation of the etrato.com and credito.com web
sites; and
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- The outsourcing of the hosting and administration of the quepasa.com and
realestateespanol.com web sites.
Advertising and Marketing Expenses. quepasa's marketing and sales expenses
decreased to $422,000 in the first nine months of 2001 from $15.4 million in the
first nine months of 2000. This decrease was principally attributable to:
- A decrease in marketing and sales personnel costs to $100,000 in the first
nine months of 2001 from $1.9 million in the first nine months of 2000;
- $6.3 million decrease related to the amortization of the Telemundo, Gloria
Estefan and NetZero contracts in the first nine months of 2000;
- A decrease in advertising expense to $23,000 in the first nine months of
2001 from $6.1 million in the first nine months of 2000.
GENERAL AND ADMINISTRATIVE EXPENSES.
quepasa's general and administrative expenses were $2.4 million for the
first nine months of 2001 compared to $4.8 million for the first nine months of
2000. For the nine months ended September 30, 2001, the period to period
decrease was principally attributable to a reduction in quepasa's workforce. For
the nine months ended September 30, 2001, quepasa's professional fees were
$1.2 million, depreciation and rent was $269,000, and quepasa's office and
related expenses were $250,000, compared to $857,000, $1.1 million, and
$1.4 million, respectively, for the nine months ended September 30, 2000. For
the nine months ended September 30, 2001, stock based compensation decreased to
$31,000, compared to $62,000 for the nine months ended September 30, 2000.
AMORTIZATION OF GOODWILL
Amortization for the nine months ended September 30, 2001 was zero, compared
to $4.6 million for the nine-month period ended September 30, 2000. There was no
amortization of goodwill during the nine months ended September 30, 2001 as a
result of the write-off of goodwill in the fourth quarter of 2000.
At December 31, 2000 quepasa determined that the fair market value of
certain acquired assets was significantly below their respective carrying
values. As a result, quepasa recorded asset impairment charges of $24.9 million
in the fourth quarter of 2000.
OTHER INCOME (EXPENSE).
Other income (expense), which primarily consists of interest income and
realized and unrealized gains or losses on trading securities, offset by
interest expense, was $212,000 in the first nine months of 2001 compared to
$903,000 in the first nine months of 2000.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999.
quepasa's results of operations in 2000 were characterized by increased
expenses that significantly exceeded revenue growth during the same period.
quepasa reported a net loss of $61.0 million in 2000, compared to a net loss of
$29.3 million in 1999. During 2000, and during the first quarter in particular,
quepasa was principally engaged in both expanding its human resources across all
areas of the Company, including the staffing of an internal sales force, and in
continued brand-building and marketing agreements to drive users to its website.
In addition, quepasa acquired three operating subsidiaries, credito.com,
eTrato.com, realestateespanol.com, which it continued to fund through 2000.
On January 28, 2000, quepasa acquired credito.com, an on-line credit company
targeted to the U.S. Hispanic population for an aggregate purchase price of
$8.4 million consisting of 681,818 shares of common stock valued at $11.00 per
share and assumption of a $887,000 note payable. quepasa included
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the 681,818 shares of common stock issued unconditionally in determining the
cost of credito.com recorded on the acquisition date. Contingent consideration
consisted of warrants to purchase 681,818 shares of common stock exercisable
upon credito.com's achievement of certain performance objectives related to
gross revenue as of January 2001 and January 2002. credito.com did not meet the
performance objectives as of January 2001, and consequently, the warrants were
returned to quepasa. The value of the common stock was determined using the
average stock price between the date of the merger agreement and the date the
merger was publicly announced. quepasa accounted for the acquisition using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the assets purchased and the liabilities assumed based upon the estimated fair
values on the acquisition date. The excess of the purchase price over the fair
value of the net assets acquired was approximately $7.8 million and was recorded
as goodwill, which was being amortized on a straight-line basis over a
three-year period. On December 27, 2000, quepasa's board of directors approved
the development of a plan of liquidation and sale of quepasa's assets in the
event that no strategic transaction involving quepasa could be achieved.
Accordingly, quepasa performed an impairment analysis of all long-lived assets
and identifiable intangibles in accordance with generally accepted accounting
principles in the United States of America. As a result, the balance of
unamortized goodwill of $7.3 million recorded in conjunction with the
transaction was written off as of December 31, 2000. The results of operations
of credito.com have been included in the accompanying statement of operations
for 2000 from the acquisition date.
On January 28, 2000, quepasa acquired eTrato.com, an on-line trading
community developed especially for the Spanish language or bilingual Internet
user, for an aggregate purchase price of $10.9 million, consisting of 681,818
shares of quepasa's common stock valued at $14.09 per share (or $9.6 million in
the aggregate), and assumption of a $1.3 million promissory note. The note
payable was due in whole on January 28, 2002, and has a stated interest rate at
the greater of 6% per annum or the applicable federal rate in effect with
respect to debt instruments having a term of two years. This note was paid in
full on May 8, 2000. The value of the common stock was determined using the
average stock price between the date of the merger agreement and the date the
merger was publicly announced, on December 20, 1999. Contingent consideration
consisted of 681,818 shares of common stock which were held in escrow to be
released to eTrato pending the outcome of certain revenue and website
contingencies over the six-month period following the acquisition. The
contingencies were not met, and consequently, those shares were returned to
quepasa subsequent to year-end and cancelled. quepasa accounted for the
acquisition using the purchase method of accounting. Accordingly, the purchase
price was allocated to the assets purchased and the liabilities assumed based
upon the estimated fair value at the acquisition date. The excess of the
purchase price over the fair value of the net assets acquired was approximately
$10.1 million and was recorded as goodwill, which was being amortized on a
straight-line basis over a three-year period. On December 27, 2000, quepasa's
board of directors approved the development of a plan of liquidation and sale of
quepasa's assets in the event that no strategic transaction involving quepasa
could be achieved. Accordingly, quepasa performed an impairment analysis of all
long-lived assets and identifiable intangibles in accordance with generally
accepted accounting principles in the United States of America. As a result, the
balance of unamortized goodwill of $5.6 million recorded in conjunction with the
transaction was written off as of December 31, 2000. The results of operations
of eTrato.com have been included in the accompanying statement of operations for
2000 from the acquisition date.
On March 9, 2000, quepasa acquired realestateespanol.com, a real estate
services site providing the Hispanic-American community with bilingual home
buying services, for an aggregate purchase price of $3.3 million, consisting of
335,925 shares of quepasa's common stock valued at $3.0 million, or $8.83 per
share, and assumption of $300,000 in debt paid immediately following the closing
of the acquisition. Contingent consideration consisted of 248,834 shares of
common stock which were held in escrow pending realestateespanol.com's
achievement of gross revenue targets within 12 months of the date of the
agreement. The value of the common stock was determined using the average stock
price between
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the date of the merger agreement and the date the merger was publicly announced.
realestateespanol.com did not meet the agreed-upon targets contingent to its
ability to receive the shares of common stock held in escrow, and consequently,
those shares were returned to quepasa and cancelled subsequent to year-end.
quepasa accounted for the acquisition using the purchase method of accounting.
Accordingly, the purchase price was allocated to the assets purchased and the
liability assumed based upon the estimated fair value at the acquisition date.
The excess of the purchase price over the fair value of the net assets acquired
was approximately $3.2 million and was recorded as goodwill, which was being
amortized on a straight-line basis over a three-year period. On December 27,
2000, quepasa's board of directors approved the development of a plan of
liquidation and sale of quepasa's assets in the event that no strategic
transaction involving quepasa could be achieved. Accordingly, quepasa performed
an impairment analysis of all long-lived assets and identifiable intangibles in
accordance with generally accepted accounting principles in the United States of
America. As a result, the balance of unamortized goodwill of $2.4 million
recorded in conjunction with the transaction was written off as of December 31,
2000. The results of operations of realestateespanol.com have been included in
the accompanying statement of operations for 2000 from the acquisition date.
As a result of quepasa's continued losses and failure to execute its
business plan, beginning in the second quarter of 2000, quepasa determined it
was necessary to begin a program of cash conservation, especially in light of
the difficult capital market climate at that time. quepasa focused on reducing
its cash expenses in all operational areas, including product and content,
marketing, sales, personnel and general and administrative expenses. On May 9,
2000 and again on November 14, 2000, quepasa announced reductions in its work
force that ultimately resulted in an 80% reduction in its employee base at
December 31, 2000. During the period from April 1, 2000 through December 31,
2000, quepasa reduced its employee count from 101 to 20 professionals and
significantly reduced its product and content, and marketing and sales and
general and operating expenses, in order to conserve quepasa's remaining cash as
it continued to consider its strategic alternatives. As of April 30, 2001,
quepasa had three full-time employees.
On May 26, 2000, quepasa announced the retention of Friedman, Billings to
help explore strategic alternatives, including strategic alliances, significant
equity investments in quepasa or a merger or sale of all or a significant
portion of its business. During the period from May through October 2000,
quepasa and Friedman, Billings met with and evaluated numerous potential merger
partners, in some cases, engaging in extended negotiations. Ultimately, quepasa
could not reach agreement on a potential merger transaction.
In December 2000, quepasa announced that quepasa's board of directors
approved the development of a plan of liquidation and sale of quepasa's assets.
quepasa also announced a bid date and instructions for all interested parties to
submit monetary bids for any and all assets. These announcements generated
additional expressions of interest in a merger transaction which quepasa and
Friedman, Billings pursued in the first quarter of 2001. As a result, quepasa
entered into the merger agreement with Great Western. Also in the first quarter
of 2001, quepasa completed the sale of substantially all of its office
furniture, computer inventory and equipment for $1.3 million, the operation of
the quepasa.com websites was outsourced, and the operation of the eTrato.com and
credito.com websites were suspended.
Included in quepasa's $61.0 million net loss for 2000 is a $24.9 million
non-cash asset impairment charge that consists of the following: goodwill and
domain and license agreements--$16.2 million; prepaid marketing
services--$7.6 million; and property and equipment--$1.1 million. quepasa also
recognized a $3.5 million loss on the resale of its computer promotions
inventory to Gateway in 2000. quepasa anticipates that these developments will
contribute to a decrease in both its revenue and expenses in future periods as
compared to 2000.
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NET REVENUE.
Gross and net revenue were $2.8 million and $2.6 million, respectively, in
2000, and $671,000 and $556,000, respectively, in 1999. Quepasa launched its
website in the fourth quarter of 1998 and first generated revenue during the
second quarter of 1999. During 2000, revenue was derived from two principal
sources: (1) banner advertising arrangements under which quepasa receives
revenue based on cost per thousand advertisement impressions or for
advertisement campaigns that run for specified periods of time and
(2) sponsorship agreements which allow advertisers to sponsor an area or receive
sponsorship exclusivity on an area within quepasa's website. Approximately 62%
of the gross revenue was generated from banner advertising and 38% was generated
from sponsorship agreements in 2000 compared to 69% and 31%, respectively, in
1999. During the first quarter of 2000, quepasa hired an internal sales force to
sell banner advertising placements and sponsorship campaigns on quepasa's
website. Banner advertising inventory was previously sold by an independent
agent, who received a commission through an exclusive agreement, which varied
from 30% to 50% of gross banner advertising depending on the volume of
advertisement impressions during a month. Effective February 29, 2000, quepasa
terminated its exclusive agreement with this independent sales agent. In
addition to hiring quepasa's own internal sales force, quepasa supplemented its
sales efforts through the use of an independent sales agent for run of network
banner advertising and additional site-specific advertising sales. With the
exception of Folgers, representing 16% of gross revenue, no other single
advertiser utilizing banner ads or sponsorship agreements amounted to over 10%
of total gross revenue. Sponsor revenue is recognized ratably over the term of
the agreement. During the year-ended December 31, 2000, quepasa recognized
$1.3 million of barter revenue which is included in the amounts noted above. In
2000, barter revenue represented 45.9% of total gross revenue compared to 17.7%
in 1999.
OPERATING EXPENSES.
Product and Content Development Expenses. quepasa's product and content
development expenses increased to $6.4 million in 2000 from $2.3 million in
1999. The period-to-period increase was principally attributable to:
- An increase in personnel costs relating to the development of content and
technological support to $2.9 million in 2000 from $1.2 million in 1999;
- An increase in expenses for telecommunications links to $794,000 in 2000
from $642,000 in 1999; and
- An increase in third-party and internal content expenses to $2.8 million
in 2000 from $334,000 in 1999. Included in the $2.8 million are content
expenses totaling $824,000 related to the continued design and development
of quepasa's three operating subsidiaries: realestateespanol.com,
eTrato.com and credito.com.
Advertising and Marketing Expenses. quepasa's marketing and sales expenses
increased to $20.8 million in 2000 from $16.7 million in 1999. This increase was
principally attributable to:
- An increase in marketing and sales personnel costs to $2.4 million in 2000
from $332,000 in 1999;
- A $3.5 million charge associated with the resale of computer promotions
inventory to Gateway in December 2000 resulting from the board of
directors' instructions to liquidate computer inventory and halt
promotional activities;
- A $3.0 million increase related to quepasa's marketing and distribution
agreement with NetZero in 2000;
- $921,000 associated with various computer and miscellaneous giveaways and
promotions in 2000; and
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- A decrease in advertising expense to $9.8 million in 2000 from
$15.9 million in 1999 resulting from management's decision to reduce
expenses and conserve cash.
Amortization of Goodwill and Asset Impairment Charges.
During 2000, quepasa completed the acquisitions of eTrato.com, credito.com
and realestateespanol.com. quepasa accounted for these three acquisitions using
the purchase method of accounting. quepasa recorded approximately $21.1 million
of goodwill related to these acquisitions with a three-year amortization period.
Amortization of goodwill amounted to $5.8 million for the year ended
December 31, 2000, based upon a three-year amortization schedule. The remaining
goodwill, or $15.3 million, has been treated as impaired and is included in
asset impairment charges which total $24.9 million during the fourth quarter of
2000, as discussed above.
IMPAIRMENT OF TELEMUNDO ADVERTISING CREDIT.
In April 1999, quepasa entered into an agreement with Telemundo whereby
quepasa received a $5.0 million advertising credit on the Telemundo television
network at the rate of $1.0 million for each of the next five years. Under the
agreement, Telemundo received 600,000 shares of quepasa's common stock valued at
$12 per share, or $7.2 million, and a warrant valued at $2.9 million to purchase
1,000,000 shares of quepasa's common stock exercisable at $14.40 per share up to
and including June 25, 2001. Telemundo did not exercise the warrant. After
completion of quepasa's initial public offering, the shares and warrant became
fully vested and were not subject to return for nonperformance by Telemundo.
quepasa also agreed to design and build a website for Telemundo. quepasa used
approximately $840,000 of the advertising credits. As a result of quepasa's
decision to stop advertising and marketing the quepasa.com website and to
develop a plan of liquidation in the event that a strategic transaction
involving quepasa does not occur, these advertising credits will not be used
under quepasa's current business plan. quepasa believes it has the right to use
or transfer the entire unused advertising credit and that such right has
substantial value. Under generally accepted accounting principles, quepasa is
required to perform an impairment analysis and, accordingly, quepasa wrote down
the $4.2 million remaining deferred advertising credit to zero as of
December 31, 2000. quepasa is currently in arbitration with Telemundo regarding
this agreement. See "quepasa's Business--Legal Proceedings" below.
GENERAL AND ADMINISTRATIVE EXPENSES.
quepasa's general and administrative expenses decreased to $6.6 million in
2000 from $11.5 million in 1999. This decrease was attributable to a decrease in
administrative personnel expenses to $1.9 million in 2000 from $3.4 million in
1999. Professional fee expenses, including legal and accounting, increased to
$1.2 million in 2000 from $690,000 in 1999. Additionally, quepasa reduced its
general operating expenses to $2.0 million in 2000 from $6.0 million in 1999.
Finally, stock based compensation decreased to $82,000 in 2000 from
$5.0 million in 1999.
OTHER INCOME (EXPENSE).
Other income (expense), which primarily consists of interest income and
unrealized gains or losses on trading securities, offset by interest expense,
was $1.0 million in 2000 compared to $777,000 in 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.
quepasa's results of operations in 1999 were characterized by increased
expenses that significantly exceeded revenue growth during the same period.
quepasa reported a net loss of $29.3 million in 1999, compared to a net loss of
$6.5 million in 1998. During 1999, quepasa was principally engaged in product
development, which included hiring personnel for its content and technology
departments. In addition, quepasa launched a mass media-based branding and
advertising campaign, and hired marketing, sales and development personnel and a
management team.
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NET REVENUE.
Gross and net revenue were $671,000 and $556,000 respectively in 1999.
quepasa launched its website in the fourth quarter 1998 and first generated a
limited amount of revenue during the second quarter 1999. During 1999, revenue
was derived from two sources: (1) banner advertising arrangements under which
quepasa receives revenue based on cost per thousand advertisement impressions
and on cost per clicks and (2) sponsor agreements which allow advertisers to
sponsor an area or receive sponsorship exclusivity on an area within quepasa's
website. Approximately 69% of the gross revenue was generated from banner
advertising and 31% was generated from sponsorship agreements. Banner
advertising has been sold by an independent agent who received a commission,
which varied from 30% to 50% of gross banner advertising depending on the volume
of advertisement impressions during a month. With the exception of Net2Phone and
Automation, representing 20.5% and 11.5% of gross revenue respectively, no other
single advertiser utilizing banner ads or sponsorship agreements amounted to
over 10% of total gross revenue in 1999. Sponsor revenue is recognized ratably
over the term of the agreement. During 1999, quepasa recognized $119,000 in
barter revenue, which is included in the amounts noted above. In 1999, barter
revenue represented 17.7% of total gross revenue.
OPERATING EXPENSES.
Product and Content Development Expenses. quepasa's product and content
development expenses increased to $2.3 million in 1999 from $415,000 in 1998.
The period-to-period increase was principally attributable to:
- An increase in personnel costs relating to the development of content and
technological support to $1.2 million in 1999 from $173,000 in 1998;
- An increase in expenses for telecommunications links to $642,000 in 1999
from $187,000 in 1998; and
- An increase in third-party content expenses to $334,000 in 1999 from
$3,181 in 1998.
Advertising and Marketing Expenses. quepasa's marketing and sales expenses
increased to $16.7 million in 1999 from $250,000 in 1998. This increase was
principally attributable to:
- An increase to $14.1 million in costs of quepasa's initial mass
media-based branding and advertising campaign;
- An increase in marketing and sales personnel costs to $332,000 in 1999
from $45,000 in 1998 and
- Amortization of advertising agreements amounting to $2.5 million in 1999.
GENERAL AND ADMINISTRATIVE EXPENSES.
quepasa's general and administrative expenses increased to $11.5 million in
1999 from $5.8 million in 1998. This increase was attributable to an increase in
administrative personnel costs to $3.4 million in 1999 from $260,000 in 1998,
and stock-based expense of $5.0 million in 1999 compared to $5.3 million in
1998. During the first and second quarters of 1999, quepasa recognized
$4.9 million for the issuance of options to employees and directors. During
1999, quepasa issued a total of 950,000 options and 50,000 shares of common
stock to the Chairman and Chief Executive Officer. Additionally, quepasa's
former Chairman and Chief Executive Officer transferred 50,000 shares of common
stock to the current Chairman and Chief Executive Officer. As a result of these
transactions $2.5 million of compensation expense was recognized during the
year-ended December 31, 1999. In May 1998, 3,566,714 shares were transferred by
an existing shareholder to officers, consultants and employees. Also in
May 1998, 1,420,000 of shares of common stock were issued to a former officer of
quepasa.com and an outside advisor. In addition, 215,000 stock options were
granted to employees in the fourth
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quarter of 1998. As a result of these issuances, approximately $5.3 million of
stock based compensation was recognized during 1998.
OTHER INCOME (EXPENSE).
Other income (expense), which primarily consists of interest income and
unrealized gains or losses on trading securities, offset by interest expense,
was $777,000 in 1999 compared to ($48,000) in 1998. This change primarily
resulted from interest income earned and unrealized gains on the proceeds of the
June 1999 initial public offering. In October 1999, quepasa paid off the note
payable-shareholder and as a result quepasa expects that for the foreseeable
future its interest income will exceed its interest expense.
LIQUIDITY AND CAPITAL RESOURCES
quepasa has substantial liquidity and capital resource requirements, but
limited sources of liquidity and capital resources. quepasa has generated
significant net losses and negative cash flows from its inception and
anticipates that it will experience continued net losses and negative cash flows
for the foreseeable future. quepasa's independent accountants have issued their
auditors' report dated May 8, 2001 (except as to the second paragraph of
Note 10(a) and Note 16 to the consolidated financial statements, which are dated
as of August 6, 2001) stating that quepasa's recurring losses and accumulated
deficit, among other things, raise substantial doubt about its ability to
continue as a going concern.
From quepasa's inception to date, it has relied principally upon equity
investments to support the development of its business. At December 31, 2000,
quepasa had $3.9 million in cash and cash equivalents and $2.4 million in
short-term investments compared to $7.0 million and $22.2 million, respectively
at December 31, 1999. On June 24, 1999, quepasa raised approximately
$42.4 million, net of offering costs, through an initial public offering of its
common stock and during July 1999, it 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 initial public offering. In March 2000, quepasa
raised $9.0 million by issuing 1,428,571 shares of the quepasa's common stock to
Gateway Companies, Inc.
Net cash used in operating activities was $10.1 million in 2000 as compared
to $41.9 million in 1999. Net cash used by operations in 2000 consisted of the
net loss of $61.0 million, a decrease in accounts payable and accrued
liabilities of $3.4 million and a decrease in other assets of $6.7 million. This
is offset by an increase in the sale of trading securities of $19.7 million and
non-cash expenses of $24.9 million in asset impairment charges and $8.1 million
in depreciation and amortization, respectively. Net cash used in operations for
1999 primarily resulted from a $29.3 million loss, $22.1 million in net
purchases of trading securities and an increase in prepaid expenses of
$2.2 million offset by a non-cash expense for stock-based compensation and
amortization of $5.0 million, a decrease in deposits receivable of
$1.5 million, an increase in accounts payable of $2.7 million and an increase in
accrued liabilities of $1.0 million.
Net cash used in investing activities was $98,705 in 2000 as compared to
$2.0 million net cash used in 1999. The decrease is attributed to a decrease in
the purchase of fixed assets and the net cash received from acquisitions during
2000.
Net cash provided by financing activities was $7.0 million in 2000 as
compared to $48.7 million in 1999. The decrease is primarily attributed to the
decrease in proceeds from the sale of stock, including proceeds from quepasa's
1999 initial public offering, and exercise of stock options offset by the
payment of $2.4 million to retire debt.
As of December 31, 2000, quepasa had commitments under non-cancelable
operating leases for office facilities requiring payments of $629,000 through
the end of the longest-term agreement that is scheduled to expire in
November 2002. However, as a result of quepasa's reduction in its work force
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and inability to execute its business strategy, on August 1, 2001, quepasa
executed an agreement with its landlord pursuant to which it made a $130,000
lump sum payment for any and all amounts due and owing under its lease,
including any and all future amounts to be paid thereunder. In addition, quepasa
is required to vacate the property on the earlier to occur of October 31, 2001
or upon 30-days prior written notice from the landlord. As of August 31, 2001,
quepasa has not received a written notice to vacate.
quepasa expects to continue to incur costs, particularly general and
administrative costs during 2001, and does not expect sufficient revenue to be
realized to offset these costs. quepasa believes that its cash on hand will be
sufficient to meet its working capital and capital expenditure needs through the
first quarter of 2002. quepasa believes it will be necessary for it to raise
additional capital, conclude one or more strategic transactions or merge or sell
quepasa by year-end 2001. In the event quepasa is not able to raise capital,
conclude one or more strategic transactions or merge or sell quepasa in that
time period, its ability to continue operations will be severely impacted and
could have a significant adverse effect on quepasa and its business. There can
be no assurance that quepasa will be successful in raising the necessary funds,
concluding one or more strategic transactions, merging or selling quepasa or
that the terms of any such transaction will be beneficial to quepasa.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
quepasa does not have any derivative financial instruments as of
December 31, 2000 or as of September 30, 2001. Quepasa invests its cash in money
market funds and corporate bonds, classified as cash and cash equivalents and
trading securities, which are subject to minimal credit and market risk.
quepasa's interest income arising from these investments is sensitive to changes
in the general level of interest rates. In this regard, changes in interest
rates can affect the interest earned on quepasa's cash equivalents and trading
securities. To mitigate the impact of fluctuations in interest rates, quepasa
generally enters into fixed rate investing arrangements (corporate bonds). As of
December 31, 2000, a 10 basis point change in interest rates would have a
potential impact on quepasa's interest earnings of approximately $4,500, which
is clearly immaterial to quepasa's consolidated financial statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled work force may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142
and that intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-lived Assets to be Disposed Of.
quepasa is required to adopt the provisions of Statement 141 immediately,
except with regard to business combinations initiated prior to July 1, 2001,
which it expects to account for using the pooling-of-interests method, and
Statement 142 effective January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are required
in a purchase business combination completed after June 30, 2001 will not be
amortized but will continue to be evaluated for impairment in accordance with
the appropriate pre-Statement 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
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continue to be amortized prior to the adoption of Statement 142. quepasa does
not believe that adoption of Statements 141 and 142 will have a material impact
on its financial statements.
SYSTEM ISSUES
quepasa depends on the delivery of information over the Internet, a medium
that depends on information contained primarily in electronic format, in
databases and computer systems maintained by quepasa and third-parties. A
disruption of third-party systems or quepasa's systems interacting with these
third party systems could prevent quepasa from delivering services in a timely
manner, which could have a material adverse affect quepasa's business and
results of operations.
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QUEPASA'S BUSINESS
OVERVIEW
quepasa.com is a bilingual (Spanish/English) Internet portal focused on the
United States Hispanic market. quepasa provides users with information and
content centered around the Spanish language. Because the language preference of
many U.S. Hispanics is English, quepasa also offers its users the ability to
access information in the English language.
In May 2000, quepasa's board of directors announced the engagement of
Friedman, Billings, Ramsey & Co., an investment banking firm, to assist quepasa
in developing strategic alternatives to maximize shareholder value. In
May 2000, quepasa's board of directors announced the engagement of Friedman,
Billings, Ramsey & Co., an investment banking firm, to assist quepasa in
developing strategic alternatives to maximize shareholder value. Following the
announcement and during the remainder of 2000 and the first six months of 2001,
in order to conserve cash, quepasa terminated most of its strategic
relationships with its third party content and service providers, significantly
reduced the products and content it provides, outsourced the hosting and
administration of its quepasa.com and realestateespanol.com websites, suspended
the operation of its credito.com and eTrato.com websites, reduced its work force
to three employees and one contractor, and sold substantially all of its
furniture, fixtures and equipment, including its internal computer and server
equipment.
On August 6, 2001, quepasa executed the merger agreement with Great Western.
Following consummation of the merger, with all shareholders participating,
quepasa's shareholders will own 49% of Great Western and Great Western's sole
shareholder, Amortibanc Investments, will own 51% (assuming the conversion of
all outstanding quepasa stock options with an exercise price at or below $0.15
per share). In addition, upon the effective date of the merger, Amortibanc
Investments will receive warrants to purchase additional shares of Great Western
that, if exercised, would increase its ownership interest up to 65% of Great
Western (assuming the conversion of all outstanding quepasa stock options with
an exercise price at or below $0.15 per share). Great Western's common stock
will be publicly traded following the merger under the symbol "GWLR." quepasa's
board of directors has unanimously approved the merger with Great Western. There
can be no assurances that quepasa will consummate the proposed transaction.
Please refer to "Management's Discussion and Analysis of Financial Condition
and Results of Operations of quepasa "for a discussion of quepasa's independent
auditor's report modification for substantial doubt about its ability to
continue as a going concern.
QUEPASA'S MARKET IN THE U.S.
HISPANIC POPULATION GROWTH AND CONCENTRATION.
A large number of quepasa's users are Hispanics, one of the most rapidly
growing segments of the U.S. population. According to the U.S. Census Bureau and
published sources, the Hispanic population:
- Was estimated to be 35.3 million or 12.5% of the total U.S. population in
2000, an increase of approximately 57% from 22.5 million or 9% of the
total U.S. population in 1990;
- Is expected to account for 43% of the total U.S. population growth between
1998 and 2010 and is expected to grow to 41.1 million or 14% of the total
U.S. population by 2010; and
- Is relatively young, with almost 70% of U.S. Hispanics under 35, compared
to less than 50% of non-Hispanics, and with a median age of 26, compared
to 35 for the rest of the population.
quepasa believes the relative youth of the Hispanic population will furnish
growth opportunities for products and services that appeal to a younger market,
such as that found on the Internet. In addition, 70% of all U.S. Hispanics live
in 12 metropolitan areas, which makes U.S. Hispanics an attractive demographic
group for advertisers, enabling them to cost effectively deliver messages to a
highly targeted audience.
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INCREASING HISPANIC PURCHASING POWER.
Total U.S. Hispanic purchasing power:
- Rose at a compound annual growth rate of 7.5%, compared with 4.9% for the
rest of the population from 1993 to 1998; and
- Was projected to be $443.0 billion or 7% of U.S. consumer expenditures by
2000, and $938.0 billion or 9% of U.S. consumer expenditures by 2010.
CONTINUING USE OF THE SPANISH-LANGUAGE BY U.S. HISPANICS.
According to published sources, approximately 90% of U.S. Hispanic adults
speak Spanish at home. Moreover, U.S. Hispanics are expected to continue to
speak Spanish because:
- Approximately two-thirds of U.S. Hispanic adults were born outside the
U.S.;
- Hispanic immigration into the U.S. is continuing;
- Hispanics generally seek to preserve their cultural identity; and
- Population concentration encourages communication in Spanish.
THE QUEPASA.COM SITE
quepasa strategy has been to establish quepasa.com as a bilingual
(Spanish/English) Internet portal and online community, offering its content to
Hispanic Internet users primarily in the U.S. In November 1998, quepasa launched
the quepasa.com website which allows individuals to quickly access content and
features which appeal to Hispanic Internet users. Although quepasa's content is
directed toward Spanish-speaking users, to better serve the U.S. Hispanic
population, quepasa.com is also offered in English.
In the second half of 2000, quepasa reduced the products and content it
offered in order to conserve its cash. In the first quarter of 2001, in order to
further conserve cash, quepasa sold all of its internal computer and server
equipment and outsourced the hosting and administration of the quepasa.com
website for approximately $2,000 per month.
MARKETING OF THE QUEPASA.COM SITE
During the first three quarters of 2000, quepasa attempted to increase its
website traffic by increasing the number and visibility of entry points to the
quepasa.com website, co-branding and other marketing arrangements with content
providers and high-traffic Spanish-language websites. quepasa also attempted to
increase page views, by adding content and other features to its site to
encourage retention of visitors on the site. In the fourth quarter of 2000, in
order to conserve cash, quepasa ceased marketing its website and began
terminating most of its co-branding and marketing arrangements with content
providers and significantly reduced the services and content it provides.
ADVERTISING ON THE QUEPASA.COM SITE
Advertisements on quepasa's website are the banner or billboard style, which
are designed to display additional advertisements as the consumer selects
various topics on the website. From each advertisement banner, users can proceed
directly to an advertiser's own website, thus enabling the advertiser to
directly interact with a user who has expressed interest in the advertisement.
During the first quarter of 2001, quepasa discontinued the use of its banner
advertisement software and sought a third-party outsourcer for its banner
advertisement sales and service. As of August 31, 2001, quepasa has been
unsuccessful in retaining a third-party outsourcer for its banner advertisement
sales and service.
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QUEPASA'S ON-LINE AUCTION AND CREDIT COMMUNITIES
In January 2000, quepasa acquired eTrato.com, inc., an online auction site
linking Hispanic buyers and sellers of goods and services, and
credito.com, inc., a Spanish language Internet company providing personal credit
content and information. In the first quarter of 2001, in order to conserve
cash, quepasa suspended operation of the eTrato.com and credito.com websites.
QUEPASA'S ON-LINE REAL ESTATE SERVICES COMMUNITY
In March 2000, quepasa acquired realestateespanol.com, a real estate
services site providing the Hispanic-American community with home buying
services in both English and Spanish. quepasa.com members via
realestateespanol.com were able to search for a real estate agent, apply for a
mortgage, and view homes for sale among the more than 800,000 online listings
provided through a partnership with homeseekers.com.
In May 2001, realestateespanol entered into various termination agreements
with the National Association of Hispanic Real Estate Professionals, or NAHREP,
and EMTA, under which, among other things, NAHREP agreed to release, with the
approval of the National Council of La Raza, or NCLR, and Freddie Mac
(additional parties to one such agreement), realestateespanol of all of its
rights and obligations under certain agreements dated December 1999 and
October 2000 regarding the implementation of a Hispanic Community Technology
Initiative, and NAHREP and EMTA assumed realestateespanol's rights and
obligations. In exchange for realestateespanol's release, including its
obligation to pay NAHREP an annual $50,000 fee for the next nine years and its
obligation to pay the costs associated with hosting and maintaining the
realestateespanol.com website, realestateespanol (a) transferred ownership of
certain technology to NAHREP, (b) licensed to NAHREP certain other technology
necessary for the hosting and maintenance of the realestateespanol.com website,
(c) permitted NAHREP to retain $150,000 of the sponsorship fee due to be paid to
realestateespanol during the first quarter of 2001 and (d) permitted NAHREP to
retain possession and ownership of 200 computers that realestateespanol donated
under the terms of the original agreements.
COMPETITORS AND COMPETITIVE FACTORS AFFECTING QUEPASA'S BUSINESS
The market for Internet products, services, advertising and commerce is
intensely competitive, and quepasa expects that competition will continue to
intensify. quepasa believes that the principal competitive factors in these
markets are name recognition, distribution arrangements, functionality,
performance, ease of use, the number of value-added services and features, and
quality of support. quepasa's primary competitors are other companies providing
portal and online community services, especially to the Spanish-language
Internet users, such as Yahoo!Espanol, America Online Latin America, Univision
Online, StarMedia, Terra Lycos, MSN and El Sitio.
In addition, a number of companies offering Internet products and services,
including quepasa's direct competitors, recently began integrating multiple
features within the products and services they offer to users. Integration of
Internet products and services is occurring through development of competing
products and through acquisitions of, or entering into joint ventures and/or
licensing arrangements involving other, Internet companies and quepasa's
competitors. For example, the web browsers offered by Netscape and Microsoft,
which are the two most widely-used browsers and substantial sources of traffic
for quepasa, may incorporate and promote information, search and retrieval
capabilities in future releases or upgrades that could make it more difficult
for Internet viewers to find and use quepasa's website.
Many large media companies have announced that they are contemplating
developing Internet navigation services and are attempting to become "gateway"
sites for web users. In the event these companies develop such portal or
community sites, quepasa could lose a substantial portion of its user traffic.
Further, entities that sponsor or maintain high-traffic websites or that provide
an initial point of entry for Internet viewers, such as the Regional Bell
Operating Companies or Internet service
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providers, such as Microsoft and America Online, currently offer and can be
expected to consider further development, acquisition or licensing of Internet
search and navigation functions. These functions may be competitive with those
that quepasa offers. quepasa's competitors could also take actions that could
make it more difficult for viewers to find and use quepasa's website.
Consolidations, integration and strategic relationships involving competitors
could have a material adverse effect on quepasa's business.
In addition to the larger portals and online communities, quepasa competes
with a number of smaller portals and online communities that provide
region-specific information to users or market to users with specific interests.
Most of quepasa's existing competitors, as well as new competitors such as
Spanish-language media companies, other portals, communities and Internet
industry consolidators, have significantly greater financial, technical and
marketing resources than quepasa. Many of quepasa's competitors offer Internet
products and services that are superior to quepasa's and achieve greater market
acceptance. There can be no assurance that quepasa will be able to compete
successfully against current or future competitors or that competition will not
have a material adverse effect on its business.
SALE OF ASSETS
In December 2000, quepasa sold for $981,870 to Gateway, Inc. a substantial
portion of the computers it purchased from Gateway one year earlier. quepasa
received a cash payment from Gateway in January 2001. In March 2001, in order to
conserve cash and as a result of quepasa's reduction in work force, it sold
substantially all of its furniture, computer equipment and office equipment for
$277,000 cash.
EMPLOYEES
On December 31, 1999, quepasa had 80 employees and on December 31, 2000, it
had 19 employees. quepasa's average number of employees during 2000 was 64.
During 2000, quepasa reduced its workforce as part of management's effort to
enhance its competitive position, utilize its assets more efficiently, and
conserve remaining cash. As a result, quepasa recognized $683,000 in employee
severance and termination costs at year-end relating to the reduction in
workforce of approximately 69 employees. In the event of a change of control or
liquidation, quepasa may be required to pay severance payments approximating
$1.2 million under existing agreements with its remaining officers and
non-employee directors. As of September 30, 2001, quepasa has three employees
and one contractor.
PROPERTIES
During 2000, quepasa leased approximately 13,277 square feet of space for
its executive offices in Phoenix, Arizona for $25,400 per month, increasing to
$26,000 in July 2001, pursuant to a lease which expires in November 2002. As a
result of quepasa's reduction in work force and changes in its business
strategy, on August 1, 2001, it executed an agreement with its landlord pursuant
to which it made a $130,000 lump sum payment for any and all amounts due and
owing under the lease, including any and all future amounts to be paid
thereunder. quepasa is required to vacate the property on the earlier to occur
of October 31, 2001 or upon 30-days prior written notice from its landlord. As
of August 31, 2001, quepasa has not received a written notice to vacate.
LEGAL PROCEEDINGS
TELEMUNDO ARBITRATION.
On April 27, 1999, quepasa entered into an agreement with Telemundo Network
Group LLC. In January 2001, Telemundo asserted that the agreement was terminated
alleging that quepasa had failed to develop and maintain the Telemundo website.
In February 2001, quepasa initiated arbitration against
95
Telemundo to defend the enforceability of the agreement, and submitted a damages
claim for $4.3 million, plus reasonable attorneys' fees and costs. Telemundo
also asserted a damages claim for $655,000, plus reasonable attorneys' fees and
costs. On November 15, 2001, quepasa received a decision from the American
Arbitration Association in the arbitration proceeding. In accordance with the
arbitration award, (a) quepasa is not permitted to transfer, sell or use any of
the unused advertising credits that were issued under the original agreement
with Telemundo, (b) Telemundo has returned the 600,000 shares of quepasa's
common stock that it owned (representing approximately 3.6% of quepasa's issued
and outstanding capital stock), (c) quepasa has no further duties or obligations
under the agreement and (d) quepasa paid Telemundo an aggregate of $200,000 for
reimbursement of attorneys' fees, costs and expenses incurred in connection with
the arbitration.
quepasa is from time to time involved in various other legal proceedings
incidental to the conduct of its business. quepasa believes that the outcome of
all other pending legal proceedings will not in the aggregate have a material
adverse effect on its business, financial condition, results of operations or
liquidity.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On December 11, 1998, quepasa engaged BDO Seidman, LLP as its independent
public accountant. BDO Seidman resigned as quepasa's independent public
accountant on February 4, 1999 because they were unwilling to be associated with
quepasa's financial statements due to the background of one of quepasa's
employees. quepasa employed this employee from January 1, 1999 through
February 15, 1999 at which time he resigned. The employee was never appointed as
an officer or director of quepasa. He owned 443,500 shares of quepasa common
stock and was an employee of WGM Corporation, the general partner of The
Monolith Limited Partnership, a former principal shareholder of quepasa.
Prior to their resignation, BDO Seidman had not completed their audits of
any of quepasa's financial statements for any period. There were no
disagreements between quepasa and BDO Seidman on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures which, if not resolved to the satisfaction of BDO Seidman, would have
caused them to make reference to the matter in their report. quepasa allowed BDO
Seidman to read and make comment on this disclosure.
On February 10, 1999, quepasa engaged Ehrhardt Keefe Steiner & Hottman, P.C.
as its independent public accountants. Prior to their appointment, quepasa did
not consult with them on issues relating to quepasa's accounting principles or
the type of audit opinion with respect to quepasa's financial statements to be
issued by them.
On September 3, 1999, quepasa replaced Ehrhardt Keefe with Deloitte & Touche
LLP as its independent accountants. There were no disagreements with Ehrhardt
Keefe on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure. During the past two fiscal years and
the subsequent interim period preceding the date of the change in independent
accountants, quepasa had not consulted with Deloitte & Touche regarding the
application of accounting principles to a completed or proposed transaction or
the type of audit opinion that might be rendered on quepasa's financial
statements.
On January 18, 2000, quepasa replaced Deloitte & Touche with KPMG LLP as its
independent accountants. Prior to their replacement, Deloitte & Touche had not
completed their audit of any of quepasa's financial statements for any period.
There were no disagreements with Deloitte & Touche on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. During the past two fiscal years and the subsequent interim period
preceding the date of the change in independent accountants, quepasa had not
consulted with KPMG LLP regarding (1) the application of accounting principles
to a completed or proposed transaction or (2) the type of audit opinion that
might be rendered on quepasa's financial statements.
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MANAGEMENT
CURRENT EXECUTIVE OFFICERS AND DIRECTORS OF QUEPASA.
The following table sets forth information regarding quepasa's current
executive officers and directors:
OFFICER OR
DIRECTOR
NAME AGE OFFICE SINCE
---- -------- ------------------------------------- ----------
Gary L. Trujillo..................... 41 Chairman and Director 1999
Robert J. Taylor..................... 32 President and Chief Financial Officer 1999
L. William Seidman(1)(2)............. 80 Director 1999
Jerry J. Colangelo(2)................ 62 Director 1999
Louis Olivas(1)(2)................... 54 Director 1999
Jose Maria Figueres(1)............... 45 Director 1999
------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
The audit committee, composed of Messrs. Seidman, Olivas and Figueres, makes
recommendations concerning the engagement of the independent auditors, reviews
with the auditors the plans and results of the audit engagement, approves
professional services provided by the auditors, reviews the independence of the
auditors, and reviews the adequacy of quepasa's internal accounting controls.
The audit committee met once during the year ended December 31, 2001.
The compensation committee, composed of Messrs. Seidman, Colangelo and
Olivas, determines compensation for quepasa's executive officers and administers
quepasa's stock option plan. The compensation committee met three times during
the year ended December 31, 2001.
The board of directors of quepasa met 17 times during the year ended
December 31, 2001.
EXECUTIVE OFFICER.
Robert J. Taylor joined quepasa in March 1999 as Vice President of Strategy
and Operations and subsequently became Senior Vice President of Strategy and
Operations in August 1999. He has served as quepasa's Chief Operating Officer,
Chief Financial Officer and Secretary since January 2000, November 2000 and
April 2001, respectively. On October 15, 2001, Mr. Taylor became quepasa's
President. From August 1997 to March 1999, he was a Senior Consultant for CSC
Index, the management consulting division of Computer Sciences Corporation.
During his tenure with CSC, Mr. Taylor focused his business consulting on
large-scale change initiatives, strategy implementation, new business start-ups
and organizational design for Fortune 500 organizations. From January 1992 to
August 1995, Mr. Taylor held the positions of Production Supervisor and Senior
Industrial Engineer with Michelin Tire Corporation. Mr. Taylor received a B.S.
degree in Industrial and Systems Engineering from Virginia Tech University, an
M.B.A. degree from the J.L. Kellogg Graduate School of Management at
Northwestern University and a Master of Engineering Management degree from the
Robert R. McCormick School of Engineering at Northwestern University.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation earned by quepasa's (1) Chief Executive Officer and (2) the other
two executive officers who were employed by quepasa on December 31, 2000 and
whose salary and bonus for 2000 exceeded $100,000, for services
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rendered in all capacities to quepasa and its subsidiaries for fiscal years
ended December 31, 2000 and 1999. None of the employees listed below were
employed by quepasa in 1998 nor did any of quepasa's employees earn more than
$100,000 in 1998.
LONG TERM COMPENSATION
ANNUAL COMPENSATION ------------------------
--------------------------------------------- RESTRICTED SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING
POSITIONS YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS
------------------ -------- -------- -------- ------------ ----------- ----------
Gary L. Trujillo................ 2000 $247,500 -- $83,538(1) -- --
Chairman and former Chief 1999 $126,783 -- $64,500(2) $837,500(3) 950,000
Executive Officer and
President
Robert J. Taylor................ 2000 $175,001 $50,000(4) $16,500(5) -- 100,000
President and Chief Financial 1999 $ 97,154 -- $16,500(6) -- 150,000
Officer
Jose A. Ronstadt(7)............. 2000 $150,000 $75,000(8) $51,875(9) -- --
Former Senior Vice President 1999 $ 34,375 -- -- -- 150,000
------------------------
(1) Of this amount, $52,500 represents forgiveness of remaining 50% of $100,000
loan to Mr. Trujillo (see note (2) below) plus interest upon the 12 month
anniversary of Mr. Trujillo's employment (April 26, 2000), $19,038
represents vacation pay and $12,000 represents a monthly vehicle allowance.
(2) Of this amount, $52,500 represents forgiveness of 50% of a $100,000 loan to
Mr. Trujillo plus interest upon the six month anniversary of Mr. Trujillo's
employment (October 26, 1999) and $12,000 represents a monthly vehicle
allowance.
(3) Represents the dollar value of an award of 100,000 shares of common stock
granted to Mr. Trujillo under his employment agreement, 50,000 shares of
which were issued by us and 50,000 shares of which were transferred by
quepasa's former chief executive officer.
(4) Mr. Taylor received a stay bonus of $50,000 paid in two equal payments of
$25,000 on September 1, 2000 and December 1, 2000.
(5) Of this amount, $10,500 represents forgiveness of remaining 50% of $20,000
loan to Mr. Taylor (see note (6) below) plus interest upon the 12 month
anniversary of Mr. Taylor's employment (March 8, 2000) and $6,000 represents
a monthly vehicle allowance.
(6) Of this amount, $10,500 represents forgiveness of 50% of a $20,000 loan to
Mr. Taylor plus interest upon the six month anniversary of Mr. Taylor's
employment (September 8, 1999) and $6,000 represents a monthly vehicle
allowance.
(7) Mr. Ronstadt resigned on February 1, 2001.
(8) Mr. Ronstadt received a stay bonus of $75,000 paid in two equal payments of
$37,500 on September 1, 2000 and December 1, 2000.
(9) Represents forgiveness of $50,000 loan plus interest upon the six month
(June 30, 2000) and 12 month (December 30, 2000) anniversaries of
Mr. Ronstadt's employment.
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STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the stock options
granted to the persons named in the Summary Compensation Table above during the
fiscal years ended December 31, 2000 and December 31, 2001 (as of December 1,
2001). All of the grants are governed by the terms and conditions of quepasa's
stock option plan. No stock appreciation rights were granted during 2000 or 2001
(as of December 21, 2001).
INDIVIDUAL STOCK OPTION GRANTS IN 2000 AND 2001
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATE
SHARES OF TOTAL OF STOCK PRICE
COMMON STOCK OPTIONS APPRECIATION FOR THE
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR PRICE GRANT DATE DATE 5% 10%
---- ------------ ------------ -------- ---------- ---------- --------- -----------
Robert J. Taylor..... 100,000(1) 39.0% $9.00 02/02/2000 02/02/2010 $566,005 $1,434,368
100,000(1) 50.0% $0.15 03/15/2001 03/15/2011 $ 9,433 $ 23,906
Gary L. Trujillo..... 100,000(2) 50.0% $0.15 03/15/2001 03/15/2011 $ 9,433 $ 23,906
--------------------------
(1) These options were granted under quepasa's stock option plan and vest
ratably on each of the first three anniversaries from the date of grant.
These options vest and are exercisable immediately upon (a) a sale of all or
substantially all of the assets of quepasa (b) a merger, acquisition,
consolidation or other transaction involving the transfer or issuance of at
least 30% of the outstanding voting stock of quepasa, (c) a liquidation of
quepasa, or (d) the termination of Mr. Taylor's employment without "cause"
(as defined in Mr. Taylor's employment agreement). In the event of (a), (b),
or (c) above, these options are exercisable for a period of ten years from
the date of such event.
(2) These options were granted under quepasa's stock option plan and vest
ratably on each of the first three anniversaries from the date of grant (on
a monthly basis). These options vest and are exercisable immediately upon
(a) a sale of all or substantially all of the assets of quepasa (b) a
merger, acquisition, consolidation or other transaction involving the
transfer or issuance of at least 30% of the outstanding voting stock of
quepasa, or (c) a liquidation of quepasa. In the event of (a), (b) or
(c) above, these options are exercisable for a period of ten years from the
date of such event.
AGGREGATED OPTIONS/SAR EXERCISES
None of the persons named in the Summary Compensation Table exercised
options to purchase quepasa common stock during the fiscal years ended
December 31, 2000 or December 31, 2001 (as of December 1, 2001).
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
Mr. Taylor has an employment agreement with quepasa that provides that
Mr. Taylor is an at-will employee of quepasa with an annual base salary of
$175,000. On March 8, 2002, Mr. Taylor's annual base salary will be reduced to
$125,000. quepasa must pay Mr. Taylor a bonus of $100,000 upon the earlier to
occur of (a) March 8, 2002 or (b) immediately prior to the closing of an event
constituting a "Change in Control" (as found in Mr. Taylor's employment
agreement, which term includes the closing of the merger) of quepasa. All
unexercised options held by Mr. Taylor will automatically and immediately vest
and be exercisable as to all shares covered thereby on the earliest to occur of
(1) a "Change in Control" of quepasa, or (2) the termination of Mr. Taylor's
employment without "Cause" (as defined in Mr. Taylor's employment agreement).
Furthermore, Mr. Taylor received a $50,000 stay bonus, paid in two equal
installments on September 1, 2000 and December 1, 2000.
On October 3, 2001, Mr. Trujillo agreed to terminate his employment
agreement with quepasa as of October 15, 2001. Mr. Trujillo remains Chairman and
a director of quepasa.
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In March 2001, quepasa commenced paying each non-employee director $500 for
each meeting such member attends, either in person or by telephone. In addition,
each non-employee director received an option to purchase 50,000 shares of
quepasa's common stock under its stock option plan that vests ratably on each of
the first three anniversaries from the grant date or immediately upon a change
of control. Also in March 2001, the Compensation Committee of quepasa's board of
directors approved the payment of $50,000 to each director, other than
Mr. Trujillo, for past and current services rendered, payable upon a change of
control or liquidation.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 10, 2002
concerning stock ownership of quepasa's common stock by each director and
officer, by all persons who hold of record or are known by quepasa to hold
beneficially of record 5% or more of the outstanding shares of quepasa common
stock, by Great Western and by all directors and officers as a group.
Except as otherwise noted, the persons named in the table own the shares
beneficially and of record and have sole voting and investment power with
respect to all shares of common stock shown as owned by them, subject to
community property laws, where applicable. The table also reflects all shares of
common stock which each individual has the right to acquire within 60 days from
December 15, 2001 upon exercise of stock options.
NAME AND ADDRESS SHARES PERCENT OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING(1)(2)
------------------------------------------------- ------------------ -----------------
Five Percent Shareholders:
Mark D. Kucher(3).............................. 2,386,243 13.9 %
Ernest C. Garcia II(4)......................... 927,471 5.4 %
Great Western Land and Recreation, Inc......... 840,000 4.9 %
Directors and Executive Officers
Gary L. Trujillo............................... 980,555 5.4 %
L. William Seidman............................. 157,500 *
Jerry J. Colangelo............................. 75,125 *
Jose Maria Figueres............................ 73,250 *
Louis Olivas................................... 50,875 *
Robert J. Taylor............................... 206,667 1.2 %
All Directors and Executive Officers as a Group
(6 persons).................................. 1,543,972 8.3 %
------------------------
* Represents beneficial ownership of less than one percent of the outstanding
shares of common stock.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is deemed to be the beneficial owner, for purposes of this table, of
any shares of common stock if such person has or shares voting power or
investment power with respect to such security, or has the right to acquire
beneficial ownership at any time within 60 days after December 15, 2001. In
calculating the percentage of ownership, such shares are deemed to be
outstanding for the purpose of computing the percentage of shares of common
stock owned by such shareholder, but are not deemed outstanding for the
purpose of computing the percentage of shares of common stock owned by any
other shareholder. For purposes of this table, "voting power" is the power
to vote or direct the voting of shares and "investment power" is the power
to dispose or direct the disposition of shares.
(2) Does not include 600,000 shares of common stock held by quepasa as treasury
shares as a result of the Telemundo arbitration award. See "quepasa's
Business--Legal Proceedings." These shares will be canceled as a result of
the merger and, prior to the merger, may not be considered outstanding
shares for any purpose and do not carry voting rights.
(3) The address for Mr. Kucher is 1410-700 West Georgia Street, Vancouver,
British Columbia, Canada.
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(4) Consists of 927,471 shares of quepasa common stock held by Verde Capital
Partners, LLC, Verde Reinsurance Company, Ltd. and Verde Investments, Inc.
Mr. Garcia owns a majority interest in Verde Capital, Verde Reinsurance and
Verde Investments. The address for Mr. Garcia is 2575 East Camelback Road,
Suite 700, Phoenix, AZ 85016.
DESCRIPTION OF QUEPASA CAPITAL STOCK
QUEPASA AUTHORIZED AND OUTSTANDING CAPITAL STOCK.
quepasa's Amended and Restated Articles of Incorporation authorize the board
of directors of quepasa to issue 50,000,000 shares of common stock, $.001 par
value per share, and 5,000,000 shares of preferred stock, par value $.001 per
share, in one or more series or classes and to determine the rights, powers,
preferences, limitations and restrictions of such series or class. On the record
date, there were 17,713,291 shares of common stock outstanding and entitled to
vote and no shares of preferred stock outstanding.
QUEPASA COMMON STOCK.
Under quepasa's Amended and Restated Articles of Incorporation, holders of
common stock are entitled to receive such dividends as may be legally declared
by the board of directors. Each holder of common stock is entitled to one vote
for each share held of record on all matters submitted to a vote of
shareholders, including the election of directors. There is no right to cumulate
votes in the election of directors. Holders of common stock have no preemptive
or redemption rights and have no right to convert their common stock into any
other securities. Upon liquidation, dissolution or winding up of quepasa,
holders of common stock will be entitled to share ratably in the net assets of
quepasa available for distribution to common shareholders. The rights of the
holders of the common stock are subject such rights as the board of directors of
quepasa may hereafter confer on the holders of preferred stock; accordingly such
rights conferred on holders of any shares of preferred stock that may be issued
in the future under quepasa's Amended and Restated Articles of Incorporation may
adversely affect the rights of holders of quepasa common stock. All of the
outstanding shares of common stock are fully paid and non-assessable.
QUEPASA PREFERRED STOCK.
Preferred stock of quepasa may, without action by the shareholders of
quepasa, be issued by the board of directors of quepasa from time to time, in
one or more series for such consideration and with such relative rights,
privileges and preferences as the board of directors may determine. Accordingly,
the board of directors of quepasa has the power to fix the dividend rate and to
establish the provisions, if any, relating to voting rights, redemption rate,
sinking fund, liquidation preferences and conversion rights for any series of
preferred stock issued in the future.
QUEPASA STOCK OPTIONS AND WARRANTS.
STOCK OPTIONS. As of September 30, 2001, quepasa has an aggregate of
2,142,500 stock options issued and outstanding under its Amended and Restated
1998 Stock Option Plan with exercise prices ranging from $0.15 per share to
$11.81 per share that are exercisable through March 15, 2011. As part of the
merger and as more fully discussed above, outstanding options for quepasa common
stock issued under quepasa's stock option plan will be converted to similar
options to purchase Great Western common stock under the Great Western's stock
option plan on the same terms as such options were provided under quepasa's
stock option plan.
WARRANTS. Quepasa has an aggregate of 400,000 warrants to purchase quepasa
common stock issued and outstanding with an exercise price equal to $19.80 per
share that are exercisable through June 24, 2004. As part of the merger,
outstanding warrants for quepasa common stock will be
101
converted to similar warrants to purchase Great Western common stock on the same
terms as such outstanding warrants.
AUDIT COMMITTEE REPORT
The members of quepasa's audit committee for the year ended December 31,
2000 were Dr. Louis Olivas, Jose Maria Figueres and L. William Seidman. The
audit committee has prepared the following report detailing its policies and
responsibilities relating to the auditing of quepasa's financial statements.
The audit committee oversees quepasa's financial reporting process on behalf
of quepasa's board of directors. Management has the primary responsibility for
the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the audit
committee reviewed quepasa's audited financial statements (which are included in
this proxy statement/ prospectus) with management including a discussion of the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity of disclosures in the
financial statements.
Together with quepasa's independent auditors, KPMG LLP (who are responsible
for expressing an opinion on the conformity of those audited financial
statements with accounting principles generally accepted in the United States of
America), the audit committee reviewed the independent auditors' judgments as to
the quality, not just the acceptability, of quepasa's accounting principles and
such other matters as are required to be discussed with the audit committee
under auditing standards generally accepted in the United States of America. In
addition, the audit committee has discussed the independence of KPMG LLP from
management and quepasa generally, including the matters in the written
disclosures required by the Independence Standards Board.
