<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the period from _______ to _______.
Commission File Number: 000-21751
MESSAGEMEDIA, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 33-0612860
-------- ----------
(State or jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6685 GUNPARK DRIVE EAST #240
BOULDER, CO 80301
(Address, including zip code, of principal executive offices)
(303) 440-7550
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents
and reports to be filed by sections 12,13, or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by the court. Yes [ ] No[ ]
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common Stock, $0.001 Par Value - 43,034,597 shares as of March 31, 1999.
<PAGE> 2
MESSAGEMEDIA, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and
December 31, 1998 3
Consolidated Statements of Operations (unaudited) for the three months
ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows (unaudited) for the three months
ended March 31, 1999 and 1998 5
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Factors Affecting Operating Results & Market Price of Stock 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 23
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MESSAGEMEDIA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,634,797 $ 4,659,375
Accounts receivable, net 850,390 680,927
Prepaid expenses and other 332,463 429,963
------------ ------------
Total current assets 12,817,650 5,770,265
Furniture, equipment and software, net 1,273,744 1,475,720
Patent and other costs, net 30,671 50,835
Intangibles assets, net 20,778,014 23,894,715
Deposits and other 14,373 29,446
------------ ------------
Total assets $ 34,914,452 $ 31,220,981
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 825,629 $ 1,383,197
Accrued compensation and related liabilities 162,000 148,419
Accrued interest -- 15,226
Deferred revenue 157,548 36,000
Amount due to stockholders, current portion 385,000 395,000
Note payable and capital lease obligations, current portion 31,091 108,990
Merger integration and relocation payable 838,519 --
Other accrued liabilities 437,807 583,770
------------ ------------
Total current liabilities 2,837,594 2,670,602
Note payable and capital lease obligations 25,050 53,786
Deferred rent 13,083 13,083
------------ ------------
Total long term liabilities 38,133 66,869
Stockholders' equity :
Preferred stock, 5,000,000 shares authorized, none
outstanding at March 31, 1999 and December 31, 1998 -- --
Common stock, $0.001 par value; 100,000,000 shares authorized, 43,034,597 and
40,121,048 shares issued and outstanding at March 31, 1999 and December 31,
1998, respectively 43,034 40,121
Additional paid-in-capital 81,951,151 71,398,314
Warrants 1,430,828 1,430,828
Deferred compensation (654,672) (657,720)
Accumulated deficit (50,731,616) (43,728,033)
------------ ------------
Total stockholders' equity 32,038,725 28,483,510
------------ ------------
Total liabilities and stockholders' equity $ 34,914,452 $ 31,220,981
============ ============
</TABLE>
See accompanying notes.
3
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MESSAGEMEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues $ 753,527 $ 280,669
Cost of revenues 108,047 18,600
------------ ------------
Gross profit 645,480 262,069
Operating expenses:
Marketing and sales 941,942 792,534
Research, development and engineering 936,818 1,644,056
General and administrative 1,346,938 1,021,064
Merger integration and restructure charge 1,025,000 --
------------ ------------
Total operating expenses 4,250,698 3,457,654
Depreciation and amortization 3,413,484 399,263
------------ ------------
Loss from operations (7,018,702) (3,594,848)
Interest income 32,185 44,897
Interest expense (17,066) (27,185)
------------ ------------
Net loss (7,003,583) (3,577,136)
Preferred stock dividend -- (87,502)
------------ ------------
Net loss applicable to common shares $ (7,003,583) $ (3,664,638)
============ ============
Net loss per share, basic and diluted $ (0.17) $ (0.38)
============ ============
Shares used in per share computation,
basic and diluted 40,583,425 9,605,870
</TABLE>
See accompanying notes.
4
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MESSAGEMEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (7,003,583) $ (3,577,136)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 3,413,484 399,263
Loss on disposal of assets -- 170
Common stock issued for services 61,388 24,283
Compensation expense for stock options 78,011 --
Changes in operating assets and liabilities:
Accounts receivable (169,463) 128,469
Prepaid expenses and other 97,500 108,560
Deposits and other 15,073 (22,477)
Accounts payable (557,568) (349,087)
Accrued compensation and related liabilities 13,581 (166,021)
Deferred revenue 121,548 (163,100)
Accrued interest (15,226) 24,000
Other accrued liabilities 705,560 (237,944)
------------ ------------
Net cash used in operating activities (3,239,695) (3,831,020)
INVESTING ACTIVITIES
Additions to furniture and equipment (83,853) (129,214)
Proceeds from sale of fixed assets 1,810 2,000
------------ ------------
Net cash used in investing activities (82,043) (127,214)
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 10,419,394 7,349
Proceeds from the issuance of warrants -- 8,523
Repayment of amount due to stockholder (10,000) (97,500)
Repayment of loan from bank (97,108) --
Repayment of capital lease obligations (15,126) --
------------ ------------
Net cash provided by/(used in) financing activities 10,297,160 (81,628)
------------ ------------
Net increase/(decrease) in cash and cash
equivalents 6,975,422 (4,039,862)
Cash and cash equivalents at the beginning
of period 4,659,375 6,331,059
------------ ------------
Cash and cash equivalents at the end
of period $ 11,634,797 $ 2,291,197
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 17,066 $ 27,185
</TABLE>
See accompanying notes.
5
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MESSAGEMEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The interim unaudited consolidated financial statements included herein have
been prepared by MessageMedia, Inc. (the "Company"), pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). Accordingly,
they do not include all the information and disclosures required by generally
accepted accounting principles for complete financial statements. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 1998 included in the Company's Annual Report on Form 10-K. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the financial position of the Company as of
March 31, 1999 and the results of operations and the changes in cash flows for
the three month periods ended March 31, 1999 and 1998 have been included. The
results of operations for the interim period ended March 31, 1999 are not
necessarily indicative of the results which may be reported for any other
interim period or for the year ended December 31, 1999.
2. PRIVATE PLACEMENT
On March 26, 1999, the Company issued 2,352,942 shares of its common stock in a
private placement for net proceeds to the Company of approximately $10 million.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report on Form 10-Q contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the subsection entitled "Factors
Affecting Operating Results and Market Price of Stock" commencing on page 12.
MessageMedia provides a seamless outsource solution for relationship-based,
transactive communications using Internet e-mail. Termed "e-messaging", this
personalized sales, marketing and service channel creates new revenue and
servicing opportunities while cutting the cost of interacting with a large
number of customers. The Company's comprehensive suite of e-messaging services
allows clients to easily control each step in the messaging process and provides
a flexible range of messaging options to suit every communications need.
E-messages can be personalized and carefully targeted to segments of selected
recipients based on multiple criteria. The result is a richer relationship
between a company and its customers. In addition, the enhanced customer loyalty
leads to retention and repetition of contact with the customer leading to lower
operating costs, improved service levels and higher revenue generation per
client.
MessageMedia, Inc. consists of three e-mail related companies, First Virtual
Holdings Incorporated ("FVHI"), Email Publishing, Inc. ("EPub") and Distributed
Bits LLC ("DBits"), consolidated into a single, combined company that offers a
comprehensive suite of outsource e-messaging services and capabilities. The
combined company is a member of the family of companies, funded and supported by
SOFTBANK Holdings Inc. and its affiliates. The Company's singular focus is on
e-messaging and it employs advanced technology, tools and applications to help
corporations fully utilize this new channel for building and enhancing customer
relationships online.
In December 1998, EPub became a wholly-owned subsidiary of the Company when
MessageMedia acquired all of the common stock and all outstanding rights of the
common stock of EPub in exchange for 5,582,685 shares of MessageMedia common
stock and the assumption by MessageMedia of options and warrants to acquire up
to approximately 417,315 additional shares of MessageMedia common stock at a
weighted average exercise price of $.04 per share. DBits also became a
wholly-owned subsidiary of the Company when MessageMedia acquired all equity
interests, including options, warrants or other purchase rights in DBits, in
exchange for 1,350,000 shares of MessageMedia common stock and warrants to
purchase 250,000 shares of MessageMedia common stock at an exercise price of
$6.00 per share and an additional 250,000 shares of MessageMedia common stock at
$8.00 per share.
MessageMedia has incurred net operating losses in each quarter since inception.
As of March 31, 1999, MessageMedia had an accumulated deficit of $50.7 million.
To date, the Company has not generated significant revenues. There can be no
assurance that the Company's future revenues will increase and the Company's
ability to generate significant future revenues is subject to substantial
uncertainty. In addition, as the Company introduces the new functionality of its
messaging platform and explores opportunities to merge with or acquire
complementary businesses and technologies, the Company expects to continue to
incur significant operating losses for the foreseeable future.
7
<PAGE> 8
RESULTS OF OPERATIONS
Revenues
The Company has historically generated revenues from messaging services,
consulting services and the Company's Internet payment system. On August 17,
1998, the Company ceased the operations of the First Virtual Internet Payment
System ("FVIPS"). Revenue was earned as detailed in the table below:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
Messaging services $751,527 $ --
Consulting -- 40,000
First Virtual Internet Payment System -- 240,669
Other 2,000 --
-------- --------
Total revenues $753,527 $280,669
======== ========
</TABLE>
For the three months ended March 31, 1999, revenues increased to $753,527 as
compared to $280,669 for the three months ended March 31, 1998. The Company
began its messaging services, which is now the Company's primary business, in
July 1998 and phased out its FVIPS operations, which previously was the
Company's primary business, in August 1998. In addition, the Company had no
consulting revenue for the three months ended March 31, 1999.
Cost of Revenues
The Company incurred cost of revenues from messaging services and FVIPS, as
detailed in the table below:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
Messaging services $108,047 $ --
First Virtual Internet Payment System -- 18,600
-------- --------
Total cost of revenues $108,047 $ 18,600
======== ========
</TABLE>
For the three months ended March 31, 1999, the cost of revenues for messaging
services was approximately 14.4 % of related messaging revenues. Since the
Company is still in the early stages of offering its messaging products, cost of
revenues for messaging services may increase as additional functionality is
added to the suite of messaging services.
