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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, 2000
[ ] 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)
6060 SPINE ROAD
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 required to be filed by Section 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 X 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 - 55,743,142 shares as of March 31, 2000.
<PAGE> 2
MESSAGEMEDIA, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999 3
Consolidated Statements of Operations (unaudited) for the three months
ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 2000 and 1999 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 and Market Price of Stock 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 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 22
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MESSAGEMEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
ASSETS (unaudited) (note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 28,160 $ 37,920
Accounts receivable trade, net 7,249 4,140
Accounts receivable other 1,190 138
Prepaid expenses and other 2,091 749
------------ ------------
Total current assets 38,690 42,947
Furniture, equipment and software, net 8,508 4,728
Intangible assets, net 62,191 75,162
Deposits and other 288 354
------------ ------------
Total assets $ 109,677 $ 123,191
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,815 $ 2,482
Accrued compensation and related liabilities 2,047 1,912
Deferred revenue 492 324
Capital lease obligations, current portion 18 25
Other accrued liabilities 1,723 1,022
Payable to Joint Venture Partner 915 --
------------ ------------
Total current liabilities 8,010 5,765
Capital lease obligations 31 36
------------ ------------
Total long term liabilities 31 36
Minority interest (705) --
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized, none
outstanding at March 31, 2000 and December 31, 1999 -- --
Common stock, $0.001 par value; 100,000,000 shares authorized,
55,743,142 and 54,920,498 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively 56 55
Additional paid-in-capital 211,705 208,343
Warrants 321 321
Deferred compensation (1,104) (1,332)
Other comprehensive income 5 --
Accumulated deficit (108,642) (89,997)
------------ ------------
Total stockholders' equity 102,341 117,390
------------ ------------
Total liabilities and stockholders' equity $ 109,677 $ 123,191
============ ============
</TABLE>
See accompanying notes
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MESSAGEMEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 7,043 $ 753
Cost of revenues 2,931 108
------------ ------------
Gross profit 4,112 645
Operating expenses:
Marketing and sales 5,499 942
Research, development
and engineering 1,265 937
General and administrative 3,493 1,347
Restructuring charge -- 1,025
Depreciation and amortization 13,710 3,413
------------ ------------
Total operating expenses 23,967 7,664
------------ ------------
Loss from operations (19,855) (7,019)
Interest income 509 32
Interest expense (4) (17)
------------ ------------
Net loss before minority interest (19,350) (7,004)
------------ ------------
Minority Interest 705 --
------------ ------------
Net loss applicable to
common shares $ (18,645) $ (7,004)
============ ============
Net loss per share, basic
and diluted $ (0.34) $ (0.17)
Shares used in per share
computation, basic and
diluted 55,324 40,583
OTHER DATA:
EBITDA $ (6,145) $ (3,606)
</TABLE>
See accompanying notes.
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MESSAGEMEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (18,645) $ (7,004)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 13,710 3,413
Common stock issued for services -- 61
Amortization of deferred compensation 228 --
Compensation expense for stock options -- 78
Minority Interest (705) --
Changes in operating assets and liabilities:
Accounts receivable (4,162) (169)
Prepaid expenses and other (1,342) 97
Deposits and other 63 15
Accounts payable 333 (558)
Accrued compensation and related liabilities 135 14
Deferred revenue 168 122
Payable to Joint Venture partner 915 --
Other accrued liabilities 701 691
------------ ------------
Net cash used in operating activities (8,601) (3,240)
INVESTING ACTIVITIES
Additions to furniture, equipment and software (4,518) (83)
Proceeds from sale of fixed assets -- 1
------------ ------------
Net cash used in investing activities (4,518) (82)
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 3,363 10,419
Repayment of amount due to stockholder -- (10)
Repayment of loan from bank -- (97)
Repayment of capital lease obligations (12) (15)
------------ ------------
Net cash provided by financing activities 3,351 10,297
Effect of exchange rate changes on cash
and cash equivalents 8 --
Net increase (decrease) in cash and cash
equivalents (9,760) 6,975
Cash and cash equivalents at the beginning
of period 37,920 4,659
------------ ------------
Cash and cash equivalents at the end
of period $ 28,160 $ 11,634
============ ============
</TABLE>
See accompanying notes.
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MESSAGEMEDIA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
(GAAP) for interim financial information and with instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included on MessageMedia, Inc's ("MessageMedia" or the
"Company") Form 10-K for the year ended December 31, 1999.
2. EBITDA
EBITDA is defined as operating income (loss) before interest, taxes,
depreciation, amortization and minority interest. The primary measure of
operating performance is net earnings (loss). Although EBITDA is a measure
commonly used in our industry, it should not be construed as an alternative to
net earnings (loss), determined in accordance with GAAP, as an indicator of
operating performance, or as an alternative to cash flows from operating
activities, determined in accordance with GAAP.
3. JOINT VENTURE
On October 7, 1999, we entered into a non-binding agreement with @viso Limited
("@viso"), a strategic partnership between Vivendi and SOFTBANK Corp.
("SOFTBANK"), to create MessageMedia Europe B.V., Inc. ("MME"), a joint venture
between MessageMedia and @viso. On March 13, 2000, we completed definitive
agreements for the joint venture. Under terms of the joint venture agreement,
MessageMedia owns 51% and @viso owns 49% of the joint venture. The initial
capitalization of the joint venture will be funded with $15.3 million. MME is
consolidated into our financial statements. These results include the to-date
startup cost associated with the establishment of MME
4. SUBSEQUENT EVENTS
On April 4, 2000 we signed letters of intent with eVentures UK and eVentures
Holdings Pty Ltd in Australia to establish MessageMedia United Kingdom
("MessageMedia UK") and MessageMedia Australia, Ltd ("MessageMedia Australia").
Both eVentures companies are part of a joint venture between SOFTBANK and
e-partners, a venture capital fund sourced by News Corporation. The MessageMedia
UK joint venture will operate out of London, while MessageMedia Australia will
be based in Sydney.
5. OTHER COMPREHENSIVE INCOME
Other comprehensive income on the March 31, 2000 balance sheet consists of a
foreign currency translation gain related to MessageMedia Europe.
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6. RESTRUCTURING RESERVE
Shortly after the acquisition of Decisive Technology Corporation, we implemented
a plan to relocate the Decisive facility to Colorado. We estimated the cost of
the relocation at approximately $328,000 which includes costs associated with
employee relocation or termination costs and other miscellaneous facility
closure costs. For the three months ended March 31, 2000, we charged $163,000 to
the reserve which brought it to a zero balance.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report on Form 10-Q may contain, forward-looking statements including
statements regarding the Company's strategy, financial performance and revenue
sources, 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 10. Readers are
urged to carefully review and consider the various disclosures made by the
Company in this report and in the Company's other reports filed with the SEC
that attempt to advise interested parties of certain risks and factors that may
affect the Company's business. The following discussion should be read in
conjunction with the Company's financial statements and notes thereto.
COMPANY OVERVIEW
MessageMedia, Inc. ("MessageMedia or the "Company") is a leading provider of
permission-based, comprehensive e-messaging solutions. E-messaging is our term
to describe our suite of services that utilize the medium of e-mail to develop
and foster permission-based relationships with customers. Our suite of services
and products, including Internet-based marketing ("e-marketing"), customer care,
e-commerce messaging, customer intelligence and information distribution
solutions, enable businesses to use e-messaging as a strategic tool to increase
sales, improve customer communication and develop long-term customer loyalty and
customer dialogue. Our e-messaging solutions, available on an
outsourced-subscription basis or as packaged software, licensed on a hosted or a
client in-house basis, allow businesses to establish and enhance two-way
customer dialogue across the extended enterprise, from marketing to sales to
customer service. By leveraging the cost-effective reach, flexibility and
widespread acceptance of e-mail, our solutions enable businesses to create,
deliver and continually refine targeted, permission-based e-messaging campaigns.
Our staff of client service professionals assist our clients in building their
businesses through the strategic implementation and use of our suite of service
applications.