The audit committee discussed with KPMG LLP the overall scope and plans for
their respective audits. The audit committee meets with KPMG LLP, with and
without management present, to discuss the results of their examinations, their
evaluations of quepasa's internal controls, and the overall quality of quepasa's
financial reporting.
The aggregate fees billed by KPMG LLP for professional services rendered for
the audit of quepasa's annual financial statements and the reviews of the
financial statements included in quepasa's Form 10-K (and included in this proxy
statement/prospectus) for the fiscal year ended December 31, 2000 were $136,442.
For the fiscal year ended December 31, 2000, KPMG LLP was not paid a fee for,
and did not provide, directly or indirectly, any services relating to the design
or implementation of quepasa's information system, local area network or any
hardware or software system. KPMG LLP was paid a fee for financial reviews of
quepasa's filings on Form 8-K and Form S-3 (and amendments thereto), due
diligence procedures and preparation of quepasa's federal and state income tax
returns, etc. Aggregate fees billed by KPMG LLP for these matters were $50,994.
In reliance on the reviews and discussions referred to above, the audit
committee recommended to quepasa's board of directors (and the board of
directors has approved) that the audited financial statements be included in the
Annual Report on Form 10-K as of and for the year ended December 31, 2000 for
filing with the Securities and Exchange Commission. The audit committee and
quepasa's
102
board of directors have also recommended, subject to shareholder approval, the
selection of KPMG LLP as quepasa's independent auditors for the fiscal year
ending December 31, 2001.
Respectfully submitted,
Audit Committee
Dr. Louis Olivas
Jose Maria Figueres
L. William Seidman
QUEPASA STOCK PERFORMANCE GRAPH
The following indexed line graph indicates the total return to quepasa's
stockholders from June 24, 1999, the date on which quepasa common stock began
trading on Nasdaq, through December 26, 2000, the last full trading day prior to
the date that Nasdaq halted trading and ultimately delisted quepasa common stock
from Nasdaq, as compared to the total return for The Nasdaq Stock Market (U.S.)
Index and the Chase H&Q Internet Index. The calculations in the graph assume
that $100 was invested on June 24, 1999 in quepasa common stock and in each
index and also assume dividend reinvestment.
COMPARISON OF CUMULATIVE TOTAL RETURN SINCE JUNE 24, 1999 AMONG
(A) QUEPASA.COM, INC.,
(B) THE NASDAQ STOCK MARKET (U.S.) INDEX AND (C) THE CHASE H&Q INTERNET INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
QUEPASA.COM, INC. JP MORGAN H&Q INTERNET INDEX NASDAQ STOCK MARKET(U.S.)
6/24/99 100.00 100.00 100.00
Jun-99 114.58 110.13 106.56
Jul-99 140.63 97.14 104.64
Aug-99 83.33 102.27 109.07
Sep-99 65.10 113.21 109.22
Oct-99 63.54 125.17 117.97
Nov-99 85.42 157.76 132.32
Dec-99 105.73 219.15 161.42
Jan-00 79.69 205.47 155.43
Feb-00 62.50 261.22 184.97
Mar-00 56.25 228.90 181.17
Apr-00 28.65 172.50 152.38
May-00 14.06 145.13 134.00
Jun-00 13.54 169.81 157.51
Jul-00 9.38 159.21 148.98
Aug-00 9.90 184.72 166.58
Sep-00 7.55 163.36 144.93
Oct-00 4.69 138.40 132.97
Nov-00 1.04 92.29 102.52
12/27/00 0.92 86.10 100.00
103
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1999, quepasa issued 50,000 shares of common stock to Garcia/LKS,
which is partially owned by a former director of quepasa, Lionel Sosa, for
advertising and marketing services valued at $634,000. In August 1999, quepasa
entered into a one-year agreement with Garcia/LKS with a monthly commitment of
$150,000. Payment during the first five months of the agreement included
amortization of the prepaid amount from the issuance of common stock. This
agreement was amended, reducing the monthly commitment to $50,000 for
January 2000 and to $40,000 for February 2000 through September 2000. In
October 2000, the monthly commitment was reduced to $20,000. quepasa terminated
the agreement in December 2000.
In April 1999, quepasa entered into a $1.5 million sponsorship agreement
with the Arizona Diamondbacks, a major league baseball team. This agreement was
extended for the 2000 baseball season. Jerry J. Colangelo, who became one of
quepasa's directors in April 1999, is the Chief Executive Officer and Managing
General Partner of the Arizona Diamondbacks. This agreement was terminated prior
to the 2001 baseball season.
In June 1999, Jeffrey S. Peterson, quepasa's former chief executive officer
and director, and Michael A. Hubert, a former officer and director, entered into
a voting trust agreement which provides that until June 24, 2004,
Messrs. Seidman and Trujillo shall vote all shares of quepasa common stock
covered by the agreement in the same proportion as those shares voted by our
unaffiliated stockholders. Previously, Mr. Hubert transferred all of his shares
of quepasa common stock. In August 2001, Mr. Peterson transferred all but 70,000
of his shares of quepasa common stock (or an aggregate of 1,261,083 shares).
Accordingly, there are currently 70,000 shares in the voting trust.
As of December 31, 2000, quepasa had forgivable loans due from former
employees amounting to $12,569, all of which quepasa has since decided to write
off due to new information obtained subsequent to December 31, 2000. These loans
were granted as recruiting and retention incentives and were deemed 50% forgiven
after six months and 100% forgiven after 12 months of employment.
In March 2000, quepasa acquired realestateespanol.com. At the time of this
acquisition, realestateespanol was a party to an Internet Endorsement Agreement
with NAHREP, pursuant to which, in exchange for NAHREP's endorsement of the
realestateespanol.com website, realestateespanol was required to pay NAHREP an
annual $50,000 fee over a ten-year term. Thereafter, in connection with the
Internet Endorsement Agreement, in October 2000, realestateespanol.com, NAHREP,
the National Council of La Raza and Freddie Mac entered into a Memorandum of
Understanding (MOU) which, among other things, set forth the business
relationship through which the parties agreed to implement a program to deliver
the benefits of technology to mortgage origination for low and moderate income
Hispanic and Latino borrowers. Contemporaneously, realestateespanol and NAHREP
entered into an agreement which set forth the terms and conditions of their
rights and obligations under the MOU.
Under the MOU, among other things, (1) realestateespanol was required to
(a) develop a web-based technology tool to be distributed to NCLR and NCLR
affiliates, and (b) donate 200 computers, at no charge, to NAHREP for
distribution to NCLR and NCLR affiliates for promotional purposes, (2) Freddie
Mac was required to provide an aggregate dollar amount of $250,000 as
sponsorship fees to NAHREP, and (3) NAHREP was required, in turn, to deliver the
same to realestateespanol towards the initial development of the technology tool
discussed above. In May 2001, all of the parties agreed to either terminate
certain of the agreements or release realestateespanol from its duties and
obligations thereunder. In exchange for such termination or release, as the case
may be, realestateespanol (a) transferred ownership of, and exclusive rights to,
the in-process technology tool to NAHREP, (b) granted NAHREP a non-exclusive
license to operate and use the realestaeespanol.com website the content thereon
and any related technology tools, (c) granted NAHREP an exclusive license to
operate and use any related domain names, (d) permitted NAHREP to retain the
full
104
amount of the unpaid sponsorship fee to be paid by Freddie Mac to NAHREP for
development of the technology tool, and (e) permitted NAHREP to retain ownership
of the previously donated computers. At the time realestateespanol and NAHREP
entered into the original agreements, and thereafter agreed to the terms and
conditions regarding its termination and release therefrom, Gary Acosta, an
officer of both realestateespanol and quepasa, served as director of NAHREP. In
addition, in June 2000, he became the Chief Executive Officer of NAHREP.
The carrying value of the website, approximately $27,000, was expensed in
the second quarter of 2001. The $100,000 of sponsorship fees collected in 2000
was amortized over six months commencing October 1, 2000 with $50,000 of
deferred revenue remaining as of December 31, 2000. The 200 computers remaining
in inventory on December 31, 2000 were donated to NAHREP in 2001 and expensed in
the first quarter of 2001.
In quepasa's opinion, the transactions described above were on terms no less
favorable than those which could have been obtained from unaffiliated third
parties.
105
COMPARISON OF THE RIGHTS OF HOLDERS OF QUEPASA COMMON
STOCK AND GREAT WESTERN COMMON STOCK
quepasa is a Nevada corporation and the rights of its shareholders are
governed by the laws of the State of Nevada and its articles of incorporation
and bylaws. Great Western is a Delaware corporation and the rights of it
shareholders are governed by the laws of the State of Delaware and its
certificate of incorporation and bylaws. Following consummation of the merger,
quepasa shareholders will become Great Western shareholders and as such their
rights will be governed by Delaware law and Great Western's certificate of
incorporation and bylaws.
The following is a summary of the material differences between the rights of
holders of quepasa capital stock and the rights of holders of Great Western
capital stock on the date of this proxy statement/prospectus. These differences
arise from disparities between the Nevada General Corporation Law and the
General Corporation Law of the State of Delaware and between the respective
corporate charters and bylaws of quepasa and Great Western. This summary is not
a complete comparison of rights that may be of interest to quepasa shareholders,
and you should therefore read the full text of each state's corporate statutes
and the respective corporate charters and bylaws of quepasa and Great Western.
Great Western's certificate of incorporation and bylaws are attached to this
proxy statement/ prospectus as Appendix C and Appendix D, respectively. For
information as to how these documents may be obtained, refer to "Where You Can
Find More Information" on page 105 of this proxy statement/prospectus.
GREAT WESTERN QUEPASA
SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
------------------ ------------------
AUTHORIZED CAPITAL STOCK The authorized capital of Great The authorized capital stock of
Western consists of 50,000,000 quepasa consists of 50,000,000
shares of common stock, $.001 par shares of common stock, $.001 par
value per share, and 20,000,000 value per share, and 5,000,000
shares of preferred stock, $.001 shares of preferred stock, $.001
per share. per share.
With respect to Great Western's With respect to quepasa's
preferred stock, the Great preferred stock, the quepasa
Western board is authorized, board is authorized, without
without shareholder approval, to shareholder approval, to issue
issue shares of preferred stock shares of preferred stock in one
in one or more series and to or more series and to determine
determine the preferences, voting the preferences, voting powers,
powers, qualifications, and qualifications, and special or
special or relative rights relative rights or privileges of
privileges of that series. that series.
DIVIDENDS Dividends are payable on Great Dividends are payable on quepasa
Western stock only when, as and common stock only when, as and if
if declared by Great Western's declared by quepasa's board of
board of directors, out of funds directors. Under Nevada law, a
legally available for corporation may pay dividends
distribution. Under Delaware law, unless, after giving effect to
a corporation may pay dividends the proposed dividend, (a) the
out of surplus or net profits for corporation would not be able to
the current or preceding fiscal pay its debts as they become due
year, provided that the capital in the usual course of business
of the corporation is not less or (b) the corporation's total
than the aggregate liquidation assets
preference
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GREAT WESTERN QUEPASA
SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
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of the corporation's outstanding would be less than the sum of its
stock having a preference upon total liabilities plus the amount
distribution of assets. that would be needed, if the
corporation were to be dissolved
at the time of distribution, to
satisfy the preferential rights
upon dissolution of shareholders
whose preferential rights are
superior to those receiving the
distribution.
LIQUIDATION RIGHTS Upon liquidation or dissolution, Upon liquidation or dissolution
the holders of Great Western of quepasa, the holders of
common stock are entitled to quepasa common stock are entitled
share ratably according to the to share ratably according to the
number of shares of common stock number of shares of common stock
held by them in all remaining held by them in all remaining
assets of the corporation assets of the corporation
available for distribution to its available to receive the net
shareholders. assets of the corporation for
distribution to its shareholders.
VOTING RIGHTS Shareholders of Great Western Shareholders of quepasa common
common stock vote together as one stock vote together as one class
class on all matters on which on all matters that common
common shareholders generally are shareholders generally are
entitled to vote. Holders of entitled to vote. Holders of
Great Western common stock are quepasa common stock are entitled
entitled to one vote for each to one vote for each share of
share of common stock held at any common stock held at any meeting
meeting of shareholders. of shareholders.
CUMULATIVE VOTING FOR Neither Great Western's charter Neither quepasa's charter nor its
ELECTION OF DIRECTORS nor its bylaws provide for bylaws provide for cumulative
cumulative voting in the election voting in the election of
of directors, which means that directors, which means that the
the holders of a holders of a holders of a majority of the
majority of the shares voted can shares voted can elect all of the
elect all of the directors then directors then nominated for
then outstanding for election. election.
MEETINGS OF SHAREHOLDERS A special meeting of Great A special meeting of quepasa's
Western's shareholders may be shareholders may be called only
called by the board of directors, by the chief executive officer or
by the president, or by by the board of directors. The
shareholders owning a majority of chief executive officer shall
the entire capital stock of the call a special meeting of the
corporation issued and shareholders if the corporation
outstanding and entitled to vote. receives one or more written
demands for the meeting, stating
the purpose or purposes for which
the meeting is to be held, signed
and dated by the holders of
shares representing at least 10%
of
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GREAT WESTERN QUEPASA
SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
------------------ ------------------
all the votes entitled to be cast
on any issue to be considered at
the meeting.
STOCKHOLDER ACTION IN LIEU Under Delaware law, any action Under Nevada law, any action
OF MEETING required or permitted to be taken required or permitted to be taken
at a meeting of shareholders may at a meeting of the shareholders
be taken without a meeting, may be taken without a meeting if
without a prior notice and a written consent thereto is
without a vote, upon the written signed by shareholders holding at
consent of shareholders who would least a majority of the voting
have been entitled to cast a power, except that if a different
minimum number of votes necessary proportion of voting power is
to authorize such action at a required for such an action at a
meeting of shareholders at which meeting, then that proportion of
all shareholders entitled to vote written consent is required.
were present and voting.
QUORUM FOR MEETING OF The holders of a majority of all A majority of the votes entitled
STOCKHOLDERS outstanding capital stock to be cast on a matter by a
entitled to vote at a Great voting group represented in
Western shareholder meeting, person or by proxy constitutes a
present in person or by proxy, quorum of that voting group for
constitute a quorum for action in the matter.
transacting business at a
meeting, except as provided by
law.
STOCKHOLDER INSPECTION Under Delaware law, any Under Nevada law, any person who
RIGHTS shareholder has the right to has been a shareholder of record
inspect the corporation's stock for at least six months
ledger, shareholder list, and immediately preceding his or her
other books and records for a demand, or any person holding or
purpose reasonably related to the authorized in writing by the
person's interest as a holders of at least 5% of all of
shareholder. its outstanding shares, upon at
least five days' written demand,
is entitled to inspect in person
or by agent or attorney, during
usual business hours, the
corporation's articles of
incorporation and bylaws and all
amendments thereto, and stock
ledger.
NUMBER OF DIRECTORS Great Western currently has one quepasa currently has five
director. Great Western's bylaws directors. quepasa's bylaws
provide that the board of provide that the board of
directors shall consist of at directors shall consist of at
least one director and not more least one director and not more
than 15 directors. The number of than 15 directors. The number of
directors is fixed by the board directors is fixed by the board
and may be increased or decreased and may be modified at any time
at any time by a vote of the by a majority vote of the
majority of directors, but no directors.
decrease in the number of
directors
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GREAT WESTERN QUEPASA
SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
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shall change the term of any
director in office at such time.
CLASSIFIED BOARD OF Great Western does not have a quepasa does not have a
DIRECTORS classified board of directors, classified board of directors,
which means that all members of which means that all members of
Great Western's board of quepasa's board of directors are
directors are up for re-election up for re-election every year.
every year.
REMOVAL OF DIRECTORS; Great Western's bylaws provide Nevada law provides that any
VACANCIES that directors may be removed, director or one or more of the
with or without cause, by the incumbent may be removed from
holders of a majority of the office by the vote of
shares entitled to vote for the stockholders representing not
election of directors. less than two-thirds of the
voting power of the issued and
outstanding stock entitled to
vote.
Great Western's bylaws provide quepasa's bylaws provide that any
that vacancies on the board may vacancies on the board may be
be filled by a majority vote of filled by the affirmative vote of
the directors then in office, a majority of the shareholders at
though less than a quorum. a annual meeting called for that
purpose or by the board of
directors, even if a quorum is
not present.
quepasa's bylaws provide that any
director may be removed by the
shareholders of the voting group
that elected the director, with
cause, at a meeting called for
that purpose. A director may be
removed only if the number of
votes cast in favor of removal
exceeds the number of votes cast
against removal.
LIMITATION ON PERSONAL Great Western's charter provides quepasa's charter provides that
LIABILITY OF DIRECTORS that directors shall not be the liability of the
personally liable to Great corporation's directors for
Western or its shareholders for monetary damages for breach of
monetary damages for breaching fiduciary duty is eliminated to
their fiduciary duties as the fullest extent permitted by
directors except to the extent Nevada law.
such exemption from liability or
limitation thereof is not
permitted under Delaware law.
INDEMNIFICATION OF DIRECTORS Great Western's charter provides quepasa's charter provides that
AND OFFICERS that the board of directors may the corporation's officers and
adopt bylaws with respect to directors shall be indemnified
indemnification permitted by against any liability to the
Delaware law and may cause the fullest extent provided by Nevada
law.
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GREAT WESTERN QUEPASA
SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
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corporation to purchase and quepasa's bylaws provide that the
maintain insurance, at the corporation shall indemnify the
corporation's expense, on behalf current acting and former
of any person who is or was a directors, officers, employees
director, officer, employee or and agents of the corporation or
agent of Great Western, or is or one who is serving in such
was serving at the request of capacity for another corporation,
Great Western as a director or partnership, joint venture,
officer of another corporation, trust, association or other
or at as its representative in enterprise against reasonably
another entity against any incurred expenses, judgments,
liability asserted against such penalties, fines, and amounts
person and incurred in any such paid in settlement reasonably
capacity or arising out of such incurred by him in connection
status, whether or not the with such action, suit or
corporation would have the power proceeding if it is determined
to indemnify such person against that such person reasonably
such liability. believed (a) in the case of
Great Western's bylaws provide conduct in his official capacity
that the corporation shall with the corporation, that his
indemnify and hold harmless, to conduct was in the corporation's
the fullest extent permitted by best interests, or, (b) in all
applicable law, any person who other cases (except criminal
was or is made or is threatened cases), that his conduct was at
to be made a party or is least not opposed to quepasa's
otherwise involved in any action, best interests, or (iii) in the
suit, or proceeding, whether case of any criminal proceeding,
civil or criminal, administrative that he had no reasonable cause
or investigative, by reason of to believe his conduct was
the fact that he or she or a unlawful.
person for whom he or she is the
legal representative, is or was a
director or officer of the
corporation or is or was serving
at the request of the corporation
as a director, officer, employee
or agent of another corporation
or entity, against all liability
and loss suffered and expenses
(including reasonable attorneys'
fees) reasonably incurred by such
indemnitee. Great Western shall
be required to indemnify an
indemnitee only if the initiation
of such proceeding by the
indemnitee was authorized by
Great Western's board of
directors.
AMENDMENTS TO CHARTER Under Delaware law, a Under Nevada law, a corporation's
corporation's charter may be charter may be amended by the
amended by the affirmative vote affirmative vote of a majority of
of a majority of the outstanding the outstanding capital stock
capital stock and a entitled to
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GREAT WESTERN QUEPASA
SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
------------------ ------------------
majority of the outstanding vote at a meeting of
shares of each class entitled to shareholders.
vote as a class.
Great Western's charter provides quepasa's charter provides for
for amendments to be made in the amendments to be made in the
manner prescribed by Delaware manner prescribed by Delaware
law. law.
AMENDMENTS TO BYLAWS Great Western's bylaws may be quepasa's board of directors
amended by the corporation's shall have power, to the maximum
shareholders at any annual or extent permitted by Nevada law,
special meeting of shareholders, to make, amend and repeal the
provided notice of intention to bylaws of the corporation at a
amend shall have been contained meeting of the board of directors
in the notice of meeting. The unless the shareholders, in
board of directors may also amend making, amending or repealing a
Great Western's bylaws by a particular bylaw, expressly
majority vote of the whole board provide that the directors may
of directors at any meeting. not amend or repeal such bylaw.
The shareholders also shall have
the power to make, amend or
repeal the bylaws of the
corporation at any meeting called
for that purpose.
ANTI-TAKEOVER PROVISIONS Delaware law prohibits quepasa may be subject to
corporations from engaging in a Nevada's anti-takeover laws known
"business combination" with a respectively as the "Combination
person owning 15% or more of the with Interested Shareholders
corporation's voting stock (an Statute" and the "Control Share
"interested shareholder") for Acquisition Statute."
three years following the time The Combination with Interested
that person became an interested Shareholders Statute prevents
shareholder, unless: "interested shareholders" and an
- the board, before the time the applicable Nevada corporation
person became an interested from entering into a
shareholder, approved either the "combination" unless certain
business combination or the conditions are met. A combination
transaction that resulted in the means any merger or consolidation
person becoming an interested with an "interested shareholder,"
shareholder; or any sale, lease, exchange,
- the person became an interested mortgage, pledge, transfer or
shareholder and 85% owner of the other disposition, in one
voting stock in the transaction, transaction or a series of
excluding shares owned by transactions, with an "interested
directors and officers and shares shareholder" having: an aggregate
owned by directors and officers market value equal to 5% or more
and shares owned by some employee of the aggregate market value of
stock plans; or the assets of the corporation; an
aggregate market value equal to
5% or more of the aggregate
market value of all outstanding
shares of
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GREAT WESTERN QUEPASA
SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
------------------ ------------------
- the combination transaction is the corporation; or representing
approved by the board and 10% or more of the earning power
authorized by the affirmative or net income of the corporation.
vote of at least two-thirds of An "interested shareholder" means
the outstanding voting stock not the beneficial owner of 10% or
owned by the interested more of the voting shares of a
shareholder. corporation, or an affiliate of
A Delaware corporation can elect an associate thereof. A
in its charter or bylaws not to corporation may not engage in a
be governed by Section 203. Great combination within three years
Western has made that election. after the interested shareholder
acquires his shares unless the
combination or purchase is
approved by the board of
directors or a majority of the
voting power held by
disinterested shareholders, or if
the consideration to be paid by
the interested shareholder is at
least equal to the highest of:
- the highest price per share
paid by the interested
shareholder within the three
years immediately preceding the
date of the announcement of the
combination or in the transaction
in which he became an interested
shareholder, whichever is higher,
- the market value per common
share on the date of announcement
of the combination or the date
the interested shareholder
acquired the shares, whichever is
higher, or
- if higher for the holders of
preferred stock, the highest
liquidation value of the
preferred stock.
The Control Share Acquisition
Statute prohibits an acquirer,
under certain circumstances, from
voting shares of a target
corporation's stock after
crossing certain threshold
ownership percentages, unless the
acquirer obtains the approval of
the target corporation's
shareholders. The Control Share
Acquisition Statute specifies
three thresholds of
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GREAT WESTERN QUEPASA
SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
------------------ ------------------
the voting power of the
corporation in the election of
directors: one-fifth or more but
less than one-third, one-third or
more but less than a majority,
and a majority or more. Once an
acquirer crosses one of these
thresholds, those shares acquired
in such offer or acquisition and
those shares acquired within the
preceding ninety days become
Control Shares and such Control
Shares are deprived of the right
to vote until the disinterested
shareholders restore the right.
The Control Share Acquisition
Statute also provides that in the
event Control Shares are accorded
full voting rights and the
acquiring person has acquired a
majority or more of all voting
power, all other shareholders who
do not vote in favor of
authorizing voting rights to the
Control Shares are entitled to
demand payment for the fair value
of their shares. The board of
directors is to notify the
shareholders within twenty days
after such an event has occurred
that they have the right to
receive the fair value of the
their shares in accordance with
statutory procedures established
generally for dissenters' rights.
PROVISIONS RELATING TO SOME Delaware law generally requires Nevada law generally requires
BUSINESS COMBINATIONS that a merger and consolidation, that a merger or exchange be
or sale, lease or exchange of all approved by the directors and by
or substantially all of a a majority of the outstanding
corporation's property and assets capital stock. A corporation's
be approved by the directors and charter may require a greater
by a majority of the outstanding vote. quepasa's charter does not
capital stock. A corporation's provide for a greater vote.
charter may require a greater Under Nevada law, a surviving
vote. Great Western's charter corporation need not obtain
does not provide for a greater shareholder approval for a merger
vote. if:
Under Delaware law, a surviving - the articles of incorporation
corporation need not obtain of the surviving corporation will
shareholder approval for a merger not differ
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GREAT WESTERN QUEPASA
SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
------------------ ------------------
if: from its articles before the
- each share of the surviving merger;
corporation's stock outstanding - Each share of the surviving
prior to the merger remains corporation's stock outstanding
outstanding in identical form prior to the merger remains
after the merger; outstanding in identical form
- the merger agreement does not after the merger;
amend the charter of the - the number of voting shares
surviving corporation; and outstanding immediately after the
- either no shares of common merger, plus the number of voting
stock of the surviving shares issued as a result of the
corporation are to be issued or merger, either by conversion of
delivered in the merger or, if securities issued pursuant to the
common stock will be issued or merger or the exercise of rights
delivered, it will not increase and warrants issued pursuant to
the number of shares of common the merger, will not exceed by
stock outstanding prior to the more than 20 percent the total
merger by more than 20%. number of voting shares of the
surviving corporation outstanding
immediately before the merger;
and
- the number of participating
shares outstanding immediately
after the merger, plus the number
of participating shares issuable
as a result of the merger, either
by the conversion of securities
issued pursuant to the merger or
the exercise of rights and
warrants issued pursuant to the
merger, will not exceed by more
than 20 percent the total number
of participating shares
outstanding immediately before
the merger.
APPRAISAL OR DISSENTERS' Under Delaware law, the right of Under Nevada law, the right of
RIGHTS dissenting shareholders to obtain dissenting shareholders to obtain
the fair value for their shares the fair value for their shares
is available in connection with is available in connection with
some mergers or consolidations. some mergers or consolidations.
Unless otherwise provided in the Unless otherwise provided in the
corporate charter, appraisal corporate charter, appraisal
rights are not available to rights are not available to
shareholders when the corporation shareholders when no vote of its
will be the surviving corporation shareholders is required to
in a merger and no vote of its approve the merger. In addition,
shareholders is required to no appraisal rights are available
approve the merger. In addition, to holders of shares of any class
no appraisal rights are available of stock which is either:
to holders of shares of any class
of
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GREAT WESTERN QUEPASA
SHAREHOLDER RIGHTS SHAREHOLDER RIGHTS
------------------ ------------------
stock which is either: - listed on a national securities
- listed on a national securities exchange or included in the
exchange or designated a a national market system by the
national market system security National Association of
on an interdealer quotation Securities Dealers, or
system by the National - held of record by more than
Association of Securities 2,000 shareholders,
Dealers, or unless those shareholders are
- held of record by more than required by the terms of the
2,000 shareholders. merger to accept anything other
unless those shareholders are than (a) shares of stock of the
required by the terms of the surviving corporation, (b) shares
merger to accept anything other of stock of another corporation
than (a) shares of stock of the which, on the effective date of
surviving corporation, (b) shares the merger or consolidation, are
of stock of another corporation of the kind described above, (c)
which, on the effective date of cash, owners' interests or
the merger or consolidation, are owners' interests and cash in
of the kind described above, (c) lieu of fractional shares of
cash instead of fractional shares stock, or (d) any combination of
of stock, or (d) any combination the consideration set forth in
of the consideration set forth in (a) through (c).
(a) through (c).
PROPOSAL 3. AUTHORIZATION TO REVERSE SPLIT GREAT WESTERN'S COMMON STOCK
Pursuant to the merger agreement, quepasa agreed to seek the approval of its
shareholders to authorize the Great Western board of directors to effect a
reverse stock split of one share for up to 20 shares of Great Western common
stock outstanding at any time prior to or during the 24 month period following
the closing of the merger. The purpose for the proposed reverse stock split is
to attempt to increase the market price of Great Western's common stock
following the merger in order to meet the minimum requirements for listing of
Great Western's common stock on the Nasdaq National Market System or another
securities exchange. Great Western has no current specific plans to reverse
split its common stock and is under no obligation to do so. Following the
merger, Great Western's common stock is expected to be traded on the OTC
Bulletin Board. One of the several requirements of Nasdaq to move from the OTC
Bulletin Board to the Nasdaq National Market System is a market price of at
least $5.00 per share. If this proposal is not approved at quepasa's annual
meeting, Great Western may make a similar proposal to its shareholders following
the closing of the merger.
quepasa's board of directors believes that, following the merger, there are
significant benefits to its shareholders who, following the merger, will become
shareholders of Great Western, in effecting a reverse split of Great Western's
common stock. By reducing the number of outstanding shares of Great Western
common stock through a reverse stock split, the trading price of Great Western's
common stock is expected to increase, thereby enabling Great Western to meet the
$5.00 per share minimum price required to apply for listing on the Nasdaq
National Market System. A higher share price may also make the Great Western
common stock more attractive to a broader group of investors following the
merger. Shareholders should note, however, that the quepasa board of directors
cannot predict what effect, if any, the reverse stock split will have on the
market price of, or the market for, Great Western common stock.
115
Because the proposed reverse stock split will reduce only the number of
outstanding shares of Great Western common stock and not the number of shares
authorized for issuance, the reverse stock split will result in an increase in
the available number of shares of Great Western common stock authorized for
issuance by the Great Western board of directors. Although the increase in the
number of authorized shares of Great Western common stock is intended to provide
greater financial flexibility to the company, the issuance of additional shares
can result in substantial dilution of the ownership interest and concomitant
voting power of holders of Great Western common stock at the time of the reverse
stock split. Great Western's shareholders do not have preemptive rights and,
therefore, may not be able to obtain additional shares of common stock from
Great Western upon the same terms as those that may be offered to others.
Furthermore, a large number of authorized and unissued shares of Great
Western could be considered to have anti-takeover effects. If the reverse stock
split is consummated, the Great Western board of directors will have the
authority to issue a substantial number of shares in a takeover situation to
solidify its or other parties' positions of control over Great Western.
Shareholders should note, however, that the Great Western board of directors has
a fiduciary obligation to analyze the potential effects of the issuance of any
shares upon Great Western and its shareholders and to issue shares only when the
Great Western board of directors believes the issuance to be in Great Western's
best interests.
Great Western's sole shareholder, Amortibanc Investments, previously
authorized the Great Western board of directors to reverse split Great Western's
common stock. Therefore, since Great Western's shareholder currently holds 100%
of the capital stock of Great Western and, following the merger, will own at
least 51% of the capital stock of Great Western (assuming the conversion of all
outstanding quepasa stock options with an exercise price at or below $0.15 per
share), the approval of this proposal by quepasa's shareholders is not required
to authorize the reverse stock split. The merger agreement, however, provides
that quepasa shall seek the approval of its shareholders to authorize the Great
Western board of directors to effect the reverse stock split. It is possible
that the reverse stock split may never be effected even if it is approved by
quepasa's and Great Western's shareholders. If the reverse stock split is not
effected within 24 months following the closing of the merger, the proposal will
be deemed to have been abandoned and the Great Western board of directors will
thereafter be required to seek shareholder approval of any new proposal to
implement a reverse split of Great Western common stock.
If the reverse stock split is approved and effected, Great Western will
notify its shareholders of such approval and will furnish shareholders of record
as of the close of business on such filing date with a letter of transmittal for
use in exchanging certificates. Fractional shares will be paid in cash.
The board of directors of quepasa recommends that quepasa's shareholders
authorize the Great Western board of directors to effect a reverse stock split
of Great Western's common stock at any time prior to or during the 24 month
period following the closing of the merger. A vote in favor by the holders of at
least a majority of the shares of quepasa common stock present and entitled to
vote at the annual meeting is required to approve this proposal.
PROPOSAL 4. AUTHORIZATION FOR THE BOARD OF DIRECTORS OF
QUEPASA TO PURSUE THE LIQUIDATION AND DISSOLUTION OF QUEPASA
IN THE EVENT THE MERGER IS NOT CONSUMMATED
The quepasa board of directors believes that the merger with Great Western
is in the best interest of quepasa's shareholders. In addition, quepasa's
financial advisor, Friedman, Billings, delivered an opinion to quepasa's board
of directors that, as of October 12, 2001, the proposed consideration to be
received by the quepasa shareholders in the merger is fair from a financial
point of view. Accordingly, Friedman, Billings recommended the merger with Great
Western (and not a liquidation) as the best
116
course of action for the quepasa shareholders. However, in the event the merger
with Great Western is not approved by quepasa's shareholders or the merger
agreement is terminated, the quepasa board of directors believes that the
complete liquidation and subsequent dissolution of quepasa may be the best
alternative for quepasa for the following reasons:
- The anticipated financial condition of quepasa in the event the merger is
not consummated, taking into consideration the fact that quepasa has
extensively scaled back its business in an effort to reduce expenses and
is incurring significant costs and expenses associated with the proposed
merger and possible proxy contest, does not allow quepasa to continue its
business as a going concern without a significant infusion of capital into
the company;
- The current unfavorable state of the capital markets with respect to the
Internet sector, and online portal businesses in particular, does not
afford quepasa access to capital on affordable or otherwise reasonable
terms;
- Regardless of quepasa's anticipated financial condition and whether it is
able to secure additional capital to fund its business, quepasa, like many
of its competitors, has been unable to achieve its business strategy and
the board of directors believes that quepasa's business strategy is not
viable; and
- Other than Great Western, quepasa's lengthy and aggressive campaign to
find a buyer of quepasa or another strategic transaction (in which quepasa
or its investment bank, Friedman, Billings, held discussions with over
75 companies regarding a potential strategic transaction in the 15 months
preceding the execution of the merger agreement with Great Western) was
unsuccessful.
The foregoing discussion of the information and factors considered by the
quepasa board of directors is not intended to be exhaustive, but is believed to
include all material factors considered by the board of directors with respect
to the proposal to liquidate and dissolve quepasa.
Under Nevada law and quepasa's charter, the quepasa board of directors may
liquidate the company and sell all of its assets when and as authorized by the
affirmative vote of shareholders holding a majority of the outstanding stock of
quepasa. In addition, under Nevada law and quepasa's charter, the quepasa board
of directors may dissolve the company and distribute the proceeds of the
liquidation to quepasa's shareholders if the board of directors recommends the
dissolution to the shareholders, notifies each shareholder of its recommendation
and the shareholders entitled to vote on the matter approve the dissolution by a
majority vote. Therefore, if quepasa's shareholders authorize the quepasa board
of directors at the annual meeting to liquidate and dissolve quepasa and the
merger is not consummated, the quepasa board of directors will thereafter have
the authority to liquidate and dissolve quepasa and quepasa's shareholders will
not have another opportunity to vote on these matters. Voting on these matters
now will permit a liquidation and dissolution to proceed more quickly and save
the significant costs of convening another shareholder meeting and preparing
another proxy statement, leaving more cash available for distribution to the
shareholders.
While the quepasa board of directors will consider all alternatives
available to quepasa if the merger is not consummated, it believes that the
complete liquidation and subsequent dissolution of quepasa may be in the best
interest of the shareholders. If quepasa's shareholders do not authorize the
board of directors to liquidate and dissolve quepasa, quepasa will either
continue to seek strategic alternatives or such other business strategy as the
board of directors then determines to be in the best interest of quepasa's
shareholders. The quepasa board of directors could also decide to make a
voluntary filing under Chapter 11 of the federal bankruptcy laws.
As of January 7, 2002, quepasa had cash on hand of approximately
$2.4 million, receivables of $500,000, pre-paid expenses and insurance of
approximately $750,000 and payables and accrued but unbilled expenses of
approximately $300,000. In the event the merger is not approved at the annual
117
meeting or Great Western terminates the merger agreement and the shareholders
approve this proposal, quepasa expects that between $0.03 and $0.06 per share
will be available for distribution to quepasa's shareholders. This amount takes
into consideration the following costs and expenses that are expected to be
incurred by quepasa in the first quarter of 2002:
- Costs associated with preparing, printing and mailing this proxy
statement/prospectus and soliciting proxies;
- The break-up fee of $500,000 due to Great Western in the event the merger
is not approved by quepasa's shareholders or if Great Western terminates
the agreement for any other reason that entitles Great Western to the
break-up fee;
- Attorneys' fees and costs associated with defending the lawsuits filed
against quepasa by the dissident shareholder group;
- Severance costs associated with the anticipated change in control of the
quepasa board of directors in the event the merger agreement is not
approved by the quepasa shareholders and the dissident shareholder group
elects its nominees to the quepasa board of directors or in the event
quepasa is liquidated;
- Legal and administrative costs associated with the liquidation and
dissolution of quepasa; and
- On-going general, administrative and miscellaneous costs expected to be
incurred in the first quarter of 2002.
During the liquidation and dissolution process, quepasa may pay to its officers,
directors, employees, and agents compensation for services rendered in
connection with the liquidation and dissolution.
quepasa has obtained a tax opinion from its legal counsel, Brownstein
Hyatt & Farber, P.C., regarding the tax consequences to quepasa's shareholders
if quepasa is completely liquidated and the proceeds are distributed to the
shareholders. According to the tax opinion, in the event quepasa is liquidated
and the board of directors determines that it is in the best interest of the
shareholders to distribute the proceeds of the liquidation to the shareholders,
amounts received by shareholders in a complete liquidation of quepasa shall be
treated as full payment in exchange for stock held by such shareholders.
Shareholders should recognize gain or loss measured by the difference between
the amount of cash and fair market value of other property received in the
liquidation and the tax basis of their shares of quepasa common stock.
The board of directors of quepasa recommends that the shareholders authorize
the board of directors to elect to completely liquidate quepasa in the event the
merger is not approved by the quepasa shareholders or the merger agreement is
terminated and, at the discretion of the board of directors, to distribute all
remaining cash after payment of all debts and expenses to the quepasa
shareholders and to dissolve quepasa. A vote in favor by the holders of at least
a majority of the shares of quepasa common stock present and entitled to vote at
the annual meeting is required to approve this proposal.
PROPOSAL 5. RATIFICATION OF THE APPOINTMENT OF THE AUDITORS
The board of directors of quepasa recommends ratification of the appointment
of KPMG LLP as quepasa's independent auditors through the closing date of the
merger. A vote in favor by the holders of at least a majority of the shares of
quepasa common stock present and entitled to vote at the annual meeting is
required to approve this proposal. Representatives of KPMG LLP will be present
at the annual meeting and will have the opportunity to make a statement if they
so desire and be available to respond to appropriate questions. Unless otherwise
instructed on the proxy, properly executed proxies will be voted in favor of
ratifying the appointment of KPMG LLP to audit quepasa's books and accounts
through the closing date of the merger.
118
OTHER BUSINESS TO BE TRANSACTED
As of the date of this proxy statement/prospectus, the board of directors of
quepasa knows of no other business that may come before the annual meeting. If
any other business is properly brought before the annual meeting, it is the
intention of the proxy holders to vote or act in accordance with their best
judgment with respect to such matters.
SHAREHOLDER PROPOSALS
If quepasa's shareholders approve the merger agreement and the merger is
consummated, quepasa will no longer be a public company, but rather a 100% owned
subsidiary of Great Western, and quepasa will no longer hold annual meetings. In
such event, Great Western will hold its 2002 annual meeting in June 2003.
Proposals of Great Western shareholders for Great Western's 2002 annual meeting
must be received by Great Western no later than January 31, 2003 to be included
in Great Western's Notice of Annual Meeting of Shareholders and Proxy Statement
relating to that meting.
In the event the merger agreement is not consummated, quepasa will hold its
2002 annual meeting in June 2003. Proposals of quepasa shareholders for
quepasa's 2002 annual meeting must be received by quepasa no later than
January 31, 2003 to be included in quepasa's Notice of Annual Meeting of
Shareholders and Proxy Statement relating to that meeting.
EXPERTS
The consolidated statements of operations, stockholders' equity and cash
flows of quepasa for the year ended December 31, 1998 have been included herein
in reliance upon the report of Ehrhardt Keefe Steiner & Hottman PC, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of quepasa as of December 31, 2000 and
1999, and for each of the years in the two-year period ended December 31, 2000,
have been included herein and in quepasa's Annual Report on Form 10-K in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
KPMG LLP's report dated May 8, 2001, except as to the second paragraph of
Note 10(a) and Note 16 to the consolidated financial statements, which are as of
August 6, 2001, contains an explanatory paragraph that states that quepasa has
suffered recurring losses from operations, has an accumulated deficit, has been
unable to successfully execute its business plan, and is considering
alternatives for the company that raise substantial doubt about its ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
The combined financial statements of Great Western as of December 31, 1999
and 2000, and for each of the three years in the period ended December 31, 2000,
included in this proxy statement/ prospectus have been so included in reliance
on the report of Grant Thornton LLP, independent certified public accountants,
given the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Great Western common stock offered by this
proxy statement/ prospectus will be passed upon for Great Western by
Gallagher & Kennedy P.A., Phoenix, Arizona.
119
WHERE YOU CAN FIND MORE INFORMATION
quepasa files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. quepasa's common
stock is listed on the Pink Sheets. quepasa's reports, proxy statements,
prospectuses and other information it files with the Securities and Exchange
Commission can be reviewed at the offices of Nasdaq Operations, 1735 "K" Street,
N.W., Washington, D.C. 20006. You may also read and copy any reports, statements
or other information quepasa files at the Securities and Exchange Commission's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information on the public reference rooms. In addition, quepasa's
Securities and Exchange Commission filings are also available to the public from
commercial document retrieval services and at the Internet website maintained by
the Securities and Exchange Commission at http://www.sec.gov.
Great Western has filed a Registration Statement on Form S-4 to register
with the Securities and Exchange Commission Great Western common stock to be
issued to quepasa's shareholders in the merger. This proxy statement/prospectus
is a part of that registration statement and constitutes the prospectus of Great
Western as well as being a proxy statement of quepasa for the quepasa annual
meeting.
quepasa has supplied all the information contained in this proxy
statement/prospectus relating to quepasa and Great Western has supplied all such
information relating to Great Western. As allowed by Securities and Exchange
Commission rules, this proxy statement/prospectus does not contain all of the
information relating to quepasa you can find in the registration statement or
the exhibits to the registration statement.
120
INDEX TO COMBINED FINANCIAL STATEMENTS OF
GREAT WESTERN LAND AND RECREATION
PAGE
--------
Report of Independent Certified Public Accountants--Grant
Thornton LLP.............................................. F-2
Combined Balance Sheets as of December 31, 2000 and 1999 and
September 30, 2001 (Unaudited)............................ F-3
Combined Statements of Operations for the years ended
December 31, 2000, 1999 and 1998 and for the nine months
ended September 30, 2001 and 2000 (Unaudited)............. F-4
Combined Statements of Shareholders' Equity (deficit) for
the years ended December 31, 2000, 1999 and 1998 and for
the nine months ended September 30, 2001 (Unaudited)...... F-5
Combined Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 and for the nine months
ended September 30, 2001 and 2000 (Unaudited)............. F-6
Notes to Combined Financial Statements...................... F-7
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
QUEPASA.COM, INC.
PAGE
--------
Report of Independent Auditors--KPMG LLP.................... F-16
Report of Independent Auditors--EKS&H....................... F-17
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... F-18
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.......................... F-19
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998.............. F-20
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... F-21
Notes to Consolidated Financial Statements.................. F-23
Condensed Consolidated Balance Sheets as of September 30,
2001 (Unaudited) and December 31, 2000.................... F-46
Condensed Consolidated Statements of Operations for the
three months ended September 30, 2000 and 2001 and for
the nine months ended September 30, 2001 and 2000
(Unaudited)............................................... F-47
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2001 and 2000 (Unaudited)...... F-48
Notes to Condensed Consolidated Financial Statements........ F-49
INDEX TO PRO FORMA FINANCIAL INFORMATION OF
GREAT WESTERN LAND AND RECREATION, INC. AND QUEPASA.COM, INC.
PAGE
--------
Pro Forma Financial Information............................. F-63
Pro Forma Combined Balance Sheet as of September 30, 2001... F-64
Pro Forma Combined Statements of Operations for the year
ended December 31, 2000 and for the nine months ended
September 30, 2001........................................ F-65
Notes to Pro Forma Financial Information.................... F-67
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Great Western Land and Recreation
We have audited the accompanying combined balance sheets of Great Western
Land and Recreation, Inc. as of December 31, 1999 and 2000, and the related
combined statements of operations, shareholder's equity (deficit) and cash flows
for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Great Western Land
and Recreation as of December 31, 1999 and 2000 and the combined results of its
operations and its combined cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.
GRANT THORNTON LLP
Wichita, Kansas
April 6, 2001
F-2
GREAT WESTERN LAND AND RECREATION, INC.
COMBINED BALANCE SHEETS
DECEMBER 31,
------------------------- SEPTEMBER 30,
1999 2000 2001
----------- ----------- --------------
(UNAUDITED)
ASSETS
Cash and cash equivalents........................... $ 59,807 $ 251,956 $ 120,313
Notes receivable.................................... -- 1,827,417 3,012,257
Land held for development and sale.................. 11,398,950 11,073,049 8,267,040
Advances to related entities........................ 613,656 645,842 651,228
Property and equipment, net of accumulated
depreciation of $23,842, $29,527 and $36,396
(unaudited) in 1999, 2000 and 2001,
respectively...................................... 26,019 48,475 155,478
Other............................................... 832,863 177,144 499,650
----------- ----------- -----------
$12,931,295 $14,023,883 $12,705,966
=========== =========== ===========
LIABILITIES
Notes payable..................................... $ 6,878,376 $ 6,273,808 $ 4,264,754
Subordinated debt................................. 7,052,173 4,333,199 4,608,050
Accounts payable and other accrued liabilities.... 430,275 814,829 439,563
Deferred gains.................................... -- 313,090 287,778
----------- ----------- -----------
Total liabilities............................... 14,360,824 11,734,926 9,600,145
SHAREHOLDER'S EQUITY (DEFICIT)
Common stock, par value $.01
Authorized--50,000,000 shares
Issued and outstanding--18,904,649 shares......... -- -- 18,905
Paid in capital..................................... -- -- 2,826,186
Retained earnings................................... -- -- 260,730
Member's equity (deficit)........................... (1,429,529) 2,288,957 --
----------- ----------- -----------
(1,429,529) 2,288,957 3,105,821
----------- ----------- -----------
$12,931,295 $14,023,883 $12,705,966
=========== =========== ===========
The accompanying notes are an integral part of these statements.
F-3
GREAT WESTERN LAND AND RECREATION, INC.
COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1998 1999 2000 2000 2001
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
Land and lot sales................. $2,335,360 $3,052,802 $9,859,371 $8,518,699 $7,932,187
Cost of land and lot sales......... 2,142,610 2,016,538 8,148,998 6,963,027 4,713,043
---------- ---------- ---------- ---------- ----------
Gross profit on sales.......... 192,750 1,036,264 1,710,373 1,555,672 3,219,144
Operating, selling, general and
administrative expense........... 584,168 1,290,422 1,809,230 1,109,706 1,885,728
Interest expense................... 257,149 540,753 753,685 583,350 685,688
Interest income.................... (81,665) (136,634) (34,263) (74,245) (183,182)
Other income....................... (44,885) (64,480) (36,765) 135,140 25,885
---------- ---------- ---------- ---------- ----------
714,767 1,630,061 2,491,887 1,753,951 2,414,119
---------- ---------- ---------- ---------- ----------
Earnings (loss) before income
tax.............................. (522,017) (593,797) (781,514) (198,279) 805,025
Income tax expense................. -- -- -- -- 133,000
---------- ---------- ---------- ---------- ----------
NET EARNINGS (LOSS)............ $ (522,017) $ (593,797) $ (781,514) $ (198,279) $ 672,025
========== ========== ========== ========== ==========
Pro forma earnings (loss) per
share............................ $ (.03) $ (.03) $ (.04) $ (.01) $ .04
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
F-4
GREAT WESTERN LAND AND RECREATION, INC.
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2001
COMMON STOCK
--------------------- PAID-IN RETAINED MEMBER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- -------- ---------- -------- -----------
Balance at January 1, 1998............ -- $ -- $ -- $ -- $ (313,715)
Net loss for the year ended
December 31, 1998................. -- -- -- -- (522,017)
---------- ------- ---------- -------- -----------
Balance at December 31, 1998.......... -- -- -- -- (835,732)
Net loss for the year ended
December 31, 1999................. -- -- -- -- (593,797)
---------- ------- ---------- -------- -----------
Balance at December 31, 1999.......... -- -- -- -- (1,429,529)
Net loss for the year ended
December 31, 2000................. -- -- -- -- (781,514)
Capital contribution................ -- -- -- -- 4,500,000
---------- ------- ---------- -------- -----------
Balance at December 31, 2000.......... -- -- -- -- 2,288,957
Capital contribution................ -- -- -- -- 144,839
Net earnings for the period
January 1 through August 5,
2001.............................. -- -- -- -- 411,295
August 6 through September 30,
2001............................ -- -- -- 260,730 --
Issuance of common stock in exchange
for member's equity............... 18,904,649 18,905 2,826,186 -- (2,845,091)
---------- ------- ---------- -------- -----------
Balance at September 30, 2001......... 18,904,649 $18,905 $2,826,186 $260,730 $ --
========== ======= ========== ======== ===========
The accompanying notes are an integral part of these statements.
F-5
GREAT WESTERN LAND AND RECREATION, INC.
COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1998 1999 2000 2000 2001
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
Cash flows from operating activities
Net earnings (loss)....................... $ (522,017) $ (593,797) $ (781,514) $ (198,279) $ 672,025
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities
Depreciation............................ 5,126 5,396 5,685 3,637 7,203
Accrued interest expense included in
subordinated debt..................... 129,309 248,700 515,096 380,934 333,875
Accretion of interest income............ -- -- -- -- (70,153)
Collection of notes receivable relating
to prior years' sales................. -- 1,337,072 -- -- 663,456
Uncollected notes receivable from
current year sales.................... -- -- (1,827,417) (862,527) (1,778,143)
Change in assets and liabilities
Land held for development or sale..... (1,940,589) (2,413,410) 380,730 (550,818) 2,806,009
Other assets.......................... (316,692) (418,198) 655,719 272,878 (322,506)
Accounts payable and other accrued
liabilities......................... 24,292 125,785 384,554 168,114 (375,266)
Deferred gains........................ -- (249,044) 313,090 -- (25,312)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities.............. (2,620,571) (1,957,496) (354,057) (786,061) 1,911,188
Cash flows from investing activities
(Increase) decrease in advances to related
parties................................... (63,017) 199,788 (32,186) (99,334) (5,386)
Purchase of property and equipment........ (7,647) (13,820) (28,141) (28,141) (114,206)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities............................ (70,664) 185,968 (60,327) (127,475) (119,592)
Cash flows from financing activities
Issuance of notes payable................. 5,483,795 4,783,950 4,326,110 3,664,791 1,374,567
Payments on notes payable................. (3,693,048) (4,511,052) (4,930,678) (4,000,719) (3,383,321)
Increase in subordinated debt............. 784,798 1,344,908 1,211,101 1,287,989 85,515
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities............................ 2,575,545 1,617,806 606,533 952,061 (1,923,239)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................... (115,690) (153,722) 192,149 38,525 (131,643)
Cash and cash equivalents at beginning of
period.................................... 329,219 213,529 59,807 59,807 251,956
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period.................................... $ 213,529 $ 59,807 $ 251,956 $ 98,332 $ 120,313
=========== =========== =========== =========== ===========
Supplemental disclosure of cash flow
information
Cash paid during the period for interest,
net of amount capitalized................. $ 88,500 $ 194,563 $ 193,414 $ 202,416 $ 351,812
Noncash investing and financing activities
Subordinated debt converted as capital.... -- -- 4,500,000 -- 144,539
Accrued interest capitalized included in
subordinated debt....................... 279,837 166,710 54,829 98,994 --
The accompanying notes are an integral part of these statements.
F-6
GREAT WESTERN LAND AND RECREATION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
1. BASIS OF PRESENTATION AND BUSINESS
The accompanying financial statements include the combined accounts of a
group of limited liability companies owned by Amortibanc Investments, L.C. and
Amortibanc Management, L.C. (the Amortibanc Companies). Effective August 6,
2001, the member interests of these entities were contributed to a newly-formed
company, Great Western Land and Recreation, Inc. (GWLR, Inc.) through its
wholly-owned subsidiary, GWLR, LLC, in exchange for 18,904,649 shares of its
common stock and a warrant to purchase an additional 14,827,175 shares. GWLR,
Inc. was formed on June 22, 2001 through the issuance of 1,000 shares of par
value $.001 common stock for $1.
The owner of GWLR, Inc. after the transaction is the same as the owner of
the Amortibanc Companies, therefore, the transaction is accounted for at
historical costs and the accompanying combined financial statements of Great
Western Land and Recreation, Inc. (Company) reflect the historical operations of
the Amortibanc Companies for all periods presented.
The limited liability companies included in the financial statements
include: Houston Promenade, L.C., Houston Coventry, LLC, Houston
Greenwich, LLC, Houston Promenade Glen, LLC, Houston Wheatstone, LLC. Houston
Wheatstone III, LLC, Morningside Farms, LLC, Barnstorm, LLC, North Scottsdale
106, LLC, Walthingham, LLC, Phoenix Wright Place, LLC, Phoenix Monterray, LLC,
45th and 47th Glendale, LLC, Glendale Condominiums, LLC, Willow Springs
Ranch, LLC and Amortibanc Land & Cattle, LLC. All significant intercompany
accounts and transactions of and between the combined entities have been
eliminated.
The Company is engaged principally in the acquisition, development and sale
of land. The land is located in Houston, Texas, Phoenix and Scottsdale, Arizona
and certain country areas of New Mexico and Arizona. Transactions include both
retail and nonretail land sales, depending upon the progress of the development
and subdivision process.
The Company maintains its records and prepares its financial statements in
accordance with accounting principles generally accepted in the United States of
America for real estate operations.
The financial statements as of September 30, 2001 and for the nine month
periods ended September 30, 2000 and 2001 are unaudited. In the opinion of
management, all adjustments of a normal and recurring nature which are necessary
for a fair presentation of such financial statements have been included.
2. REVENUE RECOGNITION
The Company records the sale of real estate under the full accrual method
when ownership rights and obligations have transferred to the buyer, the buyer's
initial and continuing investments provide a sufficient commitment to purchase
and collectibility of the sales price is reasonably assured. Profit is primarily
recognized when the sale has been consummated. The installment method (profit
recognized as a portion of each cash payment received), is used to recognize
profit for certain real estate sales that do not meet the criteria for full
accrual recognition.
F-7
GREAT WESTERN LAND AND RECREATION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
3. LAND HELD FOR DEVELOPMENT AND SALE
Land held for development and sale is carried at cost plus development
costs, loan costs, interest and real estate taxes incurred during the period the
development is in process. Impairment of the carrying cost of land is evaluated
by comparison of estimated fair value less cost to sell. Estimated fair value
less cost to sell is based upon sales in the normal course of business less
estimated development cost to complete and dispose of the property. The
accumulated land cost is charged to cost of sales based upon the computed
average lot cost as the land is sold.
4. NOTES RECEIVABLE
Notes receivable are from purchasers of land sold by the Company. The
Company evaluates the collectibility of these notes receivable and charges off
any noncollectible balances, therefore no allowance for doubtful accounts is
required.
5. ADVERTISING COSTS
Advertising costs are expensed as incurred.
6. INCOME TAXES
Income tax expense is provided based upon the regular federal rate of 34%
for the income generated by Great Western Land and Recreation, Inc. as a "C
Corporation" during the period from August 6, 2001 through September 30, 2001.
The Company recorded no state income tax provision as the taxable earnings in
this period were primarily generated in the State of Texas, which has no income
tax.
No income tax expense or benefit is recognized by the Company prior to
August 6, 2001, as all operations were carried out in nontaxable pass-through
entities prior to that date. No pro forma income tax provision is required, as
the Company incurred losses through December 31, 2000 sufficient to offset the
income for the period January 1, 2001 through August 5, 2001. The Company has no
timing differences subject to deferred tax as the tax basis of the Company's net
assets approximates the financial basis of those assets.
7. USE OF ESTIMATES
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is responsible
for making estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
8. CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
F-8
GREAT WESTERN LAND AND RECREATION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
9. PRO FORMA EARNINGS (LOSS) PER SHARE
The pro forma earnings (loss) per share was calculated by dividing the
earnings (loss) by the 18,904,649 common shares issued for the interests
acquired in the limited liability companies.