Operating Expenses
Operating expenses consist of marketing and sales, research, development and
engineering, and general and administrative expenses. In addition, for the three
months ended March 31, 1999, the Company incurred a merger integration and
restructuring charge in connection with the relocation of its corporate
headquarters from San Diego, California to Boulder, Colorado. The Company
expects operating expenses to continue to be substantial as development and
enhancement of technological capabilities associated with its messaging services
continues. The Company also anticipates that expenses necessary for the
introduction of new services and promotion of its products will be substantial.
Marketing and sales expenses. Marketing and sales expenses, which include
salaries and wages, consulting fees, advertising, trade show expenses, travel
and other marketing expenses, increased to $941,942 for the
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three months ended March 31, 1999, as compared to $792,534 for the three months
ended March 31, 1998. This increase is primarily due to additions in headcount
in sales and marketing staff, resulting in an increase in salaries, wages and
payroll taxes of approximately $235,000 and an increase in travel related
expenses of approximately $55,000 from additional headcount and increased sales
efforts, offset by a decrease in advertising and promotional spending to promote
sales of the Company's products and services of approximately $140,000.
Research, development and engineering expenses. Research, development and
engineering expenses, which include salaries and wages and consulting fees to
support the development, enhancement and maintenance of the Company's products
and services, decreased to $936,818 for the three months ended March 31, 1999,
as compared to $1.6 million for the three months ended March 31, 1998. This
decrease is primarily due to the reduction in headcount in the research,
development and engineering staff, resulting in a decrease in salaries, wages
and payroll taxes of approximately $325,000, a decrease in consulting fees of
approximately $190,000 due to the elimination of development consultants
associated with the Company's internet payment system, a decrease in
communications expenses of approximately $55,000 related to the shut down of the
internet payment system , a decrease in travel related expenses of approximately
$25,000 from reduced headcount and a general decrease in spending of
approximately $70,000 from lower department headcount and reduced overhead
associated with the reduction in staff.
General and administrative expenses. General and administrative expenses consist
primarily of salaries and wages, professional and consulting fees and other
expenses associated with the general management and administration of the
Company. General and administrative expenses increased to $1.3 million for the
three months ended March 31, 1999, as compared to $1.0 million for the three
months ended March 31, 1998. This increase is primarily due to in increased
legal expenses of approximately $100,000 incurred for patent litigation, an
increase in compensation expense of approximately $80,000 related to charges for
stock options that were granted or extended, an increase in consulting expenses
of approximately $35,000 and a general increase in spending of approximately
$85,000 to support the Company's operations in multiple locations due to its
recent acquisitions.
Merger integration and restructuring charge. For the three months ended March
31, 1999, the Company recorded a charge of $1,025,000 as a result of the
Company's decision to relocate its corporate headquarters from San Diego,
California to a new facility in Boulder, Colorado, and in addition, relocate its
current Colorado operations to the new facility. This decision was made to
create efficiencies in the Company's messaging services operations, reduce
overhead by centralizing the Company's offices to one facility and eliminate
duplication of efforts from like positions in the separate offices. The merger
integration and restructuring activity included the elimination of job
responsibilities company wide, resulting in approximately $225,000 of severance
pay to 17 employees; relocation payments of approximately $375,000 paid to nine
San Diego employees to relocate to Colorado; travel related expenses of
approximately $32,000 related to the relocation; cancellation fees of
approximately $205,000 from contracts relating to leased assets in the San Diego
facility; losses of approximately $50,000 from the sale of assets not being
moved to Colorado; cancellation fees of approximately $65,000 from contracts
relating to facilities in both San Diego and Colorado; and approximately $75,000
for moving expenses related to moving assets to the new Colorado corporate
office.
Fluctuations in operating results. The Company expects to experience significant
fluctuations in its future quarterly operating results. These fluctuations will
be due to several factors, many of which are beyond the control of the Company,
including, among others, market response to the Company's messaging services;
difficulties encountered in the development or deployment of products or
services, including interactive messaging; difficulties encountered in acquiring
and/or merging with other companies or technologies, including in particular any
difficulties in integrating the technology and operations of EPub and/or DBits;
market acceptance of Internet commerce in general and the Company's messaging
services concept in particular; fluctuating market demand for the Company's
products and services; the degree of acceptance of the Internet as an
advertising and merchandising medium; the timing and effectiveness of
collaborative marketing efforts initiated by the Company's strategic partners;
the timing of the introduction of new products and services offered by the
Company; the timing of the release of enhancements to the Company's
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products and services; product introductions and service offerings by the
Company's competitors; the mix of the products and services provided by the
Company; the timing and rate at which the Company increases its expenses to
support projected growth; the cost of compliance with applicable government
regulations; competitive conditions in the Company's marketplace; and general
economic conditions. In addition, the fees charged by the Company for
advertising, messaging, and consulting services, are subject to change as the
Company introduces its messaging services and assesses its marketing strategy
and competitive position.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had $11.6 million in cash and cash equivalents.
On March 26, 1999, the Company issued 2,352,942 shares of its common stock in a
private placement for net proceeds of approximately $10 million. MessageMedia
believes that existing cash resources will be sufficient to support
MessageMedia's currently anticipated working capital and capital expenditure
requirements through the end of 1999. MessageMedia will need to raise additional
funds through the public or private sale of its equity or debt securities or
from other sources before the end of the first quarter 2000. The timing and
amount of MessageMedia's capital requirements will depend on a number of
factors, including demand for MessageMedia's products and services, the need to
develop new or enhanced products and services, competitive pressures and the
availability of complementary businesses or technologies that MessageMedia may
wish to acquire. If additional funds are raised through the issuance of equity
securities, the percentage ownership of MessageMedia's stockholders will be
diluted and such equities may have rights, preferences or privileges senior to
those of the holders of MessageMedia's common stock. There can be no assurance
that additional financing will be available when needed or that, if available,
will include terms favorable to MessageMedia or its stockholders. If adequate
funds are not available on acceptable terms, MessageMedia may be unable to
develop or enhance its products or services, take advantage of opportunities or
respond to competition and the Nasdaq National Market may choose to discontinue
the listing of MessageMedia's common stock.
Capital expenditures have been primarily for facilities, furniture and capital
equipment to support the expansion of the Company's operations and information
systems. Capital expenditures were $83,853 and $129,214 for the three months
ended March 31, 1999 and 1998, respectively.
YEAR 2000 COMPLIANCE
Many computer systems and software products are coded to accept only two-digit
entries in date code fields. Beginning in the year 2000, these date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than one year, computer systems and/or
software used by many companies may need to be upgraded to comply with "Year
2000" requirements. Since the Company just recently developed the software for
its messaging platform and is adding new enhancements and functionality
regularly, the Company believes that its messaging platform is Year 2000
compliant. There can be no assurance, however, that coding errors or other
defects will not be discovered in the future as more testing is completed or new
functionality added. The Company currently has not yet undertaken a systematic
effort to identify Year 2000 compliance problems in all of the components of its
messaging platform. The Company believes that compliance testing will require
approximately 200-300 man-hours and intends to complete compliance testing and
remediation efforts on or before December 31, 1999. To date, the Company has
incurred minimal expenses related to Year 2000 compliance. However, the Company
expects to incur $150,000 to $250,000 of expenses in 1999 related to Year 2000
compliance. The Company currently has no contingency plans in place in the event
it does not complete all its testing and remediation efforts. The Company plans
to evaluate the status of completion in July 1999 and determine whether such a
plan is necessary.
MessageMedia relies on a number of software and communications systems provided
by third parties to operate its messaging platform. Any of these could contain
coding which is not Year 2000 compliant. These systems include server software
used to operate the network servers, software controlling routers, switches and
other components of the data network, disk management software used to control
the data disk arrays, firewall, security, monitoring and back-up software used
by the Company, as well as desktop PC
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applications software. In each case, MessageMedia employs widely available
software applications from leading third party vendors, and expect that such
vendors will provide any required upgrades or modifications in a timely fashion.
However, if any third party software suppliers fail to provide Year 2000
compliant versions of the software, operations, including our messaging
platform, could be disrupted.
Year 2000 compliance problems could also undermine the general infrastructure
necessary to support the Company's operations. For instance, the Company depends
on third-party Internet service providers (known as "ISPs") to provide
connections to the Internet and to customer information systems. Any
interruption of service from ISPs could result in a temporary interruption of
the Company's interactive messaging and other services. MessageMedia has
attempted to address this risk by obtaining the same service capacity from
multiple ISPs. In addition, the Company relies on a third-party data center to
house some servers and communications systems. Any interruption in the security,
access, monitoring or power systems at the third-party data center could result
in an interruption of services. Moreover, it is difficult to predict what
effects Year 2000 compliance problems will have on the integrity and stability
of the Internet. If businesses and consumers are not able to reliably access the
Internet, the demand for the Company's services could decline, resulting in an
adverse impact to MessageMedia's business, financial condition and results of
operations.
The Company's operations could also be adversely affected if its customers fail
to ensure that their software systems are Year 2000 compliant. The messaging
platform is designed to interface with customer databases and communications
systems to retrieve relevant information from customers' electronic commerce
systems or customer databases and to allow customers to independently control
certain features of the service including the content of transmitted messages.
MessageMedia cannot assess or control the degree of Year 2000 compliance in its
customers' information systems. Disruptions in the information systems of
significant customers could temporarily prevent such customers from accessing or
using the messaging platform, which could materially affect the Company's
operating results. To address the risk of disruptions in customer information
systems, MessageMedia designed its messaging platform to include redundant
manual control features which can be used by such customers. Nevertheless,
certain customers may elect to discontinue use of the interactive messaging
services until their internal information technology problems have been
alleviated, which would adversely affect the Company's business, financial
condition and results of operations. The spending patterns of current or
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or update their systems for Year 2000
compliance. Because of these expenditures, the Company's customers may have less
money available to pay for services, which could have a material adverse affect
on the Company's business, financial condition and results of operations.
