<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 11, 1999
REGISTRATION NO. 333-75687
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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USA.NET, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 4822 84-1163852
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1155 KELLY JOHNSON BOULEVARD, SUITE 400
COLORADO SPRINGS, CO 80920
(719) 265-2930
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
JOHN W. STREET
CHAIRMAN OF THE BOARD
USA.NET, INC.
1155 KELLY JOHNSON BOULEVARD, SUITE 400
COLORADO SPRINGS, CO 80920
(719) 265-2930
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies To:
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JAMES C. T. LINFIELD, ESQ. TAMARA POWELL TATE, ESQ.
MARK G. SENEKER, ESQ. BRIAN LEWANDOWSKI, ESQ.
COOLEY GODWARD LLP MORRISON & FOERSTER LLP
2595 CANYON BOULEVARD, SUITE 250 19900 MACARTHUR BLVD., SUITE 1200
BOULDER, CO 80302-6737 IRVINE, CA 92612-2445
(303) 546-4000 (949) 251-7500
</TABLE>
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Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) SHARE PRICE(1)(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value....... 9,775,000 $17.00 $166,175,000 $46,197(3)
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</TABLE>
(1) Includes shares that the underwriters have the option to purchase solely to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
(3) $27,800 has been previously paid.
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR
TO THE TIME THIS PROSPECTUS IS DELIVERED IN FINAL FORM. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 11, 1999
PROSPECTUS
8,500,000 SHARES
USA.NET LOGO
COMMON STOCK
-------------------------
This is an initial public offering of our common stock. We are selling all of
the 8,500,000 shares offered under this prospectus. We anticipate that the
initial public offering price will be between $15.00 and $17.00 per share.
We have applied to have our common stock approved for listing on the Nasdaq
National Market under the symbol "MBOX."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
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<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to us............................ $ $
</TABLE>
-------------------------
The underwriters may purchase up to an additional 1,275,000 shares from us at
the initial public offering price less the underwriting discount to cover
over-allotments.
-------------------------
BEAR, STEARNS & CO. INC.
VOLPE BROWN WHELAN & COMPANY
CIBC WORLD MARKETS
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3
INSIDE FRONT COVER PAGE
DESCRIPTIONS AND CAPTIONS
1. Top: USA.NET -- Dedicated to setting the global standard in email and
advanced messaging services.
2. First Caption: Comprehensive Messaging Services
Description: Our services are built on leading technology and a robust
infrastructure that provides consumers, Web portals, and businesses with access
to premium managed messaging solutions -- anywhere, anytime.
3. Next Caption: Highly Reliable and Scalable
Description: USA.NET has proven success in managing millions of mailboxes for a
variety of organizations. Our messaging architecture rapidly scales to meet
increased customer demand while maintaining high-quality service. And, by
leveraging leading messaging technologies, our service delivers high security,
performance and reliability.
4. Next Caption: Reduced Cost of Ownership
Description: USA.NET offers a comprehensive solution for businesses that need
quality messaging services at an affordable cost. Our customers do not install,
operate, or support their own email messaging systems. They cost-effectively
outsource all facets of their messaging platform to USA.NET while still getting
the features they need.
5. Next Caption: Universally Accessible
Description: Whether at home, in the office, or on the road, our customers
access their email messages using USA.NET's award winning messaging service. All
they need is a computer or device connected to the Internet and a Web browser.
6. Next Caption: Superior Support
Description: USA.NET provides superior customer service. Customers get direct
access to our experienced team of messaging experts via email, telephone, and
fax. We also maintain all upgrades, migrations and deployments, 24 hours a day,
seven days a week.
[USA.NET logo appears in lower left corner of page. "Make Contact" slogan
appears in a red circle at lower right of page.]
[INTERIOR FOLD-OUT OF FRONT COVER PAGE]
PHOTOGRAPHS OF WEB SITES, DESCRIPTIONS AND CAPTIONS
1. Upper Left: USA.NET is dedicated to setting the global standard in email and
advanced messaging services. Our services are built on leading technology,
providing consumers, Web portals, and businesses with access to premium
messaging solutions.
["Make Contact" slogan appears in a red circle at the lower right corner of the
foregoing text.]
2. Lower Left: Caption: Consumer Solutions.
[Photograph of www.netaddress.com Web site. NET@DDRESS logo appears below
photograph.]
Description to left of Web site photograph and under caption: In April 1996,
USA.NET launched NET@DDRESS, the first and largest independent Web-based email
service on the Internet. USA.NET offers consumers a permanent, private email
address free of charge, and allows them to send and receive messages from any
computer or device connected to the Internet.
"www.usa.net" appears in lower left corner.
<PAGE> 4
3. Upper Center and Upper Right: Caption: Business Solutions.
[Cascading photographs of www.amexmail.com and www.usa.net Web sites. American
Express and USA.NET logos appear below photographs.]
Description to left of photographs and under caption: USA.NET offers messaging
solutions designed to meet specialized business messaging needs. In April 1998,
together with American Express, we launched AmExMail powered by USA.NET, a
Web-based email service available to all consumers which offers exclusive
services for American Express Cardmembers. In June 1998, we launched our
commercial message outsourcing solution, which provides businesses with a
scalable, reliable, and universally accessible email service -- without the cost
and demands of operating their own messaging system.
4. The following features are named across the vertical middle of the two pages:
Virus Scanning, Pager Notification, Email Forwarding, Spam Blocking, Web-Based
Provisioning and Company Directory.
5. Lower Center and Lower Right: Caption: Web Portal Solutions
[Cascading photographs of webmail.netscape.com and www.register.com Web sites.
Netscape and register.com logos appear below photographs.]
Description to left of photographs and under caption: USA.NET offers Web-based
email outsourcing solutions to all types of Web portals. In June 1998, USA.NET
launched Netscape Webmail, the Web-based email service for Netscape Netcenter
Web portal users. WebMail has consistently been a leading driver of Netscape
Netcenter registrations. In March 1999, USA.NET entered into an agreement with
register.com to provide businesses with a bundled offering of domain name
registration and business email messaging services.
[INSIDE BACK COVER]
CAPTIONS, DESCRIPTIONS AND LOGOS
1. Top Caption: Planned* Services caption referring to the following planned
services (* refers to the following text in the lower right corner of the page:
Actual services and features may differ):
Unified Messaging will allow our users to send and retrieve messages from a
variety of devices -- phones, fax machines, computers, wireless phones, pagers,
personal digital assistants, and television set-top boxes -- from virtually
anywhere -- at home, in the office, or on the road.
Translation Services will help break language barriers by translating
Web-based email messages from one language to another (and vice versa).
Secure Document Delivery will provide enhanced security of messages by
allowing users to send sensitive documents over the Internet without fear of
interception or eavesdropping.
Calendar Services will allow users to integrate their Web-based calendar
and scheduling functions with their email messaging service so they never lose
track of important events or meetings.
2. Caption in Center of Page: Select Advertisers
Color logos of the following select advertisers of USA.NET: amazon.com,
egghead.com, American Express Relationship Services, netmarket, CBS
MarketWatch.com, NextCard, miningco.com, MatchLogic, brainplay.com, Go2Net,
Ameritech yellowpages.net, VRS, women.com networks, Uproar, Launch, FreeShop,
Webstakes.com and Fox News.
3. USA.NET logo appears in lower left corner. "Make Contact" slogan appears in
red circle in lower right corner.
<PAGE> 5
[OUTSIDE BACK COVER]
CAPTIONS AND TESTIMONIALS
1. Top Center: USA.NET logo
2. Top Caption: "Awards Won From..." followed by Windows Magazine, PC Magazine
Editor's Choice and C/Net Editor's Choice award logos.
Lower Caption: "Our Customers' Words..." followed by the following three
testimonials:
"We selected USA.NET as the company to develop and maintain our AmExMail
service because of its technology and track record of offering outsourced
messaging solutions. AmExMail allows us to provide our Cardmembers with an easy
and reliable way to manage their communications, whether they are at home, in
the office, or on the road. With AmExMail, customers also receive the level of
integrity, security, and privacy they've come to expect from American Express."
Larry Kutscher, Vice President of Interactive Enterprise Development,
American Express Travel Related Services Company, Inc., a diversified worldwide
travel, financial, and network services company founded in 1850.
"USA.NET offers the entire company the flexibility and control we need when
accessing email on the road. The service is easy to use and reliable -- and
their customer service reps are outstanding!"
Rodd Johnson, Vice President, Technology, Rapid Application Development,
Inc., a software consulting firm.
"USA.NET provides a premium email outsourcing solution for businesses and
individuals looking to combine a domain name with a personalized email address.
Our exclusive arrangement will offer register.com customers the ability to get
both a domain name as well as a professional email account, all in one step."
Richard Forman, Chief Executive Officer and President, register.com, the
largest single domain name registrar on the Internet.
<PAGE> 6
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER USA.NET, INC. NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO
PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS
PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY
SALE OF THESE SECURITIES.
---------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary..................... 1
Risk Factors........................... 5
Forward-Looking Statements; Market
Data................................. 17
Use of Proceeds........................ 18
Dividend Policy........................ 18
Capitalization......................... 19
Dilution............................... 20
Selected Financial Data................ 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 23
</TABLE>
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PAGE
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Business............................... 33
Management............................. 54
Principal Stockholders................. 66
Certain Transactions................... 68
Description of Securities.............. 71
Shares Eligible for Future Sale........ 74
Underwriting........................... 75
Legal Matters.......................... 77
Experts................................ 77
Where You Can Find Additional
Information.......................... 77
Index to Financial Statements.......... F-1
</TABLE>
---------------------
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 7
PROSPECTUS SUMMARY
This summary highlights information in this prospectus. You should read the
entire prospectus carefully, especially the risks of investing in our common
stock discussed under "Risk Factors," before investing in our common stock.
BUSINESS OVERVIEW
We are a leading provider of email and advanced messaging solutions on the
Internet for consumers, Web portals and businesses. Our advanced messaging
solutions allow users to access and manage messages from a variety of
communications devices. As of April 30, 1999, we managed over 10.2 million
mailboxes across all of our service offerings and processed over 172 million
messages during the month of April 1999. We base our messaging solutions on
highly reliable and scalable technology that can support our customer growth and
their expanding messaging needs.
Our advanced messaging solutions are designed to meet the following needs
of consumers, Web portals and businesses:
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<CAPTION>
CONSUMERS WEB PORTALS AND BUSINESSES
- -------------------------------------------- --------------------------------------------
<S> <C>
- - Permanent email address - Rapid deployment and reduced operating
- - Anytime, anywhere easy access to email costs
- - Robust set of basic features - Scalability to accommodate growth
- - Optional advanced functionality - Reliability and security
- - Account privacy and security - Anytime, anywhere easy access to email
- Customized "look and feel"
- Compatibility with existing email systems
- Specialized applications
- Sophisticated customer service and support
</TABLE>
Consumers. Our consumer email service, NET@DDRESS (www.netaddress.com), was
launched in April 1996, and is now the largest independent Web-based email
service on the Internet with approximately 7 million mailboxes. NET@DDRESS is
offered free of charge to consumers. We generate revenue from NET@DDRESS by
selling advertising space and by offering fee-based premium services such as
virus scanning, email forwarding and message notification.
Web Portals. Our primary Web portal clients are Netscape and register.com,
a business-oriented portal site. We currently manage over 3 million mailboxes
for Netscape's Netcenter Web portal. We generate revenue from Netscape WebMail
by selling advertising space and fee-based premium services. We share this
revenue with Netscape. In addition, we plan to generate revenue by charging a
monthly fee for each mailbox established through our register.com relationship.
Businesses. We provide specialized business messaging applications for
companies such as American Express Travel Related Services Company, as well as
comprehensive message outsourcing services for a wide range of businesses.
AmExMail is available to all consumers free of charge but has special features
available exclusively to American Express Cardmembers. We generate revenue from
our specialized business applications and outsourcing services primarily by
charging a monthly fee for each mailbox. We also offer fee-based premium
services and sell advertising in select situations.
MARKET OPPORTUNITY
We believe that email and advanced messaging services will continue to be
key drivers of Internet usage and growth because they are among the most popular
Internet applications today. According to Forrester Research, the number of
email users in the U.S. is expected to increase from 75 million in 1998 to 135
million in 2001. International Data Corporation estimates that the total number
of email messages sent per day in the United States will increase from 2.1
billion in 1998 to 7.9 billion in 2002.
1
<PAGE> 8
We believe that a growing number of businesses, including many that have
already implemented their own in-house email systems, will outsource their
messaging services to an outside vendor such as USA.NET to secure a more
reliable, cost effective and less resource-intensive solution. The Gartner Group
projects that the percentage of large businesses that will outsource at least
some of their email systems will grow from 10% in 1998 to 25% in 2000.
STRATEGY
Our objective is to be the leading provider of email and advanced messaging
solutions for consumers, Web portals and businesses. We intend to pursue this
objective by:
- Developing specialized applications to solve unique business needs;
- Expanding our message outsourcing services;
- Continuing our leadership in consumer messaging;
- Developing and strengthening our relationships with Web portals;
- Maintaining our technology leadership position; and
- Providing superior customer service.
We believe that our proven experience in meeting the rapidly evolving
messaging needs of consumers, Web portals and businesses positions us to
capitalize on the continuing rapid growth of Internet-based messaging.
---------------------
Our principal executive office is located at 1155 Kelly Johnson Boulevard,
Suite 400, Colorado Springs, CO 80920, and our telephone number is (719)
265-2930. Our Web site address is www.usa.net. The information contained on our
Web site does not constitute a part of this prospectus.
2
<PAGE> 9
THE OFFERING
Common Stock Offered in this
Offering.............................. 8,500,000 shares
Common Stock Outstanding After this
Offering.............................. 37,845,525 shares
Use of Proceeds....................... We intend to use the net proceeds
from the offering to fund our capital
expenditures, expand our product
development and sales and marketing
activities, repay certain
indebtedness, and for working capital
and other general corporate purposes,
including potential acquisitions and
investments.
Proposed Nasdaq National Market
Symbol................................ MBOX
ADDITIONAL SHARES MAY BE ISSUED AFTER THIS OFFERING UPON THE EXERCISE OF OPTIONS
AND WARRANTS
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of April 30, 1999. We are
permitted, and in some cases obligated, to issue shares of common stock in
addition to the common stock to be outstanding after this offering. The
following is a summary of these additional shares of common stock:
- 6,559,080 shares that could be issued upon the exercise of options
outstanding as of April 30, 1999 under our stock option plans, at a
weighted average exercise price of $3.14 per share;
- 10,442,600 additional shares that could be issued under our stock option
plans;
- 220,771 shares that could be issued upon exercise of an outstanding
warrant at an exercise price of $3.08; and
- 1,250,000 shares that can be issued to our employees who elect to buy
stock in the future under our employee stock purchase plan.
---------------------
Unless we indicate otherwise, all information in this prospectus:
- Reflects a 4.8-for-1 forward stock split that we will effect before we
close this offering;
- Reflects the automatic conversion of all outstanding shares of preferred
stock into 26,576,963 shares of common stock when we close this offering;
and
- Assumes that the underwriters do not exercise their option to purchase
additional shares of common stock after the closing of this offering and
that no other person exercises any other outstanding option or warrant
after April 30, 1999.
---------------------
"USA.NET" and "NET@DDRESS" are registered United States service marks of
ours. "Netscape" and the N design are registered trademarks of Netscape
Communications Corporation. Each other trademark, tradename or service mark
appearing in this prospectus belongs to its holder.
3
<PAGE> 10
SUMMARY FINANCIAL AND OPERATING DATA
The following tables set forth our summary financial and operating data.
These tables do not present all of our financial information. You should read
this information together with our financial statements and the notes to those
statements beginning on page F-1 of this prospectus and the information under
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Please see note 2 in the notes to the
financial statements for the method of computing pro forma basic and diluted net
loss from continuing operations per share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
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(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND MAILBOX DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................... $ 34 $ 782 $ 4,703 $ 520 $ 1,945
Cost of revenue............................... 299 1,614 5,329 709 2,180
---------- ---------- ---------- ---------- ----------
Gross margin................................ (265) (832) (626) (189) (235)
Operating expenses:
Selling and marketing....................... 876 2,269 6,904 914 2,401
Product development......................... 260 1,208 3,042 481 1,362
General and administrative.................. 674 1,490 2,447 346 892
Amortization of channel acquisition costs... -- -- 1,250 -- 625
Amortization of deferred compensation....... -- -- 413 69 190
---------- ---------- ---------- ---------- ----------
Total operating expenses............. 1,810 4,967 14,056 1,810 5,470
---------- ---------- ---------- ---------- ----------
Net loss from operations...................... (2,075) (5,799) (14,682) (1,999) (5,705)
Other income (expense), net................... -- 125 291 12 (145)
---------- ---------- ---------- ---------- ----------
Net loss from continuing operations........... $ (2,075) $ (5,674) $ (14,391) $ (1,987) $ (5,850)
========== ========== ========== ========== ==========
Basic and diluted net loss from continuing
operations per share........................ $ (1.44) $ (2.23) $ (5.57) $ (0.77) $ (2.23)
========== ========== ========== ========== ==========
Weighted average common shares outstanding --
basic and diluted........................... 1,443,014 2,549,328 2,581,978 2,563,622 2,624,317
========== ========== ========== ========== ==========
Pro forma basic and diluted net loss from
continuing operations per share
(unaudited)................................. $ (0.63) $ (0.14) $ (0.20)
========== ========== ==========
Pro forma weighted average common shares
outstanding -- pro forma basic and diluted
(unaudited)................................. 22,825,109 14,487,408 29,201,294
========== ========== ==========
NUMBER OF MAILBOXES AT PERIOD END:
Consumers..................................... 135,000 2,496,000 5,676,000 3,385,000 6,700,000
Web portals................................... -- -- 1,715,000 -- 2,700,000
Businesses.................................... -- 44,000 217,000 83,000 258,000
---------- ---------- ---------- ---------- ----------
Total................................ 135,000 2,540,000 7,608,000 3,468,000 9,658,000
========== ========== ========== ========== ==========
</TABLE>
Amortization of deferred compensation in the foregoing table represents
loss per share of $(0.16) (actual) and $(0.02) (pro forma, unaudited) for the
year ended December 31, 1998; $(0.02) (actual) and $(0.01) (pro forma,
unaudited) for the three months ended March 31, 1998; and $(0.07) (actual) and
$(0.01) (pro forma, unaudited) for the three months ended March 31, 1999.
The following table is a summary of our balance sheet data. The as adjusted
column reflects our receipt of the estimated net proceeds from the 8,500,000
shares of common stock we are selling in this offering at an assumed initial
public offering price of $16.00 per share, after deducting estimated
underwriting discounts and expenses and including the repayment of short-term
debt of $1,709,000.
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,437 $127,137
Restricted cash............................................. 1,419 1,419
Short-term investments...................................... 2,482 2,482
Working capital............................................. 10 125,420
Total assets................................................ 29,848 153,548
Short-term debt, including current portion of long-term debt
and capital lease obligations............................. 3,210 1,501
Long-term capital lease obligations......................... 4,925 4,925
Other long-term liabilities................................. 250 250
Total liabilities........................................... 13,718 12,008
Total stockholders' equity.................................. 16,130 141,540
</TABLE>
4
<PAGE> 11
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
prospectus before deciding whether to invest in shares of our common stock. The
risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business.
If any of the following risks actually occur, our business, operating
results or financial condition could be materially adversely affected. This
could cause the trading price of our common stock to decline, and you may lose
part or all of your investment.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF THE MARKET FOR EMAIL AND ADVANCED
MESSAGING SERVICES FAILS TO GROW
The market for Web-based email and advanced Internet messaging services is
new and rapidly evolving. We are uncertain whether the market for our services
will continue to grow and develop. Our future success depends on businesses'
widespread acceptance and use of outsourcing to solve their email and advanced
Internet messaging needs. We only recently launched our commercial messaging
services. We may not be able to sustain our recent growth in revenue and users
and our recent growth rates may not indicate actual growth rates that we may
experience.
If the market for our services fails to develop, develops more slowly than
we expect, or if we fail to accurately design our service enhancements to
satisfy our users on a timely basis, or at all, our business, operating results
and financial condition would be materially adversely affected.
IT IS DIFFICULT TO EVALUATE OUR BUSINESS AND PROSPECTS BECAUSE WE HAVE A LIMITED
OPERATING HISTORY
We have only a limited operating history upon which you can evaluate our
business and prospects. We did not begin to offer Web-based email services until
April 1996 and commercial messaging services until June 1998. As a young
company, we face risks and uncertainties relating to our ability to successfully
implement our business plan. You should consider the risks, expenses and
difficulties encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets. If we do not
successfully address these risks and uncertainties, our business, operating
results and financial condition will be materially adversely affected.
WE HAVE A HISTORY OF LOSSES, WE EXPECT TO LOSE MONEY IN THE FUTURE AND WE MAY
NOT ACHIEVE OR SUSTAIN PROFITABILITY
We have not achieved profitability and we expect to continue to lose money
at least through the end of 2001. If our revenue does not increase
substantially, we may never become profitable. Even if we do achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis in the future.
We have not generated enough revenue to cover the substantial amounts we
have spent to create, launch and enhance our services. Our operating costs have
exceeded our revenue for all quarters. We have historically funded our
operations by selling stock and obtaining loans from banks and not by generating
income from our business. We incurred net losses from continuing operations of
approximately $5.8 million (unaudited) for the three months ended March 31,
1999, $14.4 million in 1998, $5.7 million in 1997 and $2.1 million in 1996. As
of March 31, 1999, our accumulated deficit was $29.6 million.
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WE MUST DEVOTE SIGNIFICANT MANAGERIAL, TECHNICAL AND FINANCIAL RESOURCES TO OUR
STRATEGIC RELATIONSHIPS AND THESE RELATIONSHIPS MAY NOT PROVE TO BE PROFITABLE
Our strategic relationships, including those with American Express,
Netscape and register.com, expose us to a number of significant risks and
uncertainties, such as:
- We may fail to generate sufficient advertising and other revenue to
offset the expenses and resources we devote to developing, maintaining
and enhancing such services;
- The resources we need to devote to these relationships and our services
may be greater than we anticipate; and
- These relationships may divert our resources and our management's time
and attention from our other services, including NET@DDRESS and our
commercial messaging services.
These risks and uncertainties could result in material adverse effects upon
our business, operating results and financial condition.
Our strategic relationships require that we devote significant managerial,
technical and financial resources to those relationships. Our agreements with
American Express and Netscape require us to maintain and manage all of the user
mailboxes and hardware on our systems and to provide specified service and
support levels. We are also responsible for marketing the services and selling
the advertising inventory on these services. We share with American Express and
Netscape the revenue generated from these services. Please see our discussion in
"Business -- Strategic Relationships" for additional information regarding our
strategic relationships.
WE DEPEND ON KEY STRATEGIC RELATIONSHIPS TO GENERATE REVENUE AND OUR BUSINESS
COULD SUFFER IF ANY OF THESE RELATIONSHIPS ARE TERMINATED
Our agreements with our strategic partners are short-term, typically
ranging from one to two years. These agreements, as well as others with future
strategic partners, may be terminated early in certain circumstances, including
our failure to provide certain service and support levels, and our partners may
not renew them at the end of their respective terms. If these relationships are
terminated early, we will be unable to recover the costs and expenses associated
with building our operations to provide the services and satisfy our contractual
obligations. We may also be unable to effectively reallocate personnel,
equipment and other resources that were allocated to those relationships.
For example, our agreement with American Express terminates December 31,
1999. Our agreement with Netscape with respect to its domestic Netcenter site
terminates in June 2000. Our agreement with Netscape with respect to certain
international Netcenter sites terminates two years from the initial service
launch, which has not yet occurred. These agreements do not contain any
automatic renewal or extension period and they may be terminated early in
certain circumstances, including our failure to meet specified service and
support levels. In addition, advertising revenue on Netscape WebMail Powered by
USA.NET accounted for approximately 30% of our gross revenue in 1998. If
Netscape does not renew this relationship and if we do not replace it with an
another significant Web portal strategic relationship, then our business,
operating results and financial condition would be materially adversely
affected.
WE MAY NOT BE ABLE TO ENTER INTO NEW STRATEGIC RELATIONSHIPS BECAUSE WE MAY
COMPETE WITH EXISTING OR FUTURE PARTNERS
Our relationships with our existing and future strategic partners may limit
our ability to enter into other strategic relationships or sell our services to
similar businesses. For example, our agreements with American Express, Netscape
and register.com prevent us from entering into relationships with or providing
our services to competitors of those partners. We may also enter into similar
non-compete arrangements with future strategic partners.
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Our existing strategic partners and many companies that we may pursue for
strategic relationships in the future also offer competing products and
services. For example, we plan to seek strategic partnerships with selected
telecommunications, Internet and other service providers. However, many of these
companies already provide competing products and services and we expect them to
further develop, acquire or license competing products and services.
Accordingly, these companies may be reluctant to enter into strategic
relationships with us.
In particular, we do not know what impact America Online's merger with
Netscape will have on our relationship with Netscape. America Online provides
its subscribers with email services. It may also use technology provided by
certain of our competitors or invest in or have relationships with our
competitors or other Internet companies. These relationships may result in
Netscape deciding to terminate or narrow its relationship with us.
OUR BUSINESS MAY SUFFER IF THE NUMBER OF PEOPLE USING OUR ADVERTISING-BASED
SERVICES DECREASES
Our advertising-based services, such as NET@DDRESS, depend on a large
number of users to generate advertising revenue. If we cannot maintain and
increase our number of users, our business, operating results and financial
condition may be adversely affected. Each month, a number of our users ceases
using our services. This number may increase as certain services that were
previously provided free of charge are changed to premium services for which we
charge a fee. If we are unable to replace these users, our advertising revenue
will suffer.
INTENSE COMPETITION EXISTS IN THE EMAIL AND INTERNET MESSAGING SERVICES MARKETS
AND WE EXPECT COMPETITION TO CONTINUE TO INTENSIFY
Competition in the Web-based email and advanced Internet messaging services
markets is intense. Competition for Internet-based advertising is also intense.
We may not be able to compete successfully against our current or future
competitors. Many of our competitors have greater brand recognition, longer
operating histories, larger customer bases and greater financial, marketing and
other resources than we have. These factors may place us at a disadvantage when
we respond to our competitors' pricing strategies, technological advances and
other initiatives. Our inability to successfully respond to competitive
pressures would have a material adverse effect on our business, operating
results and financial condition. Additionally, our competitors may develop
services that are superior to ours or that achieve greater market acceptance.
We expect competition to persist and intensify. Barriers to entry may be
insubstantial and we may face substantial and growing competitive pressures from
companies both in the United States and abroad. If we do not respond
successfully to competitive pressures, our business, operating results and
financial condition would be materially adversely affected. Please refer to
"Business -- Competition" for further discussion of the companies that we
compete against.
OUR BUSINESS MAY SUFFER FROM UNPLANNED SYSTEM INTERRUPTIONS
Our computer and communication hardware systems must operate efficiently
and without interruption. Our business will suffer if we experience frequent or
long system interruptions.
Our customers have experienced some interruptions in our email service in
the past due to hardware or software failures, computer viruses or "spam"
attacks and other causes. We believe that these interruptions are likely to
occur from time to time in the future. Our systems are also vulnerable to damage
from fire, floods, power loss, telecommunications failures, physical break-ins
and similar events. System failures that cause interruption or slower response
times could result in less traffic to our Web site and those of the Web portals
with whom we partner. Sustained or repeated system failures could damage our
reputation and cause us to lose advertisers and users.
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WE MAY LOSE USERS AND OUR REPUTATION MAY SUFFER BECAUSE OF "SPAM"
Unsolicited bulk mail, or "spam," and our attempts and others' attempts to
control spam could harm our business and our reputation. Recent publications
suggest that spam has harmed our reputation as well as reputations of other
Internet and email service providers. To the extent our spam blocking efforts
are not effective, our systems may become unavailable or may suffer from reduced
performance. Technologies and processes designed to detect and block spam are
not entirely effective. As a result, unwanted spam may be delivered while
legitimate messages are not delivered. Spam-blocking efforts by others may also
result in others blocking our users' legitimate messages. Additionally, spam may
contain false email addresses or be generated by the use of false email
addresses. Our reputation may be harmed if email addresses with our domain names
are used in this manner. Any of these events may cause users to become
dissatisfied with our service and terminate their use of our services, which
could cause our business, operating results and financial condition to be
materially adversely affected.
WE MAY NOT BE ABLE TO SUSTAIN OR GROW OUR BUSINESS UNLESS WE KEEP PACE WITH
RAPIDLY CHANGING TECHNOLOGY AND MARKET CONDITIONS
Rapid technological change, changing customer needs, frequent new product
and service introductions and evolving industry standards characterize the
Internet messaging market. These market characteristics could render our
existing services, technology and systems obsolete. We must continually improve
the performance, features and reliability of our services to respond to evolving
market demands and competition. Our business, operating results and financial
condition would be materially adversely affected if we are unable to respond in
a cost-effective and timely manner to changing market conditions or customer
requirements.
WE MUST COST-EFFECTIVELY UPGRADE OUR SYSTEMS AND INFRASTRUCTURE TO ACCOMMODATE
INCREASES IN EMAIL TRAFFIC AND MINIMIZE CAPACITY CONSTRAINTS TO REMAIN
COMPETITIVE
We will need to make additional investments in our network infrastructure
to avoid capacity constraints as the number of users and the frequency and
complexity of messaging increases. The proliferation of multimedia technology
and other new methods of communicating on the Internet which require large
amounts of data may further constrain our systems and infrastructure. These
constraints could result in unanticipated system disruptions, slower response
times, impaired quality and reduced levels of customer service. Slower response
times or system failures could adversely affect our delivery of advertising
impressions and cause our advertising revenue to decline. Message infrastructure
investments may be expensive and time consuming. Additionally, we may not be
able to accurately project the rate or timing of message traffic increases or
upgrade our systems and infrastructure to accommodate future traffic levels. We
do not know if we will be able to successfully manage a substantially greater
number of users and higher message volume at high transmission speeds. We are
likely to encounter equipment or software incompatibility as we upgrade our
infrastructure.
OUR BUSINESS AND REPUTATION WILL SUFFER IF WE DO NOT PREVENT SECURITY BREACHES
We must securely transmit confidential information over public networks.
Our failure to prevent security breaches could damage our reputation, expose us
to a risk of loss or liability or otherwise have a material adverse effect on
our business, operating results and financial condition. Our servers are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions. These problems could lead to operational interruptions, delays,
loss of data and unauthorized access to confidential information. We may need to
expend significant capital and other resources to protect against security
breaches or to alleviate problems caused by any breach.
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OUR ABILITY TO SUSTAIN AND GROW OUR BUSINESS MAY BE HARMED IF WE ARE UNABLE TO
DEVELOP AND MAINTAIN THIRD PARTY MARKETING AND SALES RELATIONSHIPS FOR
COMMERCIAL MESSAGING SOLUTIONS
We sell our commercial messaging solutions through our internal sales force
and indirect channels such as Internet, telecommunications and other service
providers, as well as distributors, resellers and Web portals. Our business,
operating results and financial condition would be materially adversely affected
to the extent that we are unable to develop additional distribution
relationships, or these third parties do not successfully distribute our
services, or the amounts we pay these third parties to market and sell our
services do not provide adequate incentives.
WE MAY EXPERIENCE UNEXPECTED EXPENSES OR DELAYS IN SERVICE ENHANCEMENTS IF WE
ARE UNABLE TO LICENSE THIRD PARTY TECHNOLOGY ON COMMERCIALLY REASONABLE TERMS
We license certain technology from third parties, such as Sun Microsystems
and Oracle. We expect to increase our reliance on third party technology in the
future to enhance our services and remain competitive. We may not be able to
license these technologies on commercially reasonable terms or at all. In
addition, we may fail to successfully integrate licensed technology into our
systems. Our inability to obtain any of these licenses could delay service
development or the timely introduction of new services and divert our resources.
Any such delays could materially adversely affect our business, operating
results and financial condition.
OUR SERVICES AND REPUTATION MAY BE ADVERSELY AFFECTED BY SOFTWARE DEFECTS
Our services depend on complex software developed by us and third parties.
Software often contains defects, particularly when first introduced or when new
versions are released. These defects could cause service interruptions that
damage our reputation, increase our service costs, cause us to lose revenue,
delay market acceptance or divert our development resources, any of which could
materially adversely affect our business, operating results and financial
condition. We may not discover software defects that affect our services or
enhancements until we deploy the software.
A NUMBER OF FACTORS COULD CAUSE OUR OPERATING RESULTS TO FLUCTUATE SIGNIFICANTLY
AND OUR STOCK PRICE TO FALL
Our annual and quarterly operating results have fluctuated significantly in
the past and we expect them to fluctuate significantly in the future. It is
possible that in some future periods our results may be below expectations of
public market analysts and investors. If this were to occur, the trading price
of our common stock could significantly decline. Our operating results fluctuate
because of a variety of factors, not all of which are in our control. These
factors include:
- Our expenses and revenue from our strategic relationships;
- The timing of our or our competitors' introduction of new, enhanced or
alternative messaging services and the market acceptance of those
services;
- The amount and timing of revenue, operating costs and capital
expenditures;
- Seasonal trends and budgeting cycles in advertising sales and Internet
usage;
- Pricing, service or marketing decisions that we make in response to
competition;
- System downtime or technical difficulties that affect our operations or
the Internet in general; and
- Economic conditions relating to the Internet and general economic
conditions.
In addition, we base our operating expenses largely on our expectations of
future revenue. Accordingly, our operating results are particularly sensitive to
fluctuations in revenue because we may be unable to adjust spending quickly
enough to offset any unexpected revenue shortfall. If our revenue is below our
plan, or if we increase our spending ahead of our revenue growth, our business,
operating results
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and financial condition would be materially adversely affected. You should not
rely on annual or quarter-to-quarter comparisons of our operating results as an
indication of future performance.
WE MUST ESTABLISH, MAINTAIN AND STRENGTHEN OUR BRANDS TO REMAIN COMPETITIVE
To be successful, we believe that we must establish, maintain and
strengthen our brands. We must succeed in our marketing efforts, provide
high-quality services and increase our user base to build our brand awareness.
If consumers, Web portals, businesses or advertisers do not perceive our
services to be of high quality, or if users reject our new services, the value
of our brands would be diluted. If we are unable to establish, maintain and
strengthen our brands, our business, operating results and financial condition
would be materially adversely affected.
WE MAY NOT BE ABLE TO SUCCESSFULLY OPERATE OUR BUSINESS IF WE LOSE KEY PERSONNEL
OR IF OUR NEWLY FORMED MANAGEMENT TEAM DOES NOT WORK EFFECTIVELY TOGETHER
We believe that our success will depend on the continued services of our
senior management team and other key personnel. The loss of the services of any
of our senior management team or other key employees could materially adversely
affect our business, operating results and financial condition. We do not have
long-term employment agreements with any of our senior management or other key
personnel.
Additionally, certain key members of our senior management team, including
John Gerdelman, our Chief Executive Officer, and Kaukab Chaudhry, our Chief
Financial Officer, were elected in April 1999. Accordingly, our senior
management team has had a limited time to work together. We cannot assure you
that they will be able to work effectively together.
OUR BUSINESS WILL SUFFER IF WE DO NOT ATTRACT AND RETAIN ADDITIONAL HIGHLY
SKILLED PERSONNEL
Our future success depends on our ability to identify, attract, hire,
train, retain and motivate highly skilled technical, managerial and sales and
marketing personnel. Our failure to attract and retain the necessary technical,
managerial, sales and marketing and administrative personnel could materially
adversely affect our business, operating results and financial condition. For
example, the complexity and implementation of our Internet messaging services
requires highly trained sales and marketing personnel to educate prospective
users regarding the use and benefits of our services. Competition for skilled
personnel is intense, and we cannot guarantee that we will successfully attract,
assimilate or retain a sufficient number of qualified personnel. In particular,
we have experienced difficulties in retaining employees due to significant
competition for experienced personnel in our market.
FAILURE TO MANAGE OUR GROWTH EFFECTIVELY COULD ADVERSELY AFFECT OUR BUSINESS
Our recent rapid growth has significantly strained our managerial,
operational and financial resources. Our failure to manage our growth
effectively could materially adversely affect our business, operating results
and financial condition. We expect to continue to significantly augment our
infrastructure at an accelerated pace. We must effectively manage our
operational, customer service and financial systems, procedures and controls to
manage this future growth.
WE RELY ON GENERATING REVENUE FROM ADVERTISING ON THE INTERNET AND OUR BUSINESS
WILL SUFFER IF WE ARE UNABLE TO ATTRACT ADVERTISING
We have derived substantially all of our revenue to date from the sale of
advertisements. Advertising customers may not continue to purchase advertising
space and services from us. We may not be successful in attracting additional
advertisers or achieving sufficient page impressions for our advertisers.
Advertisers may not find our advertising to be effective. If we are unsuccessful
in attracting advertisers and in increasing our advertising revenue, our
business, operating results and financial condition will be materially adversely
affected. We expect that revenue from Internet advertising will continue to
account for a significant amount of our revenue for the foreseeable future.
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We depend on third parties to measure the demographics of our user base and
the delivery of advertisements. If they are unable to provide these services in
the future, we will need to perform them ourselves or obtain them from another
provider. This could cause us to incur additional costs or cause interruptions
in our business. Companies may choose not to advertise with us or may pay less
for advertising if they do not perceive our measurements or measurements
provided by third parties to be reliable.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF THE MARKET FOR INTERNET ADVERTISING
FAILS TO DEVELOP
Since the Internet advertising market is new and rapidly evolving, it is
difficult for us and advertisers to gauge its effectiveness as compared to
traditional advertising outlets.
In addition, many of our current advertising customers have limited or no
experience using the Internet as an advertising medium and traditionally have
not devoted a significant portion of their advertising expenditures to the
Internet. If the Internet advertising market develops more slowly than we
expect, our business, operating results and financial condition will be
materially adversely affected.
It is difficult to predict which pricing models Internet advertisers will
accept. This uncertainty makes it difficult to project our future advertising
rates and revenue. Our revenue could be adversely affected if advertisers reject
our pricing models. Also, "filter" software programs that limit or prevent us
from delivering advertising to a user's computer are available. Widespread
adoption of this software could adversely affect the commercial viability of
Internet advertising.
OUR ADVERTISING REVENUE DEPENDS ON ADVERTISING CONTRACTS THAT ARE GENERALLY
SHORT-TERM AND REQUIRE US TO GUARANTEE A MINIMUM NUMBER OF IMPRESSIONS
We derive a significant portion of our revenue from short-term advertising
contracts that typically last one to two months. Our revenue and operating
results for a given quarter will depend to a significant extent on contracts
entered into within that quarter. The cancellation or deferral of advertising
contracts, or the failure to obtain sufficient new advertising contracts, could
materially adversely affect our business, operating results and financial
condition.
Our advertising revenue is based in part on the amount of traffic to the
Web sites on which we sell advertising. Any significant shortfall in traffic in
these Web sites could have a material adverse effect on our business, operating
results and financial condition. In addition, substantially all of our
advertising contracts require that we guarantee a minimum number of impressions.
If we do not meet these minimum impressions, we must provide credit for
additional impressions. Our ability to sell additional advertising would be
materially adversely affected and our advertising rates may decline.
THE LOSS OF A MAJOR ADVERTISER COULD HARM OUR BUSINESS
In 1998, Egghead.com accounted for approximately 27% of our total revenue.
In 1997, Egghead.com, 24/7 Media (an advertising agency that buys advertising on
behalf of others) and Webstakes accounted for approximately 18%, 15% and 11%,
respectively, of our total revenue. Generally, our advertising agreements are
short-term and can be easily terminated by the other party. Sales of our
advertising space or of our services to a limited number of advertisers could
account for a high percentage of our revenue in the future. Our future success
depends on our ability to retain our existing advertisers and attract new
advertisers. The loss of a major advertiser or our inability to attract new
advertisers could have a material adverse effect on our business, operating
results and financial condition.
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WE WILL NOT BE ABLE TO GROW OUR BUSINESS UNLESS CONSUMERS AND BUSINESSES
INCREASE THEIR USE OF THE INTERNET AND THE INTERNET IS ABLE TO SUPPORT THE
DEMANDS OF THIS GROWTH
Our success depends on consumers and businesses increasing their use of the
Internet. Consumers and businesses might not use the Internet for a number of
reasons, such as:
- High Internet access costs;
- Perceived security risks;
- Legal and regulatory issues;
- Inconsistent service quality; and
- Unavailability of cost-effective, high-speed service.
Even if consumers and businesses increase their use of the Internet, the
Internet infrastructure may not be able to support the demands of this growth.
We depend on improvements being made to the entire Internet infrastructure to
alleviate overloading and congestion. Further, the Internet's performance and
reliability may decline. Similarly, users may experience interruptions in their
services as a result of outages and other delays occurring throughout the
Internet network infrastructure. If these outages or delays occur frequently,
consumers and businesses may slow or stop their use of the Internet as a
commercial or business medium. If consumers and businesses do not increase their
use of the Internet, our business, operating results and financial condition
would be materially adversely affected.
We rely on the speed and reliability of networks operated by third parties.
We depend on telecommunications carriers to transmit messages and may be unable
to find adequate replacements if their rates increase or they discontinue doing
business with us.
In addition, we rely on arrangements among access providers to carry each
other's traffic. Our ability to transmit our message traffic would be reduced if
these providers were to discontinue these arrangements and alternative providers
did not emerge or were to increase the cost of providing access.
OUR BUSINESS WILL SUFFER IF WE ARE NOT ABLE TO EXPAND INTO INTERNATIONAL MARKETS
OR COMPETE EFFECTIVELY IN THOSE MARKETS
We intend to expand into international markets and to spend significant
financial and managerial resources to do so. We have limited experience in
international markets and may not be able to compete effectively in
international markets. We also face certain risks inherent in conducting
business internationally, such as:
- Legal and governmental regulatory requirements;
- Difficulties and costs of staffing and managing international operations;
- Differing technology standards;
- Language and cultural differences;
- Trade barriers;
- Difficulties in collecting accounts receivable and longer collection
periods;
- Seasonal business activity in certain parts of the world;
- Political and economic instability;
- Fluctuations in currency exchange rates;
- Imposition of currency exchange controls;
- Potentially adverse tax consequences; and
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- Reduced protection for intellectual property rights in certain countries.
Any of these factors could materially adversely affect our international
operations and, consequently, our business, operating results and financial
condition.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN
NEEDED
We believe that, following this offering, our cash reserves and cash flows
from operations should be adequate to fund our operations for at least the next
eighteen months. If our capital requirements or revenue vary materially from our
current plans or if unforeseen circumstances occur, we may require additional
financing sooner than we anticipate. This financing may not be available on a
timely basis, in sufficient amounts or on terms acceptable to us. This financing
may also dilute existing stockholders.
If we cannot obtain adequate funds on acceptable terms, then we may not be
able to:
- Fund our capital requirements;
- Take advantage of strategic opportunities;
- Develop or enhance our services; or
- Respond to competitive pressures.
Any of these failures could have a material adverse effect on our business,
operating results and financial condition.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS, CAUSE US TO
INCUR DEBT AND ASSUME CONTINGENT LIABILITIES
We expect to review acquisition or investment prospects that would
complement our current service offerings, augment our market coverage, enhance
our technical capabilities, or offer growth opportunities. While we have no
current agreements or negotiations underway with respect to any such
acquisitions or investments, we may acquire or invest in businesses, products or
technologies in the future. In such an event, we could:
- Issue equity securities which would dilute current stockholders'
percentage ownership;
- Incur substantial debt; or
- Assume unknown or contingent liabilities.
Such actions by us could materially adversely affect our operating results
and the price of our common stock. Acquisitions also entail numerous risks,
including:
- Difficulties in integrating acquired operations, technologies or
services;
- Unanticipated costs associated with the acquisitions that materially
adversely affect our operating results;
- Diversion of management's attention from other business concerns; and
- Risks of entering markets in which we have no or limited prior
experience.
Any of these risks could result in a material adverse effect on our
business, financial condition and operating results.
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IF OUR SYSTEMS OR THOSE OF THIRD PARTIES ARE NOT YEAR 2000 COMPLIANT, OUR
BUSINESS MAY BE SEVERELY DISRUPTED AND OUR OPERATING RESULTS MAY BE ADVERSELY
AFFECTED
Failure of our internal computer systems or third party hardware or
software, or of systems maintained by third parties, to operate properly with
regard to Year 2000 and thereafter could cause systems interruptions or loss of
data or could require us to incur significant unanticipated expenses to remedy
any problems. Presently, we believe we are unable to reasonably estimate the
duration and extent of any such interruption, or quantify the effect it may have
on our future revenue. We have not yet developed a comprehensive contingency
plan to address these issues, which could result from such failure. We are
prepared to develop such a contingency plan if our ongoing assessment indicates
areas of significant exposure.
If our present efforts to address the Year 2000 compliance issues are not
successful, or if third party vendors, licensors and providers of hardware,
software and services with which we conduct business do not successfully address
such issues, our business, operating results and financial condition would be
materially adversely affected. Please refer to our discussion in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Issues."
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY MAY ADVERSELY AFFECT
OUR ABILITY TO COMPETE
Trademarks, service marks, trade secrets, copyrights and other proprietary
rights are important to our success and competitive position. Our efforts to
protect our proprietary rights may be inadequate and may not prevent others from
claiming violations of their proprietary rights. Effective trade secret,
copyright, patent and trademark protection may not be available in every country
in which we make our services available through the Internet. The unauthorized
misappropriation of our proprietary technology could have a material adverse
effect on our business, financial condition and operating results.
WE ARE SUBJECT TO CLAIMS ALLEGING INFRINGEMENT OF THIRD PARTIES' INTELLECTUAL
PROPERTY RIGHTS
We may be subject to claims alleging that we have infringed third party
proprietary rights. If we were to discover that any of our services infringed a
third party's rights, we may not be able to obtain permission to use those
rights on commercially reasonable terms. If we resort to legal proceedings to
enforce our proprietary rights or defend against alleged infringements, the
proceedings could be burdensome and expensive and could involve a high degree of
risk. Any of these events could have a material adverse effect on our business,
operating results and financial condition.
INCREASED GOVERNMENT REGULATION MAY INCREASE OUR COST OF DOING BUSINESS OR CAUSE
US TO CHANGE THE WAY WE CONDUCT OUR BUSINESS
Any new legislation or regulation regarding the Internet, or the
application or uncertainty relating to the application of existing laws and
regulations to the Internet, could materially adversely affect our business,
operating results and financial condition.