NOTE B--NOTES RECEIVABLE
Notes receivable consist of the following:
DECEMBER 31, SEPTEMBER 30,
2000 2001
------------- --------------
(UNAUDITED)
Notes receivable from lot sales to individuals, bearing
interest from 11% to 12.75%, payable in monthly
aggregated principal and interest payments of $2,011
through October 2007--collateralized by lots sold..... $ 159,751 $ 71,299
Note receivable from sale of Houston property, bearing
interest at 10%, payable in 20 quarterly principal
installments of $11,378 plus interest, beginning
August 2000, with remaining balance due in
August 2005--collateralized by property sold.......... 351,666 351,666
Note receivable from sale of Houston property, bearing
interest at 12.5%, payable in quarterly principal
installments of $81,500 plus interest, through
July 2003--collateralized by property sold(1)......... 866,000 796,000
Note receivable from sale of Houston property, bearing
interest at 8%, paid in full in February 2001......... 450,000 --
Note receivable from sale of Houston property, bearing
interest at 12%, due in full on February 28,
2002--collateralized by property sold................. -- 160,000
Note receivable from sale of Houston property, net of
unamortized discount of $155,225, effective interest
rate of 9%. Interest payable at end of second year and
monthly thereafter, and principal payable as lots are
sold and released with any outstanding balance due
after four years--collateralized by property
sold(2)............................................... -- 1,612,878
Other................................................... -- 20,414
---------- ----------
$1,827,417 $3,012,257
========== ==========
F-9
GREAT WESTERN LAND AND RECREATION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--NOTES RECEIVABLE (CONTINUED)
Maturity schedule for notes receivable as of December 31, 2000:
Year ending December 31
2001...................................................... $ 780,219
2002...................................................... 343,467
2003...................................................... 244,976
2004...................................................... 21,648
2005...................................................... 299,371
Thereafter................................................ 137,736
----------
$1,827,417
==========
------------------------
(1) Profit is being recognized on the installment method for this sale. A
summary of the transaction is as follows:
Sales price................................................. $931,000
Cost of sale................................................ 594,410
--------
Gain on sale................................................ 336,590
Profit recognized during the year ended December 31, 2000... 23,500
--------
Deferred gain at December 31, 2000.......................... 313,090
Profit recognized during the nine months ended
September 30, 2001........................................ 25,312
--------
Deferred gain at September 30, 2001......................... $287,778
========
(2) This note was received in connection with the sale of a tract of land in the
Houston, Texas area. The total sales price was $2,542,725 comprised of
$300,000 collected at closing, $700,000 collected on June 29, 2001 and a
note receivable at a discounted value of $1,542,725. Gross profit of
$1,109,941 was recognized from the sale in the nine months ended
September 30, 2001.
NOTE C--LAND HELD FOR DEVELOPMENT AND SALE
The cost of land held for development and sale is comprised of the following
at:
DECEMBER 31, 1999
---------------------------------------------------
HOUSTON, NEW
TEXAS MEXICO ARIZONA
PROPERTIES PROPERTIES PROPERTIES TOTAL
----------- ---------- ---------- -----------
Land acquisition costs...................... $ 5,748,775 $ -- $4,336,252 $10,085,027
Development costs........................... 6,209,214 9,453 66,959 6,285,626
Capitalized interest........................ 1,995,879 -- 135,022 2,130,901
Capitalized taxes........................... 575,069 -- -- 575,069
Capitalized loan costs...................... 367,825 -- -- 367,825
----------- ---------- ---------- -----------
Total................................... 14,896,762 9,453 4,538,233 19,444,448
Less cumulative allocation to cost of
sales..................................... 8,045,498 -- -- 8,045,498
----------- ---------- ---------- -----------
$ 6,851,264 $ 9,453 $4,538,233 $11,398,950
=========== ========== ========== ===========
F-10
GREAT WESTERN LAND AND RECREATION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--LAND HELD FOR DEVELOPMENT AND SALE (CONTINUED)
DECEMBER 31, 2000
---------------------------------------------------
HOUSTON, NEW
TEXAS MEXICO ARIZONA
PROPERTIES PROPERTIES PROPERTIES TOTAL
----------- ---------- ---------- -----------
Land acquisition costs...................... $ 5,748,775 $4,658,621 $4,936,920 $15,344,316
Development costs........................... 6,886,362 175,434 553,198 7,614,994
Capitalized interest........................ 2,244,390 68,818 435,283 2,748,491
Capitalized taxes........................... 668,722 -- 42,644 711,366
Capitalized loan costs...................... 406,647 -- -- 406,647
----------- ---------- ---------- -----------
Total................................... 15,954,896 4,902,873 5,968,045 26,825,814
Less cumulative allocation to cost of
sales..................................... 11,407,230 700,480 3,645,055 15,752,765
----------- ---------- ---------- -----------
$ 4,547,666 $4,202,393 $2,322,990 $11,073,049
=========== ========== ========== ===========
SEPTEMBER 30, 2001 (UNAUDITED)
---------------------------------------------------
HOUSTON, NEW
TEXAS MEXICO ARIZONA
PROPERTIES PROPERTIES PROPERTIES TOTAL
----------- ---------- ---------- -----------
Land acquisition costs...................... $ 5,748,775 $4,653,837 $5,773,681 $16,176,293
Development costs........................... 7,285,256 191,847 691,829 8,168,932
Capitalized interest........................ 2,244,390 68,818 436,598 2,749,806
Capitalized taxes........................... 668,722 -- 48,844 717,566
Capitalized loan costs...................... 411,647 -- -- 411,647
----------- ---------- ---------- -----------
Total................................... 16,358,790 4,914,502 6,950,952 28,224,244
Less cumulative allocation to cost of
sales..................................... 14,638,918 931,702 4,386,584 19,957,204
----------- ---------- ---------- -----------
$ 1,719,872 $3,982,800 $2,564,368 $ 8,267,040
=========== ========== ========== ===========
Interest capitalized was $436,416 and $617,590 for the years ended December
31, 1999 and 2000, respectively, and $-0- for the nine months ended September
30, 2001.
NOTE D--ADVANCES TO RELATED ENTITIES
Advances to related entities are comprised primarily of a receivable from
1st Realty Investments, Inc., which is related through common ownership with
Amortibanc Investments, L.C. The advances are payable on demand, bear interest
at 8% and are not collateralized.
F-11
GREAT WESTERN LAND AND RECREATION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE E--NOTES PAYABLE
Notes payable consist of the following:
DECEMBER 31,
----------------------- SEPTEMBER 30,
1999 2000 2001
---------- ---------- --------------
(UNAUDITED)
HOUSTON, TEXAS PROPERTIES
Notes payable to various financial institutions bearing
interest at variable rates from 1% to 4% over prime. The
interest payments are due monthly or quarterly and the
loans have maturity dates from June 7, 2001 through
June 23, 2005. Interest rates ranged from 9.5% to 12.5%
and 9.5% to 11.5% at December 31, 2000 and 1999,
respectively. Minimum principal payments are required
quarterly on certain loans, but principal reductions are
primarily made as developed lots are sold--collateralized
by unsold properties and lots held for sale............... $3,199,234 $2,096,323 $ 643,725
NEW MEXICO RANCH PROPERTIES
Note payable to financial institution, bearing interest at
variable rate of 4% over annualized average weekly yield
of U.S. Treasury securities, adjusted annually (10.15% at
December 31, 2000). Payments of $69,376 including interest
are due quarterly through June 23, 2005--collateralized by
New Mexico real estate.................................... -- 2,247,146 1,941,134
Note payable to a corporation with monthly interest payments
based on 9.5% annual rate, principal payable on May 31,
2002--collateralized by New Mexico real estate............ -- 300,000 150,000
ARIZONA RANCH PROPERTIES
Note payable to a corporation and individuals, bearing
interest at 8%. Interest is payable on each six-month
anniversary of note and principal is due and payable on
December 22, 2001--collateralized by Arizona real
estate.................................................... 1,700,066 1,513,928 766,822
Notes payable to limited liability companies, bearing
interest at 10%, paid in full in
July 2000--collateralized by Arizona real estate.......... 500,000 -- --
Notes payable to individuals, bearing interest at 16%, paid
in full in July 2000--collateralized by Arizona real
estate.................................................... 1,062,990 -- --
Notes payable to individuals, bearing interest at 8%,
payable in September 2011--collateralized by Arizona real
estate.................................................... -- -- 601,315
OTHER ARIZONA PROPERTIES
Note payable to financial institution, bearing interest at
14%, payable in 36 monthly installments, including
interest, of $4,404 due July 2002, paid in full in
July 2000--collateralized by Arizona real estate.......... 375,000 -- --
Other....................................................... 41,086 116,411 161,758
---------- ---------- ----------
$6,878,376 $6,273,808 $4,264,754
========== ========== ==========
F-12
GREAT WESTERN LAND AND RECREATION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE E--NOTES PAYABLE (CONTINUED)
Aggregate annual maturities are as follows for the years ending
December 31:
2001........................................................ $3,151,793
2002........................................................ 362,221
2003........................................................ 661,667
2004........................................................ 60,496
2005........................................................ 2,037,631
----------
$6,273,808
==========
The Company has a $50,000 line of credit with a bank with an interest rate
of 9%. No drawings on this line of credit were outstanding at December 31, 1999
and 2000 and September 30, 2001.
NOTE F--SUBORDINATED DEBT
The Company's operations have been partially financed with periodic advances
from Amortibanc Investments, L.C. The advances are subordinate to the Company's
bank financing, bear interest at 8%-10% and are due at various dates. The
interest accrued on these advances has primarily been added to the subordinated
debt. Payments on the debt are made only when cash flow, after payment of bank
debt, is available from a land sale. The total advances and accrued interest due
Amortibanc Investments, L.C. are as follows:
DECEMBER 31,
----------------------- SEPTEMBER 30,
1999 2000 2001
---------- ---------- --------------
(UNAUDITED)
Advances payable......................... $5,377,721 $3,853,825 $3,794,801
Accrued interest......................... 1,674,452 479,374 813,249
---------- ---------- ----------
$7,052,173 $4,333,199 $4,608,050
========== ========== ==========
Subordinated debt of $4,500,000 and $144,539 was converted to equity in the
Company by Amortibanc Investments, L.C. effective December 31, 2000 and
February 15, 2001, respectively.
Effective February 15, 2001, $1,518,622 of the subordinated debt was
collateralized with a note receivable from the sale of property in the amount of
$1,542,725.
NOTE G--OPERATING LEASES
The Company leases office space, vehicles and equipment under operating
leases. Future minimum lease payments under these agreements are as follows:
Year ending December 31
2001.................................................... $118,629
2002.................................................... 101,965
2003.................................................... 103,105
2004.................................................... 46,625
F-13
GREAT WESTERN LAND AND RECREATION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--OPERATING LEASES (CONTINUED)
Total rent expense was $38,754, $78,587 and $112,596 for the years ended
December 31, 1998, 1999 and 2000, respectively, and $129,992 and $162,042 for
the nine months ended September 30, 2000 and 2001 (unaudited).
NOTE H--FINANCIAL INSTRUMENTS
FAIR VALUES
The carrying amounts reflected in the combined balance sheet for cash and
cash equivalents approximate fair value due to the short maturities of the
instruments. Notes receivable approximate fair value considering the quality of
the credit, payment terms, property sold and market based interest rates.
Advances to related entities also bear market based rates and approximate fair
value. The notes payable and subordinated debt also approximate fair value based
on variable interest rates payment terms and the Company's current incremental
borrowing rates for similar type borrowing arrangements.
NOTE I--PROFIT-SHARING RETIREMENT PLAN
The Company maintains a 401(k) profit-sharing plan for the benefits of its
eligible employees. The Company makes a matching contribution equal to 50% of
each participant's eligible contributions to a maximum of 6% of each
participant's compensation. The Company can also make a discretionary
contribution determined annually by the Board of Directors. Contribution
expenses incurred by the Company were $4,261, $4,532 and $7,400 for the years
ended December 31, 1998, 1999 and 2000, respectively, and $5,880 and $8,852 for
the nine months ended September 30, 2000 and 2001 (unaudited).
NOTE J--COMMITMENTS AND CONTINGENCIES
The Company has sold $230,000 and $1,160,275 of notes receivable with
recourse upon nonpayment by the debtor as of December 31, 2000 and
September 30, 2001, respectively.
The Company sold certain land to a development partnership for the
construction of multi-family housing. In connection with this sale, the Company
acquired a 15% profit-sharing interest in the partnership and a two-year option
to acquire a 10% equity interest for $1,000, which was exercised on April 24,
2001. Any profits recognized from these interests will be recognized when
realized by the partnership.
Effective September 1, 2001, the Company entered into a five-year employment
agreement with its Chairman and President. In the event the Company consummates
an acquisition (as defined in the agreement) during the contract term, the
contract provides for a salary increase and issuance of an option to acquire a
minimum of 600,000 common shares of the surviving corporation at a price not to
exceed the fair market value of such shares on the closing date of the
acquisition. The agreement also provides for severance payments upon termination
in the amount of the total compensation for the remainder of the contract term
and a consulting arrangement upon retirement.
From time-to-time the Company is involved in litigation arising in the
normal course of business. There is no outstanding litigation at the current
time.
F-14
GREAT WESTERN LAND AND RECREATION, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE K--WARRANT AND OPTIONS
In connection with the formation of the Company (see Note A1), a warrant was
issued to Amortibanc Investments to purchase 14,827,125 shares of its common
stock. Under the terms of the warrant, for a period of ten years from the
closing of the quepasa merger, Amortibanc Investments may purchase 4,942,392
shares for $.30 per share, 4,942,392 shares for $.60 per share and 4,992,391
shares for $1.20 per share.
The Company also has established a 2001 stock option plan and has reserved
3,500,000 shares to be issued under the plan. All employees are eligible to
participate in this plan and participants shall be selected by an Administrative
Committee, consisting of not less than three members of the Company's Board of
Directors. No options were issued or outstanding at September 30, 2001.
F-15
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
quepasa.com, inc.:
We have audited the accompanying consolidated balance sheets of
quepasa.com, inc. (the Company) as of December 31, 2000 and 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the two-year period ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of quepasa.com, inc. as of
December 31, 2000 and 1999 and the results of their operations and their cash
flows for each of the years in the two-year period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, the Company has suffered
recurring losses from operations, has an accumulated deficit, has been unable to
successfully execute its business plan, and is considering alternatives for the
Company that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ KPMG LLP
KPMG LLP
Phoenix, Arizona
May 8, 2001, except as to the second paragraph of
Note 10(a) and Note 16 to the consolidated
financial statements, which are as of August 6,
2001
F-16
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
quepasa.com, inc.:
We have audited the consolidated statements of operations, stockholders'
equity and cash flows of quepasa.com, inc. for the year ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of quepasa.com, inc. for the year ended December 31, 1998, in conformity
with accounting principles generally accepted in the United States of America.
/s/ EHRHARDT KEEFE STEINER & HOTTMAN PC___
Ehrhardt Keefe Steiner & Hottman PC
February 17, 1999
Denver, Colorado
F-17
QUEPASA.COM, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------------
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,940,232 $ 6,961,592
Trading securities........................................ 2,393,964 22,237,656
Accounts receivable, net of allowance for doubtful
accounts of $184,100 and $4,813, respectively........... 242,275 297,170
Other receivable.......................................... 981,870 --
Forgivable loans.......................................... -- 368,042
Prepaid expenses.......................................... 302,242 2,161,494
Other current assets...................................... 158,421 --
------------ ------------
Total current assets.................................... 8,019,004 32,025,954
Prepaid marketing services.................................. -- 10,120,192
Property and equipment, net................................. 103,244 2,051,103
Assets held for sale........................................ 282,000 --
Other assets................................................ -- 153,743
------------ ------------
$ 8,404,248 $ 44,350,992
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 354,743 $ 2,775,347
Accrued liabilities....................................... 149,344 1,023,984
Deferred revenue.......................................... 202,292 85,417
------------ ------------
Total current liabilities............................... 706,379 3,884,748
------------ ------------
Redeemable common stock..................................... -- 2,000,000
Deferred advertising expense................................ -- (1,600,000)
Stockholders' equity:
Preferred stock, authorized 5,000,000 shares, $0.001 par
value--none issued or outstanding....................... -- --
Common stock, authorized 50,000,000 shares; $0.001 par
value; 17,763,291 and 14,536,058 shares issued and
outstanding at December 31, 2000 and 1999,
respectively............................................ 17,763 14,536
Additional paid-in capital................................ 104,420,534 75,829,202
Accumulated deficit....................................... (96,740,428) (35,777,494)
------------ ------------
Total stockholders' equity.............................. 7,697,869 40,066,244
------------ ------------
Commitments, contingencies and subsequent events (see notes
2, 7, 8, 10, 11, 13 and 16)............................... $ 8,404,248 $ 44,350,992
============ ============
See accompanying notes to consolidated financial statements.
F-18
QUEPASA.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
------------ ------------ -----------
Gross revenue........................................ $ 2,815,818 $ 670,639 $ --
Less commissions..................................... (204,070) (114,395) --
------------ ------------ -----------
Net revenue.................................... 2,611,748 556,244 --
------------ ------------ -----------
Operating expenses:
Product and content development expenses........... 6,431,604 2,319,391 414,873
Advertising and marketing expenses................. 20,854,247 16,735,517 250,419
General and administrative expenses................ 6,576,773 11,539,373 5,799,996
Amortization of goodwill........................... 5,752,002 -- --
Asset impairment charges........................... 24,923,321 -- --
------------ ------------ -----------
Total operating expenses....................... 64,537,947 30,594,281 6,465,288
------------ ------------ -----------
Loss from operations................................. (61,926,199) (30,038,037) (6,465,288)
------------ ------------ -----------
Other income (expense):
Interest expense................................... (55,119) (238,858) (48,994)
Interest income and other.......................... 1,220,274 855,408 1,054
Short-term gain on trading securities.............. 2,820 -- --
Unrealized gain (loss) on trading securities....... (140,127) 160,124 --
------------ ------------ -----------
Net other income (expenses).................... 1,027,848 776,674 (47,940)
------------ ------------ -----------
Loss before the cumulative effect of a change in
accounting principle............................... (60,898,351) (29,261,363) (6,513,228)
Cumulative effect of a change in accounting principle
(see note 4(g)).................................... (64,583) -- --
------------ ------------ -----------
Net loss....................................... $(60,962,934) $(29,261,363) $(6,513,228)
============ ============ ===========
Loss per share before the cumulative effect of a
change in accounting principle and net loss per
share, basic and diluted........................... $ (3.52) $ (2.44) $ (0.98)
============ ============ ===========
Weighted average number of shares outstanding, basic
and diluted........................................ 17,301,729 12,011,088 6,671,052
============ ============ ===========
See accompanying notes to consolidated financial statements.
F-19
QUEPASA.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
COMMON ADDITIONAL
STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- -------- ------------ ------------ ------------
Balances, December 31, 1997.......... 5,680,000 $ 5,680 $ (5,660) $ (2,903) $ (2,883)
Issuance of common stock and stock
based compensation................. 1,420,000 1,420 4,985,294 -- 4,986,714
Issuance of common stock in
conversion of note payable ($1.56
per share)......................... 666,666 667 1,039,113 -- 1,039,780
Issuance of common stock in
conversion of note payable ($1.00
per share)......................... 50,000 50 49,950 -- 50,000
Issuance of common stock for cash at
$3.75 per share, net of $641,000 of
offering costs..................... 1,259,167 1,259 4,080,030 -- 4,081,289
Issuance of compensatory stock
options to employees............... -- -- 278,750 -- 278,750
Net loss............................. -- -- -- (6,513,228) (6,513,228)
---------- ------- ------------ ------------ ------------
Balances, December 31, 1998.......... 9,075,833 9,076 10,427,477 (6,516,131) 3,920,422
Issuance of compensatory stock
options to employees, officers and
directors.......................... -- -- 4,401,195 -- 4,401,195
Issuance of stock to officers and
directors.......................... 50,000 50 549,950 -- 550,000
Issuance of common stock and warrants
for advertising and marketing
services........................... 650,000 650 10,753,917 -- 10,754,567
Issuance of common stock for
consulting services................ 50,000 50 549,950 -- 550,000
Proceeds from initial public
offering, net of $7,364,000 of
offering costs..................... 4,000,000 4,000 42,364,300 -- 42,368,300
Proceeds from underwriter over-
allotment, net of $913,000 of
offering costs..................... 600,000 600 6,286,273 -- 6,286,873
Proceeds from exercise of common
stock options...................... 110,225 110 496,140 -- 496,250
Net loss............................. -- -- -- (29,261,363) (29,261,363)
---------- ------- ------------ ------------ ------------
Balances, December 31, 1999.......... 14,536,058 14,536 75,829,202 (35,777,494) 40,066,244
Issuance of common stock in
acquisitions....................... 1,699,561 1,700 20,071,334 -- 20,073,034
Issuance of common stock and warrants
for cash........................... 1,428,571 1,429 8,070,072 -- 8,071,501
Issuance of compensatory stock
options to employees, officers and
directors.......................... -- -- 82,184 -- 82,184
Proceeds from exercise of common
stock options...................... 99,100 98 367,742 -- 367,840
Net loss............................. -- -- -- (60,962,934) (60,962,934)
---------- ------- ------------ ------------ ------------
Balances, December 31, 2000.......... 17,763,290 $17,763 $104,420,534 $(96,740,428) $ 7,697,869
========== ======= ============ ============ ============
See accompanying notes to consolidated financial statements.
F-20
QUEPASA.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
------------ ------------ -----------
Cash flows from operating activities:
Net loss........................................... $(60,962,934) $(29,261,363) $(6,513,228)
Adjustments to reconcile net loss to net cash used
in operating activities:
Asset impairment charge.......................... 24,923,321 -- --
Depreciation and amortization.................... 8,057,249 341,887 6,532
Loss on sale of computers........................ 3,527,692 -- --
Stock based compensation......................... 82,184 4,951,195 5,265,364
Forgiveness of forgivable loans.................. 355,474 28,498 --
Consulting services received in exchange for
stock.......................................... -- 550,000 --
Amortization of prepaid advertising.............. -- 1,034,375 --
Amortization of prepaid marketing services....... 2,545,820 -- --
Amortization of deferred advertising............. 766,666 -- --
Accrued interest on convertible notes payable.... -- -- 39,780
Short-term gain on trading securities............ (2,820) -- --
Unrealized loss (gain) on trading securities..... 140,127 (160,124) --
Cumulative effect of change in accounting
principle...................................... 64,583 -- --
Increase (decrease) in cash net of acquisitions
resulting from changes in:
Sale (purchase) of trading securities, net..... 19,706,385 (22,077,532) --
Accounts receivable............................ 54,895 (297,170) --
Deposits receivable............................ -- 1,533,632 (1,533,632)
Prepaid expenses............................... 684,113 (2,161,494) --
Other assets................................... (6,710,890) (175,790) (2,500)
Accounts payable............................... (2,524,143) 2,704,125 65,757
Accrued liabilities............................ (877,539) 1,021,062 2,922
Deferred revenue............................... 52,292 21,252 64,165
------------ ------------ -----------
Net cash used in operating activities........ (10,117,525) (41,947,447) (2,604,840)
------------ ------------ -----------
Cash flows from investing activities:
Forgivable loans................................... -- -- (396,540)
Cash paid for acquisitions......................... (238,793) -- --
Cash received in acquisition....................... 578,730 -- --
Purchase of property and equipment................. (241,232) (2,013,823) (361,152)
------------ ------------ -----------
Net cash provided by (used in) investing
activities................................... 98,705 (2,013,823) (757,692)
------------ ------------ -----------
F-21
QUEPASA.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
------------ ------------ -----------
Cash flows from financing activities:
Stock subscription receivable...................... -- 125,000 (125,000)
Net proceeds from private placements............... -- -- 4,081,289
Proceeds from convertible note payable............. -- -- 1,100,000
Accrued commissions................................ -- (215,233) 215,233
Stock subscription................................. -- (337,500) 337,500
Proceeds from initial public offering and
overallotment, net of offering costs............. -- 48,655,173 --
Proceeds from exercise of common stock options..... 367,840 496,250 --
Proceeds from issuance of common stock............. 9,000,000 -- 100
Proceeds from draws on line of credit.............. 12,289 -- --
Payments on notes payable.......................... (2,382,669) -- (50,000)
------------ ------------ -----------
Net cash provided by financing activities...... 6,997,460 48,723,690 5,559,122
------------ ------------ -----------
Net increase (decrease) in cash and cash
equivalents........................................ (3,021,360) 4,762,420 2,196,590
Cash and cash equivalents, beginning of year......... 6,961,592 2,199,172 2,582
------------ ------------ -----------
Cash and cash equivalents, end of year............... $ 3,940,232 $ 6,961,592 $ 2,199,172
------------ ------------ -----------
Supplemental statement of cash flow
information--interest paid......................... $ 55,003 $ 238,858 $ 48,994
------------ ------------ -----------
Supplemental disclosure of non-cash financing and
investing activities:
Stock and warrants issued in exchange for
advertising and marketing services............... $ -- $ 12,755,000 $ --
------------ ------------ -----------
Convertible notes converted into common stock...... $ -- $ -- $ 1,090,000
------------ ------------ -----------
Barter transactions................................ $ 1,291,201 $ 119,000 $ --
------------ ------------ -----------
Sale of computers in exchange for receivable....... $ 981,870 $ -- $ --
------------ ------------ -----------
Acquisitions through balance of stock and notes
payable and assumption of liabilities............ $ 22,549,853 $ -- $ --
------------ ------------ -----------
Write-off of prepaid advertising due to return of
redeemable common stock and cancellation of
installation payment............................. $ 2,500,000 $ -- $ --
------------ ------------ -----------
See accompanying notes to consolidated financial statements.
F-22
QUEPASA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
quepasa.com, inc. (the "Company" or quepasa), a Nevada Corporation, was
incorporated in June 1997. The Company is a Bilingual Internet portal and
on-line community focused on the United States Hispanic market. quepasa offers a
number of services in both Spanish and English such as a search engine, news
feeds, chat, games, maps, message boards and free e-mail. The Company's portal
draws viewers to its website by providing a one-stop destination for
identifying, selecting and accessing resources, services, content and
information on the Web. Because the language preference of many U.S. Hispanics
is English, it also offers users the ability to access information and services
in the English language.
During 1998, the Company changed its name from Internet Century, Inc. to
quepasa.com, inc.
(2) LIQUIDITY AND ASSET IMPAIRMENT CHARGE
The Company's consolidated financial statements are prepared using
accounting principles generally accepted in the United States of America
applicable to a going concern, which contemplate the realization of assets and
satisfaction of liabilities in the normal course of business. The Company has
incurred net losses from operations since inception and has an accumulated
deficit of $96.7 million through December 31, 2000. During 2000, the Company
actively pursued the sale of its assets as well as responded to numerous
inquiries from interested parties. On December 27, 2000, the Company's Board of
Directors approved the development of a plan of liquidation and sale of the
Company's assets in the event that no strategic transaction involving the
Company can be achieved resulting from the Company's inability to execute its
business plan or to develop a revenue stream to support the carrying value of
its assets. By April 30, 2001, the Company downsized its workforce to three
individuals, disposed of certain assets, and reduced its long-term commitments.
While management believes that as a result of its significant cost-cutting
measures, there is sufficient cash to operate through the second quarter of
2002, management of the Company and the Board of Directors continue to evaluate
alternatives for the Company including disposing of assets and investigating
merger opportunities. Subsequent to year-end, the Company executed an agreement
to merge with an unrelated entity (see note 16). The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
While management continued to develop and support its websites and pursue
its original business plan, the Company continued to amortize its goodwill
through November 30, 2000. As a result of the Board of Directors' decision on
December 27, 2000 to liquidate and sell the Company's assets, and because the
Company has been unable to develop a revenue stream to support the carrying
value of its long-lived and intangible assets, the Company performed an
impairment analysis of all long-lived assets and its identifiable intangibles in
accordance with accounting principles generally accepted in the United States of
America. The fair value of the long-lived assets and its identifiable
intangibles was determined to approximate $385,000. As a result, the Company
recorded a $24.9 million impairment charge related to such assets as follows:
goodwill and domain and license agreements--$16.2 million unamortized balance;
prepaid marketing services--$7.6 million unamortized balance; and property and
equipment--$1.1 million representing the excess carrying value over sale
proceeds. In addition, the Company recorded a $3.5 million loss on the sale of
computer promotions inventory, which is included in advertising and marketing
expenses at December 31, 2000 (see note 3).
F-23
QUEPASA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SIGNIFICANT TRANSACTIONS AND WORKFORCE REDUCTIONS
On January 28, 2000, the Company acquired credito.com, an on-line credit
company targeted to the U.S. Hispanic population for an aggregate purchase price
of $8.4 million consisting of 681,818 shares of common stock valued at $11 per
share and assumption of an $887,000 note payable. The Company included the
681,818 shares of common stock issued unconditionally in determining the cost of
credito.com recorded at the date of acquisition. Contingent consideration
consisted of warrants to purchase 681,818 shares of common stock exercisable
upon credito.com's achievement of certain performance objectives related to
gross revenue as of January 2001 and January 2002. credito.com did not meet the
performance objectives as of January 2001, and consequently, the warrants were
returned to the Company. The value of the common stock was determined using the
average stock price between the date of the merger agreement and the date the
merger was publicly announced, or $11 per share. The Company accounted for the
acquisition using the purchase method of accounting. Accordingly, the purchase
price was allocated to the assets purchased and the liabilities assumed based
upon the estimated fair values on the date of the acquisition. The excess of the
purchase price over the fair value of the net assets acquired was approximately
$7.8 million and was recorded as goodwill, which was being amortized on a
straight-line basis over a 3-year period. On December 27, 2000, the Company's
Board of Directors approved the development of a plan of liquidation and sale of
the Company's assets in the event that no strategic transaction involving the
Company could be achieved. Accordingly, the Company performed an impairment
analysis of all long-lived assets and identifiable intangibles in accordance
with generally accepted accounting principles in the United States of America.
As a result, the balance of unamortized goodwill of $7.3 million recorded in
conjunction with the transaction was written off in the fourth quarter of 2000
(see note 2). The results of operations of credito.com have been included in the
accompanying statement of operations for 2000 from the acquisition date.
On January 28, 2000, the Company acquired eTrato.com, an on-line trading
community developed especially for the Spanish language or bilingual Internet
user, for an aggregate purchase price of $10.9 million, consisting of 681,818
shares of the Company's common stock valued at $14.09 per share, and assumption
of a $1.3 million promissory note. The note payable was due on January 28, 2002
and had a stated interest rate at the greater of 6% per annum or the applicable
federal rate in effect with respect to debt instruments having a term of two
years. This note was paid in full on May 8, 2000. The value of the common stock
was determined using the average stock price between the merger agreement date
and the date the merger was publicly announced on December 20, 1999. Contingent
consideration consisted of 681,818 shares of common stock which were held in
escrow to be released to the seller pending the outcome of certain revenue and
website contingencies over the six-month period following the acquisition. The
contingencies were not met, and consequently, these shares were returned to
quepasa subsequent to year-end and cancelled. The acquisition was accounted for
using the purchase method of accounting and, accordingly, the purchase price was
allocated to the assets purchased and the liabilities assumed based upon the
estimated fair value at the date of acquisition. The excess of the purchase
price over the fair value of the net assets acquired was approximately
$10.1 million and was recorded as goodwill, which was being amortized on a
straight-line basis over a period of 3 years. On December 27, 2000, the
Company's Board of Directors approved the development of a plan of liquidation
and sale of the Company's assets in the event that no strategic transaction
involving the Company could be achieved. Accordingly, the Company performed an
impairment analysis of all long-lived assets and identifiable intangibles in
accordance with generally accepted accounting principles in the United States of
America. As a result, the balance of unamortized goodwill of $5.6 million
recorded in conjunction with the transaction was written off in the
F-24
QUEPASA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
fourth quarter of 2000 (see note 2). The results of operations of eTrato.com
have been included in the accompanying statement of operations for 2000 from the
acquisition date.
On March 9, 2000, the Company acquired RealEstateEspanol.com, (REE) a real
estate services site providing the Hispanic-American community with bilingual
home buying services, for an aggregate purchase price of $3.3 million,
consisting of 335,925 shares of the Company's common stock for $8.83 per share
and assumption of $300,000 in debt which was paid immediately following the
closing of the acquisition. Contingent consideration consisted of 248,834 shares
of common stock which were held in escrow pending RealEstateEspanol.com's
achievement of gross revenue targets within 12 months of the date of the
agreement. The value of the common stock was determined using the average stock
price between the merger agreement date and the date the merger was publicly
announced. RealEstateEspanol.com did not meet the agreed-upon targets contingent
to the seller receiving the shares of common stock held in escrow, and
consequently, these shares were returned to quepasa and cancelled subsequent to
year-end. The acquisition was accounted for using the purchase method of
accounting, and, accordingly, the purchase price was allocated to the assets
purchased and the liability assumed based upon the estimated fair value at the
date of acquisition. The excess of the purchase price over the fair value of the
net assets acquired was approximately $3.2 million and was recorded as goodwill,
which was being amortized on a straight-line basis over a period of 3 years. On
December 27, 2000, the Company's Board of Directors approved the development of
a plan of liquidation and sale of the Company's assets in the event that no
strategic transaction involving the Company could be achieved. Accordingly, the
Company performed an impairment analysis of all long-lived assets and
identifiable intangibles in accordance with generally accepted accounting
principles in the United States of America. As a result, the balance of
unamortized goodwill of $2.4 million recorded in conjunction with the
transaction was written off in the fourth quarter of 2000 (see note 2). The
results of operations of RealEstateEspanol.com have been included in the
accompanying statement of operations for 2000 from the acquisition date.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations (unaudited) as if the acquisitions had taken
place on January 1, 1999. Amortization of goodwill related to the acquisitions
of credito.com, eTrato.com, and RealEstateEspanol.com has been recorded for the
period of inception, August 17, 1999, June 16, 1999, and August 30, 1999,
respectively, through December 31, 1999 based on an estimated useful life of
3 years. Such pro forma amounts are not necessarily indicative of what the
actual results of operations might have been if the acquisitions had been
effective on January 1, 1999, including $6.4 million and $3.1 million
amortization of goodwill in 2000 and 1999, respectively, (in thousands, except
per share amounts):
YEARS ENDED
DECEMBER 31,
-------------------
2000 1999
-------- --------
(UNAUDITED)
Gross revenue............................................. $ 2,816 $ 671
Net revenue............................................... 2,612 556
Operating expenses........................................ 65,494 33,927
Net loss.................................................. 61,919 (32,602)
Net loss per share, basic and diluted..................... (3.58) (2.71)
On March 30, 2000, Gateway, Inc. invested $9.0 million in exchange for
1,428,571 shares of common stock, which represented 7.6% of quepasa's
outstanding common stock. The amount attributable to common stock and additional
paid-in capital was $7,685,712, the value of the 1,428,571 shares of common
stock on the date issued ($5.38 per share). Additionally, quepasa granted a
60-day
F-25
QUEPASA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
warrant to acquire 483,495 shares of common stock at $7 per share. The warrants
were valued at approximately $386,000 using the Black Scholes option-pricing
model. The assumptions used for the Gateway warrants are as follows: expected
dividend yield 0%, risk-free interest rate of 5.67%, expected volatility of
147%, and expected life of two months. In the event there was a change in
ownership of quepasa in excess of 30% prior to September 30, 2000, and for a
price per share less than $7.00, Gateway had a right to be reimbursed for the
differential in the per share amount. quepasa also committed itself to use a
substantial portion of the proceeds of Gateway's investment to further its
community and educational initiative program, which included distributing
computers purchased from Gateway accompanied with Spanish language technical
support, providing Internet access, and training for quepasa's subscribers. The
Company purchased $5.8 million of computers, net of $928,500 of a volume
purchase discount, pursuant to this agreement to be used for promotional
activities. The Company took title to the computers upon the close of the
transaction. Since the Company had no warehousing facilities, the computers were
segregated from Gateway's inventory in third party warehouse locations and the
Company was responsible for the payment of warehouse storage charges. These
computers were expensed as donated.
In the fourth quarter of 2000, the Company halted virtually all promotional
activities to conserve cash. In December 2000, the Company, at the direction of
the Board of Directors, initiated discussions and sold the majority of its
remaining computer inventory back to Gateway at a $3.5 million loss (see
note 2). The Company was required to approach Gateway first as the original
purchase agreement allowed the Company to use the computers only for promotional
activities. However, several months after the Gateway transaction closed, as a
result of the decline in stock prices for internet businesses, the Company
substantially curtailed its business activities because it was unable to obtain
financing. Virtually all promotional activities were halted in order to conserve
cash. Only a small number of the computers had been used in promotional
activities at that time. In the fourth quarter of 2000, the Company's Board of
Director's instructed management to liquidate the computer inventory, and
management initiated discussions with Gateway regarding the prohibition on
resale, at which time, the Company and Gateway negotiated the resale back to
Gateway at the price stated above.
At December 31, 2000, the Company had $158,421 of computer inventory
remaining, which was included in other current assets. This inventory was
donated to NAHREP and expensed in the first quarter of 2001 (see note 7).
In September 1999, the Company entered into an agreement with Estefan
Enterprises, Inc. whereby Gloria Estefan would act as spokesperson for the
Company through December 31, 2000 and the Company would sponsor her United
States 2000 concert tour. Ms. Estefan's tour was subsequently postponed, and
consequently the original terms of the spokesperson agreement were renegotiated.
The revised spokesperson agreement calls for the return of the 156,863 shares of
redeemable common stock to the Company, cancellation of the put option for those
shares and cancellation of the final cash installment. The Company obtained the
right of first refusal for the sponsorship of Ms. Estefan's next United States
and Latin America tours. The Company recognized $2.3 million and $1.2 million of
amortization in relation to the Estefan agreement during 2000 and 1999,
respectively, in relation to the original contract. The issuance of the 156,863
shares of redeemable common stock was reversed (see note 12(f) for expanded
discussion).
During 2000, the Company reduced its workforce as part of management's
effort to enhance the Company's competitive position, utilize its assets more
efficiently, and conserve remaining cash. The Company recognized $683,000 in
employee severance and termination costs for the year ended December 31, 2000,
relating to the reduction in the workforce of approximately 69 employees, which
is classified as follows: $300,000 in production and content development
expense, $152,000 in sales and
F-26
QUEPASA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
marketing, and $231,000 in general and administrative expenses. As of
December 31, 2000, all employee severance and termination costs incurred in 2000
had been paid.
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) USES OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements. Additionally, such estimates and
assumptions affect the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(B) RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial statement
amounts to conform to the current year presentation.
(C) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
quepasa and its three wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(D) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally accounts receivable, cash and cash
equivalents and trading securities. The Company maintains ongoing credit
evaluations of its customers and generally does not require collateral. The
Company provides reserves for potential credit losses and such losses have not
exceeded management expectations. Periodically during the year the Company
maintains cash and investments in financial institutions in excess of the
amounts insured by the federal government. During 2000, one customer accounted
for 16% of gross revenue. During 1999, two customers accounted for 21% and 12%
of gross revenue. No other single advertiser utilizing banner ads or sponsorship
agreements amounted to or exceeded 10% of total gross revenue.
(E) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and highly liquid debt
instruments with original maturities of three months or less.
(F) SECURITIES
The Company classifies its securities in one of three categories: trading,
available-for-sale, or held-to-maturity. Trading securities are bought and held
principally for the purpose of selling them in the near term. Held-to-maturity
securities are those securities in which the Company has the ability and intent
to hold the security until maturity. All other securities not included in
trading or held-to-maturity are classified as available-for-sale. Trading
securities at December 31, 2000 and 1999 consist of corporate debt securities.
Trading and available-for-sale securities are recorded at market value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in operations. Unrealized holding
F-27
QUEPASA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from operations and are reported as a separate component
of other comprehensive income until realized. Realized gains and losses for
trading securities are included in operations and are derived using the specific
identification method for determining the cost of securities. All securities
held at December 31, 2000 and 1999 are categorized as trading.
(G) REVENUE RECOGNITION
The Company's revenue is derived principally from the sales of banner
advertisements and sponsorships. The Company sells banner advertising primarily
on a cost-per-thousand impressions, or "CPM" basis, under which advertisers and
advertising agencies receive a guaranteed number of "impressions," or number of
times that an advertisement appears in pages viewed by users of the Company's
website, for a fixed fee. The Company's contracts with advertisers and
advertising agencies for these types of contracts cover periods ranging from one
to twelve months. Advertising revenue is recognized ratably based on the number
of impressions displayed, provided that the Company has no obligations remaining
at the end of a period and collection of the resulting receivable is probable.
Company obligations typically include guarantees of a minimum number of
impressions. To the extent that minimum guaranteed impressions are not met, the
Company defers recognition of the corresponding revenue until the remaining
guaranteed impression levels are achieved. Payments received from advertisers
prior to displaying their advertisements on the Company's website are recorded
as deferred revenue.
The Company also derives revenue from the sale of sponsorships for certain
areas or a sponsorship exclusivity for certain areas within its website. These
sponsorships are typically for periods up to one year. Prior to the adoption of
Staff Accounting Bulletin (SAB) 101, the Company recognized revenue during the
initial setup, if required under the unique terms of each sponsorship agreement
(e.g., co-branded website), to the extent that actual costs were incurred. The
balance of the sponsorship was recognized ratably over the period of time of the
related agreement. The Company adopted SAB 101 in the fourth quarter of 2000. As
such, the Company records initial setup fees as deferred revenue and recognizes
the fee over the term of the related agreement. In connection with the adoption
of this principle, the Company recorded a $64,583 cumulative effect of change in
accounting principle, net loss increased $87,709 for the year ended
December 31, 2000 and deferred revenue of $152,292 was recorded as of
December 31, 2000. Payments received from sponsors prior to displaying their
advertisements on the Company's website are recorded as deferred revenue. The
pro forma effect of retroactive application on the results of operations for the
years ended December 31, 2000, 1999 and 1998, follows:
2000 1999 1998
------------ ------------ -----------
Net loss:
As reported........................................ $(60,963,000) $(29,261,000) $(6,513,000)
Pro forma.......................................... $(60,898,000) $(29,326,000) $(6,513,000)
Net loss per share:
As reported........................................ $ (3.52) $ (2.44) $ (0.98)
Pro forma.......................................... $ (3.52) $ (2.44) $ (0.98)
The Company also derives revenue from slotting fees, set-up fees and
commissions. Slotting fees revenue is recognized ratably over the period the
services are provided. Setup fee revenue is recognized during the initial setup
to the extent that direct costs are incurred. The remaining revenue derived from
setup fees is deferred and amortized ratably over the term of the applicable
agreement. Commission revenue related to X:Drive is recognized in the month in
which a new account is established (i.e.,
F-28
QUEPASA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
services are provided). Commission revenue and expenses related to Net2Phone are
recognized during the month in which the service is provided.
The Company in the ordinary course of business enters into reciprocal
service arrangements (barter transactions) whereby the Company provides
advertising service to third parties in exchange for advertising services in
other media. Revenue and expenses from these agreements are recorded at the fair
value of services provided or received, whichever is more determinable in the
circumstances. The fair value represents market prices negotiated on an arms'
length basis. Revenue from reciprocal service arrangements is recognized as
income when advertisements are delivered on the Company's website. Expense from
reciprocal services arrangements is recognized when the Company's advertisements
are run in other media, which are typically in the same period when the
reciprocal service revenue is recognized. Related expenses are classified as
advertising and marketing expenses in the accompanying statements of operations.
During the years ended December 31, 2000, 1999 and 1998, revenue and related
expenses attributable to reciprocal services totaled approximately
$1.3 million, $119,000 and $0, respectively.
In November 1999, the EITF commenced discussions on EITF No. 99-17,
ACCOUNTING FOR ADVERTISING BARTER TRANSACTIONS, concluding that revenue and
expenses from advertising barter transactions should be recognized at the fair
value of the advertising surrendered or received only when an entity has a
historical practice of receiving or paying cash for similar advertising
transactions. In evaluating "similarity," the Company ensured reasonableness of
the target market, circulation, timing, medium, size, placement, and location of
the advertisement. In cases where the total dollar amount of barter revenue
exceeded the total amount of the "similar" cash transaction, the total barter
amount was capped at the lower cash amount. EITF No. 99-17 was effective and was
applied prospectively to all transactions occurring after January 20, 2000.
(H) COMPUTER PROMOTIONS INVENTORY
Computer promotions inventory is recorded at cost and included in other
current assets. The computer promotions inventory is charged to expense on an
individual basis as each computer is donated.
(I) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
expense is generally provided on a straight-line basis using estimated useful
lives of the assets which range from two to five years. Leasehold improvements
are amortized on a straight-line basis over the shorter of the lease term or the
estimated useful lives of the related improvements. Expenditures for repairs and
maintenance are charged to operations as incurred and improvements which extend
the useful lives of the assets are capitalized.
(J) PRODUCT AND CONTENT DEVELOPMENT
Costs incurred in the classification and organization of listings within the
Company's website are charged to expense as incurred. In accordance with SOP
98-1, material software development costs, costs of development of new products
and costs of enhancements to existing products incurred during the application
development stage are capitalized. Based upon the Company's product development
process, and the constant modification of the Company's website, costs incurred
by the Company during the application development stage have been insignificant.
F-29
In March 2000, EITF No. 00-02, ACCOUNTING FOR WEBSITE DEVELOPMENT COSTS, was
issued which addresses how an entity should account for costs incurred in
website development. EITF 00-02 distinguishes between those costs incurred
during the development, application and infrastructure development stage and
those costs incurred during the operating stage. EITF 00-02 was effective on and
after June 30, 2000 although early adoption was encouraged. The adoption of EITF
No. 00-02 did not have a material impact on the Company's consolidated financial
statements.
Pursuant to Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, the Company capitalized certain
material development costs incurred during the acquisition development stage,
including costs associated with coding, software configuration, upgrades and
enhancements.
(K) INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(L) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value of the assets less costs to sell. During 2000,
the Company recognized an impairment charge of $24.9 million (see note 2).
(M) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which
principally include cash and cash equivalents, trading securities, accounts
receivable, other receivable, forgivable loans, accounts payable, and accrued
liabilities approximates fair value because of the short term nature of the
instruments.
(N) STOCK-BASED COMPENSATION
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. The Company has adopted the
disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to provide pro forma net earnings (loss) and pro forma
net earnings (loss) per share disclosures for employee stock option grants as if
the fair-value-based method as defined in SFAS No. 123 had been applied.
The Company uses one of the most widely used option pricing models, the
Black-Scholes model (Model), for purposes of valuing its stock option grants.
The Model was developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. In
F-30
addition, it requires the input of highly subjective assumptions, including the
expected stock price volatility, expected dividend yields, the risk free
interest rate, and the expected life. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the value determined by the Model is
not necessarily indicative of the ultimate value of the granted options.
(O) NET LOSS PER SHARE
Basic loss per share is computed by dividing net loss available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted loss per share reflects the potential dilution that could occur
if securities or contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company. Stock options and warrants are excluded because
they are anti-dilutive.
(P) ADVERTISING COSTS
Advertising costs are expensed as incurred in accordance with Statement of
Position 93-7, "Reporting on Advertising Costs". Advertising costs for the years
ended December 31, 2000, 1999 and 1998 totaled $9.8 million, $15.9 million and
$132,000, respectively. The Company recognizes the advertising expense in a
manner consistent with how the related advertising is displayed or broadcast.
Advertising production costs are expensed as incurred.
(Q) SEGMENT REPORTING
The Company utilizes the management approach in designating business
segments. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segment. The Company's one segment
provides Internet Portal and On-Line Community services in both Spanish and
English to the Hispanic market. The Company's initial focus is on the U.S.
Hispanic market, with substantially all of the Company's assets in and revenue
originating from the United States.
(5) TRADING SECURITIES
A summary of cost and estimated fair values of trading securities as of
December 31, 2000 and 1999 follows:
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
2000:
Corporate debt securities.................... $ 2,534,091 $ -- $140,127 $ 2,393,964
=========== ======== ======== ===========
1999:
Corporate debt securities.................... $22,077,532 $160,124 $ -- $22,237,656
=========== ======== ======== ===========
Proceeds from the sale of trading securities were $105,856,000 and
$105,895,000 in 2000 and 1999, respectively. Realized gains totaled $2,820, $0
and $0 during 2000, 1999 and 1998, respectively.
F-31
(6) BALANCE SHEET COMPONENTS (IN THOUSANDS)
DECEMBER 31,
-------------------
2000 1999
-------- --------
Prepaid expenses:
Prepaid advertising....................................... $ -- $1,516
Prepaid consulting........................................ -- 4
Prepaid insurance......................................... 240 390
Prepaid maintenance....................................... 3 90
Prepaid content........................................... -- 58
Other prepaid expenses.................................... 59 103
---- ------
$302 $2,161
==== ======
Property and equipment:
Computer equipment and software........................... $ 72 $1,874
Furniture, fixtures, equipment and other.................... 7 367
Leasehold improvements...................................... 97 147
---- ------
176 2,388
Less accumulated depreciation and amortization.............. (73) (337)
---- ------
Property and equipment...................................... $103 $2,051
==== ======
Accrued liabilities:
Payroll taxes withheld.................................... $ 14 $ 2
Advertising............................................... -- 762
Accrued vacation.......................................... 51 77
Prizes payable............................................ -- 15
Other accrued expenses.................................... 84 168
---- ------
$149 $1,024
==== ======
(7) SPONSORSHIP FEE
In December 1999, realestateespanol.com and the National Association of
Hispanic Real Estate Professionals entered into an Internet Endorsement
Agreement, pursuant to which, in exchange for NAHREP's endorsement of the
realestateespanol.com website, realestateespanol was required to pay NAHREP an
annual $50,000 fee over a ten-year term. Thereafter, in connection with the
Internet Endorsement Agreement, in October 2000, realestateespanol.com, NAHREP,
the National Council of La Raza and Freddie Mac entered into a Memorandum of
Understanding which, among other things, set forth the business relationship
through which the parties agreed to implement a program to deliver the benefits
of technology to mortgage origination for low and moderate income Hispanic and
Latino borrowers. Contemporaneously, realestateespanol and NAHREP entered into
an agreement which set forth the terms and conditions of their rights and
obligations under the MOU.
Under the MOU, among other things, (1) realestateespanol was required to
(a) develop a web-based technology tool to be distributed to NCLR and NCLR
affiliates, and (b) donate 200 computers, at no charge, to NAHREP for
distribution to NCLR and NCLR affiliates for promotional purposes, (2) Freddie
Mac was required to provide an aggregate dollar amount of $250,000 as
sponsorship fees to NAHREP, and (3) NAHREP was required, in turn, to deliver the
same to realestateespanol towards the initial development of the technology tool
discussed above. In May 2001, all of the parties agreed to either terminate
certain of the agreements or release realestateespanol from its duties and
obligations thereunder. In exchange for such termination or release, as the case
may be, realestateespanol (a) transferred ownership of, and exclusive rights to,
the in-process technology tool to
F-32
NAHREP, (b) granted NAHREP a non-exclusive license to operate and use the
realestaeespanol.com website the content thereon and any related technology
tools, (c) granted NAHREP an exclusive license to operate and use any related
domain names, (d) permitted NAHREP to retain the full amount of the unpaid
sponsorship fee to be paid by Freddie Mac to NAHREP for development of the
technology tool, and (e) permitted NAHREP to retain ownership of the previously
donated computers.
The carrying value of the website, approximately $27,000, was expensed in
the second quarter of 2001. The $100,000 of sponsorship fees collected in 2000
was amortized over six months commencing October 1, 2000 with $50,000 of
deferred revenue remaining as of December 31, 2000. The 200 computers remaining
in inventory on December 31, 2000 were donated to NAHREP in 2001 and expensed in
the first quarter of 2001.
(8) LEASES
OPERATING LEASES
The Company entered into a three and one-half year lease agreement for its
corporate offices commencing June 1, 1999. The monthly lease payments range from
$24,341 to $26,000. The lease expires November 30, 2002. In addition, in
connection with its previous headquarters location, the Company has a 3-year
lease agreement for offices in Las Vegas, NV. The lease payments range from
$1,732 to $1,771 per month and the lease expires on August 14, 2001.
Future minimum rental payments under non-cancelable operating and equipment
leases are as follows:
Years ending December 31,
2001...................................................... $342,000
2002...................................................... 287,000
--------
$629,000
========
Facilities and equipment lease expense for the years ended December 31,
2000, 1999 and 1998 was $391,000, $311,000 and $45,000, respectively. As a
result of the reduction in the Company's workforce and change in the business
strategy, the Company has executed an agreement with its landlord to terminate
its office lease for all office space in its current headquarters location (see
note 16).
(9) INCOME TAXES
No provision for federal and state income taxes has been recorded as the
Company has incurred significant net operating losses from inception through
December 31, 2000. Sources of deferred tax assets and their tax effects follows:
DECEMBER 31,
-------------------------
2000 1999
----------- -----------
Net operating loss carryforwards............................ $21,038,000 $10,535,000
Nondeductible expenses...................................... 841,000 (79,000)
Other....................................................... -- 255,000
----------- -----------
Gross deferred tax assets................................... 21,879,000 10,711,000
Valuation allowance......................................... (21,879,000) (10,711,000)
----------- -----------
$ -- $ --
=========== ===========
The allowance for deferred tax assets as of December 31, 2000 and 1999 was
$21.9 million and $10.7 million, respectively. The net change in the total
valuation allowance for the years ended
F-33
December 31, 2000 and 1999 was an increase of $11.2 million and $9.1 million,
respectively. The Company believes sufficient uncertainty exists regarding the
realization of the tax assets such that a full valuation allowance is
appropriate.
At December 31, 2000, the Company had approximately $52.6 million of federal
net operating loss carryforwards for tax reporting purposes available to offset
future taxable income, if any. These carryforwards begin to expire in 2018 and
2019. The Company has approximately $52.6 million of state net operating loss
carryforwards for tax reporting purposes, which begin to expire in 2002. Due to
the frequency of equity transactions within the Company, it is likely the use of
the net operating loss carryforwards will be limited in accordance with
Section 382 of the Internal Revenue Code. A determination as to this limitation
will be made at a future date as the net operating losses are utilized.
(10) COMMITMENTS
(A) EMPLOYMENT AGREEMENTS
The Company has entered into employment and other agreements with many of
its employees and all of its executive officers and non-employee directors.
Under the terms of the employment agreements with its employees, the Company and
the other parties thereto agreed to various provisions relating to base salary,
forgivable loans and severance and bonus arrangements. The Company recognized
the forgivable loans ratably as expense over the full loan period, or earlier,
if the loan is forgiven on the date of the particular employee's termination of
employment with the Company, according to such employee's employment agreement.
In the event of a change of control or liquidation, the Company may be
required to pay up to a maximum of $1.2 million in severance payments under the
Company's existing employment agreements with its remaining officers and other
agreements with its non-employee directors as follows:
Pursuant to the pending merger agreement with Great Western Land and
Recreation, Inc., Gary L. Trujillo and Robert J. Taylor will be terminated at
the closing thereof, triggering certain severance obligations of the Company.
Under Taylor's employment agreement, Taylor's employment terminates on its own
terms on March 8, 2002, but the Company may terminate his employment for any
reason, with or without cause. If the Company terminates Taylor's employment
without cause before the end of Taylor's employment term, the Company is
required to pay Taylor a severance payment in the amount of $100,000, which
payment is due and payable immediately upon termination. In addition, all of
Taylor's 193,334 unvested options will become fully vested and exercisable upon
the closing of the merger. Trujillo's employment terminates on its own terms on
April 26, 2004, and the Company may not terminate his employment without cause.
Trujillo has agreed to terminate his employment with the Company at the merger
closing in exchange for a discounted lump sum payment of the compensation due
him over the remaining term of his agreement. Trujillo will receive up to
approximately $850,000 in connection with the termination of his employment
agreement. That amount will be reduced by any monthly salary payments made to
Trujillo. In addition, all of Trujillo's 286,111 unvested options will become
fully vested and exercisable upon the closing of the merger.
A change of control in the Company will also trigger a cash payment due to
the Company's non-employee directors. As of March 2001, the Company agreed to
pay each non-employee director a payment of $50,000 for past and current
services, payable only upon any change of control in or liquidation of the
Company. In addition, 200,000 unvested options previously granted to the
non-employee directors with an exercise price of $0.15 per share will become
fully vested and exercisable.
F-34
(B) ADVERTISING CONTRACTS
In April 1999, the Company entered into an agreement with Telemundo Network
Group LLC (Telemundo). The Chief Operating Officer of Telemundo served as
director of the Company through January, 2001 (see note 16). Under this
agreement, the Company issued Telemundo 600,000 shares of its common stock and a
warrant to purchase 1,000,000 shares of its common stock exercisable up to and
including June 25, 2001 at $14.40 per share (see notes 12 and 16). In exchange,
the Company received a $5.0 million advertising credit on the Telemundo
television network at the rate of $1.0 million for each of the next five years.
After completion of the IPO, the shares and warrant became fully vested and were
not subject to return for nonperformance by Telemundo. The fair value of the
transactions was measured and based on the fair value of the common stock issued
at the Company's IPO price of $12.00 per share plus $2.9 million assigned to the
warrant based upon the Black-Scholes pricing model using a 50% volatility rate.
The Company began amortizing the $5.0 million advertising credit on January 1,
2000, after a cash purchase from Telemundo of $1.0 million in advertising
services in 1999. The remaining balance of prepaid marketing services of
$5.1 million is amortized over the term of the agreement (5 years), resulting in
expense of $1.7 million for the year ended December 31, 2000. This agreement
also provides (1) that the parties will collaborate regarding online content
development, co-branded marketing promotions, and other complementary aspects of
its business, (2) that the parties will cross-link each other's websites, and
(3) exclusivity provisions for a period of six months. On December 27, 2000, the
Company's Board of Directors approved the development of a plan of liquidation
and sale of the Company's assets in the event that no strategic transaction
involving the Company could be achieved. Accordingly, the Company performed an
impairment analysis of all long-lived assets and identifiable intangibles in
accordance with generally accepted accounting principles in the United States of
America. As a result, the Company wrote off the unamortized $7.6 million
remaining prepaid marketing services as of December 31, 2000 (see note 2).