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<PAGE> 12
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK
MessageMedia operates in a rapidly changing environment that involves a number
of uncertainties, some of which are beyond the Company's control. In addition to
the uncertainties described elsewhere in this report, these uncertainties
include:
OUR HISTORY OF OPERATING LOSSES AND ANTICIPATED FUTURE LOSSES
We have incurred net operating losses in each quarter since our inception in
March 1994. To date, we have not generated significant revenues and we cannot
guarantee that our revenues will increase in the future. In addition, we are
currently making and plan to continue to make significant investments in our
systems, sales, marketing, research, development and engineering and
administrative infrastructure in the near future. As a result of these
expenditures, we expect to continue to incur significant operating losses for
the foreseeable future. For these and other reasons, we cannot assure you that
we will ever operate profitably.
OUR LIMITED OPERATING HISTORY
We began operations in March 1994. To date, we have generated substantially all
of our revenues from the following:
- Messaging fees;
- Consulting fees;
- The receipt of registration fees from consumers and merchants;
- Transaction processing fees;
- Merchandising fees;
- Sales of our VirtualTAGs, an interactive banner; and
Since discontinuing the Internet Payment System operations in August 1998, we
have dedicated all of our resources to developing and implementing our messaging
platform and related services and technologies.
Our future financial performance will depend significantly on customer
acceptance of our messaging platform and other new and enhanced products and
services. It is very difficult to predict what the demand will be for our
messaging platform because it is a relatively new type of product. Furthermore,
we believe that our prior experience in developing and operating the Internet
Payment System does not offer a meaningful basis to assess the future prospects
of our messaging platform and related products and services. Accordingly, we
cannot assure you that a significant market for our messaging platform or for
any of our other technologies or services will develop.
UNCERTAINTY RELATING TO INTEGRATING EMAIL PUBLISHING INC. AND DISTRIBUTED BITS,
L.L.C.
On December 9, 1998, we acquired EPub through a merger in which EPub merged with
and into our wholly-owned subsidiary. On December 11, 1998, we acquired DBits in
a similar transaction. As a result, companies that had previously operated
independently must now work together. The integration will require significant
effort from our personnel and the personnel of EPub and DBits who are now
MessageMedia employees. In addition to the integration risks that we describe
below, we cannot assure you that we will be able to profitably consolidate such
businesses.
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INTEGRATION OF POTENTIAL ACQUISITIONS
As part of our business strategy, we may focus on acquiring, or making
significant investments in, complementary companies, products and technologies.
The following risks are common to the integration of two companies, and may be
associated with recent or future acquisitions:
- The difficulty of incorporating new operations, technology and
personnel into one company;
- The potential disruption of our ongoing business;
- The additional expense associated with amortization of acquired
intangible assets;
- The maintenance of uniform standards, controls, procedures and
policies; and
- The impairment of relationships with employees and customers.
We cannot assure you that we will successfully overcome these risks or any other
problems that we encounter in connection with any future acquisitions.
OUR NEED FOR ADDITIONAL CAPITAL
We will need to raise additional funds through the public or private sale of our
equity or debt securities or from other sources for the following purposes:
- To fund our operations;
- To develop new or enhanced services;
- To respond to competitive pressures;
- To acquire complementary businesses or technologies; and
- To remain in compliance with requirements of the Nasdaq National
Market for continued listing.
We will need to raise additional funds through the public or private sale of our
equity or debt securities or from other securities, before the end of the first
quarter 2000. We cannot assure you that additional funds will be available when
we need them, or that if funds are available, they will include terms favorable
to MessageMedia or our stockholders. If we are not able to obtain sufficient
funds or if adequate funds are not available on terms acceptable to us, we may
not be able to develop or enhance our products and services. A lack of
sufficient funds could also prevent us from taking advantage of important
opportunities or being able to respond to competitive pressures. Any of these
results could have a material adverse effect on our business, financial
condition and results of operations.
Our need to raise additional funds could also directly and adversely affect your
investment in MessageMedia in another way. When a company raises funds by
issuing shares of stock, the percentage ownership of the existing stockholders
of that company is reduced or diluted. If we raise funds in the future by
issuing additional shares of stock, you may experience significant dilution.
Additionally, certain types of equity securities that we may issue in the future
could have rights, preferences or privileges senior to your rights as a holder
of our common stock.
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OUR ABILITY TO ATTRACT AND RETAIN PERSONNEL
Our success greatly depends on the continued service of our key senior
management personnel. None of the persons currently in such positions are bound
by an employment agreement. The loss of any member of our senior management team
could have a material adverse effect on our future operating results. Our future
success will depend in large part upon our ability to attract, retain and
motivate highly skilled employees, in particular in the roles of Chief Executive
Officer and Chief Financial Officer as well as other senior management
positions. At the time of this filing, the Company has an aggressive search in
process to fill the position of Chief Financial Officer. We face significant
competition for individuals with the skills and experience required to perform
in such roles. We cannot assure you that we will be able to attract or retain
such individuals, or that the departure of such individuals from MessageMedia
will not cause a disruption in our operations.
RISKS ASSOCIATED WITH NEW MANAGEMENT TEAM
Virtually all of our executive officers, including our Chief Executive Officer,
Vice President of Sales and Marketing and Vice President, Corporate Development,
have joined our company within the past several months. Our future success will
depend in large part upon the ability of our executive officers and other
members of our management to operate effectively, both individually and as a
group. Due to the fact that many of our executive officers are new to our
company and have never worked together, and that we do not yet have a full
management team in place, we cannot assure you that our management will be able
to function effectively, individually or as a team. Failure to do so could have
a material adverse effect on our business, financial condition and results of
operations.
RISKS ASSOCIATED WITH OUR RELOCATION
We are completing our plan to relocate and consolidate our offices in our
Boulder, Colorado. The consolidation includes the relocation of nine of our
employees currently residing in San Diego, California and is subject to risks
commonly encountered in making such a relocation, including, among others, the
difficulty associated with assimilating the personnel and operations from two
locations, the potential disruption of our business and the impairment of our
reputation and relationships with employees and clients. We cannot assure you
that we will overcome these risks and continue to operate our business
effectively.
Our relocation to Boulder, Colorado also presents risks with respect to the
services we provide to our customers. Currently we maintain technical platforms
in each of San Diego and Boulder. The platforms contain software which we use to
provide e-mail delivery services for our customers. Before the end of this year,
the technical platform in San Diego will be discontinued and the software and
services provided under the San Diego platform will be integrated into the
Colorado platform, which utilizes software acquired in the EPub acquisition. We
will also integrate software obtained in our acquisition of DBits. We cannot
assure you that we will be successful in our integration of the software
acquired from EPub with the San Diego platform, in our attempt to retrain our
employees to manage the integrated platform, in the transition of our customers
to the new platform, or in our integration of the DBits software.
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ANTICIPATED FLUCTUATIONS IN OUR OPERATING RESULTS
We expect that our future operating results may fluctuate significantly. These
fluctuations will be due to a number of factors, many of which are beyond our
control. Some of the factors that may cause fluctuations include the following:
- Market response to our messaging platform;
- Difficulties in the development or deployment of new messaging
products or services;
- Market acceptance of Internet commerce, products and services in
general;
- Fluctuating market demand for our products and services;
- The degree of acceptance of the Internet as an advertising and
merchandising medium;
- The timing and effectiveness of collaborative marketing efforts
initiated by our strategic partners;
- The timing of the introduction of new products and services offered by
us;
- The timing of the release of enhancements to our products and
services;
- Product introductions and service offerings by our competitors;
- The mix of the products and services provided by us;
- The timing and rate at which we increase our expenses to support
projected growth;
- The cost of compliance with applicable government regulations;
- Competitive conditions in our marketplace; and
- General economic conditions.
The fees that we charge for messaging and consulting services may change as we
assess our marketing strategy and competitive position. We believe that
period-to-period comparisons of our operating results are not meaningful and
should not be relied upon as an indication of our future performance. Due to the
factors we have listed above and other factors, it is likely that our future
operating results will at times not meet the
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expectations of market analysts or investors. If our operating results fail to
meet expectations, the price of our common stock could be materially and
adversely affected.
UNCERTAIN ACCEPTANCE OF OUR MESSAGING SERVICES
Market demand for new product and service types such as interactive messaging is
inherently uncertain. The messaging platform is very different from the
traditional methods of marketing and information exchange used by our target
customers, who have typically relied on advertising and direct mail to attract
new customers and maintain customer relationships. We believe that the messaging
platform will prove to be an efficient and cost-effective marketing and
relationship-management tool for a broad variety of customers. However, we
cannot assure you that prospective customers will be able to implement the
messaging platform without substantial additional cost or that it will be cost
efficient when compared to traditional methods of marketing and information
exchange. If the messaging platform fails to meet customers' demands, the use of
our interactive messaging services may decline over time. If this were to
happen, our business, financial condition and results of operations would be
materially and adversely affected.
OUR DEPENDENCE ON THIRD-PARTY PROVIDERS
We depend heavily on several third-party providers of Internet and related
telecommunication services in operating our messaging platform. We cannot assure
you that these companies will continue to provide services to us without
disruptions in service, at the current cost, or at all. Although we believe that
we could obtain these services from other sources if need be, the costs
associated with any transition to a new service provider would be substantial.
We would have to reengineer our computer systems and telecommunications
infrastructure to accommodate a new service provider. This process would be both
expensive and time-consuming. Any interruption by our service providers would
also be likely to disrupt the operation of the messaging platform, causing a
loss of revenues and potential loss of customers. Such losses could have a
material adverse effect on our business, financial condition and results of
operations.
