Joint Venture Agreement

JOINT VENTURE AGREEMENT



THIS JOINT VENTURE AGREEMENT is made as of March 5, 1998 by and among LYCOS, INC. ("Lycos"), a corporation organiz ed under the laws of the State of Delaware, United States of America, SUMITOMO CORP. ("Sumitomo"), a kabushiki kaisha organized under the laws of Japan, and INTERNET INITIATIVE JAPAN, INC. ("IIJ"), a kabushiki kaisha organized under the laws of Japan. Sum itomo and IIJ are sometimes referred to collectively as the "Purchasers."





A. Lycos provides a World Wide Web search and navigation service which is supported by advertising and electronic commerce. Lycos has exclusive worldwide rights to certain tec hnology and knowhow used in providing such service. Lycos is interested in providing a comparable service, as culturally adapted and with suitable local content, for the Japanese market, and is planning to establish a venture in Japan for that purpose.



B. Sumitomo and IIJ are interested in participating in the venture which Lycos is planning to establish in Japan, and each has various knowledge, experience and resources which would be of benefit to the venture.



NOW, THEREFORE, the parties to this Agreement hereby agree as follows:



1. Incorporation of Lycos K.K. As promptly as possible after the execution of this Agreement by all of the parties hereto, Lycos shall cause a kabushiki kaisha to be incorporated under the laws of Japan as a wh olly owned Lycos subsidiary (the "Company"). The Company shall be incorporated in compliance with the following provisions:



1.1 Name. The name of the Company shall be "Lycos Japan [in katakana] Kabushiki Kaisha" and in English shall be Lycos Japan K.K.



1.2 Authorized Shares. The Company shall be authorized to issue [***] shares of stock, all of which shares shall be of one class and shall have a par value of [***] per share (collectively, the "Stock").



1.3 Capitalization. [***]





*** A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.





1.4 Initial Directors and Statutory Auditor. The directors and statutory auditor of the Company shall be initially as follows:



Name Position

---- --------



Lyons Nominee Representative Director

Edward M. Philip Representative Director

Robert J. Davis Director

Lycos Nominee Statutory Auditor



1.5 Address of Registered Office. The address of the registered office of the Company shall be initially as follows:



Lycos Japan K.K.

c/o Sumitomo Corp.

1-2-2 Hitotsubashi, Chiyoda-ku

Tokyo, 100-8601, Japan



1.6 Fiscal Year. The fiscal year of the Company shall end on July 31, and the initial fiscal year shall be the stub period from the date of incorporation of the Company through July 31, 1998.



1.7 Articles. The Articles of Incorporation of the Company shall be in the form of the attached Exhibit A.



1.8 Costs and Expenses.



(a) The Company shall bear all costs and expenses directly relating to the incorporation of the Company in Japan, including without limitation registration fees payable to the Legal Affairs Bur eau, notary fees, stamp duties and bank commissions payable in connection with the contribution of capital, but excluding any attorneys' fees and costs. At the request of Lycos and to the extent such request is deemed reasonable by Sumitomo, Sumitomo shal l advance any expenses referred to in this paragraph (a) when and as required, and Sumitomo shall be entitled to prompt reimbursement of such expenses by the Company upon the completion of its incorporation.



(b) Sumitomo shall reimburse L ycos for fifty percent (50%) of the actual out-of-pocket costs and expenses reasonably incurred by Lycos directly in connection with the negotiation, preparation, execution and delivery of this Agreement, or any exhibit, schedule, agreement, document or i n strument attached to, referred to in or executed or delivered pursuant to this Agreement, or in connection with the establishment and capitalization of the Company, including without limitation any travel expenses or fees and costs of Japanese or United S tates counsel, or in connection with analysis and negotiation relating to the choice of an appropriate vehicle for use in establishing a Lycos presence in Japan; provided, however, that Sumitomo's reimbursement obligation







to bear costs and expenses under this Section 1.8(b) shall be limited to a maximum amount of Fifty Thousand U.S. Dollars (US$50,000).



1.9 Assistance. At the request of Lycos, Sumitomo shall provide such reasonable assistance in connection with the incorporation of the Company as Lycos may reasonably request or require, including without limitation assistance in connection wi th the preparation or filing of any reports, notices or other filings required to be made in Japan by the Company to or with any Japanese governmental authority.