Through our professional staff of client service representatives, we deliver our
outsourced e-messaging services specifically tailored to each client's business
objectives. After an initial sale is made, we appoint an account management team
to act as the client's primary point of contact for all relationship and
campaign management issues. We provide end-to-end e-messaging mailing and
campaign management solutions, including creating a detailed specification of
customer needs, developing the web interfaces, customizing the database,
implementing project plans, campaign roll-out and post-mailing analysis. Our
proprietary technology allows us to track and review current and past
e-messaging campaigns, providing valuable information that allows us to tailor
and fine-tune our clients e-messaging campaigns to optimize effectiveness. Our
services provide clients with the following benefits:
o a comprehensive set of e-messaging solutions for businesses that seek to
increase sales, improve customer communication and develop long-term
customer loyalty;
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o permission-based e-messaging to create an immediate two-way dialogue with
their customers;
o tools to track, review and refine e-messaging campaigns by leveraging our
expertise and proprietary technology;
o rapidly deployable, cost-effective outsourced solutions which eliminate the
need to invest in the technology, hardware and human resources necessary to
implement and manage a comprehensive set of e-messaging services; and
o the ability to manage large volumes of simple or complex customer
communications and easily integrate more advanced e-messaging applications.
Our clients cover a broad range of industry segments, including Internet Service
Providers/portals, retail/e-tail, publishing, high tech, travel/entertainment
and financial services. In June 1998, we were recapitalized by SOFTBANK Corp.
and affiliates, ("SOFTBANK"), a leading investor in the Internet sector. We
intend to leverage our strategic relationship with SOFTBANK through
introductions to companies within the SOFTBANK family of investments and
capitalize on the expertise and advice of its partners with respect to building
e-businesses.
We have incurred net operating losses in each quarter since inception. As of
March 31, 2000, we had an accumulated deficit of approximately $108.6 million.
To date, we have not generated significant revenues. There can be no assurance
that our future revenues will increase and our ability to generate significant
future revenues is subject to substantial uncertainty. In addition, as we
introduce new functionality of our services and explore opportunities to merge
with or acquire complementary businesses and technologies, we expect to continue
to incur significant operating losses for the foreseeable future.
RESULTS OF OPERATIONS
Revenues
We currently derive our revenue from outsourced e-messaging services and
software products and related support services. Our outsourced e-messaging
services include information distribution, e-mail marketing, e-customer care,
e-commerce messaging and customer intelligence. Our software products provide
e-messaging and customer intelligence capabilities for clients desiring their
own "in-house" solution.
In December 1998, we acquired Distributed Bits LLC ("DBits") and Email
Publishing Inc. ("Epub"). Dbits was a development stage company developing
customer email management systems and solutions and Epub was a leading provider
of outsourced email message delivery services and organizations. In August 1999,
we acquired Revnet Systems, Inc. ("Revnet") and Decisive Technology Corporation
("Decisive"). Revnet was a leading developer and supplier of software solutions
providing businesses and organizations with "in-house" e-mail message delivery
capability and outsourced e-mail message delivery services. Decisive was a
leading provider of online customer intelligence solutions such as surveys.
Revenue for the periods presented was earned as detailed in the table below:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
(in thousands)
2000 1999
------------ ------------
<S> <C> <C>
Messaging and related services $ 4,423 $ 753
Software licenses and services 2,620 --
------------ ------------
Total revenues $ 7,043 $ 753
============ ============
</TABLE>
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For the three months ended March 31, 2000, revenues increased to approximately
$7 million as compared to approximately $753,000 for the three months ended
March 31, 1999. This increase is primarily attributable to increases in the
number of clients using our services, increased e-messaging volume, and an
incremental increase in revenue as a result of the acquisitions of Revnet and
Decisive.
Cost of Revenues
The cost of revenues for e-messaging and related services consists of salaries,
benefits, consulting fees and operational costs related to providing our
outsourced e-messaging services. Cost of revenues for software licenses consists
of software packaging and distribution costs. We have incurred cost of revenues
from messaging and related services and software licenses, as detailed in the
table below:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
(in thousands)
2000 1999
------------ ------------
<S> <C> <C>
Messaging and related services $ 2,803 $ 108
Software licenses 128 --
------------ ------------
Total cost of revenues $ 2,931 $ 108
============ ============
</TABLE>
For the three months ended March 31, 2000, the cost of revenues increased to
approximately $2.9 million as compared to approximately $108,000 for the three
months ended March 31, 1999. This increase is primarily attributable to
increased headcount needed to service our growing e-messaging customer base and
the related growth in the number of mailings and e-messaging volumes and the
incremental increase in cost of revenues as a result of acquiring Revnet and
Decisive.
Operating Expenses
Operating expenses consist of marketing and sales, research, development and
engineering, and general and administrative expenses. Overall operating expenses
increased in the three months ended March 31, 2000 as compared to the same
period in 1999 due to increased headcount and related expenses. Operating
expenses in the three months ended March 31, 2000 include the operating results
of Revnet and Decisive as a result of their acquisition in August 1999, but are
not included in the comparable period in the three months ended March 31, 1999.
During the three months ended March 31, 1999, we incurred a merger integration
and restructuring charge in connection with the relocation of our corporate
headquarters from San Diego, California to Boulder, Colorado. We expect
operating expenses to continue to be substantial as development and enhancement
of technological capabilities associated with our e-messaging and software
services continue, as we explore opportunities to merge with or acquire
complementary businesses or technologies and as we add staff to service our
growing customer base. We also anticipate that expenses necessary for the
introduction of new services and promotion of our products will be substantial.
Marketing and sales expenses. Marketing and sales expenses, which include
salaries, wages, consulting fees, advertising, trade shows, travel and other
marketing expenses, increased to approximately $5.5 million for the three months
ended March 31, 2000, as compared to approximately $942,000 for the three months
ended March 31, 1999. This increase is primarily due to growth in headcount in
sales, client services and marketing staff, as a result of increased sales
efforts related to our new e-messaging services and an incremental increase in
headcount from acquisitions. Additionally, advertising and promotional spending
increased as a result of promoting our new e-messaging services and products,
and we incurred expenses at our European joint venture which began operations in
Q1 2000. Headcount increased by thirty-two over the fourth quarter of 1999.
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Research, development and engineering expenses. Research, development and
engineering expenses, which include salaries, wages, and consulting fees to
support the development, enhancement and maintenance of our products and
services, increased to approximately $1.3 million for the three months ended
March 31, 2000, as compared to approximately $937,000 for the three months ended
March 31, 1999. This increase is due to growth in headcount and related
compensation expense associated with ongoing research, development and
engineering efforts domestically and internationally. Headcount increased by
nineteen over the fourth quarter of 1999.
General and administrative expenses. General and administrative expenses consist
primarily of salaries, wages, professional and consulting fees, and other
expenses associated with the general management and administration of the
company. General and administrative expenses increased to approximately $3.5
million for the three months ended March 31, 2000, as compared to $1.3 million
for the three months ended March 31, 1999. This increase is primarily due to
growth in headcount and related compensation expense as a result of the
company's growth. Additionally, there was an incremental increase in headcount
and related expenses due to the acquisitions of Revnet and Decisive in August
1999. In the quarter headcount increased by three over the fourth quarter of
1999.
Restructuring charges. In the first quarter of 1999, we recorded a charge of
$1,025,000 as a result of our decision to relocate our corporate headquarters
from San Diego, California to a new facility in Boulder, Colorado. This decision
was made to create efficiencies in our messaging services operations, reduce
overhead by centralizing our offices to one facility and eliminate duplication
of efforts from similar positions in the separate offices. The merger
integration and restructuring activity of MessageMedia, D-Bits, and Epub
included a company wide staff reduction which resulted in approximately $632,000
of employee severance pay and other related expenses and, approximately $393,000
in moving expenses and costs related to closing the San Diego facility.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, we had $28.1 million in cash and cash equivalents. We believe
that existing cash resources will be sufficient to support our currently
anticipated working capital and capital expenditure requirements through the end
of 2000.
Net cash used in operating activities was approximately $8.6 million and $3.2
million for the three months ended March 31, 2000 and 1999, respectively. Net
operating cash flows for the three months ended March 31, 2000 were primarily
attributable to net losses offset by non-cash charges for depreciation and
amortization, as well as increases in accounts receivable and prepaid expenses.