Legislation could impair the growth of the Internet and decrease the
acceptance of the Internet as a communications and commercial medium. This could
decrease the demand for our services, increase our cost of doing business or
otherwise have a material adverse affect on our business, financial condition
and operating results.
Further, the growth and development of the Internet messaging market may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on companies conducting business online. These laws may
impose additional burdens on our business. For example, because we rely on the
collection and use of personal data from our users for targeting advertisements,
any laws or regulations that restrict our ability to collect or use such
information may harm us. Some states, including New York and California, have
enacted laws or adopted regulations that apply various consumer fraud and false
advertising requirements to parties who conduct business over the Internet.
There have also been numerous legislative initiatives proposed to address the
prevalence of spam on the Internet.
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CHANGES IN TELECOMMUNICATIONS REGULATIONS COULD DECREASE THE DEMAND FOR OUR
SERVICES
Several telecommunications carriers are advocating that the Federal
Communications Commission regulate the Internet in the same manner as other
telecommunications services by imposing access fees on Internet service
providers. Any such regulations could substantially increase the costs of
communicating on the Internet. This, in turn, could slow the growth in Internet
use and thereby decrease the demand for our services or otherwise have a
material adverse effect on our business, operating results and financial
condition.
OUR BUSINESS AND REPUTATION MAY SUFFER IF WE ARE SUBJECT TO CLAIMS BASED ON THE
NATURE AND CONTENT OF MATERIALS TRANSMITTED THROUGH OUR SERVICES
As a provider of Internet messaging services, we may be subject to legal
claims involving matters such as defamation, negligence, invasion of privacy,
copyright infringement and other claims based on the nature and content of the
materials transmitted via email. We do not and cannot screen all of the content
generated by our users and we could be exposed to liability with respect to this
content. Online content restrictions cover many areas, including indecent or
obscene content and gambling. Several federal and state regulations prohibit the
transmission of indecent or obscene information and content. Certain foreign
governments have enforced laws and regulations related to content distributed
over the Internet that are more strict than those currently in place in the
United States.
GOVERNMENT REGULATION OF THE COLLECTION AND USE OF PERSONAL DATA COULD DECREASE
OUR REVENUE AND INCREASE OUR COSTS
We are continuing to review our practices in light of recent Federal Trade
Commission ("FTC") activity and the enactment of the Children's Online Privacy
Protection Act regarding the collection and use of personal data. However, we
cannot predict the exact form of the regulations that the FTC may adopt.
Accordingly, we cannot assure you that our current practices will comply with
the regulatory scheme which the FTC ultimately adopts or that we will not have
to make significant changes to comply with such laws or similar laws adopted by
other domestic or foreign regulatory bodies.
In October 1998, the Children's Online Privacy Protection Act was signed
into law, which directs the FTC to develop regulations for the collection of
data from children by commercial Web site operators. Separately, the Federal
Trade Commission Act prohibits unfair and deceptive practices in and affecting
commerce. The FTC Act authorizes the FTC to seek injunctive and other relief for
violations of the FTC Act and provides a basis for government enforcement of
fair information practices. For instance, failure to comply with a stated
privacy policy may constitute a deceptive practice in some circumstances and the
FTC would have authority to pursue the remedies available under the FTC Act for
any violations. Furthermore, in some circumstances, information practices may be
inherently deceptive or unfair, regardless of whether the entity has publicly
adopted any privacy policies. The FTC has begun investigations into the privacy
practices of companies that collect information on the Internet.
At the international level, the European Union adopted a directive that
requires EU member countries to impose restrictions on the collection and use of
personal data, effective October 25, 1998. Among other provisions, the directive
generally requires member countries to prevent the transfer of
personally-identifiable data to countries that do not offer equivalent privacy
protections. At present, the EU has indicated that the United States does not
provide protections equivalent to that of the directive. The directive could,
among other things, affect United States companies that collect information over
the Internet from individuals in EU member countries, and may impose
restrictions that are more stringent than current Internet privacy standards in
the United States.
WE MAY BE SUBJECT TO LIABILITY AND OUR REPUTATION MAY SUFFER BECAUSE OF
SPAMMING, LOST OR MISDIRECTED MESSAGES OR OTHER PROBLEMS.
We may be subject to risks from claims resulting from unsolicited email (or
spamming), lost or misdirected messages, illegal or fraudulent use of email or
interruptions or delays in service. Even to the
15
<PAGE> 22
extent these claims do not result in liability, we could incur significant costs
in investigating or defending against these claims, or in implementing measures
to reduce our exposure to such liability. These types of claims may also hurt
our reputation.
Our insurance may not cover claims of these types or may not provide
sufficient coverage. Any imposition of liability that our insurance does not
cover or exceeds our insurance coverage could materially adversely affect our
business, financial condition and operating results.
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE
OUR STOCK PRICE TO FALL
The market price of our common stock could fall if our stockholders sell
substantial amounts of common stock, including shares issued upon the exercise
of outstanding options, in the public market following this offering. Such sales
might also make it more difficult for us to sell equity securities in the future
at a time and price that we deem appropriate. Please refer to our discussion in
"Shares Eligible for Future Sale."
CERTAIN PROVISIONS IN OUR CORPORATE DOCUMENTS MAY DISCOURAGE OUR ACQUISITION BY
OTHERS AND THUS DEPRESS OUR STOCK PRICE
Our corporate documents and Delaware law could make it more difficult for a
third party to acquire us, even if a change in control would be beneficial to
our stockholders. These and other provisions might discourage, delay or prevent
a change in control of us or of our management. These provisions could also
limit the price that investors might be willing to pay in the future for shares
of common stock. Please refer to our discussion in "Description of Capital
Stock."
CONTROL BY EXISTING STOCKHOLDERS MAY LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME
OF DIRECTOR ELECTIONS AND OTHER MATTERS REQUIRING STOCKHOLDER APPROVAL
Our executive officers and directors will, in the aggregate, beneficially
own approximately 33.3% of the common stock following this offering. These
stockholders may be able to significantly influence matters that we require our
stockholders to approve, including electing directors and approving significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in control of us, which could result in a
lower stock price.
THE PRICE FOR OUR COMMON STOCK IS LIKELY TO BE HIGHLY VOLATILE, AND YOU MAY NOT
BE ABLE TO RESELL SHARES AT OR ABOVE THE OFFERING PRICE
The market price of our common stock is likely to be highly volatile as the
stock market in general, and the market for Internet-related and technology
companies in particular, has been highly volatile. Investors may not be able to
resell their shares of our common stock following periods of volatility because
the market reacts adversely to volatility. We cannot predict the extent to which
investor interest in us will lead to the development of a trading market or how
liquid that market might become.
The trading prices of many technology and Internet-related companies'
stocks reached historical highs within the last 52 weeks and reflect relative
valuations that are substantially above historical levels. During the same
period, these companies' stocks have also recorded lows well below historical
highs. We cannot assure you that our stock will trade at the same levels of
other Internet stocks or that we can sustain our stock's trading price and
financial ratios.
Factors that could cause volatility in our stock price may include, among
other things:
- Actual or anticipated variations in our quarterly operating results;
- If we or our competitors announce technological innovations;
- If we launch new sales formats or new services;
- If securities analysts change their financial estimates for us or our
competitors;
- Conditions or trends in the Internet industry;
- If other Internet companies experience changes in their market
valuations;
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<PAGE> 23
- General conditions or trends in the stock market;
- If we or our competitors announce significant acquisitions, strategic
partnerships or joint ventures;
- If we add or lose key personnel; and
- If our stockholders sell common stock.
Many of these factors are beyond our control. These factors may materially
adversely affect the market price of our common stock, regardless of how we
operate.
FORWARD-LOOKING STATEMENTS; MARKET DATA
We make many statements in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," and elsewhere that are
forward-looking and are not based on historical facts. These statements relate
to our future plans, objectives, expectations and intentions. We may identify
these statements by the use of words such as "believes," "expects,"
"anticipates," "intends," "plans" and similar expressions. Because we make
forward-looking statements that involve risks and uncertainties, you need to
consider the important factors that could cause our actual results to differ
materially from those we express or imply in these forward-looking statements,
including those we discuss under "Risk Factors." Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including those we discuss in "Risk Factors" and
elsewhere in this prospectus. The forward-looking statements speak only as of
the date of this prospectus and we caution you not to place undue reliance on
those statements.
This prospectus contains market data related to us and the Internet. This
data has been included in the studies the Internet market research firms of
International Data Corporation, Jupiter Communications, Gartner Group, Forrester
Research, Creative Networks and MediaMetrix publish. These market research firms
assume certain events, trends and activities will occur and they project
information on those assumptions. If the market research firms are wrong about
any of their assumptions, then their projections may also be wrong.
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<PAGE> 24
USE OF PROCEEDS
We estimate that we will receive approximately $125,410,000 in net proceeds
from this offering ($144,382,000 if the underwriters exercise their
over-allotment option in full) based upon an assumed initial public offering of
$16.00 per share. This amount reflects deductions from the gross proceeds of the
offering of approximately $9,520,000 for underwriting discounts and $1,070,000
for estimated offering expenses.
We expect to use approximately $95 million of the net proceeds to fund
capital expenditures and expand our product development and sales and marketing
activities, including the hiring of additional personnel. In particular, we
estimate that in 1999 we will spend approximately $21 million to build a data
center and disaster recovery center in Denver, Colorado. We intend to build
additional data centers and disaster recovery centers in 2000, although we
currently do not have cost estimates for such centers.
We also expect to use approximately $1.7 million of the net proceeds to
repay outstanding borrowings under our revolving credit facility. At March 31,
1999, borrowings outstanding under this facility were approximately $1.7
million. Borrowings under this credit facility bear interest at the bank's prime
rate, which was 7.75% at March 31, 1999.
We plan to use the remaining proceeds for working capital and for other
general corporate purposes. We may use a portion of such proceeds to acquire or
invest in businesses that would complement our current service offerings,
augment our market coverage or enhance our technical capabilities, or that may
otherwise offer growth opportunities. We have no current plans, agreements or
commitments with respect to any such acquisition or investment, and we are not
currently engaged in any negotiations with respect to any such transaction.
The amounts we actually expend in each of the areas described above may
vary significantly from our current plans as a result of a number of factors,
including competitive conditions and our future revenue. Accordingly, management
will retain broad discretion in the allocation of the net proceeds of this
offering. You will not have the opportunity to evaluate the economic, financial
or other information on which we base our decisions on how to use the proceeds.
Pending such uses, the net proceeds of this offering will be invested in
short term, interest bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will depend
upon our financial condition, operating results, capital requirements and such
other factors as the board of directors deems relevant.
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<PAGE> 25
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. Our
capitalization is presented:
- On an actual basis;
- On a pro forma basis to reflect the automatic conversion of all
outstanding shares of preferred stock into 26,576,963 shares of common
stock at the same time as the closing of this offering; and
- As adjusted to give effect to the sale of 8,500,000 shares of common
stock offered in this offering at an assumed initial public offering
price of $16.00 per share (after deducting the estimated underwriting
discounts and commissions and offering expenses) and the application of
the net proceeds therefrom. The as adjusted column also reflects the
repayment of $1,709,000 of short-term debt outstanding at March 31, 1999.
This table should be read together with the financial statements and notes
to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------
ACTUAL PRO FORMA
(UNAUDITED) PRO FORMA AS ADJUSTED
----------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Short-term debt, including current portion of long-term debt
and capital lease obligations............................. $ 3,210 $ 3,210 $ 1,501
Long-term capital lease obligations, less current portion... 4,925 4,925 4,925
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized, 5,536,871 shares issued and outstanding
actual; no shares issued and outstanding pro forma and
as adjusted............................................ 44,785 -- --
Common stock, $.001 par value, 150,000,000 shares
authorized; 2,633,802 shares issued and outstanding
actual; 29,210,765 shares issued and outstanding pro
forma; 37,710,765 shares issued and outstanding pro
forma as adjusted...................................... 3 29 38
Additional paid-in capital.................................. 7,553 52,312 177,713
Warrant for common stock.................................... 313 313 313
Deferred compensation....................................... (6,940) (6,940) (6,940)
Accumulated deficit......................................... (29,584) (29,584) (29,584)
-------- -------- --------
Total stockholders' equity............................. 16,130 16,130 141,540
-------- -------- --------
Total capitalization.............................. $ 24,265 $ 24,265 $147,966
======== ======== ========
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of April 30, 1999. We are
permitted, and in some cases obligated, to issue shares of common stock in
addition to the common stock to be outstanding after this offering. The
following is a summary of these additional shares of common stock:
- 6,559,080 shares that could be issued upon the exercise of options
outstanding as of April 30, 1999 under our stock option plans, at a
weighted average exercise price of $3.14 per share;
- 10,442,600 additional shares that could be issued under our stock option
plans;
- 220,771 shares that could be issued upon exercise of an outstanding
warrant at an exercise price of $3.08; and
- 1,250,000 shares that can be issued to our employees who elect to buy
stock in the future under our employee stock purchase plan.
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<PAGE> 26
DILUTION
Our unaudited pro forma net tangible book value as of March 31, 1999 was
$10,505,338, or approximately $0.36 per share. Pro forma net tangible book value
represents the amount of total tangible assets less total liabilities, divided
by the number of shares of common stock outstanding, assuming conversion of all
outstanding shares of preferred stock into common stock. Without taking into
account any other changes in the net tangible book value after March 31, 1999,
other than to give effect to our receipt of the net proceeds from the sale of
the 8,500,000 shares of common stock in this offering at an assumed initial
public offering price of $16.00 per share and the repayment of $1,709,000 of
short-term debt outstanding at March 31, 1999, our pro forma net tangible book
value as of March 31, 1999 would have been approximately $135,915,338, or $3.60
per share. This represents an immediate increase in net tangible book value of
$3.24 per share to existing stockholders and an immediate dilution of $12.40 per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $16.00
Pro forma net tangible book value per share before the
offering............................................... $0.36
Increase per share attributable to new investors.......... $3.24
-----
Pro forma net tangible book value per share after this
offering.................................................. $ 3.60
Dilution per share to new investors......................... $12.40
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
the differences between existing stockholders and the new investors with respect
to:
- The number of shares of common stock purchased, assuming conversion of
all outstanding shares of preferred stock into common stock;
- The total consideration paid; and
- The average price per share existing stockholders and new investors pay
when they buy common stock in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 29,210,765 77.5% $ 46,692,208 25.6% $ 1.60
New investors................. 8,500,000 22.5% 136,000,000 74.4% $16.00
---------- ----- ------------ ----- ------
Total............... 37,710,765 100.0% $182,692,208 100.0%
========== ===== ============ =====
</TABLE>
The foregoing discussion and tables assume no exercise of the underwriters'
over-allotment option or of any outstanding stock options or warrants after
March 31, 1999. As of March 31, 1999, there were outstanding options to purchase
4,157,040 shares of common stock at a weighted average exercise price of $1.16
per share and a warrant to purchase 220,771 shares at an exercise price of
approximately $3.08 per share. You will suffer further dilution to the extent
any of these options or this warrant is exercised.
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<PAGE> 27
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements, the notes to those statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this prospectus. The selected financial data as of
December 31, 1996, 1997 and 1998 and for each of the three years in the period
ended December 31, 1998, are derived from the audited financial statements
included elsewhere in this prospectus. The selected financial data as of and for
the year ended December 31, 1995 are derived from audited financial statements
not included elsewhere in this prospectus. The selected financial data as of and
for the year ended December 31, 1994 have been excluded because the statement of
operations and balance sheet data relate entirely to discontinued operations.
The selected financial data as of March 31, 1999 and for the three months ended
March 31, 1999 and 1998 have been derived from our unaudited financial
statements which, in the opinion of management, includes all adjustments,
consisting of only normal recurring adjustments necessary for a fair
presentation of the results of operations for such periods. Historical results
are not necessarily indications of the results to be expected in the future. We
have also included the number of mailboxes managed by us at certain dates, which
is not derived from our audited financial statements.
Please see note 2 in the notes to the financial statements for the method
of computing pro forma basic and diluted net loss from continuing operations per
share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- -----------------------
1995 1996 1997 1998 1998 1999
------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND MAILBOX DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................... $ -- $ 34 $ 782 $ 4,703 $ 520 $ 1,945
Cost of revenue....................... -- 299 1,614 5,329 709 2,180
------- ---------- ---------- ---------- ---------- ----------
Gross margin........................ -- (265) (832) (626) (189) (235)
Operating expenses:
Selling and marketing............... 48 876 2,269 6,904 914 2,401
Product development................. 304 260 1,208 3,042 481 1,362
General and administrative.......... 185 674 1,490 2,447 346 892
Amortization of channel acquisition
costs............................. -- -- -- 1,250 -- 625
Amortization of deferred
compensation...................... -- -- -- 413 69 190(1)
------- ---------- ---------- ---------- ---------- ----------
Total operating expenses..... 537 1,810 4,967 14,056 1,810 5,470
------- ---------- ---------- ---------- ---------- ----------
Net loss from operations.............. (537) (2,075) (5,799) (14,682) (1,999) (5,705)
Other income (expense), net........... -- -- 125 291 12 (145)
------- ---------- ---------- ---------- ---------- ----------
Net loss from continuing operations... $ (537) $ (2,075) $ (5,674) $ (14,391) $ (1,987) $ (5,850)
======= ========== ========== ========== ========== ==========
Basic and diluted net loss from
continuing operations per share..... $ (2.46) $ (1.44) $ (2.23) $ (5.57) $ (0.77) $ (2.23)
======= ========== ========== ========== ========== ==========
Weighted average common shares
outstanding -- basic and diluted.... 218,717 1,443,014 2,549,328 2,581,978 2,563,622 2,624,317
======= ========== ========== ========== ========== ==========
Pro forma basic and diluted net loss
from continuing operations per share
(unaudited)......................... $ (0.63) $ (0.14) $ (0.20)
========== ========== ==========
Pro forma weighted average common
shares outstanding -- pro forma
basic and diluted (unaudited)....... 22,825,109 14,487,408 29,201,294
========== ========== ==========
NUMBER OF MAILBOXES AT PERIOD END:
Consumers............................. -- 135,000 2,496,000 5,676,000 3,385,000 6,700,000
Web portals........................... -- -- -- 1,715,000 -- 2,700,000
Businesses............................ -- -- 44,000 217,000 83,000 258,000
------- ---------- ---------- ---------- ---------- ----------
Total........................ -- 135,000 2,540,000 7,608,000 3,468,000 9,658,000
======= ========== ========== ========== ========== ==========
</TABLE>
Amortization of deferred compensation in the foregoing table represents
loss per share of $(0.16) (actual) and $(0.02) (pro forma, unaudited) for the
year ended December 31, 1998; $(0.02) (actual) and $(0.01) (pro forma,
unaudited) for the three months ended March 31, 1998; and $(0.07) (actual) and
$(0.01) (pro forma, unaudited) for the three months ended March 31, 1999.
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<PAGE> 28
The following table is a summary of our balance sheet data. The as adjusted
column reflects our receipt of the estimated net proceeds from the sale of
8,500,000 shares of common stock in this offering at an assumed initial public
offering price of $16.00 per share, after deducting estimated underwriting
discounts and expenses and including the repayment of short-term debt of
$1,709,000.
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1999
-------------------------------- MARCH 31, -----------
1995 1996 1997 1998 1999 AS ADJUSTED
---- ------ ------ ------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 6 $ 393 $2,159 $ 6,563 $ 3,437 $127,137
Restricted cash............................... -- -- 1,885 1,487 1,419 1,419
Short-term investments........................ -- -- -- 3,458 2,482 2,482
Working capital (deficit)..................... (27) (135) 2,218 6,454 10 125,420
Total assets.................................. 888 1,048 7,016 33,429 29,848 153,548
Long-term capital lease obligations and notes
payable..................................... 348 -- 1,235 3,997 4,925 4,925
Other long-term liabilities................... -- -- -- 375 250 250
Total liabilities............................. 763 543 3,482 11,642 13,718 12,008
Total stockholders' equity.................... 125 505 3,533 21,787 16,130 141,540
</TABLE>
22
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
"Selected Financial Data" and the financial statements and notes attached to
those statements included elsewhere in this prospectus. This discussion contains
certain forward-looking statements that involve risks and uncertainties. Please
see "Risk Factors" and "Forward-Looking Statements; Market Data" elsewhere in
this prospectus.
We are a leading provider of email and advanced messaging solutions on the
Internet for consumers, Web portals and businesses. As of April 30, 1999, we
managed over 10.2 million mailboxes across all of our service offerings and
processed over 172 million messages during April 1999. Our consumer email
service, NET@DDRESS (www.netaddress.com), is the largest independent Web-based
email service on the Internet with approximately 7 million mailboxes. Netscape
and register.com, a business-oriented portal site, constitute our primary Web
portal clients. Our commercial messaging solutions include specialized business
applications for companies such as American Express, as well as comprehensive
message outsourcing services for a wide range of businesses.
We started our business in 1991 to provide online services, including
Internet access, to consumer and commercial customers. In 1995, we began the
development of our email solutions and in 1996 we launched NET@DDRESS, one of
the first Web-based email services available for consumers free of charge.
Before March 1997, we derived a significant portion of our revenue from the
Internet access business. In March 1997 we sold our Internet access business to
an entity in which certain of our stockholders hold an ownership interest. For
more information about that business, please refer to notes 3 and 9 in the notes
to the financial statements. We are treating our former Internet access business
as a discontinued operation. Since March 1997, our operating activities have
related primarily to planning and developing our advanced messaging solutions,
recruiting personnel, marketing our services, establishing operational
infrastructure, raising capital and purchasing technology infrastructure and
operating assets.
We currently generate revenue from these services:
- Messaging Services for Consumers. We generate revenue from NET@DDRESS by
selling advertising and fee-based premium services.
- Messaging Services for Web Portals and Businesses. We generate revenue
from advertising sales, fee-based premium services and monthly
per-mailbox fees. We share with Netscape and American Express a portion
of our advertising and premium service revenue from Netscape WebMail and
AmExMail.
Our advertising revenue consists of the following:
- Banners, Buttons and Logout Pages. Banners, buttons and logout pages
refer to the advertising we place on our Web-based email access sites. We
charge different rates for the advertising we display on specific areas
of the Web site.
- Direct Delivery Content. We receive revenue for displaying advertising
and promoting content subscription programs for third parties, such as
news agencies, product information, etc.
We typically sell banners, buttons and logout pages under short-term
contracts, which range from one week to one year in length. We also sell
longer-term and exclusive sponsorships, which combine banner advertisements,
button placements and logout pages. We typically guarantee minimum numbers of
impressions, or a stated number of times that an advertisement appears in pages
viewed by users of our email services, in our advertising agreements. If we fail
to supply the guaranteed number of impressions, our advertisers may terminate
their relationships with us. If, and to the extent that, we do not supply the
minimum guaranteed number of impressions, we recognize the corresponding revenue
only when we achieve the minimum guaranteed number. We recognize advertising
revenue as we display the advertising and we generally bill our advertisers on a
monthly basis.
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<PAGE> 30
In June 1998, we launched our commercial messaging services. We sell our
commercial messaging services on a turnkey basis with a complete customer
service package, including both account management and technical support. Our
commercial messaging customers pay for mailboxes on a monthly basis and we
recognize revenue as we perform the services. We compensate our direct and third
party sales force primarily through commissions, a variable cost that we
determine based on a percentage of the gross revenue that the sales person
generates.
Through December 31, 1998, we generated substantially all of our revenue
through advertising sales and less than 1% from our commercial messaging
services. We believe that our revenue mix will change as we generate more sales
from the services that we recently launched, including our specialized business
applications, message outsourcing solutions and fee-based premium services. We
anticipate that our mix of revenue from advertising may change in the future as
Internet advertising trends change and we develop new advertising products. We
expect that our gross margins may decrease for certain of our co-branded
services as the percentage of revenue that we share with certain of our
strategic partners increases over time. We also may spend significantly on
channel acquisition to ensure our position on strategic Web portals in the
future.
Through March 31, 1999, we recorded aggregate unearned compensation
totaling approximately $7.5 million in connection with the grant of certain
options to employees. This amount is being amortized over the vesting period of
such options, which is approximately 4.5 years. These options were issued to
create incentives for continued performance. Of the total unearned compensation,
approximately $68,000, $66,000, $128,000 and $151,000 were amortized in the
quarters ended March 31, June 30, September 30, and December 31, 1998,
respectively, and approximately $190,000 was amortized in the first quarter of
1999. In April 1999, we granted options for the purchase of additional shares of
common stock which will result in approximately $22 million of unearned
compensation. For all options granted through April 1999, we expect per-quarter
amortization related to unearned compensation to be between $190,000 and $5.7
million during 1999, $1.7 million during 2000, $1.7 million during 2001, $0.6
million during 2002, $0.6 million during 2003, and $0.4 million during 2004.
Additionally, the terms of an employment agreement with an executive officer
will result in recording approximately $750,000 of compensation expense in the
second quarter of 1999, and $2,250,000 ratably through December 31, 2001.
Given the early stage of development of our market, we intend to focus
primarily on growing revenue and market share for at least the next three years.
To do so, we intend to expand our operations and employee base, including our
sales, marketing, technical, operational and customer support resources. We also
intend to further develop new and existing strategic relationships to expand our
distribution channels. We intend to develop strategic sales offices, data
centers and disaster recovery centers. We also plan to continue to make
investments in technology, which may involve the development, acquisition or
licensing of technologies that complement or augment our existing services and
technologies. We also intend to continue to invest heavily in sales and
marketing activities.
We have incurred significant losses since our inception, and as of December
31, 1998 and March 31, 1999 had an accumulated deficit of $23,734,004 and
$29,583,525, respectively. We expect to incur substantial operating losses at
least through the end of 2001. Based on current budgets, the proceeds of this
offering are expected to meet the Company's capital needs for at least the next
eighteen months. However, if we achieve less revenue growth than we anticipate,
or if our operating expenses or capital spending plans increase, we would need
to raise additional capital. Prior to March 1997, we were an S corporation for
tax purposes, and tax net operating losses prior to that date are not available
to offset any future taxable income.
In view of the rapidly evolving nature of our business and our limited
operating history, we believe that our revenue and operating results, including
our gross profit margin and operating expenses as a percentage of total revenue,
should not be relied upon as indications of future performance. We do not
believe that our historical growth rates are indicative of future results.
24
<PAGE> 31
RESULTS OF CONTINUING OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998
The information as of and for the three months ended March 31, 1999 and
1998 have been derived from our unaudited financial statements which, in the
opinion of management, includes all adjustments, consisting of only normal
recurring adjustments necessary for a fair presentation of the results of
operations for such periods.
Revenue. Revenue consists of advertising revenue and, in 1999, per-mailbox
fee revenue and fee-based premium services revenue. Revenue increased to
$1,945,000 in the first quarter of 1999 from $520,000 in the first quarter of
1998. Substantially all of the increase was due to an increase in advertising
revenue. The number of NET@DDRESS mailboxes increased to 6.7 million at March
31, 1999 from 3.5 million at March 31, 1998.
In June 1998, we launched Netscape WebMail Powered by USA.NET. At March 31,
1999 Netscape WebMail Powered by USA.NET had over 2.7 million mailboxes.
Additionally, after the first quarter of 1998, together with American Express,
we launched AmExMail Powered by USA.NET. At March 31, 1999, AmExMail had over
258,000 mailboxes.
In March 1999, we launched fee-based premium services on both NET@ADDRESS
and Netscape WebMail Powered by USA.NET. As of March 31, 1999, we had over 1,200
users who had purchased premium services. Revenue from these services is
amortized over the term that the services are provided.
Cost of Revenue. Cost of revenue consists primarily of sales commissions,
Internet connection charges, depreciation, salaries and benefits of operating
and customer service personnel, occupancy costs and other related operating
costs and, in 1999, Netscape's and American Express' share of revenue that we
generate under our relationships with them. Cost of revenue increased to
$2,180,000 in the first quarter of 1999 from $709,000 in the first quarter of
1998. During the first quarter of 1999, these costs were approximately 112.1% of
total revenue compared to 136.4% in the first quarter of 1998. Our cost of
revenue increased in dollar amounts primarily due to increased personnel costs,
depreciation expense, Netscape's and American Express' revenue shares and sales
commissions. We significantly increased the number of operations and customer
support personnel as follows:
<TABLE>
<CAPTION>
AS OF NUMBER
----- ------
<S> <C>
March 31, 1999...................................... 64
December 31, 1998................................... 67
March 31, 1998...................................... 31
</TABLE>
Selling and Marketing. Selling and marketing expenses consist primarily of
compensation for our sales and marketing personnel, advertising and other
promotional costs. Selling and marketing expenses increased to $2,401,000 in the
first quarter 1999 from $914,000 in the first quarter of 1998. During the first
quarter of 1999, these costs were approximately 123.5% of total revenue compared
to 175.8% in the first quarter of 1998. The increase in dollar amounts in 1999
was primarily due to increases in the number of personnel as follows:
<TABLE>
<CAPTION>
AS OF NUMBER
----- ------
<S> <C>
March 31, 1999...................................... 48
December 31, 1998................................... 44
March 31, 1998...................................... 20
</TABLE>
In addition, an increase in the purchase of Web-based advertising to
promote our services and an increased promotional effort for our commercial
messaging solution after the first quarter of 1998 contributed to the increase
in selling and marketing expenses.
Product Development. Product development expenses consist primarily of
salaries and related benefits of development engineers, occupancy costs and
consulting fees. Product development expenses increased to
25
<PAGE> 32
$1,362,000 in the first quarter of 1999 from $481,000 in the first quarter of
1998. During the first quarter of 1999, these costs were approximately 70.0% of
total revenue compared to 92.5% in the first quarter of 1998. The increase in
dollar amounts in 1999 was primarily due to ongoing costs relating to the
development of features and functionality of our current consumer and commercial
messaging solutions, as well as increases in the number of product development
personnel as follows:
<TABLE>
<CAPTION>
AS OF NUMBER
----- ------
<S> <C>
March 31, 1999...................................... 44
December 31, 1998................................... 43
March 31, 1998...................................... 18
</TABLE>
General and Administrative. General and administrative expenses include
salaries and related expenses for executives, finance personnel, corporate
support, as well as occupancy costs, professional fees and similar expenses.
General and administrative expenses increased to $892,000 in the first quarter
of 1999 from $346,000 in the first quarter 1998. During the first quarter of
1999 these costs were approximately 45.8% of total revenue compared to 66.5% in
the first quarter of 1998. The increase in dollar amounts in 1999 was primarily
due to increases in the number of personnel as follows:
<TABLE>
<CAPTION>
AS OF NUMBER
----- ------
<S> <C>
March 31, 1999...................................... 24
December 31, 1998................................... 22
March 31, 1998...................................... 12
</TABLE>
Amortization of Channel Acquisition Costs. During 1998, we paid Netscape
$5,000,000 for the exclusive right to provide email services to Netscape's
domestic Netcenter portal and $1,500,000 for similar international rights. We
are obligated to pay Netscape $625,000 and $375,000 in 1999 and 2000,
respectively, and these future payments have been recorded in channel
acquisition costs and accrued liabilities. We are amortizing these payments over
the terms of the related agreements. Amortization begins when the service is
launched. We recorded $625,000 of such amortization in the three months ended
March 31, 1999 related to Netscape's domestic Netcenter. The international
Netcenters are not yet launched.
Amortization of Deferred Compensation. During the first quarter of 1999, we
recorded aggregate unearned compensation in the amount of $3.4 million in
connection with the grant of certain stock options during this period.
Amortization totaled $190,000 during this period. During the first quarter of
1998, $69,000 of such amortization was recorded. Please refer to note 6 of the
notes to the financial statements.
Other Income. Other income consists primarily of interest earnings on our
cash, cash equivalents and short-term investments. We completed a private
placement of equity securities in August 1998, which provided net proceeds of
$21,390,000. During 1998, we also completed additional closings on prior private
placements, which provided proceeds of $10,835,000. As a result of these
closings, interest and other income increased to $114,000 in the first quarter
of 1999 from $36,000 in the first quarter of 1998.
We have incurred interest expense on notes payable and capital lease
obligations. During the first quarter of 1999 interest expense was $259,000
compared to $23,000 in the first quarter of 1998. The increase in interest
expense was due to our use of capital leases to fund equipment purchases.
RESULTS OF CONTINUING OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Revenue. Revenue consists of advertising revenue and per-mailbox fees.
Revenue increased to $4,703,000 in 1998 from $782,000 in 1997 and $34,000 in
1996. Substantially all of these increases were due to increases in advertising
revenue. Since 1996, the increased number of users of our email and advanced
messaging solutions, our sales and marketing efforts, and the increased number
of advertisers allowed us to generate additional advertising revenue. The number
of NET@DDRESS mailboxes increased to 5.7 million at December 31, 1998 from 2.5
million at December 31, 1997 and 135,000 at
26
<PAGE> 33
December 31, 1996. Egghead.com accounted for 27.0% of total revenue in 1998 and
18.1% of total revenue in 1997. 24/7 Media accounted for 14.9% of revenue and
Webstakes accounted for 11.4% of revenue in 1997.
During 1998, we launched Netscape WebMail Powered by USA.NET. At December
31, 1998, Netscape WebMail had over 1.7 million mailboxes. Also in 1998,
together with American Express, we launched AmExMail Powered by USA.NET. At
December 31, 1998, AmExMail had over 214,000 mailboxes. We share with Netscape
and American Express a portion of the revenue that we generate under our
relationships with them. For 1998, the Netscape WebMail and AmExMail services
accounted for approximately 30.4% and 1.4% of revenue, respectively.
Cost of Revenue. Cost of revenue consists primarily of Netscape's and
American Express' share of revenue that we generate under our relationships with
them, sales commissions, Internet connection charges, depreciation, salaries and
benefits of operating and customer service personnel, occupancy costs and other
related operating costs. Since 1996, the growth in the number of mailboxes we
manage has increased the cost of revenue. Cost of revenue increased to
$5,329,000 in 1998 from $1,614,000 in 1997 and $299,000 in 1996. During 1998,
these costs were approximately 113.3% of total revenue. Our cost of revenue
increased primarily due to increased personnel costs, depreciation expense and
sales commissions. We significantly increased the number of operations and
customer support personnel as follows:
<TABLE>
<CAPTION>
AS OF NUMBER
- ----------------- ------
<S> <C> <C>
December 31, 1998 ................................. 67
December 31, 1997 ................................. 25
December 31, 1996 ................................. 6
</TABLE>
In addition, we acquired substantial equipment for our data center
throughout 1998, and as a result, our depreciation expense increased in 1998.
Selling and Marketing. Selling and marketing expenses consist primarily of
compensation for our sales and marketing personnel, advertising, and other
promotional costs. Selling and marketing expenses increased to $6,904,000 in
1998 from $2,269,000 in 1997 and $876,000 in 1996. The increases in 1998 and
1997 were primarily due to increases in the number of personnel as follows:
<TABLE>
<CAPTION>
AS OF NUMBER
- ----------------- ------
<S> <C> <C>
December 31, 1998 ................................. 44
December 31, 1997 ................................. 7
December 31, 1996 ................................. 2
</TABLE>
In addition, an increase in the purchase of Web-based advertising to
promote our services and an increased promotional effort for our commercial
messaging solution during 1998 contributed to the increase in selling and
marketing expenses.
Product Development. Product development expenses consist primarily of
salaries and related benefits of development engineers, occupancy costs and
consulting fees. Product development expenses increased to $3,042,000 in 1998
from $1,208,000 in 1997 and $260,000 in 1996. The increase in product
development expenses in each year since 1996 is primarily due to ongoing costs
relating to the development of features and functionality of our current
consumer and commercial messaging solutions, as well as increases in the number
of product development personnel as follows:
<TABLE>
<CAPTION>
AS OF NUMBER
- ----------------- ------
<S> <C> <C>
December 31, 1998 ................................. 43
December 31, 1997 ................................. 12
December 31, 1996 ................................. 5
</TABLE>
27
<PAGE> 34
General and Administrative. General and administrative expenses include
salaries and related expenses for executives, finance personnel, corporate
support, as well as occupancy costs, professional fees and similar expenses.
General and administrative expenses increased to $2,447,000 in 1998 from
$1,490,000 in 1997 and $674,000 in 1996. The increase in each year since 1996 is
primarily due to the increased number of general and administrative personnel as
follows:
<TABLE>
<CAPTION>
AS OF NUMBER
- ----------------- ------
<S> <C> <C>
December 31, 1998 ................................. 22
December 31, 1997 ................................. 11
December 31, 1996 ................................. 3
</TABLE>
In addition, outside consulting, professional fees, recruiting fees and
travel expenses associated with our increased business activities added to the
increase in general and administrative expenses.
Amortization of Channel Acquisition Costs. During 1998, we paid Netscape
$5,000,000 for the exclusive right to provide email services to Netscape's
domestic Netcenter portal and $1,500,000 for similar international rights. We
are obligated to pay Netscape $625,000 and $375,000 in 1999 and 2000,
respectively, and these future payments have been recorded in channel
acquisition costs and accrued liabilities. We are amortizing these payments over
the terms of the related agreements. Amortization begins when the service is
launched. We recorded $1,250,000 of such amortization in 1998 related to
Netscape's domestic Netcenter. The international Netcenters were not yet
launched.
Amortization of Deferred Compensation. During 1998, we recorded aggregate
unearned compensation in the amount of $4.2 million in connection with the grant
of certain stock options. Amortization totaled $413,000 during 1998. Please
refer to note 6 of the notes to financial statements.
Other Income. Other income consists primarily of interest earnings on our
cash, cash equivalents and short-term investments. We completed a private
placement of equity securities in August 1998, which provided net proceeds of
$21,390,000. During 1998, we also completed additional closings on prior private
placements, which provided proceeds of $10,835,000. As a result of these
closings, interest and other income increased to $521,000 in 1998 from $134,000
in 1997. Our other income in 1997 was primarily the result of interest income on
short-term investments.
We have incurred interest expense on notes payable and capital lease
obligations. During 1998, interest expense was $230,000 compared to $9,000 for
1997. The increase in interest expense is due to our use of capital leases to
fund equipment purchases.
INCOME TAXES
No provision or benefit for federal and state income taxes (actual or pro
forma) has been recorded because we incurred net operating losses from inception
through December 31, 1998. Prior to March 1997, we were an S corporation for tax
purposes. As of December 31, 1998 we had approximately $18,779,000 of federal
and state operating loss carryforwards available to offset future taxable income
which expire in varying amounts beginning in 2012. Under the Tax Reform Act of
1986, the amounts of and benefits from net operating loss carryforwards may be
impaired or limited in certain circumstances, including significant changes in
ownership interests. Our existing net operating loss carryforward may be
restricted due to changes in ownership or from future tax legislation.
We have established a valuation allowance against the entire amount of our
deferred tax asset because our management has not been able to conclude that it
is more likely than not that we will be able to realize the deferred tax asset,
due primarily to our history of operating losses.
28
<PAGE> 35
QUARTERLY OPERATING DATA
The following table sets forth selected unaudited statements of operations
data and the number of mailboxes for each quarter in 1998 and the three months
ended March 31, 1999. The financial information for each quarter has been
prepared on substantially the same basis as the audited statements included in
other parts of this prospectus and, in the opinion of management, includes all
adjustments, consisting of only normal recurring adjustments necessary for a
fair presentation of the results of operations for such periods. This financial
information should be read in conjunction with the audited financial statements
and the notes attached to those financial statements included elsewhere in this
prospectus. Historical results are not necessarily indicative of the results to
be expected in the future and the results of the interim periods are not
indicative of results of any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1998 1999
----------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ 520,075 $ 778,883 $ 1,495,108 $ 1,908,647 $ 1,944,877
Cost of revenue.................. 709,244 905,134 1,462,715 2,252,142 2,180,235
----------- ----------- ----------- ----------- -----------
Gross margin................... (189,169) (126,251) 32,393 (343,495) (235,358)
Operating expenses:
Selling and marketing.......... 914,400 1,661,259 1,809,175 2,518,776 2,401,277
Product development............ 481,039 588,671 749,780 1,222,735 1,361,768
General and administrative..... 345,953 523,049 751,707 826,006 891,597
Amortization of channel
acquisition costs........... -- -- 625,000 625,000 625,000
Amortization of deferred
compensation................ 68,258 66,213 128,003 150,462 189,520
----------- ----------- ----------- ----------- -----------
Total operating
expenses............. 1,809,650 2,839,192 4,063,665 5,342,979 5,469,162
----------- ----------- ----------- ----------- -----------
Net loss from continuing
operations..................... (1,998,819) (2,965,443) (4,031,272) (5,686,474) (5,704,520)
Other income (expense), net...... 35,574 92,507 118,688 274,409 113,616
Interest expense................. (23,309) (49,434) (60,058) (97,092) (258,617)
----------- ----------- ----------- ----------- -----------
Net loss from continuing
operations..................... $(1,986,554) $(2,922,370) $(3,972,642) $(5,509,157) $(5,849,521)
=========== =========== =========== =========== ===========
NUMBER OF MAILBOXES AT PERIOD
END:
Consumers........................ 3,385,000 4,027,000 4,769,000 5,676,000 6,700,000
Web portals...................... -- -- 869,000 1,715,000 2,700,000
Businesses....................... 83,000 118,000 168,000 217,000 258,000
----------- ----------- ----------- ----------- -----------
Total.................. 3,468,000 4,145,000 5,806,000 7,608,000 9,658,000
=========== =========== =========== =========== ===========
</TABLE>
Our revenue and cost of revenue during these periods closely tracked our
growth in users from quarter to quarter. Our operating expenses increased
quarter over quarter as we grew our sales and marketing capabilities, our
service offerings under development, and our administrative infrastructure.
Other factors that influenced our quarterly results in 1998 include the
following:
- In April 1998 and November 1998, we paid Netscape channel acquisition
costs, and are amortizing them over their terms, as discussed above;
- In June 1998 we launched our commercial messaging services; and
- In March 1998 and August 1998 we sold equity to investors.
Our annual and quarterly operating results have fluctuated significantly in
the past and we expect them to fluctuate significantly in the future.
29
<PAGE> 36
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents, restricted cash and short-term investment
securities increased by $7,464,000 from December 31, 1997 to $11,508,000 at
December 31, 1998 and decreased by $4,170,000 to $7,338,000 at March 31, 1999.
This net change occurred because we raised $32,235,000 in net proceeds from the
sale of equity securities and incurred a net loss of $14,391,000 during 1998 and
$5,850,000 during the three months ended March 31, 1999, due to the expansion of
our organization and operations. Our investment in property and equipment during
1998 was $12,294,000, of which $5,542,000 was financed with capital leases. Our
investment in property and equipment during the three months ended March 31,
1999 was $3,053,000, of which $551,000 was acquired by the use of accounts
payable and $1,533,000 was financed with capital leases. Installation of network
infrastructure equipment in our data center, equipment for new employees and
leasehold improvements related to office and data center expansions accounted
for most of the increase in our capital expenditures. We expect that our
investment in property and equipment will continue to grow as we increase our
capacity to provide email services, although we have no formal commitments to do
so. In 1998, we paid $6,500,000 to Netscape in 1998 for channel acquisition
costs. We also have to pay an additional $625,000 and $375,000 to Netscape in
1999 and 2000, respectively, for additional fees. These future payments totaling
$1,000,000 have been recorded as channel acquisition costs and as a liability at
December 31, 1998 and March 31, 1999.
We have a credit facility with a bank that provides for borrowings up to
$2,000,000. As of December 31, 1998 and March 31, 1999, $1,767,000 and
$1,709,000, respectively, were outstanding under this credit facility.
Borrowings under this credit facility bear interest at the bank's prime rate,
which was 7.75% at March 31, 1999. Certain of our assets collateralize
borrowings under this facility and a stockholder that is an officer and director
has guaranteed the facility. Our capital lease obligations, including both
short-term and long-term portions, increased by $5,237,000 during 1998 (net of
repayments) because we secured financing for a substantial share of our
additions to property and equipment.
We have financed the majority of our operations through the issuance of
equity securities. We have sold common stock and preferred stock generating
aggregate net proceeds of $44,295,000, of which $1,419,000 was restricted at
March 31, 1999 for certain marketing and technical development efforts and is
reflected as restricted cash on our balance sheet.
To date, we have derived substantially all of our revenue from the sale of
advertising on our Web sites. The Internet has not been available as an
advertising medium long enough to gauge its effectiveness as compared to
traditional advertising outlets. We may not be successful in marketing our
current services or other new or enhanced services. In addition, the market for
our services is characterized by rapid technological developments, frequent new
service introductions and evolving industry standards. These changes require us
to continually improve the performance, features, and reliability of our
services, particularly in response to competition. We may not be successful in
responding to these changes.
We believe that the net proceeds from the sale of common stock offered
hereby, together with our current cash, cash equivalents and short-term
investment balances, cash generated from operations and cash available under our
credit facility, will be sufficient to meet our working capital and capital
expenditure requirements for at least the next eighteen months. Our operating
and investing activities may require us to obtain additional equity or debt
financing. In addition, although there are no present understandings,
commitments or agreements with respect to any acquisition of other businesses,
products, and technologies, to consummate potential acquisitions, we may need
additional equity or debt financing in the future.
We believe that capital is available to us from third parties if this
offering is not consummated. If this capital is not made available, a
stockholder has committed to fund our operations through 1999, if necessary.
30
<PAGE> 37
YEAR 2000 ISSUES
The Year 2000 issue arose because many computer programs were written using
two digits rather than four to define the applicable year. Any computer programs
or hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the Year 2000. This could result in
system failures or miscalculations causing disruptions of operations for any
company using such computer programs or hardware, including, among other things,
an inability to connect to the Internet, process transactions, send invoices or
engage in normal business activities. As a result, many companies must upgrade
or replace their computer systems to avoid "Year 2000" issues.
We are a comparatively new enterprise, and, accordingly, the software and
hardware we use to manage our business has all been purchased or developed by us
within the last 24 months. While this fact pattern does not uniformly protect us
against Year 2000 exposure, we believe we gain some mitigation from the fact
that the information technology we use to manage our business is not based upon
"legacy" hardware and software systems. "Legacy system" is a term often used to
describe hardware and software systems that were developed in previous decades
when there was less awareness of Year 2000 issues. Generally, hardware and
software design within the current decade and the past several years in
particular has given greater consideration to Year 2000 issues. All of the
software code we have internally developed to manage our network traffic, for
example, is written with four digits to define the applicable year.
We are in the process of testing our internal information technology and
non-information technology systems. We have a dedicated Year 2000 project
manager and our own personnel have performed all of the testing we have
completed. To date, we have completed testing of our internally developed
information technology and non-information technology software. Based on such
testing, we believe that such software is Year 2000 compliant.