2. License Agreement. Upon completion of the incorporation of the Company, Lycos shall enter into a license agreement with the Company in the form of the attached Exhibit B (the "License Agreement").



3. Capital Increase.



3.1 Issuance of Additional Shares.



(a) On the terms and subject to the conditions se t forth in this Section 3, Lycos shall cause the Company to offer, issue and sell to the Purchasers, and the Purchasers shall purchase from the Company, the number of shares of Stock set forth below beside their respective names (collectively, the "Additi onal Shares"), at a cash purchase price of [***] per share, as follows:



Party Number of Shares Aggregate Purchase Price

----- ---------------- ------------------------



[***] [***] [***]

[***] [***] [***]



(b) At the option of Sumitomo exercisable at any time prior to the Closing (as defined below) by written notice to Lycos and IIJ, Sumitomo m ay designate Nippon Telegraph and Telephone Corp., a kabushiki kaisha organized under the laws of Japan ("NTT"), as the purchaser of [***] shares of the [***] shares of Stock to be purchased by Sumitomo as provided in paragraph (a), in which event Lycos s h all, provided that NTT delivers to each of the parties to this Agreement its written undertaking, in form and substance satisfactory to all of such parties, to be bound by all of the terms and provisions of this Agreement (other than Section 9) as though N TT were originally a party hereto, cause the Company to offer, issue and sell to NTT [***] shares of Stock at a cash purchase price of [***] per share, for an aggregate purchase price of [***]. The issuance and sale of such [***] shares of Stock by the Co m pany to NTT shall discharge the obligations of Sumitomo under this Agreement with respect to the purchase and sale of such shares. Upon NTT's delivery of its written undertaking as provided above, NTT shall be deemed a Purchaser" for all purposes under th is Agreement, except that NTT shall not be bound by the provisions of Section 9.



*** A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.





3.2 Increase of Capital. Upon compl etion of the issuance and sale of the additional Shares in accordance with Section 3.1, the aggregate paid in capital of the Company shall be [***] in cash, including the [***] of capital contributed by Lycos to the Company in connection with the incorpor ation of the Company



3.3 Ownership Percentages.



(a) Upon completion of the issuance and sale of the Additional Shares in accordance with Section 3.1(a), the number of issued and outstanding shares of Stock owned by the stockh olders of the Company, and their respective ownership percentages, shall be as follows:



Party Number of Shares Ownership Percentage

----- ---------------- --------------------



Lycos 2,500 40%

Sumitomo 3,125 50%

IIJ 625 10%





(b) Upon completion of the issuance and sale of the Addi tional Shares pursuant to the option set forth in Section 3.3(b), the number of issued and outstanding shares of Stock owned by the stockholders of the Company, and their respective ownership percentages, shall be as follows:



Party Number of Shares Ownership Percentage

----- ---------------- --------------------



Lycos 2,500 40%

Sumitomo 2,500 40%

IIJ 625 10%

NTT 625 10%





3.4 Closing. The purchase and sale of the Additional Shares shall be effected at a closing (the "Closing") to be held within thirty (30) days after the in corporation of the Company has been completed, or within such longer period as may be mutually agreed to by the parties, on a date and at a location in Tokyo, Japan mutually convenient for Lycos and the Purchasers. At the Closing, the Company shall delive r to each Purchaser, against receipt of the cash purchase price payable by such Purchaser, a share certificate evidencing the number of Additional Shares issued to such Purchaser.



3.5 Lycos Conditions to Closing. The obligation of Lycos to caus e the Company to offer, issue and sell the Additional Shares to the Purchasers pursuant to Section 3.1 shall be subject to satisfaction of the following conditions precedent, which conditions precedent are for the benefit of Lycos and may be waived by Lyc os in its sole discretion:





*** A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.





(a) Lycos and each of the Purchasers shall have executed a Shareholder Agreement i n the form of the attached Exhibit C ("Shareholder Agreement"); provided, however, that in the event shares of Stock are issued to NTT pursuant to the option set forth in Section 3.1(b), the form of Exhibit C shall be appropriately modified to include NTT as a party;



(b) all consents and approvals of, notices and reports to, and filings with any Japanese governmental or regulatory authority required in connection with the offer, issuance and sale of the Additional Shares by the Company to the Purchasers shall have been obtained or made; and



(c) the offer, issuance and sale of the Additional Shares by the Company to the Purchasers in the manner contemplated by this Agreement shall not result in any violation of any Japanese law, rule, regulation, order or decree.