Net cash used in investing activities was approximately $4.6 million and $82,000
for the three months ended March 31, 2000 and 1999, respectively. Investing
activities related to additions to furniture, equipment and software.
Net cash provided by financing activities was approximately $3.4 million and
$10.3 million for the three months ended March 31, 2000 and 1999, respectively.
The cash provided by financing activities related primarily to proceeds received
from the exercise of stock options for the period ended March 31, 2000. For the
three months ended March 31, 1999, the cash provided by financing activities
related primarily to the company issuing common stock in a private placement for
net proceeds of approximately $10 million.
We have no material financial commitments other than obligations under operating
leases. We expect to increase expenditures for applications including computer
equipment and furniture and fixtures associated with new employees and facility
expansion, bandwidth and networking equipment and infrastructure, additional
sales and marketing employees, equipment and additional employees related to
product development, increased promotion and branding efforts, and development
and acquisition of new technology.
Capital requirements in any particular period will depend on the timing of these
expenditures.
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FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially and adversely
affected. In that case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
WE HAVE A HISTORY OF OPERATING LOSSES AND FUTURE LOSSES ARE LIKELY.
We have an accumulated deficit of approximately $108.6 million as of March 31,
2000. We have not achieved profitability and expect to continue to incur
operating losses at least into 2001. We intend to continue to invest heavily in
acquisitions, infrastructure development and marketing. Accordingly, we expect
to continue to incur significant operating and capital expenditures and, as a
result, we will need to generate significant revenue to achieve and maintain
profitability. Although our revenue has grown in recent quarters, we cannot
assure you that we will achieve sufficient revenue for profitability. Even if we
do achieve profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenue grows
slower than we anticipate, or if operating expenses exceed our expectations or
cannot be adjusted accordingly, our business, results of operations and
financial condition will be materially and adversely affected.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY AND RECENTLY HAVE CHANGED OUR BUSINESS MODEL.
We were incorporated in March 1994 for the purpose of developing an Internet
payment system. In 1998 we changed our business model and acquired two
e-messaging companies, Epub and D-Bits. In August 1999, we acquired two
additional e-messaging companies, Revnet and Decisive. An investor in our common
stock must consider the risks and difficulties frequently encountered by early
stage companies in new and rapidly evolving markets, including the Internet
e-messaging market. These risks include our:
o ability to sustain historical revenue growth rates;
o need to manage our expanding operations;
o need to successfully integrate our recent and any future acquisitions; o
competition;
o ability to attract, retain and motivate qualified personnel;
o ability to maintain our current, and develop new, strategic relationships;
o ability to anticipate and adapt to the changing Internet market; and
o ability to attract and retain a large number of customers from a variety of
industries.
We also depend on the growing use of the Internet for marketing, advertising,
commerce and communication. We cannot assure you that our business strategy will
be successful or that we will successfully address these risks.
OUR MARKETS ARE RELATIVELY NEW AND UNPROVEN AND OUR SUCCESS DEPENDS ON MARKET
ACCEPTANCE AND THE EFFECTIVENESS OF OUR E-MESSAGING SERVICES.
Demand and market acceptance for Internet e-messaging solutions is uncertain.
Our future success is highly dependent on an increase in the use of the Internet
as a marketing, advertising and communications medium. The adoption of Internet
e-messaging, particularly by those entities that historically have relied upon
traditional media for marketing and advertising, requires the acceptance of a
new way of conducting business, exchanging information and marketing products
and services. Many of our current or potential e-messaging customers have little
or no experience using the Internet for marketing and advertising purposes and
they have allocated only a limited portion of their budgets to Internet
e-messaging. Moreover, our
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customers may find Internet e-messaging to be less effective for promoting their
products and services relative to traditional marketing and advertising media.
If our e-messaging platform fails to meet customers' demands, the use of our
e-messaging services may decline over time and our business would suffer.
WE ADOPTED OUR CURRENT BUSINESS MODEL IN THE FOURTH QUARTER OF 1998 AND ITS
PROFIT POTENTIAL IS UNCERTAIN.
The profit potential for our business model, which is to generate revenue solely
by providing Internet e-messaging solutions to our customers, is unproven. To be
successful, both Internet marketing and our future and current service
offerings, including information distribution, e-mail marketing, e-customer
care, e-commerce messaging and customer intelligence, will need to achieve broad
market acceptance. Our ability to generate significant revenue will depend, in
part, on our ability to contract with a sufficient number of customers. The
intense competition among Internet e-messaging companies has led to the creation
of a number of pricing alternatives for Internet e-messaging solutions. These
alternatives make it difficult for us to project future levels of revenue and
applicable gross profit that can be sustained by us or the Internet e-messaging
industry in general.
SUBSTANTIAL SALES OF OUR COMMON STOCK BY OUR LARGE STOCKHOLDERS COULD CAUSE OUR
STOCK PRICE TO FALL.
A limited number of stockholders hold a large portion of our common stock. To
the extent our large stockholders sell substantial amounts of our common stock
in the public market, the market price of our common stock could fall. Several
transactions completed by us over the last several months increased both the
number of our securities available for resale to the public and the number of
our securities held by our largest stockholders. For instance, in connections
with our acquisition of Revnet and Decisive, we issued 5,316,618 shares of our
common stock and assumed options to purchase up to approximately 1,148,493
additional shares of our common stock. Additionally, we issued 4,095,124 shares
of our common stock in a private placement. Affiliates of two of our largest
stockholders, Softbank Corp and Pequot Capital Management, Inc. acquired 975,611
of the shares sold in the private placement. All of the shares referred to above
have been registered for resale on Registration Statements on Form S-3 which
have been declared effective by the SEC. Accordingly, all such shares may be
resold into the public markets without restrictions.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE EPUB, DBITS, REVNET AND DECISIVE OR
FUTURE ACQUISITIONS.
In December 1998, we acquired Epub and Dbits and in August 1999 we acquired
Revnet and Decisive. As a result, companies that had previously operated
independently and with distinct business models must now work together. The
integration will require significant effort from our personnel and the personnel
of the acquired companies who are now our employees. We may not be able to
profitably consolidate these businesses.
The following risks are common to the integration of different companies, and
may be associated with recent or future acquisitions.
o the difficulty of incorporating new operations, technology and personnel
into one company;
o the potential effects on operating results from increases in goodwill
amortization, acquired in-process technology, stock compensation expense
and increased compensation expense resulting from newly hired employees;
o the diversion of management attention from other aspects of our business;
o the potential disruption of our ongoing business;
o the potential reduction of the value of our e-messaging solutions or
reputation if an acquired company turns out to be a poor performer;
o the additional expense associated with amortization of acquired intangible
assets;
o the maintenance of uniform standards, controls, procedures and policies;
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o the potential of disputes with the sellers of one or more acquired
entities;
o the possible failure to retain key acquired personnel;
o the assumption of most or all of the liabilities of the acquired companies,
some of which may be hidden, significant or not reflected in the final
acquisition price; and
o the impairment of relationships with employees and customers.
As part of our business strategy, we intend to focus on acquiring, or making
significant investments in, additional companies, products and technologies that
complement our business. The successful implementation of this strategy depends
on our ability to identify suitable acquisition candidates, acquire those
companies on acceptable terms and integrate their operations successfully with
our business. If we make additional acquisitions, we could have difficulty in
assimilating the acquired products, services or technologies into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees, increase our expenses and adversely affect our results
of operations. Furthermore, we may incur debt or issue equity securities to pay
for any future acquisitions. The issuance of equity securities could be dilutive
to our existing stockholders.
OUR FAILURE TO ENHANCE OUR EXISTING PRODUCTS AND INTRODUCE NEW PRODUCTS ON A
TIMELY BASIS COULD CAUSE OUR REVENUE TO FALL.
We are continually developing significant enhancements for our e-messaging
services and products. Any delay or difficulty associated with the introduction
of these enhancements could significantly harm our business, results of
operations and financial condition. We also may not be able to develop the
underlying core technologies necessary to create new products or enhancements,
or to license those products from third parties.