In addition to our internally developed software, we use software and
hardware developed by third parties both for our network and internal
information systems. We have not performed any testing of such third-party
software or hardware to determine Year 2000 compliance. We are, however, in the
process of obtaining certifications from our key vendors to ensure that their
hardware and software is Year 2000 compliant. Based on our initial evaluation of
our list of material software and hardware providers, we believe that these
providers are presently compliant or are reviewing and implementing their own
Year 2000 compliance programs. We intend to work with these providers to address
the Year 2000 issue and continue to seek assurances from them that their
products are Year 2000 compliant.
In addition, we rely on third party network infrastructure providers to
gain access to the Internet. If such providers experience business interruptions
as a result of their failure to achieve Year 2000 compliance, our ability to
provide Internet connectivity could be impaired, which could have a material
adverse effect on our business, results of operations and financial condition.
Our users' success in maintaining Year 2000 compliance is also significant
to our ability to generate revenue and execute our business plan. Interruptions
in our users' services and on-line activities caused by Year 2000 problems could
have a material adverse effect on our revenue.
We have not incurred any significant expenses to date and we are not aware
of any material costs associated with our anticipated Year 2000 efforts.
However, if we, a significant number of our users, our providers of hardware and
software or our third-party network providers fail to remedy any Year 2000
issues, we could experience a material loss of revenue that could materially
adversely affect our business, results of operations and financial condition. We
would consider an interruption in our ability to provide our services to be the
most reasonably likely unfavorable result of any failure by us, or failure by
the third parties upon whom we rely, to achieve Year 2000 compliance. Presently,
we believe we are unable to reasonably estimate the duration and extent of any
such interruption, or quantify the effect it may have on our future revenue. We
have not yet developed a comprehensive contingency plan to address these issues,
which could result from such failure. We are prepared to develop such a
contingency plan if our ongoing assessment indicates areas of significant
exposure.
31
<PAGE> 38
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial
position, operating results or cash flows due to adverse changes in financial
and commodity market prices and rates. We are exposed to market risk in the
areas of changes in United States interest rates and changes in foreign currency
exchange rates as measured against the United States Dollar. These exposures are
directly related to our normal operating and funding activities. Historically
and as of March 31, 1999, we have not used derivative instruments or engaged in
hedging activities.
INTEREST RATE RISK
The interest payable on our credit facility is variable based on the prime
rate, and, therefore, affected by changes in market interest rates. At March 31,
1999 and December 31, 1998, approximately $1,709,000 and $1,767,000,
respectively, was outstanding on the note payable. The note payable matures in
January 2000. We manage interest rate risk by investing excess funds in cash
equivalents and short-term investments bearing variable interest rates, which
are tied to various market indices. As a result, we do not believe that
near-term changes in interest rates will result in a material effect on our
future earnings, fair values or cash flows.
FOREIGN CURRENCY RISK
We may enter into contracts where we pay or a third party pays us in a
foreign currency. This exposes us to changes in exchange rates. Changes in the
foreign exchange rates may positively or negatively affect our financial
position, results of operations or cash flows. We do not believe that near-term
changes in exchange rates will result in a material effect on future earnings,
fair values or cash flows, and therefore, have chosen not to enter into foreign
currency hedging instruments. There can be no assurance that such an approach
will be successful, especially in the event of a significant and sudden decline
in the foreign exchange rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the cost of such software. SOP No. 98-1 is effective
for financial statements for fiscal years beginning after December 15, 1998. The
Company does not expect that the adoption of SOP No. 98-1 will have a material
impact on its 1999 financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Company is required to
adopt SFAS No. 133 in the year ended December 31, 2000. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. To
date, the Company has not entered into any derivative financial instruments or
hedging activities.
32
<PAGE> 39
BUSINESS
We are a leading provider of email and advanced messaging solutions on the
Internet for consumers, Web portals and businesses. As of April 30, 1999, we
managed over 10.2 million mailboxes across all of our service offerings and
processed over 172 million messages during the month of April 1999. Our consumer
email service, NET@DDRESS (www.netaddress.com), is the largest independent
Web-based email service on the Internet with approximately 7 million mailboxes.
Netscape and register.com, a business-oriented portal site, constitute our
primary Web portal clients. Our commercial messaging solutions include
specialized business applications for companies such as American Express, as
well as comprehensive message outsourcing services for a wide range of
businesses. We base our messaging solutions on highly reliable and scalable, or
expandable, technology that includes advanced features, universal accessibility
and a high level of security. We believe that our proven experience in meeting
the rapidly evolving messaging needs of consumers, Web portals and businesses
positions us to capitalize on the continuing rapid growth of Internet-based
messaging.
We started our business in 1991 as Community News Service, Inc., to provide
Internet access and other Internet-related services to consumer and commercial
customers throughout the United States. In 1995, we began the development of our
email solutions. In March 1997, we sold our Internet service provider business
to focus exclusively on our email and advanced messaging solutions.
CONSUMERS
In April 1996, we launched NET@DDRESS, the first Web-based email service
for consumers. NET@DDRESS, which we offer as a free service, has allowed us to
quickly build a large user base, establish our reputation for providing quality
service and scale-up our technology infrastructure. In 1998, NET@DDRESS won
awards from PC Magazine, CNET and Windows Magazine in comparisons of the overall
features and functionality of free email services. In December 1998,
MediaMetrix, an Internet usage measuring firm, ranked NET@DDRESS as the sixth
most popular site on the Web based on the ability of a Web site to keep users'
attention. We generate revenue from NET@DDRESS by selling advertising space and
by offering fee-based premium services. We intend to increase advertising
revenue from NET@DDRESS by using enhanced targeted marketing techniques and by
expanding our user base. We also plan to offer our users additional fee-based
premium services.
WEB PORTALS
We provide our messaging solutions to Web portals to enhance our reputation
as a premier provider of messaging services and to build our brand awareness
among both consumers and businesses. Web portals offer a one-stop source of
information for a broad range of consumers and business users. We host and
manage the Web-based email services for Netscape's Netcenter Web portal. Before
we launched Netscape WebMail Powered by USA.NET in June 1998, Netscape did not
offer email capability to its Netcenter members. Netscape WebMail currently has
over 3 million mailboxes. According to Netscape, in April 1999 there were
approximately 15 million Netcenter members generating more than 55 million
pageviews per day. In September 1998, PC Magazine recognized Netscape WebMail as
the top-ranked Web-based email service in its review of the features of 12 major
Web portals. We are also developing foreign language-based email services for
certain of Netscape's international Netcenter Web portals. We generate revenue
from Netscape WebMail by selling advertising space through our internal sales
force and from fee-based premium services. We share this advertising and premium
service revenue with Netscape. Netscape invested in us in August 1998.
In March 1999, we entered into an agreement with register.com to offer
businesses an integrated solution that combines our email and other advanced
messaging solutions with register.com's domain name registration service. We
plan to generate revenue by charging a monthly fee for each mailbox established
through this relationship.
33
<PAGE> 40
BUSINESSES
We develop and deploy our messaging solutions to address specialized
business messaging needs. In April 1998, together with American Express, we
launched AmExMail, a Web-based email service that is available to all consumers
free of charge but which has special features available exclusively to American
Express Cardmembers. AmExMail enables American Express to communicate with its
customers and prospects in a variety of ways and helps American Express build
customer loyalty. American Express invested in us in April 1997 and March 1998.
We also offer comprehensive message outsourcing services to businesses to
meet their need for a cost-effective and reliable solution to their increasingly
complex messaging requirements. Outsourcing occurs when a company chooses to
have a third party provide a particular service that it might otherwise perform
itself. We introduced this service in June 1998 and currently market it to
companies in a wide range of industries, including Internet service providers,
wireline and wireless telecommunications companies, publishers, information
technology service companies, professional service providers and consumer
products companies.
We generate revenue from these application-specific and comprehensive
outsourcing solutions primarily by charging a monthly fee for each mailbox. We
also offer fee-based premium services and sell advertising in select situations.
We believe that we are well positioned to capitalize on the growing
importance of email as a communications medium for consumers, Web portals and
businesses. We believe that our messaging solutions will function as a central
message center that allows users to take advantage of the convergence of email,
voice mail and fax communications over the Internet. We believe that the
development of unified messaging will create new opportunities for expanded
services for a variety of Internet access devices, including computers, wireless
phones, pagers, personal digital assistants and television set-top boxes.
EMAIL AND MESSAGING BACKGROUND AND TRENDS
GROWTH OF THE INTERNET AND INTERNET MESSAGING
The Internet is quickly becoming an important communications tool,
advertising medium and sales channel for both consumers and businesses
worldwide. International Data Corporation estimates that the number of Internet
users worldwide will grow from 97 million in 1998 to 320 million by the end of
2002, and that the number of devices able to access the Internet will increase
from 120 million in 1998 to 515 million by the end of 2002. Jupiter
Communications estimates that online advertising revenue will grow from
approximately $1.9 billion in 1998 to approximately $7.7 billion in 2002.
We believe that email and advanced messaging services will continue to be
key drivers of Internet usage and growth because they are among the most popular
Internet applications today. Email is a powerful yet inexpensive means of
handling a wide variety of business-to-business, business-to-consumer and
personal communications at any time and from any location. According to
Forrester Research, the number of email users in the United States is expected
to increase from 75 million in 1998 to 135 million in 2001. In addition,
International Data Corporation estimates that the total number of email messages
sent per day in the United States will increase from 2.1 billion in 1998 to 7.9
billion in 2002. We believe that the growth in the use of email is being driven
by its convenience, speed, relatively low cost and the ability to send
multimedia attachments, such as video clips, graphics files, audio files,
documents and spreadsheets.
DEVELOPMENT OF INDUSTRY PROTOCOLS
The creation and widespread acceptance of industry protocols have driven
the rapid growth in the use of the Internet as a messaging medium. The first
email protocols enabled users to send messages across a variety of computer
operating systems. Recently adopted Internet protocols facilitate a user's
access to messages from a variety of devices. New email solutions, including
those offered free of charge, allow users with a Web browser, such as Netscape
Navigator or Microsoft Internet Explorer, to access their messages from any
computer, terminal or kiosk that is connected to the Internet.
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<PAGE> 41
Simple Mail Transport Protocol (SMTP) is currently the standard mail
protocol on the Internet. It allows Internet servers to route mail from the
sender to a destination. All Internet messages are transported using this
protocol. Users of proprietary email systems must convert their internal mail
formats to SMTP before sending messages over the Internet.
Web-based mail allows users to access their messages from any computer or
device with a Web browser and Internet access. This eliminates the need to
maintain a separate program to access email. Post Office Protocol (POP) and
Internet Messaging Access Protocol (IMAP) are emerging standards that improve
the functionality of email. POP allows users to connect to a shared mail server
and download their mail to their computer or alternative Internet access device.
After a user downloads the mail, the user manages the mail on the user's
computer or device.
IMAP provides greater flexibility at the server level than POP because IMAP
allows a user to sort messages, search for specific text in a message, and
manipulate folders and mailboxes while those files are still on the server host
instead of on the user's computer or alternative Internet access device. This is
particularly valuable for users who access their messages from different
computers with different email software. In addition, IMAP allows users to have
a common mailbox and customized folders and mailboxes that are not specific to a
particular computer or alternative access device.
INTERNET MESSAGING CONVERGENCE
Emerging Internet protocols, such as IMAP, are facilitating a convergence
in messaging. Today, businesses use multiple platforms to communicate by email,
voice mail and fax. These platforms generally use different technologies that
are based on different communications standards. The new Internet standards are
leading to the convergence of email, voice mail and fax communications onto a
single platform with a single standard. For example, these new standards will
allow voice mail messages to become audio attachments and faxes to become image
attachments to email messages. As a result, users will be able to read, view,
listen and respond to different message types using a common interface that can
be accessed by traditional personal computers or a variety of other Internet
access devices, including wireless phones, network computers, pagers, personal
digital assistants and television set-top boxes.
As email becomes an essential communications medium, businesses and
consumers expect their email service to be as reliable as their telephone
service. To remain competitive, businesses must be able to rapidly deploy an
advanced email system, manage the system effectively and increase its capacity.
As the number of email users grows and the volume and complexity of messages
increases, email systems must be able to accommodate increasing user demand and
rising storage requirements.
SPECIALIZED BUSINESS APPLICATIONS AND MESSAGE OUTSOURCING SERVICES
Today, many businesses have implemented in-house email systems which
require hardware, software and technical and administrative resources. Creative
Networks, an e-business consulting and research firm, estimates that to acquire,
deploy and operate an in-house messaging solution for 5,000 users, a business
must spend approximately $640 per user's mailbox per year. Even with this level
of investment, we believe many businesses still face significant downtime and
unreliable service. According to the Gartner Group, the percentage of large
businesses that expect to outsource at least some of their email systems is
estimated to grow from 10% in 1998 to 25% in 2000. Additionally, Forrester
Research estimates that the amount spent on outsourced email services will
increase from an estimated $8 million in 1997 to over $1 billion in 2002. We
believe that a growing number of businesses will outsource their messaging
services to ensure a more reliable, cost-effective and less resource-intensive
solution than their own in-house email system.
The rapid proliferation in the number of email users, together with
advances in messaging technology, have enabled new applications for Internet
messaging such as enhanced customer care and service and targeted direct
marketing. However, many businesses lack the internal expertise or resources to
exploit these opportunities. We believe there is a significant need for a
provider of solutions for business communications needs.
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USA.NET: MEETING THE MESSAGING NEEDS OF CONSUMERS, WEB PORTALS AND BUSINESSES
Our advanced messaging solutions are designed to capitalize on developing
Internet messaging trends and to service the expanding messaging needs of
consumers, Web portals and businesses. We use our experience in managing
millions of emailboxes to provide our users with a robust set of features that
satisfy these needs.
CONSUMER NEEDS
We believe that consumers want a messaging solution that:
- Provides a permanent email address that does not change when the user
switches employers, schools or Internet service providers;
- Permits users to easily access their messages through any computer or
device connected to the Internet without having to download or install
special software;
- Offers a robust set of basic features to easily retrieve and send
messages, consolidate messages from multiple POP-compliant mailboxes,
filter and organize messages and create automatic replies to incoming
messages;
- Offers optional advanced functionality such as virus scanning, email
forwarding and message notification; and
- Ensures email account privacy and secure delivery of messages.
WEB PORTAL AND BUSINESS NEEDS
We believe that Web portals and businesses require a comprehensive advanced
messaging solution that:
- Eliminates the need to incur significant hardware, software and ongoing
operational support costs;
- Can be rapidly deployed;
- Can be readily upgraded and expanded as their businesses and message
volume grow;
- Allows them to focus management resources on their core competencies;
- Is reliable and provides a high level of security;
- Permits users to easily access their messages through any computer or
device connected to the Internet without having to download or install
special software;
- Can be customized to ensure a consistent "look and feel" with their
corporate images;
- Is compatible with popular software programs such as Netscape Messenger
and Microsoft Outlook;
- Offers specialized applications and value-added features to allow
strategic business-to-business or business-to-consumer communications;
and
- Offers sophisticated and accessible customer service and technical
support.
STRATEGY
Our objective is to be the leading provider of email and advanced messaging
solutions for consumers, Web portals and businesses. We intend to pursue this
objective by employing the following strategies:
DEVELOP SPECIALIZED APPLICATIONS TO SOLVE UNIQUE BUSINESS NEEDS
We are aggressively developing solutions for a wide range of business
communications needs. We believe that our experience and success in developing
specialized messaging services for American Express
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<PAGE> 43
will help us identify and develop solutions to address numerous other specific
business needs. Our specialized messaging solutions allow a business to:
- Improve its ability to directly target promotional offers and other
marketing initiatives to its customer base;
- Attract and retain customers and increase customer satisfaction through
ongoing communication and interaction on the Internet;
- Differentiate itself from its competitors by offering new and enhanced
services; and
- Improve its business-to-business and business-to-consumer communication
capabilities.
EXPAND OUR MESSAGE OUTSOURCING SERVICES
Our message outsourcing services are designed to address the needs of
businesses for cost-effective, reliable messaging solutions that can handle the
increasingly complex messaging requirements resulting from the convergence of
email, voice and fax communications. As a result, we are devoting significant
attention to expanding our message outsourcing services. We are pursuing this
opportunity by expanding our sales and marketing activities and by establishing
relationships with information technology service companies, resellers and
distributors which have access to a broad customer base. We also intend to focus
on developing strategic partnerships with selected telecommunications and other
service providers to bundle our commercial messaging services with their
communication services.
CONTINUE LEADERSHIP IN CONSUMER MESSAGING
We intend to continue to expand our NET@DDRESS user base and to increase
our average revenue per user. We plan to significantly expand our marketing
activities to broaden consumer awareness of NET@DDRESS and to attract mainstream
consumers, who are increasingly accessing the Internet and using email. We also
seek to increase our average revenue per user by enabling advertisers to pursue
targeted marketing initiatives and by offering fee-based premium services to
existing and new users.
DEVELOP AND STRENGTHEN RELATIONSHIPS WITH WEB PORTALS
We seek to maintain and expand our Netscape and register.com relationships
and to selectively pursue other Web portal relationships. We intend to generate
additional advertising and premium service revenue from Netscape's WebMail, and
we plan to broaden our per-mailbox revenue opportunities through our
relationship with register.com and other Web portals. We are focusing on
developing relationships with additional Web portals that we believe may further
build our reputation and provide us with access to significant user bases and
revenue opportunities.
MAINTAIN TECHNOLOGY LEADERSHIP
We have developed highly reliable and scalable messaging technology, and we
use the best available third party software where appropriate. We plan to
continue to be a leader in advanced messaging by combining the best available
third party hardware and software with our proprietary applications and
technology. We intend to:
- Continue our focus on creating value-added solutions for specialized
business applications;
- Develop software to enhance our services; and
- Ensure that our systems can be easily integrated with those of our users.
PROVIDE SUPERIOR CUSTOMER SERVICE
We are dedicated to providing superior customer service to satisfy
businesses' and consumers' demand for reliable, high quality messaging services.
We provide customer support through live agents at our dedicated call center and
through online services. Our highly trained customer support staff of over 40
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people uses the leading voice, e-service and interactive online technologies to
enhance the quality of our support. We plan to expand our customer support staff
and continue to dedicate significant resources to monitoring and improving the
quality of our customer support services.
OUR ADVANCED MESSAGING SERVICES
We have developed a wide range of reliable, easy-to-use advanced messaging
solutions to meet the rapidly evolving needs of consumers, Web portals and
businesses. We base our messaging solutions on highly reliable and scalable
technology that includes advanced features, universal accessibility and a high
level of security. We have multiple diverse revenue opportunities, including
advertising revenue, fee-based premium services and monthly per-mailbox fees.
MESSAGING SOLUTIONS FOR CONSUMERS
NET@DDRESS users receive a permanent email address of their choice with a
"usa.net" domain name (e.g. [email protected]). We provide the basic service free
of charge. The user's email address does not change regardless of how often the
user switches employers, schools or Internet service providers.
NET@DDRESS users can send or retrieve email through the NET@DDRESS Web site
(www.netaddress.com) from any computer connected to the Internet with a standard
Web browser. Since NET@DDRESS is Web-based, users do not need to download or
install special software to access the service, but if they desire, they can
view their messages through popular software programs such as Netscape Messenger
or Microsoft Outlook.
All NET@DDRESS users can use our robust set of free basic features to:
- Store up to five megabytes of data;
- Consolidate messages from multiple POP-compliant mailboxes into one
mailbox;
- Block unwanted messages;
- Attach large, complex files to their messages;
- Store frequently used email addresses in an address book;
- Spell check messages;
- Organize and archive messages in customized folders;
- Add customized signatures to their messages; and
- Create automatic replies to incoming messages.
NET@DDRESS also offers advanced privacy and security features. Each user
has an account that the user can access only after entering a unique user name
and an individually selected password. Users accessing their accounts via a
public computer or other access device can choose to disable their memory cache,
meaning that viewed pages are expired rather than stored in the browser's memory
so that subsequent users of the public computer or other access device will not
be able to read the user's messages.
NET@DDRESS users can also subscribe to several fee-based premium services,
including virus scanning, pager notification, email forwarding and POP access.
Users pay for these premium services on a monthly or annual basis.
In return for providing basic messaging services free-of-charge, we place
advertising on the NET@DDRESS Web site. We generate revenue from these
advertising sales as well as from the promotion of opt-in content delivery,
which is marketing information and special offers from advertisers that users
can choose to receive. We gather demographic data during the initial
registration process, which we use for targeting advertisements and other
service offerings to users. We offer advertisers a number of
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programs to target advertisements to various demographic segments of our user
base to increase advertising effectiveness.
MESSAGING SOLUTIONS FOR WEB PORTALS
Netscape WebMail Powered by USA.NET
In 1998, we entered into a relationship with Netscape to host and manage
email services for Netscape's Netcenter Web portal. Netscape WebMail Powered by
USA.NET is accessible from the Netscape Netcenter Web site (www.netcenter.com)
as well as from a button on the toolbar of Netscape browser software. The email
service offers the same features and functionality as our NET@DDRESS service. We
host the email services at our facilities. Netscape WebMail users are also
automatically enrolled as Netcenter members.
According to Netscape, Netscape WebMail Powered by USA.NET has become the
leading source of attracting new members to Netcenter. We believe that hosting
the Netscape WebMail service has provided us with high visibility and has
significantly helped us build brand awareness. We intend to market our
commercial messaging services to the business users that frequent the Netscape
Netcenter site.
Our agreement with Netscape provides us with multiple revenue
opportunities, including advertising and additional fee-based premium services
similar to those offered by NET@DDRESS users. We are responsible for selling all
advertising space on Netscape WebMail Powered by USA.NET. We share advertising
and premium service revenue with Netscape. We recently expanded the scope of our
agreement with Netscape to develop foreign language-based email services for
certain of Netscape's international Netcenter Web portals. We also expect to
generate revenue on the international Web portals by selling advertising space
and fee-based premium services.
Strategic Partnership with register.com
In March 1999, we entered into an agreement with register.com, a business
portal site that is the largest single domain name registration service on the
Internet. We believe that the first two steps for a business to establish a
presence on the Internet are to register for a domain name and establish email
service. Together with register.com, we expect to provide businesses with a
bundled offering of domain name registration and business messaging services.
Under the terms of our agreement, register.com offers its customers the
opportunity to receive a Web-based email account with the customer's new domain
name. We plan to generate revenue from this relationship by charging a monthly
per-mailbox fee.
MESSAGING SOLUTIONS FOR BUSINESSES
Specialized Messaging Application for American Express
In April 1998, together with American Express, we launched AmExMail Powered
by USA.NET (www.amexmail.com). As of April 30, 1999, AmExMail had over 273,000
mailboxes. The AmExMail service is offered free to all consumers with all of the
features and functionality of our NET@DDRESS service. American Express'
Cardmembers, however, receive without charge certain services and features that
other users must pay for, including POP access and message management features.
We host the AmExMail services on secure servers located at our facilities.
We generate revenue from the AmExMail service from advertisements. We also plan
to offer fee-based premium services to AmExMail users. We share advertising and
premium service revenue from AmExMail with American Express.
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Other Specialized Messaging Applications
We plan to develop other specialized messaging applications that address
specific business and communications needs. We believe that businesses can apply
these solutions to increase customer service quality, enhance their products and
services, interact directly with their customer base, employ direct marketing
techniques and increase customer loyalty. We are currently developing a solution
for newspaper publishers to help classified advertisers communicate with
potential buyers. Our newspaper classifieds solution provides a unique value
proposition to both newspapers and advertisers. Some of the other specialized
applications that we are currently developing include solutions for:
- Universities and other groups to establish affinity programs with their
alumni or membership base;
- Telecommunications and wireless service providers to bundle our messaging
solutions with their telecommunications services; and
- Internet service providers and Web hosting companies to combine our
services with theirs and provide a complete communications package for
their customers.
Message Outsourcing Services
We launched our commercial message outsourcing service in June 1998. This
service is a cost-effective, easy-to-use email service that is scalable as a
customer's business grows. We sell this service on a turnkey basis with a
complete customer service package, including both account management and
technical support. We currently sell our commercial messaging services directly
through our sales force and indirectly through sales channel partners, such as
information technology service companies and Internet service providers. We are
also pursuing relationships with resellers and distributors aggressively. We
charge a monthly per-mailbox fee that allows a business to avoid expensive
up-front capital expenditures and to scale its spending as its business grows.
We believe that we may have additional revenue opportunities through the sale of
premium services and advertising space in select situations. We manage these
services at our data center, which is monitored by our team of trained systems
operations professionals seven days a week, twenty-four hours per day.
When a business signs up for the commercial messaging services, it
designates a domain name and selects an initial number of mailboxes. The
business also designates one of its employees as a "postmaster" to
self-administer email addresses, customize the client's email interfaces and add
and delete users when appropriate. We train the postmaster and provide ongoing
customer support.
We designed our commercial messaging services to complement and enhance a
business' existing email software. Our commercial messaging services can
streamline a business' messaging functions because it can integrate disparate
email systems that a business may have in different office locations. These
services also permit businesses to standardize their email services using any
email software, such as Netscape Messenger or Microsoft Outlook. As a result,
our services can be implemented easily and with minimal impact on business
operations. We also designed our commercial messaging services to grow so that
businesses can manage increasing volumes of messages in a cost-effective manner.
Our commercial messaging services can also add new features and
functionality to a business' existing system. For example, we provide gateway
filtering for virus detection, filtering for unwanted junk email, and email
certification and encryption. In addition, because our service is Web-based,
users can access their messages from any Internet-connected device with a Web
browser at any time from any location.
A business can also customize its email for a professional "look and feel"
that fits with its corporate image. A business using our commercial messaging
services receives a unique email address for each employee that contains the
business' domain name (e.g. [email protected]) allowing it to have a
complete professional company image on the Internet that is consistent with any
current or future Web site it may have.
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FEATURES AND FUNCTIONALITY
BASIC SERVICE FEATURES
We designed the features and functionality of our service offerings to
provide reliable, cost-effective solutions to meet our users' messaging needs.
The following table lists features that we currently offer free of charge to
consumers and Web portals, and as basic services to businesses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Message Storage - Five megabytes of storage on - Allows for centralized message
our centralized server storage on our servers rather
than on a user's personal
computer
- Provides secure server-based
storage and back-up, as well
as universal access to
messages
- ---------------------------------------------------------------------------------------------------
Mail Collection - Consolidate messages from - Simplifies message management
multiple POP-compliant by automatically consolidating
mailboxes into one mailbox all messages in one place
- ---------------------------------------------------------------------------------------------------
Spam Blocking - Block or delete spam - Detects and blocks spam before
(unsolicited junk email) it reaches the user's mailbox
messages
- ---------------------------------------------------------------------------------------------------
File Attachment - Attach files of up to five - Allows attachment and
megabytes to messages transportation of documents,
presentations and other text,
graphic or video files via the
Internet rather than by fax,
mail or other traditional
media
- ---------------------------------------------------------------------------------------------------
Address Book - Organize email addresses in an - Permits universal access to
easily accessible address book address book
- Allows users to create and
store individual and group email
addresses
- ---------------------------------------------------------------------------------------------------
Company Directory - Organize employee email - Allows employees universal
addresses in a common company access to their company
directory directory
- ---------------------------------------------------------------------------------------------------
Spell Check - Check spelling - Enhances ability to send
accurate and professional
messages by checking for
spelling errors before sending
a message
- ---------------------------------------------------------------------------------------------------
Folder Management - Filter, organize and store - Allows users to classify and
incoming and outgoing messages store messages in personalized
on our servers folders that they establish
according to their own
preferences
- ---------------------------------------------------------------------------------------------------
Message Management - Create rules for screening and - Users can establish
filtering messages instructions and rules to store,
forward or block messages
according to sender, subject,
date and time
- ---------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unique User Profiles - Establish unique settings for - Users can customize the look
email viewing and feel of their mailbox by,
for example, setting the font
- Change passwords and size of their messages and
signatures for email messages establishing the number of
messages they can view on the
screen
- Allows for customized
signature containing user's
address, phone number or other
information to be attached to
each outgoing message
- ---------------------------------------------------------------------------------------------------
Automatic - Send automatic responses to - Allows users to automatically
Responses/Vacation incoming email respond to messages before
Reply reading them, for example to
let others know that a user is
on vacation or travelling
- ---------------------------------------------------------------------------------------------------
Email Scheduling - Send emails at designated - Allows users to create a
times message to be sent at a
designated time
- Send reminders of specific
events - Users can schedule message
reminders for specific daily,
weekly, monthly or yearly
events such as meetings,
birthdays or anniversaries
- ---------------------------------------------------------------------------------------------------
Security/Memory Cache - Viewed pages are expired - Increases privacy and security
Disabling rather than stored in the when a user accesses messages
browser's memory cache so that through public computers or
subsequent users of a public other access devices
computer or other access
device will not be able to
read a previous user's
messages
- ---------------------------------------------------------------------------------------------------
</TABLE>
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BASIC BUSINESS ADMINISTRATIVE FEATURES
We also offer the following administrative services to Web portals and
businesses enabling a comprehensive outsourcing solution.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Web-based Provisioning - Web-based interface for - Provides remote
adding, deleting and modifying self-administration of an
email addresses and services outsourced email environment
- Allows administrators to
retain control and flexibility
- ---------------------------------------------------------------------------------------------------
LDAP-based Provisioning - Lightweight Directory Access - Provides remote
Protocol (LDAP) interface for self-administration of an
adding, deleting and modifying outsourced email environment
email addresses and services
- Allows administrators to
retain control and flexibility
- Provides a means to integrate
end-user provisioning into
pre-existing order processing
systems or applications
- ---------------------------------------------------------------------------------------------------
</TABLE>
PREMIUM SERVICES
We offer the following premium services for a fee or as a special feature
for a select group of users. These features augment the existing capabilities of
our email services and provide us with additional sources of revenue other than
advertising and per-mailbox fees.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Email Forwarding - Forward email messages to - Users can establish rules to
other email accounts forward some or all of their
messages to other email
accounts
- ---------------------------------------------------------------------------------------------------
POP Email Access - Download messages using - Users can connect to a shared
standard POP mail server, download messages
to their desktop email
software such as Microsoft
Outlook and work and manage
their messages offline
- ---------------------------------------------------------------------------------------------------
Additional Message - Additional storage on our - Provides increased message
Storage centralized server in five storage space
megabyte increments
- ---------------------------------------------------------------------------------------------------
Advertisement - Suppress advertising banners, - Allows users to elect not to
Suppression buttons and log out pages receive any advertisements
- ---------------------------------------------------------------------------------------------------
Tagline Suppression - Remove our tagline from the - Enhances professional
end of all outgoing messages appearance of outgoing messages
- ---------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Virus Scanning - Scan for viruses on all - Protects user systems from
incoming messages computer viruses before the
messages reach a user's
mailbox
- ---------------------------------------------------------------------------------------------------
Pager Notification - Send notification of email - Automatically informs users
arrival to any enabled pager or that important messages have
digital phone arrived in their mailbox
- ---------------------------------------------------------------------------------------------------
</TABLE>
PLANNED FEATURES
We are currently developing additional features and premium, fee-based
services for all of our offerings. The following lists examples of some of the
planned features and services that we are developing, either alone or with third
party technology providers.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unified Messaging - Send or receive a fax from an - Allows users to send or
email interface, forward retrieve faxes and voice
messages to a fax from a messages by logging into their
mailbox and retrieve messages email
from any telephone through
text-to-speech technology - Allows users to retrieve faxes
and emails through a telephone
- ---------------------------------------------------------------------------------------------------
Secure Document - Encryption and authentication - Provides enhanced security of
Delivery of messages messages
- Allows users to securely send
sensitive documents over the
Internet without fear of
interception or eavesdropping
- Verifies that the intended
recipient received the message
- ---------------------------------------------------------------------------------------------------
Calendar Services - Web-based calendar integrated - Integrates scheduling function
with email services with the ability to access the
user's schedule and those of
colleagues
- ---------------------------------------------------------------------------------------------------
Greeting Cards - Electronic greeting cards and - Integrates online greeting
messages cards with email
- ---------------------------------------------------------------------------------------------------
Translation Services - Translating Web-based email - Allows display, transfer and
messages from one language to storage of messages and
another attachments in different
languages
- ---------------------------------------------------------------------------------------------------
IMAP - Access and manage messages - Allows users to sort messages,
using IMAP protocol search for specific text in
messages, and manipulate
folders and mailboxes from
multiple email environments
without the need to transfer
the messages from the server
to a user's computer
- ---------------------------------------------------------------------------------------------------
</TABLE>
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The descriptions in this prospectus regarding our planned service offerings
and the anticipated features of those planned service offerings are
forward-looking statements. Actual services and features could differ materially
from those projected as a result of a variety of factors, some or all of which
may be out of our control.
CLASSES OF SERVICE
We offer classes of our email services designed to address the specific
needs of businesses and consumers. The classes of services reflect different
combinations of our premium features with our basic services. For example, a
NET@DDRESS user may only need Web access, while a Web portal might want IMAP and
POP access and a business might want all of these services plus encryption.
ADVERTISING SALES AND PROGRAMS
Advertising plays an important role in the business models for NET@DDRESS,
Netscape WebMail Powered by USA.NET and AmExMail Powered by USA.NET. We gather
demographic data on each user who registers for these services with which
advertisers can conduct targeted marketing. We work closely with our advertising
and sponsorship partners to monitor the effectiveness of their advertisements on
our sites and to develop customized solutions to best meet our advertisers' and
sponsorship partners' needs. We believe that our use of sophisticated targeted
marketing tools is critical to our ability to sell our advertising space on the
Internet.
We sell a variety of advertising and sponsorship options to our clients. In
addition to providing banner and button advertising, we specialize in selling
innovative advertising packages to our advertisers at higher rates. Such
programs include:
- Direct Delivery Programs. We promote content from our direct delivery
providers on our services. Users choose to receive content from categories
such as news, sports, entertainment and special offers that meet their
specific interests. Our direct delivery providers in March 1999 included
iVillage, Launch, Sports Illustrated and US News and World Report.
- Logout Page Redirects. When a user logs out of an email session, we
automatically link that user to the advertiser's Web site where the user
can further explore the advertiser's product and service offerings.
- E-direct Programs. We target promotional offers to users that have
"opted-in" and indicated an interest in receiving promotions and special
offers.
Generally, banner advertising is purchased on a price-per-impression basis.
We also receive advertising revenue through fixed fees from content providers,
fees charged in connection with bundling a sponsorship package and bounty fees
we receive when a user signs up for an advertiser's or sponsor's service.
We sell advertisements to companies and organizations from a broad range of
markets, including online services, telecommunications, publishing, online
retailing and consumer goods and services. Following is a list of our top
advertisers during the twelve months ended March 31, 1999:
<TABLE>
<S> <C> <C>
ABCNews.com E-Pub MiningCo.com
Ameritech Emaginet Movie Mail
Audio Books Fox Online Nextcard
Brainplay Getsmart Riverbelle
CBS Marketwatch Go2Net Rodale Press
Cendant Corporation iVillage Simple Networks Communications
Cybergold Launch Spree
drkoops.com Macy's US News and World Report
Egghead.com Marketing Direct Women.com
E! Online Matchlogic Ziff-Davis
</TABLE>
These advertisers accounted for 88% of our total revenue for the twelve
months ended March 31, 1999.
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Egghead.com accounted for 27.0% of total revenue in 1998 and 18.1% of total
revenue in 1997. 24/7 Media accounted for 14.9% of revenue and Webstakes
accounted for 11.4% of revenue in 1997. In April 1999, we entered into one year
agreements with Egghead.com to advertise on the NET@DDRESS and Netscape WebMail
Web sites. The agreements provide that Egghead.com will receive banner
impressions, button impressions and logout page transfers on such Web sites as
well as participation in inbox direct signups on NET@DDRESS.
We have an internal advertising sales staff of five professionals. We
compensate our sales staff primarily through sales commissions. We currently
sell our entire advertising inventory through our internal sales staff, allowing
us to better control pricing and inventory, maintain brand consistency and
capture maximum revenue.
MARKETING STRATEGY AND EXECUTION
Our marketing objective is to establish ourselves as the leading provider
of advanced messaging services by building brand awareness and developing a
strong core of strategic relationships and partners and a large, loyal user
base. We base our strategy for achieving these objectives on an integrated set
of marketing initiatives, including public relations programs and generating
targeted sales leads.
CONSUMER MESSAGING
Our marketing strategy for NET@DDRESS includes:
- Building awareness of NET@DDRESS through public relations activities and
banners;
- Acquiring users through word of mouth, banner ads and co-marketing
programs;
- Driving use of our services through welcome page communications, new
features, direct delivery of content and value-added services; and
- Building loyalty through retention programs, newsletters and superior
customer service.
To execute this strategy, we buy advertising on leading Internet sites and
in other media. In addition, we offer bounty programs to leading Web sites, in
which we pay the Web sites for each new NET@DDRESS mailbox that the Web site
obtains for us. We also have an ongoing public relations campaign that we target
to consumers, potential advertisers and the financial and business community. We
also have co-marketing programs with strategic partners. Our marketing strategy
includes using the NET@DDRESS Web site welcome page to deliver sponsorships for
advertisers, while offering users content and special offers on products and
services. We intend to increase our marketing efforts for NET@DDRESS at targeted
audiences, such as students, business executives and travelers. In addition, we
plan to expand use of NET@DDRESS and build brand loyalty through the marketing
and distribution of enhanced email service features.
WEB PORTAL AND BUSINESS MESSAGING
Our marketing strategy for Netscape WebMail Powered by USA.NET is to build
awareness of our service primarily by gaining exposure to visitors to the
Netcenter site and by leveraging Netscape's public relations campaigns. We
intend to continue working with Netscape to optimize the use of Netscape WebMail
as a customer distribution channel for Netscape. We also plan to explore
opportunities to expand our relationship with Netscape to target other potential
commercial messaging service users.
We plan to continue to build awareness of the AmExMail services through
advertising online, including through Web site links, and on other media, such
as newsletters, flyers and mailers. We are also working with American Express to
identify additional opportunities to provide other exclusive services on
AmExMail and to develop special services and specific marketing programs, such
as Membership Rewards.
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Our marketing strategy for our other Web portal and business messaging
services is to:
- Develop sales leads through direct contacts, channel partner
opportunities, direct mail, print advertising and online advertising;
- Leverage co-marketing opportunities for our advanced messaging services
with selected Web portals, such as register.com;
- Advertise in publications directed at specific industries, professional
and trade associations, and targeted partner channels;
- Seek strategic partnerships with selected telecommunications, Internet
and other service providers to bundle our advanced messaging services
with their services; and
- Leverage our existing brand awareness developed from managing over 10.2
million mailboxes across all of our service offerings.
We also intend to identify unique messaging needs of businesses and to
develop and market specialized applications to address them. We believe that we
can leverage our advanced messaging technology by developing and marketing
value-added solutions to specific business needs such as targeted direct
marketing, customer care, business-to-business communications and affinity
programs.
In order to maximize our penetration of these potential markets, we plan to
market our solutions through our direct sales force as well as through third
party resellers and distributors who can offer bundled service offerings or can
co-market our services in connection with their core business.
CUSTOMER SERVICE
Offering our customers a high level of customer service and technical
support is a top priority of ours and we believe that it is critical to our
success. We believe that the quality of our customer service distinguishes us
from our competitors. Our customer service staff consists of customer service
representatives, technical support specialists, account coordinators, quality
assurance analysts, order processors and our management. As of April 30, 1999,
we employed 43 people in this group.
Our customer service representatives, account coordinators and technical
support specialists are trained, experienced service professionals. Our customer
service representatives provide multifunctional end-user support across all of
our consumer and commercial messaging services. Our account coordinators and
dedicated customer support representatives provide support, training, account
set-up and provisioning for our business accounts. Our technical support
specialists use e-service tools to categorize, trouble-shoot, and resolve
escalated end-user inquiries or "trouble tickets." We staff our call center
seven days per week, twelve hours per day. We provide additional customer
support seven days per week, twenty-four hours per day, by contractual
arrangement.
We provide full-service customer support through voice, e-service and
interactive online end user support. We use third party, interactive e-service
technology to resolve most of our end-user inquiries within our Web site. We
also provide a "frequently asked questions" section, online knowledge-based
self-help and interactive e-service inquiry tools on our Web site. We make
available traditional toll or toll-free live agent telephone support to some
businesses by contract. We also contract with a third party to provide
multi-lingual interactive on-line support.
In an effort to further improve customer satisfaction, we regularly
evaluate the latest customer support technology and tools. We also track
recurring customer issues to identify opportunities for us to improve our
services.
NETWORK AND TECHNOLOGY
We base all of our services on highly reliable and scalable technology that
includes advanced features, universal accessibility and a high level of
security.
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Our messaging network is designed to take advantage of the approaching
convergence of email, voice mail and fax communications. Since we base our
infrastructure on standard Internet protocols, our services can be readily
expanded to enable multiple kinds of messaging with many types of devices and
software. We plan to combine the best available third party hardware and
software with our proprietary applications and technology to provide reliable,
easy-to-use and versatile email and other advanced messaging services.
We use leading hardware and software solutions, such as Cisco Systems
routers, EMC storage devices, Oracle database software and Sun Microsystems
servers. We plan to continue to leverage high quality services and technologies
to enhance the design and performance of our messaging networks.
Our experience in handling massive volumes of messages and Internet
requests through our email engine technology has allowed us to refine our
scalable email messaging solutions. We designed our email engine components to
be independently scalable, allowing the addition of hardware and software units
as we approach capacity thresholds. We provide a true, distributed and scalable
Internet email messaging architecture. Each hardware and software process within
our network has "fail-over" protections to provide complete service redundancy.
We designed our network for maximum service availability, including load-
balanced message routing and queuing, peering (or multiple public and private
Internet network connections) and redundant interconnection.
We have a robust, tiered, stand-alone testing environment that has the same
hardware and layered products as our production environment. We have separate
integration and production test environments to isolate our system so that we
can do the functional and performance testing that is essential for us to
deliver "carrier grade" messaging services. We partition our testing environment
so that we can simultaneously test multiple scenarios across our services and
protocols. As a result of this increased efficiency we can provide our users
with robust services that have fewer defects and we can achieve internal cost
savings.
Our proprietary messaging technology streamlines incoming and outgoing
message traffic, message filtering and Web-based email client requests. We
receive each request type through our proprietary queuing and look-up process,
which examines a local cache of recent requests and then gathers the results
from the appropriate cache or appropriate database. We deliver the request
through a corresponding Internet protocol, such as SMTP, POP or IMAP.
Our robust network infrastructure provides our customers with diverse, high
bandwidth connectivity between the Internet and our facilities. We currently
have agreements in place with Qwest, AT&T, MCI WorldCom (via UUNET) and e.spire
for high capacity OC-3 and DS3 level service. We are not dependent on any
co-location facilities. Through these agreements we have direct, private
connections to most major Internet backbone providers. These connections,
together with the number of bandwidth providers with which we have primary
agreements, provides our users with a significant level of both diversity and
redundancy in their email services Internet connection.
We manage this Internet backbone connectivity at our facilities through
redundant Cisco Systems routers using Hot Standby Routing Protocol (HSRP).
Failure of any given network component, circuit or provider should have minimal
impact on the performance of our services for our users. All nodes within our
facilities operate on full 100 megabytes switched Ethernet in a collapsed
backbone configuration for optimal switching efficiency. We trunk our switches
at 1 gigabyte to provide high performance interconnectivity between our Virtual
Local Area Network (VLAN) environments. Finally, our computing facilities are
separated from the public networks through multiple firewalls provided through
Cisco Systems and Sun Microsystems technologies.
Our messaging data center, located in Colorado Springs, is connected
through these diverse network providers to multiple high-performance, high
bandwidth providers that carry all email messaging and Internet traffic. One of
the advantages of our Colorado Springs data center site is its location halfway
between London and Tokyo and its relative lack of susceptibility to major
natural disasters. Our data center is supported by redundant server and network
hardware to achieve carrier-grade uptime and performance. We protect our
physical assets within the data center with video surveillance, twenty-
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four hours a day, seven days a week staffing and monitoring, automated fire
suppression and secure badges. We protect our intellectual property and our user
data with two layers of firewall technology combined with an encrypted access
system and individual component access tracking.
We currently manage more than 19 terabytes of customer data in our data
center. We expect to deploy an additional 15 terabytes of storage capacity in
late 1999. All of our databases are stored on high-speed EMC disk arrays, are
three-way, RAID 1 mirrored and have business continuance volumes configured to
maximize reliability and performance. We backup our databases to a tape library
that we store offsite in a fireproof safe.
We are expanding our existing data center and increasing our available
floor space to better support our growing base of users. We also expect to open
an additional data center in 1999. This center will increase our available space
by a factor of five and further increase our level of redundancy and our ability
to serve our customer base. As we expand our services internationally, we intend
to open data centers in Europe and Asia. These data centers would add further
redundancy and improve local connectivity in those markets.
Unsolicited bulk mail, or spam, is a significant problem for email service
providers. All of our email services include integrated spam blocking features.
We have developed proprietary technology and implemented procedures for
detecting and blocking spam twenty-four hours a day, seven days a week. We have
also designed systems to detect and terminate mailbox accounts that engage in
spam activity.
COMPETITION
Competition in the advanced messaging services industry is intense and we
expect competition to persist, intensify and increase in the future. The market
for selling advertising space on the Internet is also very competitive.
Our consumer email service primarily competes against Hotmail (a service of
Microsoft). In addition, we compete against Web portal sites that have email
services, such as Yahoo!, Excite, Lycos and AltaVista. We also compete against
independent email providers, such as Juno Online Services and Mail.com.
Our NET@DDRESS service also competes against Internet service providers,
such as America Online, who include portable email address solutions within
their basic service offerings. A number of companies offering Internet products
and services recently have begun to integrate Web-based email within the
products and services they offer to consumers and businesses. Other vertical
market portal sites and affinity groups also offer or may in the future offer
email services to their users.
There are a growing number of companies offering various consumer and
commercial email outsourcing services. In the consumer outsourcing market,
companies such as Mail.com, CommTouch and Lycos provide outsourcing for consumer
applications. In addition, entities that provide an initial point of entry for
Internet users, such as the Regional Bell Operating Companies, AT&T and IBM, can
be expected to consider further development, acquisition or licensing of
Web-based email functions and services competitive with our services.
Commercial outsourcing competition consists of companies offering services
to businesses and service providers. Competitors in this market include, or are
expected to include, Critical Path, CompuServe and PSINet. In addition, we
expect that other companies, particularly large service providers,
telecommunications companies and data outsourcing companies, such as EDS and
Computer Sciences, will begin to offer solutions in commercial outsourcing in
the relatively near term.