3.6 Purchasers' Conditions to Closing. The obligation of each of the Purchasers to purchase the Additional Shares from the Company pursuant to Section 3.1 shall be subject to satisfaction of the following conditions precedent, which conditions precedent are for the benefit of each of the Purchasers and may be waive d by each of the Purchasers, as to itself only, in the exercise of its sole discretion:



(a) the Company shall have been duly incorporated under the laws of Japan as a kabushiki kaisha in compliance with the provisions of Section 1;



(b) the Articles of Incorporation of the Company shall be in the form of the attached Exhibit A;



(c) Lycos and the Company shall have entered into the License Agreement, and the License Agreement shall be in full force and effect and in the form of the attached Exhibit B;



(d) Lycos and each of the Purchasers shall have executed a Shareholder Agreement in the form of the attached Exhibit C; provided, however, that in the event shares of Stock are issued to N TT pursuant to the option set forth in Section 3.1(b), the form of Exhibit C shall be appropriately modified to include NTT as a party;



(e) all consents and approvals of, notices and reports to, and filings with any Japanese governmental or regulatory authority required in connection with the offer, issuance and sale of the Additional Shares by the Company to the Purchasers shall have been obtained or made;



(f) the offer, issuance and sale of the Additional Shares by the Company to the Purchasers in the manner contemplated by this Agreement shall not result in any violation of any Japanese law, rule, regulation, order or decree; and







(g) there shall exist no obligations or liabilities of the Company other than as may be customarily incurred in connection with its incorporation or as set forth in this Agreement or the License Agreement.



3.7 Satisfaction of Conditions. Each party shall use reasonable commercial efforts in good faith to assure that all conditions precedent applicable to such party are timely satisfied.



3.8 Issuance Expenses. All expenses relating to the offer, issuance and sale of the Additional Shares by the Company to the Purchasers shall be borne by the Company.



3.9 Election of Directors. Immediately following the issuance of the Additional Shares, the Lycos nominee serving as Representative Director resident in Japan shall resign, and three additional directors shall be elected such that the Board of Directors of the Company shall be constituted as contemplated by the Shareholder Agreement.



3.10 Statutory Auditors. Immediately following the issuance of the Additional Shares, the number of statutory auditors shall be increased from one (1) to three (3).



4. Sumitomo Loan Facility.



4.1 Loan Facility. Sumitomo agrees to make available, or to cause to be made available through an affiliate, to the Company a revolving loan facility (the "Facility") under which the Company shall be entitled to borrow, repay and reborrow amou n ts in Japanese Yen up to a maximum aggregate amount of [***] at any one time outstanding. Advances made or to be made under the Facility are referred to individually as an "Advance" and collectively as "Advances," and the lender under the Facility (whethe r Sumitomo or an affiliate of Sumitomo) is referred to as "Lender."



4.2 Loan Agreement. As promptly as possible after the issuance of the Additional Shares, Sumitomo shall, or shall cause an affiliate of Sumitomo to, enter into a loan agreement with the Company (the "Loan Agreement") to make provision for the Facility on the terms and conditions set forth in this Article 4 and on such additional terms and conditions as are not inconsistent with the provisions of this Article 4 and as are agreea ble to the Company and Lycos.



4.3 Commitment Period. The Facility shall be made available by Lender to the Company during the period commencing from the date of the Loan Agreement through the sixth (6th) anniversary date of the date of the Loan Agreement.



4.4 Drawdown. The Company shall have the right to draw funds under the Facility during the Commitment Period upon the affirmative vote of at least three (3) of the directors of the Company to draw such funds; provided, however, tha t each drawing shall be for an amount of not less than (Yen)50,000,000.



*** A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.







4.5 Drawdown Notice. The Company shall be required to give to Lender at least three (3) days prior written notice of the proposed date and amount of any Advance.