In April 1999, the Company issued 50,000 shares of its common stock to an
entity partially owned by a former director of the Company for advertising and
marketing services valued at $634,000. The value of the stock and the related
advertising costs were adjusted at each quarterly reporting period based on the
then fair value of the stock issued through the final measurement date
(December 31, 1999). The advertising costs were amortized on a straight-line
basis over the full term of the contract as the services were performed ratably
over the period. In August 1999, the Company entered into a one-year agreement
with this company with a monthly commitment of $150,000. Payment during the
first 5 months of the agreement included amortization of the prepaid amount from
the issuance of common stock. This agreement was amended, reducing the monthly
commitment to $50,000 for January 2000 and to $40,000 through October 2000. The
agreement continued on a month-to-month basis with payments totaling $437,000
through December 2000 when it was terminated.
During 2000 and 1999, the Company was a party to a sponsorship agreement
with the Arizona Diamondbacks major league baseball team. A director of the
Company serves as the Arizona Diamondbacks' Chief Executive Officer and General
Manager. Under this agreement, the Company received English and Spanish
television and radio broadcast time, ballpark signage, and Internet and print
promotions for an annual sponsorship fee of $1.5 million which was payable in
cash during each season. This agreement was not renewed for the 2001 season. The
$1.5 million annual sponsorship fee was recognized as expense ratably over the
2000 and 1999 baseball seasons.
(C) INTERNET ACCESS AGREEMENT
On December 14, 1999, the Company entered into a one-year agreement with
NetZero, Inc. (NetZero), where it provided free internet access along with the
Company's content to the U.S. Hispanic market. According to the terms of this
agreement, the Company was obligated to pay a fee for their subscribers who
accessed the Company's website. This fee ranged from $.10 to $.15 per user
F-35
session (user session fees). The Company was also committed to spend at least
$1.0 million for the production and distribution of CD's containing the
customized NetZero service. In addition, according to the terms of the
agreement, the Company made a $1.0 million advance payment which was applied
against future user session fees incurred by the Company. The Company was
obligated to maintain an advance payment amount each month equal to at least
125% of the amount due the prior month for such user session fees. The user
session fees and the production and distribution costs for the CD's were
expensed as incurred. The Company had no advance payments with NetZero as of
December 31, 2000. As of December 31, 2000, all obligations were met and the
agreement was terminated.
(D) CONTENT
During 2000, 1999 and 1998, the Company had various agreements with third
parties to provide content to the Company's website and incurred license fee
expense of $815,000, $227,000 and $104,000 for the years ended December 31,
2000, 1999 and 1998, respectively. Subsequent to year-end, the Company paid
$41,000 to terminate all content development agreements.
(11) CONTINGENCIES
In February 2001, the Company initiated arbitration against Telemundo to
defend the enforceability of an agreement between us, and submitted a damages
claim for $4.3 million, plus reasonable attorneys' fees and costs. Alleging that
the Company breached the agreement by failing to develop and maintain the
Telemundo website, Telemundo asserted a damages claim in the arbitration for
$655,000, plus reasonable attorneys' fees and costs. The Company does not
believe that it has breached the agreement and intends to vigorously assert its
rights thereunder, particularly its right to use or transfer any unused
advertising credits. A hearing date for the arbitration has been set for
October 1, 2001. While the Company believes it will be successful in the
arbitration proceeding, there can be no assurance that it will succeed.
Accordingly, the accompanying financial statements do not include a provision
for loss, if any, resulting from the ultimate outcome of this matter.
The Company from time to time is involved in various legal proceedings
incidental to the conduct of its business. The Company believes that the outcome
of all such pending legal proceedings will not in the aggregate have a material
adverse effect on the Company's business, financial condition, results of
operations or liquidity.
(12) STOCKHOLDERS' EQUITY
(A) CONVERTIBLE NOTE PAYABLE
In May 1998, the Company issued $100,000 of convertible debt. The
convertible debt accrued interest at 12% per annum and was scheduled to mature
on the earlier of May 31, 2000 or the closing date of the Company's initial
public offering. The Company had the right to convert unpaid note principal plus
any accrued interest into 100,000 shares of common stock at any time during the
term of the note. In November 1998, the Company converted $50,000 of the note
into 50,000 shares of the Company's common stock and repaid the balance of
$50,000.
In July 1998, the Company issued $1 million of convertible debt. The
convertible debt accrued interest at 12% per annum and was payable on the
earlier of May 31, 2000 or at the closing date of the Company's initial public
offering. The Company had the right to convert unpaid principal plus any accrued
interest into 666,666 shares of common stock at any time during the term of the
notes. The Company believes this conversion feature was based on the fair market
value of the common stock on the date of issuance. In November 1998, the notes
and accrued interest of $39,780 were converted into 666,666 shares of the
Company's common stock.
F-36
(B) PRIVATE PLACEMENT
During November and December of 1998, the Company issued 1,259,167 shares of
common stock in a private placement for cash at $3.75 per share. The Company
received proceeds of $4.1 million net of related costs of $640,587. In
January 1999, $125,000 of the proceeds were received and were reflected as stock
subscription receivable as of December 31, 1998.
During December 1998, the Company received excess proceeds of $337,500 with
respect to these private placements. These amounts were refunded upon the
investor's request in January 1999.
(C) COMMON STOCK ISSUED IN EXCHANGE FOR ADVERTISING
In April 1999, the Company issued 600,000 shares of common stock valued at
$7.2 million and a warrant to purchase 1,000,000 shares of common stock at
$14.40 per share to Telemundo in exchange for a television advertising credit
valued at $5.0 million and other marketing services. The warrant was valued at
$2.9 million using the Black-Scholes option-pricing model. The $5.0 million
advertising credit as of December 31, 1999, is included in prepaid marketing
services on the balance sheet. Since the Company's Board of Directors approve
the development of a plan of liquidation and sale of its assets in
December 2000 and since the Company has not been able to develop a revenue
stream to support the carrying value of its long-lived and intangible assets,
the Company reviewed long-term assets and identifiable intangibles for
impairment as of December 31, 2000. Consequently, the Company wrote off the
$7.6 million remaining prepaid marketing services to zero as of December 31,
2000 (see note 2).
Also in April of 1999, the Company issued 50,000 shares of common stock to
Garcia/LKS in exchange for advertising services valued at $634,000 (see
note 10(b)).
(D) INITIAL PUBLIC OFFERING
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.
(E) REDEEMABLE COMMON STOCK--SPOKESPERSON AGREEMENT
In September 1999, the Company entered into a $6.0 million agreement with
Estefan Enterprises, Inc. (Estefan) whereby Gloria Estefan was to act as
spokesperson for the Company through December 31, 2000 and the Company would
sponsor her United States concert tour. The terms of the agreement required the
payment of $2.0 million upon signing the agreement, $2.0 million to be paid in
fiscal year 2000 and issuance of 156,863 shares of redeemable common stock
valued at $2.0 million ($12.75 per share). The value of the stock and the
related advertising costs were originally determined by an independent third
party and were adjusted at each quarterly reporting period based on the then
fair value of the stock issued through the final measurement date. If the
closing price of the Company's common stock on September 1, 2000 was less than
$12.75 per share, Estefan would have the option to return the stock to the
Company in exchange for $2,000,000 cash (put option). If Estefan sells its
shares of common stock of the Company for more than $18.75 per share, it was
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). Amounts related to this original contract were recorded
as prepaid expense, redeemable common stock and deferred advertising expense and
were being amortized on a straight-line basis over the term of the contract. In
June 2000, the United States Concert Tour was cancelled and the original terms
of the agreement with Estefan were renegotiated. The revised agreement called
for the return of the 156,863 shares of redeemable common stock to the Company,
cancellation of the put option for those shares and cancellation of the
F-37
final $500,000 cash installment. The Company recognized $2.3 million and
$1.2 million of amortization expense in 2000 and 1999, respectively, in relation
to the original contract. The issuance of the 156,863 shares of redeemable
common stock was reversed, in part, against deferred advertising expense.
(F) OUTSTANDING WARRANTS
As of December 31, 2000 and 1999, the Company had outstanding warrants for
the purchase of 2,081,818 and 1,400,000 common shares of our common stock,
respectively. The holders of the outstanding warrants as of December 31, 2000
are as follows: 681,818 contingent warrants held by Verde Capital Partners LLC
and Verde Reinsurance Company, Ltd. (Verde) (see note 3), 1,000,000 warrants
held by Telemundo with a strike price of $14.40 per share and 400,000 warrants
held by Cruttenden Roth with a strike price of $19.80 per share. The holders of
the outstanding warrants as of December 31, 1999 were as follows: 1,000,000
warrants held by Telemundo with a strike price of $14.40 per share and 400,000
shares held by Cruttenden Roth with a strike price of $19.80 per share. The
Verde warrants were contingent on certain performance objectives to be met by
credito.com. As the agreed-upon targets were not met, the Verde warrants were
returned to quepasa and cancelled subsequent to year-end. Similarly, the
Telemundo warrants expired unexercised on June 25, 2001 (see note 16). The
Company accounted for the Telemundo and Cruttenden Roth warrants as prepaid
marketing services and a net entry to additional paid-in capital, respectively.
The Telemundo and Cruttenden Roth warrants were valued at $2.9 million and
$1.7 million, respectively, on the date of grant using the Black-Scholes
option-pricing model. The assumptions used for the Telemundo warrants are as
follows: expected dividend yield 0%, risk-free interest rate of 4.5%, expected
volatility of 50%, and expected life of two years. The assumptions used for the
Cruttenden Roth warrants are as follows: expected dividend yield 0%, risk-free
interest rate of 5.67%, expected volatility of 50%, and expected life of five
years.
(G) PROCEEDS FROM EXERCISE OF COMMON STOCK OPTIONS
During 2000 and 1999, current and former employees and directors exercised
common stock options for the purchase of shares of the Company's common stock.
The proceeds from these issuances totaled $368,000 and $496,000 during 2000 and
1999, respectively.
(H) STOCK SPLIT
In October 1998, the Company's Board of Directors authorized a 284 for one
stock split. The consolidated financial statements have been presented as if the
split had occurred at inception.
F-38
(13) LOSS PER SHARE
A summary of the reconciliation from basic loss per share to diluted loss
per share follows for the years ended December 31, 2000, 1999 and 1998:
YEARS ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
------------ ------------ -----------
Loss before the cumulative effect of a change
in accounting principle.................... $(60,898,351) $(29,261,363) $(6,513,228)
------------ ------------ -----------
Net loss..................................... $(60,962,934) $(29,261,363) $(6,513,228)
------------ ------------ -----------
Basic EPS-weighted average shares
outstanding................................ 17,301,729 12,011,088 6,671,052
------------ ------------ -----------
Basic and diluted loss per share before the
cumulative effect of a change in accounting
principle and basic and diluted net loss
per share.................................. $ (3.52) $ (2.44) $ (0.98)
------------ ------------ -----------
Stock options not included in diluted EPS
since antidilutive......................... 2,823,785 2,987,000 215,000
------------ ------------ -----------
Warrants not included in diluted EPS since
antidilutive............................... 2,081,818 1,400,000 --
------------ ------------ -----------
Contingent shares not included in basic and diluted EPS total 930,652, 0 and
0 for the years ended December 31, 2000, 1999 and 1998, respectively. Warrants
to purchase 1,681,818 shares of the Company's common stock (see note 16) and
approximately 1,081,000 stock options have expired subsequent to December 31,
2000.
(14) STOCK OPTION PLAN AND EMPLOYEE COMPENSATORY STOCK
In October 1998, the Company adopted and later amended a Stock Option Plan
(the "Plan"), which provides for the granting of options to officers, directors,
and consultants. The plan permits the granting of "incentive stock options"
meeting the requirements of Section 422A of the Internal Revenue Code as well as
"nonqualified" which do not satisfy the requirements of that section. 6,000,000
shares of common stock have been restricted under the plan for the granting of
options. The Plan will be in effect until November 1, 2009, unless extended by
the Company's stockholders. The options are exercisable to purchase stock for a
period of ten years from the date of grant.
Incentive stock options granted pursuant to this Plan may not have an option
price that is less than the fair market value of the stock on the date the
option is granted. Incentive stock options granted to significant stockholders
shall have an option price of not less than 110% of the fair market value of the
stock on the date of the grant. Prior to the Company's initial public offering,
the fair market value of the stock was determined based on similar transactions
with independent third parties and the mid-point of the proposed initial public
offering price range ($10 to $12 per share) based on discussions with
underwriters in late January 1999. Subsequent to the Company's initial public
offering, the fair market value of the stock was determined based on the closing
trading price of the Company's stock on the date of grant. Options granted under
the plan vest one-third at the end of each of the three years of service
following the grant date. The Board of Directors of the Company may waive the
vesting requirements at its discretion. All stock options issued under the Plan
are exercisable for a period of 10 years from the date of grant.
During May 1998, the Company issued 1,420,000 shares of common stock to
Michael Silberman, then an officer of the Company. 296,492 of those shares of
common stock were issued to Mr. Silberman in error, and at the Company's
request, he transferred those shares to an outside advisor. Also during
May 1998, Jeffrey S. Peterson, the Company's then Chairman and Chief Executive
Officer, transferred 3,566,714 existing shares to several employees and outside
advisors. The fair market
F-39
value of the common stock on the date of these issuances was determined to be
$1.00 based on the issuance of convertible debt in May of 1998, which was
convertible into common stock at $1.00 per share. Approximately $5.0 million in
compensation expense is reflected in the December 31, 1998 financial statements
as a result of these transactions.
Stock based compensation totaled $82,184, $5.0 million and $5.3 million for
the years ended December 31, 2000, 1999 and 1998, respectively. Stock based
compensation for the year ended December 31, 2000, was classified in production
and content development expense. Stock based compensation for the year ended
December 31, 1999, was classified as follows: $200,372 to production and content
development expense, $61,012 to advertising and marketing expense, and
$4.7 million to general and administrative expense. Stock based compensation for
the year ended December 31, 1998, was primarily allocated to general and
administrative expense.
Had the Company determined compensation cost based on the fair value at the
date of grant for its stock options under SFAS 123, the Company's net loss per
share would have been increased to the pro forma amounts presented below:
YEARS ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
Net loss:
As reported............................... $(60,962,934) $(29,261,363) $ (6,513,228)
Pro forma................................. (66,094,658) (36,036,997) (11,434,405)
Basic and diluted net loss per share:
As reported............................... $ (3.52) $ (2.44) $ (0.98)
Pro forma................................. (3.82) (3.00) (1.71)
For purposes of SFAS 123, pro forma net loss and pro forma net loss per
share, the fair value of option grants is estimated on the date of grants
utilizing the Black-Scholes option-pricing model with the following weighted
average assumptions: 2000--expected life of three years, expected volatility of
186%, risk-free interest rate of 5.0% and a 0% dividend yield; 1999--expected
life of five years, expected volatility of 61%, risk-free interest rate of 5.52%
and a 0% dividend yield; 1998--expected life of five years, 67% weighted average
volatility, risk-free interest rate of 6% and a 0% dividend yield. The per share
weighted average fair value of stock options granted under the Plan for the
years ended December 31, 2000, 1999 and 1998 were $7.91, $5.91 and $2.63,
respectively, using the Black-Scholes option-pricing model and the assumptions
listed above.
Summarized information relating to the stock option plan follows:
COMMON STOCK WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
------------ ----------------
Outstanding, December 31, 1997.................. -- --
Granted....................................... 215,000 $2.45
---------- -----
Outstanding, December 31, 1998.................. 215,000 2.45
Granted....................................... 3,065,500 9.03
Exercised..................................... (110,225) 5.44
Cancelled or forfeited........................ (183,275) 5.15
---------- -----
Outstanding, December 31, 1999.................. 2,987,000 8.92
Granted....................................... 1,151,813 8.84
Exercised..................................... (99,100) 3.71
Cancelled or forfeited........................ (1,215,928) 10.63
---------- -----
Outstanding, December 31, 2000.................. 2,823,785 $8.35
---------- -----
Exercisable, December 31, 2000.................. 1,444,149 $8.00
F-40
A summary of the stock options granted at December 31, 2000 follows:
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AS OF CONTRACTUAL EXERCISE AS OF EXERCISE
PRICES DECEMBER 31, 2000 LIFE PRICE DECEMBER 31, 2000 PRICE
--------------------- ------------------ ----------- -------- ------------------ --------
0.00$-$1.85....... 52,500 5.7 $ 1.36 37,500 $ 1.50
5.55$-$7.40....... 635,000 6.7 $ 7.02 500,000 $ 7.00
7.40$-$9.25....... 1,478,950 6.0 $ 8.05 617,899 $ 7.88
9.25$-$11.10...... 368,334 4.4 $10.29 178,334 $10.26
11.1$0-$12.95..... 289,001 6.5 $11.63 110,416 $11.68
--------- ----- ------ --------- ------
2,823,785 6.0 $ 8.35 1,444,149 $ 8.00
========= ===== ====== ========= ======
(15) RELATED PARTY TRANSACTIONS
In May 1998, Jeffrey S. Peterson, then our Chairman and Chief Executive
Officer, conveyed an aggregate of 3,566,714 shares of his common stock to
Michael A. Hubert, Kevin Dieball, Keith Fredriksen, The Monolith Limited
Partnership and Richard Whelan, for $.00035 per share. The shares were conveyed
at that time to induce these five persons to provide strategic planning and
business development services to us.
In July 1998, the Company loaned Mr. Peterson $100,000 pursuant to his
employment agreement. The Company agreed that if Mr. Peterson was employed by
the Company on April 1, 1999 the loan would be forgiven, which subsequently
occurred. The loan bore interest at 10% per annum. Similar loans were made to
several other of our officers including our Chief Executive Officer, Gary L.
Trujillo, to whom the Company loaned $100,000. Mr. Trujillo's loan bore interest
at 10% per annum with 50% of the loan forgiven in October 1999 and the remaining
50% in April 2000.
In March 1999, The Monolith Limited Partnership, a former principal
stockholder, sold 216,436 shares of our common stock at $7.00 per share and
loaned the Company $2.0 million for working capital. The loan bore interest at
12% per annum through June 1999 and then 14% per annum through March 2001 and
was repaid with a portion of the proceeds of the initial public offering.
Interest expense totaled $80,685 for the year ended December 31, 1999.
In March 1999, Mr. Peterson sold 446,000 shares of our common stock,
comprised of 396,000 shares at $7.00 per share and 50,000 shares at $6.00 per
share, to a group of investors, including 25,000 shares sold to each of Jerry J.
Colangelo and Edwin C. Lynch both of who subsequently became directors.
Mr. Peterson agreed to loan the Company up to $3.0 million of the proceeds from
the sale of his common stock at any time prior to the completion of the offering
to be used by the Company for working capital. The loans bore monthly interest
of 12% per annum for four months and then 14% per annum for the next 20 months,
at which time each loan would become due. Interest expense totaled $158,173 for
the year ended December 31, 1999. All loans from Mr. Peterson were paid in full
during 1999.
In April 1999, the Company issued 25,000 shares of common stock in exchange
for consulting services provided by Southwest Harvard Group, a company owned by
Mr. Trujillo, who subsequently became our Chairman and Chief Executive Officer
that same month. The shares were valued at the fair market value of common stock
at the date of issuance which was determined to be $11 per share based on the
most recent similar transactions. The total cost of the common stock of $275,000
and related expenses were recorded in the month the services were performed.
In April 1999, the Company issued 50,000 shares of its common stock to an
entity partially owned by a former director of the Company for advertising and
marketing services valued at $634,000 (see
F-41
note 10). In August 1999, the Company entered into a one-year agreement with
this company with a monthly commitment of $150,000. Payment during the first
5 months of the agreement included amortization of the prepaid amount from the
issuance of common stock. This agreement was amended, reducing the monthly
commitment to $50,000 for January 2000 and to $40,000 through October 2000. The
agreement continued on a month-to-month basis with payments totaling $437,000
through December 2000 when it was terminated.
In April 1999, the Company granted the Chairman and Chief Executive Officer
options to purchase up to 350,000 shares of common stock exercisable at $7 per
share, all of which vested immediately. Approximately $1.4 million of
compensation expense was recorded for the year ended December 31, 1999 as a
result of this transaction.
In April 1999, the Company issued 50,000 shares of common stock to the
Chairman and Chief Executive Officer. Additionally, the Company's former
Chairman and Chief Executive Officer transferred 50,000 shares of common stock
to the current Chairman and Chief Executive Officer. As a result of these
transactions, approximately $1.1 million in compensation expense was recorded
for the year ended December 31, 1999.
In April 1999, the Company entered into a $1.5 million sponsorship
agreement, payable in cash, with the Arizona Diamondbacks, a major league
baseball team. The sponsorship fee was recognized as expense ratably over the
2000 and 1999 baseball seasons. A director of the Company serves as the Chief
Executive Officer and Managing General Partner of the Arizona Diamondbacks.
In April 1999, the Company entered into a sponsorship agreement with
Telemundo. Subsequently, Telemundo became a principal stockholder of the Company
and Alan J. Sokol its Chief Operating Officer became one of its directors.
In June 1999, L. William Seidman, one of our directors, purchased 6,794
shares and 348 shares of our common stock from Kevin Dieball and Monolith,
respectively, for $6.75 per share, the then estimated fair value. Mr. Trujillo
purchased 15,000 shares of our common stock from Monolith for $6.75 per share.
Also, Internet Partners, LLC, a limited liability company in which
Mr. Colangelo is one of four members, purchased 260,000 shares of our common
stock from Monolith at $6.75 per share.
In June 1999, Mr. Peterson and Michael A. Hubert, a former officer and
director of the Company, entered into a voting trust agreement which provides
that, until June 24, 2004, Messrs. Seidman and Trujillo shall vote all shares of
the Company's common stock owned by Messrs. Peterson and Hubert in the same
proportion as those shares voted by the Company's non-affiliated stockholders.
Subsequent to December 31, 2000, Peterson sold all but 60,000 shares (an
aggregate of 1,261,083 shares) of the Company's common stock that he held.
Accordingly, the voting trust is currently entitled to vote only the remaining
60,000 shares owned by Peterson. In the Company's opinion, the transactions
described above were on terms no less favorable than those which could have been
obtained from unaffiliated third parties (see note 16).
In September 1999, the Company granted the Chairman and Chief Executive
Officer options to purchase up to 600,000 shares of common stock exercisable at
$7.75 per share, which vest monthly over 3 years. The exercise price was
determined to be equal to the fair value based on the closing trading price per
share on the grant date. Therefore, no compensation expense was recorded as a
result of this transaction.
The Company had forgivable loans due from employees amounting to $368,000 as
of December 31, 1999. These loans were granted as recruiting and retention
incentives and were deemed 50 percent forgiven after six months of employment
and 100 percent forgiven after 12 months of employment. There were no forgivable
loans outstanding at December 31, 2000.
F-42
In December 1999, realestateespanol.com and the National Association of
Hispanic Real Estate Professionals entered into an Internet Endorsement
Agreement, pursuant to which, in exchange for NAHREP's endorsement of the
realestateespanol.com website, realestateespanol was required to pay NAHREP an
annual $50,000 fee over a ten-year term. Thereafter, in connection with the
Internet Endorsement Agreement, in October 2000, realestateespanol.com, NAHREP,
the National Council of La Raza and Freddie Mac entered into a Memorandum of
Understanding which, among other things, set forth the business relationship
through which the parties agreed to implement a program to deliver the benefits
of technology to mortgage origination for low and moderate income Hispanic and
Latino borrowers. Contemporaneously, realestateespanol and NAHREP entered into
an agreement which set forth the terms and conditions of their rights and
obligations under the MOU.
Under the MOU, among other things, (1) realestateespanol was required to
(a) develop a web-based technology tool to be distributed to NCLR and NCLR
affiliates, and (b) donate 200 computers, at no charge, to NAHREP for
distribution to NCLR and NCLR affiliates for promotional purposes, (2) Freddie
Mac was required to provide an aggregate dollar amount of $250,000 as
sponsorship fees to NAHREP, and (3) NAHREP was required, in turn, to deliver the
same to realestateespanol towards the initial development of the technology tool
discussed above. In May 2001, all of the parties agreed to either terminate
certain of the agreements or release realestateespanol from its duties and
obligations thereunder. In exchange for such termination or release, as the case
may be, realestateespanol (a) transferred ownership of, and exclusive rights to,
the in-process technology tool to NAHREP, (b) granted NAHREP a non-exclusive
license to operate and use the realestaeespanol.com website the content thereon
and any related technology tools, (c) granted NAHREP an exclusive license to
operate and use any related domain names, (d) permitted NAHREP to retain the
full amount of the unpaid sponsorship fee to be paid by Freddie Mac to NAHREP
for development of the technology tool, and (e) permitted NAHREP to retain
ownership of the previously donated computers. An officer of
RealEstateEspanol.com and the Company served as a director and became the Chief
Executive Officer of NAHREP.
(16) SUBSEQUENT EVENTS
In January 2001, Alan Sokol resigned from the Company's Board of Directors.
In January 2001, the Company's common stock was delisted from the Nasdaq
National Market. In March 2001, the Company's common stock began trading on the
OTC Bulletin Board (OTCBB). In May 2001, the Company's common stock was delisted
from the OTCBB and began trading on the Pink Sheets.
On February 1, 2001, Jose Ronstadt resigned as an officer of the Company.
In March 2001, the Company sold substantially all of its furniture, computer
equipment and office equipment for $282,000 in cash.
On March 15, 2001, the Company granted an aggregate of 400,000 stock options
to its officers and directors, with an exercise price of $.15 per share of
common stock (representing a 33% premium over the $.10 closing price on
March 15, 2001). As a result, the Company did not record any compensation
expense related to these grants. Of those options, the Company granted 100,000
options to each of Mr. Taylor and Mr. Trujillo. The Company granted each of the
remaining directors 50,000 options.
On March 22, 2001, the Company agreed to pay each of its non-employee
directors a lump sum payment of $50,000, for prior and current service, upon the
occurrence of a significant event, defined as a change of control or liquidation
of the Company.
On June 21, 2001, Michael Weck resigned from the Company's Board of
Directors.
F-43
On June 25, 2001, under the agreement between the Company and Telemundo, the
warrant previously issued to Telemundo to purchase 1,000,000 shares of the
Company's common stock at $14.40 per share expired on their own terms. The
warrant was not exercised.
In August 2001, Peterson sold all but 70,000 of his remaining shares of the
Company's common stock. Accordingly, the voting trust currently is entitled to
vote only those 70,000 shares on Peterson's behalf, according to the terms and
conditions of the voting trust agreement.
On August 1, 2001, the Company and its landlord executed an agreement
pursuant to which the Company made a $130,000 lump sum payment to the landlord
for any and all amounts due and owing under its lease, including any and all
future amounts to be paid thereunder. The Company is required to vacate the
property on the earlier to occur of October 31, 2001, or upon 30-days prior
written notice from the landlord. As of August 31, 2001, the Company has not
received such written notice to vacate from the landlord.
On August 6, 2001, the Company entered into a merger agreement that, would
result in the company becoming a wholly-owned subsidiary of Great Western Land
and Recreation, Inc. Great Western is an Arizona-based, privately held real
estate development company with holdings in Arizona, New Mexico and Texas. Great
Western's business focuses primarily on condominiums, apartments, residential
lots and recreational property development. In addition to holding completed
developments in metropolitan areas of Arizona, New Mexico and Texas, Great
Western also owns and is currently developing the Wagon Bow Ranch in northwest
Arizona and the Willow Springs Ranch in central New Mexico. The merger agreement
represents a stock for stock offering, pursuant to which each share of quepasa
common stock will be converted into one share of Great Western common stock.
Immediately following the merger current quepasa shareholders would own
approximately 49% of Great Western and Amortibanc Investments, L.C., Great
Western's current sole shareholder, would own approximately 51% of Great
Western. In addition, Amortibanc Investments holds one or more warrants to
purchase 14,827,175 shares of Great Western common stock that, if exercised,
would increase its ownership to a maximum of 65% of the outstanding common stock
of Great Western on a fully diluted basis (except for an aggregate of 400,000
unvested stock options with an exercise price of $0.15 per share held by our
directors, Chief Executive Officer and Chief Operating Officer). The warrant is
exercisable at any time, and from time to time for ten years following the
merger closing. Under the terms of the warrant, Great Western may purchase
4,942,392 shares of Great Western common stock for $.30 per share, 4,942,392
shares for $.60 per share and 4,942,391 shares for $1.20 per share. Great
Western may purchase shares by paying cash for such shares or by surrendering
the right to receive a number of shares having an aggregate market value equal
to the purchase price for such shares.
Following the merger, the combined company's common stock will be publicly
traded under the Great Western name. The merger is subject to certain closing
conditions and stockholder approval. There can be no assurance that the Company
will consummate the merger transaction.
(17) QUARTERLY FINANCIAL DATA--UNAUDITED
The 2000 quarterly financial data, as reported in the Company's previously
filed Quarterly Reports on Form 10-Q(A), has been adjusted to reflect the
implementation of SAB 101 in the fourth quarter of 2000, retroactive to
January 1, 2000. Periods beginning before January 1, 2000 have not been
adjusted, as the effect of the change in accounting principle could not be
reasonably determined.
F-44
A summary of the quarterly data for the years ended December 31, 2000 and
1999 follows (in thousands, except net loss per share):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- -----
2000:
Gross revenue.............................. $ 471 $ 1,072 $ 885 $ 388 $ 2,816
-------- ------- ------- -------- --------
Net revenue................................ $ 406 $ 998 $ 839 $ 369 $ 2,612
-------- ------- ------- -------- --------
Operating expenses......................... $ 11,569 $ 9,343 $ 9,043 $ 34,583 $ 64,538
-------- ------- ------- -------- --------
Loss from operations....................... $(11,163) $(8,345) $(8,204) $(34,214) $(61,926)
-------- ------- ------- -------- --------
Loss before the cumulative effect of a
change in accounting principle........... $(10,880) $(7,914) $(8,014) $(34,090) $(60,898)
-------- ------- ------- -------- --------
Net loss................................... $(10,945) $(7,914) $(8,014) $(34,090) $(60,963)
-------- ------- ------- -------- --------
Net loss per share, basic and diluted...... $ (.69) $ (.44) $ (.45) $ (1.92) $ (3.52)
-------- ------- ------- -------- --------
The fourth quarter of 2000 reflects asset impairment charges of
$24.9 million (see note 2).
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- -------- -------- -------- --------
1999:
Gross revenue............................... $ -- $ 16 $ 154 $ 501 $ 671
------- ------- -------- ------- --------
Net revenue................................. $ -- $ 8 $ 128 $ 420 $ 556
------- ------- -------- ------- --------
Operating expenses.......................... $ 3,679 $ 9,661 $ 8,874 $ 8,380 $ 30,594
------- ------- -------- ------- --------
Loss from operations........................ $(3,679) $(9,653) $ (8,746) $(7,960) $(30,038)
------- ------- -------- ------- --------
Net loss.................................... $(3,683) $(9,763) $ (8,296) $(7,519) $(29,261)
------- ------- -------- ------- --------
Net loss per share, basic and diluted....... $ (.41) $ (.98) $ (.58) $ (.52) $ (2.44)
------- ------- -------- ------- --------
The first quarter of 2000 reflects advertising and marketing expenses of
$683,000 related to the 1999 amortization of prepaid marketing services as a
part of the Telemundo advertising agreement. The Company did not adjust the
amortization in its 1999 Form 10-K/A due to the immaterial impact on its results
of operations.
F-45
QUEPASA.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2001 2000
-------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,098,318 $ 3,940,232
Trading securities........................................ -- 2,393,964
Accounts receivable, net of allowance for doubtful
accounts of $176,717 and $184,100, respectively......... 3,982 242,275
Other receivable.......................................... -- 981,870
Prepaid expenses.......................................... 131,885 302,242
Other current assets...................................... -- 158,421
------------ ------------
Total current assets.................................... 5,234,185 8,019,004
Property and equipment, net................................. -- 103,244
Assets held for sale........................................ 5,000 282,000
------------ ------------
$ 5,239,185 $ 8,404,248
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 190,356 $ 354,743
Accrued liabilities....................................... 122,147 149,344
Deferred revenue.......................................... 50,223 202,292
------------ ------------
Total current liabilities............................... 362,726 706,379
------------ ------------
Stockholders' equity:
Preferred stock, authorized 5,000,000 shares, $0.001 par
value--none issued or outstanding....................... -- --
Common stock, authorized 50,000,000 shares; $0.001 par
value; 17,763,291 shares issued and outstanding at
September 30, 2001 and December 31, 2000................ 17,763 17,763
Additional paid-in capital................................ 104,451,784 104,420,534
Accumulated deficit....................................... (99,593,088) (96,740,428)
------------ ------------
Total stockholders' equity.............................. 4,876,459 7,697,869
------------ ------------
$ 5,239,185 $ 8,404,248
============ ============
See accompanying notes to condensed consolidated financial statements.
F-46
QUEPASA.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- ------------
Gross revenue............................ $ 30,134 $ 885,677 $ 177,334 $ 2,428,330
Less commissions......................... -- (45,975) (2,636) (185,509)
----------- ----------- ----------- ------------
Net revenue.......................... 30,134 839,702 174,698 2,242,821
=========== =========== =========== ============
Operating expenses:
Product and content development........ 16,544 1,645,177 392,487 5,143,178
Advertising and marketing.............. -- 4,219,136 421,845 15,405,918
General and administrative............. 770,464 1,426,354 2,425,438 4,821,355
Amortization of goodwill............... -- 1,752,229 -- 4,583,847
----------- ----------- ----------- ------------
Total operating expenses............. 787,008 9,042,896 3,239,770 29,954,298
----------- ----------- ----------- ------------
Loss from operations..................... (756,874) (8,203,194) (3,065,072) (27,711,477)
----------- ----------- ----------- ------------
Other income (expense):
Interest expense....................... (315) (2,214) (2,254) (53,461)
Interest income and other.............. 54,925 194,398 228,870 1,096,347
Realized and unrealized loss on trading
securities........................... -- (3,018) (14,204) (140,127)
----------- ----------- ----------- ------------
Other income, net.................... 54,610 189,166 212,412 902,759
----------- ----------- ----------- ------------
Loss before the cumulative effect of a
change in accounting principle......... (702,264) (8,014,028) (2,852,660) (26,808,718)
Cumulative effect of a change in
accounting principle................... -- -- -- (64,583)
----------- ----------- ----------- ------------
Net loss............................. $ (702,264) (8,014,028) (2,852,660) (26,873,301)
=========== =========== =========== ============
Loss per share before cumulative effect
of a change in accounting principle,
basic and diluted...................... $ (0.04) $ (0.45) $ (0.16) $ (1.56)
----------- ----------- ----------- ------------
Net loss per share, basic and diluted.... $ (0.04) $ (0.45) $ (0.16) $ (1.57)
=========== =========== =========== ============
Weighted average number of shares
outstanding, basic and diluted......... 17,763,291 17,763,291 17,763,291 17,146,753
=========== =========== =========== ============
See accompanying notes to condensed consolidated financial statements.
F-47
QUEPASA.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
2001 2000
----------- ------------
Cash flows from operating activities:
Net loss.................................................. $(2,852,660) $(26,873,301)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 103,244 6,348,242
Stock based compensation................................ 31,250 61,638
Forgiveness of forgivable loans......................... -- 333,703
Amortization of prepaid marketing services.............. -- 2,211,715
Amortization of deferred advertising.................... -- 766,666
Short-term gain on trading securities................... -- (2,820)
Realized and unrealized loss on trading securities...... 14,204 140,127
Cumulative effect of change in accounting principle..... -- 64,583
Increase (decrease) in cash resulting from changes in
assets and liabilities:
Sale of trading securities, net....................... 2,379,760 14,907,879
Accounts receivable................................... 238,293 (158,108)
Prepaid expenses...................................... 170,357 195,597
Other receivable and other current assets............. 1,140,291 (6,816,377)
Accounts payable...................................... (164,387) (2,190,065)
Accrued liabilities................................... (27,197) (826,949)
Deferred revenue...................................... (152,069) 74,791
----------- ------------
Net cash provided by (used in) operating
activities........................................ 881,086 (11,762,679)
----------- ------------
Cash flows from investing activities:
Proceeds from assets held for sale........................ 277,000 --
Cash paid for acquisitions................................ -- (238,793)
Cash received in acquisition.............................. -- 578,730
Purchase of property and equipment........................ -- (239,516)
----------- ------------
Net cash provided by investing activities........... 277,000 100,421
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of stock........................... -- 9,000,000
Proceeds from exercise of stock options................... -- 367,801
Proceeds from draws on line of credit..................... -- 12,286
Payments on notes payable................................. -- (2,382,669)
----------- ------------
Net cash provided by financing activities........... -- 6,997,418
----------- ------------
Net increase (decrease) in cash and cash equivalents........ 1,158,086 (4,664,840)
Cash and cash equivalents, beginning of year................ 3,940,232 6,961,592
=========== ============
Cash and cash equivalents, end of period.................... $ 5,098,318 $ 2,296,752
=========== ============
Supplemental disclosure of non-cash operating, financing and
investing activities:
Interest paid............................................. $ 2,254 $ 32,175
=========== ============
Barter transactions....................................... $ -- $ 1,153,633
=========== ============
Notes payable assumed in acquisitions..................... $ -- $ 2,370,383
=========== ============
Issuance of stock in acquisition.......................... $ -- $ 20,073,032
=========== ============
See accompanying notes to condensed consolidated financial statements.
F-48
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
quepasa.com, inc. (the "Company" or "quepasa") is a Bilingual
(Spanish/English) Internet portal and online community focused on the United
States Hispanic market. We provide users with information and content centered
around the Spanish language. Because the language preference of many U.S.
Hispanics is English, we also offer our users the ability to access information
in the English language.
(2) LIQUIDITY
To date, the Company's expenses have significantly exceeded revenue and
there is no assurance that the Company will earn profits in the future. The
Company's auditors issued their independent auditors' report dated May 8, 2001
(except as to the second paragraph of Note 10(a) and Note 16 to the
December 31, 2000 consolidated financial statements, which are as of August 6,
2001) stating that the Company has suffered recurring losses from operations,
has an accumulated deficit, has been unable to successfully execute its business
plan, and management is considering alternatives for the Company, all of which
raise substantial doubt about its ability to continue as a going concern.
By April 30, 2001, the Company downsized its workforce to three individuals,
disposed of certain assets, and continues to terminate long-term commitments.
Management believes that as a result of its significant cost-cutting measures,
there is sufficient cash to operate through the second quarter of 2002.
Management of the Company and the Board of Directors continue to evaluate
alternatives for the Company including disposing of assets and investigating
merger opportunities. On August 6, 2001, the Company executed an agreement to
merge with an unrelated entity (see note 4).
(3) BASIS OF PRESENTATION
The Company's accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for a complete financial statement presentation. In the
Company's opinion, such unaudited interim information reflects all adjustments,
consisting only of normal recurring adjustments, necessary to present our
financial position and results of operations for the periods presented. The
Company's results of operations for interim periods are not necessarily
indicative of the results to be expected for a full fiscal year. The Company's
condensed consolidated balance sheet as of December 31, 2000, was derived from
its audited consolidated financial statements as of that date but does not
include all the information and footnotes required by accounting principles
generally accepted in the United States of America. The Company suggests that
these condensed consolidated financial statements be read in conjunction with
the audited consolidated financial statements included in its Annual Report on
Form 10-K as of and for the year ended December 31, 2000.
Gross revenue increased by $63,334 for the three months ended September 30,
2000 and decreased by $138,958 for the nine months ended September 30, 2000 to
reflect the adoption of Staff Accounting Bulletin No. 101 as of January 1, 2000.
In addition, a cumulative effect of a change in accounting principle in the
amount of $64,583 has been recognized. Refer to note 4 under "revenue
recognition" in the Company's Form 10-K as of and for the year-ended
December 31, 2000.
F-49
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) MERGER AGREEMENT
On August 6, 2001, the Company entered into a merger agreement that would
result in the company becoming a wholly owned subsidiary of Great Western Land
and Recreation, Inc. Great Western is an Arizona-based, privately held real
estate development company with holdings in Arizona, New Mexico and Texas. Great
Western's business focuses primarily on condominiums, apartments, residential
lots and recreational property development. In addition to holding completed
developments in metropolitan areas of Arizona, New Mexico and Texas, Great
Western also owns and is currently developing the Wagon Bow Ranch in northwest
Arizona and the Willow Springs Ranch in central New Mexico. In the merger, each
share of quepasa common stock will be converted into one share of Great Western
common stock.
Immediately following the merger the Company's current shareholders would
own approximately 49% of Great Western and Amortibanc Management, L.C., Great
Western's current sole shareholder, would own approximately 51% of Great Western
(assuming the conversion of all outstanding quepasa stock options with an
exercise price at or below $0.15 per share). In addition, Amortibanc holds
warrants to purchase 14,827,175 shares of Great Western common stock that, if
exercised, would increase its ownership to a maximum of 65% of Great Western
(assuming the conversion of all outstanding quepasa stock options with an
exercise price at or below $0.15 per share). Amortibanc's warrant is exercisable
at any time, and from time to time for ten years following the merger closing.
Under the terms of the warrant, Amortibanc may purchase 4,942,392 shares of
Great Western common stock for $.30 per share, 4,942,392 shares for $.60 per
share and 4,942,391 shares for $1.20 per share. Amortibanc may purchase shares
by paying cash for such shares or by surrendering the right to receive a number
of shares having an aggregate market value equal to the purchase price for such
shares.
Following the merger, the combined company's common stock will be publicly
traded under the Great Western name. The merger will be accounted for using the
purchase method of accounting. The merger is subject to certain closing
conditions, including quepasa stockholder approval. There can be no assurance
that the Company will consummate the merger transaction.
(5) SIGNIFICANT TRANSACTIONS AND WORKFORCE REDUCTIONS
On January 28, 2000, the Company acquired credito.com, an on-line credit
company targeted to the U.S. Hispanic population for an aggregate purchase price
of $8.4 million consisting of 681,818 shares of common stock valued at $11 per
share and assumption of an $887,000 note payable. The Company included the
681,818 shares of common stock issued unconditionally in determining the cost of
credito.com recorded at the date of acquisition. Contingent consideration
consisted of warrants to purchase an additional 681,818 shares of common stock
exercisable upon credito.com's achievement of certain performance objectives
related to gross revenue as of January 2001 and January 2002. credito.com did
not meet the performance objectives as of January 2001, and consequently, the
warrants were returned to the Company. The value of the common stock was
determined using the average stock price between the date of the merger
agreement and the date the merger was publicly announced, or $11 per share. The
Company accounted for the acquisition using the purchase method of accounting.
Accordingly, the purchase price was allocated to the assets purchased and the
liabilities assumed based upon the estimated fair values on the date of the
acquisition. The excess of the purchase price over the fair value of the net
assets acquired was approximately $7.8 million and was recorded as goodwill,
which was being amortized on a straight-line basis over a 3-year period. On
December 27, 2000, the Company's Board of Directors approved the development of
a plan of liquidation and sale of the Company's assets in the event that no
strategic transaction involving the
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QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) SIGNIFICANT TRANSACTIONS AND WORKFORCE REDUCTIONS (CONTINUED)
Company could be achieved. Accordingly, the Company performed an impairment
analysis of all long-lived assets and identifiable intangibles in accordance
with accounting principles generally accepted in the United States of America.
As a result, the unamortized balance of goodwill of $5.6 million recorded in
conjunction with the transaction was written off in the fourth quarter of 2000.
On January 28, 2000, the Company acquired eTrato.com, an on-line trading
community developed especially for the Spanish language or bilingual Internet
user, for an aggregate purchase price of $10.85 million, consisting of 681,818
shares of the Company's common stock valued at $14.09 per share, and assumption
of a $1.25 million promissory note. The note payable was due on January 28,
2002, and had a stated interest rate at the greater of 6% per annum or the
applicable federal rate in effect with respect to debt instruments having a term
of two years. This note was paid in full on May 8, 2000. The value of the common
stock was determined using the average stock price between the merger agreement
date and the date the merger was publicly announced on December 20, 1999.
Contingent consideration consisted of an additional 681,818 shares of common
stock which were held in escrow to be released to the seller pending the outcome
of certain revenue and website contingencies over the six-month period following
the acquisition. The contingencies were not met, and consequently, these shares
were returned to quepasa subsequent to year-end and cancelled. The acquisition
was accounted for using the purchase method of accounting and, accordingly, the
purchase price was allocated to the assets purchased and the liabilities assumed
based upon the estimated fair value at the date of acquisition. The excess of
the purchase price over the fair value of the net assets acquired was
approximately $10.1 million and was recorded as goodwill, which was being
amortized on a straight-line basis over a period of 3 years. On December 27,
2000, the Company's Board of Directors approved the development of a plan of
liquidation and sale of the Company's assets in the event that no strategic
transaction involving the Company could be achieved. Accordingly, the Company
performed an impairment analysis of all long-lived assets and identifiable
intangibles in accordance with accounting principles generally accepted in the
United States of America. As a result, the balance of unamortized goodwill of
$7.3 million recorded in conjunction with the transaction was written off in the
fourth quarter of 2000.
On March 9, 2000, the Company acquired RealEstateEspanol.com, a real estate
services site providing the Hispanic-American community with bilingual home
buying services, for an aggregate purchase price of $3.3 million, consisting of
335,925 shares of the Company's common stock for $8.83 per share and assumption
of $300,000 in debt which was paid immediately following the closing of the
acquisition. Contingent consideration consisted of 248,834 shares of common
stock which were held in escrow pending RealEstateEspanol.com's achievement of
gross revenue targets within 12 months of the date of the agreement. The value
of the common stock was determined using the average stock price between the
merger agreement date and the date the merger was publicly announced.
RealEstateEspanol.com did not meet the agreed-upon targets contingent to the
seller receiving the shares of common stock held in escrow, and consequently,
these shares were returned to quepasa and cancelled subsequent to year-end. The
acquisition was accounted for using the purchase method of accounting, and,
accordingly, the purchase price was allocated to the assets purchased and the
liability assumed based upon the estimated fair value at the date of
acquisition. The excess of the purchase price over the fair value of the net
assets acquired was approximately $3.2 million and was recorded as goodwill,
which was being amortized on a straight-line basis over a period of 3 years. On
December 27, 2000, the Company's Board of Directors approved the development of
a plan of liquidation and sale of the Company's assets in the event that no
strategic transaction involving the Company could be
F-51
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) SIGNIFICANT TRANSACTIONS AND WORKFORCE REDUCTIONS (CONTINUED)
achieved. Accordingly, the Company performed an impairment analysis of all
long-lived assets and identifiable intangibles in accordance with accounting
principles generally accepted in the United States of America. As a result, the
balance of unamortized goodwill of $5.6 million recorded in conjunction with the
transaction was written off in the fourth quarter of 2000.
On March 30, 2000, Gateway, Inc. invested $9.0 million in exchange for
1,428,571 shares of common stock, which represented 7.6% of quepasa's
outstanding common stock. The amount attributable to common stock and additional
paid-in capital was $7,685,712, the value of the 1,428,571 shares of common
stock on the date issued ($5.38 per share). Additionally, quepasa granted a
60-day warrant to acquire 483,495 shares of common stock at $7 per share. The
warrants were valued at approximately $386,000 using the Black Scholes
option-pricing model. The assumptions used for the Gateway warrants are as
follows: expected dividend yield 0%, risk-free interest rate of 5.67%, expected
volatility of 147%, and expected life of two months. In the event there was a
change in ownership of quepasa in excess of 30% prior to September 30, 2000, and
for a price per share less than $7.00, Gateway had a right to be reimbursed for
the differential in the per share amount. quepasa also committed itself to use a
substantial portion of the proceeds of Gateway's investment to further its
community and educational initiative program, which included distributing
computers purchased from Gateway accompanied with Spanish language technical
support, providing Internet access, and training for quepasa's subscribers. The
Company purchased $5.8 million of computers, net of $928,500 of a volume
purchase discount, pursuant to this agreement to be used for promotional
activities. The Company took title to the computers upon the close of the
transaction. Since the Company had no warehousing facilities, the computers were
segregated from Gateway's inventory in third party warehouse locations and the
Company was responsible for the payment of warehouse storage charges. These
computers were expensed as donated.
In the fourth quarter of 2000, the Company halted virtually all-promotional
activities to conserve cash. In December 2000, the Company, at the direction of
the Board of Directors, initiated discussions and sold the majority of its
remaining computer inventory back to Gateway at a $3.5 million loss. The Company
was required to approach Gateway first as the original purchase agreement
allowed the Company to use the computers only for promotional activities.
However, several months after the Gateway transaction closed, as a result of the
decline in stock prices for internet businesses, the Company substantially
curtailed its business activities because it was unable to obtain financing.
Only a small number of the computers had been used in promotional activities at
that time. In the fourth quarter of 2000, the Company's Board of Directors
instructed management to liquidate the computer inventory, and management
initiated discussions with Gateway regarding the prohibition on resale, at which
time, the Company and Gateway negotiated the resale back to Gateway at the price
stated above. The Company recognized $158,421 of expense related to the donation
of its remaining 200 computers to a third party during the first quarter of
2001. At March 31, 2001, the Company had no computer inventory remaining.
In September 1999, the Company entered into an agreement with Estefan
Enterprises, Inc. whereby Gloria Estefan would act as spokesperson for the
Company through December 31, 2000 and the Company would sponsor her United
States 2000 concert tour. Ms. Estefan's tour was subsequently postponed, and
consequently the original terms of the spokesperson agreement were renegotiated.
The revised spokesperson agreement called for the return of the 156,863 shares
of redeemable common stock to the Company, cancellation of the put option for
those shares and cancellation of the final cash installment. The Company
obtained the right of first refusal for the sponsorship of Ms. Estefan's next
F-52
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) SIGNIFICANT TRANSACTIONS AND WORKFORCE REDUCTIONS (CONTINUED)
United States and Latin America tours. The Company recognized $1.2 million and
$2.3 million of amortization in relation to the Estefan agreement during the
three and six months ended June 30, 2000, respectively, in relation to the
original contract. The issuance of the 156,863 shares of redeemable common stock
was reversed in the second quarter of 2000.
In December 1999, RealEstateEspanol.com and the National Association of
Hispanic Real Estate Professionals entered into an Internet Endorsement
Agreement, pursuant to which, in exchange for NAHREP's endorsement of the
RealEstateEspanol.com website, RealEstateEspanol.com was required to pay NAHREP
an annual $50,000 fee over a ten-year term. Thereafter, in connection with the
Internet Endorsement Agreement, in October 2000, RealEstateEspanol.com, NAHREP,
the National Council of La Raza and Freddie Mac entered into a Memorandum of
Understanding ("MOU") which, among other things, set forth the business
relationship through which the parties agreed to implement a program to deliver
the benefits of technology to mortgage origination for low and moderate income
Hispanic and Latino borrowers. Contemporaneously, RealEstateEspanol.com and
NAHREP entered into an agreement which set forth the terms and conditions of
their rights and obligations under the MOU.
Under the MOU, among other things, (1) RealEstateEspanol.com was required to
(a) develop a web-based technology tool to be distributed to NCLR and NCLR
affiliates, and (b) donate 200 computers, at no charge, to NAHREP for
distribution to NCLR and NCLR affiliates for promotional purposes, (2) Freddie
Mac was required to provide an aggregate dollar amount of $250,000 as
sponsorship fees to NAHREP, and (3) NAHREP was required, in turn, to deliver the
same to RealEstateEspanol.com towards the initial development of the technology
tool discussed above. In May 2001, all of the parties agreed to either terminate
certain of the agreements or release RealEstateEspanol.com from its duties and
obligations thereunder. In exchange for such termination or release, as the case
may be, RealEstateEspanol.com (a) transferred ownership of, and exclusive rights
to, the in-process technology tool to NAHREP, (b) granted NAHREP a non-exclusive
license to operate and use the realestaeespanol.com website the content thereon
and any related technology tools, (c) granted NAHREP an exclusive license to
operate and use any related domain names, (d) permitted NAHREP to retain the
full amount of the unpaid sponsorship fee to be paid by Freddie Mac to NAHREP
for development of the technology tool, and (e) permitted NAHREP to retain
ownership of the previously donated computers in the first quarter of 2001. The
$100,000 sponsorship collected in 2000 was amortized over a six-month period
through March 31, 2001.
During the first quarter of 2001, the Company reduced its workforce as part
of management's effort to enhance the Company's competitive position, utilize
its assets more efficiently, and conserve remaining cash. The Company recognized
$44,000 in employee severance and termination costs for the three months ended
March 31, 2001, relating to the reduction in the workforce of approximately 17
employees. As of March 31, 2001, all employee severance and termination costs
incurred in 2001 had been paid. There were no additional employee severance or
termination costs incurred in the second or third quarters of 2001.
(6) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) USES OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and
F-53
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements. Additionally, such estimates and assumptions affect
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(B) RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial
statement amounts to conform to the current year presentation.
(C) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
quepasa and its three wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(D) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally accounts receivable, cash
and cash equivalents and trading securities. The Company maintains
ongoing credit evaluations of its customers and generally does not
require collateral. The Company provides reserves for potential credit
losses and such losses have not exceeded management expectations.
Periodically during the year, the Company maintains cash and investments
in financial institutions in excess of the amounts insured by the federal
government. During the three months ended September 30, 2001, one
customer accounted for 100% of gross revenue. During the three months
ended September 30, 2000, two customers accounted for 19% and 11% of
gross revenue. During the nine months ended September 30, 2001, two
customers accounted for 51% and 28% of gross revenue. During the nine
months ended September 30, 2000, one customer accounted for 18% of gross
revenue. No other single advertiser utilizing banner ads or sponsorship
agreements amounted to or exceeded 10% of the total gross revenue.
(E) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and highly liquid debt
instruments with original maturities of three months or less.
(F) SECURITIES
The Company classifies its securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are
bought and held principally for the purpose of selling them in the near
term. Held-to-maturity securities are those securities in which the
Company has the ability and intent to hold the security until maturity.
All other securities not included in trading or held-to-maturity are
classified as available-for-sale. Trading securities at December 31, 2000
consisted of corporate debt securities.
Trading and available-for-sale securities are recorded at market value.
Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of
F-54
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
premiums or discounts. Unrealized holding gains and losses on trading
securities are included in operations. Unrealized holding gains and
losses, net of the related tax effect, on available-for-sale securities
are excluded from operations and are reported as a separate component of
other comprehensive income until realized. Realized gains and losses from
trading securities are included in operations and are derived using the
specific identification method for determining the cost of securities.
All securities held at December 31, 2000 were categorized as trading. The
Company had no securities at September 30, 2001.
(G) REVENUE RECOGNITION
The Company's revenue is derived principally from the sales of banner
advertisements and sponsorships. The Company sells banner advertising
primarily on a cost-per-thousand impressions, or "CPM" basis, under which
advertisers and advertising agencies receive a guaranteed number of
"impressions," or number of times that an advertisement appears in
pages viewed by users of the Company's website, for a fixed fee. The
Company's contracts with advertisers and advertising agencies for these
types of contracts cover periods ranging from one to twelve months.
Advertising revenue is recognized ratably based on the number of
impressions displayed, provided that the Company has no obligations
remaining at the end of a period and collection of the resulting
receivable is probable. Company obligations typically include guarantees
of a minimum number of impressions. To the extent that minimum guaranteed
impressions are not met, the Company defers recognition of the
corresponding revenue until the remaining guaranteed impression levels
are achieved. Payments received from advertisers prior to displaying
their advertisements on the Company's website are recorded as deferred
revenue.
The Company also derives revenue from the sale of sponsorships for
certain areas or a sponsorship exclusivity for certain areas within its
website. These sponsorships are typically for periods up to one year.
Prior to the adoption of Staff Accounting Bulletin (SAB) 101, the Company
recognized revenue during the initial setup, if required under the unique
terms of each sponsorship agreement (e.g., co-branded website), to the
extent that actual costs were incurred. The balance of the sponsorship
was recognized ratably over the period of time of the related agreement.
The Company adopted SAB 101 in the fourth quarter of 2000. As such, the
Company records initial setup fees as deferred revenue and recognizes the
fee over the term of the related agreement.
The Company also derives revenue from slotting fees, set-up fees and
commissions. Slotting fees revenue is recognized ratably over the period
the services are provided. Setup fee revenue is recognized during the
initial setup to the extent that direct costs are incurred. The remaining
revenue derived from setup fees is deferred and amortized ratably over
the term of the applicable agreement. Commission revenue related to
X:Drive is recognized in the month in which a new account is established
(i.e. services are provided). Commission revenue and expenses related to
Net2Phone are recognized during the month in which the service is
provided.