OUR RELIANCE ON SIGNIFICANT CUSTOMERS
A significant portion of our revenues are generated by a limited number of
customers. We expect that we will continue to depend on large contracts with a
small number of significant customers for this portion of our business. This
situation can cause our revenue and earnings to fluctuate between quarters based
on the timing of contracts. None of our customers has any obligation to purchase
additional products or services from us. Consequently, if we fail to develop
relationships with significant new customers, our business, financial condition
and results of operations will be materially and adversely affected.
COMPETITION
The market for MessageMedia's products and services is intensely competitive.
There are no substantial barriers to entry into MessageMedia's business, and the
Company expects that established and new entities will enter the market for
interactive messaging services and interactive Internet communications in the
near future.
The Company's principal competitors in the interactive messaging services arena
include providers of e-mail based services such as Axciom, Cyber Data Systems,
Digital Impact, MarketHome, eGain, Email Channel, Exactis.com, Inc. (formerly
Infobeat), Matchlogic, Mustang, Postmaster Direct, PostX, ReplyNet and RevNet.
The Company also competes with BroadVision, Mypoints.com and E-Care Group for
one-to-one marketing. Additionally, MessageMedia competes with traditional
advertising, merchandising and direct marketing companies that use more
conventional means of delivering information and marketing messages to
consumers.
The Company may experience additional competition from Internet service
providers, advertising and direct marketing agencies and other large established
businesses that enter the market for interactive messaging services. Companies
such as America Online, Microsoft, IBM, Integrion, AT&T, Hewlett-Packard,
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Harte-Hanks Data Technology, ADVO, The Interpublic Group of Companies and
Foote, Cone and Belding, which possess large, existing customer bases,
substantial financial resources and established distribution channels, could
develop, market or resell a number of messaging services. Such potential
competitors may also choose to enter the market for messaging services by
acquiring one of MessageMedia's existing competitors or by forming strategic
alliances with such competitors. Either of these occurrences could harm the
Company's ability to compete effectively.
Many of MessageMedia's current and potential competitors have longer operating
histories, greater name recognition, larger customer bases, more diversified
lines of products and services and significantly greater resources than the
Company does. Such competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to potential customers. In addition, many of MessageMedia's current or
potential competitors have broad distribution channels that may be used to
bundle competing products or services directly to end-users or purchasers. If
such competitors bundle competing products or services for their customers, the
demand for the Company's products and services could substantially decline. As a
result of the above factors, MessageMedia cannot assure you that the Company
will compete effectively with current or future competitors or that competitive
pressures will not have a material adverse effect on the Company's business,
financial condition and results of operations.
UNDEVELOPED AND RAPIDLY CHANGING MARKETS FOR OUR PRODUCTS
The markets for our products and services are at a very early stage of
development and are rapidly changing. An increasing number of entities and
individuals continue to enter the market in which we compete. These market
entrants have introduced or are developing products and services for use on the
Internet and the World Wide Web that compete with our products. Demand for and
market acceptance of recently introduced products and services is both uncertain
and risky. The degree to which the messaging platform is accepted and used in
the marketplace will depend on continued growth in the use of e-mail as a
primary means of communications by businesses and consumers. An increase in the
use of interactive messaging will also depend on market acceptance of e-mail as
a method for targeted marketing of products and services. Our ability to
successfully differentiate our services from random mass e-mailing products and
services which have encountered substantial resistance from consumers will also
be important. Businesses that already have invested substantial resources in
traditional or other methods of conducting business may be reluctant to adopt
new commercial methods or strategies that may limit or compete with their
existing businesses. Individuals with established patterns of purchasing goods
and services may be reluctant to alter those patterns. Accordingly, we cannot
assure you that sufficient demand for our products and services will develop to
sustain our business.
RISKS OF TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS
Our products and services are designed around current technical standards and
our revenues depend on continued industry acceptance of these standards. While
we intend to provide compatibility with the most popular industry standards,
widespread adoption of a proprietary or closed standard could prevent us from
doing so. We cannot assure you that the standards on which our products and
services are or will be based will be accepted by the industry. Nor can we
assure you that products, services or technologies developed by others will not
render our products and services noncompetitive or obsolete. If we are unable to
respond to changing market conditions, technological developments, emerging
industry standards or changing customer requirements, our business, financial
condition and results of operations could be materially and adversely affected.
RISKS OF DEFECTS AND DEVELOPMENT DELAYS IN OUR PRODUCTS AND SERVICES
Products and services based on sophisticated software and computing systems
often encounter development delays. Our underlying software may contain hidden
errors and failures when introduced or when usage increases. It is possible that
we may experience delays in the development of the software and computing
systems underlying our services. We cannot assure you that, despite testing that
our clients and we conduct,
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we will locate errors if they occur. Nor can we assure you that we will not
experience development delays. Either of these occurrences could have a material
adverse effect on our business, financial condition and results of operations.
OUR RISK OF CAPACITY CONSTRAINTS
If the volume of messages that our systems process significantly increases, the
capacity of our software or hardware could be strained. This could lead to
slower response time or system failures. We have made and intend to continue to
make substantial investments to increase our server capacity by adding new
servers and upgrading our software as necessary. We cannot assure you, however,
that our products and services will be able to meet the growing demand as the
number of Web and Internet users increases. We also depend, as do our customers,
on Web browsers, e-mail clients and Internet and online service providers for
access to our services. Some users of our services have experienced difficulties
due to system failures unrelated to our system, products or services. If we
cannot effectively address these capacity constraints, our business, financial
condition and results of operations could be materially and adversely affected.
OUR DEPENDENCE ON INCREASED USAGE AND STABILITY OF THE INTERNET
The future of the Internet as a center for commerce will depend in significant
part on the following factors:
- Continued rapid growth in the number of households and commercial,
educational and government institutions with access to the Internet;
- The level of usage by individuals;
- The number and quality of products and services designed for use on
the Internet; and
- Expansion of the Internet infrastructure.
The degree to which e-mail will become a common method of communication depends
on the extent that users increasingly prefer e-mail over traditional means of
communication. The growth of e-mail also depends on widespread access to
reliable and affordable e-mail services by individuals, businesses and other
organizations. Because usage of the Internet as a medium for on-line exchange of
information, advertising, merchandising and entertainment is a recent
phenomenon, it is difficult to predict whether the number of users drawn to the
Internet will continue to increase and whether any significant market for our
messaging platform, or any substantial commercial use of the Internet, will
develop. We cannot assure you that Internet usage patterns, and reliance on
e-mail communication in particular, will continue to grow and will not decline
as the newness of this method of communication wears off. It is also uncertain
whether the cost of Internet access will decrease. If either the Internet or
e-mail communication fails to achieve increased acceptance and does not become
accessible to a broad audience at moderate costs, the viability of Internet
commerce and the market for our products and services will be jeopardized.
The success of our business also depends on a significant expansion of the
Internet infrastructure to provide adequate Internet access and proper
management of Internet traffic. It also needs to be expanded to provide a
substantial amount of public education to increase confidence in the integrity
and security of Internet commerce. If the Internet infrastructure is not
adequately expanded or managed, or if our products and services do not achieve
sufficient market acceptance, then our business, financial condition and results
of operations will be materially and adversely affected.
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OUR RISK OF SYSTEMS FAILURES, SECURITY RISKS, AND LACK OF SUFFICIENT INSURANCE
Risk of System Failures
The success of our services also depends on our ability to protect our computer
equipment and the information stored in our data centers against loss or damage.
We must protect against system overloads, fire, power loss, telecommunications
failures, unauthorized intrusion, infection by computer viruses and similar
events. We cannot assure you that a system failure would not materially and
adversely affect our ability to provide our products and services.
Security Risks
We currently retain highly confidential customer information in a secure
database server. We cannot assure you, however, that we will be able to prevent
unauthorized individuals from gaining access to this database server. Any
unauthorized access to our servers could result in the theft of confidential
customer information such as e-mail addresses. It is also possible that one of
our employees could attempt to misuse confidential customer information,
exposing us to liability. We use disclaimers and limitation of warranty
provisions in our client agreements in an attempt to limit our liability to
clients, including liability arising out of systems failure. However, we cannot
guarantee that such provisions will be enforceable or will be effective in
limiting our exposure to damage claims.
Lack of Sufficient Insurance
Although we carry insurance, which we believe to be adequate, the coverage it
provides may not be adequate to compensate us for all losses that may occur. We
are in the process of taking precautions to protect both our company and our
customers from events that could interrupt delivery of our products and services
or that could result in a loss of transaction or customer data. However, these
measures will not eliminate a significant risk to our operations from a natural
disaster or systems failure. We cannot guarantee that these measures would
protect the company from an organized effort to inundate our servers with
massive quantities of e-mail or other Internet message traffic which could
overload our systems and result in a significant interruption of service. Our
business interruption insurance would not fully compensate us for lost revenues,
income, additional costs or increased costs that we would experience during the
occurrence of any disruption of our computer systems. We cannot guarantee that
we will be able to obtain sufficient coverage on reasonable terms or at all in
the future.
LIMITED INTELLECTUAL PROPERTY
The Company relies on a combination of trade secret, copyright and trademark
laws, nondisclosure agreements, and other contractual provisions and technical
measures to protect its proprietary rights. The Company believes that, due to
the rapid pace of technological innovation for Internet products, the Company's
ability to establish and maintain a position of technology leadership in the
industry depends more on the skills of its development personnel than upon the
legal protections afforded its existing technology. There can be no assurance
that trade secret, copyright and trademark protections will be adequate to
safeguard the proprietary software underlying the Company's products and
services, or that its agreements with employees, consultants and others who
participate in the development of its software will not be breached, that the
Company will have adequate remedies for any breach or that the Company's trade
secrets will not otherwise become known. Moreover, notwithstanding the Company's
efforts to protect its intellectual property, there is no assurance that
competitors will not be able to develop functionally equivalent interactive
messaging technologies without infringing any of the Company's intellectual
property rights. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and use
products or technology that the Company considers proprietary, and third parties
may attempt to develop similar technology independently. In addition, effective
protection of intellectual property rights may be unavailable or limited in
certain countries. Accordingly, there can be no
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assurance that the Company's means of protecting its proprietary rights will be
adequate or that the Company's competitors will not independently develop
similar technology.