4.6 Repayment. Unless otherwise specifically agreed in writing between Lender and the Company at the time of any advance, t he principal amount of such Advance shall be due and payable on a date (the "Repayment Date") which is the earlier of (a) the Maturity Date, or (b) the one (1) year anniversary date of the making of such Advance.



4.7 Applicable Rate. "Applicab le Rate" means, with respect to any Advance, The Prime Rate plus one percent (1%). As used in this Section 4.8, "Prime Rate" means the rate announced from time to time by Sumitomo Bank at its principal lending office in Tokyo, Japan as its "prime rate."



4.8 Interest. Borrower shall pay interest on the outstanding principal amount of each Advance at a rate per annum which is equal to the Applicable Rate. All interest payable with respect to any Advance shall be payable in arrears on the last da y of each interest period (as determined at the time of the Advance or as otherwise determined under the Loan Agreement) and on the Repayment Date with respect to such Advance. Interest shall be calculated based on a 360-day year and the actual number of d ays elapsed.



4.9. Prepayment. Borrower may prepay any Advance in whole or in part without premium or penalty.



4.10 Method of Payment. Borrower shall pay all principal and interest owing to Lender under the Facility in Japanese Yen to such account as Lender may specify by written notice to Borrower.



4.11 No Collateral or Guaranty. No collateral for any of the Advances shall be required, and the Advances shall be unsecured. No guaranty of any of the Advances, including wi thout limitation any guaranty of any of the stockholders of the Company, shall be required.



5. Additional Capital Contributions and Stockholder Loans.



5.1 Additional Capital Contributions. Upon the incorporat ion of the Company and the issuance of the Additional Shares in the manner contemplated by this Agreement, none of the parties to this Agreement shall have any obligation to make additional capital contributions to the Company.



5.2 Loans. Except as expressly provided for in Section 4, none of the parties to this Agreement shall have any obligation to make loans to the Company.







6. Management.



6.1 Directors. The parties shall cooperate in the election of directors, as more s pecifically provided for in the Shareholder Agreement. Immediately after the issuance of the Additional Shares, there shall be two Representative Directors, one of whom shall be a Sumitomo nominee resident in Japan and one of whom shall be a Lycos nominee resident outside of Japan, and the parties shall take such action as may be necessary to effect this provision.



6.2 Meetings of Directors. Unless otherwise agreed among the parties from time to time, approximately 60% of the meetings of direct ors shall be held in Japan and approximately 40% of the meetings of directors shall be held at a location in the United States designated by Lycos. The Company shall bear all reasonable expenses of directors in connection with their attendance at meetings of directors, including without limitation travel, lodging and meals.



6.3 Officers. The parties shall exercise its voting rights so as to permit Sumitomo's designated nominee to be elected as President of the Company, and so as to permit Lycos ' designated nominee to be elected as Executive Vice President of the Company. Among the officers of the Company, the Executive Vice President shall be second in seniority to the President.



7. Business Objectives and Start Up.



7.1 Business Objectives. The business objectives of the Company shall include, without limitation, the following:



(a) provide a World Wide Web navigation and search service at www.lycos.co.jp, which is generally similar to, and of like quality wi th, the World Wide Web navigation and search service provided by Lycos at www.lycos.com, but which is adapted culturally and in local content to be suitable for the Japanese market (the "Service");



(b) generate revenue from the Service, including without limitation revenue from the sale of advertising and electronic commerce;



(c) engage in all business activities relating to the development, maintenance, support and enhancement of the Service, including without limitati on the development and acquisition of local content and the development and expansion of distribution channels for the Service; and



(d) engage in all business activities ancillary or incidental to the foregoing.



7.2 Start Up . Initially, the Service shall be operated and maintained at the U.S. data center of Lycos. When and as feasible, as determined by Lycos and the Company, the operation and maintenance of the Service shall be transferred to a site in Japan.







8. Cooperation. The parties shall in good faith cooperate with each other to enable the Company to achieve its business objectives and purposes and to maximize the success of the Company's business.