The Company in the ordinary course of business enters into reciprocal
service arrangements (barter transactions) whereby the Company provides
advertising service to third parties in exchange for advertising services
in other media. Revenue and expenses from these
F-55
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
agreements are recorded at the fair value of services provided or
received, whichever is more determinable in the circumstances. The fair
value represents market prices negotiated on an arms' length basis.
Revenue from reciprocal service arrangements is recognized as income when
advertisements are delivered on the Company's website. Expense from
reciprocal services arrangements is recognized when the Company's
advertisements are run in other media, which are typically in the same
period when the reciprocal service revenue is recognized. Related
expenses are classified as advertising and marketing expenses in the
accompanying statements of operations. During the three months ended
September 30, 2001 and 2000, revenue attributable to reciprocal services
totaled zero and approximately $428,000, respectively, and related
expenses totaled zero and approximately $428,000, respectively. During
the nine months ended September 30, 2001 and 2000, revenue attributable
to reciprocal services totaled zero and approximately $1.2 million,
respectively, and related expenses totaled zero and approximately $1.2
million, respectively.
In November 1999, the EITF commenced discussions on EITF No. 99-17,
ACCOUNTING FOR ADVERTISING BARTER TRANSACTIONS, concluding that revenue
and expenses from advertising barter transactions should be recognized at
the fair value of the advertising surrendered or received only when an
entity has a historical practice of receiving or paying cash for similar
advertising transactions. In evaluating "similarity," the Company ensured
reasonableness of the target market, circulation, timing, medium, size,
placement, and location of the advertisement. In cases where the total
dollar amount of barter revenue exceeded the total amount of the
"similar" cash transaction, the total barter amount was capped at the
lower cash amount. EITF No. 99-17 was effective and was applied
prospectively to all transactions occurring after January 20, 2000.
(H) COMPUTER PROMOTIONS INVENTORY
Computer promotions inventory is recorded at cost and included in other
current assets. The computer promotions inventory is charged to expense
on an individual basis as each computer is donated.
(I) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and
amortization expense is generally provided on a straight-line basis using
estimated useful lives of the assets which range from two to five years.
Leasehold improvements are amortized on a straight-line basis over the
shorter of the lease term or the estimated useful lives of the related
improvements. Expenditures for repairs and maintenance are charged to
operations as incurred and improvements, which extend the useful lives of
the assets, are capitalized.
(J) PRODUCT AND CONTENT DEVELOPMENT
Costs incurred in the classification and organization of listings within
the Company's website are charged to expense as incurred. In accordance
with SOP 98-1, material software development costs, costs of development
of new products and costs of enhancements to existing products incurred
during the application development stage are capitalized. Based upon the
Company's product development process, and the constant modification of
the
F-56
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company's website, costs incurred by the Company during the application
development stage have been insignificant.
In March 2000, EITF No. 00-02, ACCOUNTING FOR WEBSITE DEVELOPMENT COSTS,
was issued which addresses how an entity should account for costs
incurred in website development. EITF 00-02 distinguishes between those
costs incurred during the development, application and infrastructure
development stage and those costs incurred during the operating stage.
EITF 00-02 was effective on and after June 30, 2000, although early
adoption was encouraged. The adoption of EITF No. 00-02 did not have a
material impact on the Company's consolidated financial statements.
Pursuant to Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, the Company
capitalized certain material development costs incurred during the
acquisition development stage, including costs associated with coding,
software configuration, upgrades and enhancements.
(K) INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(L) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value of the assets less costs to sell.
(M) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which
principally include cash and cash equivalents, trading securities,
accounts receivable, other receivable, accounts payable, and accrued
liabilities approximates fair value because of the short term nature of
the instruments.
F-57
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(N) STOCK-BASED COMPENSATION
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
The Company has adopted the disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, which permits entities to
provide pro forma net earnings (loss) and pro forma net earnings (loss)
per share disclosures for employee stock option grants as if the
fair-value-based method as defined in SFAS No. 123 had been applied.
The Company uses one of the most widely used option pricing models, the
Black-Scholes model (Model), for purposes of valuing its stock option
grants. The Model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully
transferable. In addition, it requires the input of highly subjective
assumptions, including the expected stock price volatility, expected
dividend yields, the risk free interest rate, and the expected life.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the value determined by the Model is not
necessarily indicative of the ultimate value of the granted options.
(O) NET LOSS PER SHARE
Basic loss per share is computed by dividing net loss available to common
stockholders by the weighted-average number of common shares outstanding
for the period. Diluted loss per share reflects the potential dilution
that could occur if securities or contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the Company. Stock
options and warrants are excluded because they are anti-dilutive.
(P) ADVERTISING COSTS
Advertising costs are expensed as incurred in accordance with Statement
of Position 93-7, "Reporting on Advertising Costs." Advertising costs for
the three months ended September 30, 2001 and 2000 totaled zero and $1.5
million, respectively. Advertising costs for the nine months ended
September 30, 2001 and 2000 totaled $23,000 and $6.1 million,
respectively. The Company recognizes the advertising expense in a manner
consistent with how the related advertising is displayed or broadcast.
Advertising production costs are expensed as incurred.
(Q) SEGMENT REPORTING
The Company utilizes the management approach in designating business
segments. The management approach designates the internal organization
that is used by management for making operating decisions and assessing
performance as the source of the Company's reportable segment. The
Company's one segment provides Internet Portal and On-Line Community
services in both Spanish and English to the Hispanic market. The
Company's
F-58
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
initial focus is on the U.S. Hispanic market, with substantially all of
the Company's assets in and revenues originating from the United States.
(7) COMMITMENTS
(A) EMPLOYMENT AGREEMENTS
The Company has entered into employment and other agreements with its
executive officer and four non-employee directors. Under the terms of the
employment agreement with its remaining employee, the Company and the
other parties thereto agreed to various provisions relating to base
salary, forgivable loans and severance and bonus arrangements. The
Company recognized the forgivable loans ratably as expense over the full
loan period, or earlier, if the loan is forgiven on the date of the
particular employee's termination of employment with the Company,
according to such employee's employment agreement.
In the event of a change of control or liquidation, the Company may be
required to pay up to a maximum of $300,000 in severance payments under
the Company's existing employment agreements with its remaining officer
and other agreements with its four non-employee directors as follows:
Robert J. Taylor's employment agreement terminates on its own terms on
March 8, 2002, but the Company may terminate his employment for any
reason, with or without cause. On October 10, 2001, Taylor and the
Company amended Taylor's employment agreement to provide for a bonus
payment in the amount of $100,000, which is payable to Taylor upon the
earlier to occur of (a) a change of control, (b) March 8, 2002 or
(c) termination without cause by the Company. In addition, upon the
closing of the merger with Great Western Land and Recreation Inc., all of
Taylor's 193,334 unvested options will become fully vested and
exercisable.
A change of control in the Company will also trigger a cash payment due
to the Company's four non-employee directors. As of March 2001, the
Company agreed to pay each non-employee director a payment of $50,000 for
past and current services, payable only upon any change of control in or
liquidation of the Company. In addition, 200,000 unvested options
previously granted to the non-employee directors with an exercise price
of $0.15 per share will become fully vested and exercisable.
During October 2001, the Company's chief executive officer agreed to
terminate his employment with the Company (see Note 10).
(B) ADVERTISING CONTRACTS
In April 1999, the Company entered into an agreement with Telemundo
Network Group LLC (Telemundo). The Chief Operating Officer of Telemundo
served as director of the Company through January, 2001. Under this
agreement, the Company issued Telemundo 600,000 shares of its common
stock and a warrant to purchase 1,000,000 shares of its common stock
exercisable up to and including June 25, 2001 at $14.40 per share. In
exchange, the Company received a $5.0 million advertising credit on the
Telemundo television network at the rate of $1.0 million for each of the
next five years. After completion of the IPO, the shares and warrant
became fully vested and were not subject to return for nonperformance by
F-59
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) COMMITMENTS (CONTINUED)
Telemundo. The fair value of the transactions was measured and based on
the fair value of the common stock issued at the Company's IPO price of
$12.00 per share plus $2,920,192 assigned to the warrant based upon the
Black-Scholes pricing model using a 50% volatility rate. The Company
began amortizing the $5.0 million advertising credit on January 1, 2000,
after a cash purchase from Telemundo of $1.0 million in advertising
services in 1999. The remaining balance of prepaid marketing services of
$5,120,192 was to be amortized over the term of the agreement (5 years).
This agreement also provides (1) that the parties will collaborate
regarding online content development, co-branded marketing promotions,
and other complementary aspects of its business, (2) that the parties
will cross-link each other's websites, and (3) exclusivity provisions for
a period of six months. On December 27, 2000, the Company's Board of
Directors approved the development of a plan of liquidation and sale of
the Company's assets in the event that no strategic transaction involving
the Company could be achieved. Accordingly, the Company performed an
impairment analysis of all long-lived assets and identifiable intangibles
in accordance with generally accepted accounting principles. As a result,
the Company wrote off the $7.6 million remaining unamortized prepaid
marketing services in the fourth quarter of 2000.
In April 1999, the Company issued 50,000 shares of its common stock to an
entity partially owned by a former director of the Company for
advertising and marketing services valued at $634,000. The value of the
stock and the related advertising costs were adjusted at each quarterly
reporting period based on the then fair value of the stock issued through
the final measurement date (December 31, 1999). The advertising costs
were amortized on a straight-line basis over the full term of the
contract as the services were performed ratably over the period. In
August 1999, the Company entered into a one-year agreement with this
company with a monthly commitment of $150,000. Payment during the first 5
months of the agreement included amortization of the prepaid amount from
the issuance of common stock. This agreement was amended, reducing the
monthly commitment to $50,000 for January 2000 and to $40,000 through
October 2000. The agreement continued on a month-to-month basis with
payments totaling $437,000 through December 2000, when it was terminated.
During 2000 and 1999, the Company was a party to a sponsorship agreement
with the Arizona Diamondbacks major league baseball team. A director of
the Company serves as the Arizona Diamondbacks' Chief Executive Officer
and General Manager. Under this agreement, the Company received English
and Spanish television and radio broadcast time, ballpark signage, and
Internet and print promotions for an annual sponsorship fee of $1.5
million which was payable in cash during each season. This agreement was
not renewed for the 2001 season. The $1.5 million annual sponsorship fee
was recognized as expense ratably over the 1999 and 2000 baseball
seasons.
(C) CONTENT AND WEBSITE ADMINISTRATION
During 2000, 1999 and 1998, the Company had various agreements with third
parties to provide content to the Company's website and incurred license
fee expense of zero and $403,000 for the three months ended
September 30, 2001 and 2000, respectively. The Company incurred license
fee expense of $17,000 and $1.4 million for the nine months ended
September 30, 2001 and 2000, respectively. The Company paid $41,000
during the three months ended March 31, 2001 to terminate all content
development agreements. The
F-60
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) COMMITMENTS (CONTINUED)
Company has outsourced the hosting and administration of its website for
approximately $2,000 per month.
(8) CONTINGENCIES
In February 2001, the Company initiated arbitration against Telemundo to
defend the enforceability of an agreement between us, and submitted a damages
claim for $4.3 million, plus reasonable attorneys' fees and costs. Alleging that
the Company breached the agreement by failing to develop and maintain the
Telemundo web site, Telemundo asserted a damages claim in the arbitration for
$655,000, plus reasonable attorneys' fees and costs. The Company does not
believe that it has breached the agreement and intends to vigorously assert its
rights thereunder, particularly its right to use or transfer any unused
advertising credits. Arbitration proceedings were held in October 2001. While
the Company believes it will be successful in the arbitration proceeding, there
can be no assurance that it will succeed. Accordingly, the accompanying
consolidated financial statements do not include a provision for loss, if any,
that might result from the ultimate outcome of this matter.
On November 1, 2001 an action was filed against quepasa in the First
Judicial District Court of the State of Nevada by five quepasa stockholders,
Mark Kucher, Gregory Steers, Nick Tintor, Bruce Randle and Michael Silberman.
The filing seeks an order compelling quepasa to hold an annual meeting of
stockholders to elect directors, enjoining quepasa from closing the merger with
Great Western until its annual meeting has taken place and prohibiting quepasa
from selling, leasing, exchanging or dissipating its assets until its annual
meeting has taken place. The action is based upon provisions of quepasa's bylaws
and Nevada corporate law that provide that under certain circumstances
stockholders may seek an order that a stockholder meeting be held. On
November 13, 2001, quepasa removed the action to the United States District
Court for the District of Nevada. As previously announced, quepasa will hold an
annual meeting of stockholders following clearance by the Securities and
Exchange Commission of the combined proxy statement and registration statement
filed by quepasa and Great Western on October 16, 2001. At this meeting,
directors will be elected and the merger with Great Western will be voted on by
the stockholders. Also as previously announced, stockholder approval is required
before the Great Western merger can close.
The Company from time to time is involved in various legal proceedings
incidental to the conduct of its business. The Company believes that the outcome
of all such pending legal proceedings will not in the aggregate have a material
adverse effect on the Company's business, financial condition, results of
operations or liquidity.
F-61
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) LOSS PER SHARE
A summary of the reconciliation from basic loss per share to diluted loss
per share follows for the three and nine months ended September 30, 2001 and
2000:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- ------------
Loss before cumulative effect of a change
in accounting principle................ $ (702,264) $(8,014,028) $(2,852,660) $(26,808,718)
=========== =========== =========== ============
Net loss................................. $ (702,264) $(8,014,028) $(2,852,660) $(26,873,301)
=========== =========== =========== ============
Weighted average number of shares
outstanding, basic and diluted......... 17,763,291 17,763,291 17,763,291 17,146,753
=========== =========== =========== ============
Loss per share before cumulative effect
of a change in accounting principle,
basic and diluted...................... $ (.04) $ (.45) $ (.16) $ (1.56)
=========== =========== =========== ============
Basic and diluted net loss per share..... $ (.04) $ (.45) $ (.16) $ (1.57)
=========== =========== =========== ============
Stock options not included in diluted EPS
since antidilutive..................... 2,142,500 3,105,475 2,142,500 3,105,475
=========== =========== =========== ============
Warrants not included in dilutive EPS
since antidilutive..................... 400,000 2,081,818 400,000 2,081,818
=========== =========== =========== ============
(10) SUBSEQUENT EVENTS
On August 1, 2001, we and our landlord agreed to terminate the lease for our
corporate headquarters, which expires on November 30, 2002, for a $130,000 lump
sum payment. Our rent under the lease would have been $416,000 for the period
between August 1, 2001 and November 30, 2002. Our attempts to sublet the space
were unsuccessful because of the softening office rental market in Phoenix. We
vacated the space on October 31, 2001, relocating our corporate headquarters to
a significantly smaller site that we have rented on a month-to-month basis, free
of charge.
On October 3, 2001, Gary L. Trujillo agreed to terminate his employment with
the Company, effective October 15, 2001. Mr. Trujillo remains Chairman and as a
director of the Company. As part of his termination agreement, Mr. Trujillo
received a lump sum payment of $700,000, which constitutes a substantially
discounted payment due him under his former employment agreement with the
Company.
On October 11, 2001, the Company loaned Great Western $500,000. This loan
bears interest at the prime rate plus 1% and is secured by a pledge of limited
liability interests representing a 25% interest in an apartment project in
Glendale, Arizona.
F-62
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma balance sheet as of September 30, 2001 and
statements of operations for the year ended December 31, 2000 and for the nine
months ended September 30, 2001 give effect to the issuance of common shares of
Great Western Land and Recreation, Inc. (Company) for the acquisition of
quepasa.com as if the acquisition were consummated on January 1, 2000.
The acquisition of quepasa.com was effected through the issuance of
17,763,291 common shares of the Company in exchange for all the outstanding
common shares of quepasa.com. The acquisition was accounted for by the purchase
method of accounting.
The pro forma information should not be considered an indication of actual
results of operations that would have occurred if the acquisition had been in
effect on the dates indicated, and the information should be read in conjunction
with the financial statements and related footnotes for both companies, included
elsewhere herein.
F-63
GREAT WESTERN LAND AND RECREATION, INC. AND SUBSIDIARIES
(GREAT WESTERN) AND QUEPASA.COM, INC. AND SUBSIDIARIES
(QUEPASA)
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 2001
GREAT PRO FORMA PRO FORMA
WESTERN QUEPASA ADJUSTMENTS BALANCES
----------- ------------ ------------- -----------
ASSETS
Cash and cash equivalents.......... $ 120,313 $ 5,098,318 $ (1,200,000)(b) $ 4,018,631
Accounts receivable................ -- 3,982 -- 3,982
Notes receivable................... 3,012,257 -- -- 3,012,257
Land held for development and
sale............................. 8,267,040 -- -- 8,267,040
Advances to related entities....... 651,228 -- -- 651,228
Property and equipment............. 155,478 -- -- 155,478
Other.............................. 499,650 136,885 45,000 (c) 681,535
Goodwill........................... -- -- 385,000 (c) 385,000
----------- ------------ ------------- -----------
$12,705,966 $ 5,239,185 $ (770,000) $17,175,151
=========== ============ ============= ===========
LIABILITIES
Notes payable...................... $ 4,264,754 $ -- $ -- $ 4,264,754
Subordinated debt.................. 4,608,050 -- -- 4,608,050
Accounts payable and other accrued
liabilities...................... 439,563 312,503 -- 752,066
Deferred revenue and gains......... 287,778 50,223 -- 338,001
----------- ------------ ------------- -----------
Total liabilities................ 9,600,145 362,726 -- 9,962,871
SHAREHOLDERS' EQUITY
Common stock....................... 18,905 17,763 17,763 (a) --
(17,763)(a) 36,668
Additional paid-in capital......... 2,826,186 104,451,784 (104,451,784)(a)
(1,200,000)(b)
4,858,696 (a)
45,000 (c)
385,000 (c) 6,914,882
Retained earnings (deficit)........ 260,730 (99,593,088) 99,593,088 (a) 260,730
----------- ------------ ------------- -----------
3,105,821 4,876,459 (770,000) 7,212,280
----------- ------------ ------------- -----------
$12,705,966 $ 5,239,185 $ (770,000) $17,175,151
=========== ============ ============= ===========
F-64
GREAT WESTERN LAND AND RECREATION, INC. AND SUBSIDIARIES
(GREAT WESTERN) AND QUEPASA.COM, INC. AND SUBSIDIARIES
(QUEPASA)
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
GREAT PRO FORMA PRO FORMA
WESTERN QUEPASA ADJUSTMENTS BALANCES
---------- ----------- ----------- -----------
Revenues..................................... $7,932,187 $ 177,334 $ -- $ 8,109,521
Cost of sales................................ 4,713,043 2,636 -- 4,715,679
---------- ----------- ---------- -----------
Gross profit on sales........................ 3,219,144 174,698 -- 3,393,842
Operating expenses........................... 1,885,728 3,239,770 -- 5,125,498
---------- ----------- ---------- -----------
Earnings (loss) from operations.............. 1,333,416 (3,065,072) -- (1,731,656)
Other income (expense)....................... (528,391) 212,412 -- (315,979)
---------- ----------- ---------- -----------
Earnings (loss) before income taxes.......... 805,025 (2,852,660) -- (2,047,635)
Income tax expense........................... (133,000) -- -- (133,000)
---------- ----------- ---------- -----------
NET EARNINGS (LOSS)...................... $ 672,025 $(2,852,660) $ -- $(2,180,635)
========== =========== ========== ===========
Net loss per share, pro forma................ $ (.06)
Pro forma shares outstanding................. 36,667,940
F-65
GREAT WESTERN LAND AND RECREATION, INC. AND SUBSIDIARIES
(GREAT WESTERN) AND QUEPASA.COM, INC. AND SUBSIDIARIES
(QUEPASA)
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
GREAT PRO FORMA PRO FORMA
WESTERN QUEPASA ADJUSTMENTS BALANCES
---------- ------------ ----------- ------------
Revenues................................... $9,859,371 $ 2,815,818 $ -- $ 12,675,189
Cost of sales.............................. 8,148,998 204,070 -- 8,353,068
---------- ------------ ---------- ------------
Gross profit on sales...................... 1,710,373 2,611,748 -- 4,322,121
Operating expenses......................... 1,809,230 64,537,947 -- 66,347,177
---------- ------------ ---------- ------------
Loss from operations....................... (98,857) (61,926,199) -- (62,025,056)
Other income (expense)..................... (682,657) 1,027,848 -- 345,191
---------- ------------ ---------- ------------
NET LOSS............................... $ (781,514) $(60,898,351) $ -- $(61,679,865)
========== ============ ========== ============
Net loss per share, pro forma.............. $ (1.68)
Pro forma shares outstanding............... 36,667,940
F-66
NOTES TO PRO FORMA FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
The unaudited pro forma balance sheet as of September 30, 2001 and the pro
forma statement of operations for the year ended December 31, 2000 and for the
nine months ended September 30, 2001 have been prepared assuming the purchase of
quepasa.com by Great Western Land and Recreation, Inc. as of January 1, 2000.
2. PRO FORMA ADJUSTMENTS TO THE BALANCE SHEET AS OF SEPTEMBER 30, 2001
(a) A pro forma adjustment is made to reflect the issuance of Great Western
Land and Recreation, Inc. common stock to effect the acquisition of quepasa.com.
The purchase price is $2,730,000, with common stock credited for the issuance of
17,763,291 shares at a par value of $.001 per share and paid-in capital credited
for the remaining value of the assets acquired.
(b) A pro forma adjustment of $1,200,000 is made to reduce cash for
estimated merger, registration and termination costs, including bonuses of
$300,000 to certain individuals subject to consummation of the transaction, to
be incurred subsequent to September 30, 2001 by the Company and quepasa.com.
(c) The purchase price is based upon a value of $.15 per share for
17,763,291 shares of Great Western Land and Recreation, Inc. common stock to be
exchanged for a like number of outstanding quepasa common shares plus the
estimated direct cost of the merger. Options for the purchase of Great Western
shares are also to be granted to certain quepasa shareholders. These options are
expected to be substantially "out-of-the-money" at issuance, except for options
to purchase 400,000 shares at $.15. The value of these options is insignificant
and no value is assigned in determining the purchase price. The share value of
$2,665,000 plus the estimated direct merger costs of $65,000 total $2,730,000
which is $430,000 in excess of the cash expected to be received. The cost of the
web site acquired is estimated at $45,000, with the remainder of $385,000
considered goodwill. The web site is valued based upon the estimated present
value of cash flow generated from web site sales over the next three years.
Amortization of costs allocated to the website and of goodwill has not been
provided for in the pro forma statements of operations due to immateriality.
3. The pro forma adjustments do not include expected continuing operating and
windup expenses of quepasa at $1,600,000, including $700,000 of termination
bonuses not dependent upon the merger, which will reduce the quepasa cash
balance to approximately $2,300,000 at acquisition date. The cash balance
reflects a reduction of approximately $200,000 for a quepasa obligation in
connection with a contract termination and the return of 600,000 shares of
quepasa common stock.
F-67
APPENDIX A
EXECUTION COPY
AMENDED AND RESTATED MERGER AGREEMENT
AMONG
QUEPASA.COM, INC.,
GREAT WESTERN LAND AND RECREATION, INC.,
GWLAR, INC.,
AND
GWLR, LLC
DATED AS OF OCTOBER 11, 2001
TABLE OF CONTENTS
PAGE
--------
ARTICLE I THE MERGER.............................................. A-1
1.1 The Merger.................................................. A-1
1.2 Certificate of Incorporation of the Surviving Corporation... A-1
1.3 Bylaws of the Surviving Corporation......................... A-2
Board of Directors and Officers of the Surviving
1.4 Corporation................................................. A-2
1.5 Effective Time of the Merger................................ A-2
ARTICLE II THE CONTRIBUTION....................................... A-2
2.1 The Contribution............................................ A-2
ARTICLE III CONVERSION OF SHARES; MERGER CONSIDERATION............ A-2
3.1 Conversion of quepasa Common Stock.......................... A-2
3.2 Exchange Procedures......................................... A-2
3.3 Dividends; Transfer Taxes; Withholding...................... A-3
3.4 Fractional Shares........................................... A-4
3.5 Return of Exchange Fund..................................... A-4
3.6 Dissenting Shares........................................... A-4
3.7 Stock Options............................................... A-5
3.8 Warrants.................................................... A-5
3.9 No Further Ownership Rights in quepasa...................... A-5
3.10 The Closing................................................. A-5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF QUEPASA.............. A-5
4.1 Corporate Organization and Authority........................ A-5
4.2 Capitalization.............................................. A-6
4.3 Subsidiaries................................................ A-6
4.4 SEC Filings................................................. A-7
4.5 Authority Relative to Agreement............................. A-7
4.6 Absence of Conflicts........................................ A-7
4.7 quepasa Financial Statements................................ A-7
4.8 Absence of Certain Changes.................................. A-8
4.9 Compliance with Laws........................................ A-8
4.10 Taxes....................................................... A-9
4.11 Intellectual Property....................................... A-10
4.12 Litigation.................................................. A-11
4.13 Consents.................................................... A-11
4.14 Employee Benefit Plans...................................... A-11
4.15 Brokers..................................................... A-13
i
PAGE
--------
Information in Disclosure Documents and Registration
4.16 Statement................................................... A-13
4.17 quepasa Board Recommendation................................ A-13
4.18 Required Stockholder Vote................................... A-14
4.19 Labor Matters............................................... A-14
4.20 Insurance................................................... A-14
4.21 Certain Business Practices.................................. A-14
4.22 Contracts................................................... A-15
4.23 Related Party Transactions.................................. A-15
4.24 Assets...................................................... A-16
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT, MERGER SUB AND
CONTRIBUTION SUB.................................................. A-16
5.1 Organization; Authority..................................... A-16
5.2 Capitalization.............................................. A-17
5.3 Contribution Sub............................................ A-18
5.4 Parent and Merger Sub....................................... A-18
5.5 Authority Relative to Agreement............................. A-18
5.6 Absence of Conflicts........................................ A-18
5.7 Parent Financial Statements................................. A-18
5.8 Absence of Certain Changes.................................. A-19
5.9 Compliance with Laws........................................ A-19
5.10 Taxes....................................................... A-20
5.11 Intellectual Property....................................... A-21
5.12 Litigation.................................................. A-21
5.13 Consents.................................................... A-21
5.14 Employee Benefit Plans...................................... A-22
5.15 Brokers..................................................... A-23
Information in Disclosure Documents and Registration
5.16 Statement................................................... A-23
5.17 Absence of Certain Changes or Events........................ A-24
5.18 Labor Matters............................................... A-25
5.19 Insurance................................................... A-25
5.20 Certain Business Practices.................................. A-26
5.21 Contracts................................................... A-26
5.22 Related Party Transactions.................................. A-27
5.23 Assets...................................................... A-27
5.24 Registration Rights......................................... A-28
ARTICLE VI COVENANTS.............................................. A-28
Conduct of Business of the Companies Prior to the Closing
6.1 Date........................................................ A-28
ii
PAGE
--------
6.2 Conduct of Business of Parent Prior to the Closing Date..... A-30
Preparation of Proxy Statement, etc.; Stockholders
6.3 Meeting..................................................... A-31
6.4 Compliance with the Securities Act.......................... A-32
6.5 Non-Solicitation by quepasa................................. A-32
6.6 No Solicitation by Parent................................... A-33
6.7 Confidentiality; Public Announcements....................... A-34
6.8 Access to Information....................................... A-34
6.9 All Reasonable Efforts...................................... A-34
6.10 Notification of Certain Matters............................. A-34
6.11 Indemnification and Insurance............................... A-35
6.12 Employee Benefits........................................... A-35
6.13 Options..................................................... A-35
6.14 Directors and Officers...................................... A-36
6.15 Parent Real Property Appraisals............................. A-36
ARTICLE VII CONDITIONS TO CLOSING................................. A-36
Conditions to Obligations of Parent, Merger Sub and
7.1 Contribution Sub............................................ A-36
7.2 Conditions to Obligations of quepasa........................ A-38
ARTICLE VIII TERMINATION AND ABANDONMENT.......................... A-38
8.1 Methods of Termination...................................... A-38
8.2 Procedure upon Termination.................................. A-39
8.3 Termination Fee............................................. A-40
8.4 Cash Shortfall.............................................. A-40
ARTICLE IX MISCELLANEOUS PROVISIONS............................... A-41
9.1 Non-Survival of Representations and Warranties.............. A-41
9.2 Successors and Assigns...................................... A-41
9.3 Expenses.................................................... A-41
9.4 Notices..................................................... A-41
9.5 Entire Agreement............................................ A-42
9.6 Waivers, Amendments and Remedies............................ A-42
9.7 Severability................................................ A-42
9.8 Heading..................................................... A-42
9.9 Counterparts; Terms......................................... A-42
9.10 Governing Law; Consent to Jurisdiction; Venue............... A-42
9.11 Interpretation.............................................. A-42
9.12 Exhibits and Schedules...................................... A-43
9.13 Arbitration................................................. A-43
iii
SCHEDULES
Schedule 4.1 quepasa Subsidiaries
Schedule 4.2(b) quepasa Options and Warrants
Schedule 4.2(e) quepasa Voting Agreements
Schedule 4.8 quepasa Material Adverse Changes
Schedule 4.10 quepasa Tax Matters
Schedule 4.12 quepasa Litigation
Schedule 4.14 quepasa Employee Benefit Plans
Schedule 4.19 quepasa Employee List
Schedule 4.22 quepasa Contracts
Schedule 4.24 quepasa Leases
Schedule 5.2(a) Parent Common Stock
Schedule 5.2(b) Parent Options and Warrants
Schedule 5.2(e) Parent Voting Agreements
Schedule 5.3 Contribution Sub Subsidiaries
Schedule 5.7 Contribution Sub Financial Statements
Schedule 5.8 Contribution Sub Material Adverse Changes
Schedule 5.9(b) Contribution Sub Hazardous Substances
Schedule 5.10 Contribution Sub Tax Matters
Schedule 5.12 Contribution Sub Litigation
Schedule 5.13 Contribution Sub Consents
Schedule 5.14 Contribution Sub Employee Benefit Plans
Schedule 5.17 Contribution Sub Damages
Schedule 5.18 Contribution Sub Employee List
Schedule 5.21 Contribution Sub Contracts
Schedule 5.22 Contribution Sub Related Party Transactions
Schedule 5.23 Contribution Sub Real Property List
Schedule 6.1(c) quepasa Budget
Schedule 6.11 quepasa Indemnification Agreements
Schedule 6.13 Parent Options
Schedule 6.14 Parent Directors and Officers
Schedule 6.15 Parent Real Property Appraisals
EXHIBITS
Exhibit A Defined Terms
Contribution Sub's List of Membership Interests and Real
Exhibit B Property
Exhibit C Parent Option Plan
Exhibit D Parent Warrant
Exhibit E Parent Registration Rights Agreement
Exhibit F quepasa Affiliates Letter
iv
MERGER AGREEMENT
AMENDED AND RESTATED MERGER AGREEMENT (the "AGREEMENT"), dated as of
October 11, 2001, among QUEPASA.COM, INC., a Nevada corporation ("QUEPASA"),
GREAT WESTERN LAND AND RECREATION, INC., a Delaware corporation ("PARENT"),
GWLAR, INC., a Nevada corporation ("MERGER SUB"), and GWLR, LLC, a Delaware
limited liability company ("CONTRIBUTION SUB"). quepasa and Merger Sub are
sometimes herein collectively referred to as the "CONSTITUENT CORPORATIONS."
Newco, Contribution Sub and Merger Sub are sometimes herein collectively
referred to as the "BUYER." Capitalized terms used herein have the definitions
referred to, or set forth in, EXHIBIT A hereto.
R E C I T A L S
A. The respective Boards of Directors and Shareholders of Parent and Merger
Sub and the Board of Directors of quepasa have approved and adopted the merger
of Merger Sub with and into quepasa, as set forth below (the "MERGER") upon the
terms and subject to the conditions provided for in this Agreement.
B. Parent owns all of the issued and outstanding shares of the capital
stock of Merger Sub (the "MERGER SUB SHARES").
C. Parent desires to acquire, for the Merger Consideration and on the terms
and subject to the conditions set forth in this Agreement all of the shares of
quepasa common stock (the "QUEPASA COMMON STOCK") that are issued and
outstanding at the Effective Time, by means of the Merger.
D. Parent owns all of the issued and outstanding membership interests of
Contribution Sub (the "CONTRIBUTION SUB INTERESTS").
E. Contribution Sub owns all of the membership interests in the limited
liability companies and all of the property listed in EXHIBIT B (the
"CONTRIBUTION ASSETS") of Contribution Sub.
F. This Agreement amends and restates in its entirety the Merger Agreement
dated as of August 6, 2001 among quepasa, Parent, Contribution Sub and Merger
Sub.
G. Concurrently with the execution of this Amended and Restated Merger
Agreement, quepasa has loaned Parent $500,000 (the "LOAN") pursuant to a secured
promissory note.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, hereby agree as follows.
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the satisfaction or waiver
of the conditions hereof, and in accordance with the provisions of the Nevada
General Corporation Law, as amended (the "NGCL"), Merger Sub shall be merged
with and into quepasa at the Effective Time. Upon consummation of the Merger,
the separate existence of Merger Sub shall cease, and quepasa shall continue as
the surviving corporation in the Merger (sometimes called the "SURVIVING
CORPORATION"). The Merger shall have the effects set forth in the NGCL.
1.2 CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION. The
Articles of Merger and the other documents referred to in Section 1.5 hereof
shall provide that, at the Effective Time, the certificate of incorporation of
the Surviving Corporation shall be the certificate of incorporation of Merger
Sub, provided that Merger Sub shall change its name to quepasa.com, inc.
A-1
1.3 BYLAWS OF THE SURVIVING CORPORATION. Immediately after the Effective
Time, the bylaws of Merger Sub shall be the bylaws of the Surviving Corporation.
1.4 BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. At the
Effective Time, the directors and officers of Merger Sub immediately prior to
the Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation, each to hold office until their respective successors are
duly elected and qualified, or their earlier death, resignation or removal.
1.5 EFFECTIVE TIME OF THE MERGER. The Constituent Corporations will cause
articles of merger (the "ARTICLES OF MERGER") executed in accordance with the
NGCL and such other documents as are required by the NGCL to be duly filed with
the Secretary of State of the State of Nevada on the Closing Date. The Merger
shall become effective upon the filing of the Articles of Merger, or at such
other time as is agreed upon by the parties hereto and specified in the Articles
of Merger (the time at which the Merger becomes fully effective is referred to
herein as the "EFFECTIVE TIME"). The Merger shall have the effects set forth in
the NGCL.
ARTICLE II
THE CONTRIBUTION
2.1 THE CONTRIBUTION. As the date hereof and at the Effective Time,
Contribution Sub will own all of the rights, title and interest to the
membership interests and real property listed in EXHIBIT B subject only to the
Parent Liabilities set forth in EXHIBIT B.
ARTICLE III
CONVERSION OF SHARES; MERGER CONSIDERATION
3.1 CONVERSION OF QUEPASA COMMON STOCK.
(a) As of the Effective Time, by virtue of the Merger, each issued and
outstanding share of quepasa Common Stock (other than shares to be cancelled
pursuant to Section 3.1(b) hereof and Dissenting Shares) shall be converted
into and exchanged solely for the right to receive one share of common stock
of Parent ("PARENT COMMON STOCK") (the "PER SHARE MERGER CONSIDERATION") on
the terms and conditions provided herein, at the times described in
Section 3.3 hereof.
(b) Each share of quepasa Common Stock held in quepasa's treasury
immediately prior to the Effective Time, if any, shall, by virtue of the
Merger, automatically be cancelled and retired and cease to exist and no
consideration shall be issued in exchange therefor.
(c) The aggregate of the Per Share Merger Consideration payable to all
of the holders of quepasa Common Stock is called the "MERGER CONSIDERATION."
No holder of shares of quepasa Common Stock shall be entitled to receive any
dividends, in cash or otherwise, on such shares converted into Merger
Consideration as set forth in this Section 3.1 hereof.
(d) Immediately following the Effective Time, after giving effect to the
Merger, the capitalization of Parent will be as set forth on SCHEDULE 3.1.
3.2 EXCHANGE PROCEDURES.
(a) Parent shall designate Corporate Stock Transfer, Inc., the current
stock transfer agent of quepasa, to act as Exchange Agent hereunder (the
"EXCHANGE AGENT"). Immediately prior to the Effective Time, Parent shall
deliver, in trust, to the Exchange Agent, for the benefit of the holders of
shares of quepasa Common Stock, for exchange in accordance with this
Article III, through the Exchange Agent, certificates evidencing the shares
of Parent Common Stock issuable pursuant to Section 3.1 in exchange for
outstanding shares of quepasa Common Stock (the "EXCHANGE FUND").
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(b) As soon as practicable after the Effective Time, Parent and the
Surviving Corporation shall cause the Exchange Agent to mail to each holder
of record of a certificate which immediately prior to the Effective Time
represented outstanding shares of quepasa Common Stock (the "CERTIFICATES")
(i) a form of letter of transmittal specifying that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon proper delivery of the Certificates to the Exchange Agent and
(ii) instructions for use in surrendering such Certificates in exchange for
certificates representing shares of Parent Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such
letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (A) certificates representing
that number of whole shares of Parent Common Stock into which the shares of
quepasa Common Stock represented by the surrendered Certificate have been
converted at the Effective Time pursuant to Section 3.1 hereof, (B) cash in
lieu of any fractional shares of Parent Common Stock to which such holder is
entitled pursuant to Section 3.4 hereof, and the Certificate so surrendered
shall forthwith be canceled. Until surrendered as contemplated by this
Section 3.2(b), each Certificate shall be deemed from and after the
Effective Time to represent only the right to receive upon such surrender
the shares of Parent Common Stock and cash in lieu of any fractional shares
of Parent Common Stock in accordance with Section 3.4 hereof and any
dividends or distributions on Parent Common Stock in accordance with
Section 3.3 hereof. In no event shall the holder of any such surrendered
Certificates be entitled to receive interest on any cash for fractional
shares to be received in the Merger. Neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares of quepasa Common Stock
for any amount paid to a public official pursuant to any applicable
abandoned property, escheat or similar law. Shares of Parent Common Stock to
be issued in the Merger shall be issued as of, and be deemed to be
outstanding as of, the Effective Time. Parent shall cause all such shares of
Parent Common Stock to be duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights.
(c) If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Parent and
the Surviving Corporation, the giving by such person of an indemnity against
any claim that may be made against it with respect to such Certificate,
including, without limitation, the deposit of a bond, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Certificate the
applicable certificate representing shares of Parent Common Stock in
accordance with Section 3.1 hereof and any cash in lieu of fractional shares
of Parent Common Stock to which the holders thereof are entitled pursuant to
Section 3.4 hereof and any dividends or distributions on Parent Common Stock
in accordance with Section 3.3 hereof.
3.3 DIVIDENDS; TRANSFER TAXES; WITHHOLDING. No dividends or other
distributions that are declared on or after the Effective Time on Parent Common
Stock, or are payable to the holders of record thereof who became such on or
after the Effective Time, shall be paid to any person entitled by reason of the
Merger to receive certificates representing shares of Parent Common Stock, and
no distribution of cash consideration and no cash payment in lieu of any
fractional share of Parent Common Stock shall be paid to any person pursuant to
Section 3.4 hereof, until such person shall have surrendered its Certificate(s)
as provided in Section 3.2 hereof (or such person shall have complied with
Section 3.2(c) hereof). Subject to applicable law, Parent shall cause to be paid
to each person receiving a certificate representing such shares of Parent Common
Stock, (i) at the time of such receipt the amount of any dividends or other
distributions theretofore paid with respect to the shares of Parent Common Stock
represented by such certificate and having a record date on or after the
Effective Time, and (ii) at the appropriate payment date the amount of any
dividends or other distributions payable with respect to the shares of Parent
Common Stock represented by such certificate which dividends or other
distributions have a record date on or after the Effective Time and a payment
date on or subsequent to such receipt. In no event shall the person entitled to
receive such dividends or other
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distributions be entitled to receive interest on such dividends or other
distributions. If any cash or certificate representing shares of Parent Common
Stock is to be paid to or issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the Certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of such certificate representing shares
of Parent Common Stock and the distribution of such cash payment in a name other
than that of the registered holder of the Certificate so surrendered, or shall
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not applicable. Parent, the Surviving Corporation or the Exchange Agent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of quepasa Common Stock such
amounts as Parent, the Surviving Corporation or the Exchange Agent are required
to deduct and withhold under the Code, or any provision of state, local or
foreign tax law, with respect to the making of such payment. To the extent that
amounts are so withheld by Parent, the Surviving Corporation or the Exchange
Agent, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the quepasa Common Stock in respect of whom
such deduction and withholding was made by Parent, the Surviving Corporation or
the Exchange Agent.
3.4 FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of Parent Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution with respect to shares shall be
payable on or with respect to any fractional share and such fractional share
interests shall not entitle the owner thereof to vote or to any other rights of
a stockholder of Parent. In lieu of any such fractional share of Parent Common
Stock, Parent shall pay to each former stockholder of quepasa who otherwise
would be entitled to receive a fractional share of Parent Common Stock an amount
in cash (without interest) rounded to the nearest whole cent, determined by
multiplying (i) the closing sales price of Parent Common Stock on any principal
exchange or market in which such stock is traded on the first day of trading
thereof following the Effective Time (the "FRACTIONAL SHARE PRICE") by (ii) the
fractional interest in a share of Parent Common Stock to which such holder would
otherwise be entitled. Parent shall make available to the Exchange Agent, and
cause to be paid by the Exchange Agent, cash for this purpose.
3.5 RETURN OF EXCHANGE FUND. Any portion of the certificates representing
shares of Parent Common Stock together with any cash in lieu of fractional
shares payable pursuant to Section 3.5 hereof and any dividends or distributions
payable pursuant to Section 3.4 hereof, which remains undistributed to the
former holders of quepasa Common Stock for one year after the Effective Time
shall be delivered to Parent, upon its request, and any such former holders who
have not theretofore surrendered to the Exchange Agent their Certificate(s) in
compliance with this Article III shall thereafter look only to Parent for
payment of their claim for shares of Parent Common Stock, any cash in lieu of
fractional shares of Parent Common Stock and any dividends or distributions with
respect to such shares of Parent Common Stock (in each case, without interest
thereon). The Exchange Agent shall invest any cash included in the Exchange
Fund, as directed by Parent, on a daily basis. Any interest and other income
resulting from such investments shall be paid to Parent.
3.6 DISSENTING SHARES. Notwithstanding Section 3.1 hereof, shares of
quepasa Common Stock outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Merger and who has demanded
appraisal for such shares in accordance with Sections 92A.300 to 92A.500,
inclusive, of the NGCL ("DISSENTING SHARES") shall not be converted into a right
to receive the Merger Consideration, unless such holder fails to perfect or
withdraws or otherwise loses its right to appraisal. If after the Effective
Time, any such holder fails to perfect or withdraws or loses its right to
appraisal (as provided in Sections 92A.300 to 92A.500, inclusive, of the NGCL),
such Dissenting Shares shall be treated as if they had been converted as of the
Effective Time into the right to receive the Merger Consideration to which such
holder is entitled, without interest or dividends thereon. quepasa
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shall give Parent prompt notice of any demands received by quepasa for appraisal
of shares of quepasa Common Stock, and, prior to the Effective Time, Parent
shall have the right to participate in all negotiations and proceedings with
respect to such demands. Prior to the Effective Time, quepasa shall not, except
with the prior written consent of Parent, make any payment with respect to, or
settle or offer to settle, any such demands.
3.7 STOCK OPTIONS.
(a) Prior to the Effective Time, quepasa and Parent shall adopt such
resolutions or take such other actions as are required to adjust the terms
of all outstanding options to purchase quepasa Common Stock set forth on
SCHEDULE 4.2(B) ("QUEPASA OPTIONS") to provide that, at the Effective Time,
each outstanding quepasa Option granted under quepasa's Amended and Restated
1998 Stock Option Plan (the "QUEPASA OPTION PLAN"), whether or not then
exercisable or vested, shall be converted into an option to purchase common
stock of Parent ("PARENT SUBSTITUTE OPTIONS") on substantially the same
terms pursuant to the Great Western Land and Recreation, Inc. 2001 Stock
Option Plan (the "PARENT OPTION PLAN").
(b) Within 120 days following the Effective Time, Parent shall register
under the Securities Act on Form S-8 or another appropriate form all shares
of Parent Common Stock issuable pursuant to all Parent Substitute Options
with an exercise price of $0.15 or less.
3.8 WARRANTS. quepasa and Parent shall adopt such resolutions or take such
other actions as are required to adjust the terms of all outstanding warrants to
purchase quepasa Common Stock set forth on SCHEDULE 4.2(B) ("QUEPASA WARRANTS")
to provide that, at the Effective Time, the quepasa Warrants shall be converted
into warrants to purchase common stock of Parent on substantially the same
terms.
3.9 NO FURTHER OWNERSHIP RIGHTS IN QUEPASA. At and after the Effective
Time, each holder of quepasa Common Stock shall cease to have any rights as a
stockholder of quepasa, except for the right either (a) to exercise appraisal
rights as permitted under, but subject to the conditions and restrictions
contained in, Sections 92A.300 to 92A.500, inclusive, of the NGCL or (b) to
surrender his, her or its certificates representing quepasa Common Stock in
exchange for the right to receive the Per Share Merger Consideration for each
share of quepasa Common Stock represented by such delivered certificates, at the
time of such surrender. After the Effective Time, no transfer of shares shall be
made on the stock transfer books of quepasa except as contemplated by this
Agreement. Any stock certificates representing quepasa Common Stock presented
after the Effective Time for transfer shall be canceled and exchanged for the
right to receive the amounts as provided in Section 3.1 hereof.
3.10 THE CLOSING. Subject to the terms of this Agreement, the closing of
the transactions contemplated hereby (the "CLOSING") shall take place at
3:00 P.M., Phoenix, AZ time, on a date to be specified by the parties, which
shall be as soon as practicable, but in no event later than the second business
day after the satisfaction or waiver of all of the conditions set forth in
Article VII hereof (the "CLOSING DATE"), at the offices of Gallagher & Kennedy
P.A., 2575 East Camelback Road, Phoenix, AZ 85016, or at such other time or
place as the parties hereto shall agree in writing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF QUEPASA
quepasa hereby represents and warrants to Buyer, except as set forth by
specific reference to the applicable section of this Article IV in the Schedules
and except for information set forth anywhere in the Schedules that is
sufficiently clear and specific on its face to communicate the specific
representations and warranties which it qualifies, as follows:
4.1 CORPORATE ORGANIZATION AND AUTHORITY. Each of quepasa and its
Subsidiaries (sometimes collectively referred to as the "COMPANIES" and
individually as a "COMPANY") is a corporation or
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limited liability company duly incorporated or organized, validly existing and
(where applicable) in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate power and
authority to own, lease and operate its properties and assets and to conduct its
business as now being conducted, except where the failure to have such power or
authority would not, individually or in the aggregate, have a quepasa Material
Adverse Effect. A complete list of quepasa's Subsidiaries is set forth on
SCHEDULE 4.1. Each of the Companies has qualified as a foreign corporation or
limited liability company and (where applicable) is in good standing under the
laws of all jurisdictions set forth on SCHEDULE 4.1, which are all jurisdictions
where the nature of the quepasa Business or the nature and location of its
assets requires such qualification, except for jurisdictions in which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a quepasa Material Adverse Effect.
4.2 CAPITALIZATION.
(a) The authorized capital stock of quepasa consists of (i) 50,000,000
shares of Common Stock, of which 17,763,291 shares are issued and
outstanding, no shares are held in the treasury of quepasa, 6,000,000 shares
are reserved for issuance pursuant to the quepasa Option Plan, and 400,000
shares are reserved for issuance upon exercise of the quepasa Warrants; and
(ii) 5,000,000 shares of preferred stock, none of which are issued and
outstanding.
(b) There are outstanding, under the quepasa Option Plan, quepasa
Options to purchase an aggregate of 2,142,500 shares of quepasa Common
Stock, and there are outstanding 400,000 quepasa Warrants, all as set forth
on SCHEDULE 4.2(B), which Schedule identifies the time and price at which
such quepasa Options and quepasa Warrants may be exercised. Other than the
quepasa Options and quepasa Warrants disclosed on SCHEDULE 4.2(B), no Person
owns, of record or beneficially, any rights to acquire capital stock of
quepasa, whether pursuant to the exercise of warrants, conversion of
securities, exercise of stock options or otherwise. There are no option
plans other than the quepasa Option Plan.
(c) All outstanding shares of quepasa Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable. Except
as set forth in this Section 4.2 and except for the quepasa Options and the
quepasa Warrants outstanding on the date hereof, there are outstanding
(i) no shares of capital stock or other voting securities of quepasa,
(ii) no securities of quepasa convertible into or exchangeable for shares of
capital stock or voting securities of quepasa and (iii) no options, warrants
or other rights to acquire from quepasa, and no obligation of quepasa to
issue, any capital stock, voting securities or securities convertible into
or exchangeable for capital stock or voting securities of quepasa or equity
equivalent interests in the ownership or earnings of quepasa (the items in
Sections 4.2(a) and (b) hereof being referred to collectively as the
"QUEPASA SECURITIES"). There are no outstanding obligations of quepasa or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any
quepasa Securities or pay any dividend or make any other distribution in
respect thereof.
(d) There are no outstanding obligations of the Companies to provide
funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any other Person.
(e) No voting securities of quepasa are entitled to vote by class or
have any voting right or preference different, on a per share basis, than
the Common Stock. Except as set forth in SCHEDULE 4.2(E), there are no
voting trusts or other agreements (other than this Agreement) or
understandings to which any Company is a party or of which quepasa has
knowledge with respect to the capital stock of any Company.
4.3 SUBSIDIARIES. All of the outstanding capital stock of, or other
ownership interests in, each of quepasa's Subsidiaries is owned by quepasa,
directly or indirectly, free and clear of any Lien and free of any other
limitation or restriction (including any restriction on the right to vote, sell
or otherwise
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dispose of such capital stock or other ownership interests). There are no
outstanding (i) securities of quepasa or any of its Subsidiaries convertible
into or exchangeable for shares of capital stock or other voting securities or
ownership interests in any Subsidiary of quepasa or (ii) options or other rights
to acquire from quepasa or any of its Subsidiaries, and no other obligation of
quepasa or any of its Subsidiaries to issue, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable for any capital stock, voting securities or ownership interests
in, any Subsidiary of quepasa. There are no outstanding obligations of quepasa
or any of its Subsidiaries to repurchase, redeem or otherwise acquire any
outstanding capital stock or other ownership interest in any Subsidiary of
quepasa or pay any dividend or make any other distribution in respect thereof to
a Person other than quepasa or a Subsidiary of quepasa.
4.4 SEC FILINGS. Except as set forth on Schedule 4.4, quepasa has timely
filed with the United States Securities and Exchange Commission (the "SEC") all
forms, reports, definitive proxy statements, schedules and registration
statements (the "SEC REPORTS") required to be filed by it with the SEC pursuant
to the Exchange Act or the Securities Act since January 1, 1999. No Subsidiary
of quepasa is required to file any report, form or document with the SEC
pursuant to the Exchange Act or the Securities Act. As of their respective
filing dates or, if amended, as of the date of the last amendment, except as
contemplated by the letters dated January 11, 2001, April 9, 2001, May 4, 2001,
June 21, 2001 and July 31, 2001 from the staff of the SEC to quepasa (together,
the "SEC COMMENT LETTER"), none of the SEC Reports contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. The SEC Reports
(including, without limitation, any financial statements and schedules included
therein) when filed or, if amended, as of the date of the last amendment, except
as contemplated by the SEC Comment Letter, complied in all material respects
with the applicable requirements of the Securities Act and the Exchange Act.
4.5 AUTHORITY RELATIVE TO AGREEMENT. quepasa has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the performance by
quepasa of its obligations hereunder have been duly authorized by its Board of
Directors, and no other corporate or stockholder proceedings on the part of
quepasa are necessary to authorize such execution, delivery and performance
other than the requisite approvals of the holders of the quepasa Common Stock.
This Agreement has been duly executed by quepasa and, assuming the due and valid
authorization, execution and delivery of this Agreement by Buyer, constitutes a
valid and legally binding obligation of quepasa enforceable against quepasa in
accordance with its terms, except as enforceability may be limited by
bankruptcy, moratorium, reorganization, fraudulent conveyance, receivership or
similar laws affecting the rights of creditors generally.
4.6 ABSENCE OF CONFLICTS. The execution, delivery and performance by
quepasa of this Agreement, and the transactions contemplated hereby, do not
constitute a breach or default, or require Consents under, any agreement, permit
or other instrument to which any Company is a party, or by which any Company is
bound or to which any of the assets of any Company or the quepasa Business is
subject, or any Judgment to which any Company, the assets of any Company or the
quepasa Business is bound or subject or any Rule, and will not result in the
creation of any Lien upon any of the assets of any Company or the quepasa
Business, except for any of the foregoing that could not reasonably be expected
to have a quepasa Material Adverse Effect. The execution, delivery and
performance by quepasa of this Agreement, and the transactions contemplated
hereby, do not and will not conflict with or result in any violation of, or
constitute a breach or default under any term of the Organizational Documents of
any Company.
4.7 QUEPASA FINANCIAL STATEMENTS. Except as contemplated by the SEC
Comment Letter, the audited consolidated financial statements and unaudited
interim financial statements included in the SEC Reports (including any related
notes and schedules) (collectively, the "QUEPASA FINANCIAL STATEMENTS") comply
in all material respects with the applicable accounting requirements and the
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published rules and regulations of the SEC with respect thereto and have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis by quepasa during the periods
involved, except as otherwise described in the notes thereto and, in the case of
the unaudited interim financial statements, subject to usual and recurring
year-end adjustments normal in nature and amount. Except as contemplated by the
SEC Comment Letter, the quepasa Financial Statements fairly present in all
material respects the financial position of quepasa and its Subsidiaries as of
the date set forth on each of such quepasa Financial Statements and the results
of operations of quepasa and its Subsidiaries for the periods indicated. Except
(i) as reflected in the SEC Reports, (ii) as reserved against in the balance
sheet of quepasa and its Subsidiaries dated as of September 30, 2000, including
the notes thereto (the "QUEPASA MOST RECENT BALANCE SHEET"), and (iii) for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice, since the date of the quepasa Most Recent Balance
Sheet, as of the date hereof, neither quepasa nor any of its Subsidiaries have
any liabilities of any nature (whether accrued, contingent, absolute,
determined, determinable or otherwise) that would be required to be reflected on
a balance sheet in accordance with GAAP.
4.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Item 1 and Item 7
of the May 31, 2001 draft of quepasa's 2000 Form 10-K previously provided to
Parent, and in Notes 3 and 7 and the "Subsequent Events" Note to the financial
statements included in such draft 2000 Form 10-K or as set forth in
SCHEDULE 4.8, since the date of the quepasa Most Recent Balance Sheet through
the date hereof there has not been an effect, change or development that has or
will have a quepasa Material Adverse Effect.
4.9 COMPLIANCE WITH LAWS.
(a) GENERAL. Each Company has complied with, and the quepasa Business is
being conducted in accordance with, all federal, state, municipal, foreign
and other laws, regulations, orders and other legal requirements applicable
thereto (collectively, "RULES"), except for such non-compliance that could
not reasonably be expected to constitute a quepasa Material Adverse Effect.
No Company is in default with respect to any Judgment of any Governmental
Authority or arbitrator.
(b) HAZARDOUS SUBSTANCES.
(i) Each Company has substantially complied with and is in
substantial compliance with the Resource Conservation and Recovery Act,
the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended by the Superfund Amendments and Reauthorization Act
of 1986, the Federal Water Pollution Control Act, the Clean Air Act, as
amended, and all other Rules relating to pollution or protection of
public health, welfare and the environment, including laws relating to
emissions, discharges, disposal practices, releases or threatened
releases of toxic or hazardous substances or hazardous wastes, including
asbestos and polychlorinated biphenyls, or other pollutants,
contaminants, petroleum products or chemicals (collectively, "HAZARDOUS
SUBSTANCES") into the environment (including ambient air, indoor air,
surface water, ground water, land surface or sub-surface strata) or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Substances (collectively, the "ENVIRONMENTAL LAWS").
(ii) Each Company has obtained and is in substantial compliance with
all licenses which it is required to obtain and maintain with respect to
the operation of the quepasa Business under the Environmental Laws.
(iii) There are no polychlorinated biphenyls or asbestos generated,
treated, stored, disposed of, or otherwise deposited in or located on any
of the quepasa Real Property and there are no above ground or underground
storage tanks located on any of the quepasa Real Property.
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(iv) There has been no "release" of a "hazardous substance" as those
terms are defined in Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601 ET SEQ. in excess of a
reportable quantity from or under any of the quepasa Real Property or any
other property that is used to conduct.
(v) No notice, demand, request for information, citation, summons,
complaint or order has been received by, or, to the knowledge of the
Company, is pending or threatened by any Person against any Company nor
has any penalty been assessed against any Company with respect to any
alleged violation of any Environmental Law.
(vi) No Company has disposed or arranged for the disposal of
Hazardous Substances on any third party property that has resulted in or
could reasonably be expected to result in a quepasa Material Adverse
Effect.