As the volume of Internet commerce increases, and the number of products and
service providers that support Internet commerce increases, the Company believes
that Internet commerce technology providers may become increasingly subject to
infringement claims. There can be no assurance that infringement claims will not
be filed by plaintiffs in the future. In particular, on October 19, 1998,
Exactis.com, Inc. filed a complaint against our subsidiary EPub in the Federal
District Court of Colorado. The complaint alleges infringement of a patent held
by Exactis.com, Inc. The complaint seeks injunctive relief and unspecified
damages. Any such claims, with or without merit, could be time consuming, result
in costly litigation, disrupt or delay the enhancement or shipment of the
Company's products and services or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable or favorable to the Company, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company may initiate claims or
litigation against third parties for infringement of the Company's proprietary
rights or to establish the validity of the Company's proprietary rights. In
particular, on October 29, 1998, the Company filed a complaint in the U.S.
District Court for the Southern District of California against Exactis.com, Inc.
The complaint alleges infringement of a patent held by MessageMedia and seeks
injunctive relief and unspecified damages. Litigation to determine the validity
of any claims could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel from productive
tasks, whether or not such litigation is determined in favor of the Company. In
addition, patent litigation such as the Exactis.com, Inc. lawsuit often gives
rise to counterclaims by the defendants, which could include challenges to the
validity of patents held by the Company. In the event of an adverse ruling in
any such litigation, the Company may be required to pay substantial damages,
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses to infringing
technology. The failure of the Company to develop or license a substitute
technology could have a material adverse effect on the Company's business,
financial condition and results of operations.
GOVERNMENT REGULATION
There are currently few laws or regulations that directly apply to our
activities on the Internet. The Company believes that it is not currently
subject to direct regulation by any government agency in the United States,
other than regulations that are generally applicable to all businesses and newly
enacted laws prohibiting Unsolicited Commercial E-mail ("spam") or laws intended
to protect minors. A number of legislative and regulatory proposals are under
consideration by federal and state lawmakers and regulatory bodies and may be
adopted with respect to the Internet. Some of the issues that such laws or
regulations may cover include user privacy, obscenity, fraud, pricing and
characteristics and quality of products and services. The adoption of any such
laws or regulations may decrease the growth of the Internet, which could in turn
decrease the projected demand for our products and services or increase our cost
of doing business. Moreover, the applicability to the Internet of existing U.S.
and international laws governing issues such as property ownership, copyright,
trade secret, libel, taxation and personal privacy is uncertain and developing.
Any new legislation or regulation, or application or interpretation of existing
laws, could have a material adverse effect on our business, results of
operations, financial condition and prospects.
OUR STOCK MAY BE VOLATILE
The stock market in general, and Internet commerce companies in
particular, including our company, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to operating
performance. The trading prices of many Internet commerce companies' stocks are
at or near historical highs and these trading prices and multiples are
substantially above historical levels. These trading prices and multiples may
not be sustained. Broad market and industry factors may reduce our stock
price, regardless of our actual operating performance. In addition, the
trading price of our common stock could fluctuate in response to factors such
as:
o quarterly fluctuations in our revenues and financial results both in
absolute terms and relative to analyst and investor expectations;
o changes in recommendations of securities analysts;
o announcements of technological innovations or new services or products;
o publicity regarding actual or potential results with respect to
technologies, services or products under development;
o disputes or other developments concerning proprietary rights,
including copyright, and litigation matters; and
o other events or factors, many of which are beyond our control.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 19, 1998, Exactis.com, Inc., a Delaware Corporation, filed
a complaint against EPub, which is now a subsidiary of MessageMedia,
in the U.S District Court for the District of Colorado. The complaint
alleges infringement of a patent held by Exactis.com, Inc. The
complaint seeks injunctive relief and unspecified damages.
On October 29, 1998, the Company filed a complaint in the U.S.
District Court for the District of Southern California against
Exactis.com, Inc. The complaint alleges infringement of U.S. Patent
No. 5,826,241 which is held by the Company. The complaint seeks
injunctive relief and unspecified damages.
ITEM 2. CHANGES IN SECURITIES
During the quarter ended March 31, 1999, the Company has sold and
issued the following securities which were not registered under the
Securities Act of 1933, as amended (the "Securities Act"):
On March 26, 1999, the Company sold 2,088,513 shares of the Company's
common stock to Pequot Private Equity Fund, L.P. and 264,429 shares to
Pequot Offshore Private Equity Fund, Inc. (collectively, the "Pequot
Funds") pursuant to that certain Purchase Agreement dated March 24,
1999, at a price of $4.25 per share. The sale and issuance of
securities in the transaction were deemed to be exempt from
registration under the Securities Act by virtue of Section (4)2 and/or
Regulation D promulgated thereunder.
The Pequot Funds represented their intention to acquire the securities
for investment purposes only and not with a view to the distribution
thereof. Appropriate legends are affixed to the stock certificates
issued in the transaction. Similar legends are imposed in connection
with any subsequent sales of any securities. All recipients received
adequate information about the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The management of the Company is not aware of any events required to
be reported hereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit Index
Exhibit 10.41 - Dennis J. Cagan Employment Agreement
Exhibit 10.42 - A. Laurence Jones Employment Agreement
Exhibit 27.1 - Financial Data Schedule
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(B) Reports on Form 8-K.
A Form 8-K/A, dated February 19, 1999, reporting information under Item 5 with
respect to the Company's previous announcement of the completion of the merger
of a subsidiary of the Company with and into Email Publishing, Inc. and the
completion of the merger of Distributed Bits LLC with and into a subsidiary of
the Company. The following exhibits were filed as part of the Form 8-K/A:
Exhibit 99.2 - Financial Statements of Email Publishing Inc.
Exhibit 99.3 - Financial Statements of Distributed Bits L.L.C.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MESSAGEMEDIA, INC.
Dated: May 12, 1999 By: /s/ A. Laurence Jones
---------------------------------
A. Laurence Jones
Chief Executive Officer
(Principal Executive Officer)
Dated: May 12, 1999 By: /s/ A. Laurence Jones
---------------------------------
A. Laurence Jones
Chief Executive Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT 10.41
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered
into effective as of January 11, 1999, by and between MESSAGEMEDIA, INC.
(the "Company"), and DENNIS CAGAN ("Executive"). The Company and
Executive are hereinafter collectively referred to as the "Parties," and
individually referred to as a "Party."
RECITALS
A. The Company is desirous of engaging the services of Executive
as Interim Chief Executive Officer ("Interim CEO") of the Company, on
the terms and conditions set forth in this Agreement;
B. Executive is desirous of accepting such interim employment,
title, and attendant responsibilities on the terms and conditions set
forth in this Agreement; and
C. Executive previously provided services to the Company as a
consultant pursuant to a Consulting Agreement dated December 22, 1998.
The Company and Executive desire to terminate the Consulting Agreement
and enter into this Agreement.
AGREEMENT
In consideration of the foregoing promises and the mutual
covenants herein contained, and for other good and valuable
consideration, the Parties, intending to be legally bound, agree as
follows:
I. EMPLOYMENT.
A. The Company hereby employs Executive as Interim CEO, and Executive
hereby accepts employment by the Company, upon the terms and conditions set
forth in this Agreement, effective as of January 11, 1999 (the "Hire Date").
B. Executive shall do and perform all services, acts, or things
necessary or advisable to manage and conduct the business of the Company which
are normally associated with the position of CEO. However, at all times during
his employment, Executive shall be subject to the direction and policies from
time to time established by the Board of Directors (the "Board").
C. The Company's employment of Executive as Interim CEO shall commence
on January 11, 1999 and shall continue for an indefinite period of time to be
determined at the sole discretion of the Board (the "Interim Period"). The
Parties understand and agree that upon the conclusion of the Interim Period,
Executive shall remain employed with the Company on a part-time basis in a
position to be determined by the Board. Executive's compensation as a part-time
employee shall be a pro-rata portion of his compensation as Interim CEO, to be
calculated based on the percentage of time that Executive devotes to the Company
in the part-time position as determined and agreed to by Executive and the
Board. Notwithstanding anything herein to the contrary, the Parties agree
Executive is an at-will employee and either
1.
<PAGE> 2
Party may terminate Executive's employment under this Agreement at any time,
with or without cause.
D. As Interim CEO, Executive shall be permitted to perform the services
he is required to perform pursuant to this Agreement at whatever location he
elects, including his residence in Santa Barbara; provided, however, that the
Company may from time to time require Executive to travel temporarily to other
locations in connection with the Company's business.
II. LOYAL AND CONSCIENTIOUS PERFORMANCE; NONCOMPETITION.
A. During his employment by the Company, Executive shall devote his full
business energies, interest, abilities and productive time to the proper and
efficient performance of his duties under this Agreement.
B. During his employment by the Company, Executive shall not engage in
competition with the Company, either directly or indirectly, in any manner or
capacity, as adviser, principal, agent, partner, officer, director, employee,
member of any association or otherwise, in any phase of the business of
developing, manufacturing and marketing of products which are in the same field
of use or which otherwise compete with the products or proposed products of the
Company.
III. COMPENSATION OF EXECUTIVE.
A. While employed by the Company as Interim CEO, the Company shall pay
Executive a base salary of Two Hundred Fifty Thousand Dollars ($250,000.00) per
year, payable in regular periodic payments in accordance with Company policy.
Such salary shall be prorated for any partial year of employment on the basis of
a 365-day fiscal year.