Our ability to compete depends on many factors, many of which are outside
of our control. We believe the primary competitive factors determining success
in our markets are the following:
- Service quality and reliability;
- Price;
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- Feature sets;
- Customer support;
- Ease-of-use of products and services;
- Our ability to anticipate and adapt to a developing market and rapidly
changing technologies;
- The sales and marketing efforts of us and our competitors;
- The timing and introduction of new products and services; and
- General industry and economic conditions.
In selling advertising space, we compete with many of the market
participants listed above, as well as with various advertising-supported Web
sites, including portal sites such as Yahoo! and Excite, content sites such as
CNET and CNN.com and interactive advertising networks and agencies such as
DoubleClick and 24/7 Media. We also compete with traditional media such as print
and television for a share of our advertisers' total advertising budgets. If
advertisers perceive the Internet to be a limited or ineffective advertising
medium or perceive us to be less effective or less desirable than other Internet
advertising vehicles, advertisers may be reluctant to advertise on our services.
To compete for Internet advertisers, we must offer effective methods of
targeting subscribers with demographic characteristics attractive to these
advertisers.
STRATEGIC RELATIONSHIPS
We enter into strategic relationships to build our reputation as a premier
provider of advanced messaging services, to build our brand awareness and to
sell application-specific messaging solutions that address specialized industry
messaging needs. We have entered into the following alliances:
AMERICAN EXPRESS
In April 1997, we entered into a two-year renewable co-marketing and
program agreement with American Express, a global travel, financial and network
services provider, to build and operate AmExMail Powered by USA.NET. In May
1999, we extended the agreement so that it now expires December 31, 1999. If the
agreement expires or terminates, American Express would need to find an
alternate email service and we would forward the AmExMail users' email to the
new service. American Express would pay us a fee for forwarding the mail.
Under our agreement with American Express we have agreed not to administer
or directly offer email or similar services on behalf of or in conjunction with
any competitor of American Express without their consent. A competitor of
American Express includes any charge, credit or debit card business, financial
services business or travel agency business.
In April 1997 and March 1998, American Express purchased an aggregate of
883,652 shares of preferred stock (which will convert into 4,241,529 shares of
common stock on the closing of this offering).
NETSCAPE
In April 1998, we entered into a two-year, renewable services agreement
with Netscape, a leading provider of open software for linking people and
information over enterprise networks and the Internet, to build and operate
Netscape WebMail Powered by USA.NET. In October 1998, we extended the agreement
to include a two-year renewable services agreement for certain of Netscape's
international Netcenter Web portals, for which we are developing foreign
language-based email services. On expiration or termination of the agreement, we
can market replacement email services to the Netscape WebMail users if we
contact them by means other than through the information we obtain from their
registration with Netscape WebMail.
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We have agreed not to display on WebMail any advertisements or other
promotional text or graphics for third party products or services that are
directly competitive with Netscape's software products and online services.
Netscape purchased 67,797 shares of preferred stock (which will convert
into 325,425 shares of common stock on the closing of this offering) in August
1998.
REGISTER.COM
In March 1999, we entered into a one-year, renewable reseller agreement
with register.com, a business portal site which is the largest single domain
name registration service on the Internet. register.com will offer its customers
the opportunity to receive a Web-based email account for each employee that
contains the business' domain name, such as [email protected]. This
service allows businesses to have a company-branded domain name for all of its
employees and to outsource its business messaging needs through our commercial
messaging services. register.com is responsible for all billing and collection
from its customers. If our agreement with register.com expires or terminates, we
can acquire all of the mailbox customers by paying register.com a one-time fee.
We have agreed to promote register.com as the exclusive domain name
registration service for our email messaging services, subject to certain
exceptions. Similarly, register.com has agreed not to promote or sell
competitive email messaging services.
PREMIERE TECHNOLOGIES
In October 1997, we entered into a two-year, renewable co-marketing and
integration agreement with Premiere Technologies, a public company that provides
enhanced communications management services, including unified messaging
(integrated email, fax and voice messaging and conference calling managed from
either a Web or telephone interface), networked voice messaging, electronic
document distribution (email and fax) and conference calling and enhanced
calling card services. In May 1999, we extended the initial term of this
agreement to October 2001.
We are working with Premiere to develop enhanced features for our email
services. We have agreed to reserve approximately 384,000 shares under our 1999
Equity Incentive Plan to grant to our and Premiere's employees working on these
development efforts. We are also working on a co-marketing plan to market each
other's services and we have agreed to dedicate up to $1,900,000 of the proceeds
received from Premiere's prior investment in us to this marketing program. We
intend to generate revenue from the sale of co-developed premium services on our
email services. We will share revenue from our co-developed premium services
with Premiere.
In October 1997 and March 1998, Premiere purchased an aggregate of 883,652
shares of preferred stock (which will convert into 4,241,529 shares of common
stock on the closing of this offering).
Under our agreement with Premiere, we have agreed to use Premiere as our
exclusive provider of mobile telecommunications services, including calling
card, text-to-speech email, conference calling and Web-based conference calling,
as well as fax services, including email-to-fax, pager or voice notification of
messages and services.
INTELLECTUAL PROPERTY
Trademarks, service marks, trade secrets, copyrights and other proprietary
rights are important to our success and competitive position. We have registered
and applied for registration of certain service marks and trademarks with the
appropriate state and federal agencies, and will continue to evaluate the
registration of additional service marks and trademarks, as appropriate. We have
one allowed United States patent. We may not gain any competitive advantages
from any patents or be able to exploit them profitably. Further, any patents may
not be able to withstand challenges from third parties.
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We seek to protect our proprietary rights, but our efforts may be
inadequate. Existing trade secret, copyright, patent and trademark laws offer
only limited protection. Further, effective trade secret, copyright, patent and
trademark protection may not be available in every country in which we make our
services available through the Internet, and policing unauthorized use of our
proprietary information is difficult. The unauthorized misappropriation of our
proprietary technology could have a material adverse effect on our business,
financial condition and operating results. If we resort to legal proceedings to
enforce our proprietary rights, the proceedings could be burdensome and
expensive and could involve a high degree of risk.
We may also be subject to claims alleging that we have infringed third
party proprietary rights. If we were to discover that any of our services
infringed third party rights, we may not be able to obtain permission to use
those rights on commercially reasonable terms. This may require us to expend
significant resources to make our services non-infringing or to discontinue the
use of our services. We might incur substantial costs defending against an
infringement claim, even if the claim is invalid. If we have to defend against
an infringement claim it could distract our management from our business.
Further, a party making a claim could secure a judgment that requires us to pay
substantial damages or that prevents us from using or selling our products and
services. Any of these events could have a material adverse effect on our
business, financial condition and operating results. Our success depends
significantly upon our proprietary technology, including our advanced email
technology.
GOVERNMENTAL REGULATION
We are subject to laws and regulations that are applied to various Internet
activities. There are many legislative and regulatory proposals under
consideration by federal, state, local and foreign governments and agencies,
including matters related to:
- Online content;
- User privacy;
- Access charges;
- Jurisdiction;
- International, federal, state and local taxation;
- Liability for third party actions;
- Intellectual property; and
- Characteristics and quality of products and services.
Legislation in these areas could impair the growth of the Internet and
decrease the acceptance of the Internet as a communications and commercial
medium. This could decrease the demand for our services, increase our cost of
doing business or otherwise have a material adverse affect on our business,
financial condition and operating results.
Further, the growth and development of the market for Internet email may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on companies conducting business online. For example, any
laws or regulations that restrict our ability to collect or use personal data
from our users to target advertisements may adversely affect us. There have also
been numerous legislative initiatives proposed to address the prevalence of spam
email on the Internet. These laws may impose additional burdens on our business.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
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Any new legislation or regulation regarding the Internet, or the
application of existing laws and regulations to the Internet, could harm our
business. Additionally, because we expect to expand our operations outside of
the United States, the international regulatory environment relating to the
Internet could have a material adverse effect on our business.
EMPLOYEES
As of April 30, 1999, we employed 190 people, all of whom are full-time.
The 190 employees include 23 in general and administrative functions, 67 in
operations functions, 53 in sales and marketing and 47 in product development.
We outsource our human resources operations to The Personnel Department, a
privately-held company. Our employees are not represented by a labor union or
covered by any collective bargaining agreements. We consider our employee
relations to be good.
FACILITIES
Our principal offices are located in over 21,000 square feet of space in
Colorado Springs, Colorado, under a lease expiring on October 31, 2002. We lease
two other facilities in Colorado Springs, one with over 4,000 square feet that
houses our data center and one with over 19,000 square feet that is primarily
used by our information technology staff. We lease additional office space in
Denver, Colorado, San Francisco, California and New York, New York. We believe
that our current facilities and the data center we plan to open in 1999 will be
adequate for our needs for at least the next twelve months.
LEGAL PROCEEDINGS
From time to time, we are subject to legal proceedings arising out of our
operations. We are not currently a party to any material legal proceedings.
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MANAGEMENT
Our directors, executive officers and key employees and their ages as of
April 30, 1999, are as follows:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John W. Street (1)................... 42 Chairman of the Board
John W. Gerdelman.................... 46 Chief Executive Officer and President
Kaukab N. Chaudhry................... 42 Chief Financial Officer
C. Scott Chasin...................... 28 Chief Technology Officer
Mary M. Beazley (2).................. 43 Executive Vice President of Administration and Investor
Relations, Treasurer and Director
Geoffrey E. Lind..................... 50 Executive Vice President of Sales and Service
Carrie L. Schiff..................... 33 Senior Vice President of Business and Legal Affairs,
General Counsel and Secretary
S. Brian Stout....................... 43 Senior Vice President of Product Management
Jeffrey A. Allred (1)................ 45 Director
Karen Griffith Gryga (1)(2).......... 33 Director
Lawrence S. Sharnak (2).............. 45 Director
</TABLE>
- ---------------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
KEY EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jonothan A. Alcorn................... 38 Vice President of Product Marketing
Rodel C. Alejo....................... 28 Vice President of Product Development
Kevin W. Burns....................... 33 Vice President of Marketing
Annette C. Hicks..................... 38 Vice President of Customer Service
Michael G. Kovacs.................... 45 Vice President of Commercial Sales
Michael Lipfield..................... 45 Vice President of Finance
Brian P. Schade...................... 36 Vice President of Information Technology
Steven A. Suslow..................... 30 Vice President of Media Sales
Daniel M. Winokur.................... 28 Vice President of Business Development
</TABLE>
JOHN W. STREET has served as a member of our Board of Directors since
October 1992 and as our Chairman of the Board since March 1997. Mr. Street also
served as our Chief Executive Officer from March 1997 to April 1999, our
President from January 1996 to April 1999, and our Treasurer from October 1992
to January 1996. From September 1987 to December 1995, Mr. Street was President
and Chairman of the Board of Telephone Express, a regional telecommunications
provider which was thirteenth on Inc. Magazine's 1992 list of the 500 fastest
growing private companies in the United States. Prior to that, Mr. Street held
various accounting and finance positions in several companies, including Senior
Tax Accountant at Arthur Andersen. In 1995, Mr. Street was named by Ernst &
Young as Co-Entrepreneur of the Year in the Rocky Mountain region for
telecommunications along with Ms. Beazley. Mr. Street is a certified public
accountant and earned a B.S. in Business Administration from the University of
Notre Dame. Mr. Street is married to Ms. Beazley.
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JOHN W. GERDELMAN was elected to serve as our Chief Executive Officer and
President in April 1999. Prior to joining us, Mr. Gerdelman was employed with
MCI Communications Corporation as President of networkMCI Services from
September 1994 to April 1999 and Senior Vice President of Sales and Service
Operations from June 1992 to September 1994. From June 1989 to June 1992, Mr.
Gerdelman served as President and Chief Executive Officer of Long Lines
Limited/MCI Services, a telemarketing sales, service and technology company,
which was purchased by MCI in 1992. Mr. Gerdelman served as a U.S. Naval Aviator
after graduating from the College of William and Mary, where he obtained a B.S.
in Chemistry.
KAUKAB N. CHAUDHRY was elected to serve as our Chief Financial Officer in
April 1999. Prior to joining us, Mr. Chaudhry was employed with Credit Suisse
First Boston as Director of Investment Banking from April 1997 to April 1999.
Mr. Chaudhry served as a Vice President and Director in the Investment Banking
Division of PaineWebber Inc. from June 1993 to September 1996, and as an
Associate and a Vice President in the Investment Banking Division of Merrill
Lynch & Company from December 1984 to January 1990. Mr. Chaudhry holds
undergraduate degrees from Dickinson College and the University of Punjab in
Lahore, Pakistan, and an M.B.A. from Syracuse University's Graduate School of
Management.
MARY M. BEAZLEY has been a member of our Board of Directors since October
1992 and has served as our Executive Vice President of Administration and
Investor Relations and Treasurer since April 1999. Ms. Beazley also served as
our Senior Vice President and Chief Financial Officer from March 1997 to April
1999, our Treasurer from January 1996 to February 1997, and our Secretary from
October 1992 to April 1999. From January 1996 to February 1997, she served as
President and Chairman of the Board of Directors of Telephone Express, a
regional telecommunications provider that was thirteenth on Inc. Magazine's 1992
list of the 500 fastest growing private companies in the United States, and
served as its Executive Vice President from September 1987 to December 1995. Ms.
Beazley previously served as a Senior Tax Manager at Arthur Andersen. In 1995,
Ms. Beazley was named by Ernst & Young as Co-Entrepreneur of the Year in the
Rocky Mountain region for telecommunications along with Mr. Street. Ms. Beazley
is a certified public accountant and earned a B.S. in Communication Disorders
from Colorado State University and attended its graduate school of accounting.
Ms. Beazley is married to Mr. Street.
GEOFFREY E. LIND has served as our Executive Vice President of Sales and
Service since April 1999 and our Executive Vice President, Chief Operating
Officer and Treasurer from February 1997 to April 1999. Prior to joining us, Mr.
Lind served as Vice Chairman of UMB Financial Corporation, a banking company,
from May 1993 to September 1996. From January 1985 to September 1996 he held
various positions at UMB Bank Colorado and UMB Bank, Kansas City, most recently
serving as Chairman of the Board of Directors and Chief Executive Officer of UMB
Bank Colorado, from May 1991 to September 1996. Between 1974 and 1985, Mr. Lind
was a practicing attorney. Mr. Lind earned a J.D. and a B.S. in Business
Administration, both from the University of Kansas.
C. SCOTT CHASIN joined us in December 1994 and has served as our Chief
Technology Officer since September 1997. From October 1995 to September 1997,
Mr. Chasin served as our Director of Software Development and Research, and from
December 1994 to October 1995, he served as our Director of Operations. From
January 1992 to October 1994, Mr. Chasin served as an Information Security
Officer and Senior Unix Administrator for Amoco Production Company. Mr. Chasin
attended Houston Community College where he studied Computer Science.
CARRIE L. SCHIFF joined us in April 1999 as our Senior Vice President of
Business and Legal Affairs, General Counsel and Secretary. Prior to joining us,
Ms. Schiff was an attorney with the law firm of Cooley Godward LLP, a private
law firm and our counsel, since September 1991 and a partner of that firm since
January 1999. Ms. Schiff earned an A.B. in Political Science from the University
of Chicago and a J.D. from the University of California, Los Angeles.
S. BRIAN STOUT has served as our Vice President of Market Development since
May 1998 and was promoted to Senior Vice President of Product Management in
March 1999. Prior to joining us, he served as President of SBS
Telecommunications, LLC, a consulting firm he founded in September 1996 that
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provides consulting services to telecommunications start-up companies. From
August 1994 to September 1996, Mr. Stout served as Director, Product Management
of Omnipoint Corporation, a New York City and East Coast cellular/PCS operator.
Prior to that, he served as Director, Market Development at Omnipoint from June
1991 to August 1994, during the company's early stages. Mr. Stout has an M.S.E.
and a B.S.E. in Engineering, both from the University of Michigan.
JEFFREY A. ALLRED has been a member of our Board of Directors since
November 1998. Mr. Allred has served as President and Chief Operating Officer of
Premiere Technologies, Inc. since February 1999 and as a member of its Board of
Directors since May 1998. From August 1998 to February 1999, Mr. Allred served
as an Executive Vice President of Strategic Development of Premiere
Technologies, Inc. From June 1996 to July 1997, Mr. Allred was a partner in the
Atlanta, Georgia office of the law firm of Alston & Bird LLP. From February 1992
to June 1996, Mr. Allred was a partner in the Atlanta, Georgia office of the law
firm of Nelson, Mullins, Riley & Scarborough, L.L.P. Mr. Allred has a B.A. in
Political Science and J.D. and M.B.A. degrees from The University of North
Carolina at Chapel Hill.
KAREN GRIFFITH GRYGA has been a member of our Board of Directors since
October 1997. Ms. Griffith Gryga is a founder and Vice President of Liberty
Ventures, Inc., a venture capital firm, and has been with the firm since May
1996. Ms. Griffith Gryga was previously a Managing Director at Philadelphia
Ventures, Inc. She received an M.B.A. and an M.S. in Computer Science from the
University of Pennsylvania and a B.S. in Computer Science from the College of
William and Mary.
LAWRENCE S. SHARNAK has been a member of our Board of Directors since
November 1998. Mr. Sharnak has been the Senior Vice President of Fee and
Merchandise Services at American Express since November 1995. From January 1993
to October 1995, Mr. Sharnak served as the Vice President of Cardmember
Marketing Services for the Consumer Card Group of American Express. Mr. Sharnak
has been with American Express since 1980. Mr. Sharnak holds a B.B.A. from the
University of Massachusetts and an M.B.A. from Babson College.
JONOTHAN A. ALCORN has served as our Vice President of Product Marketing
since April 1999. Prior to joining us, Mr. Alcorn served as Vice President of
Interactive Services for Cendant, Inc., a consumer membership services and
e-commerce company, from April 1998 to April 1999, and as Cendant's Director of
Interactive Services from January 1996 to December 1997. From July 1989 to
December 1995, Mr. Alcorn was employed with Sara Lee Corporation, a Fortune 50
consumer packaged goods company, first as its Associate Marketing Manager and
then as its Manager of Electronic Retailing. Mr. Alcorn holds a B.A. in
psychology from Wake Forest University and an M.B.A. from the University of
North Carolina at Greensboro.
RODEL C. ALEJO joined us in October 1998 as Director of Program Management
and has served as our Vice President of Product Development since March 1999.
Prior to joining us, Mr. Alejo held several positions with MCI
Telecommunications, Inc., including Product Development Manager, Product Manager
and Operations Manager, from March 1992 to October 1998. Prior to that, he
served as a Systems Engineer at Hughes Aircraft from August 1990 to December
1991. Mr. Alejo holds a B.S.B.A. in Marketing, and is currently pursuing an
M.B.A. in International Business, both from Colorado University.
KEVIN W. BURNS has served as our Vice President of Marketing since April
1999. Prior to joining us, Mr. Burns was employed with MCI WorldCom, a leading
provider of advanced global data services, from 1986 to April 1999, serving as
its Vice President of Technology Services from September 1998 to April 1999, its
Executive Director of Strategic Marketing from October 1997 to August 1998, its
Director of Network Marketing from December 1996 to September 1997, its Senior
Manager of Strategy and Technology from September 1994 to November 1996, and its
Senior Manager of Information Services for MCI Consumer Markets from December
1993 to September 1994. Mr. Burns holds a B.A. in English from Georgetown
University.
ANNETTE C. HICKS has served as our Vice President of Customer Service since
November 1997. Prior to joining us, Ms. Hicks was Director of Customer Service
of Telephone Express, a regional telecommunications provider, from December 1987
to February 1997, and served as its General Manager
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from March to June 1997. Ms. Hicks received her B.A. in Communications from the
University of Colorado at Colorado Springs.
MICHAEL G. KOVACS has served as our Vice President of Commercial Sales
since April 1999. Prior to joining us, Mr. Kovacs served as Vice President of
Sales of Adaptive Broadband Systems (formerly California Microwave, Inc.), a
broad band, wireless systems developer, from January 1999 to April 1999. From
October 1997 to December 1998, Mr. Kovacs was the founder and served as
President of Kovacs and Associates, a firm that provided business management
consulting services to Fortune 1000 companies. From June 1997 to October 1997,
Mr. Kovacs was Director of Channel Sales for Motorola Corporation's Cellular
Infrastructure Group, a leading global wireless provider. From April 1995 to
June 1997, Mr. Kovacs was North American Sales Manager for Omnipoint
Corporation, a broad band, wireless developer. From February 1982 to March 1995,
Mr. Kovacs held several positions with AT&T Paradyne, a leading
telecommunications provider, most recently as National Manager, Wireless
Industry, from 1993 to 1995, and Strategic Manager of Emerging Markets during
1992. Mr. Kovacs holds a B.A. of Business Administration in Management and
Accounting from Ohio University.
MICHAEL LIPFIELD joined us in May 1997 as Director of Finance and has
served as our Vice President of Finance since June 1998. Prior to joining us, he
served as Director of Finance and Administration for MCI Direct, a division of
MCI Telecommunications Corporation, from May 1996 to May 1997. From November
1988 to May 1996, Mr. Lipfield was Director of Finance at PST Incorporated, an
outsource marketing company in the telecommunications industry. Mr. Lipfield is
a certified public accountant and received his M.S. degree in Accounting/Finance
and his B.S. degree in Psychology, both from the University of Colorado.
BRIAN P. SCHADE has served as our Vice President of Information Technology
since October 1998. Prior to joining us, Mr. Schade served as Chief Architect of
MCI Telecommunications, Inc. from August 1991 to September 1998, and was
responsible for all aspects of Internet, intranet and messaging architecture,
and managed the development and delivery of messaging, multimedia and unified
messaging services for the Internet. Mr. Schade holds degrees in Applied
Mathematics and Engineering Mechanics from Virginia Polytechnic and State
University, and is currently pursuing a Ph.D. in Applied Mathematics.
STEVEN A. SUSLOW joined us in 1996 as Director of Sales and has served as
our Vice President of Media Sales since March 1999. Prior to joining us, he
served as a founding partner and President of Infinity Promotions, a media
consulting firm focusing on interactive strategies for Fortune 500 companies,
from April 1993 to January 1996. From May 1990 to April 1993, Mr. Suslow was a
founding partner and Vice President of Sales for Collegiate Marketing, a direct
marketing firm targeting college students throughout the Southwestern United
States. Mr. Suslow received his B.A. degree from The Colorado College.
DANIEL M. WINOKUR has served as our Vice President of Business Development
since June 1998. From January to May 1998, Mr. Winokur served as Vice President
of Internet Services at Executive TeleCard, Ltd., a company that provides
Internet services for global telecommunications companies. Prior to that, he
served as President of eGlobe, Ltd., a wholly-owned subsidiary of Executive
TeleCard, Ltd., from May 1997 to January 1998, and served as its Senior Vice
President from January 1996 to May 1997. From June 1994 to January 1996, Mr.
Winokur held various positions with us, including Director of Marketing from
June 1995 to January 1996. From December 1993 to June 1994, Mr. Winokur was
President of Euclid Consulting, Inc., an Internet access company he founded in
1993. Mr. Winokur received his B.A. in history from Brown University.
DIRECTORS' TERMS
We currently have five authorized directors. In March 1999, the board of
directors approved, subject to stockholder approval, the amendment of our
certificate of incorporation to provide for the division of the board of
directors into three classes, with only one class standing for election each
year. At each annual meeting, directors are chosen to succeed those in the class
whose term expires at that meeting and to serve for a term of three years. Under
this provision, Mr. Street serves as a class I director, Mr. Allred and
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Ms. Griffith Gryga serve as class II directors, and Ms. Beazley and Mr. Sharnak
serve as class III directors, with terms of office scheduled to expire at our
2000, 2001 and 2002 annual meetings of stockholders.
Our current certificate of incorporation provides for the designation of
one member of the board of directors by the holders of the company's preferred
stock (currently, Ms. Griffith Gryga), the designation of one member of the
board of directors by the holders of the company's Series A Preferred Stock
(currently, Ms. Beazley), the designation of one member of the board of
directors by the holders of the company's Series B Preferred Stock (currently,
Mr. Sharnak), and the designation of one member of the board of directors by the
holders of the company's Series C Preferred Stock (currently, Mr. Allred). In
addition, the current certificate of incorporation provides that the company's
chief executive officer will serve as one of the remaining directors (currently,
Mr. Street). These provisions of the certificate of incorporation will terminate
upon the closing of this offering. Thereafter, the current directors will
continue to serve as directors but will be elected by plurality vote of all
stockholders voting together as one class.
BOARD COMMITTEES
Our audit committee consists of Mr. Allred, Ms. Griffith Gryga and Mr.
Street. The audit committee makes recommendations to the board of directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors, and
evaluates our internal accounting procedures.
Our compensation committee consists of Ms. Beazley, Ms. Griffith Gryga and
Mr. Sharnak. The compensation committee reviews and approves compensation and
benefits for our executive officers. The compensation committee also administers
our compensation and stock plans and makes recommendations to the board of
directors regarding such matters.
DIRECTOR COMPENSATION
Other than reimbursing directors for customary and reasonable expenses of
attending board of directors and committee meetings, we do not currently
compensate our directors.
On the effective date of this offering, we will automatically grant to our
non-employee directors certain options to purchase shares of common stock.
Additionally, we will make automatic annual option grants to our non-employee
directors beginning in 2000. Please see our discussion in "-- Stock Plans --
1999 Non-Employee Directors' Stock Option Plan" for further discussion of our
non-employee directors' stock option plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Ms. Beazley, Ms. Griffith
Gryga and Mr. Sharnak. Ms. Beazley and Ms. Griffith Gryga have served on the
compensation committee since April 1998, the date of its formation. Mr. Sharnak
became a member of the committee in November 1998, replacing Gregg Freishtat, a
former director of the company who had served on the committee since April 1998.
Other than Ms. Beazley, our Executive Vice President of Administration and
Investor Relations, and Treasurer, none of the persons serving as members of the
Compensation Committee during 1998 is or has been an officer or employee of
ours. Ms. Beazley also serves as a director of a small privately held S
corporation in which Mr. Street serves as a director and executive officer. This
entity is not affiliated with us and does not transact any business with us.
Ms. Beazley has participated in several of our past financings and engaged
in certain additional business transactions with the company. In addition, Ms.
Griffith Gryga and Mr. Sharnak are affiliated with Liberty Ventures I, L.P. and
American Express, respectively, and Mr. Freishtat was formerly affiliated with
Premiere Technologies, Inc., each of which is a principal stockholder of ours
that participated in previous financings and related commercial transactions.
Please see our discussion in "Certain Transactions" for further discussion of
these transactions.
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]EMPLOYMENT AGREEMENTS
To reduce our liability and personnel administrative costs, we have entered
into an agreement with The Personnel Department. Under this agreement, The
Personnel Department hires all of our employees and then leases our employees
back to us. The Personnel Department withholds and deposits applicable federal,
state and local income and employment taxes from the wages of our employees, and
provides workers compensation and employment coverage. The Personnel Department
also provides a health plan and 401(k) retirement plan for our employees. We
reimburse The Personnel Department for all wages, taxes and benefit payments
made on our behalf in addition to paying a yearly administrative fee per
employee.
In May 1999, we entered into an employment agreement with John W. Gerdelman
to serve as our Chief Executive Officer and President. According to our
employment agreement with Mr. Gerdelman he receives a base salary of $225,000
per year, adjustable in accordance with our policies, and options to purchase
1,080,000 shares of our common stock. He is also eligible to receive a
performance bonus or bonuses in the discretion of our compensation committee. If
Mr. Gerdelman is terminated by us upon the sale of the company or without cause,
Mr. Gerdelman will be entitled to accelerated vesting of any outstanding stock
options and continuation of his benefits for a period of 12 months. In addition,
we agreed to pay Mr. Gerdelman an amount equal to two times his then current
annual salary if there is a sale of the company and he is terminated, has his
responsibilities significantly reduced or is relocated in connection with that
sale of the company.
In May 1999, we entered into an employment agreement with Kaukab N.
Chaudhry to serve as our Chief Financial Officer. According to our employment
agreement with Mr. Chaudhry he receives a base salary of $150,000 per year,
adjustable in accordance with our policies, and options to purchase 768,000
shares of our common stock. He is also eligible to receive a performance bonus
or bonuses in the discretion of our compensation committee. If Mr. Chaudhry is
terminated by us upon the sale of the company or without cause, he will be
entitled to accelerated vesting of any outstanding stock options and
continuation of his benefits for a period of 12 months. In addition, we agreed
to pay Mr. Chaudhry a cash bonus in the amount of $750,000 if we do not complete
our initial public offering or enter into a binding agreement for our sale on or
before October 31, 1999. Further, we agreed to pay Mr. Chaudhry cash bonuses in
an aggregate amount of up to $3,000,000 if the spread between the fair market
value of the shares underlying Mr. Chaudhry's options and the aggregate option
exercise price falls below $5,000,000. We will measure the fair market value of
Mr. Chaudhry's options over a 30-day period in November of each of 1999, 2000
and 2001.
In April 1999, we entered into employment agreements with John W. Street,
C. Scott Chasin and Geoffrey E. Lind, and in May 1999, we entered into an
employment agreement with Mary M. Beazley. According to these agreements, each
of these officers serves in the capacity and receives the base salary shown in
the chart below and is eligible to receive a performance bonus or bonuses in the
discretion of the compensation committee. If the officer is terminated by us
upon the sale of the company or without cause, he or she will be entitled to
accelerated vesting of any outstanding stock options and continuation of his or
her benefits for a period of 12 months.
<TABLE>
<CAPTION>
EXECUTIVE CAPACITY SALARY
--------- -------- ------
<S> <C> <C>
John W. Street......................... Chairman of the Board.................... $150,000
C. Scott Chasin........................ Chief Technology Officer................. 140,000
Mary M. Beazley........................ Executive Vice President of
Administration and Investor Relations,
Treasurer................................ 140,000
Geoffrey E. Lind....................... Executive Vice President of Sales and
Service.................................. 150,000
</TABLE>
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EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our three other most highly compensated
executive officers whose annual salary and bonus exceeded $100,000 for services
rendered in all capacities to us during 1998 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- --------------------------- -------- -------- --------------------- ---------------
<S> <C> <C> <C> <C>
John W. Street.......................... $145,773 $ -- -- $ 58
Chairman of the Board and former Chief
Executive Officer
C. Scott Chasin......................... 104,075 -- 48,000 --
Chief Technology Officer
Mary M. Beazley......................... 104,286 -- -- 600
Executive Vice President of
Administration and Investor
Relations and Treasurer
Geoffrey E. Lind........................ 151,473 -- 48,000 --
Executive Vice President of Sales and
Service
</TABLE>
The amounts reflected in the "All Other Compensation" column of the
foregoing table represent contributions we made on behalf of the individuals to
a 401(k) plan which is currently managed by The Personnel Department.
OPTION GRANTS IN 1998
The following table sets forth information regarding options granted to the
Named Executive Officers during 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED 1998 ($/SHARE) DATE 5% 10%
- ---- --------- ---------------- ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
John W. Street........... -- -- -- -- -- --
C. Scott Chasin.......... 48,000(4) 2.8% $1.46 5/17/08 $44,073 $111,689
Mary M. Beazley.......... -- -- -- -- -- --
Geoffrey E. Lind......... 48,000(4) 2.8 1.46 5/17/08 44,073 111,689
</TABLE>
The percent of total options granted to employees in the above table is
based on 1,717,440 total options granted in 1998. The options granted to Messrs.
Lind and Chasin vest in five equal annual installments beginning June 30, 1999.
Our board of directors may reprice options under the terms of our stock option
plans.
Options were granted at an exercise price equal to the fair market value of
our common stock, as determined by the board of directors on the date of grant.
In making this determination, the board of directors considered a number of
factors, including:
- our historical and prospective future revenue and profitability;
- our cash balance and rate of cash consumption;
- the development and size of the market for our services;
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<PAGE> 67
- the status of our financing activities;
- the stability and tenure of our management team; and
- the breadth of our service offerings.
The amounts reflected in the "Potential Realizable Value" column of the
foregoing table are calculated assuming that the fair market value of the common
stock on the date of the grant as determined by the board of directors
appreciates at the indicated annual rate compounded annually for the entire term
of the option, and that the option is exercised and the common stock received
therefor is sold on the last day of the term of the option for the appreciated
price. The 5% and 10% rates of appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent our estimate or
projection of future increases in the price of the common stock.
1998 OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information concerning the value realized
upon exercise of options during 1998 and the number and value of unexercised
options held by each of the Named Executive Officers at December 31, 1998.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT DECEMBER 31, 1998 DECEMBER 31, 1998
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John W. Street....... -- -- 456,000 216,000 $896,160 $425,520
C. Scott Chasin...... -- -- 144,000 264,000 283,680 455,760
Mary M. Beazley...... -- -- 120,000 -- 236,400 --
Geoffrey E. Lind..... -- -- 115,200 220,800 226,944 370,656
</TABLE>
In the table above, the value of unexercised in-the-money options is based
on the fair market value of our common stock as of December 31, 1998 (determined
by the board of directors in the manner discussed above to be $2.09 per share),
minus the per share exercise price, multiplied by the number of shares
underlying the option.
401(K) PLAN
Our employees are eligible to participate in The Personnel Department
401(k) Retirement Plan (the "401(k) Plan"). Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the lesser of
24% of eligible compensation or the statutorily prescribed annual limit ($10,000
in 1999). Employees may contribute this amount to the 401(k) Plan. The trustee
under the 401(k) Plan, at the direction of each participant, invests the assets
of the 401(k) Plan in up to 10 different investment funds. The 401(k) Plan is
intended to qualify under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code") so that contributions by employees to the 401(k) Plan,
and income earned on plan contributions, are not taxable to employees until
withdrawn, and so that the contributions by employees will be deductible by The
Personnel Department, Inc. when made. The Personnel Department, Inc. will make
matching contributions to the 401(k) Plan in an amount equal to 50% of the first
2% of an employee's pretax contributions. An employee becomes eligible for the
matching contribution only if he or she makes a pretax contribution.
Additionally, The Personnel Department may make annual discretionary profit
sharing contributions in amounts to be determined annually by the board of
directors of The Personnel Department. We reimburse The Personnel Department for
any matching or profit sharing contributions on behalf of our employees.
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STOCK PLANS
1997 STOCK OPTION PLAN
Our 1997 Stock Option Plan (the "Option Plan") was adopted and approved by
our board of directors and stockholders on March 12, 1997. The Option Plan was
amended on October 9, 1997 and on June 15, 1998. The board of directors
terminated the Option Plan on March 19, 1999, and we will make no further
options grants under the Option Plan. Options currently outstanding under the
Option Plan will continue in full force and effect under the terms of the Option
Plan until such outstanding options are exercised or terminated in accordance
with their terms.
As of March 19, 1999, we granted options under the Option Plan to purchase
an aggregate of approximately 4,719,120 shares of common stock, of which options
to purchase approximately 83,520 shares had been exercised, options to purchase
approximately 789,120 shares had been cancelled (due to expiration or otherwise)
and options to purchase approximately 3,846,480 shares at a weighted average
exercise price of approximately $0.74 per share remained outstanding. We will
make no future grants under the Option Plan.
The Option Plan provides for the grant of incentive stock options under the
Code to employees and nonstatutory stock options to employees, directors and
consultants. The Option Plan is administered by the board or a committee
appointed by the board which determines recipients and types of awards to be
granted, including the exercise price, number of shares subject to the award and
the exercisability thereof.
The terms of stock options granted under the Option Plan generally may not
exceed 10 years. The board determines the exercise price of options granted
under the Option Plan, provided that the exercise price of an incentive stock
option cannot be less than 100% of the fair market value of the common stock on
the date of the option grant and the exercise price of a nonstatutory stock
option cannot be less than 50% of the fair market value of the common stock on
the date of the option grant. Options granted under the Option Plan vest at the
rate specified in the applicable option agreement. Notwithstanding any other
provisions of the Option Plan to the contrary, options granted under the Option
Plan will be fully vested in the event of the optionee's death or total and
permanent disability. An optionee may not transfer an incentive stock option
other than by will or the laws of descent or distribution and a nonstatutory
stock option is only be transferable to the spouse, children and lineal
descendents of the optionee (or to a trust created solely for the benefit of the
optionee and his or her spouse, children and lineal descendants) or to an
organization exempt from taxation pursuant to Section 501(c)(3) of the Code or
to which tax deductible contributions may be made under Section 170 of the Code,
or upon such terms as stated in an option agreement as the board in its
discretion determines. An optionee whose relationship with us or any related
corporation ceases for any reason (other than by death or permanent and total
disability) may exercise vested options in the three-month period following such
cessation (unless such options terminate or expire sooner by their terms) or in
such longer or shorter period specified in the option agreement. Vested options
may be exercised for up to 12 months after an optionee's relationship with us or
related corporations ceases due to death or disability (unless such options
terminate or expire sooner by their terms).
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of us or any affiliate, unless the option exercise
price is at least 110% of the fair market value of the stock subject to the
option on the date of grant, and the term of the option does not exceed five
years from the date of grant. The aggregate fair market value, determined at the
time of grant, of the shares of common stock with respect to which incentive
stock options are exercisable for the first time by an optionee during any
calendar year (under all such plans of us and our affiliates) may not exceed
$100,000. Options may be immediately exercisable (whether such options are
vested or not) at the discretion of the board and if specified in the option
agreement, subject to our right to repurchase any unvested shares.
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The options may provide that, prior to our first registration of an equity
security under Section 12 of the Exchange Act of 1934, as amended (the "Exchange
Act"), we may repurchase all or any part of the vested shares exercised, or may
exercise a right of first refusal on any proposed transfer of shares exercised.
Upon certain changes in control of our ownership, each outstanding option
will be assumed or an equivalent option substituted by the successor corporation
or, if the successor corporation refuses to assume or substitute for outstanding
options, such options held by optionees who are then providing services to us
will become fully vested and exercisable prior to such change in control or
thereafter terminate.
1999 EQUITY INCENTIVE PLAN
In March 1999, the board adopted and the stockholders approved the 1999
Equity Incentive Plan (the "Incentive Plan"), which replaces the Option Plan
effective as of March 19, 1999. In April 1999 and in May 1999, the board amended
and the stockholders approved the Incentive Plan. There is currently an
aggregate of 13,000,000 shares of common stock authorized for issuance under the
Incentive Plan.
The Incentive Plan provides for the grant of incentive stock options, as
defined under the Code, to employees (including officers and employee-directors)
and nonstatutory stock options, restricted stock purchase awards, stock bonuses
and stock appreciation rights to our and our affiliates' employees (including
officers and employee-directors), directors and consultants. The Incentive Plan
is administered by the board (or a committee appointed by the board) which
determines recipients and types of awards to be granted, including the exercise
price, number of shares subject to the award and the exercisability thereof.
The terms of options granted under the Incentive Plan may not exceed 10
years. The board (or committee) determines the exercise price of options granted
under the Incentive Plan. However, the exercise price for an incentive stock
option cannot be less than 100% of the fair market value of the common stock on
the date of the option grant, and the exercise price for a nonstatutory stock
option cannot be less than 85% of the fair market value of the common stock on
the date of the option grant. Options granted under the Incentive Plan vest at
the rate specified in the option agreement. Generally, the optionee may not
transfer a stock option other than by will or the laws of descent or
distribution unless the optionee holds a nonstatutory stock option that provides
for transfer in the stock option agreement. However, an optionee may designate a
beneficiary who may exercise the option following the optionee's death. An
optionee whose service relationship with us or any affiliate ceases for any
reason may exercise vested options for the term provided in the option
agreement.
No incentive stock option (and prior to our stock being publicly traded, no
nonstatutory stock option) may be granted to any person who, at the time of the
grant, owns (or is deemed to own) stock possessing more than 10% of the total
combined voting power of us or any affiliate, unless the option exercise price
is at least 110% of the fair market value of the stock subject to the option on
the date of grant and the term of the option does not exceed five years from the
date of grant. In addition, the aggregate fair market value, determined at the
time of grant, of the shares of common stock with respect to which incentive
stock options are exercisable for the first time by an optionee during any
calendar year (under the Incentive Plan and all other stock plans of us and our
affiliates) may not exceed $100,000.
When we become subject to Section 162(m) of the Code (which denies a
deduction to publicly held corporations for certain compensation paid to
specified employees in a taxable year to the extent that the compensation
exceeds $1,000,000), no person may be granted options under the Incentive Plan
covering more than 3,250,000 shares of common stock in any calendar year.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the Incentive Plan. Under its general authority to grant and to
amend options, the board (or committee) has the implicit authority to reprice
outstanding options or to offer optionees the opportunity to replace outstanding
options with new options for the same or a different number of shares. Both the
original and new options will count toward the Code Section 162(m) limitation
set forth above.
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Restricted stock purchase awards granted under the Incentive Plan may be
granted subject to a repurchase option in our favor in accordance with a vesting
schedule determined by the board (or committee). The price of a restricted stock
purchase award under the Incentive Plan can not be less than 85% of the fair
market value of the stock subject to the award on the date of grant. Stock
bonuses may be awarded in consideration of past services without a purchase
payment. Unless otherwise specified, rights under a stock bonus or restricted
stock bonus agreement generally may not be transferred other than by will or the
laws of descent and distribution during such period as the stock awarded
pursuant to such an agreement remains subject to the agreement.
If there is any sale, lease or other disposition of all or substantially
all of our assets, any merger, reverse merger or any consolidation in which we
are not the surviving corporation, or any acquisition by certain persons,
entities or groups of 50% or more of our stock, all outstanding awards under the
Incentive Plan either will be assumed or substituted for by any surviving
entity. If the surviving entity refuses to assume or substitute for such awards,
the vesting provisions of such stock awards held by optionees who are then
performing services for us will be accelerated and the awards terminated if not
exercised prior to such transaction. In addition, if after this offering certain
specified changes in control of more than 50% of the board occur, then the
vesting provisions of all stock awards held by optionees who are then performing
services for us will be accelerated.
As of April 30, 1999, no shares of common stock had been issued upon the
exercise of options granted under the Incentive Plan, options to purchase
2,858,400 shares of common stock were outstanding and 10,141,600 shares remained
available for future grant. The Incentive Plan will terminate on March 18, 2009
unless sooner terminated by the board (or committee). As of April 30, 1999, no
stock bonuses or restricted stock had been granted under the Incentive Plan.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In April 1999, the board adopted the 1999 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of common stock to our non-employee directors. In May
1999, the board amended and the stockholders approved the Directors' Plan. The
Directors' Plan will become effective on the effective date of this offering.
The board administers the Directors' Plan, unless the board delegates
administration to a committee.
The aggregate number of shares of common stock that may be issued pursuant
to options granted under the Directors' Plan is 301,000 shares.
Under the terms of the Directors' Plan, on the effective date of this
offering each director who is not otherwise an employee or consultant of us or
our affiliates (a "Non-Employee Director") will automatically be granted an
option for 25,000 shares of common stock. After the effective date of this
offering each individual who is first elected or appointed a Non-Employee
Director automatically will be granted an option for 25,000 shares of common
stock. All initial grants vest in three equal annual installments each year
after the date of the grant. Commencing in 2000, each Non-Employee Director will
automatically be granted an option for 5,000 shares of common stock on the day
of each annual meeting of our stockholders. All annual grants vest in 12 equal
monthly installments each month after the date of the grant. Also commencing in
2000, on the day of each annual meeting of our stockholders, each Non-Employee
Director who is serving on a committee of the board will automatically be
granted an option for 500 shares of common stock for each such committee on
which such Non-Employee Director is serving and an additional grant of 500
shares of common stock for each such committee of which such Non-Employee
Director is the chairperson. All committee grants will be fully vested on the
date of the grant. Notwithstanding the foregoing or any provisions of the
Directors' Plan to the contrary, a Non-Employee Director will not receive any
grants under the Directors' Plan if he or she is affiliated with one of our
stockholders whose policies prohibit the receipt of such grants.
The exercise price of the options granted under the Directors' Plan will be
equal to the fair market value of the common stock on the date of grant. No
option granted under the Directors' Plan may be exercised after the expiration
of five years from the date it was granted. Options granted under the
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<PAGE> 71
Directors' Plan generally are non-transferable. However, an optionee may
designate a beneficiary who may exercise the option following the optionee's
death. An optionee whose service relationship with us or our affiliates (whether
as a Non-Employee Director or subsequently as an employee, director or
consultant of us or our affiliates) ceases for any reason may exercise vested
options for the term provided in the option agreement (three months generally,
12 months in the event of disability, 18 months in the event of death).
If there is any sale of all or substantially all of our assets, any merger,
reverse merger or any consolidation in which we are not the surviving
corporation, or any acquisition by certain persons, entities or groups of 50% or
more of our stock, the vesting provisions of all outstanding options under the
Directors' Plan will be accelerated and the options terminated if not exercised
prior to such transaction. In addition, if after this offering certain specified
changes in control of more than 50% of the board occur, then the vesting
provisions of all options will be accelerated.
As of April 30, 1999, no options to purchase common stock had been granted
pursuant to the Directors' Plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
In April 1999 the board adopted the 1999 Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 1,250,000 shares of common stock. The
Purchase Plan will become effective on the effective date of our initial public
offering. The Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code. Under the Purchase
Plan, the board may authorize participation by eligible employees, including
officers, in periodic offerings following the adoption of the Purchase Plan. The
offering period for any offering will be no longer than 27 months.
The Purchase Plan provides a means by which our and our designated
affiliates' employees may purchase our common stock through payroll deductions.
The Purchase Plan is implemented by offerings of rights to eligible employees.
Under the Plan, we may specify offerings with a duration of not more than 27
months, and may specify shorter purchase periods within each offering. The first
offering will begin on the effective date of our initial public offering and
will end on June 30, 2000. Purchases will occur on December 31, 1999 and June
30, 2000. Unless otherwise determined by the board, common stock is purchased
for accounts of employees participating in the Purchase Plan at a price per
share equal to the lower of (i) 85% of the fair market value of a share of
common stock on the date of commencement of participation in the offering or
(ii) 85% of the fair market value of a share of common stock on the date of
purchase. Generally, all regular employees, including executive officers, who
work at least 20 hours per week and who are customarily employed by us or an
affiliate for at least five months per calendar year may participate in the
Purchase Plan and may authorize payroll deductions of up to 15% of their base
compensation for the purchase of stock under the Purchase Plan.
Eligible employees may be granted rights only if the rights together with
any other rights granted under employee stock purchase plans do not permit such
employee's rights to purchase our stock to accrue at a rate which exceeds
$25,000 of fair market value of such stock for each calendar year in which such
rights are outstanding. No employee is eligible for the grant of any rights
under the Purchase Plan if immediately after such rights are granted, such
employee has voting power over 5% or more of our outstanding capital stock.