(vii) No underground tanks, asbestos-containing material or
polychlorinated biphenyls are or have been located on quepasa Real
Property nor were any underground tanks, asbestos-containing material or
polychlorinated biphenyls located on real property formerly owned or
operated by any Company during the period of any Company's ownership or
operations of such real property, or to the knowledge of the Company,
prior to the period of the Company's ownership or operations of such real
property.
(viii)There are no material licenses, permits or other authorizations
("PERMITS") issued pursuant to or required under any Environmental Law
which require the consent, notification, approval or other action of any
Person to remain in full force and effect following consummation of the
transactions contemplated hereby.
(ix) There has been no written report of any environmental
investigation, study, audit, test, review or other analysis conducted of
which any Company has knowledge or has in its possession or control
relating to the business of any Company or any real property that is
owned or operated by any Company which has not been made available to
Parent.
(x) No Company has agreed to assume, undertake or provide
indemnification for any liability of any other person under any
Environmental Law, including any obligation for corrective or remedial
action.
(xi) To quepasa's knowledge, no environmental assessment or impact
reports exist with respect to the quepasa Real Property.
4.10 TAXES.
(a) There have been properly completed and filed on a timely basis and
in correct form all Returns required to be filed by the Companies (the
"COMPANY RETURNS"). As of the time of filing, the Company Returns correctly
reflected the facts regarding the income, business, assets, operations,
activities, status or other matters of the Companies or any other
information required to be shown thereon. No extension of time within which
to file any Company Return which has not been filed has been requested.
(b) With respect to all amounts in respect of Taxes imposed upon the
Companies, or for which any of the Companies is or could be liable, whether
to taxing authorities (as, for example, under law) or to other persons or
entities (as, for example, under tax allocation agreements), with respect to
all taxable periods or portions of periods ending on or before the Closing
Date, all applicable tax laws and agreements have been fully complied with,
and all amounts required to be paid by any of the Companies, to taxing
authorities or others, on or before the date hereof have been paid.
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(c) No issues have been raised (and are currently pending) by any taxing
authority in connection with any of the Company Returns. No waivers of
statutes of limitation with respect to the Company Returns have been given
by or requested from any of the Companies. SCHEDULE 4.10 sets forth (i) the
taxable years of each of the Companies as to which the respective statutes
of limitations with respect to Taxes have not expired, and (ii) with respect
to such taxable years sets forth those years for which examinations have
been completed, those years for which examinations are presently being
conducted, those years for which examinations have not been initiated, and
those years for which required Returns have not yet been filed. All
deficiencies asserted or assessments made as a result of any examinations
have been fully paid, or are fully reflected as a liability in the quepasa
Financial Statements contained in the SEC Reports or are being contested in
good faith and an adequate reserve therefor has been established and is
fully reflected in the financial statements.
(d) None of the Companies is a party to or bound by any tax indemnity,
tax sharing or tax allocation agreement.
(e) None of the Companies has agreed to make, and is not required to
make, any adjustment under section 481(a) of the Code by reason of a change
in accounting method or otherwise.
(f) None of the Companies is a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code.
(g) The unpaid Taxes of the Companies do not exceed the reserve for tax
liability with respect to the Companies (excluding any reserve for deferred
Taxes established to reflect timing differences between book and tax income)
set forth or included in the consolidated financial statements included in
the SEC Reports as adjusted for the passage of time through the Closing
Date, in accordance with the past practices of the Companies.
(h) The transactions contemplated herein will not result in restorations
into income of amounts deferred under the consolidated return regulations,
such as those relating to intercompany transactions, excess loss accounts,
and the like.
(i) The transactions contemplated herein are not subject to any tax
withholding provisions of law or regulations.
(j) No event has occurred which would in any way materially adversely
effect the amount or utilization of the Company's net operating loss
carry-forward.
4.11 INTELLECTUAL PROPERTY. The Companies own or have the right to use all
of the material Intellectual Property that is necessary to conduct the quepasa
Business as currently conducted ("QUEPASA IP"), free and clear of all Liens
other than those rights the absence of which could reasonably be expected to
have a material adverse effect on the value of the quepasa IP. No Company has
given or received any written notice of any pending conflict with, or
infringement of the rights of others with respect to, any quepasa IP or with
respect to any license of the quepasa IP. No quepasa IP owned, used or under
development by any Company conflicts with or infringes upon any Intellectual
Property of any third party in a manner that could reasonably be expected have a
material adverse effect on the value of the quepasa IP. The validity of the
quepasa IP and the title thereto is not being questioned in any pending
litigation proceeding to which any Company is a party nor is any such litigation
proceeding threatened, that could reasonably be expected to have a material
adverse effect on the value of the quepasa IP. The consummation of the
transactions contemplated by this Agreement will not result in the loss or
impairment of any quepasa IP that could reasonably be expected to have a
material adverse effect on the value of the quepasa IP.
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4.12 LITIGATION. As of the date hereof and except as disclosed in
SCHEDULE 4.12, (a) there is no action, suit, investigation, or proceeding
(including arbitration) pending or threatened against any Company, or any
director or officer of any Company in their representative capacities as such,
before any court, arbitrator or other Governmental Authority that could
reasonably be expected to have a quepasa Material Adverse Effect, and (b) to the
knowledge of quepasa, there is no basis for any such action, suit,
investigation, or proceeding. At the Effective Time, except as disclosed in
SCHEDULE 4.12, there will be no action, suit, investigation, or proceeding
(including arbitration) pending or threatened against any Company, or any
director or officer of any Company in their representative capacities as such,
before any court, arbitrator or other Governmental Authority that could, in
Parent's sole reasonable judgment, be expected to have a quepasa Material
Adverse Effect.
4.13 CONSENTS. Except (i) for the filing of the Articles of Merger
pursuant to the NGCL, (ii) for compliance with any applicable requirement of the
Securities Act and the Exchange Act, or (iii) where failure to make such filing
or registration, give such notice or receive such permit, consent or approval
could not reasonably be expected to have a quepasa Material Adverse Effect, no
permit, authorization, consent or approval of any Governmental Authority is
necessary for the consummation by quepasa of the transactions contemplated by
this Agreement.
4.14 EMPLOYEE BENEFIT PLANS.
(a) None of the Companies or any Company ERISA Affiliate maintains,
administers or contributes to, or has any liability with respect to, nor do
the employees of the Company, its Subsidiaries or any Company ERISA
Affiliate receive or expect to receive as a condition of employment,
benefits pursuant to the following. For purposes of this Agreement, "COMPANY
ERISA AFFILIATE" means any corporation or trade or business which is, or
ever was, treated as a single employer with the Company under
Section 414(b), (c), (m) or (o) of the Code.
(i) any employee benefit plan (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(each such plan, a "COMPANY PLAN"), including, without limitation, any
Multiemployer Plan, as within the meaning of Section 4001(a)(3) of ERISA,
except as set forth on SCHEDULE 4.14; or
(ii) any bonus, deferred compensation, performance compensation,
stock purchase, stock option, stock appreciation, severance, salary
continuation, vacation, sick leave, holiday pay, fringe benefit,
personnel policy, reimbursement program, incentive, insurance, welfare or
similar plan, program, policy or arrangement (each such plan, a "COMPANY
BENEFIT PLAN"); other than those Company Plans and Company Benefit Plans
described in SCHEDULE 4.14. Except as required by Section 4980B of the
Code, none of the Companies or any Company ERISA Affiliate has promised
any former employee or other individual medical or other benefit coverage
and none of the Companies or any Company ERISA Affiliate maintains or
contributes to any plan, program, policy or arrangement providing medical
or life insurance benefits to former employees, their spouses or
dependents or any other individual not employed by the Companies or any
Company ERISA Affiliate. No Company Plan or Company Benefit Plan has any
provision which could increase or accelerate benefits or increase the
liability of the Companies as a result of any transaction contemplated by
this Agreement.
(b) All Company Plans and Company Benefit Plans which are not
Multiemployer Plans and any related trust agreements or annuity contracts
(or any related trust instruments) comply with and are and have been
operated in accordance with each applicable provision of ERISA and the Code
in all material respects. Each Company Plan, as amended to date, which is
not a Multiemployer Plan, that is intended to be qualified under
Sections 401(a) and 501(a) of the Code has been determined to be so
qualified by the Internal Revenue Service ("IRS"), has been submitted to the
IRS for a determination with respect to such qualified status, or the
remedial
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amendment period with respect to Company Plan will not have expired prior to
the Effective Time, and no event has occurred, either by reason of any
action or failure to act, which would cause the loss of any such
qualification.
(c) Neither any Company Plan fiduciary nor any Company Plan has engaged
in any transaction in violation of Section 406 of ERISA or any "prohibited
transaction" (as defined in Section 4975(c)(1) of the Code) unless exempt
under Section 408 of ERISA or Section 4975 of the Code and there has been no
"reportable event" (as defined in Section 4043 of ERISA), with respect to
any Company Plan which is not a Multiemployer Plan, for which the 30-day
notice requirement has not been waived. None of the Companies or any Company
ERISA Affiliate has incurred or suffered to exist any "accumulated funding
deficiency" (as defined in Section 302 of ERISA) whether or not waived by
the IRS, involving any Company Plan subject to Section 412 of the Code or
Part 3 of Subtitle B of Title I of ERISA. No withdrawals have occurred so as
to cause any Company Plan to become subject to the provisions of
Section 4063 of ERISA, and none of the Companies or any Company ERISA
Affiliate has ceased making contributions to any employee benefit plan
subject to Section 4064(a) of ERISA to which any of the Companies or any
Company ERISA Affiliate made contributions during the six years prior to the
date hereof or ceased operations at a facility so as to become subject to
Section 4062(e) of ERISA. Full payment has been made of all amounts which
the Companies or any Company ERISA Affiliate is required or committed to pay
to each of Company Plans and Company Benefit Plans relating to all periods
prior to or as of Effective Time.
(d) True and complete copies of each Company Plan, Company Benefit Plan,
related trust agreements, annuity contracts, determination letters, the most
recent determination letter request, summary plan descriptions, all
communications to employees regarding any Company Plan or Company Benefit
Plan, annual reports on Form 5500, Form 990, actuarial reports and Pension
Benefit Guaranty Corporation ("PBGC") Forms 1 for the most recent three
Company Plan years, and each plan, agreement, instrument and commitment
referred to herein has been previously furnished to the Company. The annual
reports on Form 5500 and Form 990 and actuarial statements furnished to the
Company fully and accurately set forth the financial and actuarial condition
of the respective Company Plan or Company Benefit Plan, as may be
applicable.
(e) The aggregate present value of all accrued benefits pursuant to each
Company Plan subject to Title IV of ERISA, determined on the basis of
current participation and projected compensation for active participants,
and including the maximum value of all subsidized benefits, and earnings,
mortality and other actuarial assumptions set forth in the most recent
actuarial report for such Company Plan does not exceed the current fair
market value of Company Plan's assets.
(f) None of the Companies or any Company ERISA Affiliate has incurred
any liability to the PBGC, including as a result of the voluntary or
involuntary termination of any Company Plan which is subject to Title IV of
ERISA in excess of $10,000 in the aggregate. There is currently no active
filing by the Companies or any Company ERISA Affiliate with the PBGC (and no
proceeding has been commenced by the PBGC and no condition exists and no
event has occurred that could constitute grounds for the termination of any
Company Plan by the PBGC) to terminate any Company Plan which is subject to
Title IV of ERISA and which has been maintained or funded, in whole or in
part, by the Companies or any Company ERISA Affiliate.
(g) There are no pending or threatened claims by or on behalf of any of
Company Plans or Company Benefit Plans by any employee or beneficiary
covered under any Company Plans or Company Benefit Plans or otherwise
involving any Company Plan or Company Benefit Plan (other than routine
claims for benefits) that could reasonably be expected to have a quepasa
Material Adverse Effect.
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(h) With respect to each Company Plan which is a Multiemployer Plan
covering employees of the Companies or any Company ERISA Affiliate:
(i) none of the Companies or such Company ERISA Affiliate would incur any
withdrawal liability on a complete withdrawal from each such Company Plan as
of the Effective Time, under all Rules and conditions of each such Company
Plan and the applicable provisions of law without regard to any limitation,
reduction or adjustment of liability under Title IV of ERISA or any Company
Plan provision based on Title IV of ERISA; (ii) none of the Companies or any
Company ERISA Affiliate has made or suffered a "complete withdrawal" or a
"partial withdrawal," as such terms are respectively defined in
Sections 4203 and 4205 of ERISA; (iii) none of the Companies or any Company
ERISA Affiliate has any contingent liability under Section 4204 of ERISA;
and (iv) no such Company Plan is in reorganization as defined in
Section 4241 of ERISA and no circumstances exist which present a material
risk of any such Company Plan going into reorganization, except for any of
the foregoing that in the aggregate would result in less than $10,000 of
liability to the Company.
(i) With respect to employees of the Companies, the Companies are and
have been in compliance with all Rules respecting employment and employment
practices, terms and conditions of employment and wages and hours,
including, without limitation, any such laws respecting employment
discrimination, occupational safety and health, and unfair labor practices.
4.15 BROKERS. Except for Friedman, Billings & Ramsey, Inc. ("FBR"), no
agent, broker, investment banker, financial advisor or other Person is or will
be entitled to any brokerage commission, finder's fee or like payment in
connection with any of the transactions contemplated by this Agreement based
upon such arrangements made by or on behalf of any Company.
4.16 INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION STATEMENT. None
of the information supplied or to be supplied by the Company for inclusion in
(i) the registration statement to be filed with the SEC on Form S-4 under the
Securities Act for the purpose of registering the shares of Parent Common Stock
to be issued in connection with the Merger (the "REGISTRATION STATEMENT") or
(ii) the proxy statement/prospectus (the "PROXY STATEMENT") to be distributed in
connection with the Company's meeting of stockholders (the "STOCKHOLDERS
MEETING") to vote upon this Agreement and the transactions contemplated hereby
will, in the case of the Registration Statement, or any post-effective
amendments thereof, at the time it becomes effective, and in the case of the
Proxy Statement or any amendments thereof or supplements thereto, at the time of
the initial mailing of the Proxy Statement or the mailing of any amendments or
supplements thereto, or at the time of the meeting of stockholders of the
Company to be held in connection with the Merger, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Registration
Statement and any post-effective amendments thereof, as of their effective date,
will comply (with respect to information relating to the Companies) as to form
in all material respects with the requirements of the Securities Act, and the
rules and regulations promulgated thereunder, and as of the date of its initial
mailing and as of the date of quepasa's stockholders' meeting, the Proxy
Statement will comply (with respect to information relating to the Companies) as
to form in all material respects with the applicable requirements of the
Exchange Act, and the rules and regulations promulgated thereunder.
Notwithstanding the foregoing, quepasa makes no representations with respect to
any statement in the foregoing documents based upon information supplied by
Buyer for inclusion therein.
4.17 QUEPASA BOARD RECOMMENDATION. Each member of the Board of Directors
of quepasa present at a meeting duly called and held, has (i) determined that
this Agreement and the transactions contemplated hereby are fair to and in the
best interests of the stockholders of quepasa and (ii) resolved to recommend
that the stockholders of quepasa approve the Merger and this Agreement; PROVIDED
that such recommendation may be withdrawn, modified or amended pursuant to
Section 6.5(b) hereof.
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4.18 REQUIRED STOCKHOLDER VOTE. The affirmative vote of at least 50% plus
one share of the outstanding shares of quepasa Common Stock, voting as a single
class, is the only votes of the holders of any class or series of quepasa's
securities necessary to approve the Merger.
4.19 LABOR MATTERS. With respect to employees of the Companies: (i) there
is no pending or, to the knowledge of the Company, threatened unfair labor
practice charges or employee grievance charges; (ii) there is no request for
union representation, labor strike, dispute, slowdown or stoppage actually
pending or threatened against or affecting the Company, and there has been no
such event during the 18 months preceding the date hereof; (iii) the Company is
not a party to any collective bargaining agreements; and (iv) except as set out
in SCHEDULE 4.19, the employment of each of the Company's employees is
terminable at will without cost to the Company except for payments required
under the Company Plans and Company Benefit Plans and payment of accrued
salaries or wages and vacation pay. No employee or former employee has any right
to be rehired by the Company prior to the Company's hiring a person not
previously employed by the Company. Except as required by Section 4980B of the
Code, neither the Company nor any Company ERISA Affiliate has any liability to
provide now or in the future medical benefits, life insurance or other welfare
benefits to former employees of the Company or any Company ERISA Affiliate or
their spouses or dependents or any other individual not employed by the Company
or any Company ERISA Affiliate. SCHEDULE 4.19 contains a true and complete list
of all employees who are employed by the Company as of the date hereof, and such
list correctly reflects their salaries, wages, other compensation (other than
benefits under the Company Plans), dates of employment and positions. The
Company is in compliance in all with all Rules respecting employment and
employment practices, terms and conditions of employment and wages and hours,
including, without limitation, any such laws respecting employment
discrimination, occupational safety and health, and unfair labor practices
except where such failure to comply would not have a quepasa Material Adverse
Effect. The Company is not delinquent in payments to any of its employees for
any wages, salaries, commissions, bonuses or other direct compensation for any
services performed by them or any amounts required to be reimbursed to such
employees.
4.20 INSURANCE. Each Company maintains insurance policies (the "QUEPASA
INSURANCE POLICIES") against all risks of a character and in such amounts as are
usually insured against by similarly situated companies in the same or similar
businesses. Each quepasa Insurance Policy is in full force and effect and is
valid, outstanding and enforceable, and all premiums due thereon have been paid
in full. None of the quepasa Insurance Policies will terminate or lapse (or be
affected in any other materially adverse manner) by reason of the transactions
contemplated by this Agreement. Each Company has complied in all material
respects with the provisions of each quepasa Insurance Policy under which it is
the insured party. No insurer under any quepasa Insurance Policy has canceled or
generally disclaimed liability under any such policy or, to the Company's
knowledge, indicated any intent to do so or not to renew any such policy. All
material claims under the quepasa Insurance Policies have been filed in a timely
fashion.
4.21 CERTAIN BUSINESS PRACTICES. No Company or any directors, officers,
agents or employees of any Company has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
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4.22 CONTRACTS.
(a) SCHEDULE 4.22 contains a complete and accurate list of all contracts
(written or oral), undertakings, commitments or agreements of the following
categories to which any Company is a party or by which any of them is bound
(the "QUEPASA CONTRACTS"):
(i) quepasa Contracts requiring annual expenditures by or liabilities
of any Company in excess of $50,000 that have a remaining term in excess
of 30 days or are not cancelable (without material penalty, cost or other
liability) within 30 days;
(ii) promissory notes, loans, agreements, indentures, evidences of
indebtedness or other instruments relating to the lending of money,
whether as borrower, lender or guarantor, in excess of $50,000.
(iii) quepasa Contracts containing covenants limiting the freedom of
any Company to engage in any line of business (other than prohibitions
against engaging in business relating to specific product lines) or
compete with any person, in any product line or line of business, or
operate at any location;
(iv) joint venture or partnership agreements or joint development or
similar agreements pursuant to which any third party has been entitled or
is reasonably expected to be entitled to share in profits or losses of
any Company;
(v) quepasa Contracts with any federal, state or local government
which have a remaining term in excess of one year or are not cancelable
(without material penalty, cost or other liability) within one year;
(vi) other quepasa Contract or commitment in which any Company has
granted manufacturing rights or exclusive marketing rights relating to
any product or service, any group of products or services or any
territory; and
(vii) as of the date hereof any other quepasa Contract the
performance of which could be reasonably expected to require expenditures
by any Company in excess of $50,000 other than those cancelable (without
material penalty, cost or other liability) within 30 days.
(b) Except as set forth on SCHEDULE 4.22, each of the quepasa Contracts
is a valid and binding obligation of the Company and, to the Company's
knowledge, the other parties thereto, enforceable against the applicable
Company in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, moratorium, reorganization, fraudulent
conveyance, arrangement or similar laws affecting creditors' rights
generally and by general principles of equity. Except as set forth on
SCHEDULE 4.22, no event has occurred which would, on notice or lapse of time
or both, entitle the holder of any indebtedness issued pursuant to a quepasa
Contract to accelerate, or that does accelerate, the maturity of any such
indebtedness.
(c) No Company is in breach, default or violation (and no event has
occurred or not occurred through the Company's action or inaction or through
the action or inaction of any third parties, which with notice or the lapse
of time or both would constitute a breach, default or violation) of any
term, condition or provision of any quepasa Contract to which any Company is
now a party or by which any of them or any of their respective properties or
assets may be bound, except for violations set forth on SCHEDULE 4.22.
4.23 RELATED PARTY TRANSACTIONS. Except as set forth in the SEC Reports,
(a) no beneficial owner of 5% or more of any Company's outstanding capital
stock, or (b) officer or director of the Company or (c) any Person in which any
such beneficial owner, officer or director owns any beneficial interest (other
than a publicly held corporation whose stock is traded on a national securities
exchange or in the over-the-counter market and less than 1% of the stock of
which is beneficially owned by all such
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Persons) (collectively, "QUEPASA RELATED PARTIES") has any interest in: (i) any
contract, arrangement or understanding with, or relating to, the business or
operations of, any Company; (ii) any loan, arrangement, understanding, agreement
or contract for or relating to indebtedness of any Company; or (iii) any
property (real, personal or mixed), tangible or intangible, used in the business
or operations of any Company, excluding any such contract, arrangement,
understanding or agreement constituting a Company Plan or a Company Benefit
Plan. Following the Effective Time, except for obligations set forth in this
Agreement, no Company will have any obligations to any quepasa Related Party
except for (i) accrued salary for the pay period commencing immediately prior to
the Effective Time, and (ii) the obligations set forth in the SEC Reports.
4.24 ASSETS.
(a) The assets and properties of the Companies, considered as a whole,
constitute all of the assets and properties which are reasonably required
for the business and operations of the Companies as presently conducted. The
Companies have good and marketable title to or a valid leasehold estate in
(i) all personal properties and assets reflected on the date of the quepasa
Most Recent Balance Sheet (except for properties or assets subsequently sold
in the ordinary course of business consistent with past practice or as set
forth on SCHEDULE 4.24).
(b) The Company does not own any real property. SCHEDULE 4.24 sets forth
(i) a complete and accurate list of all leases pursuant to which each
Company leases real property or personal property and which require an
annual expenditure by each Company individually in excess of $50,000 or
which are not cancelable (without material penalty, cost or other liability)
within 90 days and (iii) with respect to each lease for real property, the
term (including renewal options) and current fixed rent.
(c) Complete and correct copies of all leases concerning quepasa Real
Property have been made available to Buyer.
(d) quepasa has previously delivered to Buyer lists of the most recently
issued real and personal (including vehicles) property tax assessments and
tax bills, if any, for the 2000 and 1999 tax years.
Each Company holds a valid leasehold estate for each leased property, and
enjoys peaceful and undisturbed possession thereunder.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT,
MERGER SUB AND CONTRIBUTION SUB
Parent, Merger Sub and Contribution Sub, jointly and severally, hereby
represent and warrant to quepasa, except as set forth by specific reference to
the applicable section of this Article V in the Schedules and except for
information set forth anywhere in the Schedules that is sufficiently clear and
specific on its face to communicate the specific representations and warranties
which it qualifies, as follows:
5.1 ORGANIZATION; AUTHORITY. Each of Parent, Merger Sub and Contribution
Sub is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization. Each of Parent, Merger Sub and
Contribution Sub has all requisite corporate power and authority to own, lease
and operate its properties and assets and to conduct its business as now being
conducted, except where the failure to have such power or authority would not
reasonably be expected to prevent or materially delay consummation of the
transactions contemplated hereby. Each of Parent, Merger Sub and Contribution
Sub has qualified as a foreign corporation or other entity and (where
applicable) is in good standing under the laws of all jurisdictions where the
nature of its business or the nature and
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location of its assets requires such qualifications, except for jurisdictions in
which the failure to be so qualified or in good standing would not reasonably be
expected to prevent or materially delay consummation of the transactions
contemplated hereby. Each of Parent, Merger Sub and Contribution Sub has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and the
performance by Parent, Merger Sub and Contribution Sub have been approved by the
Board of Directors of Parent, Merger Sub and Contribution Sub, and no other
proceedings on their part are necessary to authorize such execution, delivery
and performance. This Agreement has been duly executed by Parent, Merger Sub and
Contribution Sub and, assuming the due and valid authorization, execution and
delivery of this Agreement by quepasa, constitutes the valid and legally binding
obligation of Parent, Merger Sub and Contribution Sub enforceable against each
of Parent, Merger Sub and Contribution Sub in accordance with its terms, except
as enforceability may be limited by bankruptcy, moratorium, reorganization,
fraudulent conveyance, receivership or similar laws affecting the rights of
creditors generally.
5.2 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of (i) 50,000,000
shares of Parent Common Stock, of which 18,904,649 shares are issued and
outstanding and owned beneficially by Amortibanc Investments, L.C., a Kansas
limited liability company, no shares are held in the treasury of Parent,
3,500,000 shares are reserved for issuance pursuant to the Parent Option
Plan, and 14,827,175 shares are reserved for issuance pursuant to warrants
to purchase Parent Common Stock (the "PARENT WARRANTS") and (ii) 20,000,000
shares of preferred stock, none of which are issued and outstanding. The
Parent Option Plan and the Parent Warrants are in the forms of EXHIBIT C and
EXHIBIT D, respectively.
(b) As of the date hereof and immediately prior to the Effective Time,
except as contemplated by SCHEDULE 6.13, there are outstanding, under the
Parent Option Plan, no options to purchase shares of Parent Common Stock
("PARENT OPTIONS"). As of the date hereof and immediately prior to the
Effective Time, other than the Parent Warrants, no Person owns, of record or
beneficially, any rights to acquire capital stock of Parent, whether
pursuant to the exercise of warrants, conversion of securities, exercise of
stock options or otherwise. There are no option plans other than the Parent
Option Plan.
(c) All outstanding shares of Parent Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable. Except
as set forth in this Section 5.2 and except for the Parent Options to be
issued at the Effective Time as contemplated by Section 6.13, there are
outstanding (i) no shares of capital stock or other voting securities of
Parent, (ii) no securities of Parent convertible into or exchangeable for
shares of capital stock or voting securities of Parent and (iii) no options,
warrants or other rights to acquire from Parent, and no obligation of Parent
to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of Parent or
equity equivalent interests in the ownership or earnings of Parent (the
items in Sections 5.2(a) and (b) hereof being referred to collectively as
the "PARENT SECURITIES"). There are no outstanding obligations of Parent or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any
Parent Securities or pay any dividend or make any other distribution in
respect thereof.
(d) There are no outstanding obligations of Parent and its Subsidiaries
to provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any other Person.
(e) No voting securities of Parent are entitled to vote by class or have
any voting right or preference different, on a per share basis, than the
Parent Common Stock. There are no voting trusts or other agreements (other
than this Agreement) or understandings to which Parent is a party or of
which Parent has knowledge with respect to the capital stock of Parent.
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5.3 CONTRIBUTION SUB. Parent owns all of the issued and outstanding equity
interests of Contribution Sub. Since its date of formation, other than acquiring
and holding the membership interests, real property and related assets set forth
in EXHIBIT B, Contribution Sub has conducted no other business prior to the date
hereof. Contribution Sub owns all of the assets set forth in EXHIBIT B, subject
only to the Parent Liabilities set forth in EXHIBIT B.
5.4 PARENT AND MERGER SUB. Since their date of incorporation, neither
Parent nor Merger Sub has carried on any business or conducted any operations
other than the execution of this Agreement, the performance of its obligations
hereunder and matters ancillary thereto. Merger Sub is a wholly-owned subsidiary
of Parent. As of the date hereof, and as of immediately prior to the Effective
Time, there are 100 shares of Merger Sub Common Stock issued and outstanding,
all of which are duly authorized, fully paid and nonassessable and owned
beneficially and of record by Parent.
5.5 AUTHORITY RELATIVE TO AGREEMENT. Each of Parent, Merger Sub and
Contribution Sub has the power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement and the performance by each of Parent, Merger Sub and Contribution Sub
of its obligations hereunder have been duly authorized by its boards of
directors and shareholders and no other corporate, trust or member proceedings
on the part of each of Parent, Merger Sub and Contribution Sub are necessary to
authorize such execution, delivery and performance. This Agreement has been duly
executed by each of Parent, Merger Sub and Contribution Sub and, assuming the
due and valid authorization, execution and delivery of this Agreement by
quepasa, constitutes a valid and legally binding obligation of each of Parent,
Merger Sub and Contribution Sub enforceable against each of Parent, Merger Sub
and Contribution Sub in accordance with its terms, except as enforceability may
be limited by bankruptcy, moratorium, reorganization, fraudulent conveyance,
receivership or similar laws affecting the rights of creditors generally.
Parent's shareholders shall have taken all action necessary to authorize
Parent's board of directors to effect a reverse stock split of up to one for 20
shares of Parent Common Stock at any time during the 24 month period commencing
at the Effective Time.
5.6 ABSENCE OF CONFLICTS. The execution, delivery and performance by each
of Parent, Merger Sub and Contribution Sub of this Agreement, and the
transactions contemplated hereby, do not and will not (i) conflict with or
result in any violation of, or constitute a breach or default under any term of
the Organizational Documents of each of Parent, Merger Sub and Contribution Sub
or (ii) constitute a material breach or default, or require Consents under, any
agreement, permit or other instrument to which any of Parent, Merger Sub and
Contribution Sub and Merger Sub is a party, or by which any of Parent, Merger
Sub and Contribution Sub is bound or to which any of the assets of Parent,
Merger Sub and Contribution Sub business is subject, or any Judgment to which
the assets of Parent, Merger Sub and Contribution Sub is bound or subject or any
Rule, and will not result in the creation of any Lien upon any of the assets of
Parent, Merger Sub and Contribution Sub or its business, except in the case of
(ii) for any of the foregoing that would not reasonably be expected to prevent
or materially delay consummation of the transactions contemplated hereby.
5.7 PARENT FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited interim financial statements attached hereto as
Schedule 5.7 (including any related notes and schedules) (collectively, the
"PARENT FINANCIAL STATEMENTS") comply in all material respects with the
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto and have been prepared in accordance with GAAP
applied on a consistent basis by Parent during the periods involved, except as
otherwise described in the notes thereto and, in the case of the unaudited
interim financial statements, subject to usual and recurring year-end
adjustments normal in nature and amount. The Parent Financial Statements fairly
present in all material respects the financial position of Parent and its
Subsidiaries as of the date set forth on each of such Parent Financial
Statements and the results of operations of Parent and its Subsidiaries for the
periods indicated. Except as (i) reflected on SCHEDULE 5.7, (ii) reserved
against in the balance sheet of Parent and its Subsidiaries dated as of
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June 30, 2001, including the notes thereto (the "PARENT MOST RECENT BALANCE
SHEET"), and (iii) except for liabilities and obligations incurred in the
ordinary course of business consistent with past practice, since the date of the
Parent Most Recent Balance Sheet, as of the date hereof, neither Parent nor any
of its Subsidiaries have any liabilities of any nature (whether accrued,
contingent, absolute, determined, determinable or otherwise) that would be
required to be reflected on a balance sheet in accordance with GAAP.
5.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE 5.8, since
the date of the Parent Most Recent Balance Sheet through the date hereof there
has not been an effect, change or development that has or will have a Parent
Material Adverse Effect.
5.9 COMPLIANCE WITH LAWS.
(a) GENERAL. Parent and each of its Subsidiaries and predecessors has
complied with, and the Parent Business is being conducted in accordance
with, all Rules, except for such non-compliance that could not reasonably be
expected to constitute a Parent Material Adverse Effect. None of Parent or
any of its Subsidiaries is in default with respect to any Judgment of any
Governmental Authority or arbitrator.
(b) HAZARDOUS SUBSTANCES. Except as set forth in SCHEDULE 5.9(B) and
except with respect to the real property owned by Houston Greenwich, L.L.C.
and Houston Wheatstone, L.L.C. for which the following are qualified as to
the knowledge of Parent, its Subsidiaries and its predecessors:
(i) Each of Parent, its Subsidiaries and its predecessors has
substantially complied with and is in substantial compliance with all
Environmental Laws.
(ii) Each of Parent, its Subsidiaries and its predecessors has
obtained and is in substantial compliance with all licenses which it is
required to obtain and maintain with respect to the operation of the
Parent Business under the Environmental Laws.
(iii) There are no polychlorinated biphenyls or asbestos generated,
treated, stored, disposed of, or otherwise deposited in or located on any
of the Parent Real Property and there are no above ground or underground
storage tanks located on any of the Parent Real Property.
(iv) There has been no "release" of a "hazardous substance" as those
terms are defined in Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601 ET SEQ. in excess of a
reportable quantity from or under any of the Parent Real Property or any
other property that is used to conduct.
(v) No notice, demand, request for information, citation, summons,
complaint or order has been received by, or, to the knowledge of Parent,
is pending or threatened by any Person against any of Parent, its
Subsidiaries and its predecessors, nor has any penalty been assessed
against any of Parent, its Subsidiaries and its predecessors with respect
to any alleged violation of any Environmental Law.
(vi) None of Parent, its Subsidiaries or its predecessors has
disposed or arranged for the disposal of Hazardous Substances on any
third party property that has resulted in or may reasonably be expected
to result in a Parent Material Adverse Effect.
(vii) No underground tanks, asbestos-containing material or
polychlorinated biphenyls are or have been located on real property that
is owned or operated by any of Parent, its Subsidiaries and its
predecessors, nor were any underground tanks, asbestos-containing
material or polychlorinated biphenyls located on real property formerly
owned or operated by any of Parent, its Subsidiaries and its predecessors
during the period of any of Parent, its Subsidiaries' and its
predecessors' ownership or operations of such real property, or to the
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knowledge of Parent, prior to the period of Parent, its Subsidiaries' and
its predecessors' ownership or operations of such real property.
(viii)There are no material Permits issued pursuant to or required
under any Environmental Law which require the consent, notification,
approval or other action of any Person to remain in full force and effect
following consummation of the transactions contemplated hereby. A true
and complete list of all material Permits issued pursuant to or required
under Environmental Laws is set forth on SCHEDULE 5.9(B).
(ix) There has been no written report of any environmental
investigation, study, audit, test, review or other analysis conducted of
which any of Parent, its Subsidiaries and its predecessors has knowledge
or has in its possession or control relating to the business of any of
Parent, its Subsidiaries and its predecessors or any real property that
is owned or operated by any Affiliate of that has not been made available
to Parent.
(x) None of Parent, its Subsidiaries or its predecessors has agreed
to assume, undertake or provide indemnification for any liability of any
other person under any Environmental Law, including any obligation for
corrective or remedial action.
(xi) Parent has provided quepasa with all material environmental
assessment or impact reports on the Parent Real Property done for or on
behalf of each of Parent, its Subsidiaries and its predecessors within
the last five years of the date of this Agreement which are in its
possession or under its reasonable control.
5.10 TAXES.
(a) There have been properly completed and filed on a timely basis and
in correct form all Returns required to be filed by Parent, its Subsidiaries
and its predecessors (the "PARENT RETURNS"). As of the time of filing, the
Parent Returns correctly reflected the facts regarding the income, business,
assets, operations, activities, status or other matters of the Person filing
such Parent Returns, or any other information required to be shown thereon.
No extension of time within which to file any Parent Return which has not
been filed has been requested.
(b) With respect to all amounts in respect of Taxes imposed upon Parent,
its Subsidiaries and its predecessors, or for which any of Parent, its
Subsidiaries and its predecessors is or could be liable, whether to taxing
authorities (as, for example, under law) or to other persons or entities
(as, for example, under tax allocation agreements), with respect to all
taxable periods or portions of periods ending on or before the Closing Date,
all applicable tax laws and agreements have been fully complied with, and
all amounts required to be paid by any of Parent, its Subsidiaries and its
predecessors, to taxing authorities or others, on or before the date hereof
have been paid.
(c) No issues have been raised (and are currently pending) by any taxing
authority in connection with any of the Parent Returns. No waivers of
statutes of limitation with respect to the Parent Returns have been given by
or requested from any of Parent, its Subsidiaries and its predecessors.
SCHEDULE 5.10 sets forth (i) the taxable years of each of Parent, its
Subsidiaries and its predecessors as to which the respective statutes of
limitations with respect to Taxes have not expired, and (ii) with respect to
such taxable years sets forth those years for which examinations have been
completed, those years for which examinations are presently being conducted,
those years for which examinations have not been initiated, and those years
for which required Parent Returns have not yet been filed. All deficiencies
asserted or assessments made as a result of any examinations have been fully
paid, or are fully reflected as a liability in the Parent Financial
Statements or are being contested in good faith and an adequate reserve
therefor has been established and is fully reflected in the financial
statements.
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(d) None of Parent, its Subsidiaries and its predecessors is a party to
or bound by any tax indemnity, tax sharing or tax allocation agreement.
(e) None of Parent, its Subsidiaries and its predecessors has agreed to
make, and is not required to make, any adjustment under section 481(a) of
the Code by reason of a change in accounting method or otherwise.
(f) None of Parent, its Subsidiaries and its predecessors is a party to
any agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code.
(g) The unpaid Taxes of Parent, its Subsidiaries and its predecessors do
not exceed the reserve for tax liability with respect to Parent and its
Subsidiaries (excluding any reserve for deferred Taxes established to
reflect timing differences between book and tax income) set forth or
included in the Parent Financial Statements as adjusted for the passage of
time through the Closing Date, in accordance with the past practices of
Parent, its Subsidiaries and its predecessors.
(h) The transactions contemplated herein will not result in restorations
into income of amounts deferred under the consolidated return regulations,
such as those relating to intercompany transactions, excess loss accounts,
and the like.
(i) The transactions contemplated herein are not subject to any tax
withholding provisions of law or regulations.
5.11 INTELLECTUAL PROPERTY. Except as set forth on SCHEDULE 5.11, Parent
owns or has the right to use all of the material Intellectual Property that is
necessary to conduct the Parent Business as currently conducted ("PARENT IP"),
free and clear of all Liens other than those rights the absence of which could
reasonably be expected to have a material adverse effect on the value of the
Parent IP. None of Parent, its Subsidiaries or its predecessors has given or
received any written notice of any pending conflict with, or infringement of the
rights of others with respect to, any Parent IP or with respect to any license
of the Parent IP. No Parent IP owned, used or under development by any of
Parent, its Subsidiaries or its predecessors conflicts with or infringes upon
any Intellectual Property of any third party in a manner that could reasonably
be expected have a Parent Material Adverse Effect. The validity of the Parent IP
and the title thereto is not being questioned in any pending litigation
proceeding to which any of Parent, its Subsidiaries and its predecessors is a
party nor is any such litigation proceeding threatened, that could reasonably be
expected to have a material adverse effect on the value of the Parent IP. The
consummation of the transactions contemplated by this Agreement will not result
in the loss or impairment of any Parent IP that could reasonably be expected to
have a material adverse effect on the value of the Parent IP.
5.12 LITIGATION. As of the date hereof, (a) there is no action, suit,
investigation, or proceeding (including arbitration) pending or threatened
against any of Parent, its Subsidiaries and its predecessors (or any director or
officer of any of Parent, its Subsidiaries and its predecessors in their
respective capacities as such) before any court, arbitrator or other
Governmental Authority, which could reasonably be expected to have a Parent
Material Adverse Effect and (b) to the knowledge of Parent, there is no basis
for any such action, suit, investigation, or proceeding.
5.13 CONSENTS. Except (i) for the filing of the Articles of Merger
pursuant to the NGCL, (ii) for compliance with any applicable requirement of the
Exchange Act, (iii) for such consents as set forth in SCHEDULE 5.13 or
(iv) where failure to make such filing or registration, give such notice or
receive such permit, consent or approval could not reasonably be expected to
have a Parent Material Adverse Effect, no permit, authorization, consent or
approval of any Governmental Authority is necessary for the consummation by
Parent, Merger Sub or Contribution Sub of the transactions contemplated by this
Agreement.
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5.14 EMPLOYEE BENEFIT PLANS.
(a) None of Parent, its Subsidiaries its predecessors, or any Parent
ERISA Affiliate maintains, administers or contributes to, or has any
liability with respect to, nor do the employees of Parent, its Subsidiaries,
its subsidiaries or any Parent ERISA Affiliate receive or expect to receive
as a condition of employment, benefits pursuant to the following. For
purposes of this Agreement, "PARENT ERISA AFFILIATE" means any corporation
or trade or business which is, or ever was, treated as a single employer
with Parent under Section 414(b), (c), (m) or (o) of the Code.
(i) any employee benefit plan (as defined in Section 3(3) of ERISA)
(each such plan, a "PARENT PLAN"), including, without limitation, any
Multiemployer Plan, as within the meaning of Section 4001(a)(3) of ERISA,
except as set forth on SCHEDULE 5.14; or
(ii) any bonus, deferred compensation, performance compensation,
stock purchase, stock option, stock appreciation, severance, salary
continuation, vacation, sick leave, holiday pay, fringe benefit,
personnel policy, reimbursement program, incentive, insurance, welfare or
similar plan, program, policy or arrangement (each such plan, a "PARENT
BENEFIT PLAN"); other than those Parent Plans and Parent Benefit Plans
described in SCHEDULE 5.14. Except as required by Section 4980B of the
Code, none of Parent, its Subsidiaries, its predecessors or any Parent
ERISA Affiliate has promised any former employee or other individual
medical or other benefit coverage and none of Parent, its Subsidiaries,
its predecessors or any Parent ERISA Affiliate maintains or contributes
to any plan, program, policy or arrangement providing medical or life
insurance benefits to former employees, their spouses or dependents or
any other individual not employed by Parent, its Subsidiaries, its
predecessors or any Parent ERISA Affiliate. No Parent Plan or Parent
Benefit Plan has any provision which could increase or accelerate
benefits or increase the liability of Parent or its Subsidiaries as a
result of any transaction contemplated by this Agreement.
(b) All Parent Plans and Parent Benefit Plans which are not
Multiemployer Plans and any related trust agreements or annuity contracts
(or any related trust instruments) comply with and are and have been
operated in accordance with each applicable provision of ERISA and the Code
in all material respects. Each Parent Plan, as amended to date, which is not
a Multiemployer Plan, that is intended to be qualified under
Sections 401(a) and 501(a) of the Code has been determined to be so
qualified by the IRS, has been submitted to the IRS for a determination with
respect to such qualified status, or the remedial amendment period with
respect to Parent Plan will not have expired prior to the Effective Time,
and no event has occurred, either by reason of any action or failure to act,
which would cause the loss of any such qualification.
(c) Neither any Parent Plan fiduciary nor any Parent Plan has engaged in
any transaction in violation of Section 406 of ERISA or any "prohibited
transaction" (as defined in Section 4975(c)(1) of the Code) unless exempt
under Section 408 of ERISA or Section 4975 of the Code and there has been no
"reportable event" (as defined in Section 4043 of ERISA), with respect to
any Parent Plan which is not a Multiemployer Plan, for which the 30-day
notice requirement has not been waived. None of Parent, its Subsidiaries,
its predecessors or any Parent ERISA Affiliate has incurred or suffered to
exist any "accumulated funding deficiency" (as defined in Section 302 of
ERISA) whether or not waived by the IRS, involving any Parent Plan subject
to Section 412 of the Code or Part 3 of Subtitle B of Title I of ERISA. No
withdrawals have occurred so as to cause any Parent Plan to become subject
to the provisions of Section 4063 of ERISA, and none of Parent, its
Subsidiaries, its predecessors or any Parent ERISA Affiliate has ceased
making contributions to any employee benefit plan subject to
Section 4064(a) of ERISA to which any of Parent, its Subsidiaries, its
predecessors or any Parent ERISA Affiliate made contributions during the
six years prior to the date hereof or ceased operations at a facility so as
to become subject to Section 4062(e) of ERISA. Full payment has been made of
all amounts which Parent, its
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Subsidiaries, its predecessors or any Parent ERISA Affiliate is required or
committed to pay to each of Parent Plans and Parent Benefit Plans relating
to all periods prior to or as of Effective Time.
(d) True and complete copies of each Parent Plan, Parent Benefit Plan,
related trust agreements, annuity contracts, determination letters, the most
recent determination letter request, summary plan descriptions, all
communications to employees regarding any Parent Plan or Parent Benefit
Plan, annual reports on Form 5500, Form 990, actuarial reports and PBGC
Forms 1 for the most recent three Parent Plan years, and each plan,
agreement, instrument and commitment referred to herein has been previously
furnished to quepasa. The annual reports on Form 5500 and Form 990 and
actuarial statements furnished to Parent fully and accurately set forth the
financial and actuarial condition of the respective Parent Plan or Parent
Benefit Plan, as may be applicable.
(e) The aggregate present value of all accrued benefits pursuant to each
Parent Plan subject to Title IV of ERISA, determined on the basis of current
participation and projected compensation for active participants, and
including the maximum value of all subsidized benefits, and earnings,
mortality and other actuarial assumptions set forth in the most recent
actuarial report for such Parent Plan does not exceed the current fair
market value of Parent Plan's assets.
(f) None of Parent, its Subsidiaries, its predecessors or any Parent
ERISA Affiliate has incurred any liability to the PBGC, including as a
result of the voluntary or involuntary termination of any Parent Plan which
is subject to Title IV of ERISA in excess of $10,000 in the aggregate. There
is currently no active filing by Parent, its Subsidiaries, its predecessors
or any Parent ERISA Affiliate with the PBGC (and no proceeding has been
commenced by the PBGC and no condition exists and no event has occurred that
could constitute grounds for the termination of any Parent Plan by the PBGC)
to terminate any Parent Plan which is subject to Title IV of ERISA and which
has been maintained or funded, in whole or in part, by Parent, its
Subsidiaries, its predecessors or any Parent ERISA Affiliate.
(g) There are no pending or threatened claims by or on behalf of any of
Parent Plans or Parent Benefit Plans by any employee or beneficiary covered
under any Parent Plans or Parent Benefit Plans or otherwise involving any
Parent Plan or Parent Benefit Plan (other than routine claims for benefits)
that could reasonably be expected to have a Parent Material Adverse Effect.
(h) With respect to employees of Parent, its Subsidiaries and its
predecessors, Parent, its Subsidiaries and its predecessors are and have
been in compliance with all Rules respecting employment and employment
practices, terms and conditions of employment and wages and hours,
including, without limitation, any such laws respecting employment
discrimination, occupational safety and health, and unfair labor practices.
5.15 BROKERS. No agent, broker, investment banker, financial advisor or
other Person is or will be entitled to any brokerage commission, finder's fee or
like payment in connection with any of the transactions contemplated by this
Agreement based upon such arrangements made by or on behalf of any of Parent,
Merger Sub and Contribution Sub.
5.16 INFORMATION IN DISCLOSURE DOCUMENTS AND REGISTRATION STATEMENT. None
of the information supplied or to be supplied by Parent, Merger Sub and
Contribution Sub for inclusion in (i) the Registration Statement or (ii) the
Proxy Statement will, in the case of the Registration Statement, and any
post-effective amendments thereof, at the time it becomes effective, and in the
case of the Proxy Statement or any amendments thereof or supplements thereto, at
the time of the initial mailing of the Proxy Statement or the mailing of any
amendments or supplements thereto, or at the time of the meeting of stockholders
of quepasa be held in connection with the Merger, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are
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made, not misleading. The Registration Statement and any post-effective
amendments thereof, as of their effective date, will comply (with respect to
information relating to Parent) as to form in all material respects with the
requirements of the Securities Act, and the rules and regulations promulgated
thereunder, and as of the date of its initial mailing and as of the date of
quepasa's stockholders' meeting, the Proxy Statement will comply (with respect
to information relating to Parent) as to form in all material respects with the
applicable requirements of the Exchange Act, and the rules and regulations
promulgated thereunder. Notwithstanding the foregoing, each of Parent, Merger
Sub and Contribution Sub makes no representations with respect to any statement
in the foregoing documents based upon information supplied by quepasa for
inclusion therein.
5.17 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Since the date of the Parent Most Recent Balance Sheet, the business
of the Parent and its Subsidiaries has been conducted in all material
respects in the ordinary course consistent with past practice, none of
Parent and its Subsidiaries has engaged in any transaction or series of
related transactions material to Parent and its Subsidiaries other than in
the ordinary course consistent with past practice, and there has not been
any event, occurrence or development, alone or taken together with all other
existing facts, that, individually or in the aggregate, has had, or could
reasonably be expected to have, a Parent Material Adverse Effect.
(b) Without limiting the generality of the foregoing Section 5.17(a),
since the date of the Parent Most Recent Balance Sheet and except as
disclosed in SCHEDULE 5.17, there has not been:
(i) any damage, destruction or loss to any of the assets or
properties of Parent and its Subsidiaries that, individually or in the
aggregate, has a Parent Material Adverse Effect;
(ii) any declaration, setting aside or payment of any dividend or
distribution or capital return in respect of any interest in Parent and
its Subsidiaries or any redemption, purchase or other acquisition by any
of Parent and its Subsidiaries of any membership or other equity
interests or any repurchase, redemption or other purchase by any of
Parent and its Subsidiaries of any membership or other equity interests
in, any of Parent and its Subsidiaries, or any amendment of any material
term of any outstanding security of any of Parent and its Subsidiaries;
(iii) any sale, assignment, transfer, lease or other disposition or
agreement to sell, assign, transfer, lease or otherwise dispose of any of
the assets of any of Parent and its Subsidiaries for consideration in the
aggregate in excess of $100,000 or other than in the ordinary course of
business consistent with past practices;
(iv) any acquisition (by merger, consolidation, or acquisition of
stock or assets) by any of Parent and its Subsidiaries of any
corporation, partnership or other business organization or division
thereof or any equity interest therein for consideration, or any loans or
advances to any Person in excess of $100,000 in the aggregate;
(v) any incurrence of or guarantee with respect to any indebtedness
for borrowed money by any of Parent and its Subsidiaries other than
pursuant to Parent and its Subsidiaries' existing credit facilities in
the ordinary course of business or any creation or assumption by any of
Parent and its Subsidiaries of any material Lien on any material asset;
(vi) any material change in any method of accounting or accounting
practice used by any of Parent and its Subsidiaries, other than such
changes required by a change in law or generally accepted accounting
principles;
(vii) (A) any employment, deferred compensation, severance or similar
agreement entered into or amended by any of Parent and its Subsidiaries
and any employee, (B) any increase in the compensation payable or to
become payable by it to any of its directors, officers or
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managers or generally applicable to all or any category of any of Parent
and its Subsidiaries' employees, (C) any increase in the coverage or
benefits available under any vacation pay, company awards, salary
continuation or disability, sick leave, deferred compensation, bonus or
other incentive compensation, insurance, pension or other plan, payment
or arrangement made to, for or with any of the directors, officers or
managers of any of Parent and its Subsidiaries or generally applicable to
all or any category of any of Parent's and its Subsidiaries' employees or
(D) severance pay arrangements made to, for or with such directors,
officers, managers or employees other than, in the case of (B) and
(C) above, increases in the ordinary course of business consistent with
past practice and that in the aggregate have not resulted in a material
increase in the benefits or compensation expense of any of Parent and its
Subsidiaries;
(viii)any revaluing in any material respect any of the assets of any
of Parent and its Subsidiaries, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(ix) any loan, advance or capital contribution made by any of Parent
and its Subsidiaries to, or investment in, any person other than loans,
advances or capital contributions, or investments of any of Parent and
its Subsidiaries made in the ordinary course of business consistent with
past practices; or
(x) any agreement to take any actions specified in this
Section 5.17, except for this Agreement.
5.18 LABOR MATTERS. With respect to employees of Parent and its
Subsidiaries: (i) there is no pending or, to the knowledge of Parent, threatened
unfair labor practice charges or employee grievance charges; (ii) there is not
request for union representation, labor strike, dispute, slowdown or
stoppage actually pending or, to the knowledge of Parent, threatened against or
affecting Parent and its Subsidiaries, and there has been no such event during
the 18 months preceding the date hereof; and (iii) None of Parent or any of its
Subsidiaries is a party to any collective bargaining agreements. SCHEDULE 5.18
contains a true and complete list of all employees who are employed by Parent
and its Subsidiaries as of the date hereof. Parent, each of its Subsidiaries and
each of its predecessors is in compliance in all with all Rules respecting
employment and employment practices, terms and conditions of employment and
wages and hours, including, without limitation, any such laws respecting
employment discrimination, occupational safety and health, and unfair labor
practices, except where such failure to comply would not have a Parent Material
Adverse Effect. Each of Parent, its Subsidiaries and its predecessors is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them or any amounts required to be reimbursed to such employees.
5.19 INSURANCE. Each of Parent and its Subsidiaries maintains insurance
policies (the "PARENT INSURANCE POLICIES") against all risks of a character and
in such amounts as are usually insured against by similarly situated companies
in the same or similar businesses. Each Parent Insurance Policy is in full force
and effect and is valid, outstanding and enforceable, and all premiums due
thereon have been paid in full. None of the Parent Insurance Policies will
terminate or lapse (or be affected in any other materially adverse manner) by
reason of the transactions contemplated by this Agreement. Each of Parent, its
Subsidiaries and its predecessors has complied in all material respects with the
provisions of each Parent Insurance Policy under which it is or has been the
insured party. No insurer under any Parent Insurance Policy has canceled or
generally disclaimed liability under any such policy or, to Parent's knowledge,
indicated any intent to do so or not to renew any such policy. All material
claims under the Parent Insurance Policies have been filed in a timely fashion.
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5.20 CERTAIN BUSINESS PRACTICES. None of Parent, its Subsidiaries, its
predecessors or any directors, officers, managers, agents or employees of any of
them, has (i) used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses related to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
unlawful payment.
5.21 CONTRACTS.
(a) SCHEDULE 5.21 contains a complete and accurate list of all contracts
(written or oral), undertakings, commitments or agreements of the following
categories to which any of Parent and its Subsidiaries is a party or by
which any of them or their assets is bound (the "PARENT CONTRACTS"):
(i) Parent Contracts requiring annual expenditures by or liabilities
of any of Parent and its Subsidiaries in excess of $50,000 that have a
remaining term in excess of 30 days or are not cancelable (without
material penalty, cost or other liability) within 30 days;
(ii) promissory notes, loans, agreements, indentures, evidences of
indebtedness or other instruments relating to the lending of money,
whether as borrower, lender or guarantor, in excess of $50,000.
(iii) Parent Contracts containing covenants limiting the freedom of
any of Parent and its Subsidiaries to engage in any line of business
(other than prohibitions against engaging in business relating to
specific product lines) or compete with any person, in any product line
or line of business, or operate at any location;
(iv) joint venture or partnership agreements or joint development or
similar agreements pursuant to which any third party has been entitled or
is reasonably expected to be entitled to share in profits or losses of
any of Parent and its Subsidiaries;
(v) Parent Contracts with any federal, state or local government
which have a remaining term in excess of one year or are not cancelable
(without material penalty, cost or other liability) within one year;
(vi) other Parent Contracts or commitment in which any of Parent and
its Subsidiaries has granted manufacturing rights or exclusive marketing
rights relating to any product or service, any group of products or
services or any territory; and
(vii) as of the date hereof any other Parent Contract the performance
of which could be reasonably expected to require expenditures by any of
Parent and its Subsidiaries in excess of $50,000.
(b) Each of the Parent Contracts is a valid and binding obligation of
Parent and its Subsidiaries, to the extent a party thereto and, to Parent's
knowledge without any investigation, the other parties thereto, enforceable
against the applicable Parent and its Subsidiaries in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium, reorganization, arrangement or similar laws affecting creditors'
rights generally and by general principles of equity. Except as set forth on
SCHEDULE 5.21, no event has occurred which would, on notice or lapse of time
or both, entitle the holder of any indebtedness issued pursuant to a Parent
Contract to accelerate, or that does accelerate, the maturity of any such
indebtedness.
(c) None of Parent and its Subsidiaries is in breach, default or
violation (and no event has occurred or not occurred through Parent's or its
Subsidiaries' action or inaction or through the action or inaction of any
third parties, which with notice or the lapse of time or both would
constitute a breach, default or violation) of any term, condition or
provision of any Parent Contract to which any of Parent or its Subsidiaries
is now a party or by which any of them or any
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of their respective properties or assets may be bound, except for violations
set forth on SCHEDULE 5.21.
5.22 RELATED PARTY TRANSACTIONS. Except as set forth in the on
SCHEDULE 5.22, (a) no beneficial owner of 5% or more of Parent, its
Subsidiaries' or its predecessors' equity interests, or (b) officer or director
of Parent, its Subsidiaries or its predecessors or (c) any Person in which any
such beneficial owner, officer or director owns any beneficial interest (other
than a publicly held corporation whose stock is traded on a national securities
exchange or in the over-the-counter market and less than 1% of the stock of
which is beneficially owned by all such Persons) (collectively, "PARENT RELATED
PARTIES") has any interest in: (i) any contract, arrangement or understanding
with, or relating to, the business or operations of, any of Parent and its
Subsidiaries; (ii) any loan, arrangement, understanding, agreement or contract
for or relating to indebtedness of any of Parent and its Subsidiaries; or
(iii) any property (real, personal or mixed), tangible or intangible, used in
the business or operations of any of Parent and its Subsidiaries, excluding any
such contract, arrangement, understanding or agreement constituting a Parent
Plan or Parent Benefit Plan. Following the Effective Time, except for
obligations set forth in this Agreement, none of Parent and its Subsidiaries
will have any obligations to any Parent Related Party except for (i) accrued
salary for the pay period commencing immediately prior to the Effective Time,
and (ii) the obligations set forth in SCHEDULE 5.22.