WE NEED TO ATTRACT AND RETAIN QUALIFIED PERSONNEL AND MAY NOT BE ABLE TO DO SO.
Our success depends on the continued service of our key senior management
personnel in particular A. Laurence Jones, our President and Chief Executive
Officer. The loss of any member of our senior management team could have a
material adverse effect on our future operating results. Our future success also
depends on our continuing ability to attract, retain and motivate highly skilled
employees. We face significant competition for individuals with the skills and
experience required to perform in required roles and may not be able to attract
or retain such individuals in the future.
OUR MANAGEMENT TEAM HAS ONLY WORKED TOGETHER FOR A SHORT PERIOD OF TIME AND MAY
NOT WORK WELL TOGETHER.
Virtually all of our executive officers, including our President and Chief
Executive Officer, Chief Financial Officer, Vice President of Sales and Senior
Vice President of Corporate Development, have joined our company since March
1999. Due to the fact that many of our executive officers are new to our company
and never have worked together, our management may not be able to function
effectively, individually or as a team.
WE ANTICIPATE FLUCTUATIONS IN OUR FUTURE OPERATING RESULTS.
We expect that our future operating results will fluctuate significantly. These
fluctuations may 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:
o Market response to our e-messaging services;
o Difficulties in the development or deployment of new e-messaging products
or services;
o The timing and rate at which we increase our expenses to support projected
growth;
o Fluctuating market demand for our products and services;
o The degree of acceptance of the Internet as a medium for communicating with
customers;
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o Product introductions and service offerings by our competitors;
o The mix of the products and services provided by us; and
o The cost of compliance with applicable government regulations, including
anti-SPAM legislation.
Our revenue for the foreseeable future will remain dependent on e-messaging
activity, the fees that we charge for our services and license fees for software
products. These future revenues are difficult to forecast. In addition, we plan
to significantly increase our operating expenses to increase our sales and
marketing operations, to upgrade and enhance our e-messaging solutions and to
market and support our solutions. We may be unable to adjust spending quickly
enough to offset any unexpected revenue shortfall. If we have a shortfall in
revenue in relation to our expenses, or if our expenses precede increased
revenue, our business, results of operations and financial condition would be
materially and adversely affected. This would likely affect the market price of
our common stock in a manner which may be unrelated to our long-term operating
performance.
We believe that marketing and advertising sales in traditional media, such as
television and radio, generally are lower in the first calendar quarter of each
year. Seasonal or cyclical patterns may develop in our industry if our market
makes the transition from an emerging to a more developed medium. Our revenue
may also be affected by seasonal and cyclical patterns in Internet e-messaging
spending if they emerge.
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 expectations
of market analysts or investors. If our operating results fail to meet
expectations, the price of our common stock could fall.
WE NEED TO EFFECTIVELY MANAGE OUR GROWTH.
An effective planning and management process is required to successfully
implement our business plan in the rapidly evolving market for Internet
e-messaging. We continue to increase the scope of our operations, and we have
grown our workforce substantially. As of January 1, 1995, we had 5 employees
and, as of March 31, 2000, we had 355 employees. In addition, we plan to
continue to expand our sales and marketing programs and our service offerings.
This growth has placed, and our anticipated future growth in our operations will
continue to place, a significant strain on our management systems and resources.
We expect that we will need to continue to improve our financial and managerial
controls and reporting systems and procedures, and will need to continue to
expand, train and manage our workforce. Our future performance also may depend
on the effective integration of acquired businesses. Such integration, even if
successful, may require a significant period of time and expense, and may place
a significant strain on our resources. Our business, results of operations and
financial condition will be materially and adversely affected if we are unable
to effectively manage our expanding operations.
WE DEPEND ON THIRD-PARTY PROVIDERS OVER WHOM WE HAVE NO CONTROL TO OPERATE OUR
E-MESSAGING PLATFORM.
We depend heavily on several third-party providers of Internet and related
telecommunication services, including hosting and co-location companies, in
operating our e-messaging platform. These companies may not 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, requiring us to reengineer our computer systems and
telecommunications infrastructure to accommodate a new service provider. This
process would be both expensive and time-consuming.
In addition, failure of our Internet and related telecommunications providers to
provide the data communications capacity in the time frame required by us could
cause interruptions in the services we provide. Despite precautions taken by us,
unanticipated problems affecting our computer and
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telecommunications systems in the future could cause interruptions in the
delivery of our e-messaging services, causing a loss of revenue and potential
loss of customers.
WE RELY ON A FEW CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUE.
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. 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 above current contractual minimums. Consequently, if we fail to develop
relationships with significant new customers, our business and financial
condition will suffer.
COMPETITION IN OUR INDUSTRY IS INTENSE.
We believe none of our competitors offer the full range of solutions provided by
us. However, the market for our products and services is intensely competitive.
There are no substantial barriers to entry into our business, and we expect that
established and new entities will enter the market for e-messaging services and
interactive Internet communications in the near future.
Our principal competitors in the e-messaging services arena include 24x7, Inc.,
Axciom, Inc., Cyber Data Systems, Inc., DoubleClick, Inc., eGain Communications
Corporation, EmailChannel, Inc., Exactis.com, Inc., Experian, Inc., Kana
Communications, Inc., MarketHome, Inc., MatchLogic, Inc., Mustang Software,
Inc., NetCreations, Inc., PostX Corporation and ReplyNet, Inc. We also compete
with BroadVision, Inc., Digital Impact, E-Care Group and Mypoints.com, Inc. for
one-to-one marketing.
We may experience additional competition from ISPs and other large established
businesses that enter the market for e-messaging services. Companies such as
ADVO Inc., America Online, Inc., AT&T, IBM Corporation, Harte-Hanks, Inc.,
Hewlett-Packard Company, Integrion Financial Network LLC, The Interpublic Group
of Companies, Inc., Microsoft Corporation, Netscape Communications and Foote
Cone & Belding, some of whom are current clients of ours, which possess large,
existing customer bases, substantial financial resources and established
distribution channels could develop, market or resell a number of messaging
services.
The Internet, in general, and our e-messaging solutions, in particular, also
must compete for a share of advertisers' total advertising budgets with
traditional advertising media such as television, radio, cable and print.
Consequently, we compete with advertising and direct marketing agencies. To the
extent that e-messaging is perceived to be a limited or ineffective advertising
medium, companies may be reluctant to devote a significant portion of their
advertising budget to our e-messaging solutions, which could limit the growth of
e-messaging and negatively effect our business.
We also expect that competition may increase as a result of industry
consolidation. Potential competitors may choose to enter the market for
e-messaging services by acquiring one or more of our existing competitors or by
forming strategic alliances with such competitors. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of our potential e-messaging
customers. Accordingly, it is possible that new competitors or alliances may
emerge and rapidly acquire significant market share. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share, any of which would have a material adverse effect on our business,
results of operations and financial condition. We also may experience
competition from internal information systems and development groups of our
current and prospective clients that have better access to senior management.
Many of our 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 we do. These
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive
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pricing policies and make more attractive offers to potential customers. In
addition, many of our 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 these competitors bundle competing products or
services for their customers, the demand for our products and services could
substantially decline. As a result of the above factors, we cannot assure you
that we will compete effectively with current or future competitors or that
competitive pressures will not have a material adverse effect on our business,
financial condition and results of operations.
THE MARKETS FOR OUR PRODUCTS ARE UNDEVELOPED AND RAPIDLY CHANGING, WHICH MAKES
AN INVESTMENT IN OUR COMPANY RISKY.
The Internet and Internet e-messaging markets are characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions, changing customer demands and increasing numbers of
service providers. Our products and services are designed around current
technical standards and our revenue depends 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. The standards on which our products and services
are or will be based may not be accepted by the industry.
New 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. The
products, services or technologies developed by others may render our products
and services noncompetitive or obsolete. Accordingly, our future success will
depend on our ability to adapt to rapidly changing technologies and to enhance
existing solutions and develop and introduce a variety of new solutions to
address new industry standards and our customers' changing demands. We may
experience difficulties that could delay or prevent the successful design,
development, introduction or marketing of our solutions. In addition, our new
solutions or enhancements must meet the requirements of our current and
prospective customers and must achieve significant market acceptance. Material
delays in introducing new solutions and enhancements may cause customers to
forego purchases of our solutions and purchase those of our competitors.