As of April 30, 1999, no shares of common stock had been purchased under
the Purchase Plan.
In the event of certain changes in control of our ownership, the board has
discretion to provide that each right to purchase common stock will be assumed
or an equivalent right substituted by the successor corporation, or the board
may shorten the offering period and provide for all sums collected by payroll
deductions to be applied to purchase stock immediately prior to the change in
control. The Purchase Plan will terminate at the board's direction or when all
of the shares reserved for issuance have been purchased.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock as of April 30, 1999 for:
- Each person (or group of affiliated persons) known to us to own
beneficially more than 5% of the common stock,
- Each of our directors and Named Executive Officers, and
- All of our directors and executive officers as a group.
The information has been adjusted to reflect the sale of the common stock
in this offering (assuming no exercise of the underwriters' over-allotment
option) and the conversion of all outstanding shares of preferred stock into
common stock.
In accordance with the rules of the Securities and Exchange Commission, the
table gives effect to the shares of common stock that could be issued upon the
exercise of outstanding options within 60 days of April 30, 1999. Unless
otherwise noted in the footnotes to the table and subject to community property
laws where applicable, the following individuals have sole voting and investment
control with respect to the shares beneficially owned by them.
We have calculated the percents of shares beneficially owned based on
29,345,525 shares of common stock outstanding before this offering and
37,845,525 shares of common stock outstanding after the offering. An asterisk
indicates ownership of less than one percent.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES --------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ---------------- ------------------ --------------- --------------
<S> <C> <C> <C>
John W. Street (1)................................. 6,198,236 20.7% 16.1%
Mary M. Beazley (2)................................ 6,198,236 20.7 16.1
American Express Travel Related Services
Company, Inc. (3)................................ 4,241,529 14.5 11.2
Premiere Technologies, Inc. (4).................... 4,241,529 14.5 11.2
Walter J. Frank (5)................................ 2,734,192 9.3 7.2
Liberty Ventures I, L.P. (6)....................... 1,767,302 6.0 4.7
ABS Ventures IV, L.P. / ABX Fund, L.P. (7)......... 1,719,042 5.9 4.5
C. Scott Chasin (8)................................ 144,000 * *
Geoffrey E. Lind (9)............................... 144,000 * *
Jeffrey A. Allred (10)............................. 4,277,529 14.6 11.3
Karen Griffith Gryga (11).......................... 1,767,302 6.0 4.7
Lawrence S. Sharnak................................ -- -- --
All executive officers and directors as a group (11
persons) (12).................................... 13,031,467 42.5 33.3
</TABLE>
- ---------------------------------
(1) Includes 2,874,982 shares of common stock, including 456,000 shares of
common stock subject to stock options exercisable within 60 days of April
30, 1999, held by Mr. Street. Also includes an aggregate of 2,459,254
shares of common stock held by Mary M. Beazley, Mr. Street's spouse (see
note 2 below), as to which Mr. Street disclaims beneficial ownership, and
864,000 shares owned by The Beazley/Street Investments, L.L.L.P. Mr.
Street's address is c/o USA.NET, Inc., 1155 Kelly Johnson Boulevard, Suite
400, Colorado Springs, Colorado 80920.
(2) Includes 2,459,254 shares of common stock, including 120,000 shares of
common stock subject to stock options exercisable within 60 days of April
30, 1999, held by Ms. Beazley. Also includes an aggregate of 2,874,982
shares of common stock held by John W. Street, Ms. Beazley's spouse (see
note 1 above), as to which Ms. Beazley disclaims beneficial ownership, and
864,000 shares owned by The Beazley/Street Investments, L.L.L.P. Ms.
Beazley's address is c/o USA.NET, Inc., 1155 Kelly Johnson Boulevard, Suite
400, Colorado Springs, Colorado 80920.
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(3) The address of American Express Travel Related Services Company, Inc. is
American Express Tower, World Financial Center, New York, New York 10285.
(4) The address of Premiere Technologies, Inc. is 3399 Peachtree Road, N.E.,
Suite 600, Atlanta, Georgia 30326.
(5) Mr. Frank's address is c/o USA.NET, Inc., 1155 Kelly Johnson Boulevard,
Suite 400, Colorado Springs, Colorado 80920.
(6) The address of Liberty Ventures I, L.P. is 441 North 5th Street,
Philadelphia, Pennsylvania 19123.
(7) Includes 1,375,233 shares of common stock owned by ABS Ventures IV, L.P.
and 343,809 shares of common stock owned by ABX Fund, L.P. The address of
ABS Ventures IV, L.P. and ABX Fund, L.P. is One South Street, Suite 2150,
Baltimore, Maryland 21202.
(8) Consists solely of shares of common stock subject to stock options
exercisable within 60 days of April 30, 1999.
(9) Includes 28,800 shares of common stock owned by The Lind 1999 Children's
Trust and 114,240 shares of common stock subject to stock options
exercisable within 60 days of April 30, 1999.
(10) Includes 4,241,529 shares held by Premiere Technologies, Inc., of which Mr.
Allred is the President and Chief Operating Officer.
(11) Consists solely of shares held by Liberty Ventures I, L.P., of which Ms.
Griffith Gryga is a limited partner. Ms. Griffith Gryga disclaims
beneficial ownership of such shares except to the extent of her pecuniary
interest therein.
(12) Includes the shares of common stock discussed in notes 1, 2, 8, 9, 10 and
11 above and an additional 500,400 shares of common stock subject to stock
options exercisable within 60 days of April 30, 1999.
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CERTAIN TRANSACTIONS
TRANSACTIONS WITH TELECONCEPTS
During 1996 and 1997, we purchased certain administrative and operating
services from TeleConcepts. The aggregate amount of services purchased by us
from TeleConcepts during 1996 and 1997 was approximately $1.2 million and
approximately $113,000, respectively. During 1996, TeleConcepts (whose sole
shareholders were Ms. Beazley, Mr. Street and Mr. Frank) periodically made
advances to fund our operations. TeleConcepts distributed such receivables to
Ms. Beazley, Mr. Street and Mr. Frank, who converted them into shares of common
stock. Please see our discussion in "-- Common Stock Financing of Colorado
Predecessor" below.
COMMON STOCK FINANCING OF COLORADO PREDECESSOR
From March 1, 1996 through December 30, 1996, prior to our reincorporation
in Delaware, our Colorado predecessor corporation sold an aggregate of 857,350
shares of its common stock to certain existing stockholders at a purchase price
of $4.76 per share. 850,000 of the shares (which, in connection with the
reincorporation, were converted into an aggregate of 2,039,980 shares of our
common stock (after giving effect to the 4.8-for-1 stock split) and 850,000
shares of our Series A Preferred Stock (which Series A Preferred Stock will
convert into 4,080,000 shares of common stock on the closing of this offering))
were sold to the following directors, executive officers and principal
stockholders for an aggregate purchase price of $4,046,000:
<TABLE>
<CAPTION>
NUMBER OF SHARES
PRIOR TO AGGREGATE PURCHASE
PURCHASER REINCORPORATION PRICE
--------- ---------------- ------------------
<S> <C> <C>
John W. Street...................................... 269,166 $1,281,230
Mary M. Beazley..................................... 269,166 1,281,230
Walter J. Frank..................................... 311,668 1,483,540
</TABLE>
All of these shares were issued upon the conversion of the advances
discussed above in "-- Transactions with TeleConcepts."
TRANSACTIONS WITH INTERNET EXPRESS, LLC
On March 1, 1997, we sold to Internet Express, LLC ("IEX") certain assets
related to our Internet access business in exchange for $925,000 and the
assumption of related liabilities. The price was based, in part, on the purchase
price for these assets negotiated with an independent third-party (which
transaction was not consummated). The board of directors subsequently increased
the purchase price to reflect the current market value of the assets. This
transaction was approved by the independent director and our stockholders. We
also entered into a Co-Location Agreement with IEX pursuant to which IEX leases
space at our offices on a month-to-month basis at the rate of $500 per month. In
addition, we purchased Internet access and subleased office space from IEX
during 1997 and 1998. The aggregate amount of the payments made to IEX during
1997 and 1998 was $44,900 and $22,789, respectively. Mr. Street and Ms. Beazley
each own approximately 20% of the membership interests in IEX.
SERIES B FINANCING
On April 8, 1997, we issued 527,579 shares of Series B Preferred Stock to
American Express, a principal stockholder, at a purchase price of $5.69 per
share. We also granted to American Express a one-year option to purchase up to
527,579 additional shares of Series B Preferred Stock. On March 23, 1998,
American Express exercised a portion of such option and acquired an additional
356,073 shares of Series B Preferred Stock at $5.69 per share. The unexercised
portion of the option terminated. The 883,652 shares of Series B Preferred Stock
purchased by American Express will convert into 4,241,529 shares of common stock
on the closing of this offering. In connection with its investment, American
Express received the
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right, subject to certain restrictions, to designate a member of our board of
directors. Mr. Sharnak currently serves as that designee.
In connection with its initial investment, American Express also entered
into a Co-Marketing Program Agreement with us pursuant to which we provide
Web-based email services to American Express Cardmembers and other consumers.
Please refer to our discussion in "Business -- Strategic Relationships" for our
discussion of this agreement.
In connection with the initial American Express investment, we entered into
Stock Restriction Agreements with each of Mr. Street, Ms. Beazley and Mr. Frank.
The agreements granted to us an option to repurchase shares of common stock and
Series A Preferred Stock held by Mr. Street, Ms. Beazley and Mr. Frank, at a
price of $0.12 per share of common stock and a price of $4.76 per share of
Series A Preferred Stock, in the event that Mr. Street is terminated for cause
or voluntarily ceases to be an employee, director or consultant prior to October
8, 1998 (in the case of the agreements with Ms. Beazley and Mr. Frank) or April
8, 2000 (in the case of the agreement with Mr. Street).
SERIES C FINANCING
On October 17, 1997, we issued an aggregate of 736,376 shares of Series C
Preferred Stock to Premiere Technologies, a principal stockholder, and certain
other investors at a purchase price of $6.79 per share. We also granted options
exercisable on or prior to May 1, 1998 to purchase up to 736,376 additional
shares of Series C Preferred Stock. On March 23, 1998, such options were
exercised in full, at which time we also issued an additional 486,918 shares of
Series C Preferred Stock, all at $6.79 per share. On May 13, 1998, we issued an
additional 74,000 shares of Series C Preferred Stock at $6.79 per share. Of the
2,033,670 shares of Series C Preferred Stock sold by us, an aggregate of
1,958,170 shares (which will convert into an aggregate of 9,399,216 shares of
common stock upon the closing of this offering) were sold to the following
directors, officers and principal stockholders for an aggregate purchase price
of $13,295,974:
<TABLE>
<CAPTION>
AGGREGATE
PURCHASER NUMBER OF SHARES PURCHASE PRICE
- --------- ---------------- --------------
<S> <C> <C>
Premiere Technologies, Inc. ........................... 883,652 $5,999,997
ABS Ventures IV, L.P. / ABX Fund, L.P. ................ 389,096/97,274 3,302,452
Liberty Ventures I, L.P. .............................. 368,188 2,499,996
John W. Street......................................... 90,645 615,480
Mary M. Beazley........................................ 90,645 615,480
Annette C. Hicks....................................... 16,170 109,794
Walter J. Frank, Jr. .................................. 10,000 67,900
Michael Lipfield....................................... 7,500 50,925
Geoffrey E. Lind....................................... 5,000 33,950
</TABLE>
In connection their initial investments, Premiere and Liberty Ventures each
received the right, subject to certain restrictions, to designate a member of
our board of directors. Mr. Allred currently serves as the Premiere designee and
Ms. Griffith Gryga currently serves as the Liberty Ventures designee. Premiere
also entered into a Co-Marketing and Integration Agreement with us pursuant to
which we and Premiere expect to jointly offer certain telecommunications
services. Please refer to our discussion in "Business -- Strategic
Relationships" for our discussion of this agreement.
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SERIES D FINANCING
In August 1998, we issued an aggregate of 1,557,318 shares of Series D
Preferred Stock at a purchase price of $14.75 per share. An aggregate of 25,790
of such shares (which will convert into an aggregate of 123,792 shares of common
stock upon the closing of this offering) were sold to the following directors
and officers for an aggregate purchase price of $380,403:
<TABLE>
<CAPTION>
AGGREGATE
PURCHASER NUMBER OF SHARES PURCHASE PRICE
- --------- ---------------- --------------
<S> <C> <C>
John W. Street.......................................... 20,000 $295,000
Mary M. Beazley......................................... 3,390 50,003
Michael Lipfield........................................ 1,400 20,650
Geoffrey E. Lind........................................ 1,000 14,750
</TABLE>
GUARANTEE OF BANK LOAN
Mr. Street is the co-signer of our Business Loan Agreement with State Bank
and Trust of Colorado Springs. As of March 31, 1999, the outstanding principal
amount under such agreement was approximately $1.7 million. In consideration for
his personal guarantee of the loan, during 1997 we granted to Mr. Street options
to purchase an aggregate of 312,000 shares of common stock under the Option Plan
at a weighted average exercise price of $0.13 per share.
We believe that each of the transactions described above was carried out on
terms that were no less favorable to us than those that would have been obtained
from unaffiliated third parties. Any future transactions between us and any of
our directors, officers or principal stockholders will be on terms no less
favorable to us than could be obtained from unaffiliated third parties and will
be approved by a majority of the independent and disinterested members of the
board of directors.
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DESCRIPTION OF SECURITIES
The following description of our securities reflects changes that will be
made to our certificate of incorporation and bylaws upon the closing of this
offering. We have filed our restated certificate of incorporation and amended
and restated bylaws as exhibits to the registration statement of which this
prospectus is a part.
Our authorized capital stock consists of 150,000,000 shares of common
stock, par value $.001 per share, and 10,000,000 shares of preferred stock, par
value $.001 per share.
COMMON STOCK
As of the date of this prospectus, there are 29,345,525 shares of common
stock outstanding and held of record by 179 stockholders. Upon the closing of
this offering, there will be 37,845,525 shares of common stock outstanding
(assuming no exercise of the underwriters' over-allotment option).
Holders of common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders. Holders of common stock are not
entitled to cumulative voting rights in the election of directors. Accordingly,
minority stockholders will not be able to elect directors on the basis of their
votes alone. Subject to preferences that may be applicable to any
then-outstanding shares of preferred stock, holders of common stock are entitled
to receive ratably such dividends as may be declared by our board of directors.
In the event we liquidate, dissolve or wind up our affairs, holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preferences of any then-outstanding shares of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights.
PREFERRED STOCK
Our board of directors is authorized, without further stockholder approval,
to issue up to an aggregate of 10,000,000 shares of preferred stock in one or
more series. The board of directors may fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series, and the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption price or prices and
liquidation preferences. The issuance of preferred stock could:
- Adversely affect the voting power of holders of common stock;
- Adversely affect the likelihood that the holders of common stock will
receive dividend payments and payments upon liquidation; and
- Delay, defer or prevent a change in control.
We have no present plans to issue any shares of preferred stock.
WARRANT
As of the date of this prospectus, we have one outstanding warrant to
purchase 220,771 shares of common stock at an exercise price of $3.08 per share.
We issued the warrant to an investment banking firm in connection with its
services as placement agent for our August 1998 private placement of shares of
Series D Preferred Stock. The warrant expires on August 12, 2003. The warrant
contains anti-dilution provisions providing for adjustments of the exercise
price and the number of shares of common stock underlying the warrant upon the
occurrence of any recapitalization, reclassification, stock dividend, stock
split, stock combination or similar transaction. The shares of common stock
issuable upon exercise of the warrant carry registration rights, as discussed
below.
REGISTRATION RIGHTS
Pursuant to the Second Amended and Restated Investor Rights Agreement,
holders of 29,280,816 shares of common stock, including the common stock
issuable under the warrant described in
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the preceding paragraph, have certain rights to require us to register their
shares for resale under the Securities Act of 1933, as amended (the "Securities
Act"), during the five-year period following this offering.
With certain limitations, the holders of more than 50% of such shares may
demand that we register shares having an aggregate offering price to the public
of more than $10,000,000. We are not required to effect more than two demand
registrations, provided at least 70% of the shares requested to be included in
the demand registrations are, in fact, included therein. In addition, these
stockholders are entitled to piggyback registration rights with respect to any
public offering registration statement we file under the Securities Act
following this offering, with certain limitations. Further, at any time after we
become eligible to file a registration statement on Form S-3 or any similar
short-form registration statement, such stockholders may require us to file such
registration statements from time to time, again with certain limitations. We
are generally required to bear all of the expenses of these registrations,
except underwriting discounts and commissions. Registration of any of the shares
of common stock entitled to these registration rights would result in such
shares becoming freely tradable without restriction under the Securities Act.
Upon completion of this offering, the registration rights with respect to
the shares held by a stockholder will terminate if the stockholder holds less
than 1% of the then-outstanding shares of common stock and the stockholder's
shares are entitled to be resold in a 90-day period under Rule 144 promulgated
under the Securities Act.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE
OF INCORPORATION
AND BYLAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, which generally prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
that status with the approval of the corporation's board of directors or unless
the business combination is approved in a prescribed manner. "Business
combinations" include mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. With certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, fifteen percent (15%) or more
of a corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change-in-control attempts and,
accordingly, may discourage attempts to acquire us.
The following provisions of our restated certificate of incorporation and
amended and restated bylaws that will become effective upon the closing of this
offering may have an anti-takeover effect and may delay or prevent a tender
offer or takeover attempt that a stockholder might consider to be in its best
interest, including attempts that might result in a premium over the market
price for the common stock:
CLASSIFIED BOARD OF DIRECTORS. Our board of directors will be divided into
three classes. The directors in class I will hold office until the first annual
meeting of stockholders following this offering, the directors in class II will
hold office until the second annual meeting of stockholders following this
offering, and the directors in class III will hold office until the third annual
meeting of stockholders following this offering. After each such election, the
directors in that class will serve for terms of three years. The classification
system of electing directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of us and may maintain
the incumbency of the board of directors, since such classification generally
increases the difficulty of replacing a majority of the directors.
BOARD OF DIRECTOR VACANCIES. The board of directors will be authorized to
fill vacant directorships and to increase the size of the board of directors.
This may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
resulting vacancies with its own nominees.
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STOCKHOLDER ACTION; SPECIAL MEETINGS OF STOCKHOLDERS. Our stockholders will
not be permitted to take action by written consent, but only at duly called
annual or special meetings of stockholders. In addition, special meetings of
stockholders may be called only by the chairman of the board, the chief
executive officer or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an annual
meeting of stockholders, must deliver a written notice to our principal
executive offices within a prescribed time period. Our amended and restated
bylaws also set forth specific requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
the election of directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to limitations imposed by the Nasdaq National
Market. We may use these additional shares for a variety of corporate purposes,
including future public offerings to raise additional capital, acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated bylaws that will become effective upon the closing
of this offering provide that we will indemnify our directors and executive
officers to the fullest extent permitted by Delaware law and may indemnify our
other officers, employees and other agents to the fullest extent permitted by
Delaware law.
In addition, our restated certificate of incorporation that will become
effective upon the closing of this offering provides that, to the fullest extent
permitted by Delaware law, our directors will not be personally liable to us or
our stockholders for monetary damages for any breach of fiduciary duty as
directors. This provision of the restated certificate of incorporation does not
eliminate the directors' duty of care. In appropriate circumstances, equitable
remedies such as an injunction or other forms of non-monetary relief are
available under Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the federal securities laws and
state and federal environmental laws.
Each director will continue to be subject to liability for:
- Breach of a director's duty of loyalty to us and our stockholders;
- Acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- Unlawful payments of dividends or unlawful stock repurchases or
redemptions; and
- Any transaction from which a director derived an improper personal
benefit.
We also intend to enter into indemnity agreements with our directors and
executive officers. We have purchased liability insurance for our directors and
executive officers.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in a claim for indemnification.
LISTING
We have applied for listing of the common stock on the Nasdaq National
Market under the trading symbol MBOX.
TRANSFER AGENT AND REGISTRAR
We have appointed Norwest Bank Minnesota, National Association, to serve as
the transfer agent and registrar for the common stock.
73
<PAGE> 80
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict what effect, if any, market sales of shares or the
availability of shares for sale will have on the market price of our common
stock prevailing from time to time. Nevertheless, sales of substantial amounts
of common stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the closing of this offering, we will have a total of 37,845,525
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of options or warrants. Of the outstanding
shares, the 8,500,000 shares being sold in this offering will be freely
tradable, except that any shares held by our "affiliates" may only be sold in
compliance with the limitations described below. The remaining 29,345,525 shares
of common stock will be "restricted securities" that may be sold in the public
market only if they are registered under the Securities Act or if they qualify
for an exemption from registration under Rule 144, 144(k) or 701 promulgated
under the Securities Act.
Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will become available for sale in
the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ------------------- ------------------------------------------------------------
<C> <S>
70,200 Upon the date of this prospectus (shares eligible for resale
under Rule 144(k) and not subject to lock-up agreements)
133,920 90 days following the date of this prospectus (additional
shares eligible for resale under Rules 144 and 701 and not
subject to lock-up agreements)
29,135,645 180 days following the date of this prospectus (additional
shares eligible for resale under Rules 144 and 701 upon
release of lock-up agreements)
</TABLE>
In general, under Rule 144, a person (or persons whose shares are required
to be aggregated), including an affiliate, who has beneficially owned shares for
at least one year is entitled to sell, within any three-month period commencing
90 days after the date of this prospectus, a number of shares that does not
exceed the greater of (i) 1% of the then-outstanding shares of common stock
(approximately 378,455 shares immediately after this offering) or (ii) the
average weekly trading volume of the common stock during the four calendar weeks
preceding the date on which notice of that sale is filed. In addition, a person
who is not considered an affiliate at any time during the 90 days preceding a
sale and who has beneficially owned the shares proposed to be sold for at least
two years is entitled to sell such shares under Rule 144(k) without regard to
the volume limitations described above.
In addition, following the closing of this offering, we intend to file a
registration statement to register for resale the 18,251,680 shares of common
stock available for issuance under our stock plans. Accordingly, shares issued
under those plans will become eligible for resale in the public market from time
to time, subject to the lock-up agreements described below and, in the case of
affiliates, the volume limitations of Rule 144 described above. As of the date
of this prospectus, options and purchase rights to acquire a total of 6,698,280
shares of common stock are outstanding under our stock plans.
Directors, officers and stockholders holding an aggregate of 27,330,837
shares of common stock have agreed that they will not sell any shares of common
stock without the prior written consent of Bear, Stearns & Co. Inc for a period
of 180 days from the date of this prospectus. Please refer to our discussion in
"Underwriting" for further discussion of these agreements.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, other
than the grant of options and purchase rights under our stock plans and the
issuance of common stock pursuant thereto, provided the holders of such shares,
options or rights agree to the 180-day lock-up agreement.
Following this offering, certain of our stockholders will have rights to
have their shares of common stock registered for resale under the Securities
Act. Please refer to our discussion in "Description of
Securities -- Registration Rights" for further discussion of these registration
rights.
74
<PAGE> 81
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the underwriters and us, each of the underwriters named below, for whom
Bear, Stearns & Co. Inc., Volpe Brown Whelan & Company, LLC and CIBC World
Markets Corp. are acting as representatives, has severally agreed to purchase
from us the aggregate number of shares of common stock set forth opposite its
name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ------------------------------------------------------------ ----------------
<S> <C>
Bear, Stearns & Co. Inc. ...................................
Volpe Brown Whelan & Company, LLC...........................
CIBC World Markets Corp. ...................................
---------
Total............................................. 8,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to approval of certain legal matters by counsel and to
various other conditions. The nature of the underwriters' obligations is that
they are committed to purchase and pay for all of the above shares of common
stock if any are purchased.
The underwriters propose to offer the shares of common stock directly to
the public at the "initial public offering price" set forth on the cover page of
this prospectus and at that price less a concession not in excess of $ per
share of common stock to certain other dealers who are members of the National
Association of Securities Dealers, Inc. The underwriters may allow, and those
dealers may reallow, concessions not in excess of $ per share of common
stock to certain other dealers. After this offering, the offering price,
concessions and other selling terms may be changed by the underwriters.
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of 1,275,000 additional shares of common stock at
the "initial public offering price" less the "underwriting discounts," each as
set forth on the cover page of this prospectus. If the underwriters exercise
this option in whole or in part, then each of the underwriters will be severally
committed, subject to certain conditions, including the approval of certain
matters by counsel, to purchase the additional shares of common stock in
proportion to their respective purchase commitments as indicated in the
preceding table.
The underwriters, at our request, have reserved for sale at the initial
public offering price up to five percent (5%) of the shares of common stock to
be sold in this offering for sale to our employees and directors and to other
persons designated by us. Any purchase of these reserved shares will reduce the
number of shares available for sale to the general public. The underwriters will
offer any reserved shares not so purchased on the same basis as the other shares
offered hereby.
The underwriters do not intend to confirm sales of common stock to any
accounts over which they exercise discretionary authority.
The underwriting agreement provides that we will indemnify the underwriters
against certain liabilities under the Securities Act or will contribute to
payments that the underwriters may be required to make in respect thereof.
Directors, officers and stockholders who hold in the aggregate 27,330,837
shares of common stock have agreed that they will not sell any shares of common
stock without the prior written consent of Bear, Stearns & Co. Inc for a period
of 180 days from the date of this prospectus. However, Bear, Stearns & Co. Inc.
may, in its sole discretion and at any time or from time to time, without notice
to our stockholders or Nasdaq, release all or any portion of the shares subject
to lock-up agreements.
We have agreed that for a period of 180 days after the date of this
prospectus we will not, without the prior written consent of Bear, Stearns & Co.
Inc., sell or otherwise dispose of any shares of common stock, except for the
shares of common stock offered by this prospectus, the shares of common stock
issuable upon exercise of outstanding options and warrants, the grant of
additional options and purchase rights
75
<PAGE> 82
under our stock plans and the issuance of common stock pursuant thereto and the
issuance of shares in connection with certain acquisitions and investments,
provided the holders of such shares, options or rights agree to the 180 day
lock-up agreement.
Prior to this offering, there has been no public market for our common
stock. Accordingly, negotiations between us and the representatives of the
underwriters will determine the initial public offering price for the common
stock. Among the factors to be considered in those negotiations will be:
- Our recent results of operations;
- Estimates of our prospects as well as the industry in which we compete;
- An assessment of our management;
- The general state of the securities markets at the time of this offering;
and
- The prices of similar securities of generally comparable companies.
We have applied for listing of the common stock on the Nasdaq National
Market under the trading symbol MBOX. We cannot assure you that an active or
orderly trading market will develop or that the common stock will trade in the
public markets subsequent to this offering at or above the initial public
offering price.
The following table shows the underwriting discounts and commissions to be
paid by us to the underwriters in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share........................................ $ $
Total............................................ $ $
</TABLE>
In order to facilitate this offering, persons participating in the offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock during and after the offering, including
over-allotment, stabilizing and short-covering transactions and the impositions
of penalty bids. Persons participating in this offering also may engage in
passive market-making transactions in the common stock on the Nasdaq National
Market. Specifically, the underwriters may over-allot or otherwise create a
short position in the common stock for their own account by selling more shares
of common stock than have been sold to them by us. The underwriters may elect to
cover this short position by purchasing shares of common stock in the open
market or by exercising the over-allotment option granted to the underwriters.
In addition, the underwriters may stabilize or maintain the price of the common
stock by bidding for or purchasing shares of common stock in the open market and
may impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in this offering are reclaimed if
shares of common stock previously distributed in the offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. The imposition of a
penalty bid also may affect the price of the common stock to the extent that it
discourages resales. No representation is made as to the magnitude or effect of
this stabilization or other transactions. These transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
76
<PAGE> 83
LEGAL MATTERS
Cooley Godward LLP, Boulder, Colorado will pass upon the validity of the
shares of common stock offered hereby. Attorneys with Cooley Godward LLP,
through an investment partnership, own 7,500 shares of our Series C Preferred
Stock (which will convert into 36,000 shares of common stock on the closing of
this offering) that were purchased in our March 1998 private placement.
Morrison & Foerster LLP, Irvine, California will pass upon certain legal
matters in connection with the offering for the underwriters.
EXPERTS
The audited financial statements included in this prospectus to the extent
and for the periods indicated in their report have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits, schedules and amendments) under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus does not contain all of the information in the registration
statement. For further information about us and our common stock, please refer
to the registration statement. For additional information, please refer to the
exhibits that have been filed with our registration statement.
You may read and copy all or any portion of the registration statement or
any other information the company files at the SEC's public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings, including the registration statement, are also
available to you on the SEC's Web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended. In
accordance with those requirements, we will file periodic reports, proxy
statements and other information with the SEC. You may also inspect these
reports, proxy statements and other information at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
We intend to furnish our stockholders with annual reports containing
audited financial statements and with quarterly reports for the first three
quarters of each year containing interim financial information.
77
<PAGE> 84
USA.NET, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 85
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To USA.NET, Inc.:
We have audited the accompanying balance sheets of USA.NET, Inc. (a
Delaware corporation) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of USA.NET, Inc., as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 4, 1999 (except with respect to the
matters discussed in Note 10, as to which
the date is May 10, 1999).
F-2
<PAGE> 86
USA.NET, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
----------- ------------ ------------ -------------
(UNAUDITED)
(UNAUDITED) (SEE NOTE 2)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,158,612 $ 6,562,792 $ 3,436,868
Restricted cash (Note 6).................................. 1,884,704 1,486,775 1,419,196
Short-term investments (Note 2)........................... -- 3,458,015 2,482,428
Accounts receivable, net (Note 2)......................... 260,868 1,357,440 781,348
Related party accounts receivable (Note 3)................ 61,290 17,285 --
Prepaid expenses and other assets......................... 82,737 289,287 395,697
Deposits.................................................. 16,522 552,871 36,480
----------- ------------ ------------
Total current assets................................ 4,464,733 13,724,465 8,552,017
----------- ------------ ------------
Property and equipment, net (Note 2)........................ 2,543,739 13,449,516 15,666,671
Channel acquisition costs, net.............................. -- 6,250,000 5,625,000
Other assets................................................ 7,142 5,342 4,207
----------- ------------ ------------
$ 7,015,614 $ 33,429,323 $ 29,847,895
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,536,122 $ 2,643,070 $ 2,642,489
Accrued liabilities....................................... 113,518 899,327 1,770,944
Accrued payroll and benefits.............................. 237,631 441,672 707,588
Related party accounts payable (Note 3)................... 94,900 268,026 178,440
Deferred revenue.......................................... -- 11,199 33,086
Current maturities of note payable (Note 4)............... 264,842 1,767,423 1,709,381
Current capital lease obligations (Note 5)................ -- 1,239,357 1,500,526
----------- ------------ ------------
Total current liabilities........................... 2,247,013 7,270,074 8,542,454
----------- ------------ ------------
Long-term note payable (Note 4)............................. 1,235,158 -- --
Long-term capital lease obligations (Note 5)................ -- 3,997,147 4,925,103
Other long-term liabilities................................. -- 375,000 250,000
Commitments and contingencies (Notes 1, 5, 6 and 10)
Stockholders' equity (Note 6):
Convertible preferred stock, $.001 par value, 10,000,000
shares authorized --
Convertible preferred stock, Series A, 1,100,000 shares
designated; 1,062,231 issued and outstanding, no
shares outstanding pro forma (unaudited), entitled to
$5,056,220 in liquidation............................. 4,872,255 4,872,255 4,872,255 $ --
Convertible preferred stock, Series B, 1,055,158 shares
designated; 527,579, 883,652 and 883,652 issued and
outstanding, respectively, no shares outstanding pro
forma (unaudited), stated at liquidation value........ 3,001,925 5,027,980 5,027,980 --
Convertible preferred stock, Series C, 2,033,670 shares
designated; 736,376, 2,033,670, and 2,033,670 issued
and outstanding, respectively, no shares outstanding
pro forma (unaudited), stated at liquidation value.... 4,999,995 13,808,621 13,808,621 --
Convertible preferred stock, Series D, 2,033,898 shares
designated; 0, 1,557,318 and 1,557,318 issued and
outstanding, respectively, no shares outstanding pro
forma (unaudited), entitled to $22,970,441 in
liquidation........................................... -- 21,076,389 21,076,389 --
Common stock, $.001 par value, 150,000,000 shares
authorized; 2,549,328, 2,609,328 and 2,633,802 shares
issued and outstanding, respectively, 29,210,765 shares
issued and outstanding pro forma (unaudited)............ 2,549 2,609 2,634 29,211
Additional paid-in capital (Note 1)....................... -- 4,195,080 7,553,244 52,311,912
Warrant for common stock.................................. -- 313,251 313,251 313,251
Deferred compensation..................................... -- (3,775,079) (6,940,511) (6,940,511)
Accumulated deficit....................................... (9,343,281) (23,734,004) (29,583,525) (29,583,525)
----------- ------------ ------------ ------------
Total stockholders' equity.......................... 3,533,443 21,787,102 16,130,338 $ 16,130,338
----------- ------------ ------------ ============
$ 7,015,614 $ 33,429,323 $ 29,847,895
=========== ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-3
<PAGE> 87
USA.NET, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Advertising revenue............................ $ 33,564 $ 782,517 $ 4,661,644 $ 520,075 $ 1,906,072
Other revenue.................................. -- -- 41,069 -- 38,805
----------- ----------- ------------ ----------- -----------
Total revenue............................ 33,564 782,517 4,702,713 520,075 1,944,877
Cost of revenue.................................. 298,863 1,614,247 5,329,235 709,244 2,180,235
----------- ----------- ------------ ----------- -----------
Gross margin............................. (265,299) (831,730) (626,522) (189,169) (235,358)
Operating expenses:
Selling and marketing.......................... 875,972 2,269,373 6,903,610 914,400 2,401,277
Product development............................ 259,735 1,207,433 3,042,225 481,039 1,361,768
General and administrative..................... 674,066 1,490,214 2,446,715 345,953 891,597
Amortization of channel acquisition costs...... -- -- 1,250,000 -- 625,000
Amortization of deferred compensation.......... -- -- 412,936 68,258 189,520
----------- ----------- ------------ ----------- -----------
Total operating expenses................. 1,809,773 4,967,020 14,055,486 1,809,650 5,469,162
----------- ----------- ------------ ----------- -----------
Loss from operations............................. (2,075,072) (5,798,750) (14,682,008) (1,998,819) (5,704,520)
Other income (expense):
Interest expense............................... -- (9,247) (229,893) (23,309) (258,617)
Interest income................................ -- 85,111 501,958 35,574 113,616
Other.......................................... -- 48,974 19,220 -- --
----------- ----------- ------------ ----------- -----------
Other income (expense), net.............. -- 124,838 291,285 12,265 (145,001)
----------- ----------- ------------ ----------- -----------
Net loss from continuing operations.............. (2,075,072) (5,673,912) (14,390,723) (1,986,554) (5,849,521)
Discontinued operation (Note 9):
Net income (loss) from operation of
discontinued operation....................... (1,602,778) 27,150 -- -- --
Gain on sale of discontinued operation......... -- 672,827 -- -- --
----------- ----------- ------------ ----------- -----------
(1,602,778) 699,977 -- -- --
----------- ----------- ------------ ----------- -----------
Net loss......................................... $(3,677,850) $(4,973,935) $(14,390,723) $(1,986,554) $(5,849,521)
=========== =========== ============ =========== ===========
Basic and diluted net loss from continuing
operations per share........................... $ (1.44) $ (2.23) $ (5.57) $ (0.77) $ (2.23)
=========== =========== ============ =========== ===========
Basic and diluted net loss per share............. $ (2.55) $ (1.95) $ (5.57) $ (0.77) $ (2.23)
=========== =========== ============ =========== ===========
Weighted average common shares
outstanding -- basic and diluted............... 1,443,014 2,549,328 2,581,978 2,563,622 2,624,317
=========== =========== ============ =========== ===========
Pro forma net loss from continuing operations per
share (unaudited):
Basic and diluted net loss per share......... $ (0.63) $ (0.14) $ (0.20)
============ =========== ===========
Weighted average common shares outstanding --
basic and diluted.......................... 22,825,109 14,487,408 29,201,294
============ =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE> 88
USA.NET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
CONVERTIBLE WARRANT
PREFERRED STOCK COMMON STOCK ADDITIONAL FOR
----------------------- ------------------ PAID-IN COMMON DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK COMPENSATION
--------- ----------- --------- ------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995..... -- $ -- 507,528 $ 507 $ 816,147 $ -- $ --
Issuance of common stock...... -- -- 2,041,800 2,042 4,056,108 -- --
Net loss...................... -- -- -- -- -- -- --
--------- ----------- --------- ------ ----------- -------- -----------
Balances, December 31, 1996..... -- -- 2,549,328 2,549 4,872,255 -- --
Issuance of Series A preferred
stock in connection with
recapitalization (Note 6)... 1,062,231 4,872,255 -- -- (4,872,255) -- --
Issuance of Series B preferred
stock (Note 6).............. 527,579 3,001,925 -- -- -- -- --
Issuance of Series C preferred
stock (Note 6).............. 736,376 4,999,995 -- -- -- -- --
Net loss...................... -- -- -- -- -- -- --
--------- ----------- --------- ------ ----------- -------- -----------
Balances, December 31, 1997..... 2,326,186 12,874,175 2,549,328 2,549 -- -- --
Issuance of Series B preferred
stock (Note 6).............. 356,073 2,026,055 -- -- -- -- --
Issuance of Series C preferred
stock (Note 6).............. 1,297,294 8,808,626 -- -- -- -- --
Issuance of Series D preferred
stock (Note 6), net of
offering costs.............. 1,557,318 21,076,389 -- -- -- 313,251 --
Exercise of stock options
(Note 6).................... -- -- 60,000 60 7,065 -- --
Deferred compensation......... -- -- -- -- 4,188,015 -- (4,188,015)
Amortization of deferred
compensation................ -- -- -- -- -- -- 412,936
Net loss...................... -- -- -- -- -- -- --
--------- ----------- --------- ------ ----------- -------- -----------
Balances, December 31, 1998..... 5,536,871 44,785,245 2,609,328 2,609 4,195,080 313,251 (3,775,079)
Exercise of stock options
(unaudited)................. -- -- 24,474 25 3,212 -- --
Deferred compensation
(unaudited)................. -- -- -- -- 3,354,952 -- (3,354,952)
Amortization of deferred
compensation (unaudited).... -- -- -- -- -- -- 189,520
Net loss (unaudited).......... -- -- -- -- -- -- --
--------- ----------- --------- ------ ----------- -------- -----------
Balances, March 31, 1999
(unaudited)................... 5,536,871 $44,785,245 2,633,802 $2,634 $ 7,553,244 $313,251 $(6,940,511)
========= =========== ========= ====== =========== ======== ===========
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
Balances, December 31, 1995..... $ (691,496) $ 125,158
Issuance of common stock...... -- 4,058,150
Net loss...................... (3,677,850) (3,677,850)
------------ ------------
Balances, December 31, 1996..... (4,369,346) 505,458
Issuance of Series A preferred
stock in connection with
recapitalization (Note 6)... -- --
Issuance of Series B preferred
stock (Note 6).............. -- 3,001,925
Issuance of Series C preferred
stock (Note 6).............. -- 4,999,995
Net loss...................... (4,973,935) (4,973,935)
------------ ------------
Balances, December 31, 1997..... (9,343,281) 3,533,443
Issuance of Series B preferred
stock (Note 6).............. -- 2,026,055
Issuance of Series C preferred
stock (Note 6).............. -- 8,808,626
Issuance of Series D preferred
stock (Note 6), net of
offering costs.............. -- 21,389,640
Exercise of stock options
(Note 6).................... -- 7,125
Deferred compensation......... -- --
Amortization of deferred
compensation................ -- 412,936
Net loss...................... (14,390,723) (14,390,723)
------------ ------------
Balances, December 31, 1998..... (23,734,004) 21,787,102
Exercise of stock options
(unaudited)................. -- 3,237
Deferred compensation
(unaudited)................. -- --
Amortization of deferred
compensation (unaudited).... -- 189,520
Net loss (unaudited).......... (5,849,521) (5,849,521)
------------ ------------
Balances, March 31, 1999
(unaudited)................... $(29,583,525) $ 16,130,338
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE> 89
USA.NET, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... $(3,677,850) $(4,973,935) $(14,390,723) $(1,986,554) $(5,849,521)
Adjustments to reconcile net loss to net cash used
in operating activities --
Depreciation and amortization.................... 165,490 337,307 1,387,868 160,474 836,905
Amortization of channel acquisition costs........ -- -- 1,250,000 -- 625,000
Amortization of deferred compensation............ -- -- 412,936 68,258 189,520
Provision for bad debts.......................... 64,484 34,290 253,405 15,725 58,057
Gain on sale of property and equipment........... (2,472) -- -- -- --
Gain on sale of Internet service provider
segment........................................ -- (672,827) -- -- --
Changes in operating assets and liabilities --
Accounts receivable, net....................... 19,818 (292,667) (1,349,977) (957,125) 518,035
Related party accounts receivable.............. (4,283) (57,007) 44,005 (1,204) 17,285
Prepaid expenses............................... 11,812 (2,134) (206,550) (50,705) 18,727
Deposits....................................... -- (82,737) (536,349) -- 516,391
Inventory...................................... 93,750 -- -- -- --
Other assets................................... 301 (7,500) 1,800 -- --
Accounts payable............................... (154,829) 1,262,401 1,106,948 562,019 (551,781)
Accrued liabilities............................ 478,134 86,212 364,850 (17,827) 1,012,533
Deferred revenue............................... -- (3,746) 11,199 -- 21,887
Related party accounts payable................. (13,973) 65,314 173,126 (50,000) (89,586)
----------- ----------- ------------ ----------- -----------
Net cash used in operating activities........ (3,019,618) (4,307,029) (11,477,462) (2,256,939) (2,676,548)
----------- ----------- ------------ ----------- -----------
Cash flows from investing activities:
Purchase of short-term investments................. -- -- (3,458,015) -- (24,413)
Proceeds from sale of short-term investments....... -- -- -- -- 1,000,000
Purchase of property and equipment................. (514,480) (2,445,106) (6,751,794) (1,154,341) (968,725)
Proceeds from sale of property and equipment....... 14,129 -- -- -- --
Proceeds from sale of Internet service provider
segment.......................................... -- 925,000 -- -- --
Payments for channel acquisition costs............. -- -- (6,500,000) -- --
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in) investing
activities................................. (500,351) (1,520,106) (16,709,809) (1,154,341) 6,862
----------- ----------- ------------ ----------- -----------
Cash flows from financing activities:
Proceeds from note payable......................... -- 2,570,000 500,000 500,000 --
Repayment of note payable.......................... (150,983) (1,094,257) (232,577) -- (58,042)
Repayment of capital lease obligations............. -- -- (305,347) -- (343,875)
Decrease (increase) in restricted cash............. -- (1,884,704) 397,929 -- 67,579
Advances from affiliates........................... 4,046,000 -- -- -- --
Proceeds from issuance of common stock............. 12,150 -- 7,125 2,165 3,237
Proceeds from issuance of Series B preferred
stock............................................ -- 3,001,925 2,026,055 2,026,055 --
Proceeds from issuance of Series C preferred
stock............................................ -- 4,999,995 8,808,626 8,306,166 --
Proceeds from issuance of Series D preferred
stock............................................ -- -- 22,970,441 -- --
Offering costs for issuance of Series D preferred
stock............................................ -- -- (1,580,801) -- --
Increase in deferred initial public offering
costs............................................ -- -- -- -- (125,137)
----------- ----------- ------------ ----------- -----------
Net cash provided by financing activities.... 3,907,167 7,592,959 32,591,451 10,834,386 (456,238)
----------- ----------- ------------ ----------- -----------
Net increase in cash and cash equivalents............ 387,198 1,765,824 4,404,180 7,423,106 (3,125,924)
Cash and cash equivalents, beginning of period....... 5,590 392,788 2,158,612 4,043,316 6,562,792
----------- ----------- ------------ ----------- -----------
Cash and cash equivalents, end of period............. $ 392,788 $ 2,158,612 $ 6,562,792 $11,466,422 $ 3,436,868
=========== =========== ============ =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest............................. $ 39,901 $ 14,186 $ 229,893 $ 23,309 $ 258,617
=========== =========== ============ =========== ===========
Equipment acquired with capital leases............. $ -- $ -- $ 5,541,851 $ -- $ 1,533,000
=========== =========== ============ =========== ===========
Equipment acquired by use of accounts payable...... $ -- $ -- $ -- $ -- $ 551,200
=========== =========== ============ =========== ===========
Issuance of Series A preferred stock in connection
with recapitalization............................ $ -- $ 4,872,255 $ -- $ -- $ --
=========== =========== ============ =========== ===========
Conversion of advances into common stock........... $ 4,046,000 $ -- $ -- $ -- $ --
=========== =========== ============ =========== ===========
Value of warrant issued to purchase common stock to
Series D preferred stock placement agent......... $ -- $ -- $ 313,251 $ -- $ --
=========== =========== ============ =========== ===========
Accrued channel acquisition costs.................. $ -- $ -- $ 1,000,000 $ -- $ --
=========== =========== ============ =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE> 90
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 IS
UNAUDITED)
(1) ORGANIZATION AND NATURE OF BUSINESS
USA.NET, Inc., a Delaware corporation ("USA.NET-Delaware" or, with its
predecessor entity, the "Company") is a leading provider of email and advanced
messaging solutions on the Internet for consumers, Web portals and businesses.
The Company's consumer email service, NET@DDRESS, is offered free of charge and
provides users with a permanent, portable and private email address accessible
from any computer connected to the Internet. During 1998, the Company introduced
its messaging services for Web portals and its specialized and comprehensive
outsourced solutions for businesses.
USA.NET, Inc., a Colorado corporation ("USA.NET-Colorado") was formed as a
S corporation in 1991, as Community News Service Inc., an information services
company providing Internet access and other Internet-related services to
consumer and commercial customers throughout the United States. In 1995, the
Company began the development of its email solutions. Effective March 1, 1997,
the Company sold the Internet service provider ("ISP") business segment (Notes 3
and 9).
On March 12, 1997, a reincorporation of USA.NET-Colorado as a Delaware
corporation was effected by a merger (the "Reincorporation Merger") of
USA.NET-Colorado with and into USA.NET-Delaware, and each share of
USA.NET-Colorado common stock was exchanged for one-half share of USA.NET-
Delaware common stock and one share of USA.NET-Delaware Series A convertible
preferred stock ("Series A"). USA.NET-Delaware was the surviving corporation.
Also as a result of the Reincorporation Merger, the Company increased the total
number of authorized common and preferred shares and established a par value of
$.001 per share for both common and preferred stock.