5.23 ASSETS.
(a) The assets and properties of Parent and its Subsidiaries, considered
as a whole, constitute all of the material assets and properties which are
reasonably required for the operation of the Parent Business as presently
conducted and as conducted by Parent's predecessors, including, at the
Effective Time, the business formerly conducted by Amortibanc Management,
L.C. of providing management services with respect to the Parent Real
Property. Parent and its Subsidiaries have good title to or a valid
leasehold estate in (i) all personal properties and assets reflected on the
date of the Parent Most Recent Balance Sheet (except for properties or
assets subsequently sold in the ordinary course of business consistent with
past practice), except as could not, individually or in the aggregate,
reasonably to be expected to have a Parent Material Adverse Effect.
(b) SCHEDULE 5.23 sets forth (i) a complete and accurate list of each
improved and unimproved real property owned or leased by any of Parent or
its Subsidiaries, and the current use of such Parent Real Property and
indicating whether the Parent Real Property is owned or leased; (ii) a
complete and accurate list of all leases pursuant to which any of Parent and
its Subsidiaries leases personal property and which require an annual
expenditure by any of Parent and its Subsidiaries individually in excess of
$50,000 or which are not cancelable (without material penalty, cost or other
liability) within 90 days; and (iii) with respect to each lease for real
property, the term (including renewal options) and current fixed rent.
(c) Except as set forth in SCHEDULE 5.23, there are no pending or, to
the knowledge of Parent, threatened condemnation or similar proceedings
relating to any of the Parent Properties, except for such proceedings which
could not, individually or in the aggregate, reasonably be expected to have
a Parent Material Adverse Effect.
(d) The Parent Real Property constitutes all the real properties
occupied by any of Parent and its Subsidiaries. Complete and correct copies
of all leases concerning Parent Real Property have been made available to
quepasa.
(e) Parent has previously delivered to quepasa lists of the most
recently issued real and personal (including vehicles) property tax
assessments and tax bills, if any, for the 2000, 1999 and 1998 tax years.
(f) To the knowledge of Parent, the Parent Real Property is currently
zoned in the zoning category which permits operation of said properties as
now used, operated and maintained for the
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operation of Parent. The consummation of the transactions contemplated
herein will not result in a violation of any applicable zoning ordinance or
the termination of any applicable zoning variance now existing.
(g) Each of Parent and its Subsidiaries holds good, valid and marketable
fee simple title to its owned property.
(h) Each of Parent and its Subsidiaries holds a valid leasehold estate
for each leased property, and enjoys peaceful and undisturbed possession
thereunder.
(i) With respect to the Parent Real Property, each of Parent and its
Subsidiaries holds good, valid and marketable fee simple title to all
adjudicated and unadjudicated water and water rights, whether absolute or
conditional, and all underground water and water rights, and the priorities
therefore, whether or not appurtenant to or underlying the parent Real
Property, and whether tributary, nontributary, or not nontributary,
including, without limitation, the right title and interest in and to all
ditches and ditch rights, reservoirs and reservoir rights, wells, well
rights and drill holes, whether or not permitted or completed, well permits
and applications, exchanges and exchange rights, contractual or otherwise,
plans for augmentation, and the right to use all water attributable thereto,
including the right to use, reuse, and discharge of the effluent and return
flows from all such waters and water rights, together with all personalty
and fixtures associated therewith, including without limitation, all
improvements, pumps and equipment, meters, pipelines, conduits, collection
or storage ponds, tanks or other facilities, and together with all wells
sites and related easements and rights of way, and the right to consent or
withhold consent to be served with water from underground sources underlying
the Parent Real Property.
5.24 REGISTRATION RIGHTS. Except as contemplated by the Registration
Rights Agreement in the form of EXHIBIT E, Parent has not granted any rights to
registration of any Parent Securities under the Securities Act.
ARTICLE VI
COVENANTS
6.1 CONDUCT OF BUSINESS OF THE COMPANIES PRIOR TO THE CLOSING DATE. During
the period from the date of this Agreement and continuing through the Closing
Date, quepasa agrees that except as expressly contemplated or permitted by this
Agreement or to the extent that Parent shall otherwise consent in writing,
quepasa shall use its reasonable commercial efforts to carry on the quepasa
Business and the affairs of the Companies in such a manner so that the
representations and warranties contained in Article IV shall continue to be
accurate and correct in all material respects throughout such period, and the
Companies shall carry on the quepasa Business as being conducted on the date
hereof and use their respective reasonable commercial efforts (i) to preserve
intact their business organizations, (ii) keep available the services of their
officers and employees and (iii) preserve their relationships with customers,
suppliers, Governmental Authorities and others having business dealings with it.
Without limiting the generality of the foregoing, and except as otherwise
contemplated by or specifically provided in this Agreement, without the prior
written consent of Parent (which shall not be unreasonably withheld), prior to
the Effective Time, no Company shall:
(a) adopt any change in its amended and restated certificate of
incorporation or bylaws or comparable organizational documents;
(b) except pursuant to existing agreements or arrangements (i) acquire
(by merger, consolidation, acquisition of stock or assets, joint venture or
otherwise of a direct or indirect ownership interest or investment) any
corporation, partnership or other business organization or division thereof,
or sell, lease or otherwise dispose of a material amount of assets
(excluding sales
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of inventory or other assets in the ordinary course of business) or
securities; (ii) waive, release, grant, or transfer any rights of material
value; (iii) modify or change in any material respect any material Permit;
(iv) incur, assume or prepay any indebtedness for borrowed money except in
the ordinary course of business, consistent with past practice; (v) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for any indebtedness for borrowed money
or trade payables of any other Person; (vi) make any loans, advances or
capital contributions to, or investments in, any other Person, except in the
ordinary course of business, consistent with past practice; (vii) pledge or
otherwise encumber shares of capital stock of any Company; (viii) mortgage
or pledge any of its material assets, tangible or intangible, or create or
suffer to exist any material Lien thereupon; (ix) enter into any Contract
other than in the ordinary course of business consistent with past practice
that would be material to any Company; or (x) amend, modify or waive in any
material respects any right under any material Contract;
(c) notwithstanding anything in this Section 6.1 to the contrary, except
as set forth in the budget attached hereto as SCHEDULE 6.1(C), authorize any
expenditures in excess of $5,000 individually or $15,000 in the aggregate;
(d) take any action that would result in any representation and warranty
of any Company hereunder becoming untrue in any material respects as of the
Effective Time;
(e) split, combine or reclassify any shares of, declare, set aside or
pay any dividend (including, without limitation, an extraordinary dividend)
or other distribution (whether in cash, stock or property or any combination
thereof) in respect of quepasa Common Stock or redeem, repurchase or
otherwise acquire or offer to redeem, repurchase, or otherwise acquire any
quepasa Common Stock;
(f) adopt or amend any Plan or other arrangement for the benefit and
welfare of any director, officer or employee, or increase in any manner the
compensation or fringe benefits of any director, officer or any class of
employees (or support any portion thereof) or pay any benefit not required
by any existing Plan (including, without limitation, the granting of stock
options or stock appreciation rights or the removal of existing restrictions
in any benefit plans or agreements);
(g) revalue in any material respect any of its assets, including writing
down the value of inventory in any material manner or write-off of notes or
accounts receivable in any material manner;
(h) pay, discharge or satisfy any material claims, liabilities or
obligations (whether absolute, accrued, asserted or unasserted, contingent
or otherwise) other than the payment, discharge or satisfaction in the
ordinary course of business, consistent with past practices, or as otherwise
required by the terms thereof;
(i) make any material Tax election or settle or compromise any material
Tax liability;
(j) make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, liabilities or
results of operations of any Company, except insofar as may have been
required by a change in GAAP;
(k) authorize for issuance, issue, sell, deliver or agree or commit to
issue sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
quepasa Common Stock or equity equivalents;
(l) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of any Company (other than the Merger);
(m) alter through merger, liquidation, reorganization, restructuring or
any other fashion the corporate structure of ownership of the Companies;
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(n) Settle, compromise or take any significant action with respect to
the arbitrations disclosed on SCHEDULE 4.12;
(o) take any action that would cause any award or judgment received by
quepasa pursuant to either such arbitration to be excluded in any way from
the assets of quepasa to be acquired at the Effective Time; and
(p) agree or commit to do any of the foregoing.
6.2 CONDUCT OF BUSINESS OF PARENT PRIOR TO THE CLOSING DATE. During the
period from the date of this Agreement and continuing through the Closing Date,
Parent agrees that except as expressly contemplated or permitted by this
Agreement or to the extent that quepasa shall otherwise consent in writing,
Parent shall use its reasonable commercial efforts to carry on the business of
Parent and the affairs of Parent and its Subsidiaries in such a manner so that
the representations and warranties contained in Article V shall continue to be
accurate and correct in all material respects throughout such period, and Parent
shall carry on their business in the ordinary course consistent with past
practices and use their respective reasonable commercial efforts (i) to preserve
intact their business organizations, (ii) keep available the services of their
officers and employees and (iii) preserve their relationships with customers,
suppliers, Governmental Authorities and others having business dealings with it.
Without limiting the generality of the foregoing, and except as otherwise
contemplated by or specifically provided in this Agreement, without the prior
written consent of quepasa (which shall not be unreasonably withheld), prior to
the Effective Time, none of Parent and its Subsidiaries shall:
(a) adopt any change in its articles of formation or operating agreement
or comparable organizational documents;
(b) except pursuant to existing agreements or arrangements (i) acquire
(by merger, consolidation, acquisition of stock or assets, joint venture or
otherwise of a direct or indirect ownership interest or investment) any
corporation, partnership or other business organization or division thereof,
or sell, lease or otherwise dispose of a material amount of assets
(excluding sales of inventory or other assets in the ordinary course of
business) or securities; (ii) waive, release, grant, or transfer any rights
of material value; (iii) modify or change in any material respect any
material Permit; (iv) incur, assume or prepay any indebtedness for borrowed
money except in the ordinary course of business, consistent with past
practice; (v) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for any
indebtedness for borrowed money or trade payables of any other Person;
(vi) make any loans, advances or capital contributions to, or investments
in, any other Person, except in the ordinary course of business, consistent
with past practice; (vii) authorize any capital expenditure or expenditures
not in the ordinary course of business that have not been authorized and
approved prior to the date hereof or in the aggregate which individually is
in excess of $100,000 or in excess of $250,000 in the aggregate;
(viii) pledge or otherwise encumber the equity interests of the members of
Parent and its Subsidiaries; (ix) mortgage or pledge any of its material
assets, tangible or intangible, or create or suffer to exist any material
Lien thereupon; (x) enter into any Parent Contract other than in the
ordinary course of business consistent with past practice that would be
material to any of Parent and its Subsidiaries; or (xi) amend, modify or
waive in any material respects any right under any material Parent Contract;
(c) take any action that would result in any representation and warranty
of Parent hereunder becoming untrue in any material respects as of the
Effective Time;
(d) split, combine or reclassify any shares or units of, declare, set
aside or pay any dividend (including, without limitation, an extraordinary
dividend) or other distribution (whether in cash, stock or property or any
combination thereof) in respect of the Parent Common Stock or redeem,
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repurchase or otherwise acquire or offer to redeem, repurchase, or otherwise
acquire any of the Parent Common Stock;
(e) adopt or amend any Parent Plan or Parent Benefit Plan or other
arrangement for the benefit and welfare of any director, officer or
employee, or increase in any manner the compensation or fringe benefits of
any director, officer or any class of employees (or support any portion
thereof) or pay any benefit not required by any existing Plan (including,
without limitation, the granting of stock options or stock appreciation
rights or the removal of existing restrictions in any benefit plans or
agreements);
(f) revalue in any material respect any of its assets, including writing
down the value of inventory in any material manner or write-off of notes or
accounts receivable in any material manner;
(g) pay, discharge or satisfy any material claims, liabilities or
obligations (whether absolute, accrued, asserted or unasserted, contingent
or otherwise) other than the payment, discharge or satisfaction in the
ordinary course of business, consistent with past practices, or as otherwise
required by the terms thereof;
(h) make any material Tax election or settle or compromise any material
Tax liability;
(i) make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, liabilities or
results of operations of any of Parent and its Subsidiaries, except insofar
as may have been required by a change in GAAP;
(j) authorize for issuance, issue, sell, deliver or agree or commit to
issue sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
of the Parent Common Stock;
(k) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of Parent or any of its Subsidiaries (other than the
Contribution);
(l) alter through merger, liquidation, reorganization, restructuring or
any other fashion the corporate structure of ownership of Parent and its
Subsidiaries; or
(m) agree or commit to do any of the foregoing.
6.3 PREPARATION OF PROXY STATEMENT, ETC.; STOCKHOLDERS MEETING.
(a) REGISTRATION STATEMENT. As promptly as practicable, (i) Parent will
provide quepasa with its audited financial statements for the year ended
December 31, 1998, prepared on the same basis as the Parent Financial
Statements, and complying with Section 5.7 as if such financial statements
were Parent Financial Statements, and (ii) Parent and quepasa shall in
consultation with each other prepare and file with the SEC the Proxy
Statement and the Registration Statement in preliminary form; provided, that
the Proxy Statement and the Registration Statement shall not be filed with
the SEC until quepasa's Board of Directors has received the Fairness
Opinion. Parent will prepare Parent and quepasa shall use their best efforts
to have the Proxy Statement cleared by the SEC and the Registration
Statement declared effective as soon as practicable. Parent and quepasa
shall furnish each other with all information concerning itself and the
holders of its capital stock and shall take such other action as the other
party may reasonably request in connection with the Proxy Statement and the
Registration Statement and the issuance of shares of Parent Common Stock. If
at any time prior to the Effective Time any event or circumstance relating
to quepasa, any Subsidiary of quepasa, Parent, any Subsidiaries of Parent,
or any of their respective officers or directors, should be discovered by
such party which should be set forth in an amendment or a supplement to the
Registration Statement or Proxy Statement, such party shall promptly inform
the other thereof and take appropriate action in respect thereof.
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(b) PROXY STATEMENT; STOCKHOLDER APPROVAL.
(i) quepasa, acting through its Board of Directors, shall, subject to
and in accordance with all Rules and its Articles of Incorporation, as
amended, and its Bylaws, promptly and duly call, give notice of, convene
and hold as soon as practicable following the date upon which the
Registration Statement becomes effective a meeting of its shareholders
for the purpose of voting to approve and adopt this Agreement and the
transactions contemplated hereby, and to delegate to Parent's Board of
Directors the authority to effect a reverse stock split of up to one for
20 shares of Parent Common Stock at any time prior to or during the
24 month period after the Effective Time, and (x) except as the Board of
Directors of quepasa determines, in good faith after consultation with
outside counsel, may be inconsistent with its fiduciary duties under all
Rules, and subject to Section 6.5, recommend approval and adoption of
this Agreement and the transactions contemplated hereby, by its
stockholders and include in the Proxy Statement such recommendation and
(y) except as quepasa's Board of Directors determines, in good faith
after consultation with outside counsel, may be inconsistent with its
fiduciary duties under all Rules, take all reasonable action to solicit
and obtain such approval.
(ii) quepasa shall, as promptly as practicable (or with such other
timing as quepasa and Parent mutually agree), cause the definitive Proxy
Statement to be mailed to the stockholders of quepasa.
6.4 COMPLIANCE WITH THE SECURITIES ACT.
(a) At least 30 days prior to the Effective Time, quepasa shall cause to
be delivered to Parent a list identifying all persons who may be deemed, in
quepasa's reasonable judgment, at the time this Agreement is submitted for
approval and adoption to the shareholders of the Company, to be "Affiliates"
of the Company for the purposes of Rule 145 under the Securities Act.
(b) quepasa shall use its reasonable best efforts to cause each person
who is identified as one of its Affiliates in its list referred to in
Section 6.4(a) above to deliver to the Company, at least ten days prior to
the Effective Time, a written agreement, in the form attached hereto as
EXHIBIT F.
6.5 NON-SOLICITATION BY QUEPASA.
(a) quepasa shall not, nor shall it authorize or permit any of its
Subsidiaries to, nor shall it authorize or permit any executive officer,
director or employee of, or any investment banker, attorney, accountant or
other advisor or representative (collectively, "REPRESENTATIVES") of,
quepasa or any Subsidiary of quepasa to, (i) directly or indirectly solicit,
initiate or knowingly encourage the submission of, any Takeover Proposal (as
defined in Section 6.5(f) hereof), (ii) enter into any agreement providing
for any Takeover Proposal or (iii) directly or indirectly participate in any
discussions or negotiations regarding, or furnish to any person any
non-public information with respect to, or take any other action to
knowingly facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Takeover
Proposal; PROVIDED, HOWEVER, that quepasa may, in response to an unsolicited
bona fide Takeover Proposal that did not result from a breach of this
Section 6.5(a), which the quepasa Board determines, in good faith, after
consultation with its legal counsel and financial advisors, may reasonably
be expected to lead to a Superior Proposal (as defined in
Section 6.5(f) hereof), subject to compliance with Section 6.5(c) hereof,
(x) furnish information with respect to the Companies to the Person making
such Takeover Proposal and its Representatives pursuant to a confidentiality
agreement substantially similar to the Confidentiality Agreement, and
(y) participate in discussions or negotiations with such Person and its
Representatives regarding such Takeover Proposal.
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(b) The Board of Directors of quepasa shall not (i) withdraw or modify
in a manner adverse to Buyer, or publicly propose to withdraw or modify in a
manner adverse to Buyer, the approval or recommendation by the Board of
Directors of quepasa of this Agreement and the Merger, (ii) approve any
letter of intent, agreement in principle, acquisition agreement or similar
agreement providing for any Takeover Proposal or (iii) approve or recommend,
or publicly propose to approve or recommend, any Takeover Proposal, in each
case, except as set forth in the next succeeding sentence, unless this
Agreement is terminated in accordance with Article VIII hereof. If the Board
of Directors of quepasa determines in good faith, after consultation with
outside counsel, that failure to do so could reasonably be expected to cause
such Board of Directors to violate its fiduciary duties to quepasa's
stockholders, the Board of Directors of quepasa may withdraw or modify its
approval or recommendation of this Agreement and the Merger without
terminating this Agreement.
(c) quepasa shall, promptly following receipt of any Takeover Proposal,
notify Parent of the receipt thereof and any stated material terms (other
than the identity of the person making such Takeover Proposal).
(d) Nothing contained in this Section 6.3 shall prohibit quepasa from
taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or from making any required
disclosure to quepasa's stockholders if the Board of Directors of quepasa
determines in good faith, after consultation with outside counsel, that such
disclosure is necessary or advisable to comply with its obligations under
applicable law.
(e) Notwithstanding the foregoing provisions of this Section 6.3, it is
agreed that quepasa (i) shall include in the press release announcing this
Agreement a statement to the effect that, consistent with its fiduciary
obligations and subject to the terms of this Agreement, the Board of
Directors of quepasa has preserved its ability to respond to third parties,
where appropriate, (ii) may file this Agreement and such press release as
exhibits to a Current Report on Form 8-K, and (iii) may repeat such
statements in other public disclosures and in private communications with
financial analysts, its stockholders, such third parties or their
Representatives.
(f) For purposes of this Agreement:
"TAKEOVER PROPOSAL" means (i) any proposal or offer for a merger,
consolidation, recapitalization or other business combination involving quepasa,
(ii) any proposal for the issuance of 35% or more of the equity securities of
quepasa as consideration for the assets or securities of another person,
(iii) any proposal or offer to acquire in any manner, directly or indirectly,
35% or more of the equity securities of the Company or assets that represent 20%
or more of the consolidated total assets of quepasa or (iv) an expression of
interest believed by the Board of Directors of quepasa in good faith to be a
bona fide indication of a third party's interest in pursuing the making any of
the foregoing proposals, after consulting with its financial advisors as to such
third party's financial capability to consummate such proposal (including
through obtaining financing), in each case other than the Merger.
"SUPERIOR PROPOSAL" means a written Takeover Proposal made by a third party
on terms that the Board of Directors of quepasa determines in good faith (after
consultation with its financial advisors) to be superior from a financial point
of view to quepasa's stockholders than the Merger, taking into account all the
terms and conditions of such proposal and this Agreement, and to be reasonably
capable of being completed, taking into account all financial, legal and other
aspects of such proposal, including its proposed financing.
6.6 NO SOLICITATION BY PARENT. Unless this Agreement shall have been
terminated pursuant to Section 8.1, Parent shall not, and shall not permit its
Subsidiaries to, directly or indirectly through any officer, director, member,
manager, employee, agent, affiliate or otherwise, enter into any agreement,
agreement in principle or other commitment (whether or not legally binding)
relating to a Competing Transaction or solicit, initiate or encourage the
submission of any proposal or offer from any person or
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entity (including quepasa's officers, partners, employees and agents) relating
to any Competing Transaction, nor participate in any discussions or negotiations
regarding, or furnish to any other person or entity any information with respect
to, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person or entity to
effect a Competing Transaction. Parent shall immediately cease any and all
contacts, discussions and negotiations with third parties regarding any
Competing Transaction. Parent shall, and shall cause its Subsidiaries to, notify
quepasa if any proposal regarding a Competing Transaction (or any inquiry or
contact with any person or entity with respect thereto) is made and shall advise
quepasa of the contents thereof (and, if in written form, provide quepasa with
copies thereof).
For purposes hereof, "COMPETING TRANSACTION" means any business combination
or recapitalization involving the Parent Business of or any acquisition or
purchase of all or a significant portion of the assets of the Parent Business,
or any material equity interest in the Parent Business or any other similar
transaction with respect to Parent involving any Person or entity other than
quepasa or its Affiliates.
6.7 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS. The initial press release with
respect to the execution of this Agreement shall be a joint press release
subject to Section 6.5(e) hereof and otherwise acceptable to Parent and quepasa.
Thereafter, except as provided in Section 6.5(e) hereof, Parent and quepasa
agree not to make any additional public disclosures without the prior consent of
the other (which consent shall not be unreasonably withheld) as to the content
and timing of such disclosure; PROVIDED, HOWEVER, that either party may make
such disclosures as may be required to comply with applicable law, regulations
or Nasdaq requirements, as long as the other party is afforded (to the extent
practicable) prior notice thereof.
6.8 ACCESS TO INFORMATION. Between the date of this Agreement and the
Closing Date, upon reasonable notice and at reasonable times without undue
disruption to the quepasa Business, quepasa will give Parent and its authorized
representatives full access to the offices and other facilities and to all books
and records of the Companies (including Tax returns and accounting work papers)
and will fully cooperate with regard to such inspections as Parent may from time
to time reasonably request. If the transactions contemplated by this Agreement
are not consummated, Parent and each of its employees, accountants, counsel and
other authorized representatives shall keep any information obtained in
accordance with this Section 6.9 confidential and not use such information for
any other purpose.
6.9 ALL REASONABLE EFFORTS. Subject to the terms and conditions herein
provided (including the limitations provided herein regarding the fiduciary
duties of the Board of Directors of quepasa) each of the parties hereto agrees
to use all reasonable efforts to take, or cause to be taken, all actions, and to
do, or cause to be done as promptly as practicable, all things necessary, proper
and advisable under applicable laws and regulations to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement and to cause the conditions to the Closing set forth in Article VII to
be satisfied.
6.10 NOTIFICATION OF CERTAIN MATTERS. From time to time prior to the
Closing, quepasa and Parent will promptly notify the other party in writing of
(i) the occurrence or non-occurrence of any fact or event that could (x) cause
any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (y) cause any material covenant or
condition hereunder not to be complied with or satisfied in a material respect
and (ii) any failure of quepasa or Parent, as the case may be, to comply with or
satisfy any covenant or condition to be complied with or satisfied by it
hereunder in any material respect; PROVIDED, HOWEVER, that such notification
shall not be deemed to be a modification or update of the Schedules and shall
not affect the representations or warranties of any party or the conditions to
the obligations of any parties hereunder. quepasa shall furnish to Parent copies
of all reports of the type referred to in Section 4.4 hereof that it files with
the SEC on or after the date hereof promptly after the filing thereof.
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6.11 INDEMNIFICATION AND INSURANCE.
(a) Parent and quepasa agree that all rights to indemnification,
exculpation, advancement of expenses and the like now existing in favor of
any employee, agent, director or officer of the Company and its Subsidiaries
(each, an "INDEMNIFIED PARTY" and together, the "INDEMNIFIED PARTIES") as
provided in their respective charters or by-laws, or in an agreement between
an Indemnified Party and quepasa or one of its Subsidiaries set forth in
SCHEDULE 6.11 are contract rights and shall survive the Merger. In addition,
and without limiting the foregoing, the Surviving Corporation shall
indemnify all Indemnified Parties to the fullest extent permitted by all
Rules with respect to all acts and omissions arising out of such
individuals' services as officers, directors, employees or agents of quepasa
or any of its Subsidiaries or as trustees or fiduciaries of any plan for the
benefit of employees, or otherwise on behalf of, quepasa or any of its
Subsidiaries, occurring at or prior to the Effective Time including, without
limitation, the transactions contemplated by this Agreement. Without
limiting the foregoing, in the event any such Indemnified Party is or
becomes involved in any capacity in any action, proceeding or investigation
in connection with any matter, including, without limitation, the
transactions contemplated by this Agreement, occurring at or prior to, and
including, the Effective Time, the Surviving Corporation will pay as
incurred such Indemnified Party's legal and other expenses (including the
cost of any investigation and preparation) incurred in connection therewith
so long as such party shall enter into an undertaking with the Surviving
Corporation to reimburse the Surviving Corporation, to the extent required
by all Rules, for all amounts advanced if a court of competent jurisdiction
shall ultimately determine, in a judgment which is not subject to appeal or
review, that indemnification of such officer or director is prohibited by
all Rules. The Surviving Corporation shall pay all expenses, including
reasonable attorneys' fees, that may be incurred by any Indemnified Party in
enforcing the indemnity and other obligations provided for in this
Section 6.11.
(b) The Surviving Corporation shall cause to be maintained in effect for
six years from the Effective Time the current policies of the directors' and
officers' liability insurance maintained by quepasa; provided that the
Surviving Corporation may substitute therefor policies of at least the same
coverage containing terms and conditions which are no less advantageous to
the Indemnified Parties and provided that such substitution shall not result
in any gaps or lapses in coverage with respect to matters occurring prior to
the Effective Time.
6.12 EMPLOYEE BENEFITS. Parent acknowledges that, after the Effective
Time, the Surviving Corporation and its subsidiaries will continue to be
obligated under the employee benefit plans and employment agreements in effect
as of the Effective Time in accordance with the terms of those plans. Parent may
take action to cause the Surviving Corporation and its subsidiaries to amend,
modify, alter or terminate those plans only in accordance with their terms.
6.13 OPTIONS. Prior to the Effective Time, Parent agrees to grant options
to purchase Parent Common Stock at a price to be agreed upon by Parent and
quepasa (but in no event less than the fair market value on the date of grant)
to the individuals, in the amounts and on the terms set forth on SCHEDULE 6.13
hereto. In addition, prior to the Effective Time, Parent may grant additional
options, or award shares of Parent Common Stock, to individual officers and
directors, provided, that such grants or awards are approved by Parent's board
of directors consistent with its fiduciary duties after the Effective Time, and
provided further that (a) any such grants of options must be at no less than the
fair market value on the date of grant and (b) any such awards of shares of
Parent Common Stock must consist solely of shares of Parent Common Stock that
are outstanding as of the date of this Agreement or are acquired pursuant to the
Merger from the conversion of shares of quepasa Common Stock and may not be
newly issued shares of Parent Common Stock.
6.14 DIRECTORS AND OFFICERS.
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(a) At the Effective Time, Parent shall take all action necessary to
elect and appoint the individuals set forth on SCHEDULE 6.14 to the Board of
Directors of Parent; provided that if any such individual declines or is
unable to serve in the position indicated on SCHEDULE 6.14, the party
designating such individual (as indicated on SCHEDULE 6.14) shall be
entitled to designate another individual reasonably acceptable to the other
parties to this Agreement to serve on the Board of Directors.
(b) For not less than the one year period following the Effective Time,
Parent agrees to pay the non-employee Directors of Parent as set forth on
SCHEDULE 6.14.
(c) Prior to the Effective Time, Parent agrees to use its best
commercially reasonable efforts to have in effect at the Effective Time
directors' and officers' liability insurance with coverage comparable to
that currently maintained by quepasa.
6.15 PARENT REAL PROPERTY APPRAISALS. Parent has delivered to quepasa
appraisals that comply with the Uniform Standards of Professional Appraisal
Practices as a complete appraisal for the real properties set forth on
SCHEDULE 6.15, and will deliver an appraisal prepared on the same basis for the
Willow Springs Ranch property located in Socorro, New Mexico no later than
August 22, 2001.
6.16 MANAGEMENT OF PARENT AND ITS SUBSIDIARIES. After the Effective Time,
Parent covenants and agrees that none of Parent or its employees, including each
of the individuals set forth on Schedule 5.18, shall conduct any business on
behalf of, provide any services for, or share any assets of Parent or its
Subsidiaries with, Amortibanc Management, L.C. or its affiliates (other than
Parent and its Subsidiaries) unless Parent receives compensation equal to at
least the fair market value of the services provided.
6.17 TRANSFER OF WAGON BOW RANCH. Parent shall cause Amortibanc
Management, L.C. to complete the transfer of the property known as the Wagon Bow
Ranch to Parent prior to the commencement of mailing the Proxy Statement to
quepasa's shareholders.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 CONDITIONS TO OBLIGATIONS OF PARENT, MERGER SUB AND CONTRIBUTION
SUB. All obligations of each of Parent, Merger Sub and Contribution Sub to
consummate the Merger under this Agreement are subject to the satisfaction, at
or prior to the Closing, of the following conditions, any one or more of which
may be waived by Parent for itself and on behalf of Merger Sub and Contribution
Sub (to the extent permitted by applicable law):
(a) REPRESENTATIONS AND WARRANTIES OF QUEPASA. The representations and
warranties of quepasa that are qualified with reference to a quepasa
Material Adverse Effect shall be true and correct and the representations
and warranties that are not so qualified shall be true and correct except
where in the aggregate the failure to be true and correct would not have a
quepasa Material Adverse Effect, in each case as of the date hereof and as
of the Effective Time as though made at and as of the Effective Time, and
Buyer shall have received a certificate signed on behalf of quepasa by the
chief executive officer or the chief financial officer of quepasa to that
effect.
(b) PERFORMANCE OF QUEPASA'S OBLIGATIONS. quepasa shall have performed
in all material respects all of its covenants under this Agreement,
including without limitation, compliance with its obligations pursuant to
Section 6.10, to be performed by it on or prior to the Closing Date, and
Buyer shall have received a certificate signed on behalf of quepasa by the
chief executive officer or the chief financial officer of quepasa to that
effect.
(c) CONSENTS AND APPROVALS. All consents, waivers, authorizations and
approvals required to be filed or obtained by quepasa prior to Closing in
connection with the execution, delivery and performance of this Agreement
and the consummation of the Merger as contemplated hereby shall
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have been duly obtained and all notices or filings required prior to Closing
in connection with the execution, delivery and performance of this Agreement
and the consummation of the Merger as contemplated hereby shall have been
given or made.
(d) INJUNCTIONS. There shall not be pending (i) any action or proceeding
by any Governmental Authority or (ii) any action or proceeding by any other
Person, in any case referred to in clauses (i) and (ii), before any court or
Governmental Authority that has reasonable likelihood of success seeking to
(w) make illegal, to delay materially or otherwise directly or indirectly to
restrain or prohibit the consummation of the Merger or seeking to obtain
material damages, (x) restrain or prohibit Merger Sub's (including its
affiliates) ownership or operation of all or any material portion of the
business or assets of the Surviving Corporation or the Companies, or to
compel Merger Sub or any of its Affiliates to dispose of or hold separate
all or any material portion of the business or assets of the Surviving
Corporation or the Companies, (y) impose or confirm material limitations on
the ability of Merger Sub or any of its Affiliates to effectively control
the business or operations of the Surviving Corporation or the Companies or
effectively to exercise full rights of ownership of the quepasa Common
Stock, including, without limitation, the right to vote any quepasa Common
Stock acquired or owned by Merger Sub or any of its Affiliates on all
matters properly presented to quepasa's stockholders, or (z) require
divestiture by Merger Sub or any of its Affiliates of any material amount of
quepasa Common Stock, and no court, arbitrator or Governmental Authority
shall have issued any judgment, order, decree or injunction, and there shall
not be any statute, rule or regulation, that, in the sole judgment of Merger
Sub is likely, directly or indirectly, to result in any of the consequences
referred to in the preceding clauses (w) through (z); provided, however,
that Merger Sub shall use its reasonable best efforts to have any such
judgment, order, decree or injunction vacated;
(e) NO MATERIAL ADVERSE CHANGE. During the period from the date of the
quepasa Most Recent Balance Sheet to the Closing, there shall have been no
quepasa Material Adverse Effect.
(f) DISSENTERS RIGHTS. Holders of not more than 20% of quepasa Common
Stock outstanding at the close of business on the record date relating to
the Stockholders Meeting, shall have demanded appraisal for such shares in
accordance with Sections 92A.300 to 92A.500, inclusive, of NGCL.
(g) CASH ON HAND. quepasa and its Subsidiaries shall have not less than
$2,500,000 in cash on hand in its bank accounts net of all liabilities of
any kind or nature whatsoever on the Closing Date and, after giving effect
to any expenses or payments made or required to be made to any party in
connection with the arbitration disclosed on Schedule 4.12;; provided, that
in calculating the amount of cash on hand, any unpaid principal and interest
on the Loan shall be added to the actual cash balances in such accounts.
(h) CORPORATE APPROVALS. The stockholders of quepasa shall have duly
approved the Merger, this Agreement and the transactions contemplated hereby
in accordance with the Organizational Documents of quepasa and the NGCL.
(i) SEC COMMENT LETTER. Parent shall be satisfied, in its sole
reasonable judgment, that all issues raised in the SEC Comment Letter shall
have been resolved with the SEC to Parent's satisfaction and quepasa shall
have made all filings and any amendments with the SEC required to comply
with such resolutions in connection with the SEC Comment Letter; provided
that those changes contained in quepasa's informal submission of responses
to the SEC staff dated July 12, 2001 and August 6, 2001 shall not be grounds
for Parent's dissatisfaction with the resolution of the SEC Comment Letter.
(j) DIRECTORS' AND OFFICERS' INSURANCE. Parent shall have in effect
directors' and officers' liability insurance with coverage comparable to
that maintained by quepasa prior to the Effective Time.
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7.2 CONDITIONS TO OBLIGATIONS OF QUEPASA. Obligations of quepasa under
this Agreement are subject to the satisfaction, at or prior to the Closing, of
the following conditions, any one or more of which may be waived by quepasa (to
the extent permitted by applicable law and only with the approval of the Board
of Directors):
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer that are qualified with reference to a Parent Material Adverse
Effect shall be true and correct and the representations and warranties that
are not so qualified shall be true and correct except where in the aggregate
the failure to be true and correct would not have a Parent Material Adverse
Effect, in each case as of the date hereof and as of the Effective Time as
though made at and as of the Effective Time, and quepasa shall have received
a certificate signed on behalf of Parent by the chief executive officer or
the chief financial officer of Parent to that effect.
(b) PERFORMANCE OF OBLIGATIONS. Buyer shall have performed in all
material respects all obligations required under this Agreement to be
performed by Buyer, including without limitation, compliance with its
obligations pursuant to Section 6.10, on or prior to the Closing Date, and
quepasa shall have received a certificate signed on behalf of Parent by the
chief executive officer or the chief financial officer of Parent to that
effect.
(c) INJUNCTIONS. The consummation of the Merger or the Contribution
shall not be restrained, enjoined or prohibited by any order, judgment,
decree or ruling of a court of competent jurisdiction or any Governmental
Authority entered after the parties have used reasonable best efforts to
prevent such entry and there shall not have been any statute, rule or
regulation enacted, promulgated or deemed applicable to the Merger or the
Contribution by any Governmental Authority which prevents the consummation
of the Merger or the Contribution.
(d) PARENT REAL PROPERTY APPRAISAL. The aggregate value of the owned
Parent Real Property, as determined by the appraisals required by
Section 6.15, and the notes receivable set forth on EXHIBIT B, less any
Parent Liabilities, shall not be less than $10,000,000.
(e) CORPORATE APPROVALS. The stockholders of quepasa shall have approved
the Merger, this Agreement and the transactions contemplated hereby in
accordance with the Organizational Documents of quepasa and the NGCL.
(f) DIRECTORS. Parent shall deliver documents demonstrating that all
action necessary to elect and appoint the individuals set forth on
SCHEDULE 6.14 to the Board of Directors of Parents has taken place.
(g) DIRECTORS' AND OFFICERS' INSURANCE. Parent shall have in effect
directors' and officers' liability insurance with coverage comparable to
that maintained by quepasa prior to the Effective Time.
ARTICLE VIII
TERMINATION AND ABANDONMENT
8.1 METHODS OF TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by the mutual written consent of Parent, for itself and on behalf of
Merger Sub and Contribution Sub, and quepasa (with the approval of the Board
of Directors); or
(b) by Parent, for itself and on behalf of Merger Sub and Contribution
Sub, if all of the conditions set forth in Section 7.1 hereof shall not have
been satisfied or waived on or prior to March 1, 2002 (the "TERMINATION
DATE"); PROVIDED, HOWEVER, that Parent may terminate this Agreement on
December 31, 2001 if quepasa is in material breach of any representation and
warranty set forth in Article 4 or any covenant set forth in Article 6 as of
such date; PROVIDED,
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FURTHER, that Parent shall not have the right to terminate this Agreement
pursuant to this subsection if such conditions have not been satisfied due
to any of Parent's, Merger Sub's or Contribution Sub's willful failure to
fulfill or willful breach of any of its obligations under this Agreement;
(c) by quepasa, if all of the conditions set forth in Section 7.2 hereof
shall not have been satisfied or waived on or prior to the Termination Date;
PROVIDED, HOWEVER, that quepasa may terminate this Agreement on
December 31, 2001 if Buyer is in material breach of any representation and
warranty set forth in Article 4 or any covenant set forth in Article 6 as of
such date; PROVIDED, FURTHER, that quepasa shall not have the right to
terminate this Agreement pursuant to this subsection if such conditions have
not been satisfied due to quepasa's willful failure to fulfill or willful
breach of any of its obligations under this Agreement;
(d) by Parent, for itself and on behalf of Merger Sub and Contribution
Sub, if (i) there has been a breach by quepasa of any of its representation
or warranties, or covenants or agreements set forth in this Agreement the
effect of which is a quepasa Material Adverse Effect, which breach is not
curable; PROVIDED that if such breach is curable by quepasa through the
exercise of their reasonable best efforts and for so long as quepasa
continues to exercise such reasonable best efforts, Parent shall not have
the right to terminate this Agreement pursuant to this subsection, or
(ii) the Board of Directors of quepasa (x) fails to recommend the approval
and adoption of this Agreement and the transactions contemplated hereby to
quepasa's stockholders in accordance with Section 6.3(b) hereof, or
(y) withdraws or amends or modifies in a manner adverse to Parent its
recommendation or approval in respect of this Agreement or the transactions
contemplated hereby;
(e) by quepasa, if there has been a breach by Parent, Merger Sub or
Contribution Sub of any of its representations or warranties, covenants or
agreements set forth in this Agreement the effect of which is a Parent
Material Adverse Effect, which breach is not curable; PROVIDED that if such
breach is curable by Parent, Merger Sub or Contribution Sub through the
exercise of their reasonable best efforts and for so long as Parent, Merger
Sub or Contribution Sub continues to exercise such reasonable best efforts,
quepasa shall not have the right to terminate this Agreement pursuant to
this subsection;
(f) by Parent, for itself and on behalf of Merger Sub and Contribution
Sub, if a Stockholders Meeting contemplated by Section 6.2(c) hereof
(including any adjournment or postponement thereof) shall have been held and
the stockholders of quepasa shall have failed to approve the Merger in
accordance with the Organizational Documents of quepasa and the NGCL;
(g) by quepasa in connection with entering into a definitive agreement
concerning a Superior Proposal, subject to and in accordance with quepasa's
compliance with Section 6.5 hereof (including the notice provisions
therein); or
(h) by quepasa if the Fairness Opinion is not delivered to quepasa's
Board of Directors by October 15, 2001, or if it is withdrawn by FBR at any
time after its issuance and prior to the Effective Time.
8.2 PROCEDURE UPON TERMINATION. In the event of termination of this
Agreement by quepasa or Parent pursuant to this Article VIII, written notice
thereof shall promptly be given to the other parties and (if such termination is
proper under the terms of this Article VIII) this Agreement shall terminate and
the transactions contemplated hereby shall be abandoned, without further action
by any party to this Agreement. If this Agreement is so terminated, no party to
this Agreement shall have any right or claim against another party on account of
such termination unless this Agreement is terminated by a party on account of a
willful or knowing breach of any representation, warranty or covenant herein by
the other party or parties (in which case the terminating party or parties shall
be entitled to all of its rights and remedies at law or in equity), or on
account of circumstances that give rise to payment
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obligations under Section 8.3 hereof. The agreements set forth in this
Section 8.2, Section 8.3 and Article VIII hereof shall survive the termination
of this Agreement.
8.3 TERMINATION FEE.
(a) In the event that Parent, for itself and on behalf of Merger Sub and
Contribution Sub, or quepasa terminates this Agreement pursuant to
Section 8.1(d), (e) or (f), the non-terminating party to shall be entitled
to receive a fee in cash (the "TERMINATION FEE") in an amount equal to
$500,000, payable in immediately available funds, the next business day
following the termination of this Agreement as liquidated damages incurred
by the non-terminating party in connection with the transactions
contemplated hereby. Notwithstanding the foregoing, no Termination Fee shall
be payable to the non-terminating party if the terminating party was in
material breach of its representations, warranties or covenants under this
Agreement at the time of its termination.
(b) In the event that quepasa terminates this Agreement pursuant to
Section 8.1(g), Parent shall be entitled to receive $500,000 plus an amount
equal to the aggregate amount of fees and expenses (including all attorney's
fees, accountants' fees, and financial advisory fees) incurred by Buyer in
connection with the transactions contemplated hereby, payable in immediately
available funds, the next business day following the termination of this
Agreement as liquidated damages incurred by Buyer in connection with the
transactions contemplated hereby.
(c) In the event that quepasa terminates this Agreement pursuant to
Section 8.1(h), Parent shall be entitled to receive a sum equal to the
amount of its actual expenses incurred for attorneys, accountants and
appraisers incurred in connection with this Agreement and the transactions
contemplated hereby, up to a maximum of $250,000, as liquidated damages
incurred by Buyer in connection with the transactions contemplated hereby.
(d) If the terminating party fails to pay when due any amount payable
under this Section 8.3, then (i) the terminating party shall reimburse the
non-terminating party for all costs and expenses (including fees and
disbursements of counsel) incurred in connection with the collection of such
overdue amount and the enforcement by the non-terminating party of its
rights under this Section 8.3, and (ii) the terminating party shall pay to
the non-terminating party interest on such overdue amount (for the period
commencing as of the date such overdue amount was originally required to be
paid and ending on the date such overdue amount is actually paid to the
non-terminating party in full) at an annual rate of 12%.
8.4 CASH SHORTFALL. In the event that (i) quepasa has less than $2,500,000
in cash on hand in its bank accounts on the Closing Date (as calculated in
accordance with Section 7.1(g)), and (ii) Parent waives its right to terminate
this Agreement pursuant to Article VIII, on the Closing Date Parent will issue
to Amortibanc Investments, L.C. a number of shares of Parent Common Stock (the
"ADDITIONAL SHARES") equal to (x) the difference between $2,500,000 and the
actual cash on hand in the bank accounts calculated in accordance with
Section 7.1(g) (the "CASH BALANCE") divided by (y) the average of the last sale
price of quepasa Common Stock over the 20 business day period ending three
business days prior to the Closing Date (the "AVERAGE SHARE PRICE"); PROVIDED,
that if on the Closing Date quepasa has received an award, judgment or
settlement pursuant to any litigation or arbitration disclosed on SCHEDULE 4.12
that has not been reduced to a cash payment, the number of Additional Shares
shall be reduced by an amount equal to the lesser of (A) 50% of the value of any
such judgment or (B) $250,000 (the "ADJUSTED JUDGMENT AMOUNT") divided by the
Average Share Price. In the event that the Cash Balance plus the Adjustment
Judgment Amount is equal to or greater than $2,500,000, no shares of Parent
Common Stock will be issued to Amoritbanc Investments, L.C.
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ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained herein shall not survive beyond the Effective Time.
9.2 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective successors, heirs,
representatives and assigns, as the case may be; PROVIDED, HOWEVER, that no
party shall assign or delegate this Agreement or any of the rights or
obligations created hereunder without the prior written consent of the other
party. Except as set forth in Section 6.11 and Section 6.12 hereof, and except
as expressly set forth elsewhere in this Agreement, nothing in this Agreement
shall confer upon any Person not a party to this Agreement, or the legal
representatives of such Person, any rights (including rights as a third party
beneficiary) or remedies of any nature or kind whatsoever under or by reason of
this Agreement.
9.3 EXPENSES. Except as otherwise specifically provided in this Agreement,
quepasa shall bear all expenses incurred on its behalf or on behalf of any
Company in connection with the preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby, and
Parent shall bear all expenses of such nature incurred on its own behalf.
9.4 NOTICES. All notices, requests and other communications to any party
hereunder shall be in writing, shall be given to such party at its address set
forth below or at such other address as shall be furnished by any party by like
notice to the others. Each such notice, request or other communication shall be
deemed to have been duly given (i) as of the date of delivery, if delivered
personally, (ii) upon the next business day when delivered during normal
business hours to a recognized overnight courier service, such as Federal
Express for next business day delivery, or (iii) on the business day of receipt
if sent by facsimile (with confirmation of receipt).
(a) if to Parent, Merger Sub or Contribution Sub, to:
5115 N. Scottsdale Rd., Suite 101
Scottsdale, AZ 85250
Attn: Jay Torok
Fax: (480) 949-6007
with copies to:
Gallagher & Kennedy P.A.
2575 East Camelback Road
Phoenix, AZ 85016-9225
Attn: Edward Zachary
Fax: (602) 530-8500
(b) if to quepasa, to:
quepasa.com, inc.
400 E. Van Buren, 4th Floor
Phoenix, AZ 85004
Attn: Gary L. Trujillo
Fax: (602) 281-1499
with copies to:
Brownstein Hyatt & Faber, P.C.
410 Seventeenth Street, 22nd Floor
Denver, Colorado 80202
Attn: Jeffrey M. Knetsch
Fax: (303) 223-1111
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or such other address or persons as the parties may from time to time designate
in writing in the manner provided in this Section 9.4.
9.5 ENTIRE AGREEMENT. This Agreement, together with the Exhibits and the
Schedules and the Confidentiality Agreement entered into on March 2, 2001
between Amortibanc and quepasa (the "CONFIDENTIALITY AGREEMENT"), represents the
entire agreement and understanding of the parties hereto with reference to the
transactions contemplated herein. This Agreement supersedes all prior
negotiations, discussions, correspondence, communications, understandings and
agreements among the parties relating to the subject matter of this Agreement
(except for the Confidentiality Agreement) and all prior drafts thereof, all of
which are merged into this Agreement or such other agreements, as the case may
be.
9.6 WAIVERS, AMENDMENTS AND REMEDIES. This Agreement may be amended and
the terms hereof may be waived, and consents may be provided, only by a written
instrument signed by Parent and quepasa (with the approval of the Board of
Directors) or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof; nor shall any waiver on the part of
any party of any such right, power or privilege, nor any single or partial
exercise of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege. The rights
and remedies herein provided are cumulative and are not exclusive of any rights
or remedies that any party may otherwise have at law or in equity.
9.7 SEVERABILITY. This Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof. To the extent such invalidity or unenforceability has a
material impact upon the expectations of the parties hereto, the parties agree
to make appropriate modifications to this Agreement to take such impact into
account.
9.8 HEADING. The article and section headings contained in this Agreement
are solely for convenience of reference and shall not affect the meaning or
interpretation of this Agreement or of any term or provision hereof.
9.9 COUNTERPARTS; TERMS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement. All references herein
to Articles, Sections, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require. All
references to singular or plural or masculine or feminine shall include the
other as the context may require.
9.10 GOVERNING LAW; CONSENT TO JURISDICTION; VENUE. This Agreement shall
be governed by, and construed in accordance with, the internal laws of the State
of Arizona. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the state courts located within Phoenix, Arizona over any action
or proceeding relating to, or arising under or in connection with this Agreement
and consents to personal jurisdiction of such courts and waives any objection to
such courts' jurisdiction. The parties hereto agree that any claim or suit
between or among any of the parties hereto relating to or arising under or in
connection with this Agreement may only be brought in and decided by the state
courts located in Phoenix, Arizona, such courts being a proper forum in which to
adjudicate such claim or suit, and each party hereby waives any objection to
each such venue and waives any claim that such claim or suit has been brought in
an inconvenient forum.
9.11 INTERPRETATION. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.
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9.12 EXHIBITS AND SCHEDULES. The Exhibits and Schedules attached hereto
are a part of this Agreement as if fully set forth herein.
9.13 ARBITRATION. Any dispute or controversy arising among the parties to
this Agreement involving the construction or application of any of the terms,
provisions or conditions of this Agreement shall, on the written request of any
party served on the other parties in accordance with Section 9.4, be submitted
to binding arbitration. EACH PARTY, BY SIGNING THIS AGREEMENT, VOLUNTARILY,
KNOWINGLY AND INTELLIGENTLY WAIVES ANY RIGHTS SUCH PARTY MAY OTHERWISE HAVE TO
SEEK REMEDIES IN COURT OR OTHER FORUMS, INCLUDING THE RIGHT TO A JURY TRIAL.
Arbitration shall comply with and be governed in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA"). The
arbitration will be conducted only in Phoenix, Arizona, before a panel of three
arbitrators selected by the parties or, if they are unable to agree on an
arbitrator, before three arbitrators selected by the AAA. The arbitrator shall
have full authority to order specific performance and award damages and other
relief available under this Agreement or applicable law but shall have no
authority to add to, detract from, change or amend the terms of this Agreement
or existing law. All arbitration proceedings, including settlements and awards,
shall be confidential. The decision of the arbitrator will be final and binding,
and judgment on the award by the arbitrator may be entered in any court of
competent jurisdiction. THIS SUBMISSION AND AGREEMENT TO ARBITRATE WILL BE
SPECIFICALLY ENFORCEABLE. The prevailing party in any such arbitration shall
receive its costs of arbitration, including reasonable attorneys' fees and
costs, from the losing party.
* * * * * * *
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IN WITNESS WHEREOF, Buyer and quepasa have caused this Merger Agreement to
be signed as of the date first written above.
QUEPASA.COM, INC.
By: /s/ GARY L. TRUJILLO
-----------------------------------------
Gary L. Trujillo
CHAIRMAN OF THE BOARD OF DIRECTORS
GREAT WESTERN LAND AND RECREATION, INC.
By: /s/ JAY N. TOROK
-----------------------------------------
Jay N. Torok
PRESIDENT
GWLAR, INC.
By: /s/ JAY N. TOROK
-----------------------------------------
Jay N. Torok
PRESIDENT
GWLR, LLC
By: /s/ JAY N. TOROK
-----------------------------------------
Jay N. Torok
PRESIDENT
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EXHIBIT A
DEFINED TERMS
The following terms shall have the meanings set forth or referenced below:
AAA shall have the meaning set forth in Section 9.13.
ADDITIONAL SHARES shall have the meaning set forth in Section 8.4.
ADJUSTED JUDGMENT AMOUNT shall have the meaning set forth in Section 8.4.
AFFILIATES shall mean a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, another Person.
AGREEMENT shall have the meaning set forth in the Preamble.
ANTITRUST AUTHORITIES shall have the meaning set forth in Section 6.8.
ARTICLES OF MERGER shall have the meaning set forth in Section 1.5.
AVERAGE SHARE PRICE shall have the meaning set forth in Section 8.4.
BUYER shall have the meaning set forth in the Preamble.
CASH BALANCE shall have the meaning set forth in Section 8.4.
CERTIFICATES shall have the meaning set forth in Section 3.2(b).
CLOSING shall have the meaning set forth in Section 3.10.
CLOSING DATE shall have the meaning set forth in Section 1.5.
CODE shall mean the Internal Revenue Code of 1986, as amended.
COMPANY or COMPANIES shall have the meaning set forth in Section 4.1.
COMPANY BENEFIT PLAN shall have the meaning set forth in
Section 4.14(a)(ii).
COMPANY ERISA AFFILIATE shall have the meaning set forth in
Section 4.14(a).
COMPANY PLAN shall have the meaning set forth in Section 4.14(a)(i).
COMPANY RETURNS shall have the meaning set forth in Section 4.10(a).
COMPETING TRANSACTION shall have the meaning set forth in Section 6.6.
CONFIDENTIALITY AGREEMENT shall have the meaning set forth in Section 9.5
CONSENTS shall mean all consents or approvals of third parties necessary to
permit the Merger to be consummated in accordance with this Agreement, without
breach of any material contract, permit or other agreement.
CONSTITUENT CORPORATIONS shall have the meaning set forth in the Preamble.
CONTRIBUTION shall have the meaning set forth in Section 2.1.
CONTRIBUTION SUB shall have the meaning set forth in the Preamble.
DISSENTING SHARES shall have the meaning set forth in Section 3.5.
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EFFECTIVE TIME shall have the meaning set forth in Section 1.5.
ENVIRONMENTAL LAWS shall have the meaning set forth in Section 4.9(b)(i).
ERISA shall have the meaning set forth in Section 4.14(a)(i).
EXCHANGE ACT shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
EXCHANGE AGENT shall have the meaning set forth in Section 3.2(a).
EXCHANGE FUND shall have the meaning set forth in Section 3.2(a).
EXHIBITS shall mean the exhibits attached to this Agreement and referred to
in Section 8.12.
FAIRNESS OPINION shall mean the opinion of FBR, the financial advisor to the
Board of Directors of quepasa, to the effect that, as of the date hereof, the
consideration to be received in the Merger by quepasa's stockholders is fair to
the stockholders of quepasa from a financial point of view.
FBR shall have the meaning set forth in Section 4.15.
FRACTIONAL SHARE PRICE shall have the meaning set forth in Section 3.4.
GAAP shall have the meaning set forth in Section 4.7.
GOVERNMENTAL AUTHORITY shall mean foreign, domestic, federal, territorial,
state, provincial, local or municipal governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department, bureau, official or
branch of any of the foregoing.
HAZARDOUS SUBSTANCES shall have the meaning set forth in Section 4.9(b)(i).
INDEMNIFIED PARTY or INDEMNIFIED PARTIES shall have the meaning set forth in
Section 6.11.
INTELLECTUAL PROPERTY means all (i) Patents, (ii) Trademarks, (iii) Trade
Names, (iv) web sites, (v) domain names, (vi) copyrights, and (vii) trade
secrets (as defined in the Uniform Trade Secrets Act), in each case whether
registered or not.
IRS shall have the meaning set forth in Section 4.14(b).
JUDGMENT shall mean any order, decree, writ, injunction, award or judgment
or any court or other Governmental Authority or any arbitrator.
KNOWLEDGE--an individual will be deemed to have "knowledge" of a particular
fact or matter if such individual is actually aware of such fact or matter or
would reasonably be expected to be aware of such fact or matter. A Person (other
than an individual) will be deemed to have "knowledge" of a particular fact or
other matter if any individual who is serving as a director or executive officer
(or in a similar capacity) of such Person has actual knowledge of such fact or
matter or would reasonably be expected to be aware of such fact or matter.
LIEN shall mean, with respect to any asset (real, personal or mixed):
(a) any lien, claim, option, charge, security interest, pledge, mortgage or
other encumbrance whether imposed by Rule or contract; and (b) the interest of a
vendor or lessor under any conditional sale agreement, financing lease or other
title retention agreement relating to such asset.
LOAN shall have the meaning set forth in the Recitals.
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MERGER shall have the meaning set forth in the Recitals.
MERGER CONSIDERATION shall have the meaning set forth in Section 3.1(c).
MERGER SUB shall have the meaning set forth in the Preamble.
MERGER SUB SHARES shall have the meaning set forth in the Recitals.
NGCL shall have the meaning set forth in Section 1.1.
OPTION shall have the meaning set forth in Section 3.7.
ORGANIZATIONAL DOCUMENTS shall mean (i) the articles or certificate of
incorporation and the bylaws of a corporation; (ii) the partnership agreement
and any statement of partnership of a general partnership; (iii) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (iv) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (v) any amendment
to any of the foregoing.
PARENT shall have the meaning set forth in the Preamble.
PARENT BENEFIT PLAN shall have the meaning set forth in
Section 5.14(a)(ii).