B. All of Executive's compensation shall be subject to customary
withholding taxes and any other employment taxes as are commonly required to be
collected or withheld by the Company.
C. As Interim CEO, Executive shall be entitled to four (4) weeks of paid
vacation in each twelve (12) month period during Executive's employment
hereunder which shall accrue on a monthly basis during Executives employment
hereunder.
D. As Interim CEO, Executive shall, in the discretion of the Board and
in accordance with Company policy, be eligible to participate in benefits under
any employee benefit plan or arrangement made available by the Company now or in
the future to its executives and its employees.
E. Executive shall also be entitled to a term life insurance policy in
the amount of One Million Dollars ($1,000,000.00) at the Company's sole cost and
expense during the entire period of his continuous employment with the Company
regardless of his position or title.
F. As Interim CEO, Executive's performance shall be reviewed by the
Board on a periodic basis (not less than once each fiscal year) and the Board
may, in its sole discretion, award such bonuses to Executive as shall be
appropriate or desirable based on Executive's
2.
<PAGE> 3
performance. The Company agrees that Executive shall be reviewed within twelve
(12) months of commencing employment hereunder. The Company agrees that
Executive shall be eligible to earn a performance bonus of up to One Hundred
Thousand Dollars ($100,000.00), less applicable taxes, based upon certain
performance targets to be granted at the sole election of the Board (the "First
Year Bonus"). Executive's eligibility for the First Year Bonus shall be
evaluated based upon the following criteria: (i) successful relocation of the
Company's headquarters to Boulder, Colorado, (ii) stabilize and integrate the
Company's operations in Boulder, (iii) build and increase the Company's gross
revenues, and (iv) identify and successfully recruit a new Chief Executive
Officer, who is acceptable to the Board.
IV. STOCK OPTIONS.
A. The Parties intend and agree that Executive will be granted an
incentive stock option to purchase Fifteen Thousand (15,000) shares of the
Company's Common Stock (the "Option") under the Company's 1995 Stock Plan. The
exercise price per share shall be equal to the fair market value of the
Company's Common Stock on the closing of the market on January 28, 1999. One
fourth of the shares subject to the Option shall vest upon the first day of each
quarter beginning on January 1, 1999, such that the Option is fully vested on
October 1, 1999. The Option shall have a term of ten (10) years.
B. The Parties intend and agree that Executive will be granted a
non-qualified stock option to purchase One Hundred Thirty Five Thousand
(135,000) shares of the Company's Common Stock (the "Supplemental Option"). The
exercise price of the Supplemental Option shall be equal to the fair market
value of the Company's Common Stock on the closing of the market on January 28,
1999. One-fourth of the shares subject to the Supplemental Option shall vest
upon the first day of each quarter in 1999 beginning on January 1, 1999, such
that the Supplemental Option is fully vested on October 1, 1999. The
Supplemental Option shall have a term of ten (10) years.
C. Executive shall also be entitled during the Interim Period to
continue to vest in the grant of non-statutory stock options (the "Nonstatutory
Option") that he received under the 1995 Stock Option Plan as a consultant to
the Company. A copy of the Nonstatutory Option Agreement is attached hereto as
Exhibit A.
V. CONFIDENTIAL INFORMATION; NONSOLICITATION.
A. Executive recognizes that his employment with the Company will
involve contact with information of substantial value to the Company, which is
not old and generally known in the trade, and which gives the Company an
advantage over its competitors who do not know or use it, including but not
limited to, techniques, designs, drawings, processes, inventions, developments,
equipment, prototypes, sales and customer information, and business and
financial information relating to the business, products, practices and
techniques of the Company, (hereinafter referred to as "Confidential
Information"). Executive will at all times regard and preserve as confidential
such Confidential Information obtained by Executive from whatever source and
will not, either during his employment with the Company or thereafter, publish
or disclose any part of such Confidential Information in any manner at any time,
or use the same except on behalf of the Company, without the prior written
consent of the Company.
3.
<PAGE> 4
As a condition of this Agreement, Executive will sign and return a copy of the
Company's Proprietary Information and Inventions Agreement, attached as Exhibit
B.
VI. ASSIGNMENT AND BINDING EFFECT.
A. This Agreement shall be binding upon and inure to the benefit of
Executive and Executive's heirs, executors, personal representatives, assigns,
administrators and legal representatives. Because of the unique and personal
nature of Executive's duties under this Agreement, neither this Agreement nor
any rights or obligations under this Agreement shall be assignable by Executive.
This Agreement shall be binding upon and inure to the benefit of the Company and
its successors, assigns and legal representatives.
VII. NOTICES.
A. All notices or demands of any kind required or permitted to be given
by the Company or Executive under this Agreement shall be given in writing and
shall be personally delivered (and receipted for) or mailed by certified mail,
return receipt requested, postage prepaid, addressed as follows:
1. If to the Company:
MessageMedia, Inc.
6685 Gunpark Drive East
Suite 240
Boulder, CO 80301
Attn: Chairman of the Board of Directors
2. If to Executive:
Dennis Cagan
Any such written notice shall be deemed received when personally
delivered or three (3) days after its deposit in the United States mail as
specified above. Either Party may change its address for notices by giving
notice to the other Party in the manner specified in this section.
VIII. CHOICE OF LAW.
A. This Agreement is made in San Diego, California. This Agreement shall
be construed and interpreted in accordance with the laws of the State of
California.
IX. INTEGRATION.
A. This Agreement contains the complete, final and exclusive agreement
of the Parties relating to the subject matter of this Agreement, and supersedes
all prior oral and written employment agreements or arrangements between the
Parties.
4.
<PAGE> 5
X. AMENDMENT.
A. This Agreement cannot be amended or modified except by a written
agreement signed by Executive and the Company.
XI. WAIVER.
A. No term, covenant or condition of this Agreement or any breach
thereof shall be deemed waived, except with the written consent of the Party
against whom the wavier in claimed, and any waiver or any such term, covenant,
condition or breach shall not be deemed to be a waiver of any preceding or
succeeding breach of the same or any other term, covenant, condition or breach.
XII. SEVERABILITY.
A. The finding by a court of competent jurisdiction of the
unenforceability, invalidity or illegality of any provision of this Agreement
shall not render any other provision of this Agreement unenforceable, invalid or
illegal. Such court shall have the authority to modify or replace the invalid or
unenforceable term or provision with a valid and enforceable term or provision
which most accurately represents the parties' intention with respect to the
invalid or unenforceable term or provision.
XIII. INTERPRETATION; CONSTRUCTION.
A. The headings set forth in this Agreement are for convenience of
reference only and shall not be used in interpreting this Agreement. This
Agreement has been drafted by legal counsel representing the Company, but
Executive has been encouraged, and has consulted with, his own independent
counsel and tax advisors with respect to the terms of this Agreement. The
Parties acknowledge that each Party and its counsel has reviewed and revised, or
had an opportunity to review and revise, this Agreement, and the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
XIV. REPRESENTATIONS AND WARRANTIES.
A. Executive represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing each
of the terms and covenants contained in this Agreement, and that his execution
and performance of this Agreement will not violate or breach any other
agreements between Executive and any other person or entity.
5.
<PAGE> 6
XV. COUNTERPARTS.
A. This Agreement may be executed in two counterparts, each of which
shall be deemed an original, all of which together shall contribute one and the
same instrument.
IN WITNESS WHEREOF, the Parties have executed this Agreement as
of the date first above written.
Dated: ______________ THE COMPANY:
MESSAGEMEDIA, INC.
By:_____________________________________
Its:____________________________________
Dated: ______________ EXECUTIVE:
__________________________________
Dennis Cagan
6.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
I. Employment.............................................................1
II. Loyal and Conscientious Performance; Noncompetition....................2
III. Compensation of Executive..............................................2
IV. Stock Options..........................................................3
V. Confidential Information; Nonsolicitation..............................3
VI. Assignment and Binding Effect..........................................4
VII. Notices................................................................4
VIII. Choice of Law..........................................................4
IX. Integration............................................................4
X. Amendment..............................................................4
XI. Waiver.................................................................5
XII. Severability...........................................................5
XIII. Interpretation; Construction...........................................5
XIV. Representations and Warranties.........................................5
XV. Counterparts...........................................................6
</TABLE>
i.
<PAGE> 8
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i
<PAGE> 9
EMPLOYMENT AGREEMENT
BY AND BETWEEN
MESSAGEMEDIA, INC.
AND
DENNIS CAGAN
<PAGE> 10
EXHIBIT A
NONSTATUTORY OPTION AGREEMENT
<PAGE> 11
EXHIBIT B
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
<PAGE> 1
EXHIBIT 10.42
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of March 1, 1999, by and between MESSAGEMEDIA, INC. (the
"Company"), and A. LAURENCE JONES ("Executive"). The Company and Executive are
hereinafter collectively referred to as the "Parties," and individually referred
to as a "Party."
RECITALS
A. The Company is desirous of engaging the services of Executive as
President and Chief Executive Officer of the Company, on the terms and
conditions set forth in this Agreement;
B. Executive is desirous of accepting such employment, title, and
attendant responsibilities on the terms and conditions set forth in this
Agreement;
C. Executive and the Company entered into a letter agreement dated March
1, 1999 which set forth certain terms and conditions of employment and further
provided that the Parties would enter into an employment agreement as soon as
possible after Executive's acceptance of the offer of employment set forth in
the letter agreement; and
D. The Parties acknowledge and agree that this Agreement memorializes
the terms and conditions of Executive's employment and replaces and supercedes
that letter agreement dated March 1, 1999.
AGREEMENT
In consideration of the foregoing promises and the mutual covenants
herein contained, and for other good and valuable consideration, the Parties,
intending to be legally bound, agree as follows:
I. EMPLOYMENT.
A. The Company hereby employs Executive as President, and Executive
hereby accepts employment by the Company, upon the terms and conditions set
forth in this Agreement, effective as of March 1, 1999 (the "Hire Date"). The
Company and Executive agree that Executive shall assume the additional title of
Chief Executive Officer ("CEO") after ninety (90) days of continuous employment.