The Company is subject to various risks and uncertainties frequently
encountered by companies in the early stages of development, particularly
companies in the new and rapidly evolving market for Internet-based products and
services. Such risks and uncertainties include, but are not limited to, its
limited operating history, an evolving and unpredictable business model and the
management of rapid growth. To address these risks, the Company must, among
other things, maintain and increase its customer base, implement and
successfully execute its business and marketing strategy, continue to develop
and upgrade its technology, provide superior customer service and attract,
retain and motivate qualified personnel. There can be no guarantee that the
Company will be successful in addressing such risks. To date, substantially all
of the Company's revenue has been derived from the sale of advertising on its
Web sites. The Internet as an advertising medium has not been available for a
sufficient period of time to gauge its effectiveness as compared to traditional
advertising outlets.
The Company has not yet achieved profitability and expects to incur net
losses at least through the end of 2001. The Company incurred net losses from
continuing operations of $2,075,072 in 1996, $5,673,912 in 1997 and $14,390,723
in 1998. The Company incurred net losses from continuing operations (unaudited)
of $1,986,554 and $5,849,521 for the three months ended March 31, 1998 and 1999,
respectively. As of December 31, 1998 and March 31, 1999, the Company's
accumulated deficit was $23,734,004 and $29,583,525 (unaudited), respectively.
The Company has not generated sufficient revenue to cover the substantial
amounts spent to create, launch and enhance its services. If the Company's
revenue does not increase substantially, the Company may never become
profitable. Even if the Company does achieve profitability in the future, it may
not sustain or increase its profitability. The Company has historically funded
its operations by selling stock and obtaining loans from banks. If the Company
is unable to complete the initial public offering discussed in Note 10, the
Company will require significant external financing within the next year. In
this event, management believes that the Company has capital available to it
from third parties, and if such capital is not forthcoming, a stockholder has
committed to fund the Company's operations through at least December 31, 1999,
if necessary.
F-7
<PAGE> 91
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The interim financial statements for the three months ended March 31, 1998
and 1999, are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, the unaudited interim financial statements contain all
adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation. The results of operations for the interim periods are
not necessarily indicative of the results for the entire year.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions may affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers investments in highly liquid instruments purchased
with an original maturity of 90 days or less to be cash equivalents.
All of the Company's short-term investments, consisting principally of
commercial paper and medium term notes, are classified as available for sale.
Unrealized holding gains and losses, if material, are included as a separate
component of other comprehensive income. At December 31, 1997 and 1998,
unrealized holding gains and losses are not material. Realized gains and losses
are recorded in the statement of operations upon selling the security.
ACCOUNTS RECEIVABLE
The Company maintains an allowance for doubtful accounts based upon the
expected collectibility of accounts receivable. At December 31, 1997 and 1998,
the allowance for doubtful accounts was approximately $29,000 and $151,000,
respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
short-term investments and accounts receivable. The Company has no significant
off-balance sheet concentrations of credit risk, such as foreign exchange
contracts, option contracts or other foreign currency hedging arrangements. The
Company maintains its cash balances in the form of bank demand deposits and
money market accounts with financial institutions that management believes are
creditworthy. The Company maintains its short-term investments in certificates
of deposit, and high quality commercial paper and corporate debt securities.
Accounts receivable are typically unsecured and are derived from transactions
with and from advertisers primarily located in the United States. The Company
performs ongoing credit evaluations of its customers and maintains reserves for
potential credit losses.
As discussed in Note 7, the Company has three and one customers that
accounted for more than 10% of 1997 and 1998 revenue, respectively, and four and
two customers that accounted for more than 10% of
F-8
<PAGE> 92
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
accounts receivable at December 31, 1997 and 1998, respectively. The loss of
significant advertisers and/or distribution channels to the Company's users
could result in a significant reduction of revenues.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciation is provided
using the straight-line method, generally over estimated useful lives of five
years. Maintenance and repairs are expensed as incurred and major additions,
replacements and improvements are capitalized.
Leasehold improvements are amortized using the straight-line method over
the shorter of the useful life of five years or the life of the lease.
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and licensed
software............................. $2,613,752 $13,763,462 $16,422,669
Office equipment....................... 188,342 1,007,497 1,186,807
Leasehold improvements................. 105,550 430,330 644,738
---------- ----------- -----------
2,907,644 15,201,289 18,254,214
Less -- accumulated depreciation and
amortization......................... (363,905) (1,751,773) (2,587,543)
---------- ----------- -----------
$2,543,739 $13,449,516 $15,666,671
========== =========== ===========
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company evaluates the recoverability of its long-lived
assets based on estimated undiscounted future cash flows and provides for
impairment if such undiscounted cash flows are insufficient to recover the
carrying amount of the long-lived asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash equivalents, short-term
investments, short-term trade receivables and payables, and a note payable. The
carrying values of the cash equivalents, short-term investments and short-term
trade receivables and payables approximate their fair values. Based on borrowing
rates currently used by the Company for financing, the carrying value of the
note payable approximates its estimated fair value.
REVENUE RECOGNITION
The Company currently generates substantially all of its revenue from the
sale of advertising via its Web-based email services. Certain of the Company's
revenue is recognized under co-marketing agreements, whereby the Company's
services are provided to specified customers identified or generated by the
Company's co-marketing partners. Advertising revenue is generated from such
arrangements, a portion of which must be shared with certain co-marketing
partners.
Advertising revenue consists of sponsorships, banner advertising, the
placement of buttons, and the use of a logout page, all of which provide users
with direct links to the advertiser's Web site, and from advertising for direct
delivery content providers. Advertising revenue is derived from both short-term
and
F-9
<PAGE> 93
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
long-term advertising contracts in which the Company delivers impressions (a
single display of an advertisement to a subscriber) for a fee or is compensated
for generating leads or transactions. Revenue generated by these contracts are
generally recognized ratably as earned, which typically coincides with when the
services are performed, provided that the Company does not have any significant
remaining obligations and collection of the resulting receivable is probable.
Company obligations typically include guarantees of a minimum number of
impressions. To the extent minimum guaranteed impressions are not met, the
Company defers recognition of the corresponding revenue until the remaining
guaranteed impression levels are achieved.
As discussed in Note 5, certain agreements require that a portion of the
revenue recorded under these agreements be shared.
STOCK SPLIT
Upon the consummation of the initial public offering discussed in Note 10,
the Company will effect a 4.8:1 split of its common stock, and increase its
authorized common stock to 150,000,000 shares and preferred stock to 10,000,000
shares. In connection with the common stock split, the Company will change its
conversion ratios on the preferred stock to reflect the split. All references in
the accompanying financial statements to the number of common shares have been
retroactively restated to reflect the common stock split, the increase in the
authorized common and preferred stock and the preferred stock conversion ratios.
INCOME TAXES
Prior to the Reincorporation Merger, the Company elected to be taxed as an
S corporation under Subchapter S of the Internal Revenue Code, and accordingly,
income or loss attributed to the Company's operations was allocated to its
stockholders to be reported on their personal tax returns. Tax net operating
losses incurred during this period are not available to offset the Company's
future taxable income, if any.
Subsequent to the Reincorporation Merger, the Company elected to be taxed
as a C corporation. The current provision for income taxes represents actual or
estimated amounts payable on tax return filings each year. Deferred tax assets
and liabilities are recorded for the estimated future tax effects of temporary
differences between the tax basis of assets and liabilities and amounts reported
in the accompanying balance sheets, and for operating loss and tax credit
carryforwards. The change in deferred tax assets and liabilities for the period
measures the deferred tax provision or benefit for the period. Effects of
changes in enacted tax laws on deferred tax assets and liabilities are reflected
as adjustments to the tax provision or benefit in the period of enactment. The
Company's deferred tax assets have been completely reduced by a valuation
allowance because management does not believe realization of the deferred tax
assets is sufficiently assured at each balance sheet date (Note 8).
PRODUCT DEVELOPMENT
Costs incurred in the development of new products and enhancements to
existing products and services are charged to expense as incurred.
CHANNEL ACQUISITION COSTS
Channel acquisition costs paid to acquire access to customers are
capitalized and amortized over the terms of the related agreement. Amortization
begins at the point the Company commences the services that are the subject of
such agreements.
F-10
<PAGE> 94
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING COSTS
Advertising costs are expensed as incurred and are included in sales and
marketing expense in the accompanying statements of operations. The Company does
not incur any material direct-response advertising costs. Advertising expense
totaled $251,778, $1,681,738 and $3,988,501 in 1996, 1997 and 1998,
respectively, related to continuing operations.
STOCK-BASED COMPENSATION
The Company accounts for its employee stock option plans and other
stock-based compensation arrangements in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25"), and related interpretations. The Company
adopted the disclosure-only provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), which allows entities to continue to
apply the provisions of APB Opinion No. 25 for transactions with employees and
provide pro forma disclosures for employee stock grants made in 1997 and future
years as if the fair-value-based method of accounting in SFAS No. 123 had been
applied to these transactions. The Company accounts for equity instruments
issued to non-employees in accordance with the provisions of SFAS No. 123.
NET LOSS PER SHARE
Net loss per share is calculated in accordance with SFAS No. 128, "Earnings
Per Share" ("SFAS No. 128"), and Securities and Exchange Commission ("SEC")
Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No.
128 and SAB 98, basic net loss per share is computed by dividing net loss for
the period by the weighted average number of common shares outstanding for the
period. Diluted net loss per share is computed by dividing the net loss for the
period by the weighted average number of common and potential common shares
outstanding during the period if the effect of the potential common shares is
dilutive. The Company has excluded the weighted average effect (using the
treasury stock method) of common stock issuable upon conversion of all
convertible preferred stock, warrants and stock options from the computation of
diluted earnings per share as the effect of all such securities is anti-dilutive
for all periods presented. The shares excluded are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1996............................................ --
1997............................................ 6,881,822
1998............................................ 22,548,883
FOR THE THREE MONTHS ENDED MARCH 31, 1999....... 29,925,034
</TABLE>
At December 31, 1998, the Company had issued rights to 30,788,454 shares of
common stock under such agreements. At March 31, 1999, the Company had issued
rights to 30,954,774 (unaudited) shares of common stock under such agreements.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended December 31, 1998 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's
Series A, B, C and D convertible preferred stock into shares of the Company's
common stock as if such conversion occurred on January 1, 1998, or at the date
of original issuance, if later. The resulting pro forma adjustment includes an
increase in the weighted average shares used to compute basic and diluted net
loss per share of approximately 20,240,000 shares for the year ended December
31, 1998 and 26,580,000 (unaudited) and 11,920,000 (unaudited) for the three
months ended March 31, 1999 and 1998, respectively. The pro forma effects of
these transactions are unaudited.
F-11
<PAGE> 95
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Effective upon the closing of the Company's planned initial public
offering, all outstanding shares of Series Preferred (as defined below) will
automatically convert into 26,576,963 shares of common stock. The pro forma
effects of these transactions are unaudited and have been reflected in the
accompanying pro forma balance sheet at December 31, 1998.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for reporting comprehensive income and its components in financial
statements. Comprehensive income, as defined, includes all changes in equity
(net assets) during a period from non-owner sources. From its inception through
December 31, 1998, the Company has not had any material transactions that are
required to be reported in comprehensive income as compared to its net loss.
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131"). This statement establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. In accordance with the provisions of SFAS
No. 131, the Company has determined that it has one reportable operating segment
at December 31, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the cost of such software. SOP No. 98-1 is effective
for financial statements for fiscal years beginning after December 15, 1998. The
Company does not expect that the adoption of SOP No. 98-1 will have a material
impact on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Company is required to
adopt SFAS No. 133 in the year ended December 31, 2000. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. To
date, the Company has not entered into any derivative financial instruments or
hedging activities.
RECLASSIFICATIONS
Certain prior years' balances were reclassified to conform to the current
year presentation.
(3) RELATED PARTY TRANSACTIONS
Prior to 1997, the Company substantially relied upon an entity affiliated
through common ownership for management, facilities and other administrative and
operating activities. This entity charged the Company for its calculated share
of the related costs incurred and paid by the affiliated entity. Such costs
totaled $816,948 in 1996, of which $528,282 relates to continuing operations.
Because such costs were shared, the Company's management believes that the costs
incurred on a stand-alone basis would have been greater than amounts allocated
to the Company by the affiliated entity. During 1996, the Company ceased its
dependence on the affiliated entity. During 1997, the affiliated entity was sold
to a third party.
F-12
<PAGE> 96
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
This entity also provided long distance telephone services to the Company.
For the periods prior to its sale, the related telephone services totaled
$373,531 and $113,159 for the years ended December 31, 1996 and 1997,
respectively, of which $3,142 and $54,717, respectively, are reflected in
continuing operations. The Company had no payables to this affiliated entity for
telephone services at December 31, 1997.
During 1996, this entity periodically made advances to fund the Company's
operations. This entity distributed such receivables to certain mutual
stockholders, who converted them into shares of the Company's common stock.
During March 1997, the Company entered into a lease agreement for office
space with a related party. The total rent expense related to this lease for the
years ended December 31, 1997 and 1998 was $16,000 and $4,000, respectively. The
Company also recognized $11,912 and $34,592 of expense for Internet access
provided by this related party for the years ended December 31, 1997 and 1998.
Additionally, the Company subleased office space to the related party. At
December 31, 1997 and 1998, the Company had a payable to the related party of
$44,900 and $22,789, respectively, for rent and other miscellaneous expenses. At
December 31, 1997 and 1998, the related party owed the Company $61,290 and
$16,420, respectively, for rent and other miscellaneous reimbursable expenses.
In March 1997, the Company sold its ISP business segment to an entity which
is 40% owned by certain directors, officers and principal stockholders of the
Company for $925,000 plus the assumption of a note payable (Note 9).
Also in March 1997, the Company purchased office furniture and equipment
for $50,000 from a related party. The purchase price was paid in full in 1998.
In consideration for a personal guarantee provided by a stockholder on a
credit facility held with a bank (Note 4), the Company granted stock options to
purchase 312,000 shares of common stock to the stockholder.
During August 1998, the Company issued a five-year warrant to a financial
institution for investment banking and underwriting services rendered in the
Series D preferred stock offering. The warrant entitles the related party to
purchase 220,771 shares of the Company's common stock at a price per share of
approximately $3.08. At December 31, 1998, the warrant has not been exercised.
The Company also paid this financial institution $1,416,786 in fees for services
performed related to the Series D preferred stock offering.
At December 31, 1998, the Company has $2,029,355 of cash equivalents on
deposit at this financial institution. For the year ended December 31, 1998,
$19,023 of gains realized on maturity of commercial paper and $23,667 of
interest and dividend income were earned and recognized in the statement of
operations related to the cash equivalents held with this related party.
In August 1998, a party with which the Company has a revenue sharing
agreement purchased shares of Series D preferred stock. For the period from the
date such shares were purchased through December 31, 1998, $287,118 of royalty
fees were due to this investor pursuant to the revenue sharing agreement. At
December 31, 1998, the Company owed the related party $245,237 for unpaid
royalty fees.
(4) NOTE PAYABLE
In August 1997, the Company obtained a credit facility from a bank whereby
the Company may draw on the available principal up to an aggregate amount of
$1,500,000, which was amended to $2,000,000 in January 1998. The interest rate
on notes payable under this credit facility are based on the bank's prime rate
(8.5% and 7.75% at December 31, 1997 and 1998, respectively). Interest expense
related to the line of credit was $9,050 and $151,469 for the years ended
December 31, 1997 and 1998, respectively. The borrowings are collateralized by
accounts receivable and property and equipment. This facility is also
F-13
<PAGE> 97
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
personally guaranteed by a stockholder for its full amount. As consideration for
the personal guarantee, the stockholder was granted options to purchase 312,000
shares of common stock that will become fully exercisable on the earlier of: (1)
the Company reaching a $100 million valuation, (2) the Company undergoing a
public stock offering, or (3) the passing of four years. The options fully
vested in 1998. The value of the options was immaterial as determined using the
Black-Scholes option pricing model.
The note payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable -- interest at the bank's prime
rate, monthly, interest only payments
beginning February 1999, with the principal
due upon demand or January 2000, whichever is
earlier....................................... $1,500,000 $1,767,423 $ 1,709,381
Less -- current portion......................... (264,842) (1,767,423) (1,709,381)
---------- ---------- -----------
Long-term portion............................... $1,235,158 $ -- $ --
========== ========== ===========
</TABLE>
In December 1995, the Company obtained bank financing of $500,000 for the
purchase of equipment. Interest expense related to this facility was $39,901 and
$4,938 for the years ended December 31, 1996 and 1997, respectively. This note
payable was assumed by the purchaser of the ISP business segment sold in March
1997 (Note 9) and the Company has no further obligations thereunder.
(5) COMMITMENTS AND CONTINGENCIES
CAPITAL LEASE OBLIGATIONS
During 1998, the Company entered into several capital leases for computer
equipment. The leases are for terms ranging from 36 to 45 months, expiring at
various times through 2002. Interest on the Company's capital lease obligations
is at rates ranging from 14.7% to 15.1% at December 31, 1998.
Equipment purchased under capital leases is included in the cost of
property and equipment. The following is a summary of property and equipment
purchased under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Computer equipment.......................................... $5,541,851
Less -- accumulated depreciation............................ (590,550)
----------
Net book value.............................................. $4,951,301
==========
</TABLE>
F-14
<PAGE> 98
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, future minimum lease payments under capitalized lease
obligations are as follows:
<TABLE>
<S> <C>
Year ended December 31,
1999...................................................... $ 1,863,512
2000...................................................... 1,815,356
2001...................................................... 1,815,356
2002...................................................... 1,239,339
-----------
6,733,563
Less -- amounts representing interest....................... (1,497,059)
-----------
Total obligation............................................ 5,236,504
Less -- current portion..................................... (1,239,357)
-----------
Long-term capital lease obligation.......................... $ 3,997,147
===========
</TABLE>
Interest expense under such leases was $78,424 for the year ended December
31, 1998.
OPERATING LEASE OBLIGATIONS
The Company leases certain facilities under operating leases that expire at
various times through 2003. Future minimum lease payments for such operating
leases are as follows at December 31, 1998:
<TABLE>
<S> <C>
Year ended December 31,
1999...................................................... $1,141,380
2000...................................................... 1,159,480
2001...................................................... 1,159,480
2002...................................................... 820,016
2003...................................................... 227,256
----------
$4,507,612
==========
</TABLE>
Lease expense related to continuing operations for the years ended December
31, 1996, 1997 and 1998, was $50,346, $93,758 and $570,692, respectively.
On July 28, 1998, the Company entered into a new lease for office space,
which required the Company to provide a letter of credit for $160,000.
Subsequent to yearend, the Company entered into a new lease agreement for
additional office space. The lease term is for 38 months and requires monthly
rental payments of approximately $20,500 plus variable operating expenses. This
commitment is included as a future minimum lease payment in the table above.
LITIGATION
In the normal course of business, the Company is subject to, and may become
a party to, litigation arising out of its operations. In management's opinion,
none of the matters currently in actual or threatened litigation will have a
material impact on the Company's financial position or results of operations.
F-15
<PAGE> 99
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE SHARING AGREEMENTS
On April 17, 1998, the Company and Netscape Communications Corporation
("Netscape") signed a strategic business agreement and trademark license
agreement (collectively, the "Agreement") to offer a free email service through
Netscape's portal site, Netscape Netcenter. The service is called Netscape
WebMail Powered by USA.NET. The Agreement is a revenue sharing arrangement
between the two companies that includes advertising and premium email service
revenue. Under the terms of the trademark license agreement, the Company made a
one-time non-refundable payment of $5 million. In addition, each party has
obligations with regard to performance and marketing. The Company's rights under
the Agreement may be terminated if the Company does not meet such performance
criteria or under other specified conditions.
On October 31, 1998, the Company and Netscape signed an addendum to the
Agreement to expand the territory in which Netscape WebMail Powered by USA.NET
will be offered. Such service may now be offered in specified foreign countries
and is subject to a revenue sharing arrangement between the two companies. Under
the terms of the addendum, the Company made an additional one-time
non-refundable payment of $1.5 million. The Company is also required to pay an
additional $625,000 and $375,000 to Netscape in 1999 and 2000, respectively, for
additional fees. The future payment of $1,000,000 has been recorded as channel
acquisition costs and as a liability at December 31, 1998 and March 31, 1999.
The Agreements were entered into by the Company primarily to gain access to
Netscape's customers and for general strategic marketing purposes. The Company
has capitalized such payments. Amortization begins when the service is launched.
The Company recorded $1,250,000 of amortization expense in 1998 and $625,000
during the three months ended March 31, 1999 (unaudited) related to Netscape's
domestic Netcenter. The international Netcenters are not yet launched.
On April 8, 1997, the Company entered into an agreement with a certain
holder of its preferred stock, in which the Company provides co-branded,
advertising supported email services. Under the terms of the agreement, the
Company must remit to the investor a percentage of gross revenues, as defined,
generated from the use of this service. Through December 31, 1998, no material
payments were due under the agreement.
(6) STOCKHOLDERS' EQUITY
The Board of Directors of the Company is authorized under the Company's
Restated Certificate of Incorporation (the "Restated Certificate") to issue
160,000,000 shares of capital stock; 150,000,000 shares of which are authorized
for common stock and 10,000,000 of which are authorized for preferred stock
(1,100,000 shares are designated for Series A, 1,055,158 shares are designated
for Series B convertible preferred stock ("Series B"), 2,033,670 shares are
designated for Series C convertible preferred stock ("Series C"), and 2,033,898
shares are designated for Series D convertible preferred stock ("Series D")
(collectively, "Series Preferred")).
COMMON AND PREFERRED STOCK
In connection with the Reincorporation Merger, each share of
USA.NET-Colorado common stock was exchanged for one-half share of
USA.NET-Delaware common stock and one share of Series A, and the Company
established a par value for both common and preferred stock of $.001 per share.
In April 1997, the Company entered into a Series B Preferred Stock Purchase
Agreement, Investor Rights Agreement and Co-Marketing Program Agreement
(collectively the "Series B Agreement") under which it sold 527,579 shares of
Series B at $5.69 per share for proceeds of $3,001,925. The Series B Agreement
also granted the purchaser an option to purchase a minimum of 351,494 shares and
a maximum of 527,579 shares of additional Series B at a price equal to the lower
of $5.69 per share or the
F-16
<PAGE> 100
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
price per share of any preferred stock sold by the Company prior to April 8,
1998. The option was exercised on March 23, 1998 with regard to 356,073 shares
at $5.69 per share for proceeds of $2,026,055. The option for the remaining
shares expired.
The Series B Agreement requires that the Company utilize at least
$1,675,352 of the proceeds from the sale of Series B for marketing purposes as
specified in the Series B Agreement. At December 31, 1997 and 1998, the balance
of the restricted cash pursuant to this agreement was $734,704 and $839,504,
respectively. Any cash not used for this specified purpose becomes unrestricted
between April 1999 and March 2000, or the termination of the Series B Agreement,
whichever is earlier.
In connection with the Series B Agreement, an officer of the Company has
entered into a stock restriction agreement. Shares of common stock and Series A
held by the officer at the time of issuance of the Series B are subject to
repurchase by the Company, at the Company's option, in the event that such
officer is terminated for cause or voluntarily ceases to be an employee,
director or consultant prior to April 8, 2000. The repurchase price is
approximately $0.12 per share for common stock and $4.76 per share for Series A.
In October 1997, the Company entered into a Series C Preferred Stock
Purchase Agreement and an Investor Rights Agreement with various purchasers
pursuant to which it sold 736,376 shares of Series C for $6.79 per share for
proceeds of $4,999,995. In addition, the Company entered into a Co-Marketing
Program Agreement with one of those investors. These three agreements are
collectively referred to as the Series C Agreement. The Series C Agreement also
granted the purchasers an option to purchase a minimum of 98,085 to 490,426
shares (dependent upon the number of purchasers who exercise the option) and up
to a maximum of 736,376 shares of Series C at a price of $6.79 per share. The
option was exercised on March 23, 1998 with regard to 736,376 shares at $6.79
per share for total proceeds of $4,999,993. On March 23, 1998 and May 13, 1998,
the Company sold an additional 486,918 and 74,000 shares of Series C,
respectively, at $6.79 per share for proceeds of $3,306,173 and $502,460,
respectively, to various Series C stockholders and other investors.
The Series C Agreement requires that the Company utilize $1,150,000 of the
proceeds from the sale of Series C in October 1997 and $1,000,000 from the sale
on March 23, 1998, for marketing and technical development efforts as specified
in the Series C Agreement. The unused balance of the restricted cash pursuant to
this agreement was released from restriction on May 1, 1998 with regard to the
October 1997 sale of Series C and was originally to be released in April 1999
with regard to the March 23, 1998 sale. The unused balance of the restricted
cash, with regard to the March 23, 1998 sale, will be released from restriction
in October 1999. At December 31, 1997 and 1998, the balance of the restricted
cash under this agreement was $1,150,000 and $647,271, respectively.
In August 1998, the Company entered into a Series D Preferred Stock
Purchase Agreement and Investor Rights Agreement (collectively the "Series D
Agreement") with various purchasers pursuant to which it sold 1,557,318 shares
of Series D for $14.75 per share for proceeds of $22,970,441 (prior to offering
costs of $1,894,052, including $313,251 for the issuance of the warrant
discussed below).
The holders of Series Preferred have various rights and preferences as
follows:
Conversion
The holders of the Series Preferred may, at the option of the holder, be
converted at any time into shares of common stock at a current conversion rate
of 4.8 shares of common stock for each share of Series Preferred. The conversion
ratios will be adjusted in certain circumstances, primarily to prevent dilution.
Additionally, each share of Series Preferred will automatically convert into
shares of common stock based on the then current conversion rate (i) at any time
upon the affirmative election of the holders of at least 70% of the outstanding
shares of Series Preferred or (ii) upon the closing of a firmly
F-17
<PAGE> 101
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
underwritten public offering of the common stock of not less than $20 million
(before deduction of underwriters' discounts, commissions and fees) and which
results in a per share price of at least 150% of the then applicable price at
which the Series D converts into common stock.
Voting
The Series Preferred are voted equally with the shares of common stock of
the Company, on an as-if converted to common stock basis.
Dividends
Holders of the Series B, C and D are entitled to receive on a pari passu
basis non-cumulative dividends in preference to any dividend payable on the
Series A and the common stock at the rate of 6% of the original purchase for
each Series price per annum, when, as and if declared by the Board of Directors.
After such payment, the holders of Series A are entitled to receive
non-cumulative dividends in preference to any dividends payable on common stock,
at the rate of 6% of the stated value ($4.76) per annum, when, as and if
declared by the Board of Directors. The holders of Series B, C and D are also
entitled to participate pro rata in any dividends paid on the Series A or common
stock, on an as-if converted basis. The holders of Series A are also entitled to
participate in any dividends paid on the common stock on an as-if converted
basis. No dividends on Series Preferred or common stock have been declared by
the Board of Directors.
The Series B and C Agreements also require the prior approval of the
Director representative of the Series B and C to the Company's Board of
Directors prior to the Company issuing any debt security in excess of 50% of the
Company's equity at the closing of such financing, acquiring or obtaining a 10%
or greater interest in any other corporation, partnership or entity, declaring
or paying dividends on shares of common stock other than in compliance with the
Restated Certificate, or selling additional shares of Series B or C,
respectively. The rights terminate with respect to the Series B when the
original holders of Series B no longer hold at least 250,000 shares of Series B
and with respect to the Series C when there are no longer 250,000 shares of
Series C outstanding.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, including a merger, acquisition, sale of
voting control or sale of substantially all of the assets of the Company in
which the stockholders of the Company do not own a majority of the outstanding
shares of the surviving corporation, the holders of the Series D shall be
entitled to receive in preference to the holders of the Series A, B and C and
the common stock, $14.75 per share plus any declared but unpaid dividends. After
distribution of such amounts to the holders of Series D, the holders of Series B
and Series C shall be entitled to receive on a pari passu basis $5.69 and $6.79
per share, respectively, plus any declared but unpaid dividends. After
distribution of such amounts, the holders of Series A will be entitled to
receive $4.76 per share plus any declared but unpaid dividends. Following such
distributions, the remaining assets shall be distributed ratably to the holders
of the common stock provided, however, that the Series Preferred will be
entitled to participate in distributions to the common stockholders such that,
after giving effect to the applicable liquidation preferences of each series,
the holders of each series of Series Preferred shall receive aggregate
distributions equal to the greater of (i) the liquidation preference applicable
to such series and (ii) the amount such holders would have received if their
shares of Series Preferred had been converted into common stock immediately
prior to such liquidation, dissolution or winding up of the Company. If the
Company's assets are insufficient to repay any such amounts, as described above,
the remaining assets will be distributed ratably, in order of liquidation
preference.
F-18
<PAGE> 102
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
WARRANT
In connection with the August 1998 issuance of the Series D, the Company
issued a warrant to purchase 220,771 shares of the Company's common stock at an
exercise price of approximately $3.08 per share, exercisable for a five-year
period commencing August 12, 1998. The warrant was valued at a total of $313,251
utilizing the Black-Scholes option pricing model, assuming a volatility factor
of 92%, which is based upon an average of comparable public companies.
STOCK OPTION PLAN
During 1997, the Company adopted the 1997 Stock Option Plan (the "Plan")
under which the Company is authorized to grant incentive and non-qualified stock
options to acquire up to 5,973,662 shares of the Company's common stock to
employees and directors of the Company. Under the Plan, the exercise price per
share of a non-qualified stock option must be equal to at least 50% of the fair
market value of the common stock on the date of grant, and the exercise price
per share of an incentive stock option must equal the fair market value of the
common stock on the date of grant. Options granted vest over various terms with
a maximum vesting period of five years and expire after a maximum of 10 years.
The Company accounts for the Plan under APB Opinion No. 25, under which no
compensation cost has been recognized in the accompanying financial statements.
The following table summarizes the Plan at December 31, 1997 and 1998, and
activity during the years then ended:
<TABLE>
<CAPTION>
1997 1998
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year.............. -- $ -- 2,776,800 $ 0.12
Granted..................................... 2,930,400 0.12 1,717,440 1.65
Forfeited or canceled....................... (153,600) 0.12 (443,520) (0.31)
Exercised................................... -- -- (60,000) (0.12)
--------- ----- --------- ------
Outstanding, end of year.................... 2,776,800 $0.12 3,990,720 $ 0.76
========= ===== ========= ======
Exercisable, end of year.................... 613,440 $0.12 1,326,960 $ 0.24
========= ===== ========= ======
Weighted average fair value of options
granted during the year................... $0.04 $ 0.35
===== ======
</TABLE>
The status of stock options outstanding and exercisable under the Plan at
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
STOCK OPTIONS
STOCK OPTIONS OUTSTANDING EXERCISABLE
----------------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
RANGE OF NUMBER OF CONTRACTUAL AVERAGE NUMBER OF EXERCISE
EXERCISE PRICES SHARES LIFE (YEARS) EXERCISE PRICE SHARES PRICE
- --------------- --------- ------------ -------------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.12-$0.14.................. 2,361,120 8.25 $0.12 1,212,960 $0.12
$0.83-$1.46.................. 744,000 9.33 1.24 114,000 1.46
$1.88-$2.08.................. 885,600 9.75 2.05 -- --
--------- ---- ----- --------- -----
3,990,720 8.78 $0.76 1,326,960 $0.24
========= ==== ===== ========= =====
</TABLE>
F-19
<PAGE> 103
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA FAIR VALUE DISCLOSURES
The fair value of each option grant is calculated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Risk-free interest rate................................. 6.1% 5.0%
Expected dividend yield................................. 0% 0%
Expected lives outstanding.............................. 4.5 years 4.8 years
Expected volatility..................................... 0.001% 0.001%
</TABLE>
Cumulative compensation costs recognized in pro forma net income or loss
with respect to options that are forfeited prior to vesting are adjusted as a
reduction of pro forma compensation expense in the period of forfeiture.
Had compensation cost for the Plan been determined consistent with SFAS No.
123, the Company's net loss would have been increased to the following pro forma
amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998
----------- ------------
<S> <C> <C>
Net loss:
As reported..................................... $(4,973,935) $(14,390,723)
=========== ============
Pro forma....................................... $(4,993,087) $(14,463,302)
=========== ============
Basic and diluted net loss per share:
As reported..................................... $ (1.95) $ (5.57)
=========== ============
Pro forma....................................... $ (1.96) $ (5.60)
=========== ============
</TABLE>
UNEARNED STOCK-BASED COMPENSATION
In connection with certain stock option grants and common stock issuances
during the year ended December 31, 1998, the Company recognized unearned
compensation totaling $4,188,015 which is being amortized over the vesting
periods of the related options. Amortization expense recognized during the year
ended December 31, 1998 totaled $412,936.
(7) MAJOR CUSTOMERS AND SERVICES
Advertising and other revenue was recorded by the Company in the following
significant service categories:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998
--------- -----------
<S> <C> <C>
Consumer email service................................ $782,517 $3,170,445
Messaging solutions for Web portals................... -- 1,427,820
Business email and messaging solutions................ -- 104,448
-------- ----------
$782,517 $4,702,713
======== ==========
</TABLE>
F-20
<PAGE> 104
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A significant portion of the Company's revenue is derived from a limited
number of customers. The Company's sales to customers in excess of 10% of
revenues are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998
--------------- -----------------
$ % $ %
-------- ---- ---------- ----
<S> <C> <C> <C> <C>
Customer A............................... $142,150 18.1% $1,271,625 27.0%
Customer B............................... 116,917 14.9% -- --
Customer C............................... 89,289 11.4% -- --
</TABLE>
The Company's accounts receivable balances from customers in excess of 10%
of the accounts receivable balance are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1998
-------------- ---------------
$ % $ %
------- ---- -------- ----
<S> <C> <C> <C> <C>
Customer A.................................. $92,150 35.3% $145,000 9.7%
Customer B.................................. 35,335 13.5% -- --
Customer D.................................. 31,500 12.0% -- --
Customer E.................................. 29,000 11.1% -- --
Customer F.................................. -- -- 198,153 13.2%
Customer G.................................. -- -- 174,330 11.6%
</TABLE>
(8) INCOME TAXES
The Company terminated its S corporation status effective February 28,
1997. Because the Company incurred losses prior to this date, there is no pro
forma income tax provision/benefit, as the Company's history of operating losses
result in no benefit being recorded for such losses. Tax net operating losses
incurred during this period are not available to offset the Company's future
taxable income, if any.
The components of the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $1,624,000 $7,136,000
Other.............................................. 19,000 143,000
---------- ----------
1,643,000 7,279,000
Deferred tax liabilities:
Excess depreciation for tax........................ (72,000) (395,000)
---------- ----------
Net deferred income tax asset........................ 1,571,000 6,884,000
Valuation allowance.................................. (1,571,000) (6,884,000)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
At December 31, 1998, for income tax purposes, the Company has
approximately $18,779,000 of net operating loss carryforwards for the period
from March 1, 1997 through December 31, 1998. Such net operating losses begin
expiring in 2012. The net operating loss for tax purposes differs from that for
financial reporting purposes due to differences in reporting certain
transactions for income tax and financial reporting purposes.
F-21
<PAGE> 105
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Tax Reform Act of 1986 contains provisions which may limit the net
operating loss carryforwards available to be used in any given year if certain
events occur, including significant changes in ownership interests.
No provision or benefit (actual or pro forma) has been recorded for any
period presented due to the Company's history of net losses.
The Company has determined that approximately $1,571,000 and $6,884,000 of
net deferred tax assets at December 31, 1997 and 1998, did not satisfy the
realization criteria set forth in SFAS No. 109, "Accounting for Income Taxes."
Management believes, that based on all available evidence, it is more likely
than not that the deferred tax assets will not be realized. Accordingly, a
valuation allowance was recorded against the entire net deferred tax asset.
(9) DISCONTINUED OPERATION
In March 1997, the Company sold its ISP business segment in order to focus
its resources on its Internet email business. This business segment was sold to
an entity in which certain significant stockholders of the Company hold a
substantial interest. The Company has no interest in, and does not exercise
influence over, the ISP.
The ISP business segment was sold for a promissory note of $925,000, which
was collected in full during 1997, and the assumption of a note payable of
$324,760. The gain on the sale of the Internet service provider business segment
was $672,827. Summarized results of operations and financial position data of
this discontinued operation were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1996 1997
----------- --------
<S> <C> <C>
Results of operations:
Revenues........................................... $ 1,759,538 $197,496
=========== ========
Income (loss) from operations...................... $(1,629,441) $ 32,088
=========== ========
Net income (loss) from discontinued operation...... $(1,602,778) $ 27,150
=========== ========
</TABLE>
Basic and diluted per share information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1996 1997
----------- --------
<S> <C> <C>
Basic and diluted net income (loss) from
discontinued operation.......................... $ (1.11) $ 0.01
=========== ========
Basic and diluted gain on sale of discontinued
operation....................................... $ -- $ 0.26
=========== ========
</TABLE>
(10) SUBSEQUENT EVENTS
LEASE
On January 21, 1999, the Company entered into a new lease agreement for
additional office space. The lease term is for 38 months and requires monthly
rental payments of approximately $20,500 plus variable operating expenses (see
Note 5).
F-22
<PAGE> 106
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1997 STOCK OPTION PLAN
At March 19, 1999, the Company had granted stock options under the Plan to
purchase an aggregate of approximately 4,719,120 shares of common stock, of
which options to purchase approximately 83,520 shares had been exercised,
options to purchase approximately 789,120 shares had been forfeited or cancelled
and options to purchase approximately 3,846,480 shares at a weighted average
exercise price of approximately $0.74 per share remained outstanding. As
discussed below, the Company will make no future grants under the Plan.
1999 EQUITY INCENTIVE PLAN
The Company adopted the 1999 Equity Incentive Plan (the "1999 Plan"), which
replaces the Plan effective March 19, 1999. There is currently an aggregate of
13,000,000 shares of common stock authorized for issuance under the 1999 Plan.
The 1999 Plan provides for the grant of incentive stock options and
non-qualified stock options, restricted stock purchase awards, stock bonuses and
stock appreciation rights to employees, including officers and
employee-directors, directors and consultants of the Company.
Through March 31, 1999, options to purchase 319,200 shares of common stock
had been granted under the 1999 Plan and no stock bonuses or restricted stock
had been granted.
1999 EMPLOYEE STOCK PURCHASE PLAN
On April 1, 1999 the Board of Directors approved the 1999 Employee Stock
Purchase Plan (the "Purchase Plan"). There is currently an aggregate of
1,250,000 shares of common stock authorized for issuance under the Purchase
Plan. The Purchase Plan will become effective on the effective date of the
initial public offering of the Company's common stock. The Purchase Plan is
intended to qualify as an "employee stock purchase plan" within the meaning of
Section 423 of the Internal Revenue Code. The first offering under the Purchase
Plan will begin on the effective date of the initial public offering of the
Company's common stock, with the first purchase date being December 31, 1999.
Unless otherwise determined, common stock is purchased under the Purchase Plan
at a price per share equal to the lower of (i) 85% of the fair market value of a
share of common stock on the commencement date of the offering or (ii) 85% of
the fair market value of a share of common stock on the date of purchase.
Generally, all regular employees, including executive officers, may participate
in the Purchase Plan and may authorize payroll deductions for the purchase of
stock. The Purchase Plan will terminate at the Board of Directors direction or
when all of the shares reserved for issuance have been purchased.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In April 1999, the board adopted and the stockholders approved the 1999
Non-Employee Directors' Stock Option Plan (the "Directors' Plan") to provide for
the automatic grant of options to purchase shares of common stock to
non-employee directors of USA.NET. The Directors' Plan will become effective on
the effective date of the initial public offering of USA.NET's common stock. The
board administers the Directors' Plan, unless the board delegates administration
to a committee.
The aggregate number of shares of common stock that may be issued pursuant
to options granted under the Directors' Plan is 301,000 shares.
STOCK OPTION GRANTS
From January 1999 through April 1999, the Company granted stock options to
employees to purchase 2,929,680 shares of common stock at exercise prices
ranging between $2.50 and $6.25 per share. In
F-23
<PAGE> 107
USA.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
connection with such option grants, the Company recognized unearned compensation
totaling approximately $26 million which is being amortized over the vesting
period of the related options. Additionally, in April 1999 the Company entered
into an employment agreement which will require it to record $750,000 of
compensation in April 1999, and $2,250,000 ratably through December 31, 2001.
INITIAL PUBLIC OFFERING
On April 5, 1999, the Company filed a registration statement with the SEC
on Form S-1.
F-24
<PAGE> 108
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown are
estimates, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 46,200
NASD filing fee............................................. 17,118
Nasdaq National Market listing application fee.............. 95,000
Blue Sky fees and expenses.................................. 6,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 475,000
Accounting fees and expenses................................ 200,000
Transfer agent and registrar fees........................... 15,000
Miscellaneous expenses...................................... 15,682
----------
TOTAL............................................. $1,070,000
==========
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
We have issued and sold the following securities since April 1, 1996:
- From May 1, 1996 through December 30, 1996, our Colorado predecessor
corporation sold an aggregate of 657,350 shares of common stock to
certain existing stockholders at a purchase price of $4.76 per share.
650,000 of these shares were issued pursuant to the conversion of
$3,094,000 in indebtedness owed to three of our principal stockholders.
The issuance and sale to the shares was exempt from registration pursuant
to Section 4(2) of the Securities Act.
- On March 14, 1997, in connection with our reincorporation from Colorado
to Delaware, we issued an aggregate of 2,549,328 shares of common stock
and an aggregate of 1,062,231 shares of Series A Preferred Stock (which
Series A Preferred Stock will convert into 5,098,708 shares of common
stock on the closing of this offering) in exchange for cancellation of
the issued and outstanding shares of common stock of our Colorado
predecessor. The issuance of the shares was exempt from registration
pursuant to Section 3(a)(9) of the Securities Act.
- On April 8, 1997 and March 23, 1998, we issued and sold an aggregate of
883,652 shares of Series B Preferred Stock (which will convert into
4,241,529 shares of common stock on the closing of this offering) at a
purchase price of $5.69 per share to an accredited investor. The issuance
and sale of the shares was exempt from registration pursuant to Section
4(2) of the Securities Act.
- On October 17, 1997, March 23, 1998 and May 13, 1998, we issued and sold
an aggregate of 2,033,670 shares of Series C Preferred Stock (which will
convert into 9,761,616 shares of common stock on the closing of this
offering) at a purchase price of $6.79 per share to accredited investors.
The issuance and sale of the shares was exempt from registration pursuant
to Section 4(2) of the Securities Act.
- In August 1998, we issued and sold an aggregate of 1,557,318 shares of
Series D Preferred Stock (which will convert into 7,475,126 shares of
common stock on the closing of this offering) at a purchase price of
$14.75 per share to accredited investors. The issuance and sale of the
shares was exempt from registration pursuant to Section 4(2) of the
Securities Act.
- On August 12, 1998, we issued a warrant to purchase 220,771 shares of
common stock at an exercise price of $3.08 per share to BT Alex. Brown
Incorporated, as partial consideration for its
II-1
<PAGE> 109
services as placement agent for our Series D Preferred Stock financing.
The issuance of the warrant was exempt from registration pursuant to
Section 4(2) of the Securities Act.
- We have issued an aggregate of 219,240 shares of common stock pursuant to
the exercise of stock options having a weighted average exercise price of
$.31 per share. The issuance and sale of such shares was exempt from
registration pursuant to Rule 701 under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation of the Company.
3.2 Certificate of Amendment of Restated Certificate of
Incorporation of the Company.
3.3 Form of Restated Certificate of Incorporation of the Company
to become effective upon the closing of the Offering.
3.4** Bylaws of the Company.
3.5** Amended and Restated Bylaws of the Company to become
effective upon the closing of the Offering.
4.1 Reference is made to Exhibits 3.1 through 3.5.
4.2* Specimen stock certificate representing shares of Common
Stock of the Company.
5.1 Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
10.1** 1997 Stock Option Plan of the Company.
10.2 1999 Equity Incentive Plan of the Company.
10.3 1999 Non-Employee Directors' Stock Option Plan of the
Company.
10.4 1999 Employee Stock Purchase Plan of the Company.
10.5** Second Amended and Restated Investor Rights Agreement among
the Company and certain of its stockholders.
10.6** Common Stock Purchase Warrant issued by the Company to BT
Alex. Brown Incorporated.
10.7** Stock Restriction Agreement between the Company and John W.
Street.
10.8** Non-Competition Agreement between the Company and John W.
Street.
10.8A Employment Agreement between the Company and John W.
Gerdelman.
10.8B Employment Agreement between the Company and Kaukab N.
Chaudhry.
10.8C Form of Employment Agreement between the Company and each of
its other executive officers.
10.9** Form of Indemnity Agreement between the Company and each of
its directors and executive officers.
10.10+ Co-Marketing Program Agreement between the Company and
American Express Travel Related Services Company, Inc., as
amended.
10.11+ Netcenter Services Agreement between the Company and
Netscape Communications Corporation, as amended.
10.12**+ Trademark License Agreement between the Company and Netscape
Communications Corporation, as amended.
10.13**+ Partnership Agreement between the Company and Register.com.
</TABLE>
II-2
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.13A+ Website Advertising Agreements between the Company and
Egghead.com.
10.14** Business Loan Agreement between the Company and State Bank
and Trust of Colorado Springs.
10.15** Office Lease Agreement between the Company and BVT Chapel
Hills, Ltd., as amended.
10.16** Asset Purchase Agreement between the Company and Internet
Express, LLC.
10.17** Series B Preferred Stock Purchase Agreement between the
Company and American Express Travel Related Services
Company, Inc., as amended.
10.18** Series C Preferred Stock Purchase Agreement between the
Company and the purchasers of its Series C Preferred Stock,
as amended.
10.19** Series D Preferred Stock Purchase Agreement between the
Company and the purchasers of its Series D Preferred Stock.
23.1 Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1** Powers of attorney.
27.1 Financial Data Schedule for 1997 and 1998.
27.2 Financial Data Schedule for 1996.
27.3 Financial Data Schedule for March 31, 1998 and March 31,
1999.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ The Company is applying for confidential treatment with respect to portions
of these exhibits.
(B) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
II-3
<PAGE> 111
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Colorado Springs, County of El Paso, State of Colorado, on May 11, 1999.