The degree to which our e-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
e-messaging also will 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.
WE FACE 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. Despite testing that our clients and we
conduct, we may not locate errors if they occur. Also, we may experience
development delays. These occurrences could harm our reputation and revenue
growth.
IF CURRENT GROWTH RATES CONTINUE, THE CAPACITY OF OUR SOFTWARE OR HARDWARE COULD
BE STRAINED, LEADING TO SLOWER RESPONSE TIMES OR SYSTEM FAILURES.
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
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and upgrading our software as necessary. However, our products and services may
not be able to meet the growing demand as the number of World Wide 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 and financial condition could
be materially and adversely affected.
THE SUCCESS OF OUR E-MESSAGING PLATFORM DEPENDS ON INCREASED USAGE AND THE
STABILITY OF THE INTERNET.
Our success will depend, in large part, upon the maintenance of the Internet
infrastructure, such as a reliable network backbone with the necessary speed,
data capacity and security, and timely development of enabling products such as
high speed modems, for providing reliable Internet access and services and
improved content. We cannot assure you that the Internet infrastructure will
continue to effectively support the demands placed on it as the Internet
continues to experience increased numbers of users, frequency of use or
increased bandwidth requirements of users. Even if the necessary infrastructure
or technologies are developed, we may have to spend a considerable amount of
money and time to adapt our solutions accordingly. Furthermore, the Internet has
experienced a variety of outages and other delays due to damage to portions of
its infrastructure. Any future outages or delays could impact the Internet sites
of customers using our solutions.
We believe that the future of the Internet as a center for commerce will depend
in significant part on the following factors:
o Continued rapid growth in the number of households and commercial,
educational and government institutions with access to the Internet;
o The level of usage by individuals;
o The number and quality of products and services designed for use on the
Internet; and
o 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
e-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 also is 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 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.
ANY SYSTEM FAILURE MAY HARM OUR BUSINESS OR REPUTATION.
The continuing and uninterrupted performance of our computer systems and our
customers' computer systems is critical to our ability to provide outsourced
services. Sustained or repeated system failures would reduce the attractiveness
of our solutions to our customers and could harm our business reputation. Slower
response time or system failures may also result from straining the capacity of
our deployed software or hardware due to an increase in the volume of e-messages
delivered through our servers. To the extent that we do not effectively address
any capacity constraints or system failures, our business, results of operations
and financial condition would be materially and adversely affected.
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Our operations are dependent on our ability to protect our computer systems
against damage from fire, power loss, water damage, telecommunications failures,
vandalism, infection by computer viruses, other malicious acts and similar
unexpected adverse events. In addition, interruptions in our solutions could
result from the failure of our Internet and related telecommunications providers
to provide the necessary data communications capacity in the time frame we
require. Despite precautions we have taken, unanticipated problems affecting our
systems have from time to time in the past caused, and in the future could
cause, interruptions in the delivery of our solutions.
WE FACE SECURITY RISKS AND POTENTIAL LIABILITY ASSOCIATED WITH MISAPPROPRIATION
OF CONFIDENTIAL INFORMATION.
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 also is 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, such
provisions may not be enforceable or effective in limiting our exposure to
damage claims.
OUR INSURANCE COVERAGE MAY NOT BE ADEQUATE TO COMPENSATE US FOR ALL POTENTIAL
LOSSES.
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 revenue,
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 insurance coverage on reasonable terms or
at all in the future.
OUR MEANS OF PROTECTING OUR PROPRIETARY RIGHTS MAY BE INADEQUATE AND OUR
COMPETITORS MAY DEVELOP SIMILAR TECHNOLOGY.
We rely on a combination of trade secret, copyright and trademark laws,
nondisclosure agreements, and other contractual provisions and technical
measures to protect our proprietary rights. We believe that, due to the rapid
pace of technological innovation for Internet products, our ability to establish
and maintain a position of technology leadership in the industry depends more on
the skills of our development personnel than upon the legal protections afforded
our existing technology. Trade secret, copyright and trademark protections may
not be adequate to safeguard the proprietary software underlying our products
and services. We may not have adequate remedies for any breach and our trade
secrets may otherwise become known. Moreover, notwithstanding our efforts to
protect our intellectual property, competitors may be able to develop
functionally equivalent e-messaging technologies without infringing any of our
intellectual property rights. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and use
products or technology that we consider 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, our means of protecting our proprietary rights
may not be adequate and our competitors may independently develop similar
technology.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or
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disclosure, parties may attempt to disclose, obtain or use our solutions or
technologies. We cannot assure you that the steps we have taken will prevent
misappropriation of our solutions or technologies, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
We have licensed, and we may license in the future, elements of our trademarks,
trade dress and similar proprietary rights to third parties. While we attempt to
ensure that the quality of our brand is maintained by these business partners,
such partners may take actions that could materially and adversely affect the
value of our proprietary rights or our reputation. In addition, we currently
license certain software and communication systems from third parties. Our
failure to maintain these licenses, or to find replacements for such technology
in a timely and cost-effective manner, could have a material adverse effect on
our business, results of operations and financial condition.
WE HAVE IN THE PAST, AND MAY IN THE FUTURE, BECOME INVOLVED IN PATENT
INFRINGEMENT CLAIMS WHICH RESULT IN A SIGNIFICANT DRAIN ON OUR RESOURCES AND
PREVENT OUR MANAGEMENT TEAM FROM FOCUSING ON MORE PROFITABLE TASKS.
As the volume of Internet commerce increases, and the number of products and
service providers that support Internet commerce increases, we believe that
Internet commerce technology providers may become increasingly subject to
infringement claims. We have been subject to claims of alleged infringement of
intellectual property rights in the past, and may become involved in additional
claims in the future. In addition, we may initiate claims of litigation against
third parties for infringement of our proprietary rights or to establish the
validity of our proprietary rights. Any such claims, with or without merit,
could be time consuming, result in costly litigation, disrupt or delay the
enhancement or shipment of our products and services or require us to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable or favorable to us, which
could have a material adverse effect on our business, financial condition and
results of operations. Litigation to determine the validity of any claims could
result in significant expense to us and divert the efforts of our technical and
management personnel from productive tasks, whether or not such litigation is
determined in our favor. In addition, patent litigation often gives rise to
counterclaims by the defendants, which could include challenges to the validity
of patents held by us. In the event of an adverse ruling in any such litigation,
we 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. Our failure to develop
or license a substitute technology could have a material adverse effect on our
business.
IN THE FUTURE, WE MAY BE SUBJECT TO INCREASED GOVERNMENT REGULATION.
Laws and regulations directly applicable to Internet communications, commerce
and advertising are becoming more prevalent. We believe that we are 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, or 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.
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OUR STOCK PRICE HAS BEEN VOLATILE IN THE PAST AND MAY BE VOLATILE IN THE FUTURE,
REGARDLESS OF OUR ACTUAL OPERATING PERFORMANCE.
The stock market in general, and Internet companies in particular, including our
company, have experienced extreme price and volume fluctuations that often have
been unrelated or disproportionate to operating performance. The trading prices
of many Internet 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 revenue 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.
In the past, companies that have experienced volatility in the market price of
their stock have been the object of securities class action litigation. If we
were the object of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF OUR COMPANY AND MAY REDUCE THE MARKET PRICE OUR COMMON
STOCK.
Provisions in our charter documents may delay, defer or prevent a change in
control of our company that a stockholder may consider favorable, may discourage
bids for our common stock at a premium over the market price of our common stock
and may adversely affect the market price of our common stock and the voting and
other rights of the holders of our common stock. These provisions include:
o authorizing the issuance of preferred stock without stockholder approval;
o providing for a classified board of directors with staggered, three-year
terms;
o prohibiting cumulative voting in the election of directors;
o requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
o limiting the persons who may call special meetings of stockholders; and
o prohibiting stockholders actions by written consent.
Other provisions of Delaware law also may discourage, delay or prevent someone
from acquiring or merging with us.
OUR OFFICERS AND DIRECTORS AND THEIR AFFILIATES EXERCISE SIGNIFICANT CONTROL
OVER OUR COMPANY.