B. The Company shall nominate the Executive and use its best efforts to
elect Executive to the Board within one hundred twenty (120) days of Executive's
Hire Date. Upon such election, Executive agrees to serve as a director of the
Company.
C. Executive's employment with the Company will not be for a specified
term and may be terminated with or without cause by Executive or the Company at
any time, for any reason or no reason, subject to the provisions of Section V
herein.
1.
<PAGE> 2
D. Executive shall do and perform all services, acts, or things
necessary or advisable to manage and conduct the business of the Company which
are normally associated with the position of President and CEO. At all times
during his employment, but subject to the preceding sentence, Executive shall be
subject to the direction and policies from time to time established by the
Board.
E. Unless the Parties otherwise agree in writing, during the term of
this Agreement, Executive shall perform the services he is required to perform
pursuant to this Agreement at the Company's offices, located at 6685 Gunpark
Drive East, Suite 240, Boulder, Colorado, 80301; provided, however, that the
Company may from time to time require Executive to travel temporarily to other
locations in connection with the Company's business.
F. Executive acknowledges that he has received, reviewed and executed
the Company's voicemail policy statement and e-mail policy statement, copies of
which are attached hereto as Exhibit A. Executive hereby agrees to comply with
the terms and conditions of such policy statements.
II. LOYAL AND CONSCIENTIOUS PERFORMANCE; NONCOMPETITION.
A. During his employment by the Company, Executive shall devote his full
business energies, interest, abilities and productive time to the proper and
efficient performance of his duties under this Agreement; provided that
Executive shall be permitted to serve on the Board of EXABYTE, CCI and any
non-profit organizations, so long as such services do not interfere with
Executive's proper and efficient performance of his duties.
B. During his employment by the Company, and for eighteen (18) months
thereafter, if Executive is eligible for and accepts the Severance Payments
provided for in Sections V.B and C., Executive shall not engage in competition
with the Company, either directly or indirectly, in any manner or capacity, as
adviser, principal, agent, partner, officer, director, employee, member of any
association or otherwise, in any phase of the business of developing,
manufacturing and marketing of products which are in the same field of use or
which otherwise compete in a material way with the products or proposed products
of the Company.
III. COMPENSATION OF EXECUTIVE.
A. While employed by the Company, the Company shall pay Executive a base
salary of Two Hundred Fifty Thousand Dollars ($250,000.00) per year, payable in
regular periodic payments in accordance with Company policy. Such salary shall
be prorated for any partial year of employment on the basis of a 365-day fiscal
year.
B. All of Executive's compensation shall be subject to customary
withholding taxes and any other employment taxes as are commonly required to be
collected or withheld by the Company.
C. Executive shall be entitled to four (4) weeks of paid vacation in
each twelve (12) month period during Executive's employment hereunder which
shall accrue on a monthly basis during Executives employment hereunder. Other
than as provided herein, Executive's use of vacation pay shall be subject to the
applicable provisions of the Employee Handbook.
2.
<PAGE> 3
D. Executive shall participate in all employee benefit plans and
arrangements made available by the Company now or in the future to its
executives or its employees. The Company may modify or cancel its benefit
plan(s) as it deems necessary.
E. Executive's performance shall be reviewed by the Board on a periodic
basis (not less than once each fiscal year) and the Board may, in its sole
discretion, award such bonuses to Executive as shall be appropriate or desirable
based on Executive's performance. The Company agrees that Executive shall be
reviewed within twelve (12) months of commencing employment hereunder. The
Company agrees that Executive shall be eligible to earn a performance bonus of
up to One Hundred Fifty Thousand Dollars ($150,000.00) ("Performance Bonus"),
less applicable taxes, based upon certain performance targets to be defined by
the Board within a reasonable period of time after the execution of this
Agreement. The Company further agrees that Executive shall be guaranteed at
least One Hundred Twenty-Five Thousand Dollars ($125,000.00) of the Performance
Bonus for year-end 1999, with the balance of the Performance Bonus to be
awarded, if at all, at the sole discretion of the Board.
IV. STOCK OPTIONS.
A. Executive shall be granted compensatory stock options with a term of
ten (10) years to purchase an aggregate of One Million Five Hundred (1,500,000)
shares of the common stock of the Company (the "Options"). Of such total number
of shares subject to the Options, Sixty-Five Thousand (65,000) shares shall be
covered by an Option granted under the Company's 1995 Stock Plan (the "Plan
Option") and One Million Four Hundred Thirty Five Thousand (1,435,000) shares
shall be covered by an Option granted outside of the Company's 1995 Stock Plan
(the "Non-Plan Option"). To the maximum extent possible the Plan Option shall be
an incentive stock option as such term is defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). Eight thousand (8,000) shares
subject to the Plan Option and Seventeen Thousand (17,000) shares subject to the
Non-Plan Option shall vest on April 1, 1999. Thereafter, one forty-eighth
(1/48th) of the total remaining shares under the Options shall vest, in the
aggregate, in equal monthly installments over four years, beginning on May 1,
1999, provided that Executive remains employed or serves as a consultant to the
Company through each vesting installment date. All other terms and conditions of
the Options are as set forth in the stock option agreements attached hereto as
Exhibit B. The Company agrees to register the Non-Plan Option and underlying
shares on the next S-8 Registration Statement filed by the Company, but in any
event no later than the time Executive elects to exercise his Options.
V. TERMINATION.
A. FOR CAUSE. The Company may terminate Executive's employment under
this Agreement "for cause" by delivery of written notice to Executive specifying
the cause or causes relied upon for such termination. If Executive's employment
under this Agreement is terminated by the Company for cause under this section,
Executive shall be entitled to receive only accrued base salary and other
accrued benefits required by law, prorated to the date of termination. Executive
will not be entitled to any other compensation. Grounds for the Company to
terminate this Agreement "for cause" shall be limited to the occurrence of any
of the following events:
3.
<PAGE> 4
1. Executive's engaging or in any manner participating in any
activity which is intentionally and materially injurious to the Company;
2. Executive's commission of any fraud or embezzlement against
the Company;
3. Executive's conviction of any crime involving dishonesty or
moral turpitude;
4. Gross and continued misconduct by Executive which demonstrates
gross unfitness to serve which is not cured within thirty (30) days after notice
of such conduct is provided in writing to Executive from the Board.
Any notice of termination given pursuant to this Section V.A. shall effect
termination as of the date specified in such notice or, in the event no such
date is specified, on the last day of the month in which such notice is
delivered or deemed delivered as provided in Section IX below.
B. WITHOUT CAUSE. The Company may terminate Executive's employment under
this Agreement "without cause" upon delivery of written notice to the Executive.
If such termination shall occur under this Section V.B., then upon Executive
furnishing to the Company a customary waiver and release of claims, Executive
shall be entitled to (i) continuation of base salary for a period of eighteen
(18) months from the date of termination with such base salary continuation to
be at the rate set forth in Section III.A. or, as the case may be, at the rate
of Executive's then current base salary in effect as of the date of termination;
(ii) eighteen (18) months accelerated vesting of the then unvested portion of
the Option; (iii) six (6) months of COBRA benefits paid by the Company. Any
notice of termination given pursuant to this Section V.B. shall effect
termination as of the date specified in such notice or, in the event no such
date is specified, on the last day of the month in which notice is delivered or
deemed deliverable as provided in Section IX below.
C. GOOD REASON. Executive may terminate Executive's employment with the
Company for "good reason" (as defined in Section V.C.1.) within one hundred
twenty (120) consecutive days following the occurrence of an event or events
constituting good reason upon delivery of written notice to the Company. If such
termination shall occur under this Section V.C., then upon Executive furnishing
to the Company a customary waiver and release of claims, Executive shall be
entitled to (i) continuation of his base salary for a period of eighteen (18)
months from the date of termination with such base salary continuation to be at
the rate set forth in Section III.A. or, as the case may be, at the rate of
Executive's then current base salary in effect as of the date of termination;
(ii) eighteen (18) months accelerated vesting of the then unvested portion of
the Option; (iii) six (6) months of COBRA benefits paid by the Company. Any
notice of termination given pursuant to this section shall effect termination as
of the date specified in such notice or, in the event no such date is specified,
on the last day of the month in which such notice is delivered or deemed
delivered as provided in Section IX.
1. For purposes of this Agreement, "Good Reason" shall mean any
one or more of the following events: (i) failure by the Company to comply with
any material provision of this Agreement, with such failure continuing for a
period of ten (10) days after written notice of such failure has been given by
Executive by the Company; (ii) the assignment to Executive of any duties
materially inconsistent with Executive's status as President and Chief Executive
4.
<PAGE> 5
Officer of the Company or the reduction of Executive's authority as provided
hereunder; (iii) a reduction by the Company of Executive's base salary, except
for across the board salary reductions approved by sixty six and two thirds
(66-2/3) of the Board similarly effecting all management personnel of the
Company; or (iv) relocation of principal offices more than twenty five (25)
miles from Boulder, Colorado.
VI. CHANGE IN CONTROL.
A. A "Change in Control" as used herein means the occurrence of any one
of the following events (i) individuals who, on March 1, 1999 are members of the
Board of Directors (the "Incumbent Directors") cease for any reason following
March 1, 1999, to constitute at least a majority of the Board; provided,
however, that any new director who is approved by a vote of at least a majority
of the Incumbent Directors shall be treated as an Incumbent Director; (ii) the
stockholders of the Company approve a merger, consolidation, statutory share
exchange or similar form of corporate transaction in which the Company is not
the ultimate surviving parent corporation or entity; (iii) the stockholders of
the Company approve a plan of complete liquidation or dissolution of the Company
or a sale of all or substantially all of the Company's assets; or (iv) any
acquisition by any person or persons acting as a group other than Softbank
Corporation of fifty percent (50%) of the Company's voting securities. If a
Change in Control occurs, then all outstanding shares subject to your Option
shall be fully vested and exercisable in full.