By: /s/ JOHN W. GERDELMAN
----------------------------------
John W. Gerdelman
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN W. GERDELMAN Chief Executive Officer and May 11, 1999
- ----------------------------------------------------- President (Principal Executive
John W. Gerdelman Officer)
/s/ KAUKAB N. CHAUDHRY Chief Financial Officer (Principal May 11, 1999
- ----------------------------------------------------- Financial and Accounting
Kaukab N. Chaudhry Officer)
/s/ JEFFREY A. ALLRED* Director May 11, 1999
- -----------------------------------------------------
Jeffrey A. Allred
/s/ MARY M. BEAZLEY Director May 11, 1999
- -----------------------------------------------------
Mary M. Beazley
/s/ KAREN GRIFFITH GRYGA* Director May 11, 1999
- -----------------------------------------------------
Karen Griffith Gryga
/s/ LAWRENCE S. SHARNAK* Director May 11, 1999
- -----------------------------------------------------
Lawrence S. Sharnak
/s/ JOHN W. STREET* Chairman of the Board May 11, 1999
- -----------------------------------------------------
John W. Street
*By: /s/ MARY M. BEAZLEY
------------------------------------------------
Mary M. Beazley
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 112
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation of the Company.
3.2 Certificate of Amendment of Restated Certificate of
Incorporation of the Company.
3.3 Form of Restated Certificate of Incorporation of the Company
to become effective upon the closing of the Offering.
3.4** Bylaws of the Company.
3.5** Amended and Restated Bylaws of the Company to become
effective upon the closing of the Offering.
4.1 Reference is made to Exhibits 3.1 through 3.5.
4.2* Specimen stock certificate representing shares of Common
Stock of the Company.
5.1 Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
10.1** 1997 Stock Option Plan of the Company.
10.2 1999 Equity Incentive Plan of the Company.
10.3 1999 Non-Employee Directors' Stock Option Plan of the
Company.
10.4 1999 Employee Stock Purchase Plan of the Company.
10.5** Second Amended and Restated Investor Rights Agreement among
the Company and certain of its stockholders.
10.6** Common Stock Purchase Warrant issued by the Company to BT
Alex. Brown Incorporated.
10.7** Stock Restriction Agreement between the Company and John W.
Street.
10.8** Non-Competition Agreement between the Company and John W.
Street.
10.8A Employment Agreement between the Company and John W.
Gerdelman.
10.8B Employment Agreement between the Company and Kaukab N.
Chaudhry.
10.8C Form of Employment Agreement between the Company and each of
its other executive officers.
10.9** Form of Indemnity Agreement between the Company and each of
its directors and executive officers.
10.10+ Co-Marketing Program Agreement between the Company and
American Express Travel Related Services Company, Inc., as
amended.
10.11+ Netcenter Services Agreement between the Company and
Netscape Communications Corporation, as amended.
10.12**+ Trademark License Agreement between the Company and Netscape
Communications Corporation, as amended.
10.13**+ Partnership Agreement between the Company and Register.com.
10.13A+ Website Advertising Agreements between the Company and
Egghead.com.
10.14** Business Loan Agreement between the Company and State Bank
and Trust of Colorado Springs.
10.15** Office Lease Agreement between the Company and BVT Chapel
Hills, Ltd., as amended.
10.16** Asset Purchase Agreement between the Company and Internet
Express, LLC.
</TABLE>
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.17** Series B Preferred Stock Purchase Agreement between the
Company and American Express Travel Related Services
Company, Inc., as amended.
10.18** Series C Preferred Stock Purchase Agreement between the
Company and the purchasers of its Series C Preferred Stock,
as amended.
10.19** Series D Preferred Stock Purchase Agreement between the
Company and the purchasers of its Series D Preferred Stock.
23.1 Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1** Powers of attorney.
27.1 Financial Data Schedule for 1997 and 1998.
27.2 Financial Data Schedule for 1996.
27.3 Financial Data Schedule for March 31, 1998 and March 31,
1999.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ The Company is applying for confidential treatment with respect to portions
of these exhibits.
<PAGE> 1
EXHIBIT 1.1
8,500,000 Shares of Common Stock
USA.NET, INC
UNDERWRITING AGREEMENT
May ___, 1999
BEAR, STEARNS & CO. INC.
VOLPE BROWN WHELAN & COMPANY LLC
CIBC WORLD MARKETS CORP.
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Dear Sirs:
USA.NET, Inc., a corporation organized and existing under the
laws of Delaware (the "Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell to the several underwriters named in Schedule I
hereto (the "Underwriters") an aggregate of 8,500,000 shares (the "Firm Shares")
of the Company's common stock, par value $0.001 per share (the "Common Stock")
1
<PAGE> 2
and, for the sole purpose of covering over-allotments in connection with the
sale of the Firm Shares, at the option of the Underwriters, up to an additional
1,275,000 shares (the "Additional Shares") of Common Stock. The Firm Shares and
any Additional Shares purchased by the Underwriters are referred to herein as
the "Shares." The Shares are more fully described in the Registration Statement
referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and may have filed an
amendment or amendments thereto, on Form S-1 (No. 333-75687), for the
registration of the Shares under the Securities Act of 1933, as amended (the
"Act"). Such registration statement, including the prospectus, financial
statements and schedules, exhibits and all other documents filed as a part
thereof, as amended at the time of effectiveness of the registration statement,
including any information deemed to be a part thereof as of the time of
effectiveness pursuant to paragraph (b) of Rule 430A or Rule 434 of the Rules
and Regulations of the Commission under the Act (the "Regulations"), is herein
called the "Registration Statement" and the prospectus, in the form first filed
with the Commission pursuant to Rule 424(b) of the Regulations or filed as part
of the Registration Statement at the time of effectiveness if no Rule 424(b) or
Rule 434 filing is required, is herein called the "Prospectus." The term
"preliminary prospectus" as used herein means a preliminary prospectus as
described in Rule 430 of the Regulations. All references in this Agreement to
the Registration Statement, a preliminary prospectus, the Prospectus, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
(b) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Shares nor, to the best of the Company's knowledge, instituted proceedings for
that purpose. At the time of the effectiveness of the Registration Statement or
the effectiveness of any post-effective amendment to the Registration Statement,
when the Prospectus is first filed with the Commission pursuant to Rule 424(b)
or Rule 434 of the Regulations, when any supplement to or amendment of the
Prospectus is filed with the Commission and at the Closing Date and the
Additional Closing Date, if any (as hereinafter respectively defined), the
Registration Statement and the Prospectus and any amendments thereof and
supplements thereto complied or will comply in all material respects with the
applicable provisions of the Act and the Regulations and does not or will not
contain an untrue statement of a material fact and does not or will not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein (i) in the case of the Registration Statement, not
misleading and (ii) in the case of the Prospectus, in light of the circumstances
under which they were made, not misleading. When any related preliminary
prospectus was first filed with the Commission (whether filed as part of the
registration statement for the registration of the Shares or any amendment
thereto or pursuant to Rule 424(a) of the Regulations) and when any amendment
thereof or supplement thereto was first filed with the Commission, such
preliminary prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations and did not contain an untrue statement of a material fact and
did not omit to state any material fact
2
<PAGE> 3
required to be stated therein or necessary in order to make the statements
therein in light of the circumstances under which they were made not misleading.
The Prospectus and any preliminary prospectus delivered to the Underwriters for
use in connection with the offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T under the Act. No representation and
warranty is made in this subsection (b), however, with respect to any
information contained in or omitted from the Registration Statement or the
Prospectus or any related preliminary prospectus or any amendment thereof or
supplement thereto in reliance upon and in conformity with information furnished
in writing to the Company by or on behalf of any Underwriter through you as
herein stated expressly for use in connection with the preparation thereof. If
Rule 434 is used, the Company will comply with the requirements of Rule 434.
(c) The Company does not have any subsidiaries and does not
own or control, directly or indirectly, any interest in any other corporation,
association or other business entity.
(d) Arthur Andersen LLP, who have expressed their opinion on
the audited financial statements and supporting schedules included in the
Registration Statement, are independent public accountants as required by the
Act and the Regulations.
(e) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as set forth
or contemplated in the Registration Statement and the Prospectus, there has been
no material adverse change or any development involving a prospective material
adverse change in the business, prospects, properties, operations, condition
(financial or other) or results of operations of the Company (a "Material
Adverse Change"), whether or not arising from transactions in the ordinary
course of business, and since the date of the latest balance sheet presented in
the Registration Statement and the Prospectus, the Company has not incurred or
undertaken any liabilities or obligations, direct or contingent, which are
material to the Company, except for liabilities or obligations which are
reflected in the Registration Statement and the Prospectus.
(f) This Agreement and the transactions contemplated herein
have been duly and validly authorized by the Company, and this Agreement has
been duly and validly executed and delivered by the Company.
(g) The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby do not and will not
(i) conflict with or result in a breach of any of the terms and provisions of,
or constitute a default (or an event which with notice or lapse of time, or
both, would constitute a default) under, require approval or consent under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to the terms of (A) any agreement,
instrument, contract, indenture, mortgage, lease, license, franchise,
arrangement or other understanding to which the Company is a party or to which
any of its properties or assets are subject, (B) any governmental franchise,
license, permit heretofore issued to the Company, (ii) violate or conflict with
any provision of the Amended and Restated Certificate of Incorporation or Bylaws
of
3
<PAGE> 4
the Company or (iii) violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over the Company or any of its
respective properties or assets; which violation or conflict would have a
Material Adverse Effect (as defined below).
(h) No consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of its respective properties or assets is required for the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, including the issuance, sale and delivery of
the Shares to be issued, sold and delivered by the Company hereunder, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, orders, registrations, filings, qualifications, licenses and
permits as may be required by the National Association of Securities Dealers,
Inc. or under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters.
(i) All of the outstanding shares of Common Stock are duly and
validly authorized and issued, fully paid and non-assessable and were not issued
and are not now in violation of or subject to any preemptive or similar rights.
The Shares, when issued, delivered and sold in accordance with this Agreement,
will be duly and validly issued and outstanding, fully paid and nonassessable,
and will not have been issued in violation of or be subject to any preemptive or
similar rights; and as of the date of the Prospectus and the Closing Date,
except as described in or expressly contemplated by the Prospectus, there are no
outstanding rights (including, without limitation, preemptive rights), warrants
or options to acquire, or instruments convertible into or exchangeable for, any
shares of capital stock or other equity interests in the Company, or any
contract, commitment, agreement, understanding or arrangement of any kind
relating to the issuance of any capital stock of the Company.
(j) The Company had, at __________, 1999, an authorized and
outstanding capitalization as set forth under the heading "Capitalization" in
the Registration Statement and the Prospectus. The Common Stock, the Firm Shares
and the Additional Shares conform to the descriptions thereof contained in the
Registration Statement and the Prospectus. The form of certificates for the
Shares are in due and proper form under the Delaware General Corporation Law.
(k) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware. The Company is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its business
makes such qualification necessary, except for those failures to be so qualified
or in good standing that will not in the aggregate have a material adverse
effect, or any development involving a prospective material adverse effect, on
the business, prospects, properties, operations, condition (financial or other),
stockholders' equity or results of operations on the Company (a "Material
Adverse Effect"). The Company has all requisite corporate power and authority,
and all necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses
4
<PAGE> 5
and permits of and from all public, regulatory or governmental agencies and
bodies, to own, lease and operate its properties and conduct its business as now
being conducted and as described in the Registration Statement and the
Prospectus, except as would not result in a Material Adverse Effect. No such
consent, approval, authorization, order, registration, qualification, license or
permit contains a materially burdensome restriction not adequately disclosed in
the Registration Statement and the Prospectus. There are no statutes,
regulations, contracts or other documents applicable to the Company that are
required to be described in the Registration Statement or Prospectus or to be
filed as exhibits to the Registration Statement that are not described or filed
as required. The Company is in compliance with all applicable foreign, federal,
state and local laws, orders, rules, regulations, ordinances and directives,
except where the failure to be so in compliance would not have a Material
Adverse Effect.
(l) The Company is not in violation of any provision of its
Amended and Restated Certificate of Incorporation or Bylaws or in breach of, or
in default under (nor has any event occurred that with notice, lapse of time, or
both, would constitute a breach of, or default under), any provision of any
agreement (including any exclusivity provision contained therein), instrument,
franchise, license or permit to which the Company is a party or by which any of
its properties or assets may be bound or affected or any judgment, decree,
order, statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over the Company or any of its
properties or assets, which breach or default would have a Material Adverse
Effect.
(m) Except as described in the Prospectus, there is no
litigation, arbitration, proceeding, investigation or claim to which the Company
is a party or to which any property or assets of the Company are subject or
which is pending or, to the knowledge of the Company, threatened or contemplated
against or otherwise affecting the Company that might result in a Material
Adverse Effect or which is required to be disclosed in the Registration
Statement and the Prospectus.
(n) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which constitutes or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the sale
or resale of the Shares or a violation of Regulation M under the Exchange Act.
(o) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the Prospectus
present fairly the financial position of the Company as of the dates indicated
and the results of its operations of the Company for the periods specified;
except as otherwise stated in the Registration Statement, said financial
statements have been prepared in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis; and the supporting schedules
included in the Registration Statement present fairly the information required
to be stated therein. The selected financial data and the summary financial data
included in the Prospectus present fairly the information shown therein and have
been compiled on a basis consistent with that of the financial statements
included in the Registration Statement. The pro forma financial statements and
5
<PAGE> 6
other pro forma financial information included in the Registration Statement and
the Prospectus present fairly the information shown therein, have been prepared
in accordance with the Commission's rules and guidelines with respect to pro
forma financial statements, have been properly compiled on the pro forma bases
described therein, and, in the opinion of the Company, the assumptions used in
the preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein. No other financial statements are required by Form S-1 or otherwise to
be included in the Registration Statement or the Prospectus other than those
included therein.
(p) Except as described in the Prospectus or except as may
have been properly waived, no holder of securities of the Company has any rights
to cause the Company to issue to it, or register pursuant to the Act, any
securities of the Company because of the filing of the Registration Statement in
connection with the sale of the Shares contemplated hereby or otherwise, nor
does any such holder of securities of the Company have preemptive rights or
other rights to purchase any of the Shares.
(q) The Company is not, and upon consummation of the
transactions contemplated hereby and the application of the proceeds therefrom
as described in the Prospectus will not be, subject to registration as an
"investment company" under the Investment Company Act of 1940.
(r) The Shares have been approved for quotation on the
National Association of Securities Dealers Automated Quotation ("Nasdaq")
National Market system, subject only to official notice of issuance.
(s) Except as described in the Registration Statement and the
Prospectus, the Company owns or possesses valid and enforceable licenses or
other rights to use all inventions, patents, patent applications, trademarks,
service marks, trade names, copyrights, technology, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) proprietary techniques (including processes
and substances) and other intellectual property rights necessary to conduct the
business now conducted or presently contemplated to be conducted by the Company
and its subsidiaries, taken as a whole, as described in the Registration
Statement and the Prospectus, except where the failure to own or possess such
rights would not have a Material Adverse Effect ("Intellectual Property"); other
than as described in the Registration Statement and the Prospectus: (i) to the
Company's knowledge there are no third parties who have any rights in the
Intellectual Property that could preclude the Company from conducting its
business as currently conducted or as presently contemplated to be conducted as
described in the Registration Statement and the Prospectus; (ii) there are no
pending or, to the Company's knowledge, threatened actions, suits, proceedings,
investigations or claims by others challenging the rights of the Company or (if
the Intellectual Property is licensed) the licensor thereof in any Intellectual
Property owned or licensed to the Company; (iii) the Company and (if the
Intellectual Property is licensed) to the Company's knowledge the licensor
thereof has not infringed, or received any notice of infringement of or conflict
with, any rights of others with respect to the Intellectual Property; and (iv)
there is no dispute between the Company or any licensor and any third parties
with respect to
6
<PAGE> 7
any Intellectual Property. True and correct copies of all material licenses and
other material agreements between the Company and any third party relating to
the Intellectual Property, and all amendments and supplements thereto, have been
provided to the Underwriters.
(t) Except as disclosed in the Registration Statement and the
Prospectus, (i) the Company has good and marketable title to all properties
(real and personal) owned by the Company, free and clear of all mortgages,
pledges, liens, security interests, claims, restrictions or encumbrances of any
kind, and (ii) all properties held under lease or license by the Company are
held under valid, subsisting and enforceable leases or licenses. No real
property owned, leased, licensed or used by the Company lies in an area that is,
or to the best knowledge of the Company will be, subject to zoning, use or
building code restrictions that would prohibit, and no state of facts relating
to the actions or inaction of another person or entity or his, her or its
ownership, leasing, licensing or use of such real property in the business of
the Company as presently conducted or as the Prospectus indicates are
contemplated to be conducted.
(u) No relationship, direct or indirect, exists between or
among the Company, on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company, on the other hand, which is required by
the Act to be described in the Registration Statement and the Prospectus which
is not so described.
(v) Neither the Company, nor, to the best of the Company's
knowledge, any director, officer, agent, employee or other person associated
with or acting on behalf of the Company has used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expense relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provisions of the Foreign Corrupt Practices Act of 1972; or
made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
(w) The Company is in compliance with all environmental,
safety or similar laws or regulations applicable to them or their business or
property relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants, except
where such noncompliance would not, individually or in the aggregate, have a
Material Adverse Effect.
(x) There are no existing or, to the knowledge of the Company,
threatened labor disputes with the employees of the Company.
(y) Each employee benefit plan within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), that is maintained, administered or contributed to by the Company or
any of its affiliates, consultants or third parties with whom the Company has
contracted to provide employees or human resource services for employees or
former employees of the Company and its affiliates has been maintained in
compliance with its terms and the requirements of any applicable statutes,
orders, rules and regulations, including but not limited to ERISA and the
Internal Revenue Code of 1986, as amended ("Code"). No prohibited transaction,
within the meaning of Section 406 of ERISA or
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<PAGE> 8
Section 4975 of the Code has occurred with respect to any such plan excluding
transactions effected pursuant to a statutory or administrative exemption. For
each such plan which is subject to the funding rules of Section 412 of the Code
or Section 302 of ERISA no "accumulated funding deficiency" as defined in
Section 412 of the Code has incurred, whether or not waived, and the fair market
value of the assets of each such plan (excluding for these purposes accrued but
unpaid contributions) exceeded the present value of all benefits accrued under
such plan determined using reasonable actuarial assumptions.
(z) The Company has filed all material federal, state and
foreign income and franchise tax returns required to be filed as of the date
hereof and have paid all taxes shown as due thereon, except to the extent such
taxes are (A) currently payable without penalty or interest or (B) being
contested in good faith, and there is no tax deficiency that has been asserted
against the Company. All tax liabilities are adequately provided for on the
books of the Company. There is no tax deficiency that has been asserted against
the Company.
(aa) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts (i)
generally deemed adequate for its business and consistent with insurance
coverage maintained by similar companies in similar businesses and (ii) required
under any of the Company's agreements, licenses or other contracts, all of which
insurance is in full force and effect; the Company has no reason to believe that
it will not be able to renew its existing insurance as and when such coverage
expires or to obtain similar insurance adequate and customary for its business
and sufficient to satisfy any requirements of its contracts at a cost that would
not have a Material Adverse Effect.
(bb) The Company maintains systems of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets,
(iii) the access to assets of the Company is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(cc) The description of the Company's Year 2000 readiness set
forth under the heading "Year 2000 Issues" in the Management's Discussion and
Analysis of Financial Condition and Results of Operation section of the
Prospectus is accurate and complete in all material respects.
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters and the Underwriters,
severally and not jointly, agree to purchase from the Company, at a purchase
price per share of $_______, the number of Firm Shares set forth opposite the
respective names of the Underwriters in Schedule I hereto plus any additional
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<PAGE> 9
number of Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 9 hereof.
(b) Payment of the purchase price for, and delivery of
certificates for, the Shares shall be made at the office of Morrison & Foerster
LLP, 5200 Republic Plaza, 370 Seventeenth Street, Denver, Colorado 80202, or at
such other place as shall be agreed upon by you and the Company, at 10:00 A.M.
New York time on the third or fourth business day (as permitted under Rule
15c6-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (unless postponed in accordance with the provisions of Section 9 hereof)
following the date of the effectiveness of the Registration Statement (or, if
the Company has elected to rely upon Rule 430A of the Regulations, the third or
fourth business day (as permitted under Rule 15c6-1 under the Exchange Act)
after the determination of the initial public offering price of the Shares), or
such other time not later than ten business days after such date as shall be
agreed upon by you and the Company (such time and date of payment and delivery
being herein called the "Closing Date"). Payment shall be made to the Company by
wire transfer in same day funds, against delivery to you for the respective
accounts of the Underwriters of certificates for the Shares to be purchased by
them. Certificates for the Shares shall be registered in such name or names and
in such authorized denominations as you may request in writing at least two full
business days prior to the Closing Date. The Company will permit you to examine
and package such certificates for delivery at least one full business day prior
to the Closing Date. If you so elect, delivery of the Firm Shares purchased from
the Company may be made by credit through full fast transfer to the accounts at
The Depository Trust Company designated by you.
(c) In addition, the Company hereby grants to the Underwriters
the option to purchase up to 1,275,000 Additional Shares at the same purchase
price per share to be paid by the Underwriters to the Company for the Firm
Shares as set forth in this Section 2, for the sole purpose of covering
over-allotments in the sale of Firm Shares by the Underwriters. This option may
be exercised at any time, in whole or in part, on or before the thirtieth day
following the date of the Prospectus, by written notice by you to the Company.
Such notice shall set forth the aggregate number of Additional Shares as to
which the option is being exercised and the date and time, as reasonably
determined by you, when the Additional Shares are to be delivered (such date and
time being herein sometimes referred to as the "Additional Closing Date");
provided, however, that the Additional Closing Date shall not be earlier than
the Closing Date or earlier than the second full business day after the date on
which the option shall have been exercised nor later than the eighth full
business day after the date on which the option shall have been exercised
(unless such time and date are postponed in accordance with the provisions of
Section 9 hereof). Certificates for the Additional Shares shall be registered in
such name or names and in such authorized denominations as you may request in
writing at least two full business days prior to the Additional Closing Date.
The Company will permit you to examine and package such certificates for
delivery at least one full business day prior to the Additional Closing Date. If
you so elect, delivery of the Additional Shares purchased from the Company may
be made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by you.
The number of Additional Shares to be sold to each Underwriter shall be
the number which bears the same ratio to the aggregate number of Additional
Shares being
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<PAGE> 10
purchased as the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto (or such number increased as set forth
in Section 9 hereof) bears to [insert the total number of Firm Shares being
purchased from the Company], subject, however, to such adjustments to eliminate
any fractional shares as you in your sole discretion shall make.
Payment for the Additional Shares shall be made by wire transfer in
same day funds at the offices of Morrison & Foerster LLP, 5200 Republic Plaza,
370 Seventeenth Street, Denver, Colorado 80202, or such other location as may be
mutually acceptable, upon delivery of the certificates for the Additional Shares
to you for the respective accounts of the Underwriters.
3. Offering.
(a) Upon your authorization of the release of the Firm Shares,
the Underwriters propose to offer the Firm Shares for sale to the public upon
the terms set forth in the Prospectus.
(b) The Company and the Underwriters hereby agree that up to
425,000 shares of the Firm Shares to be purchased by the Underwriters (the
"Directed Shares") shall be reserved for sale by the Underwriters to eligible
employees of and certain persons designated by the Company ("the Directed Shares
Purchasers"), as part of the distribution of the Shares by the Underwriters
subject to the terms of this Agreement, the applicable rules, regulations and
interpretations of the National Association of Securities Dealers, Inc. (the
"NASD") and all other applicable laws, rules and regulations, provided, however,
that under no circumstances will you or any other Underwriter be liable to the
Company or to any of the Directed Shares Purchasers for any action taken or
omitted in good faith in connection with transactions effected with regard to
the Directed Shares Purchasers. To the extent that such Directed Shares are not
orally confirmed for purchase by such persons by the end of the first day after
the date of this Agreement, such Directed Shares will be offered to the public
as part of the Underwritten Offering contemplated hereby.
4. Covenants of the Company. The Company covenants and agrees with the
Underwriters that:
(a) If the Registration Statement has not yet been declared
effective the Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
possible, and if Rule 430A is used or the filing of the Prospectus is otherwise
required under Rule 424(b) or Rule 434, the Company will file the Prospectus
(properly completed if Rule 430A has been used) pursuant to Rule 424(b) or Rule
434 within the prescribed time period and will provide evidence satisfactory to
you of such timely filing. If the Company elects to rely on Rule 434, the
Company will prepare and file a term sheet that complies with the requirements
of Rule 434.
The Company will notify you as promptly as possible (and, if
requested by you, will confirm such notice in writing) (i) when the Registration
Statement and any amendments thereto become effective, (ii) of any request by
the Commission for any amendment
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<PAGE> 11
of or supplement to the Registration Statement or the Prospectus or for any
additional information, (iii) of the mailing or the delivery to the Commission
for filing of any amendment of or supplement to the Registration Statement or
the Prospectus, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any post-effective
amendment thereto or of the initiation, or the threatening, of any proceedings
therefor, (v) of the receipt of any comments from the Commission, and (vi) of
the receipt by the Company of any notification with respect to the suspension of
the qualification of the Shares for sale in any jurisdiction or the initiation
or threatening of any proceeding for that purpose. If the Commission shall
propose or enter a stop order at any time, the Company will make every
reasonable effort to prevent the issuance of any such stop order and, if issued,
to obtain the lifting of such order as soon as possible. The Company will not
file any amendment to the Registration Statement or any amendment of or
supplement to the Prospectus (including the prospectus required to be filed
pursuant to Rule 424(b)or Rule 434) that differs from the prospectus on file at
the time of the effectiveness of the Registration Statement before or after the
effective date of the Registration Statement to which you shall reasonably
object in writing after being timely furnished in advance a copy thereof.
(b) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act any event shall have occurred as a result
of which the Prospectus as then amended or supplemented would, in the judgment
of the Underwriters or the Company after consultation with legal counsel,
include an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, or
if it shall be necessary at any time to amend or supplement the Prospectus or
Registration Statement to comply with the Act or the Regulations, the Company
will notify you promptly and prepare and file with the Commission an appropriate
amendment or supplement (in form and substance satisfactory to you) that will
correct such statement or omission and will use its best efforts to have any
amendment to the Registration Statement declared effective as soon as possible.
(c) The Company will promptly deliver to you two conformed
copies of the Registration Statement, including exhibits and all amendments
thereto, and will maintain in the Company's files manually signed copies of such
documents for at least five years from the date of filing. The Company will
promptly deliver to each of the Underwriters such number of copies of any
preliminary prospectus, the Prospectus, the Registration Statement, and all
amendments of and supplements to such documents, if any, as you may reasonably
request.
(d) The Company will endeavor in good faith, in cooperation
with you, at or prior to the time of effectiveness of the Registration
Statement, to qualify the Shares for offering and sale under the securities laws
relating to the offering or sale of the Shares of such jurisdictions (domestic
or foreign) as you may designate and to maintain such qualification in effect
for so long as required for the distribution thereof; except that in no event
shall the Company be obligated in connection therewith to qualify as a foreign
corporation or to execute a general consent to service of process. The Company
will promptly advise you of the receipt by the Company of any notification with
respect to suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such purpose
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<PAGE> 12
and will use every reasonable effort to obtain the withdrawal of any order of
suspension as soon as possible.
(e) The Company will make generally available (within the
meaning of Section 11(a) of the Act) to its security holders and to you as soon
as practicable, but not later than 45 days after the end of its fiscal quarter
in which the first anniversary date of the effective date of the Registration
Statement occurs, an earnings statement (in form complying with the provisions
of Rule 158 of the Regulations) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement.
(f) During the period of 180 days following the date of the
Prospectus, the Company will not, without the prior written consent of Bear,
Stearns & Co. Inc., directly or indirectly, issue, sell, offer, contract or
grant any option to sell, pledge, transfer or otherwise dispose of or transfer,
or announce the offering of, or file any registration statement under the Act
(other than pursuant to registration statements on Form S-8 or other forms
solely to register employee benefit plans, or registration statements solely to
register shares permitted to be issued pursuant to clause (ii) below provided
that such shares remain subject to the restrictions on transfer set forth in
such clause (ii) for the applicable 180-day period) in respect of, any shares of
Common Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares of Common
Stock (other than as contemplated by this Agreement with respect to the Shares);
provided, however, that the foregoing shall not apply to (i) the issuance of
shares of Common Stock or options to purchase Common Stock, or Common Stock
issued upon exercise of outstanding options, warrants or other rights, pursuant
to any stock option, warrant, stock bonus or other stock plan or arrangement
described in the Prospectus, but only if the holders of such shares, options,
warrants or shares issued upon exercising of such options agree in writing not
to sell, offer, contract or grant any option to sell (including without
limitation, any short sale), pledge, transfer or establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the Exchange Act,
or otherwise dispose of any such shares during such 180-day period without the
prior written consent of Bear, Stearns & Co. Inc. or (ii) the issuance of shares
of Common Stock in connection with any acquisition of another company or in
connection with strategic transactions involving the Company and other entities
but only if the holders of such shares agree in writing not to sell, contract or
grant any option to sell (including without limitation any short sale), pledge,
transfer, or establish an open "put equivalent position" within the meaning of
Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any such shares or
options during such 180-day period without the prior written consent of Bear,
Stearns & Co. Inc. The Company agrees not to waive any undertaking pursuant to
this paragraph or accelerate the vesting of options or warrants or release
restrictions on restricted stock during such 180-day period without the prior
written consent of Bear, Stearns & Co. Inc. In any event, unless Bear, Stearns &
Co. Inc. otherwise consents in writing, the Company will cause each of its
officers and directors and such of its stockholders, optionholders and
warrantholders as have been heretofore designated by you and listed on Schedule
II attached hereto to execute and deliver a letter agreement in the form of
Exhibit A hereto.
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<PAGE> 13
(g) During a period of three years from the effective date of
the Registration Statement, the Company will furnish to you copies of (i) all
reports to its stockholders; and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or any
national securities exchange.
(h) The Company will apply the proceeds from the sale of the
Shares as set forth under "Use of Proceeds" in the Prospectus.
(i) The Company will use its best efforts to cause the Shares
to continue to be qualified for quotation on the Nasdaq National Market system.
(j) The Company will file with the Commission its periodic
reports pursuant to Section 13 or Section 15 of the Exchange Act such
information as may be required pursuant to Rule 463 of the Regulations.
(k) The Company, during the Prospectus Delivery Period, will
file, on a timely basis, with the Commission and the Nasdaq National Market all
reports and documents required to be filed under the Exchange Act.
(l) The Company shall engage and maintain, at its expense, a
registrar and transfer agent for the Common Stock.
(m) The Company will use its best efforts to ensure that the
Directed Shares are restricted as required by the NASD or the NASD's rules from
sale, transfer, assignment, pledge or hypothecation for a period of three months
following the date of this Agreement. The Underwriters will notify the Company
as to which persons will need to be so restricted. At the request of the
Underwriters, the Company will direct the transfer agent to place a stop
transfer restriction upon such securities for such a period of time. Should the
Company release, or seek to release, from such restrictions any of the Directed
Shares, the Company agrees to reimburse the Underwriters for any reasonable
expenses (including, without limitation, legal expenses) they incur in
connection with such release.
Bear, Stearns & Co. Inc., on behalf of the several Underwriters, may, in
its sole discretion, waive in writing the performance by the Company of any
one or more of the foregoing covenants or extend the time for their performance.
5. Payment of Expenses. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any preliminary prospectus, the Prospectus and any amendments
or supplements thereto (including, without limitation, fees and expenses of the
Company's accountants and counsel), the underwriting documents (including this
Agreement, the Agreement Among Underwriters and the Selling Agreement) and all
other documents related to the public offering of the Shares
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<PAGE> 14
(including those supplied to the Underwriters in quantities as hereinabove
stated), (ii) the issuance, transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) the
qualification of the Shares under state or foreign securities or Blue Sky laws,
including the costs of printing and mailing a preliminary and final "Blue Sky
Survey" and the fees of counsel for the Underwriters and such counsel's
disbursements in relation thereto, (iv) quotation of the Shares on the Nasdaq
National Market system, (v) filing fees of the Commission and the NASD, (vi) the
cost of printing certificates representing the Shares, and (vii) the cost and
charges of any transfer agent or registrar.
6. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of the Company herein contained, as of the date hereof and as of the
Closing Date (for purposes of this Section 6 "Closing Date" shall refer to the
Closing Date for the Firm Shares and any Additional Closing Date, if different,
for the Additional Shares), to the absence from any certificates, opinions,
written statements or letters furnished to you or to Morrison & Foerster LLP
("Underwriters' Counsel") pursuant to this Section 6 of any misstatement or
omission, to the performance by the Company of its obligations hereunder, and to
the following additional conditions:
(a) The Registration Statement shall have become effective not
later than (if pricing pursuant to Rule 430A) 5:30 P.M., New York time, on the
date of this Agreement, or at such later time and date as shall have been
consented to in writing by you; if the Company shall have elected to rely upon
Rule 430A or Rule 434 of the Regulations, the Prospectus shall have been filed
with the Commission in a timely fashion in accordance with Section 4(a) hereof;
and, at or prior to the Closing Date no stop order suspending the effectiveness
of the Registration Statement or any post-effective amendment thereof shall have
been issued and no proceedings therefor shall have been initiated or threatened
by the Commission.
(b) At the Closing Date you shall have received the opinion of
Cooley Godward LLP, counsel for the Company, dated the Closing Date addressed to
the Underwriters and in form and substance satisfactory to Underwriters'
Counsel, to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Delaware. Based on a certificate of the Company identifying the
relevant jurisdiction and without independent investigation with
respect to such factual matters, the Company is duly qualified and in
good standing as a foreign corporation in each jurisdiction in which
the character or location of its properties (owned, leased or licensed)
or the nature or conduct of its business makes such qualification
necessary, except for those failures to be so qualified or in good
standing which will not in the aggregate have a Material Adverse
Effect. The Company has all requisite corporate authority to own, lease
and license its respective properties and conduct its business as now
being conducted as described in the Registration Statement and the
Prospectus.
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<PAGE> 15
(ii) The Company has an authorized capital stock as set
forth in the Registration Statement and the Prospectus under the
caption "Capitalization" as of the date set forth therein. All of the
outstanding shares of Common Stock are duly and validly authorized and
issued, are fully paid and nonassessable, were not issued in violation
of or subject to any preemptive or, to such counsel's knowledge,
similar rights. The Shares to be delivered on the Closing Date have
been duly and validly authorized and, when delivered by the Company in
accordance with this Agreement, will be duly and validly issued, fully
paid and nonassessable and will not have been issued in violation of or
subject to any preemptive or, to such counsel's knowledge, similar
rights. The certificates for the shares of Common Stock in the form
filed as an exhibit to the Registration Statement are in due and proper
form under the Delaware General Corporation Law. The Common Stock,
including the Firm Shares and the Additional Shares, conforms to the
description of the Common Stock contained in the Registration Statement
and the Prospectus under the caption "Description of Capital Stock."
(iii) Except as described in or contemplated by the
Prospectus, to such counsel's knowledge (a) there are no outstanding
securities of the Company convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of capital
stock of the Company and (b) there are no outstanding or authorized
options, warrants or similar agreements obligating the Company to issue
any shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or subscribe for
any shares of such capital stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any
securities of the Company or any other person has (1) the contractual
right to cause the Company to sell or otherwise issue to them, or to
permit them to underwrite the sale of, any of the Shares, (2) the
contracted right to have any Common Shares or other securities of the
Company included in the Registration Statement or (3) the right, which
has not been waived, as a result of the filing of the Registration
Statement, to require registration under the Act of any shares of
Common Stock or other securities of the Company.
(iv) The Shares to be sold under this Agreement to the
Underwriters are duly authorized for quotation on the Nasdaq National
Market system upon official notice of issuance.
(v) This Agreement has been duly and validly authorized,
executed and delivered by the Company.
(vi) To such counsel's knowledge, there is no litigation
or governmental or other action, suit, proceeding or investigation
before any court or before or by any public, regulatory or governmental
agency or body pending or overtly threatened against, or involving the
properties or business of, the Company that is of a character required
to be disclosed in the Registration Statement and the Prospectus which
has not been disclosed therein to the extent required by the Act and
the Regulations.
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<PAGE> 16
(vii) The execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated hereby
by the Company do not and will not (A) conflict with or result in a
breach of any of the terms and provisions of, or constitute a default
(or an event which with notice or lapse of time, or both, would
constitute a default) under, require approval or consent under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to, any agreement,
instrument, contract, indenture, mortgage, lease, license, arrangement
or understanding known to such counsel and identified in the opinion to
which the Company is a party or by which its properties or assets are
subject the conflict or breach of which would have a Material Adverse
Effect on the Company or (B) violate or conflict with any provision of
the Amended and Restated Certificate of Incorporation or Bylaws of the
Company, or, to the best knowledge of such counsel, any judgment,
decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over the
Company or any of its properties or assets other than state securities
or Blue Sky laws (as to which such counsel need express no opinion). No
consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental, or regulatory agency or body having jurisdiction over the
Company or any of its properties or assets is required for the
execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, except for (1)
such as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters (as to which such counsel need express no opinion) and (2)
such as have been made or obtained under the Act.
(viii) The Registration Statement and the Prospectus and
any amendments thereof or supplements thereto (other than the financial
statements and schedules, other financial data included therein and the
statistical data derived therefrom, as to which no opinion need be
rendered) comply as to form in all material respects with the
requirements of the Act and the Regulations.
(ix) The statements under the captions "Description of
Capital Stock," "___________________________" and "Shares Eligible for
Future Sale" in the Prospectus, insofar as such statements constitute a
summary of documents referred to therein or matters of law, fairly
summarize the information called for with respect to such documents and
matters to the extent required by the Act and the Regulations.
(x) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration
Statement or described in the Registration Statement or the Prospectus
which are not so filed or described as required, and such contracts and
documents as are summarized in the Registration Statement or the
Prospectus are fairly summarized to the extent required by the Act and
the Regulations.
(xi) The Company is not, and will not become, as a result
of the consummation of the transactions contemplated by this Agreement,
and application of the
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<PAGE> 17
net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
(xii) The Registration Statement is effective under the
Act, and, to the best knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement or any
post-effective amendment thereof has been issued and no proceedings
therefor have been initiated or threatened by the Commission and all
filings required by Rule 424(b) of the Regulations have been made.
In addition, such opinion shall also contain a statement that such
counsel has participated in conferences with officers and representatives of the
Company, representatives of the independent public accountants for the Company
and the Underwriters at which the contents of the Registration Statement and the
Prospectus and related matters were discussed. While they have not independently
verified and are not passing upon the accuracy, completeness or fairness of the
Registration Statement or Prospectus, on the basis of the foregoing no facts
have come to the attention of such counsel which would lead such counsel to
believe that either the Registration Statement at the time it became effective
(including the information deemed to be part of the Registration Statement at
the time of effectiveness pursuant to Rule 430A(b) or Rule 434, if applicable),
or any amendment thereof made prior to the Closing Date as of the date of such
amendment, contained an untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus as of its date (or any
amendment thereof or supplement thereto made prior to the Closing Date as of the
date of such amendment or supplement) and as of the Closing Date contained or
contains an untrue statement of a material fact or omitted or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief with
respect to the financial statements and schedules, other financial data included
therein and the statistical data derived therefrom).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance reasonably satisfactory to Underwriters'
Counsel) of other counsel reasonably acceptable to Underwriters' Counsel,
familiar with the applicable laws; (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company and its subsidiaries, provided that copies of any
such statements or certificates shall be delivered to Underwriters' Counsel. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and, in their opinion, you
and they are justified in relying thereon.
(c) All proceedings taken in connection with the sale of the
Firm Shares and the Additional Shares as herein contemplated shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and the
Underwriters shall have received from said
17
<PAGE> 18
Underwriters' Counsel a favorable opinion, dated as of the Closing Date with
respect to the issuance and sale of the Shares, the Registration Statement and
the Prospectus and such other related matters as you may reasonably require, and
the Company shall have furnished to Underwriters' Counsel such documents as they
request for the purpose of enabling them to pass upon such matters.
(d) At the Closing Date you shall have received a certificate
of the Chief Executive Officer and Chief Financial Officer of the Company, dated
as of the Closing Date, to the effect that (i) the condition set forth in
subsection (a) of this Section 6 has been satisfied, (ii) as of the date hereof
and as of the Closing Date the representations and warranties of the Company set
forth in Section 1 hereof are true and correct in all respects, (iii) as of the
Closing Date the obligations of the Company to be performed hereunder on or
prior thereto have been duly performed, and (iv) subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, the Company has not sustained any material loss or interference with
their respective businesses or properties from fire, flood, hurricane, accident
or other calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding, and there has not been a
Material Adverse Change, or any development involving a Material Adverse Change,
except in each case as described in or contemplated by the Prospectus.
(e) At the time this Agreement is executed and at the Closing
Date, you shall have received a letter, from Arthur Andersen LLP, independent
public accountants for the Company, dated, respectively, as of the date of this
Agreement and as of the Closing Date addressed to the Underwriters and in form
and substance satisfactory to you, to the effect that: (i) they are independent
certified public accountants with respect to the Company within the meaning of
the Act and the Regulations and stating that the answer to Item 10 of the
Registration Statement is correct insofar as it relates to them; (ii) stating
that, in their opinion, the financial statements and schedules of the Company
included in the Registration Statement and the Prospectus and covered by their
opinion therein comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable published rules and
regulations of the Commission thereunder; (iii) on the basis of procedures
consisting of a reading of the latest available unaudited interim financial
statements of the Company, a reading of the minutes of meetings and consents of
the stockholders and board of directors of the Company and the committees of
such board subsequent to December 31, 1998, inquiries of officers and other
employees of the Company who have responsibility for financial and accounting
matters of the Company with respect to transactions and events subsequent to
December 31, 1998 and other specified procedures and inquiries to a date not
more than five days prior to the date of such letter, nothing has come to their
attention that would cause them to believe that: (A) the unaudited financial
statements and schedules of the Company presented in the Registration Statement
and the Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the applicable published rules
and regulations of the Commission thereunder or that such unaudited financial
statements are not fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements included in the Registration Statement and the
Prospectus; (B) with respect to the period subsequent to March 31, 1999 there
were, as of the
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<PAGE> 19
date of the most recent available monthly financial statements of the Company,
if any, and as of a specified date not more than five days prior to the date of
such letter, any changes in the capital stock or long-term indebtedness of the
Company or any decrease in the net current assets or stockholders' equity of the
Company, in each case as compared with the amounts shown in the most recent
balance sheet presented in the Registration Statement and the Prospectus, except
for changes or decreases which the Registration Statement and the Prospectus
disclose have occurred or may occur or which are set forth in such letter or (C)
that during the period from March 31, 1999 to the date of the most recent
available monthly financial statements of the Company, if any, and to a
specified date not more than five days prior to the date of such letter, there
was any decrease, as compared with the corresponding period in the prior fiscal
year, in total revenues, or total or per share net income, except for decreases
which the Registration Statement and the Prospectus disclose have occurred or
may occur or which are set forth in such letter; and (iv) stating that they have
compared specific dollar amounts, numbers of shares, percentages of revenues and
earnings, and other financial information pertaining to the Company set forth in
the Registration Statement and the Prospectus, which have been specified by you
prior to the date of this Agreement, to the extent that such amounts, numbers,
percentages, and information may be derived from the general accounting and
financial records of the Company or from schedules furnished by the Company, and
excluding any questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries, and
other appropriate procedures specified by you set forth in such letter, and
found them to be in agreement. In addition, such letter shall state that the pro
forma financial information included in the Registration Statement and the
Prospectus complies as to form in all material respects with the applicable
accounting requirements of the Act, including Rule 11-02 of Regulation S-X, and
that the pro forma adjustments have been properly applied to historical amounts
in the compilation of such pro forma financial information.
(f) Prior to the Closing Date the Company shall have furnished
to you such further information, certificates and documents as you may
reasonably request.
(g) You shall have received from each person who is a
director, officer or holder of capital stock, options or warrants of the Company
that has heretofore been designated by you and listed on Schedule II hereto an
agreement in the form of Exhibit A hereto, and such agreement shall be in full
force and effect on the Closing Date.
(h) At the Closing Date, the Shares shall have been approved
for quotation on the Nasdaq National Market system.
If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
cancelled by you at, or at any time prior to, the Closing Date and the
obligations of the Underwriters to purchase the Additional Shares may be
cancelled by you at, or at any time prior to, the Additional Closing Date.
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<PAGE> 20
Notice of such cancellation shall be given to the Company in writing, or by
telephone, telex or telegraph, confirmed in writing.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any and all losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to, and subject to section 7(d) below,
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement for the registration of
the Shares, as originally filed or any amendment thereof, or any related
preliminary Prospectus or the Prospectus, or in any supplement thereto or
amendment thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such case to the extent but only to the
extent that any such loss, liability, claim, damage or expense arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
you expressly for use therein. This indemnity agreement will be in addition to
any liability which the Company may otherwise have including under this
Agreement.
(b) Each Underwriter severally, and not jointly, agrees to
indemnify and hold harmless the Company, each of the directors of the Company,
each of the officers of the Company who shall have signed the Registration
Statement, and each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any losses, liabilities, claims, damages and expenses whatsoever as incurred
(including but not limited to, and subject to section 7(d) below, attorneys'
fees and any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), jointly or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement for the registration of
the Shares, as originally filed or any amendment thereof, or any related
preliminary prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
20
<PAGE> 21
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any Underwriter through you expressly for use therein; provided,
however, that in no case shall any Underwriter be liable or responsible for any
amount in excess of the underwriting discount applicable to the Shares purchased
by such Underwriter hereunder. This indemnity will be in addition to any
liability which any Underwriter may otherwise have including under this
Agreement. The Company acknowledges that the statements set forth in the last
paragraph of the cover page and in the ______ paragraph[s] under the caption
"Underwriting" in the Prospectus constitute the only information furnished in
writing by or on behalf of any Underwriter expressly for use in the registration
statement relating to the Shares as originally filed or in any amendment
thereof, any related preliminary prospectus or the Prospectus or in any
amendment thereof or supplement thereto, as the case may be.
(c) In connection with the offer and sale of the Directed
Shares, the Company agrees, promptly upon a request in writing, to indemnify and
hold harmless the Underwriters from and against any and all losses, liabilities,
claims, damages and expenses incurred by them as a result of the failure of the
Directed Shares Purchasers to pay for and accept delivery of the Directed Shares
which, by the end of the day following the date of this Agreement, were subject
to a properly confirmed agreement to purchase such Directed Shares.
(d) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent it has
been prejudiced in any material respect by such failure). In case any such
action is brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties. Anything in
this subsection to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.