PARENT BUSINESS shall mean the business and operations of Parent and its
Subsidiaries.
PARENT COMMON STOCK shall have the meaning set forth in Section 3.1(a).
PARENT CONTRACTS shall have the meaning set forth in Section 5.21.
PARENT ERISA AFFILIATE shall have the meaning set forth in Section 5.14(a).
PARENT FINANCIAL STATEMENTS shall have the meaning set forth in
Section 5.7.
PARENT INTERESTS shall have the meaning set forth in the Recitals.
PARENT IP shall have the meaning set forth in Section 5.11.
PARENT INSURANCE POLICIES shall have the meaning set forth in Section 5.19.
PARENT LIABILITIES shall mean all liabilities or obligations of Parent and
its Subsidiaries of whatever nature, whether known or unknown, absolute or
contingent, including without limitation (i) any liabilities or obligations of
Parent and its Subsidiaries with respect to any debt, liability or trade payable
for any period prior to the Effective Time, (ii) any liabilities or obligations
of any officer or employee of Parent and its Subsidiaries resulting in a
liability or obligation of Parent and its Subsidiaries, and (iii) any
liabilities arising under environmental and safety requirements related to any
condition in existence prior to the Effective Time.
PARENT MATERIAL ADVERSE EFFECT shall mean a material adverse effect on the
financial condition, assets, profits, liabilities, results of operations or
business of Parent and its Subsidiaries taken as a whole, excluding adverse
changes in general economic or industry conditions or in the financial or
capital markets.
PARENT MOST RECENT BALANCE SHEET shall have the meaning set forth in
Section 5.7.
PARENT OPTION PLAN shall have the meaning set forth in Section 3.7.
PARENT PLAN shall have the meaning set forth in Section 5.14(a)(i).
PARENT REAL PROPERTY shall mean all real property owned or leased by Parent
and its Subsidiaries.
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PARENT RELATED PARTIES shall have the meaning set forth in Section 5.22.
PARENT RETURNS shall have the meaning set forth in Section 5.10(a).
PARENT SECURITIES shall have the meaning set forth in Section 5.2(c).
PARENT WARRANTS shall have the meaning set forth in Section 5.2.
PATENTS shall mean patents (including all reissues, reexaminations,
divisions, continuations in part and extensions thereof), utility models, patent
applications and disclosures docketed.
PENSION BENEFIT GUARANTY CORPORATION shall have the meaning set forth in
Section 4.14(d).
PER SHARE MERGER CONSIDERATION shall have the meaning set forth in
Section 3.1(a).
PERMITS shall have the meaning set forth in Section 4.9(b)(viii).
PERSON shall mean any individual, corporation, association, partnership
(general or limited), joint venture, trust, estate, limited liability company or
other legal entity or organization, including a Governmental Authority.
PROXY STATEMENT shall have the meaning set forth in Section 4.16.
QUEPASA shall have the meaning set forth in the Preamble.
QUEPASA BUSINESS shall mean the business and operations of quepasa.
QUEPASA COMMON STOCK shall mean the common stock, par value $.0001 per
share, of quepasa.
QUEPASA CONTRACTS shall have the meaning set forth in Section 4.23.
QUEPASA FINANCIAL STATEMENTS shall have the meaning set forth in
Section 4.7.
QUEPASA INSURANCE POLICY shall have the meaning set forth in Section 4.21.
QUEPASA IP shall have the meaning set forth in Section 4.11.
QUEPASA MATERIAL ADVERSE EFFECT shall mean a material adverse effect on the
financial condition, assets, profits, liabilities, results of operations or
business of quepasa and its Subsidiaries taken as a whole, excluding adverse
changes in general economic or industry conditions or in the financial or
capital markets.
QUEPASA MOST RECENT BALANCE SHEET shall have the meaning set forth in
Section 4.7.
QUEPASA OPTION PLAN shall have the meaning set forth in Section 3.7.
QUEPASA REAL PROPERTY shall mean all real property leased by quepasa and its
Subsidiaries.
QUEPASA RELATED PARTIES shall have the meaning set forth in Section 4.24.
QUEPASA SECURITIES shall have the meaning set forth in Section 4.2(c).
QUEPASA WARRANTS shall have the meaning set forth in Section 3.8.
REGISTRATION STATEMENT shall have the meaning set forth in Section 4.16.
REPRESENTATIVE shall have the meaning set forth in Section 7.5(a).
RETURN or RETURNS means all returns, declarations, reports, statements and
other documents required to be filed in respect of Taxes. All citations to the
Code, or to the Treasury Regulations
A-48
promulgated thereunder, shall include any amendments or any substitute or
successor provisions thereto.
RULES shall have the meaning set forth in Section 4.9(a).
SCHEDULES shall mean the schedules attached to this Agreement.
SEC shall have the meaning set forth in Section 4.4.
SEC COMMENT LETTER shall have the meaning set forth in Section 4.4.
SEC REPORTS shall have the meaning set forth in Section 4.4.
SECURITIES ACT shall mean the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
STOCKHOLDERS MEETING shall have the meaning set forth in Section 4.16.
SUBSIDIARY shall mean any corporation or entity, at least a majority of the
outstanding capital stock, membership interest or other equity interests of
which (or any class or classes, however designated, having ordinary voting power
for the election of at least a majority of the board of directors or similar
governing body of such corporation or entity) shall at the time owned by the
relevant Person directly through one or more corporations or other entities
which are themselves Subsidiaries.
SUPERIOR PROPOSAL shall have the meaning set forth in Section 6.5(f).
SURVIVING CORPORATION shall have the meaning set forth in Section 1.1.
TAKEOVER PROPOSAL shall have the meaning set forth in Section 6.5(f).
TAX or TAXES means all federal, state, local, foreign and other net income,
gross income, gross receipts, sales use, AD VALOREM, transfer, franchise,
profits, license, lease, service, service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, windfall profits,
customs, duties or other taxes, fees, assessments or charges of any kind
whatever, together with any interest any penalties, additions to tax or
additional amounts with respect thereto.
TERMINATION DATE shall have the meaning set forth in Section 8.1(b).
TERMINATION FEE shall have the meaning set forth in Section 9.3.
TITLE IV PLAN shall mean a Plan that is subject to Section 302 or Title IV
of ERISA or Section 412 of the Code.
TRADE NAMES shall mean (i) trade names, (ii) brand names, and (iii) logos
used in the quepasa Business or the Parent Business, as the case may be.
TRADEMARKS shall mean trademarks, service marks, brand marks, registrations
thereof, pending applications for registration thereof, and such unregistered
rights which are used in the quepasa Business or the Parent Business, as the
case may be.
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APPENDIX B
October 11, 2001
Board of Directors
quepasa.com inc.
One Arizona Center
400 East Van Buren
Phoenix, Arizona 85004
Board of Directors:
You have requested that Friedman, Billings, Ramsey & Co., Inc. ("FBR")
provide you with its opinion as to the fairness, from a financial point of view,
of the proposed consideration (to be hereinafter defined) to be received by the
holders of shares of quepasa.com, inc. ("quepasa" or the "Company") common stock
(the "Stockholders") pursuant to the Amended and Restated Merger Agreement (the
"Merger Agreement") between quepasa and Great Western Land and
Recreation, Inc., GWLAR, Inc. and GWLR, LLC (collectively referred to as
"GWLR"), dated as of October 11, 2001 (the "Transaction"). The Merger Agreement
provides, among other things, that each issued and outstanding share of common
stock of quepasa shall be converted into and exchanged solely for the right to
receive one share of common stock of GWLR (the "Consideration"). The Merger
Agreement will be considered at a special meeting of the Stockholders of
quepasa. The terms of the Transaction are more fully set forth in the Merger
Agreement which is subject to certain terms and conditions.
Our opinion is necessarily based upon information made available to us as of
the date hereof and upon financial, economic, market and other conditions as
they exist and can be evaluated on the date hereof. We are not expressing any
opinion as to what the value of GWLR common stock actually will be when issued
to the Stockholders pursuant to the Merger Agreement or the prices at which
shares of GWLR common stock will trade at any time. It should also be understood
that we disclaim any undertaking or obligation to advise any person of any
change in any matter affecting this opinion which may come or be brought to our
attention after the date of this opinion.
In rendering this opinion, FBR has not been requested to give, and has not
made (i) an opinion addressing the relative merits of the Transaction as
compared to other business combinations that might be available to the Company
or the Company's underlying business decision to effect the Transaction, or
(ii) an opinion on matters of a legal, regulatory, tax or accounting nature
related to the Transaction.
FBR did not assume responsibility for verifying, and did not independently
verify, any financial information or other information concerning quepasa or
GWLR furnished to it by quepasa or GWLR, or the publicly-available financial and
other information regarding quepasa or GWLR and any subsidiaries thereof. FBR
has assumed that all such information is accurate and complete and has no reason
to believe otherwise. FBR has further relied on the assurances of management of
quepasa and GWLR that they are not aware of any facts that would make such
financial or other information relating to such entities inaccurate or
misleading. FBR did not conduct appraisals of the real estate properties owned
by GWLR (the "Properties"), however quepasa did retain Cushman & Wakefield of
Texas, Inc. ("Cushman & Wakefield") to review the existing appraisals of the
Properties (the "Appraisals") which were conducted by various real estate
appraisers, all of whom have been certified as Members of the Appraisal
Institute ("MAI").
With respect to financial forecasts for quepasa provided to FBR by its
management, FBR has assumed, for purposes of this opinion, that the forecasts
have been reasonably prepared on bases reflecting the best available estimates
and judgments of such management at the time of preparation as to the future
financial status of quepasa.
B-1
In delivering this opinion, FBR has completed the following tasks:
1. reviewed publicly available information concerning quepasa that we believe
to be relevant to our analysis, including the quepasa Annual Report on
Form 10-K filed with the SEC for the fiscal year ended December 31, 1999, as
amended on May 18, 2001, and Annual Report on Form 10-K for the fiscal year
ended December 31, 2000, as filed on September 20, 2001;
2. reviewed quepasa's unaudited, quarterly financial statements filed with the
SEC on Form 10-Q filed with the SEC for the quarters ended March, 31, 2000,
June 30, 2000 and September 30, 2000, all as amended on August 15, 2001, and
Quarterly Reports on Form 10-Q for the three months ended March 31, 2001 and
June 30, 2001, filed with the SEC on September 21, 2001 and September 24,
2001, respectively;
3. discussed the financial condition, future cash flow position and prospects
of quepasa with the Company's management and Quepasa's board of directors
(the "quepasa Board" or the "Board");
4. discussed the reasonableness of the remaining legal obligations of the
Company with quepasa's management, the Board and the Compensation Committee
of quepasa's Board and with the Board's consent, have relied upon their
conclusion that such expenses are reasonable, including the resolution of
the Company's leased office space and management contracts;
5. reviewed the trading history of the Company's common stock from June 24,
1999 through October 10, 2001 and the trading history with those of other
companies that we deemed relevant or comparable;
6. contacted potential merger partners beginning in May 2000 through July 2001
to discuss the sale of the Company and reviewed the results of our efforts
to solicit indications of interest from third parties with respect to a
purchase of the Company;
7. reviewed a possible liquidation of the Company, including the cash that
would be distributed to the Company's Stockholders in connection with such
liquidation;
8. assisted the Company in its attempt to sell the Company's subsidiaries along
with other assets of the Company;
9. reviewed and analyzed the Merger Agreement and the specific terms of the
Transaction;
10. reviewed the Appraisals of the Properties, and the Cushman and Wakefield
report delivered to quepasa which opines on the completeness of the
Appraisals and the reasonableness of the methodology utilized in the
Appraisals and the value conclusions outlined in the Appraisals, including
Cushman and Wakefield's opinion that a value indication in the range of
$5 million is appropriate for the Willow Springs ranch;
11. had discussions with the management of GWLR and quepasa concerning the
business, operations, assets, financial condition and prospects of GWLR;
12. reviewed financial and operating information with respect to the business,
operations and prospects of GWLR furnished to us by GWLR for the fiscal
years ended 1999 and 2000 and the unaudited financial results for the three
and six month periods ended March 31, 2001 and June 30, 2001, respectively;
and
13. performed such other analyses and reviewed and analyzed such other
information as FBR deemed appropriate.
FBR, as part of its institutional brokerage, research and investment banking
practice, is regularly engaged in the valuation of securities and the evaluation
of transactions in connection with mergers and acquisitions as well as business
valuations for other corporate purposes for technology and real estate related
companies.
B-2
FBR has acted as a financial advisor to quepasa in connection with the
Transaction and will receive a fee for services rendered.
Based upon and subject to the foregoing, as well as any such other matters
as we consider relevant, it is FBR's opinion, as of the date hereof, that the
Transaction is fair, from a financial point of view, to the Stockholders of
quepasa.
This letter is solely for the information of the quepasa Board and
Stockholders of quepasa and may not be relied upon by any other person or used
for any other purpose, reproduced, disseminated, quoted from or referred to
without FBR's prior written consent; provided, however, this letter may be
referred to and reproduced in its entirety in proxy materials sent to the
Stockholders in connection with the solicitation of approval for the
Transaction.
Very truly yours,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
B-3
APPENDIX C
CERTIFICATE OF INCORPORATION
OF
GREAT WESTERN LAND AND RECREATION, INC.
FIRST: The name of the Corporation is Great Western Land and Recreation,
Inc.
SECOND: The registered office of the Corporation in the State of Delaware is
1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of the Corporation's registered agent is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware, as the same exists or may hereafter be amended
(the 'GCL').
FOURTH: The Corporation shall be authorized to issue two classes of shares
of capital stock, to be designated, respectively, 'Common Stock' and 'Preferred
Stock.' The total number of shares of Common Stock and Preferred Stock that the
Corporation shall have authority to issue is Seventy Million (70,000,000) of
which Fifty Million (50,000,000) shares shall be Common Stock and Twenty Million
(20,000,000) shares shall be Preferred Stock. The par value of the shares of
Common Stock is $0.001 per share. The par value of the shares of Preferred Stock
is $0.001 per share.
The shares of Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations, or restrictions thereof, including, but not
limited to, the fixing or alteration of the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price or prices, and the liquidation
preferences of any wholly unissued series of shares of Preferred Stock, or any
of them; and to increase or decrease the number of shares of any series
subsequent to the issue of the shares of that series, but not below the number
of shares of that series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status they had prior to the adoption of the resolution originally fixing
the number of shares of that series.
FIFTH: The name and mailing address of the incorporator is:
Edward M. Zachary Gallagher & Kennedy, P.A.
2575 East Camelback Road
Phoenix, Arizona 85016
SIXTH: The number of directors which shall comprise the initial Board of
Directors of the Corporation shall be one (1). The name and address of the
initial director is:
Jay N. Torok 5115 North Scottsdale Road,
Suite 101
Scottsdale, Arizona 85250
The size of the Board of Directors may be increased or decreased in the manner
provided in the Bylaws of the Corporation.
All corporate powers of the Corporation shall be exercised by or under the
direction of the Board of Directors except as otherwise provided herein or by
law.
SEVENTH: Unless and except to the extent that the Bylaws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
C-1
EIGHTH: The Board of Directors may adopt bylaws from time to time with
respect to indemnification to provide at all times the fullest indemnification
permitted by the GCL, and may cause the Corporation to purchase and maintain
insurance, at the Corporation's expense, on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director or officer of another corporation,
or as its representative in a partnership, joint venture, trust, limited
liability company or other enterprise against any liability asserted against
such person and incurred in any such capacity or arising out of such status,
whether or not the Corporation would have the power to indemnify such person
against such liability. The Corporation may also create a trust fund, grant a
security interest and/or use other means (including, but not limited to, letters
of credit, surety bonds and/or other similar arrangements), as well as enter
into contracts providing indemnification to the full extent authorized or
permitted by law and including as part thereof provisions with respect to any or
all of the foregoing, to ensure the payment of such amounts as may become
necessary to effect indemnification as provided therein, or elsewhere.
NINTH: A director of the Corporation shall not be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the GCL. Any repeal or modification of this
Article shall not adversely affect any right or protection of a director of the
Corporation existing hereunder with respect to any act or omission occurring
prior to such repeal or modification.
TENTH: No action that is required or permitted to be taken by the
stockholders of the Corporation at any annual or special meeting of stockholders
may be effected by written consent of stockholders in lieu of a meeting of
stockholders, unless the action to be effected by written consent of
stockholders and the taking of such action by such written consent have
expressly been approved in advance by the Board.
ELEVENTH: The Corporation reserves the right at any time, and from time to
time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
Article.
TWELFTH: Meetings of stockholders of the Corporation may be held within or
without the State of Delaware, as the Bylaws of the Corporation may provide.
THIRTEENTH: In addition to the powers conferred on the Board by this
Certificate of Incorporation and by the GCL, and without limiting the generality
thereof, the Board is specifically authorized from time to time, by resolution
of the Board without additional authorization by the stockholders of the
Corporation, to adopt, amend or repeal the Bylaws of the Corporation, in such
form and with such terms as the Board may determine, including, without limiting
the generality of the foregoing, Bylaws relating to: (A) regulation of the
procedure for submission by stockholders of nominations of persons to be elected
to the Board; (B) regulation of the attendance at annual or special meetings of
the stockholders of persons other than holders of record or their proxies; and
(C) regulation of the business that may properly be brought by a stockholder of
the Corporation before an annual or special meeting of stockholders of the
Corporation.
FOURTEENTH: Section 203 of the GCL shall not be applicable to this
Corporation.
IN WITNESS WHEREOF, I, the undersigned, being the Incorporator hereinabove
stated, set my hand this 22nd day of June, 2001.
/s/ EDWARD M. ZACHARY
--------------------------------------------
Edward M. Zachary, Incorporator
C-2
APPENDIX D
BYLAWS
OF
GREAT WESTERN LAND AND RECREATION, INC.
A DELAWARE CORPORATION
DATED AS OF JUNE 22, 2001
D-1
TABLE OF CONTENTS
PAGE
--------
ARTICLE I
OFFICES
Section 1.01 Principal Office............................................ D-4
Section 1.02 Other Offices............................................... D-4
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01 Place of Meetings........................................... D-4
Section 2.02 Annual Meetings............................................. D-4
Section 2.03 Special Meetings............................................ D-4
Section 2.04 Notice and Purpose of Meetings; Waiver...................... D-4
Section 2.05 Voting List, Right to Examine............................... D-5
Section 2.06 Quorum...................................................... D-5
Section 2.07 Voting...................................................... D-5
Section 2.08 Judges of Election.......................................... D-6
Section 2.09 Consent of Stockholders in Lieu of Meeting.................. D-6
Section 2.10 Business Conducted at Annual Meetings....................... D-6
Section 2.11 Nominations of Directors.................................... D-7
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 Powers...................................................... D-8
Section 3.02 Number, Term of Office and Vacancies........................ D-8
Section 3.03 Annual Organizational Meeting............................... D-8
Section 3.04 Regular and Special Meetings................................ D-8
Section 3.05 Quorum; Interested Directors................................ D-8
Section 3.06 Committees.................................................. D-9
Section 3.07 Action of Directors in Lieu of Meeting...................... D-9
Section 3.08 Attendance Via Telecommunications........................... D-10
Section 3.09 Compensation................................................ D-10
ARTICLE IV
NOTICE--WAIVERS--MEETINGS
Section 4.01 Notice, What Constitutes.................................... D-10
Section 4.02 Waiver of Notice............................................ D-10
ARTICLE V
OFFICERS
Section 5.01 Number, Qualifications and Resignation...................... D-10
Section 5.02 Term of Office.............................................. D-11
Section 5.03 Subordinate Officers, Committees and Agents................. D-11
Section 5.04 The President............................................... D-11
Section 5.05 The Vice President.......................................... D-11
Section 5.06 The Secretary............................................... D-11
Section 5.07 The Assistant Secretaries................................... D-11
Section 5.08 The Treasurer............................................... D-11
Section 5.09 The Assistant Treasurers.................................... D-12
Section 5.10 The Chairman of the Board of Directors...................... D-12
Section 5.11 The Chief Executive Officer................................. D-12
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PAGE
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ARTICLE VI
CERTIFICATES OF STOCK
Section 6.01 Issuance.................................................... D-12
Section 6.02 Subscriptions for Shares.................................... D-12
Section 6.03 Transfers................................................... D-12
Section 6.04 Share Certificate........................................... D-12
Section 6.05 Record Holder of Shares..................................... D-12
Section 6.06 Lost, Destroyed, Mutilated or Stolen Certificates........... D-13
Section 6.07 Transfer Agent and Registrar................................ D-13
Section 6.08 Record Date................................................. D-13
ARTICLE VII
INDEMNIFICATION
Section 7.01 Right to Indemnification.................................... D-13
Section 7.02 Prepayment of Expenses...................................... D-13
Section 7.03 Claims...................................................... D-13
Section 7.04 Nonexclusivity of Rights.................................... D-14
Section 7.05 Other Indemnification....................................... D-14
Section 7.06 Amendment or Repeal......................................... D-14
ARTICLE VIII
AMENDMENTS
Section 8.01 Amendments by Stockholders.................................. D-14
Section 8.02 Amendments by Directors..................................... D-14
ARTICLE IX
MISCELLANEOUS
Section 9.01 Reserves.................................................... D-14
Section 9.02 Authorized Signer........................................... D-14
Section 9.03 Fiscal Year................................................. D-14
Section 9.04 Corporate Seal.............................................. D-14
Section 9.05 Severability................................................ D-14
D-3
BYLAWS
OF
GREAT WESTERN LAND AND RECREATION, INC.
ARTICLE I
OFFICES
Section 1.01 PRINCIPAL OFFICE. The registered office of the Corporation
shall be 1209 Orange Street, City of Wilmington, County of New Castle, Delaware.
The name of the Corporation's registered agent is The Corporation Trust Company.
The principal place of business of the Corporation is 1209 Orange Street, City
of Wilmington, County of New Castle, Delaware.
Section 1.02 OTHER OFFICES. The Corporation may also have offices at other
places within and without the State of Delaware as the board of directors may
from time to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01 PLACE OF MEETINGS. Meetings of stockholders shall be held at
the place, within or without the State of Delaware, as shall be designated from
time to time by the board of directors.
Section 2.02 ANNUAL MEETINGS. Annual meetings of stockholders shall,
unless otherwise provided by the board of directors, be held on the second
Tuesday in March of each calendar year, commencing in 2002, if not a legal
holiday, and if a legal holiday, then on the next full business day following,
at 10:00 o'clock a.m., at which time they shall elect a board of directors and
transact the other business as may properly be brought before the meeting.
Section 2.03 SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by the board of directors, by the
president, or by stockholders owning a majority in amount of the entire capital
stock of the Corporation issued and outstanding and entitled to vote.
(b) At any time, upon written request to the secretary of the Corporation by
any person or persons authorized to call a special meeting of stockholders,
which written request shall state the purposes for the special meeting, the
secretary of the Corporation shall set the place, date and time of the special
meeting and shall deliver notice of the special meeting in accordance with
section 2.04 hereof. If the secretary fails to set the place, date and time of
the meeting or deliver the notice, the person calling the meeting may do so.
(c) Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
Section 2.04 NOTICE AND PURPOSE OF MEETINGS; WAIVER.
(a) Written notice stating the place, date and time of meetings of
stockholders and, in case of a special meeting of stockholders, the purpose or
purposes for which the meeting is called, shall be delivered to each stockholder
of record entitled to vote at the meeting at his or her address of record, at
least ten (10) but not more than sixty (60) days prior to the date of the
meeting. If mailed, the notice shall be deemed to be delivered when deposited in
the United States mail, postage prepaid, directed to the stockholder at his or
her address as it appears on the stock transfer books of the Corporation.
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(b) No action taken at any meeting of stockholders shall be void because the
action was not specified as a purpose of the meeting in the applicable notice of
the meeting provided the meeting is not a special meeting and if, in the notice
of the meeting, it is stated that the purpose of the meeting shall also be to
consider all other matters which could properly be brought before the meeting.
(c) Whenever the language of a proposed resolution is included in a written
notice of a meeting of stockholders, that resolution may be adopted at that
meeting with any deletions, additions, modifications and amendments as are
deemed appropriate by the vote of the requisite number of shares of the
Corporation present at the meeting, either in person or by proxy; provided,
however, that those deletions, additions, modifications and amendments will not
materially alter or modify the original purpose of the resolution without
further notice to stockholders not present in person or proxy.
Section 2.05 VOTING LIST, RIGHT TO EXAMINE. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order with the address
of and number of voting shares registered in the name of each stockholder. The
list shall be open for ten (10) days to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of meeting, or, if not so specified, at the place where
the meeting is to be held, and shall be produced and kept open at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders.
Section 2.06 QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, the quorum shall not be present or
represented at any meeting of stockholders, the stockholders entitled to vote
thereat, present in person or represented by proxy, shall have power to adjourn
the meeting from time to time without notice other than announcement at the
meeting if the adjournment is not for more than thirty (30) days and a new
record date is not fixed for the adjourned meeting, until a quorum shall be
present or represented. If a quorum shall be present or represented at the
adjourned meeting, any business may be transacted that might have been
transacted at the original meeting.
Section 2.07 VOTING.
(a) When a quorum is present at any meeting, the affirmative vote of the
holders of shares of stock having a majority of the votes that could be cast by
the holders of all shares of stock entitled to vote thereon that are present at
such meeting, either in person or by proxy, shall decide any question brought
before the meeting, unless the question is one upon which by express provision
of the statutes, the Certificate of Incorporation or these Bylaws a different
vote is required, in which case the express provision shall govern and control
the decision of the question.
(b) Subject to the provisions of the Certificate of Incorporation, each
stockholder entitled to vote at any meeting of stockholders shall be entitled to
one vote for each share of the capital stock having voting power held by the
stockholder.
(c) Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for him or her by proxy, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not
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irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the secretary of the Corporation.
(d) The vote on any matter, including the election of directors, need not be
by written ballot.
Section 2.08 JUDGES OF ELECTION.
(a) Before any meeting of stockholders, the board of directors may appoint
judges of election, who need not be stockholders, to act at that meeting or any
adjournment thereof. If judges of election are not so appointed, the chairman of
the meeting shall appoint judges of election upon the demand of any stockholder
or his or her proxy present at the meeting and before voting begins. The number
of judges of election shall be either one (1) or, upon demand of a stockholder,
three (3), as to be determined in the case of judges of election appointed by a
vote of the majority of the shares of the voting common stock of the Corporation
present and entitled to vote at the meeting, whether in person or by proxy. If
there are three (3) judges of election, the decision, act or certification of a
majority of those judges shall be effective in all respects as the decision, act
or certification of all.
(b) No person who is a candidate for an office to which the election relates
may act as a judge of election.
(c) In case any person appointed as a judge of election fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
board of directors before the meeting is convened, or by the chairman of the
meeting during a meeting.
(d) If judges of election are appointed pursuant to this section 2.08, they
shall determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum, the
authenticity, and the validity and effect of proxies. The judges of election
shall also receive votes or ballots, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes, determine the result, and do those other acts as may be
proper to conduct and tally the vote or election with fairness to all
stockholders.
(e) On request of the chairman of the meeting or of any stockholder or his
or her proxy, the judges of election shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate
setting forth any fact found by them.
Section 2.09 CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Whenever the vote
of stockholders at a meeting thereof is required or permitted to be taken for or
in connection with any corporate action by any provisions of the statutes, the
meeting and vote of stockholders may be dispensed with if all the stockholders
who would have been entitled to vote, or less than all but not less than the
holders of a majority of the stock entitled to vote upon the action if the
meeting were held, shall consent in writing to the corporate action being taken,
provided that the written consent shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take the action at a meeting at which all shares entitled to
vote thereon were present and voted, and provided that prompt notice must be
given to all stockholders of the taking of corporate action without a meeting
and by less than unanimous written consent.
Section 2.10 BUSINESS CONDUCTED AT ANNUAL MEETINGS. At an annual meeting
of the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be: (A) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board of directors, (B)
otherwise properly brought before the meeting by or at the direction of the
board of directors, or (C) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than one-hundred-twenty (120) calendar days in advance of
the date specified in the Corporation's proxy statement released to
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stockholders in connection with the previous year's annual meeting of
stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received a reasonable time before the solicitation is made. A stockholder's
notice to the secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation that are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) subsequent to the Corporation's becoming
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the 'Exchange Act'), any other information that is required to be
provided by the stockholder pursuant to Regulation 14A under the Exchange Act,
in his or her capacity as a proponent to a stockholder proposal. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
paragraph. The chair of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this paragraph, and,
if the chair should so determine, he or she shall so declare at the meeting that
any such business not properly brought before the meeting shall not be
transacted.
Section 2.11 NOMINATIONS OF DIRECTORS. Only persons who are nominated in
accordance with the procedures set forth in this paragraph shall be eligible for
election as directors. Nominations of persons for election to the board of
directors of the Corporation may be made at a meeting of stockholders by or at
the direction of the board of directors or by any stockholder of the Corporation
entitled to vote in the election of directors at the meeting; provided, however,
such nominations, other than those made by or at the direction of the board of
directors, shall be made pursuant to timely notice in writing to the secretary
of the Corporation in accordance with the provisions of the immediately prior
paragraph of this Section. Such stockholder's notice shall set forth (i) as to
each person, if any, whom the stockholder proposes to nominate for election or
re-election as a director: (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the Corporation that are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed (or would be required were the
Corporation subject to the reporting requirements of the Exchange Act) in
solicitations of proxies for elections of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Exchange Act (including
without limitation such person's written consent to being named in the proxy
statement, if any, as a nominee and to serving as a director if elected); and
(ii) as to such stockholder giving notice, the information required to be
provided pursuant to the immediately prior paragraph of this Section. At the
request of the board of directors, any person nominated by a stockholder for
election as a director shall furnish to the secretary of the Corporation that
information required to be set forth in the stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the procedures
set forth in this paragraph. The chair of the meeting shall, if the facts
warrants, determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if the chair
should so determine, he or she shall so declare at the meeting, and the
defective nomination shall be disregarded.
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ARTICLE III
BOARD OF DIRECTORS
Section 3.01 POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of its board of directors which shall exercise
all the powers of the Corporation and do all the lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
Section 3.02 NUMBER, TERM OF OFFICE AND VACANCIES.
(a) The board of directors shall consist of not less than one (1) nor more
than fifteen (15) members. The number of directors may be increased or decreased
from time to time by resolution of the board of directors, but no decrease in
the number of directors shall change the term of any director in office at the
time thereof. The directors shall be elected at the annual meeting of
stockholders, except as provided in paragraph (b) of this section 3.02, and each
director shall hold office until his or her successor is elected and qualified
or until his or her earlier resignation or removal. Any director may resign at
any time upon written notice to the Corporation. Directors need not be
stockholders.
(b) Vacancies and newly created directorships resulting from any increase in
the authorized number of directors may be filled by a majority of the directors
then in office, though less than a quorum, and each of the directors so chosen
shall hold office until the next annual election and until his or her successor
is elected and qualified or until his or her earlier resignation or removal.
(c) Any director or the entire board of directors may be removed, with or
without cause, at any time by the holders of a majority of the shares then
entitled to vote at an election of directors, and the vacancy in the board of
directors caused by the removal may be filled by the directors in accordance
with Section 3.02(b) or by the stockholders in accordance with Section 2(ii) at
the time of the removal or at any time thereafter.
Section 3.03 ANNUAL ORGANIZATIONAL MEETING. The first meeting of each
newly elected board of directors shall be held within thirty (30) days after the
adjournment of the annual meeting of stockholders. No notice of the meeting
shall need be given to the directors in order to legally constitute the meeting,
provided a quorum shall be present and provided the organizational meeting is
held generally at the time and at the place of the meeting of stockholders at
which the board of directors were elected. In the event the meeting is not so
held, the meeting may be held at the time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the board of
directors.
Section 3.04 REGULAR AND SPECIAL MEETINGS. The board of directors of the
Corporation or any committee thereof may hold meetings, both regular and
special, either within or without the State of Delaware. Regular meetings of the
board of directors may be held without notice at the time and at the place as
shall from time to time be determined by the board of directors. Special
meetings of the board of directors may be called by the president, and the
president or the secretary shall call a special meeting upon request of two
directors. If given personally, by telephone, facsimile or telegram, the notice
shall be given at least the day prior to the meeting. Notice may be given by
mail if it is mailed at least three (3) days before the meeting. The notice need
not specify the business to be transacted. In the event of an emergency which in
the judgment of the president requires immediate action, a special meeting may
be convened without notice, consisting of those directors who are immediately
available in person or by telephone and can be joined in the meeting in person
or by conference telephone. The actions taken at the meeting shall be valid if
at least a quorum of the directors participates either personally or by
conference telephone.
Section 3.05 QUORUM; INTERESTED DIRECTORS.
(a) At meetings of the board of directors, a majority of the directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which
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there is a quorum shall be the act of the board of directors. If a quorum shall
not be present at any meeting of the board of directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
(b) No contract or transaction shall be void or voidable solely because the
contract or transaction is between the Corporation and one or more of its
directors or officers, or between the Corporation and any other corporation,
partnership, limited liability company, association, or other organization in
which one or more of its directors or officers are directors or officers, or
have a financial interest; nor shall any contract or transaction be void or
voidable solely because the director or officer is present at or participates in
the meeting of the board of directors or committee thereof which authorizes the
contract or transaction, or solely because his, her or their votes are counted
for the purpose, if:
(1) the material facts as to his or her relationship or interest and as
to the contract or transaction are disclosed or are known to the board of
directors or the committee, and the board of directors or committee in good
faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) the material facts as to his or her relationship or interest and as
to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(3) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the board of directors, a
committee thereof, or the stockholders.
(c) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
Section 3.06 COMMITTEES.
(a) The board of directors may, by resolution passed by a majority of the
whole board of directors, designate one or more committees of the board of
directors, each committee to consist of one or more of the directors of the
Corporation, which, to the extent provided by law and in the resolution, shall
have and may exercise the powers of the board of directors in the management of
the business and affairs of the Corporation, which power shall not include the
power and authority to (1) declare a dividend; (2) authorize the issuance of
stock; (3) amend the Certificate of Incorporation; (4) adopt an agreement of
merger or consolidation; (5) recommend to the stockholders the sale, lease or
exchange of all or substantially all the Corporation's property or assets; (6)
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution; or (7) amend the Bylaws of the Corporation. The committee or
committees shall have the name or names as may be determined from time to time
by resolution adopted by the board of directors.
(b) Unless the board of directors designates one or more directors as
alternate members of any committee, who may replace an absent or disqualified
member at any meeting of the committee, the members of any committee present at
any meeting and not disqualified from voting may, whether or not they constitute
a quorum, unanimously appoint another member of the board of directors to act at
the meeting in the place of any absent or disqualified member of the committee.
At meetings of any committee, a majority of the members or alternate members of
the committee shall constitute a quorum for the transaction of business and the
act of a majority of members or alternate members present at any meeting at
which there is a quorum shall be the act of the committee.
(c) The committees shall keep regular minutes of their proceedings.
Section 3.07 ACTION OF DIRECTORS IN LIEU OF MEETING. Any action required
or permitted to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting if a written consent thereto is
signed by all members of the board of directors or of the committee, as
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the case may be, and the written consent is filed with the minutes of
proceedings of the board of directors or committee.
Section 3.08 ATTENDANCE VIA TELECOMMUNICATIONS. The members of the board
of directors or any committee thereof may participate in a meeting of the board
of directors or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. The participation shall constitute presence in
person at the meeting for purposes of determining a quorum and for voting.
Section 3.09 COMPENSATION. The directors may be paid their expenses of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors and/or a stated salary
as director. No payment shall preclude any director from serving the Corporation
in any other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like reimbursement and compensation for
attending committee meetings.
ARTICLE IV
NOTICE--WAIVERS--MEETINGS
Section 4.01 NOTICE, WHAT CONSTITUTES. Whenever written notice is required
to be given to any person under the provisions of the Certificate of
Incorporation, these Bylaws, or the General Corporation Law of the State of
Delaware, as amended from time to time (the 'GCL'), it may be given to that
person, either personally or by sending a copy thereof through the mail, or by
telegraph, charges prepaid, or by facsimile to his or her address appearing on
the books of the Corporation, or supplied by him or her in writing to the
Corporation for the purpose of notice. Except as otherwise expressly set forth
in the Certificate of Incorporation, these Bylaws, or the GCL, if the notice is
sent by mail, it shall be deemed to have been given to the person entitled
thereto forty-eight (48) hours after it is deposited in the United States mail,
postage prepaid, return receipt requested, or, if sent by telegraph, twenty-four
(24) hours after it is deposited with a telegraph office for transmission to the
person entitled thereto, or, if sent by facsimile, twelve (12) hours after it
has been transmitted to the person, as the applicable case may be.
Section 4.02 WAIVER OF NOTICE.
(a) Whenever any written notice is required to be given under the provisions
of the Certificate of Incorporation, these Bylaws, or the GCL, as amended from
time to time, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated herein, shall be
deemed equivalent to the giving of the notice.
(b) Attendance of a person (in the case of a stockholder, either in person
or by proxy) at any meeting shall constitute a waiver of notice of the meeting,
except when a person attends a meeting for the express purpose of objecting at
the beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened.
ARTICLE V
OFFICERS
Section 5.01 NUMBER, QUALIFICATIONS AND RESIGNATION. The officers of the
Corporation shall be chosen by the board of directors at its first meeting, and
thereafter after each annual meeting of stockholders. The officers to be elected
may include a president, a vice president, a secretary and a treasurer. The
board of directors may also choose a chief executive officer and one or more
vice presidents and additional officers or assistant officers as it may deem
advisable. Any number of offices may be held by the same person. Officers may,
but need not, be directors or stockholders of the Corporation. The board of
directors may elect from among the members of the board of directors a chairman
of the board of directors and a vice chairman of the board of directors who
shall not be
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considered officers of the Corporation unless the board of directors
specifically designates them as officers at the time of election, or at any time
thereafter.
Section 5.02 TERM OF OFFICE. The officers of the Corporation shall hold
office at the pleasure of the board of directors. Each officer shall hold his or
her office until his or her successor is elected and qualified or until his or
her earlier resignation or removal. Any officer may resign at any time upon
written notice to the Corporation. Any officer elected or appointed by the board
of directors may be removed at any time by the board of directors, with or
without cause. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise shall be filled by the board of directors.
Section 5.03 SUBORDINATE OFFICERS, COMMITTEES AND AGENTS. The board of
directors may elect any other officers and appoint any committees, employees or
other agents as it desires who shall hold their offices for the terms and shall
exercise the powers and perform the duties as shall be determined from time to
time by the board of directors as may be required by the business of the
Corporation. The directors may delegate to any officer or committee the power to
elect subordinate officers and retain or appoint employees or other agents.
Section 5.04 THE PRESIDENT. The president shall preside at all meetings of
stockholders, shall have general and active management of the business of the
Corporation, and shall see that all orders and resolutions of the board of
directors are carried into effect. The president shall execute on behalf of the
Corporation and may affix the seal or cause the seal to be affixed to all
instruments requiring the execution, except to the extent the signing and
execution thereof shall be expressly delegated and authorized by the board of
directors to some other officer or agent of the Corporation.
Section 5.05 THE VICE PRESIDENT. Each vice president shall perform all
duties incident to the office of vice president; provided, however, those
individuals who are appointed vice president of a certain area or department,
such as vice president of marketing, shall perform only those duties incident to
such area or department. All vice presidents shall perform such other duties as
from time to time may be assigned by the board of directors or the president.
Section 5.06 THE SECRETARY. The secretary shall act under the direction of
the president. Subject to the direction of the president the secretary shall
attend all meetings of the board of directors and all meetings of stockholders
and record the proceedings in a book to be kept for that purpose and shall
perform like duties for the committees designated by the board of directors when
required. The secretary shall give, or cause to be given, notice of all meetings
of stockholders and special meetings of the board of directors, and shall
perform the other duties as may be prescribed by the president or the board of
directors or as are incident to his or her office. The secretary shall keep in
safe custody the seal of the Corporation, if one exists, and cause it to be
affixed to any instrument requiring it.
Section 5.07 THE ASSISTANT SECRETARIES. The assistant secretaries in the
order of their seniority, unless otherwise determined by the president or the
board of directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary. They shall perform
the other duties and have the other powers as the president or the board of
directors may from time to time prescribe.
Section 5.08 THE TREASURER. The treasurer shall act under the direction of
the president. Subject to the direction of the president the treasurer shall
have the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in the depositories as may be designated by
the board of directors. The treasurer shall disburse the funds of the
Corporation as may be ordered by the president or the board of directors, taking
proper vouchers for the disbursements, and shall render to the president and the
board of directors, at its regular meetings, or when the board of directors so
requires, an account of all his or her transactions as treasurer and of the
financial condition of the Corporation. The treasurer
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shall perform such other duties as may be prescribed by the president or the
board of directors or as are incident to his or her office.
Section 5.09 THE ASSISTANT TREASURERS. The assistant treasurers in the
order of their seniority, unless otherwise determined by the president or the
board of directors, shall, in the absence or disability of the treasurer,
perform the duties and exercise the powers of the treasurer. They shall perform
the other duties and have the other powers as the president or the board of
directors may from time to time prescribe.
Section 5.10 THE CHAIRMAN OF THE BOARD OF DIRECTORS. The chairman of the
board of directors or in his or her absence, the president, shall preside at all
meetings of the board of directors and shall perform all other duties as may
from time to time be requested of him or her by the board of directors.
Section 5.11 THE CHIEF EXECUTIVE OFFICER. The board of directors may
designate a chief executive officer who shall perform all other duties as from
time to time may be requested of him or her by the board of directors. In the
absence of the designation, the president shall serve as the chief executive
officer.
ARTICLE VI
CERTIFICATES OF STOCK
Section 6.01 ISSUANCE. The interest of each stockholder in the Corporation
shall be evidenced by certificates for shares of stock. The share certificates
of the Corporation shall be numbered and registered in the share ledger and
transfer books of the Corporation as they are issued. They shall be signed by
any two officers, and may bear the corporate seal, which signatures may be a
facsimile, engraved or imprinted. In case any officer who has signed or whose
facsimile signature has been placed upon any share certificate shall have ceased
to be an officer because of death, resignation or otherwise before the
certificate is issued, it may be issued by the Corporation with the same effect
as if the officer had not ceased to be an officer because of death, resignation
or otherwise as of the date of its issue.
Section 6.02 SUBSCRIPTIONS FOR SHARES. Unless the subscription agreement
provides otherwise, subscriptions for shares, regardless of the time when they
are made, shall be paid at that time as shall be specified by the board of
directors. All calls for payments on subscriptions shall carry the same terms
with regard to all shares of the same class.
Section 6.03 TRANSFERS. Transfers of shares of the capital stock of the
Corporation shall be made on the books of the Corporation by the registered
owner thereof, or by his or her duly authorized attorney, with a transfer clerk
or transfer agent appointed as provided in section 6.07 hereof, and upon
surrender of the certificate or certificates for the shares properly endorsed
and with all taxes thereon paid.
Section 6.04 SHARE CERTIFICATE. Certificates for shares of the Corporation
shall be in the form provided by statute and approved by the board of directors.
The share record books and the blank share certificate books shall be kept by
the secretary of the Corporation or by any agency designated by the board of
directors for that purpose. Every certificate exchanged or returned to the
Corporation shall be marked 'Cancelled,' with the date of cancellation noted
thereon.
Section 6.05 RECORD HOLDER OF SHARES. The Corporation shall be entitled to
treat the person in whose name any share or shares of the Corporation stand on
the books of the Corporation as the absolute owner thereof, and shall not be
bound to recognize any equitable or other claim to, or interest in, the share or
shares on the part of any other person. However, if any transfer of shares is
made only for the purpose of furnishing collateral security, and that fact is
made known to the secretary of the Corporation, or to the Corporation's transfer
clerk or transfer agent, an entry of the transfer shall record that fact.
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Section 6.06 LOST, DESTROYED, MUTILATED OR STOLEN CERTIFICATES. The holder
of any shares of the Corporation shall immediately notify the Corporation of any
loss, destruction, mutilation or theft of the certificate therefor, and the
board of directors may, in its discretion, cause a new certificate or
certificates to be issued to him or her, in case of mutilation of the
certificate, upon the surrender of the mutilated certificate, or, in case of
loss, destruction or theft of the certificate, upon satisfactory proof of the
loss, destruction or theft, and, if the board of directors shall so determine,
the submission of a properly executed lost security affidavit and indemnity
agreement, or the deposit of a bond in the form and in the sum, and with the
surety or sureties, as the board of directors directs.
Section 6.07 TRANSFER AGENT AND REGISTRAR. The board of directors may
appoint one (1) or more transfer agents or transfer clerks and one (1) or more
registrars, and may require all certificates for shares to bear the signature or
signatures of any of them.
Section 6.08 RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which record date shall not be more than sixty (60) nor less than ten (10) days
before the date of the meeting and not more than sixty (60) days prior to any
other action. A determination of stockholders shall apply to any adjournment of
the meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
ARTICLE VII
INDEMNIFICATION
Section 7.01 RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
'proceeding'), by reason of the fact that he or she or a person for whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, limited liability company, enterprise or nonprofit entity,
including service with respect to employee benefit plans (an 'indemnitee'),
against all liability and loss suffered and expenses (including attorneys' fees)
reasonably incurred by such indemnitee. The Corporation shall be required to
indemnify an indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if the initiation of such proceeding (or part
thereof) by the indemnitee was authorized by the board of directors of the
Corporation.
Section 7.02 PREPAYMENT OF EXPENSES. The Corporation shall pay the
expenses (including attorneys' fees) incurred by an indemnitee in defending any
proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this Article or otherwise.
Section 7.03 CLAIMS. If a claim for indemnification or payment of expenses
under this Article is not paid in full within sixty (60) days after a written
claim therefor by the indemnitee has been received by the Corporation, the
indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expenses of
prosecuting such claim. In any such action the Corporation shall have the burden
of proving that the indemnitee was not entitled to the requested indemnification
or payment of expenses under applicable law.
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Section 7.04 NONEXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Article VII shall not be exclusive of any other rights which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, these By-laws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 7.05 OTHER INDEMNIFICATION. The Corporation's obligation, if any,
to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise, or nonprofit entity shall be reduced by any amount such
person may collect as indemnification from such other corporation, partnership,
joint venture, trust, enterprise or nonprofit enterprise.
Section 7.06 AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article VII shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
ARTICLE VIII
AMENDMENTS
Section 8.01 AMENDMENTS BY STOCKHOLDERS. The Bylaws may be amended by the
stockholders at any annual or special meeting of stockholders, provided notice
of intention to amend shall have been contained in the notice of the meeting.
Section 8.02 AMENDMENTS BY DIRECTORS. The board of directors by a majority
vote of the whole board of directors at any meeting may amend these Bylaws,
including Bylaws adopted by the stockholders, provided the stockholders may from
time to time specify particular provisions of the Bylaws that shall not be
amended by the board of directors.
ARTICLE IX
MISCELLANEOUS
Section 9.01 RESERVES. There may be set aside out of any funds of the
Corporation available for dividends the sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for the purchase of additional property, or
for such other purpose or purposes as the directors shall think conducive to the
interest of the Corporation, and the directors may modify or abolish any
reserve.
Section 9.02 AUTHORIZED SIGNER. All checks or demands for money and notes
of the Corporation shall be signed by the officer or officers or the other
person or persons as the board of directors may from time to time designate by
resolution.
Section 9.03 FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the board of directors.
Section 9.04 CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
'Corporate Seal, Delaware.' The seal may be used by causing it or a facsimile
thereof to be impressed, affixed or in any other manner reproduced.
Section 9.05 SEVERABILITY. If any provision of these Bylaws shall be held
to be invalid, illegal or unenforceable for any reason whatsoever, the validity,
legality and enforceability of the remaining provisions of these Bylaws shall
not in any way be affected or impaired thereby and to the fullest extent
possible, the provisions of these Bylaws shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
CERTIFICATION
I hereby certify that the foregoing Bylaws were adopted by unanimous written
consent of the board of directors of the Corporation as of June 22, 2001.
/s/ JAY N. TOROK
--------------------------------------------
Jay N. Torok, Secretary
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NEVADA DISSENTERS' RIGHTS STATUTE
NRS 92A.300 Definitions. As used in NRS 92A.300 to 92A.500, inclusive, unless
the context otherwise requires, the words and terms defined in NRS 92A.305 to
92A.335, inclusive, have the meanings ascribed to them in those sections.
NRS 92A.305 "Beneficial stockholder" defined. "Beneficial stockholder" means a
person who is a beneficial owner of shares held in a voting trust or by a
nominee as the stockholder of record.
NRS 92A.310 "Corporate action" defined. "Corporate action" means the action of a
domestic corporation.
NRS 92A.315 "Dissenter" defined. "Dissenter" means a stockholder who is entitled
to dissent from a domestic corporation's action under NRS 92A.380 and who
exercises that right when and in the manner required by NRS 92A.400 to 92A.480,
inclusive.
NRS 92A.320 "Fair value" defined. "Fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of the
corporate action to which he objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be inequitable.
NRS 92A.325 "Stockholder" defined. "Stockholder" means a stockholder of record
or a beneficial stockholder of a domestic corporation.
NRS 92A.330 "Stockholder of record" defined. "Stockholder of record" means the
person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
NRS 92A.335 "Subject corporation" defined. "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
NRS 92A.340 Computation of interest. Interest payable pursuant to NRS 92A.300 to
92A.500, inclusive, must be computed from the effective date of the action until
the date of payment, at the average rate currently paid by the entity on its
principal bank loans or, if it has no bank loans, at a rate that is fair and
equitable under all of the circumstances.
NRS 92A.350 Rights of dissenting partner of domestic limited partnership. A
partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
NRS 92A.360 Rights of dissenting member of domestic limited-liability company.
The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
NRS 92A.370 Rights of dissenting member of domestic nonprofit corporation.
1. Except as otherwise provided in subsection 2, and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
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membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.
NRS 92A.380 Right of stockholder to dissent from certain corporate actions and
to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a stockholder
is entitled to dissent from, and obtain payment of the fair value of his shares
in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation is
a party:
(1) If approval by the stockholders is required for the merger by NRS
92A.120 to 92A.160, inclusive, or the articles of incorporation
and he is entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with
its parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic corporation
is a party as the corporation whose subject owner's interests will be
acquired, if he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders to
the event that the articles of incorporation, bylaws or a resolution
of the board of directors provides that voting or nonvoting
stockholders are entitled to dissent and obtain payment for their
shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to him
or the domestic corporation.
NRS 92A.390 Limitations on right of dissent: Stockholders of certain classes or
series; action of stockholders not required for plan of merger.
1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:
(I) The surviving or acquiring entity; or
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(II) Any other entity which, at the effective date of the plan of
merger or exchange, were either listed on a national
securities exchange, included in the national market system
by the National Association of Securities Dealers, Inc., or
held of record by a least 2,000 holders of owner's interests
of record; or
(2) A combination of cash and owner's interests of the kind described
in sub-subparagraphs (I) and (II) of subparagraph (1) of
paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.
NRS 92A.400 Limitations on right of dissent: Assertion as to portions only to
shares registered to stockholder; assertion by beneficial stockholder.
1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject corporation
in writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the
beneficial stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
NRS 92A.410 Notification of stockholders regarding right of dissent.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
NRS 92A.420 Prerequisites to demand for payment for shares.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 and
NRS 92A.400 is not entitled to payment for his shares under this chapter.
NRS 92A.430 Dissenter's notice: Delivery to stockholders entitled to assert
rights; contents.
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1. If a proposed corporate action creating dissenters' rights is authorized
at a stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to assert
those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand
for payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the
terms of the proposed action and requires that the person asserting
dissenter's rights certify whether or not he acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days
after the date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
NRS 92A.440 Demand for payment and deposit of certificates; retention of rights
of stockholder.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares before
the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of the
notice.
2. The stockholder who demands payment and deposits his certificates, if
any, before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.
NRS 92A.450 Uncertificated shares: Authority to restrict transfer after demand
for payment; retention of rights of stockholder.
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
NRS 92A.460 Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
(a) Of the county where the corporation's registered office is located;
or
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(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or
has its registered office. The court shall dispose of the complaint
promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a
statement of income for that year, a statement of changes in the
stockholders' equity for that year and the latest available interim
financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value
of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
NRS 92A.470 Payment for shares: Shares acquired on or after date of dissenter's
notice.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
NRS 92A.480 Dissenter's estimate of fair value: Notification of subject
corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within
30 days after the subject corporation made or offered payment for his shares.
NRS 92A.490 Legal proceeding to determine fair value: Duties of subject
corporation; powers of court; rights of dissenter.
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the
subject corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
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3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject
corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment
pursuant to NRS 92A.470.
NRS 92A.500 Legal proceeding to determine fair value: Assessment of costs and
fees.
1. The court in a proceeding to determine fair value shall determine all of
the costs of the proceeding, including the reasonable compensation and expenses
of any appraisers appointed by the court. The court shall assess the costs
against the subject corporation, except that the court may assess costs against
all or some of the dissenters, in amounts the court finds equitable, to the
extent the court finds the dissenters acted arbitrarily, vexatiously or not in
good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if the
court finds the subject corporation did not substantially comply with
the requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of any
other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously or not in
good faith with respect to the rights provided by NRS 92A.300 to
92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
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QUEPASA.COM, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 28, 2002
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
QUEPASA.COM, INC.
The undersigned stockholder of quepasa.com, inc. hereby appoints Robert J.
Taylor and Gary L. Trujillo, or either of them, with full power of substitution,
as proxy holders to cast all votes, as designated below, which the undersigned
stockholder is entitled to cast at the quepasa annual meeting of stockholders to
be held on February 28, 2002 at 10:00 a.m. local time, at Glen Eagles, 3700
North Carson Street, Carson City, Nevada, upon the following matters and any
other matters as may properly come before the annual meeting or any adjournments
thereof.
1. Proposal to elect the following directors to serve a one-year term, with the
understanding that if the merger agreement is approved, the directors
elected at the annual meeting shall resign as of the closing of the merger:
FOR AGAINST ABSTAIN
Gary L. Trujillo / / / / / /
L. William Seidman / / / / / /
Jerry J. Colangelo / / / / / /
Louis Olivas / / / / / /
Jose Maria Figueres / / / / / /
2. Proposal to approve and adopt the Amended and Restated Merger Agreement
dated as of October 11, 2001, by and among quepasa, Great Western Land and
Recreation, Inc., GWLAR, Inc., and GWLR, LLC, pursuant to which quepasa will
become a wholly-owned subsidiary of Great Western, and any and all
transactions contemplated by that agreement.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to authorize the Great Western board of directors to effect a
reverse stock split of one share for up to 20 shares of Great Western common
stock outstanding at any time prior to or during the 24 month period
following the closing of the merger.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to authorize the quepasa board of directors to completely liquidate
quepasa in the event the merger is not approved by the quepasa shareholders
or the merger agreement is terminated and, at the discretion of the board of
directors, to distribute all remaining cash after payment of all debts and
expenses, to the quepasa shareholders and to dissolve quepasa.
/ / FOR / / AGAINST / / ABSTAIN
5. Ratification of the appointment of KPMG LLP as quepasa's independent
auditors through the closing date of the merger.
/ / FOR / / AGAINST / / ABSTAIN
This proxy, when properly executed, will be voted as directed by the
undersigned stockholder and in accordance with the best judgment of the proxy
holder as to other matters. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" PROPOSALS 2, 3, 4 and 5, "FOR" VOTES WILL BE ENTERED FOR ALL OF THE
DIRECTORS NOMINATED ABOVE, AND WILL OTHERWISE BE VOTED IN ACCORDANCE WITH THE
BEST JUDGMENT OF THE PROXY HOLDER AS TO OTHER MATTERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 2, 3, 4, AND 5 AND ALSO
RECOMMENDS A VOTE "FOR" ALL OF THE NOMINATED DIRECTORS LISTED ABOVE.
The undersigned hereby acknowledges prior receipt of the notice of annual
meeting of stockholders and proxy statement / prospectus dated , 2002, and
hereby revokes any proxy or proxies heretofore given. This proxy may be revoked
at any time before it is voted by delivering to the Secretary of quepasa either
a written revocation of proxy or a duly executed proxy bearing a later date, or
by appearing at the annual meeting and voting in person.
If you receive more than one proxy card, please sign and return all cards in
the accompanying envelope.
Date: ____________________________, 2002
________________________________________
Signature of Stockholder or Authorized
Representative
________________________________________
Signature of Stockholder or Authorized
Representative (if held jointly)
Please date and sign exactly as name
appears hereon. Each executor,
administrator, trustee, guardian,
attorney-in-fact, and other fiduciary
should sign and indicate his or her full
title. In the case of stock ownership in
the name of two or more persons, all
persons should sign.
/ / I PLAN TO ATTEND THE FEBRUARY 28, 2002 ANNUAL MEETING OF STOCKHOLDERS.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY, AND RETURN IT PROMPTLY TO ENSURE A
QUORUM AT THE MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES. DELAY
IN RETURNING YOUR PROXY MAY SUBJECT QUEPASA TO ADDITIONAL EXPENSE.