9. Exclusivity. Without the prior written ap proval of Lycos, none of the Purchasers shall directly or through a "controlled affiliate" (as defined below) establish, maintain or invest in, or agree to establish, maintain or invest in, a World Wide Web search or directory service using web-crawler an d spidering technology, which search or directory service is substantially similar to the World Wide Web search service to be provided by the Company, except that the foregoing restriction shall not apply to passive portfolio investments in an entity not i n excess of five percent (5%) of the total equity of such entity, and except that any of the Purchasers which as of the date of this Agreement maintain any such service or have invested in the provider of any such service shall have the right to continue t o maintain such service or investment. Without the prior written approval of the Purchasers, Lycos shall not directly or through a "controlled affiliate" establish, maintain or invest in, or agree to establish, maintain or invest in, any World Wide Web sea r ch or directory service (other than the Service) operated from Japan for the local Japanese market. As used in this Section 9, "controlled affiliate" of a party means any corporation or other entity which such party controls through a more than fifty perc ent (50%) ownership interest or through the right to exercise voting power sufficient to elect a majority of directors in the case of a corporation or other management in the case of any other entity.



10. Representations and Warranties of Lycos. Lycos hereby represents and warrants to the Purchasers as follows:



10.1 Organization, Power and Authority. Lycos is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, United States of Ameri ca. Lycos has all requisite power and authority to execute, deliver and perform its obligations under this Agreement.



10.2 Authorization and Binding Obligations. Lycos has taken all requisite corporate action to authorize and approve the execu tion, delivery and performance of this Agreement by Lycos. This Agreement has been duly executed and delivered by Lycos, and constitutes the legal, valid and binding obligations of Lycos, enforceable against Lycos in accordance with its terms.



10.3 No Conflicts. The execution, delivery and performance of this Agreement by Lycos, and the consummation of the transactions contemplated hereby, will not (a) violate any provision of the Certificate of Incorporation or Bylaws of Lycos, (b) violate, c o nflict with or result in (or with notice or lapse of time or both result in) a breach of or default under any term or provision of any contract or agreement to which Lycos is a party or by which Lycos or any of its assets or properties is or may be bound, or (c) violate any order, judgment, injunction, award or decree of any court or arbitration body, or any governmental, administrative or regulatory authority, by which Lycos or any of its assets or properties is or may be bound.







10.4 No Pend ing Litigation. No action, suit or proceeding which seeks to prevent the consummation of the transactions contemplated by this Agreement, or would impair the ability of Lycos to consummate the transactions contemplated by this Agreement, is pending agains t Lycos, and no such action, suit or proceeding has been threatened against Lycos.



11. Representations and Warranties of the Purchasers.



Each of the Purchasers, severally as to itself, hereby represents and warrants to Lycos as follows:



11.1 Organization, Power and Authority. Such Purchaser is a kabushiki kaisha duly organized and validly existing under the laws of Japan. Such Purchaser has all requisite power and authority to execute, deliver and perform its obligations unde r this Agreement.



11.2 Authorization and Binding Obligations. Such Purchaser has taken all requisite corporate action to authorize and approve the execution, delivery and performance of this Agreement by such Purchaser. This Agreement has been duly executed and delivered by such Purchaser, and constitutes the legal, valid and binding obligations of such Purchaser, enforceable against such Purchaser in accordance with its terms.



11.3 No Conflicts. The execution, delivery and perform ance of this Agreement by such Purchaser, and the consummation of the transactions contemplated hereby, will not (a) violate any provision of the charter documents of such Purchaser, (b) violate, conflict with or result in (or with notice or lapse of time or both result in) a breach of or default under any term or provision of any contract or agreement to which such Purchaser is a party or by which such Purchaser or any of its assets or properties is or may be bound, or (c) violate any order, judgment, inj unction, award or decree of any court or arbitration body, or any governmental, administrative or regulatory authority, by which such Purchaser or any of its assets or properties is or may be bound.



11.4 No Pending Litigation. No action, suit o r proceeding which seeks to prevent the consummation of the transactions contemplated by this Agreement, or would impair the ability of such Purchaser to consummate the transactions contemplated by this Agreement, is pending against such Purchaser, and no such action, suit or proceeding has been threatened against such Purchaser.



12. Termination.



12.1 Termination for Failure of Conditions. In the event that the conditions precedent to the obligations of Lycos as set forth in Section 3.5 have not been satisfied (or waived by Lycos) by the scheduled date of the Closing as agreed to betwe en ...