Our directors and executive officers, and certain of their affiliates,
individually and as a group, effectively control us and direct our affairs and
business, including any determination with respect to the acquisition or
disposition of assets by us, future issuance's of common stock or other
securities by us, declaration of dividends on our common stock and the election
of directors. This concentration of ownership also may have the effect of
delaying, deferring or preventing a change in control of our company.
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WE RECENTLY ENTERED INTO AN INTERNATIONAL JOINT VENTURE AND WE WILL ENTER INTO
MORE SUCH AGREEMENTS IN THE FUTURE.
On March 13, 2000 we signed definitive agreements for the European joint
venture, and on April 4, 2000, we signed letters of intent to establish joint
ventures in the UK and Australia. There are certain risks associated with
operating in a foreign country, such as foreign exchange risk.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN.
This document contains certain forward-looking statements that involve risks and
uncertainties. We use words such as "anticipate", "believe", "expect", "future",
"intend", "plan" and similar expressions to identify forward-looking statements.
These statements are only predictions. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot
guarantee future results, levels of activity, performance or achievements. You
should not place undue reliance on these forward-looking statements, which apply
only as of the date of this document. Our actual results could differ materially
from those anticipated in these forward-looking statements for many reasons,
including the risks faced by us and described on the preceding pages and
elsewhere in this document.
We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to predict
accurately or over which we have no control. The risk factors listed above, as
well as any cautionary language in this document, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this document could have
a material adverse effect on our business, operating results, financial
condition and stock price.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in
short-term investments. Due to the nature of our short-term investments, we have
concluded that there is no material interest rate risk exposure. Therefore, no
quantitative disclosures are required.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A 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) Exhibits
Exhibit 10.53 - Shareholders Agreement, dated as of March 7, 2000,
between MessageMedia, Inc., MessageMedia US/Europe, Inc. and @viso
Limited.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
21
<PAGE> 22
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.
Date: May 15, 2000 By: /s/ Martin T. Johnson
--------------------------------------
Martin T. Johnson
Senior Vice President,
Chief Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.53 Shareholders Agreement, dated as of March 7, 2000, between
MessageMedia, Inc., MessageMedia US/Europe, Inc. and @viso Limited.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated as of March 7, 2000, between
MessageMedia, Inc., a Delaware corporation, MessageMedia US/Europe, Inc.,
(collectively, "MessageMedia") and @viso Limited, a company incorporated under
the laws of England and Wales ("@viso").
WHEREAS, MessageMedia and @viso desire to associate
themselves, directly or through one or more affiliates, as shareholders (the
"Shareholders") of MessageMedia Europe B.V., a Netherlands corporation (the
"Company"), to launch operations to provide e-messaging solutions for businesses
in the countries in continental Europe, which are listed in Annex A hereto (the
"Territory"); and
WHEREAS, it is deemed in the best interests of the
Shareholders and the Company that provision be made for continuity and stability
of policy and ownership of the Company, to the extent and upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein set forth, the parties hereby agree as follows:
1. Organization of Company
(a) On or before March 7, 2000 (i) MessageMedia will subscribe
to 4,590,000 Common Shares of the Company at $1.77 per share for an aggregate of
$8,124,300 in cash; and (ii) @viso will subscribe to 4,410,000 Common Shares at
$1.77 per share for an aggregate of $7,805,700 in cash (such 9,000,000 Common
Shares being herein called "Shares"). The deed of incorporation containing the
Articles of Association of the Company will be substantially in the form of
Annex B hereto.
(b) Up to 1,000,000 Common Shares (subject to adjustment for
stock splits, combinations and other changes in capitalization) may be issued to
a foundation, which will issue depositary receipts therefor to employees,
directors and consultants of the Company pursuant to stock option or award
programs adopted by the Board of Directors of the Company.
(c) On or before March 31, 2000 MessageMedia will execute and
deliver the License Agreement substantially in the form attached as Annex C
hereto.
<PAGE> 2
MessageMedia Europe
(d) In addition to its capital subscription under Section 1(a)
above, @viso will enter into a line of credit agreement with the Company
permitting the Company to borrow up to $10,000,000 as required from time to time
to finance operations, which borrowings will bear interest at 8% per annum and
be payable at the earlier of (i) the closing of the initial public offering (the
"IPO") of equity securities of the Company and (ii) February 15, 2005.
(e) Concurrently with its capital subscription under Section
1(a) above, @viso will loan $8,124,300 to MessageMedia, which loan will bear
interest at 8% per annum and be payable six months from the date hereof, and
otherwise have the terms contained in the form of Loan Agreement attached as
Annex D hereto.
2. Scope of Operations and Responsibilities
(a) Notwithstanding the extent of the objects set forth in its
Articles of Association, the operations of the Company will be limited to
providing e-messaging solutions for businesses in the Territory and such other
activities as may be approved by the Board of Directors in accordance with
Section 4 below.
(b) MessageMedia and an @viso affiliate will work with the
Company to provide advice and services for the launch and ongoing support of the
Company's operations, including recruiting the President/Chief Executive Officer
and other senior management. For purposes of this Agreement, the term
"affiliate" means any person who controls, or is controlled by or under common
control with, the affiliated party, and, unless the context otherwise requires,
references to the parties and the Shareholders include their respective
affiliates.
(c) MessageMedia will provide, pursuant to the license
agreement substantially in the form of Annex C hereto or otherwise, all
intellectual property, know-how and technology that is currently necessary
("Necessary IP") to enable the Company to operate e-messaging services
<PAGE> 3
MessageMedia Europe
substantially equivalent to MessageMedia's current service offering, as
described in the License Agreement (the "Proposed Service Operation") in the
Territory, and any updates and future developments of such intellectual
property, know-how and technology on terms to be agreed upon between the parties
in the future. MessageMedia represents and warrants to @viso that the Necessary
IP will provide sufficient rights to all licenses, trademarks, service marks,
trade names and other intellectual property necessary for the Proposed Service
Operation, without, to MessageMedia's knowledge, any conflict or infringement of
the rights of others, except as otherwise disclosed in writing.
(d) An @viso affiliate will work with the Company to provide
advice and services as required and agreed to among the parties, including
analyzing markets and competition, proposing an entry strategy, preparing
business plans, identifying potential partners and co-investors, locating and
acquiring office and other facilities, developing operational structures and
processes, recruiting personnel and obtaining general administrative services,
and complying with national and European Commission merger or other regulations.
(e) The Company will pay the Shareholders, or their respective
affiliates, a fee and reimburse allocated costs for services performed pursuant
to this Section 2.
(f) So long as MessageMedia holds at least 50% of its original
Shares, (i) MessageMedia will not, directly or indirectly, engage in or carry on
any business which is, or is likely to be, in competition with the Company
within the Territory, and (ii) the Company will not, directly or indirectly,
engage in or carry on any business which is, or is likely to be, in competition
with MessageMedia outside the Territory; provided, however, that (x)
MessageMedia may provide electronic mail messaging and related services to
customers within the Territory which have their principal place of business
outside the Territory, and (y) the Company may provide such services to
customers outside the
<PAGE> 4
MessageMedia Europe
Territory who have their principal place of business within the Territory and to
customers outside the Territory who make unsolicited approaches to the Company
due to the incidental promotion of and access to the website for the Company's
business.
3. Representations and Warranties
Each of MessageMedia and @viso hereby represents and warrants
to the other as follows:
(a) It is a company duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, with full
power and authority to enter into and perform this Agreement.
(b) No consent, approval or authorization of or declaration or
filing with any governmental authority or person or entity is required on its
part in connection with the execution or performance of this Agreement.
(c) The execution and delivery of this Agreement and the
performance of its obligations hereunder will not (i) violate or be in conflict
with any provision of law, any order, rule or regulation of any court or other
agency of government, or any provision of its charter or by-laws, or (ii)
violate, be in conflict with, result in a breach of, or constitute a default
under any material indenture, license, lease, agreement or other instrument to
which it is a party or by which it or any of its properties is bound.