B. If the Company's independent auditors determine that any acceleration
of vesting or lapse of restrictions with respect to an Option would subject
Executive to an excise tax under Section 4999 of the Internal Revenue Code of
1986 (as amended) (the "Code"), such acceleration of vesting or lapse of
restrictions shall not occur (a "Cutback") to the extent necessary to avoid
imposition of such excise tax, but only if by reason of such Cutback the
resulting Net After-Tax Benefit (as defined below) exceeds the Net After-Tax
Benefit (determined without giving effect to this sentence); provided, however,
that no such Cutback shall occur if such Cutback would prevent the use of the
pooling of interest method of accounting in respect of the transaction giving
rise to the Change in Control in a transaction where the Company seeks to use
such method of accounting. For purposes of this Agreement, "Net After-Tax
Benefit" means the sum of (x) the total amount payable to you hereunder, plus,
(y) all other benefits and payments which are payable to or for your benefit
that constitute "parachute payments" within the meaning of Code Section 280(g),
less, (z) the amount of federal, state and local income taxes and other taxes
(including any excise tax imposed under Code Section 4999) payable with respect
to the foregoing amounts, calculated assuming you were subject to the maximum
income tax rates for each year in which such foregoing amounts are paid.
5.
<PAGE> 6
VII. CONFIDENTIAL INFORMATION; NONSOLICITATION.
A. Executive recognizes that his employment with the Company will
involve contact with information of substantial value to the Company, which is
not old and generally known in the trade, and which gives the Company an
advantage over its competitors who do not know or use it, including but not
limited to, techniques, designs, drawings, processes, inventions, developments,
equipment, prototypes, sales and customer information, and business and
financial information relating to the business, products, practices and
techniques of the Company, (hereinafter referred to as "Confidential
Information"). Executive will at all times regard and preserve as confidential
such Confidential Information obtained by Executive from whatever source and
will not, either during his employment with the Company or thereafter, publish
or disclose any part of such Confidential Information in any manner at any time,
or use the same except on behalf of the Company, without the prior written
consent of the Company. As a condition of this Agreement, Executive will sign
and return a copy of the Company's Confidential Information and Inventions
Assignment Agreement, attached as Exhibit C.
B. While employed by the Company, and for eighteen (18) months
thereafter, Executive agrees that in order to protect the Company's confidential
and proprietary information from unauthorized use, that Executive will not,
either directly or through others, solicit or attempt to solicit any employee,
consultant or independent contractor of the Company to terminate his or her
relationship with the Company in order to become an employee, consultant or
independent contractor to or for any other person or business entity; or the
business of any customer or vendor of distributor of the Company which, at the
time of termination for one (1) year immediately prior thereto, was listed on
the Company's customer, vendor or distributor list.
C. Executive acknowledges that in his work for the Company, he will be
expected not to use or disclose any confidential information, including trade
secrets, of any former employer or other person to whom he has had an obligation
of confidentiality. Executive agrees that he will not bring on to Company
premises any unpublished documents or property belonging to any former employer
or other person to whom he has an obligation of confidentiality. In the
performance of his duties for the Company, Executive will be expected to use
only that information which is generally known and used by persons with training
and experience comparable to his own, which is common knowledge in the industry
or otherwise legally in the public domain, or which is otherwise provided or
developed by the Company.
VIII. ASSIGNMENT AND BINDING EFFECT.
A. This Agreement shall be binding upon and inure to the benefit of
Executive and Executive's heirs, executors, personal representatives, assigns,
administrators and legal representatives. Because of the unique and personal
nature of Executive's duties under this Agreement, neither this Agreement nor
any rights or obligations under this Agreement shall be assignable by Executive.
This Agreement shall be binding upon and inure to the benefit of the Company and
its successors, assigns and legal representatives.
6.
<PAGE> 7
IX. NOTICES.
A. All notices or demands of any kind required or permitted to be given
by the Company or Executive under this Agreement shall be given in writing and
shall be personally delivered (and receipted for) or mailed by certified mail,
return receipt requested, postage prepaid, addressed as follows:
1. If to the Company:
MessageMedia, Inc.
4104 Sorrento Valley Boulevard, Suite 200
San Diego, CA 92121
Attn: Chairman of the Board of Directors
2. If to Executive:
A. Laurence Jones
Any such written notice shall be deemed received when personally delivered or
three (3) days after its deposit in the United States mail as specified above.
Either Party may change its address for notices by giving notice to the other
Party in the manner specified in this section.
X. ARBITRATION.
A. To ensure rapid and economical resolution of any disputes which may
arise under this Agreement, Executive and the Company agree that any and all
disputes or controversies of any nature whatsoever, arising from or regarding
the interpretation, performance, enforcement or breach of this Agreement shall
be resolved by confidential, final and binding arbitration (rather than trial by
jury or court or resolution in some other forum) to the fullest extent permitted
by law. Any arbitration proceeding pursuant to this Agreement shall be conducted
by the American Arbitration Association ("AAA") in Boulder, Colorado under the
then-existing AAA employment-related arbitration rules. If for any reason all or
part of this arbitration provision is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other portion of this arbitration provision or any other jurisdiction, but
this provision will be reformed, construed and enforced in such jurisdiction as
if such invalid, illegal or unenforceable part or parts of this provision had
never been contained herein, consistent with the general intent of the Parties
insofar as possible.
XI. CHOICE OF LAW.
A. This Agreement is made in Boulder, Colorado. This Agreement shall be
construed and interpreted in accordance with the laws of the State of Colorado.
7.
<PAGE> 8
XII. INTEGRATION.
A. This Agreement contains the complete, final and exclusive agreement
of the Parties relating to the subject matter of this Agreement, and supersedes
all prior oral and written employment agreements or arrangements between the
Parties.
XIII. AMENDMENT.
A. This Agreement cannot be amended or modified except by a written
agreement signed by Executive and the Company.
XIV. WAIVER.
A. No term, covenant or condition of this Agreement or any breach
thereof shall be deemed waived, except with the written consent of the Party
against whom the wavier in claimed, and any waiver or any such term, covenant,
condition or breach shall not be deemed to be a waiver of any preceding or
succeeding breach of the same or any other term, covenant, condition or breach.
XV. SEVERABILITY.
A. The finding by a court of competent jurisdiction of the
unenforceability, invalidity or illegality of any provision of this Agreement
shall not render any other provision of this Agreement unenforceable, invalid or
illegal. Such court shall have the authority to modify or replace the invalid or
unenforceable term or provision with a valid and enforceable term or provision
which most accurately represents the Parties' intention with respect to the
invalid or unenforceable term or provision.
XVI. INTERPRETATION; CONSTRUCTION.
A. The headings set forth in this Agreement are for convenience of
reference only and shall not be used in interpreting this Agreement. This
Agreement has been drafted by legal counsel representing the Company, but
Executive has been encouraged, and has consulted with, his own independent
counsel and tax advisors with respect to the terms of this Agreement. The
Parties acknowledge that each Party and its counsel has reviewed and revised, or
had an opportunity to review and revise, this Agreement, and the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
XVII. REPRESENTATIONS AND WARRANTIES.
A. Executive represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing each
of the terms and covenants contained in this Agreement, and that his execution
and performance of this Agreement will not violate or breach any other
agreements between Executive and any other person or entity.
8.
<PAGE> 9
XVIII. COUNTERPARTS.
A. This Agreement may be executed in two counterparts, each of which
shall be deemed an original, all of which together shall contribute one and the
same instrument.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
Dated: ______________ THE COMPANY:
MESSAGEMEDIA, INC.
By:_____________________________________
Its:____________________________________
Dated: ______________ EXECUTIVE:
________________________________________
A. Laurence Jones
9.
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
I. Employment.............................................................1
II. Loyal and Conscientious Performance; Noncompetition....................2
III. Compensation of Executive..............................................2
IV. Stock Options..........................................................3
V. Termination............................................................3
VI. Change in Control......................................................5
VII. Confidential Information; Nonsolicitation..............................6
VIII. Assignment and Binding Effect..........................................6
IX. Notices................................................................7
X. Arbitration............................................................7
XI. Choice of Law..........................................................7
XII. Integration............................................................8
XIII. Amendment..............................................................8
XIV. Waiver.................................................................8
XV. Severability...........................................................8
XVI. Interpretation; Construction...........................................8
XVII. Representations and Warranties.........................................8
XVIII. Counterparts...........................................................9
</TABLE>
i.
<PAGE> 11
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i.
<PAGE> 12
EMPLOYMENT AGREEMENT
BY AND BETWEEN
MESSAGEMEDIA, INC.
AND
A. LAURENCE JONES
<PAGE> 13
EXHIBIT A
VOICEMAIL AND EMAIL POLICY
<PAGE> 14
EXHIBIT B
STOCK OPTION AGREEMENTS
<PAGE> 15
EXHIBIT C
CONFIDENTIAL INFORMATION AND INVENTIONS
ASSIGNMENT AGREEMENT
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,634,797
<SECURITIES> 0
<RECEIVABLES> 850,390
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,817,650
<PP&E> 4,099,896
<DEPRECIATION> 2,826,152
<TOTAL-ASSETS> 34,914,452
<CURRENT-LIABILITIES> 2,837,594
<BONDS> 0
0
0
<COMMON> 43,034
<OTHER-SE> 31,995,691
<TOTAL-LIABILITY-AND-EQUITY> 34,914,452
<SALES> 0
<TOTAL-REVENUES> 753,527
<CGS> 108,047
<TOTAL-COSTS> 7,664,182
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,066
<INCOME-PRETAX> (7,003,583)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,003,583)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,003,583)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> 0
</TABLE>