<PAGE> 5
MessageMedia Europe
4. Management
(a) Responsibility for the management, supervision and conduct
of the operations of the Company will be vested in its Board of Directors. The
President/Chief Executive Officer will be nominated by MessageMedia and
appointed by the Board. The President/Chief Executive Officer may be terminated
at any time by either Shareholder, provided that he has failed to perform his
duties or has otherwise breached his Employment Agreement.
(b) The total number of directors comprising the Board will be
seven. Subject to Sections 5 and 10 below, for so long as they each hold Shares
in the Company, MessageMedia will designate four directors and @viso will
designate two directors, and the President/Chief Executive Officer appointed in
accordance with subsection (a) will serve as the seventh director.
(c) A quorum of directors at any meeting of the Board shall
consist of three directors, including one director designated by MessageMedia
and one director designated by @viso, who have each been specifically designated
as authorized to represent the designating party. Any corporate action to be
taken by vote of the Board shall be authorized by vote of not less than a
majority of the directors present at any such meeting at which a quorum is
present and acting throughout, or by written consent of all directors of the
Company except as may be otherwise required by paragraph (d) below or by law.
(d) Strategic corporate actions that are outside the ordinary
course of business may be taken by the Board only upon authorization by a
majority vote of the directors that includes at least one director representing
MessageMedia and one director representing @viso as provided in paragraph (c)
above. These include:
<PAGE> 6
MessageMedia Europe
(i) the issuance or sale of any Common Shares (including the
IPO), as well as of any other securities and the terms thereof, other
than the Common Shares to be issued under option plans referred to in
Section 1(b);
(ii) any call for additional capital pursuant to Section 5
below;
(iii) any declaration or payment of any dividend or other
distribution, direct or indirect, on account of any Shares or other
securities of the Company, or any redemption, retirement, purchase or
other acquisition, direct or indirect, by the Company of any Shares or
other securities of the Company;
(iv) any services contract or business arrangement with a
Shareholder;
(v) the adoption of any stock option or award program for
employees, directors or consultants; and
(vi) engaging in any business other than as contemplated by
Section 2 above and activities incidental thereto in the ordinary
course, either directly or through any corporation or other entity in
which the Company has, directly or indirectly, an equity interest.
(e) The following corporate actions may be taken by the
Shareholders only upon authorization by a majority vote that includes Shares
held by both MessageMedia and @viso:
(i) any increase or decrease in the total number of authorized
directors comprising the Board;
(ii) any amendment, alteration or repeal of any provision of
the Articles of Association; and
(iii) any merger or consolidation, whether or not the Company
is the surviving corporation; any sale,
<PAGE> 7
MessageMedia Europe
lease, exchange or other disposition of all or substantially all of the
assets of the Company; or the liquidation of the Company (whether
voluntary or otherwise) or the revocation of any such step.
5. Additional Capital
Whenever the Board determines, in the best interests of the
Company, that the Company's capital is or is likely to become insufficient for
the conduct of its business, the Board shall consider means by which additional
capital can be raised without recourse to the Shareholders. If capital cannot be
raised on a non-recourse basis to Shareholders, the Board may, in accordance
with Section 4(d) and by at least 30 days' prior written notice to MessageMedia
and @viso, call for additional contributions of up to $5,000,000 of capital from
the Shareholders in proportion to their respective holdings of Shares at the
time. @viso will loan MessageMedia its portion of any such capital contribution,
which will bear interest at 8% per annum and be repayable at the closing of the
initial public offering (the "IPO") of equity securities of the Company.
6. Financial Information
(a) So long as a Shareholder holds at least 50% of its
original Shares, the Company shall deliver to such Shareholder (i) within 60
days after the end of each fiscal year of the Company, year-end audited
financial reports; (ii) within 30 days after the end of each of the first three
quarters of each fiscal year, quarter-end financial reports; and (iii) within 30
days prior to the end of each fiscal year, a business plan and budget for the
next fiscal year. In addition, the Company shall, upon reasonable notice, give
each such Shareholder, during regular business hours, reasonable access to the
properties, documents and records, financial and otherwise, of the Company, and
provide copies or extracts of the Company's documents and records as such
Shareholder may reasonably request.
<PAGE> 8
MessageMedia Europe
(b) The Company shall deliver to MessageMedia all financial
information required by MessageMedia for the purpose of consolidating revenues
and other operating results, all of which information shall be provided to
MessageMedia no later than three weeks after the end of each fiscal quarter.
7. Restrictions on Transfer
Neither Shareholder shall assign, sell, pledge or otherwise
transfer its Shares except (i) to an affiliate of such Shareholder which agrees
to be bound by the terms of this Agreement as though named as a party hereto or
(ii) with the prior written consent of the other Shareholder; provided, however,
that no such transfer shall be made to a competitor of the Company, as
determined by the Board of Directors, except that such restriction shall not
apply to a transfer in connection with a change of control of MessageMedia that
is approved by its Board of Directors as contemplated in Section 10.
8. Preemptive Rights
(a) So long as a Shareholder holds at least 50% of its
original Shares, the Company will give such Shareholder notice each time the
Company proposes to offer any shares of, or securities convertible into or
exercisable for any shares of, any class of its capital stock. Within 30 days of
receiving such notice, such Shareholder may agree to purchase, at the same price
and on the same terms as such offer, up to that portion of such securities which
equals the proportion that the number of Shares held by such Shareholder bears
to the total number of Common Shares then outstanding.
(b) The preemptive right in paragraph (a) above shall not be
applicable (i) to the issuance of Common Shares (or options therefor) to
employees, directors, or consultants pursuant to plans or agreements approved by
the Board of Directors, (ii) to the issuance of securities pursuant to the
conversion or exercise of convertible or
<PAGE> 9
MessageMedia Europe
exercisable securities, or as a result of any reclassification, stock split or
stock dividend, (iii) to the issuance of securities in the Company's IPO, (iv)
to the issuance of securities in connection with a business acquisition of or by
the Company, whether by merger, consolidation, sale of assets, sale or exchange
of stock or otherwise approved by the Board pursuant to Section 4(d), or (v) to
the issuance of securities to strategic partners, licensors, financial
institutions or lessors in connection with transactions approved by the Board of
Directors and not primarily for equity-financing purposes.
(c) Notwithstanding the foregoing provisions of this Section
8, MessageMedia will be entitled to purchase sufficient additional securities to
retain its ability to consolidate the Company's revenues and other operating
results in MessageMedia's financial statements.
9. Offering Rights
(a) After the earlier of four years from the date hereof and
six months after the Company's IPO, a Shareholder or Shareholders holding at
least 2,250,000 Shares (subject to adjustment for stock splits, combinations and
other changes in capitalization) shall be entitled to require the Company to
file or take other action to allow a public offering of Shares; provided the
Company is obligated to effect only two such public offerings pursuant to this
provision. In addition, if securities of the Company are eligible for public
sale by a short-form or abbreviated offering prospectus, each Shareholder shall
be entitled to require the Company to effect a public offering at any time,
provided such Shareholder can exercise such right only twice every 12 months.
The Company may postpone for up to 180 days action to effect an offering
pursuant to this Section 9(a) if the Board of Directors determines that such
offering could reasonably be expected to have a material adverse effect on any
proposal or plan by the Company to engage in any acquisition or merger or
similar transaction.
<PAGE> 10
MessageMedia Europe
(b) If the Company effects a public offering of its equity
securities, other than its IPO or an offering in connection with an acquisition,
merger or similar transaction, each Shareholder holding at least 2,250,000
Shares shall be entitled to have all or a portion of its Shares included in such
offering except to the extent the underwriters managing such offering advise the
Company in writing that the amount of Common Shares proposed to be sold is
greater than the amount they believe feasible to sell at that time on the terms
approved by the Company, in which case the number of shares that may be included
in the offering shall be allocated first to the Company and second to the
Shareholders pro rata based on the number of Shares then held by the
Shareholders.
(c) In connection with any offering of Shares effected
pursuant to this Section 9, each selling Shareholder shall be responsible for
any underwriting discounts and commissions applicable to its Shares and the
Company shall be responsible for all other expenses, including, without
limitation, all filing, printers and accounting expenses, and fees and
disbursements of counsel for the Company and one counsel for the selling
Shareholders. In addition, the Company will provide customary indemnification
for the selling Shareholders and any underwriter of Shares sold by them.
(d) During the period beginning 10 days prior and ending 180
days after the effective date of an underwritten public offering by the Company,
the Shareholders shall not, directly or indirectly, sell, offer or contract to
sell, grant any option to purchase or otherwise transfer or dispose of (other
than to an affiliate or pursuant to gifts to donees who agree to be similarly
bound) any Shares at any time during such period except Shares included in such
offering.
(e) The rights pursuant to this Section 9 may be assigned by
each Shareholder together with any transfer of at least 50% of its Shares,
provided the transfer complies with the applicable terms of this Agreement.
<PAGE> 11
MessageMedia Europe
10. Change in Control
(a) In the event of a change in control of MessageMedia, @viso
will have rights (i) to acquire an amount of the Shares held by MessageMedia
that would give @viso 51% of the outstanding Shares and (ii) to appoint a
majority of the Board of Directors, which rights will be exercisable by notice
to MessageMedia within 90 days following the public announcement of such change
of control. Upon such acquisition, the voting provisions of Section 4(d) will
terminate and all Board actions will be authorized by simple majority vote. For
the purpose of this Section, the term "change in control" means a change in the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of MessageMedia, or any affiliate
directly or indirectly controlling MessageMedia, whether through the ownership
of voting securities, by contract or otherwise, which change has not been
approved of by the Board of Directors of MessageMedia.
(b) Within 60 days of a notice pursuant to paragraph (a)
above, MessageMedia will have the right to acquire all, but not less than all,
the Shares held by @viso, which right will supersede @viso's rights under
paragraph (a).
(c) The purchase price for Shares to be acquired under
paragraphs (a) or (b) above will be the fair value of such Shares on a
going-concern basis as agreed by the parties. If the parties are unable to agree
on the fair value of Shares and the difference between their valuations is less
than 10% of the lower valuation, the average between the valuations shall be
used to determine fair value. If the difference is greater than 10% of the lower
valuation, the parties shall engage an independent internationally recognized
investment bank to perform its own valuation, applying methods commonly used in
the industry, which shall be completed within 60 days. Of the three valuations,
the valuation that differs in magnitude
<PAGE> 12
MessageMedia Europe
most from the other two valuations shall be disregarded, and the average between
the two remaining valuations shall be used to determine fair value. The fees and
expenses of such investment bank will be shared equally by the parties.
11. Termination
(a) This Agreement shall terminate on the earliest of (i) 10
years from the date hereof, or such later date to which the parties may agree at
any time within two years prior to the termination of such 10-year period, (ii)
the date agreed to in writing by the Shareholders, and (iii) the date on which
the Company shall declare bankruptcy or be declared bankrupt, be wound up or
otherwise ceases to exist as a separate corporate entity; provided, however, the
provisions set forth in Sections 4, 5, 6, 7, 8 and 10 shall terminate upon
consummation of the Company's IPO except as required by MessageMedia for the
purpose of consolidating revenues and other operating results. This Agreement
shall terminate as to any Shareholder at the time such Shareholder ceases to own
any Shares.
(b) In the event of termination pursuant to paragraph (a)
above, unless the Shareholders shall otherwise agree, the Company shall be
liquidated, with the net assets distributed to the Shareholders in proportion to
their respective interests; provided that MessageMedia will have the right to
repurchase the technology and intellectual property it licensed to the Company
for the final Purchase Price determined in accordance with the License
Agreement.
(c) Notwithstanding the foregoing, in the event of a buy-out
of any of the Shares held by MessageMedia by @viso pursuant to Section 10, or in
the event that MessageMedia otherwise ceases to own any Shares, MessageMedia
shall not be entitled to repurchase its technology pursuant to Section 11(b)
hereof and the License Agreement shall remain in effect.
<PAGE> 13
MessageMedia Europe
12. Miscellaneous
(a) This Agreement shall not be deemed to create a partnership
between the Shareholders and neither of them shall have any authority to bind
the other in any way.
(b) All the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto except as otherwise expressly
limited herein.
(c) Each party shall bear its own costs incurred in the
negotiations and preparation of this Agreement and of matters incidental
thereto.
(d) All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed, first-class airmail, postage prepaid:
To MessageMedia: 6060 Spine Road
Boulder, CO 80301
Attention: Larry Jones, President
and Chief Executive Officer
Telephone: 303-440-7550
Fax: 303-440-0303
with a copy to: Cooley Godward LLP
2595 Canyon Blvd., Ste. 250
Boulder, CO 80302-6737
Attention: Michael Platt, Esq.
Telephone: 303-546-4000
Fax: 303-546-4099
<PAGE> 14
MessageMedia Europe
To @viso:
@viso Limited
c/o Macfarlanes
10 Norwich Street
London EC4A 1BD
England
Attention: Charles Martin
Telephone: 44-207-831-9222
Fax: 44-207-831-9607
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
United States
Attention: Stephen A. Grant, Esq.
Telephone: 212-558-3504
Fax: 212-558-3588
or in each case to such other address as the party may have furnished to the
other party in writing.
(e) In the event of the invalidity of any part or provision of
this Agreement, such invalidity shall not affect the enforceability of any other
part or provision of this Agreement.
(f) No waiver by any party or any default in the strict
performance of or compliance with any provision herein shall be deemed to be a
waiver of performance and compliance as to any other provision, or as to such
provision in the future; nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter. No remedy expressly granted herein to any party shall
be deemed to exclude any other remedy which would otherwise be available.
<PAGE> 15
MessageMedia Europe
(g) This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
understandings and agreements between the parties with respect to such subject
matter. The Shareholders agree to vote their Shares to give effect to this
Agreement and, in the event of a conflict between this Agreement and the
Articles of Association of the Company, the provisions of this Agreement shall
prevail. If the implementation or performance of this Agreement is in any way
precluded by the Articles of Association, the Shareholders shall promptly amend
the Articles to permit full implementation and performance.
(h) This Agreement may be executed in counterparts, each of
which shall be deemed an original, but which together shall constitute one and
the same instrument.
13. Governing Law; Arbitration
This Agreement will be governed by and construed in accordance
with the laws of the State of New York. Any claim or disagreement arising out of
or in connection with this Agreement shall be referred to arbitration in London,
England with three arbitrators under the LCIA Rules. The arbitration award shall
be final and binding upon the parties and judgment thereon may be entered in any
court having jurisdiction.
<PAGE> 16
MessageMedia Europe
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the day and year first above written.
MESSAGEMEDIA, INC.
By:
------------------------------------
Larry Jones
President and
Chief Executive Officer
MESSAGEMEDIA US/EUROPE, INC.
By:
------------------------------------
@VISO LIMITED
By:
------------------------------------
Ronald Fisher
Director
<PAGE> 17
MessageMedia Europe
ANNEX A
<TABLE>
<CAPTION>
Continental Europe:
- ------------------
<S> <C>
Austria Romania
Belgium Russia
Bulgaria Slovak Republic
Czech Republic Spain
Denmark Sweden
Estonia Switzerland
Finland Turkey
France
Germany
Greece
Hungary
Italy
Latvia
Lithuania
Luxembourg
The Netherlands
Norway
Poland
Portugal
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 28,159,996
<SECURITIES> 0
<RECEIVABLES> 8,797,232
<ALLOWANCES> (358,159)
<INVENTORY> 0
<CURRENT-ASSETS> 38,690,555
<PP&E> 12,561,674
<DEPRECIATION> (4,054,074)
<TOTAL-ASSETS> 109,676,892
<CURRENT-LIABILITIES> 8,009,388
<BONDS> 0
0
0
<COMMON> 55,743,000
<OTHER-SE> 102,285,578
<TOTAL-LIABILITY-AND-EQUITY> 109,676,892
<SALES> 0
<TOTAL-REVENUES> 7,042,535
<CGS> 2,930,570
<TOTAL-COSTS> 23,966,524
<OTHER-EXPENSES> 4,711
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (18,645,490)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,645,490)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,645,490)
<EPS-BASIC> (0.34)
<EPS-DILUTED> 0
</TABLE>