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<PAGE> 22
8. Contribution. In order to provide for contribution in circumstances
in which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, liabilities and expenses of
the nature contemplated by such indemnification provision (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claims
asserted, but after deducting in the case of losses, claims, damages,
liabilities and expenses suffered by the Company any contribution received by
the Company from persons, other than the Underwriters, who may also be liable
for contribution, including persons who control the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the
Company who signed the Registration Statement and directors of the Company) as
incurred to which the Company and one or more of the Underwriters may be
subject, in such proportions as is appropriate to reflect the relative benefits
received by the Company and the Underwriters from the offering of the Shares or,
if such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company and the Underwriters in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Underwriters shall be deemed to be in the same proportion
as (x) the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company and (y) the
underwriting discounts and commissions received by the Underwriters,
respectively, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and of the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Underwriters agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this Section
8, (i) in no case shall any Underwriter be liable or responsible for any amount
in excess of the underwriting discount applicable to the Shares purchased by
such Underwriter hereunder, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding the provisions of this Section 8 and the
preceding sentence, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages that such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. For purposes of this Section 8, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act shall have the same rights to
22
<PAGE> 23
contribution as such Underwriter, and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) of
this Section 8. Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for contribution may be made against another party
or parties, notify each party or parties from whom contribution may be sought,
but the omission to so notify such party or parties shall not relieve the party
or parties from whom contribution may be sought from any obligation it or they
may have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its consent;
provided, however, that such consent was not unreasonably withheld.
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Shares or Additional Shares hereunder, and if
the Firm Shares or Additional Shares with respect to which such default relates
do not (after giving effect to arrangements, if any, made by you pursuant to
subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares
or Additional Shares, to which the default relates shall be purchased by the
nondefaulting Underwriters in proportion to the respective proportions which the
numbers of Firm Shares set forth opposite their respective names in Schedule I
hereto bear to the aggregate number of Firm Shares set forth opposite the names
of the nondefaulting Underwriters.
(b) In the event that such default relates to more than 10% of
the Firm Shares or Additional Shares, as the case may be, you may in your
discretion arrange for yourself or for another party or parties (including any
nondefaulting Underwriter or Underwriters who so agree) to purchase such Firm
Shares or Additional Shares, as the case may be, to which such default relates
on the terms contained herein. In the event that within five calendar days after
such a default you do not arrange for the purchase of the Firm Shares or
Additional Shares, as the case may be, to which such default relates as provided
in this Section 9, this Agreement or, in the case of a default with respect to
the Additional Shares, the obligations of the Underwriters to purchase and of
the Company to sell the Additional Shares shall thereupon terminate, without
liability on the part of the Company with respect thereto (except in each case
as provided in Section 5, 7(a) and 8 hereof) or the Underwriters, but nothing in
this Agreement shall relieve a defaulting Underwriter or Underwriters of its or
their liability, if any, to the other Underwriters and the Company for damages
occasioned by its or their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to
which the default relates are to be purchased by the nondefaulting Underwriters,
or are to be purchased by another party or parties as aforesaid, you or the
Company shall have the right to postpone the Closing Date or Additional Closing
Date, as the case may be for a period, not exceeding five business days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus or in any other documents and
arrangements, and the
23
<PAGE> 24
Company agrees to file promptly any amendment or supplement to the Registration
Statement or the Prospectus which, in the opinion of Underwriters' Counsel, may
thereby be made necessary or advisable. The term "Underwriter" as used in this
Agreement shall include any party substituted under this Section 9 with like
effect as if it had originally been a party to this Agreement with respect to
such Firm Shares and Additional Shares.
10. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including the agreements contained in Section 5,
the indemnity agreements contained in Section 7 and the contribution agreements
contained in Section 8, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter or any
controlling person thereof or by or on behalf of the Company, any of its
officers and directors or any controlling person thereof, and shall survive
delivery of and payment for the Shares to and by the Underwriters. The
representations contained in Section 1 and the agreements contained in Sections
5, 7, 8 and 11(d) hereof shall survive the termination of this Agreement,
including termination pursuant to Section 9 or 11 hereof.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective, upon the later of
when (i) you and the Company shall have received notification of the
effectiveness of the Registration Statement or (ii) the execution of this
Agreement. If either the initial public offering price or the purchase price per
Share has not been agreed upon prior to 5:00 P.M., New York time, on the fifth
full business day after the Registration Statement shall have become effective,
this Agreement shall thereupon terminate without liability to the Company or the
Underwriters except as herein expressly provided. Until this Agreement becomes
effective as aforesaid, it may be terminated by the Company by notifying you or
by you notifying the Company. Notwithstanding the foregoing, the provisions of
this Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in
full force and effect.
(b) You shall have the right to terminate this Agreement at
any time prior to the Closing Date or the obligations of the Underwriters to
purchase the Additional Shares at any time prior to the Additional Closing Date,
as the case may be, if (i) any domestic or international event or act or
occurrence has materially disrupted, or in your opinion will in the immediate
future materially disrupt, the market for the Company's securities or securities
in general, or (ii) if trading on the New York or American Stock Exchanges or on
Nasdaq shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required, on the New York or American Stock Exchanges or on Nasdaq by the New
York or American Stock Exchanges or Nasdaq, respectively, or by order of the
Commission or any other governmental authority having jurisdiction, or (iii) if
a banking moratorium has been declared by a state or federal authority or if any
new restriction materially adversely affecting the distribution of the Firm
Shares or the Additional Shares, as the case may be, shall have become
effective, or (iv) (A) if the United States becomes engaged in hostilities or
there is an escalation of hostilities involving the United States or there is a
declaration of a national emergency or war by the United States or (B) if there
24
<PAGE> 25
shall have been such change in political, financial or economic conditions if
the effect of any such event in (A) or (B) as, in your judgment makes it
impracticable or inadvisable to proceed with the offering, sale and delivery of
the Firm Shares or the Additional Shares, as the case may be, on the terms
contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 11
shall be by telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of
the provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company will, subject to demand by you, reimburse the Underwriters for all
out-of-pocket expenses (including the fees and expenses of their counsel),
incurred by the Underwriters in connection herewith.
12. Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, New York 10167, Attention: Equity Syndicate; if sent to the Company,
shall be mailed, delivered, or telegraphed and confirmed in writing to USA.NET,
1155 Kelly Johnson Boulevard, Suite 400, Colorado Springs, Colorado 80920,
Attention: John W. Street.
13. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Sections 7 and
8, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Shares from any of the Underwriters.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.
15. Knowledge. As used in this Agreement, "to the Company's knowledge"
or "to the knowledge of the Company" means that the officers, directors and key
employees of the Company identified in the Registration Statement have actual
awareness or knowledge of such matter or a prudent individual could be expected
to discover or otherwise become aware of such fact or other matter in the course
of conducting a reasonably comprehensive investigation concerning the existence
of such fact or other matter.
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<PAGE> 26
If the foregoing correctly sets forth the understanding between you and
the Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
USA.NET
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
VOLPE, BROWN, WHELAN & COMPANY
CIBC WORLD MARKETS CORP.
on behalf of themselves and the other
Underwriters named in Schedule I hereto
Bear, Stearns & Co. Inc.
By:
------------------------------------
Name:
----------------------------------
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EXHIBIT A
Bear, Stearns & Co., Inc.
Volpe, Brown, Whelan & Company LLC
CIBC World Markets Corp.
as Representatives of the Several Underwriters
c/o Bear, Stearns & Co., Inc.
245 Park Avenue
New York, New York 10167
Re: USA.NET, Inc. (the "Company")
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of certain shares
of Common Stock of the Company ("Common Stock") or securities convertible into
or exchangeable or exercisable for Common Stock. The Company proposes to carry
out a public offering of Common Stock (the "Offering") for which you will act as
the representatives (the "Representatives") of the underwriters. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other underwriters are
relying on the representations and agreements of the undersigned contained in
this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to this Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not, without the prior written consent of Bear, Stearns &
Co. Inc. (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including without
limitation any short sale), pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act
of 1934, as amended, or otherwise dispose of any shares of Common Stock, options
or warrants to acquire shares of Common Stock, or securities exchangeable or
exercisable for or convertible into shares of Common Stock, currently or
hereafter owned either of record or beneficially (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) by the undersigned, or publicly
announce the undersigned's intention to do any of the foregoing, for a period
commencing on March 26, 1999 and continuing to a date 180 days from the date of
the final prospectus for the Offering. The foregoing sentence shall not apply to
(A) the issuance of any shares of Common Stock upon the exercise of an option or
warrant or the conversion of a security held by you, (B) transfers of shares of
Common Stock to immediate family members or trusts, partnerships, limited
liability companies or other entities for the benefit of such family members, or
(C) transfers of shares of Common Stock to a wholly-owned subsidiary, parent,
general partner, limited partner, retired partner, member or retired member of
the undersigned, provided that in the case of (B) and (C) above, such transferee
takes such shares subject to all of
27
<PAGE> 28
the provisions of this Lock-Up Agreement and agrees to be bound by the terms
hereof. The undersigned also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions. In the event that the Registration
Statement shall not have been declared effective on or before July 30, 1999,
this Lock-Up Agreement shall be of no further force or effect.
In addition, the undersigned hereby waives any and all notice
requirements and rights with respect to registration of securities pursuant to
any agreement, understanding or otherwise setting forth the terms of any
security of the Company held by the undersigned, including any registration
rights agreement to which the undersigned and the Company may be party, provided
that such waiver shall apply only to the proposed Offering, and any other action
taken by the Company in connection with the proposed Offering.
The undersigned hereby agrees that, to the extent that the terms of
this Lock-Up Agreement conflict with or are in any way inconsistent with any
registration rights agreement to which the undersigned and the Company may be
party, this Lock-Up Agreement supersedes such registration rights agreement.
This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives and assigns of
the undersigned.
Dated: , 1999
--------------------------- -------------------------------------
Signature
-------------------------------------
Printed Name of Holder
28
<PAGE> 29
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm
Name of Underwriter Shares to be Purchased
<S> <C>
Bear, Stearns & Co. Inc...............................................................
Volpe, Brown, Whelan & Company........................................................
CIBC World Markets Corp...............................................................
Total................................................................................... 8,500,000
</TABLE>
29
<PAGE> 30
SCHEDULE II
Holdings of Stockholders, Directors,
Officers, Optionholders and Warrantholders
30
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF THE RESTATED CERTIFICATE OF INCORPORATION OF
USA.NET, INC.
USA.NET, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
as follows:
FIRST: The name of the Corporation is USA.NET, Inc.
SECOND: Paragraph A of Article IV of the Restated Certificate of
Incorporation of the Corporation is hereby amended in its entirety to read as
follows:
A. This Company is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the Corporation is authorized to issue is
one hundred fifty-six million two hundred twenty-two thousand seven
hundred twenty-six (156,222,726) shares, one hundred fifty million
(150,000,000) shares of which shall be Common Stock (the "Common
Stock") and six million two hundred twenty-two thousand seven hundred
twenty-six (6,222,726) shares of which shall be Preferred Stock (the
"Preferred Stock"). The Common Stock shall have a par value of
One-Tenth of One Cent ($.001) per share and the Preferred Stock shall
have a par value of One-Tenth of One Cent ($.001) per share.
THIRD: The foregoing amendment to the Restated Certificate of
Incorporation of the Corporation has been duly adopted by the directors and
stockholders of the Corporation in accordance with the provisions of Sections
141, 228 and 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has executed this Certificate of
Amendment on the _____ day of _______________, 1999.
USA.NET, INC.
By:
------------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 3.3
RESTATED
CERTIFICATE OF INCORPORATION
OF
USA.NET, INC.
USA.NET, INC., a corporation organized and existing under the laws of
the state of Delaware (the "Corporation") hereby certifies that:
1. The name of the Corporation is USA.NET, Inc.
2. The Corporation's original Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on March 12, 1997.
3. The Restated Certificate of Incorporation of the Corporation
attached hereto as Exhibit A was duly adopted in accordance with the provisions
of Sections 242 and 245 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned has signed this certificate this
_____ day of __________, 1999, and hereby affirms and acknowledges under penalty
of perjury that the filing of this Restated Certificate of Incorporation is the
act and deed of USA.NET, Inc.
USA.NET, INC.
By:
---------------------------------------
John W. Street
Chairman of the Board, Chief Executive
Officer and President
<PAGE> 2
EXHIBIT A
RESTATED
CERTIFICATE OF INCORPORATION
OF
USA.NET, INC.
I.
The name of this corporation is USA.NET, Inc.
II.
The address of the registered office of the corporation in the State
of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
19801 and the name of the registered agent of the corporation in the State of
Delaware at such address is The Corporation Trust Company.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is one hundred sixty
million (160,000,000) shares. One hundred fifty million (150,000,000) shares
shall be Common Stock, each having a par value of one-tenth of One Cent ($.001).
Ten million (10,000,000) shares shall be Preferred Stock, each having a par
value of one-tenth of One Cent ($.001).
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions of any wholly unissued series of
Preferred Stock, and to establish from time to time the number of shares
constituting any such series or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
1.
<PAGE> 3
V.
A. For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and
regulation of the powers of the Corporation, of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided
that:
1. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall
be fixed exclusively by one or more resolutions adopted by the Board of
Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Closing of
the Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the Closing of the
Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose
terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
such director's death, resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
3. REMOVAL OF DIRECTORS
a. Neither the Board of Directors nor any
individual director may be removed without cause.
b. Subject to any limitation imposed by law,
any individual director or directors may be removed with cause by the
affirmative vote of the holders of a majority of the voting power of all the
then-outstanding shares of voting stock of the Corporation entitled to vote at
an election of directors (the "Voting Stock").
4. VACANCIES
a. Subject to the rights of the holders of any
series of Preferred Stock, any vacancies on the Board of Directors resulting
from death, resignation, disqualification,
2.
<PAGE> 4
removal or other causes and any newly created directorships resulting from any
increase in the number of directors, shall, unless the Board of Directors
determines by resolution that any such vacancies or newly created directorships
shall be filled by the stockholders, except as otherwise provided by law, be
filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors, and not by
the stockholders. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the director
for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the whole board (as constituted immediately prior to any
such increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the
directors then in offices as aforesaid, which election shall be governed by
Section 211 of the DGCL.
B.
1. BYLAW AMENDMENTS.
Subject to paragraph (h) of Section 43 of the Bylaws
, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative
vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power
of all of the then-outstanding shares of the Voting Stock. The Board of
Directors shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the Corporation need not be elected
by written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws and, following the closing of the Initial Public
Offering, no action shall be taken by the stockholders by written consent.
4. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
3.
<PAGE> 5
B. Any repeal or modification of this Article VI shall be
prospective and shall not affect the rights under this Article VI in effect at
the time of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in paragraph
B. of this Article VII, and all rights conferred upon the stockholders herein
are granted subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock, voting together as a single class, shall be required to alter,
amend or repeal Articles V, VI and VII.
4.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF COOLEY GODWARD LLP]
May 11, 1999
USA.NET, Inc.
1155 Kelly Johnson Boulevard, Suite 400
Colorado Springs, CO 80920
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by USA.NET, Inc. (the "Company") of a Registration Statement on
Form S-1 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission"), including a prospectus to be filed with the
Commission pursuant to Rule 424(b) of Regulation C promulgated under the
Securities Act of 1933, as amended, and the underwritten public offering of up
to 9,775,000 shares of the Company's Common Stock, par value $.001 per share
(the "Shares"), which amount includes 1,275,000 shares for which the
underwriters have been granted an over-allotment option.
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement, and (ii) reviewed the Company's Certificate of
Incorporation and Bylaws, as amended and as proposed to be amended prior to the
closing of the public offering, and the originals or copies certified to our
satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment were necessary or appropriate to enable us to
render the opinion expressed below.
On the basis of the foregoing and in reliance thereon, we are of the opinion
that the Shares (when issued and paid for in accordance with the underwriting
agreement filed as an exhibit to the Registration Statement) will be, validly
issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
Cooley Godward LLP
By: /s/ James C.T. Linfield
------------------------------
James C. T. Linfield
<PAGE> 1
EXHIBIT 10.2
USA.NET, INC.
1999 EQUITY INCENTIVE PLAN
ADOPTED MARCH 19, 1999
APPROVED BY STOCKHOLDERS MARCH 23, 1999
AS AMENDED THROUGH MAY 10, 1999
TERMINATION DATE: MARCH 18, 2009
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock appreciation rights, (iv) stock bonuses and (v) rights to
acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain the
services of the group of persons eligible to receive Stock Awards, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means USA.NET, Inc., a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.
1
<PAGE> 2
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
2
<PAGE> 3
(iii) Prior to the Listing Date, the value of the Common Stock shall be
determined in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(s) "OFFICER" means (i) before the Listing Date, any person designated by
the Company as an officer and (ii) on and after the Listing Date, a person who
is an officer of the Company within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock Option
granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an
3
<PAGE> 4
"affiliated corporation" receiving compensation for prior services (other than
benefits under a tax qualified pension plan), was not an officer of the Company
or an "affiliated corporation" at any time and is not currently receiving direct
or indirect remuneration from the Company or an "affiliated corporation" for
services in any capacity other than as a Director or (ii) is otherwise
considered an "outside director" for purposes of Section 162(m) of the Code.
(x) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
(y) "PLAN" means this USA.NET, Inc. 1999 Equity Incentive Plan.
(z) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock appreciation right, a stock bonus and a right to acquire
restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless and
until the Board delegates administration to a Committee, as provided in
subsection 3(c). Any interpretation of the Plan by the Board and any decision by
the Board under the Plan shall be final and binding on all persons.
(b) POWERS OF BOARD. The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall be
granted; what type or combination of types of Stock Award shall be granted; the
provisions of each Stock Award granted (which need not be identical), including
the time or times when a person shall be permitted to receive Common Stock
pursuant to a Stock Award; and the number of shares of Common Stock with respect
to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in
4
<PAGE> 5
the exercise of this power, may correct any defect, omission or inconsistency in
the Plan or in any Stock Award Agreement, in a manner and to the extent it shall
deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or) (2)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate six hundred fifty-two
thousand seven hundred sixty-three (652,763) shares of Common Stock. Upon the
closing of the initial public offering of Common Stock of the Company, the
aggregate number of shares of Common Stock that may be issued pursuant to Stock
Awards shall be increased to thirteen million (13,000,000).
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such Stock
Award shall revert to and again
5
<PAGE> 6
become available for issuance under the Plan. Shares subject to stock
appreciation rights exercised in accordance with the Plan shall not be available
for subsequent issuance under the Plan. If any Common Stock acquired pursuant to
the exercise of an Option shall for any reason be repurchased by the Company
under an unvested share repurchase option provided under the Plan, the stock
repurchased by the Company under such repurchase option shall not revert to and
again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may be
unissued shares or reacquired shares, bought on the market or otherwise.
(d) SHARE RESERVE LIMITATION. Prior to the Listing Date and to the extent
then required by Section 260.140.45 of Title 10 of the California Code of
Regulations, the total number of shares of Common Stock issuable upon exercise
of all outstanding Options and the total number of shares of Common Stock
provided for under any stock bonus or similar plan of the Company shall not
exceed the applicable percentage as calculated in accordance with the conditions
and exclusions of Section 260.140.45 of Title 10 of the California Code of
Regulations, based on the shares of Common Stock of the Company that are
outstanding at the time the calculation is made.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS.
(i) A Ten Percent Stockholder shall not be granted an Incentive Stock
Option unless the exercise price of such Option is at least one hundred ten
percent (110%) of the Fair Market Value of the Common Stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant.
(ii) Prior to the Listing Date, a Ten Percent Stockholder shall not be
granted a Nonstatutory Stock Option unless the exercise price of such Option is
at least (i) one hundred ten percent (110%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by Section
260.140.41 of Title 10 of the California Code of Regulations at the time of the
grant of the Option.
(iii) Prior to the Listing Date, a Ten Percent Stockholder shall not be
granted a restricted stock award unless the purchase price of the restricted
stock is at least (i) one hundred percent (100%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by Section
260.140.41 of Title 10 of the California Code of Regulations at the time of the
grant of the Option.
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<PAGE> 7
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options and/or stock appreciation rights
covering more than three million two hundred fifty thousand (3,250,000) shares
of Common Stock during any calendar year. This subsection 5(c) shall not apply
prior to the Listing Date and, following the Listing Date, this subsection 5(c)
shall not apply until (i) the earliest of: (1) the first material modification
of the Plan (including any increase in the number of shares of Common Stock
reserved for issuance under the Plan in accordance with Section 4); (2) the
issuance of all of the shares of Common Stock reserved for issuance under the
Plan; (3) the expiration of the Plan; or (4) the first meeting of stockholders
at which Directors are to be elected that occurs after the close of the third
calendar year following the calendar year in which occurred the first
registration of an equity security under Section 12 of the Exchange Act; or (ii)
such other date required by Section 162(m) of the Code and the rules and
regulations promulgated thereunder.
(d) ELIGIBILITY OF CONSULTANTS PRIOR TO THE LISTING DATE. Prior to the
Listing Date, a Consultant shall not be eligible for the grant of a Stock Award
if, at the time of grant, the offer and sale of the Company's securities to such
Consultant are not exempt under Rule 701 of the Securities Act ("Rule 701")
because of the nature of the services that the Consultant is providing to the
Company unless the Board determines that such grant need not comply with the
requirements of Rule 701 and can satisfy another exemption under the Securities
Act.
(e) ELIGIBILITY OF CONSULTANTS FROM AND AFTER THE LISTING DATE. From and
after the Listing Date, a Consultant shall not be eligible for the grant of a
Stock Award if, at the time of grant, Form S-8 under the Securities Act is not
available to register the offer and sale of the Company's securities to such
Consultant because of the nature of the services that the Consultant is
providing to the Company unless the Board determines that such securities either
should be registered in another manner under the Securities Act or are not
required to be registered under the Securities Act.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of
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the Common Stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, an Incentive Stock Option may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Nonstatutory Stock Option granted prior to the Listing Date shall
be not less than eighty-five percent (85%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is granted. The
exercise price of each Nonstatutory Stock Option granted on or after the Listing
Date shall be not less than eighty-five percent (85%) of the Fair Market Value
of the Common Stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with
an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock Option
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option granted prior to the Listing Date shall not be transferable except by
will or by the laws of descent and distribution and, to the extent provided in
the Option Agreement, to such further extent as permitted by Section
260.140.41(d) of Title 10 of the California Code of Regulations at the time of
the grant of the Option, and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. A Nonstatutory Stock
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Option granted on or after the Listing Date shall be transferable to the extent
provided in the Option Agreement. If the Nonstatutory Stock Option does not
provide for transferability, then the Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection 6(g), to the extent that the following restrictions on
vesting are required by Section 260.140.41(f) of Title 10 of the California Code
of Regulations at the time of the grant of the Option, then:
(i) Options granted prior to the Listing Date to an Employee who is not
an Officer, Director or Consultant shall provide for vesting of the total number
of shares of Common Stock at a rate of at least twenty percent (20%) per year
over five (5) years from the date the Option was granted, subject to reasonable
conditions such as continued employment; and
(ii) Options granted prior to the Listing Date to Officers, Directors
or Consultants may be made fully exercisable, subject to reasonable conditions
such as continued employment, at any time or during any period established by
the Company.
(i) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement, which period shall not be less than thirty (30) days for Options
granted prior to the Listing Date unless such termination is for cause), or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
If, after termination, the Optionholder does not exercise his or her Option
within the time specified in the Option Agreement, the Option shall terminate.
(j) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier
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of (i) the expiration of the term of the Option set forth in subsection 6(a) or
(ii) the expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(k) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(l) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (2) the expiration of the term of
such Option as set forth in the Option Agreement. If, after death, the Option is
not exercised within the time specified herein, the Option shall terminate.
(m) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Subject to the "Repurchase Limitation" in subsection 10(h), any
unvested shares of Common Stock so purchased may be subject to a repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.
(n) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
subsection 10(h), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares of Common Stock acquired by the Optionholder pursuant to the
exercise of the Option.
(o) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares of Common Stock received
upon the exercise of the Option. Except as expressly provided
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in this subsection 6(o), such right of first refusal shall otherwise comply with
any applicable provisions of the Bylaws of the Company.
(p) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board
to make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionholder to a further Option (a "Re-Load Option") in
the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares of Common Stock
equal to the number of shares of Common Stock surrendered as part or all of the
exercise price of such Option; (ii) have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such
Re-Load Option; and (iii) have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option shall be subject to the same exercise price and
term provisions heretofore described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i) CONSIDERATION. A stock bonus may be awarded in consideration for
past services actually rendered to the Company or an Affiliate for its benefit.
(ii) VESTING. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock awarded under the stock bonus agreement may, but
need not, be subject to a share repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board.
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(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to the
"Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.
(iv) TRANSFERABILITY. For a stock bonus award made before the Listing
Date, rights to acquire shares of Common Stock under the stock bonus agreement
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. For a stock bonus award made on or after the Listing
Date, rights to acquire shares of Common Stock under the stock bonus agreement
shall be transferable by the Participant only upon such terms and conditions as
are set forth in the stock bonus agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the stock bonus agreement
remains subject to the terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement shall
be in such form and shall contain such terms and conditions as the Board shall
deem appropriate. The terms and conditions of the restricted stock purchase
agreements may change from time to time, and the terms and conditions of
separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) PURCHASE PRICE. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. For restricted stock
awards made prior to the Listing Date, the purchase price shall not be less than
eighty-five (85%) of the Common Stock's Fair Market Value on the date such award
is made or at the time the purchase is consummated. For restricted stock awards
made on or after the Listing Date, the purchase price shall not be less than
eighty-five percent (85%) of the Common Stock's Fair Market Value on the date
such award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.
(iii) VESTING. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock acquired under the restricted stock purchase
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
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(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to the
"Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.
(v) TRANSFERABILITY. For a restricted stock award made before the
Listing Date, rights to acquire shares of Common Stock under the restricted
stock purchase agreement shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a restricted stock award made on or
after the Listing Date, rights to acquire shares of Common Stock under the
restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its discretion, so long as
Common Stock awarded under the restricted stock purchase agreement remains
subject to the terms of the restricted stock purchase agreement.
(c) STOCK APPRECIATION RIGHTS.
(i) AUTHORIZED RIGHTS. The following three types of stock appreciation
rights shall be authorized for issuance under the Plan:
(1) TANDEM RIGHTS. A "Tandem Right" means a stock appreciation
right granted appurtenant to an Option which is subject to the same terms and
conditions applicable to the particular Option grant to which it pertains with
the following exceptions. The Tandem Right shall require the holder to elect
between the exercise of the underlying Option for shares of Common Stock and the
surrender, in whole or in part, of such Option for an appreciation distribution.
The appreciation distribution payable on the exercised Tandem Right shall be in
cash (or, if so provided, in an equivalent number of shares of Common Stock
based on Fair Market Value on the date of the Option surrender) in an amount up
to the excess of (A) the Fair Market Value (on the date of the Option surrender)
of the number of shares of Common Stock covered by that portion of the
surrendered Option in which the Optionholder is vested over (B) the aggregate
exercise price payable for such vested shares.
(2) CONCURRENT RIGHTS. A "Concurrent Right" means a stock
appreciation right granted appurtenant to an Option which applies to all or a
portion of the shares of Common Stock subject to the underlying Option and which
is subject to the same terms and conditions applicable to the particular Option
grant to which it pertains with the following exceptions. A Concurrent Right
shall be exercised automatically at the same time the underlying Option is
exercised with respect to the particular shares of Common Stock to which the
Concurrent Right pertains. The appreciation distribution payable on the
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of Common Stock based on Fair Market Value on the
date of the exercise of the Concurrent Right) in an amount equal to such portion
as determined by the Board at the time of the grant of the excess of (A) the
aggregate Fair Market Value (on the date of the exercise of the Concurrent
Right) of the vested shares of Common Stock purchased under the underlying
Option which
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have Concurrent Rights appurtenant to them over (B) the aggregate exercise price
paid for such shares.
(3) INDEPENDENT RIGHTS. An "Independent Right" means a stock
appreciation right granted independently of any Option but which is subject to
the same terms and conditions applicable to a Nonstatutory Stock Option with the
following exceptions. An Independent Right shall be denominated in share
equivalents. The appreciation distribution payable on the exercised Independent
Right shall be not greater than an amount equal to the excess of (a) the
aggregate Fair Market Value (on the date of the exercise of the Independent
Right) of a number of shares of Company stock equal to the number of share
equivalents in which the holder is vested under such Independent Right, and with
respect to which the holder is exercising the Independent Right on such date,
over (b) the aggregate Fair Market Value (on the date of the grant of the
Independent Right) of such number of shares of Company stock. The appreciation
distribution payable on the exercised Independent Right shall be in cash or, if
so provided, in an equivalent number of shares of Common Stock based on Fair
Market Value on the date of the exercise of the Independent Right.
(ii) RELATIONSHIP TO OPTIONS. Stock appreciation rights appurtenant to
Incentive Stock Options may be granted only to Employees. The "Section 162(m)
Limitation" provided in subsection 5(c) and any authority to reprice Options
shall apply as well to the grant of stock appreciation rights.
(iii) EXERCISE. To exercise any outstanding stock appreciation right,
the holder shall provide written notice of exercise to the Company in compliance
with the provisions of the Stock Award Agreement evidencing such right. Except
as provided in subsection 5(c) regarding the "Section 162(m) Limitation," no
limitation shall exist on the aggregate amount of cash payments that the Company
may make under the Plan in connection with the exercise of a stock appreciation
right.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
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9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder of,
or to have any of the rights of a holder with respect to, any shares of Common
Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (iii) the issuance of the shares
of Common Stock
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upon the exercise or acquisition of Common Stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act or (iv) as to any particular requirement, a determination is made
by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a Stock
Award Agreement, the Participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of Common Stock
under a Stock Award by any of the following means (in addition to the Company's
right to withhold from any compensation paid to the Participant by the Company)
or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the participant as a result of the exercise
or acquisition of Common Stock under the Stock Award; or (iii) delivering to the
Company owned and unencumbered shares of Common Stock.
(g) INFORMATION OBLIGATION. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This subsection 10(g) shall not apply to key Employees whose
duties in connection with the Company assure them access to equivalent
information.
(h) REPURCHASE LIMITATION. The terms of any repurchase option shall be
specified in the Stock Award and may be either at Fair Market Value at the time
of repurchase or at not less than the original purchase price. To the extent
required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations at the time a Stock Award is made, any repurchase
option contained in a Stock Award granted prior to the Listing Date to a person
who is not an Officer, Director or Consultant shall be upon the terms described
below:
(i) FAIR MARKET VALUE. If the repurchase option gives the Company the
right to repurchase the shares of Common Stock upon termination of employment at
not less than the Fair Market Value of the shares of Common Stock to be
purchased on the date of termination of Continuous Service, then (i) the right
to repurchase shall be exercised for cash or cancellation of purchase money
indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Stock Awards after such date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock") and (ii) the right terminates when the shares
of Common Stock become publicly traded.
(ii) ORIGINAL PURCHASE PRICE. If the repurchase option gives the
Company the right to repurchase the shares of Common Stock upon termination of
Continuous Service at the
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original purchase price, then (i) the right to repurchase at the original
purchase price shall lapse at the rate of at least twenty percent (20%) of the
shares of Common Stock per year over five (5) years from the date the Stock
Award is granted (without respect to the date the Stock Award was exercised or
became exercisable) and (ii) the right to repurchase shall be exercised for cash
or cancellation of purchase money indebtedness for the shares of Common Stock
within ninety (90) days of termination of Continuous Service (or in the case of
shares of Common Stock issued upon exercise of Options after such date of
termination, within ninety (90) days after the date of the exercise) or such
longer period as may be agreed to by the Company and the Participant (for
example, for purposes of satisfying the requirements of Section 1202(c)(3) of
the Code regarding "qualified small business stock").
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common Stock
subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER.
In the event of (i) a sale, lease or other disposition of all or substantially
all of the assets of the Company, (ii) a merger or consolidation in which the
Company is not the surviving corporation or (iii) a reverse merger in which the
Company is the surviving corporation but the shares of Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then any
surviving corporation or acquiring corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar stock awards (including
an award to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 11(c)) for those outstanding under the
Plan. In the event any surviving corporation or acquiring corporation refuses to
assume such Stock Awards or to substitute similar stock awards for those
outstanding under the Plan, then with respect to Stock Awards held by
Participants whose Continuous Service has not terminated, the vesting of such
Stock Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full, and the
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Stock Awards shall terminate if not exercised (if applicable) at or prior to
such event. With respect to any other Stock Awards outstanding under the Plan,
such Stock Awards shall terminate if not exercised (if applicable) prior to such
event.
(d) CHANGE IN CONTROL--SECURITIES ACQUISITION. After the Listing Date, in
the event of an acquisition by any person, entity or group within the meaning of
Section 13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate) of the beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
Directors, then any such acquiring person, entity or group shall assume any
Stock Awards outstanding under the Plan or shall substitute similar stock awards
(including an award to acquire the same consideration paid to the stockholders
in the transaction described in this subsection 11(d)) for those outstanding
under the Plan. In the event any such acquiring person, entity or group refuses
to assume such Stock Awards or to substitute similar stock awards for those
outstanding under the Plan, then with respect to Stock Awards held by
Participants whose Continuous Service has not terminated, the vesting of such
Stock Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full, and the Stock Awards shall terminate if
not exercised (if applicable) at or prior to such event. With respect to any
other Stock Awards outstanding under the Plan, such Stock Awards shall terminate
if not exercised (if applicable) prior to such event.
(e) CHANGE IN CONTROL--CHANGE IN INCUMBENT BOARD. After the Listing Date,
in the event that the individuals who, as of the Listing Date, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at least
fifty percent (50%) of the Board, then with respect to Stock Awards held by
persons whose Continuous Service has not terminated, the vesting of such Stock
Awards (and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full. If the election, or nomination for
election, by the Company's stockholders of any new Director was approved by a
vote of at least fifty percent (50%) of the Incumbent Board, such new Director
shall be considered as a member of the Incumbent Board.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval, including, but not limited
to, amendments to the Plan intended to satisfy the requirements of Section
162(m) of the Code and the regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
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(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the stockholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of Delaware shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to such
state's conflict of laws rules.
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COOLEY GODWARD LLP
DRAFT
DATED: 5/6/99
EXHIBIT 10.3
USA.NET, INC.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED BY THE BOARD OF DIRECTORS APRIL 22, 1999
AS AMENDED THROUGH MAY 10, 1999
APPROVED BY STOCKHOLDERS MAY 11, 1999
EFFECTIVE DATE: [DATE OF THE INITIAL PUBLIC OFFERING]
TERMINATION DATE: NONE
1. PURPOSES.
(a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Non-Employee Directors of the Company.
(b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services
of new Non-Employee Directors and to provide incentives for such persons to
exert maximum efforts for the success of the Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "ANNUAL GRANT" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to subsection 6(b) of the
Plan.
(c) "ANNUAL MEETING" means the annual meeting of the stockholders of the
Company.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMITTEE GRANT" means an Option granted to a member of a committee
of the Board pursuant to subsection 6(c) of the Plan.
(g) "COMMON STOCK" means the common stock of the Company.
(h) "COMPANY" means USA.NET, Inc. a Delaware corporation.
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(i) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who
is compensated for such services or (ii) who is a member of the Board of
Directors of an Affiliate. However, the term "Consultant" shall not include
either Directors of the Company who are not compensated by the Company for
their services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
(j) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(k) "DIRECTOR" means a member of the Board of Directors of the Company.
(l) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(m) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
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(p) "INITIAL GRANT" means an Option granted to a Non-Employee Director who
meets the specified criteria pursuant to subsection 6(a) of the Plan.
(q) "IPO DATE" means the effective date of the initial public offering of
the Common Stock.
(r) "NON-EMPLOYEE DIRECTOR" means a Director who at the time of grant is
not an Employee.
(s) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(t) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(v) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of
the Plan.
(w) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(x) "PLAN" means this USA.NET, Inc. 1999 Non-Employee Directors' Stock
Option Plan.
(y) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(z) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan. The
Board may not delegate administration of the Plan to a committee.
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
(ii) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any
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Option Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Options shall not exceed in the aggregate three hundred one thousand (301,000)
shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without having been
exercised in full, the stock not acquired under such Option shall revert to and
again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
Nondiscretionary Options as set forth in section 6 shall be granted under
the Plan to all Non-Employee Directors. Notwithstanding the foregoing, no
Options shall be granted under the Plan to any Non-Employee Director who is a
representative of a stockholder or stockholders of the Company and who in such
capacity and/or by virtue of any agreement with or policy of such stockholder
or stockholders is unable to receive Options.
6. NON-DISCRETIONARY GRANTS.
(a) INITIAL GRANTS. Without any further action of the Board, each
Non-Employee Director shall be granted the following Options:
(i) On the IPO Date, each person who is then a Non-Employee Director
automatically shall be granted an Initial Grant to purchase twenty-five
thousand (25,000) shares of Common Stock on the terms and conditions set forth
herein.
(ii) After the IPO Date, each person who is elected or appointed for
the first time to be a Non-Employee Director automatically shall, upon the date
of his or her initial election or appointment to be a Non-Employee Director by
the Board or stockholders of the Company, be granted an Initial Grant to
purchase twenty-five thousand (25,000) shares of Common Stock on the terms and
conditions set forth herein.
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(b) ANNUAL GRANTS. Commencing with the Annual Meeting in 2000, each person
who is then a Non-Employee Director automatically shall be granted an Annual
Grant to purchase five thousand (5,000) shares of Common Stock on the terms and
conditions set forth herein.
(c) COMMITTEE GRANTS.
(i) Commencing with the Annual Meeting in 2000, each Non-Employee
Director who is then a member of a committee of the Board automatically shall
be granted, for each such committee, an Option to purchase five hundred (500)
shares of Common Stock on the terms and conditions set forth herein.
(ii) Commencing with the Annual Meeting in 2000, each Non-Employee
Director who is then the chairman or chairwoman of a committee of the Board
automatically shall be granted, for each committee of which he or she is
chairman or chairwoman, an Option to purchase five hundred (500) shares of
Common Stock in addition to any Option(s) granted pursuant to subsection
6(c)(ii).
7. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
(a) TERM. No Option shall be exercisable after the expiration of five (5)
years from the date it was granted.
(b) EXERCISE PRICE. The exercise price of each Option shall be one hundred
percent (100%) of the Fair Market Value of the stock subject to the Option on
the date the Option is granted. Notwithstanding the foregoing, an Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution
for another option in a manner satisfying the provisions of Section 424(a) of
the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check or (ii) delivery to the
Company of other Common Stock.
(d) TRANSFERABILITY. An Option shall not be transferable except by will or
by the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the Company,
in a form satisfactory to the Company, designate a third party who, in the
event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
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(e) VESTING GENERALLY. Options shall vest and become exercisable as
follows:
(i) Initial Grants shall provide for vesting of 1/3rd of the shares 12
months after the date of the grant and 1/3rd of the shares annually thereafter.
(ii) Annual Grants shall provide for vesting of 1/12th of the shares
each month after the date of the grant.
(iii) Committee Grants shall be fully vested on the date of grant.
(f) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent
that the Optionholder was entitled to exercise it as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service, or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified in the Option Agreement,
the Option shall terminate.
(g) EXTENSION OF TERMINATION DATE. If the exercise of the Option following
the termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements
under the Securities Act, then the Option shall terminate on the earlier of (i)
the expiration of the term of the Option set forth in subsection 7(a) or (ii)
the expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(h) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise it as of the date of termination), but
only within such period of time ending on the earlier of (i) the date twelve
(12) months following such termination or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(i) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the
Option may be exercised (to the extent the Optionholder was entitled to
exercise the Option as of the date of death) by the Optionholder's estate, by a
person who acquired the right to exercise the Option by bequest or inheritance
or by a person designated to exercise the Option upon the Optionholder's death,
but only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death or (2) the expiration of
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the term of such Option as set forth in the Option Agreement. If, after death,
the Option is not exercised within the time specified herein, the Option shall
terminate.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Options unless and until such authority is
obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares
subject to such Option unless and until such Optionholder has satisfied all
requirements for exercise of the Option pursuant to its terms.
(b) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any right to
continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of
a Consultant pursuant to the terms of such Consultant's agreement with the
Company or an Affiliate or (iii) the service of a Director pursuant to the
Bylaws of the Company or an Affiliate, and any applicable provisions of the
corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.
(c) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give
written assurances satisfactory to the Company as to the Optionholder's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and
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risks of exercising the Option; and (ii) to give written assurances
satisfactory to the Company stating that the Optionholder is acquiring the
stock subject to the Option for the Optionholder's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (iii) the issuance of the shares upon the exercise or
acquisition of stock under the Option has been registered under a then
currently effective registration statement under the Securities Act or (iv) as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the
transfer of the stock.
(d) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares
of the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option; or (iii) delivering to the
Company owned and unencumbered shares of the Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock subject
to the Plan, or subject to any Option, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject both to the Plan pursuant to
subsection 4(a) and to the nondiscretionary Options specified in Section 5, and
the outstanding Options will be appropriately adjusted in the class(es) and
number of securities and price per share of stock subject to such outstanding
Options. The Board shall make such adjustments, and its determination shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a transaction "without receipt of
consideration" by the Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Options shall
terminate immediately prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a sale of all or substantially all of the assets of
the Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding
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immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then the
vesting of all outstanding Options under the Plan shall be accelerated in full,
and the Options shall terminate if not exercised at or prior to such event.
(d) CHANGE IN CONTROL--SECURITIES ACQUISITION. In the event of an
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act, or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or an Affiliate) of the beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of Directors, then the
vesting of all outstanding Options under the Plan shall be accelerated in full,
and the Options shall terminate if not exercised at or prior to such event.
(e) CHANGE IN CONTROL--CHANGE IN INCUMBENT BOARD. In the event that the
individuals who, as of the date of the adoption of this Plan, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at least
fifty percent (50%) of the Board, then the vesting of all outstanding Options
under the Plan shall be accelerated in full. If the election, or nomination for
election, by the Company's stockholders of any new Director was approved by a
vote of at least fifty percent (50%) of the Incumbent Board, such new Director
shall be considered as a member of the Incumbent Board.
12. AMENDMENT OF THE PLAN AND OPTIONS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.
(c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(d) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
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13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time. No
Options may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the IPO Date, but no Option shall be
granted unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
15. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of Delaware, without regard
to such state's conflict of laws rules.
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EXHIBIT 10.4
USA.NET, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED APRIL 1, 1999
AS AMENDED THROUGH MAY 10, 1999
APPROVED BY THE STOCKHOLDERS ON MAY 11, 1999
EFFECTIVE DATE: [DATE OF THE INITIAL PUBLIC OFFERING]
1. PURPOSE.
(a) The purpose of this 1999 Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of USA.NET, Inc., a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
committee as provided in subparagraph 2(c). Whether or not the Board has
delegated administration the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the
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exercise of this power, may correct any defect, omission or inconsistency in the
Plan, in a manner and to the extent it shall deem necessary or expedient to make
the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such
acts as the Board or the Committee deems necessary or expedient to promote the
best interests of the Company and its Affiliates and to carry out the intent
that the Plan be treated as an "employee stock purchase plan" within the meaning
of Section 423 of the Code.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate one million two hundred fifty
thousand (1,250,000) shares of the Company's common stock (the "Common Stock").
If any right granted under the Plan shall for any reason terminate without
having been exercised, the Common Stock not purchased under such right shall
again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide
for the grant of rights to purchase Common Stock of the Company under the Plan
to eligible employees (an "Offering") on a date or dates (the "Offering
Date(s)") selected by the Board or the Committee. Each Offering shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all employees granted rights to purchase stock under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in paragraphs 5 through 8, inclusive.
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(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such
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employee may purchase under all outstanding rights and options shall be treated
as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan, provided, however, that the
Board or the Committee may provide in an Offering that certain employees who are
highly compensated employees within the meaning of Section 423(b)(4)(D) of the
Code shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined by the Board for each Offering) during the
period which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or
the Committee may specify a maximum number of shares that may be purchased by
any employee as well as a maximum aggregate number of shares that may be
purchased by all eligible employees pursuant to such Offering. In addition, in
connection with each Offering that contains more than one Purchase Date, the
Board or the Committee may specify a maximum aggregate number of shares which
may be purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Purchase Date.
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7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings (as defined
by the Board for each Offering) during the Offering. The payroll deductions made
for each participant shall be credited to an account for such participant under
the Plan and shall be deposited with the general funds of the Company. A
participant may reduce (including to zero) or increase such payroll deductions,
and an eligible employee may begin such payroll deductions, after the beginning
of any Offering only as provided for in the Offering. A participant may make
additional payments into his or her account only if specifically provided for in
the Offering and only if the participant has not had the maximum amount withheld
during the Offering.
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's right
to acquire Common Stock under that Offering shall be automatically terminated. A
participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of a participant's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant other than by will or the laws of descent and distribution, or by a
beneficiary designation as provided in paragraph 14, and during a participant's
lifetime, shall be exercisable only by such participant.
8. EXERCISE.
(a) On each date specified therefor in the relevant Offering ("Purchase
Date"), each participant's accumulated payroll deductions and other additional
payments specifically provided for in the Offering (without any increase for
interest) will be applied to the purchase of whole shares of stock of the
Company, up to the maximum number of shares permitted pursuant to the terms of
the Plan and the applicable Offering, at the purchase price specified in the
Offering. Unless otherwise provided for in the applicable Offering, no
fractional shares shall be issued
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upon the exercise of rights granted under the Plan. The amount, if any, of
accumulated payroll deductions remaining in each participant's account after the
purchase of shares which is less than the amount required to purchase one share
of stock on the final Purchase Date of an Offering shall be held in each such
participant's account for the purchase of shares under the next Offering under
the Plan, unless such participant withdraws from such next Offering, as provided
in subparagraph 7(b), or is no longer eligible to be granted rights under the
Plan, as provided in paragraph 5, in which case such amount shall be distributed
to the participant after such final Purchase Date, without interest. The amount,
if any, of accumulated payroll deductions remaining in any participant's account
after the purchase of shares which is equal to the amount required to purchase
whole shares of Common Stock on the final Purchase Date of an Offering shall be
distributed in full to the participant after such Purchase Date, without
interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the shares to be issued upon such exercise under the Plan (including
rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act of 1933, as amended (the "Securities Act") and
the Plan is in material compliance with all applicable state, foreign and other
securities and other laws applicable to the Plan. If on a Purchase Date in any
Offering hereunder the Plan is not so registered or in such compliance, no
rights granted under the Plan or any Offering shall be exercised on such
Purchase Date, and the Purchase Date shall be delayed until the Plan is subject
to such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered and in such compliance,
no rights granted under the Plan or any Offering shall be exercised then all
payroll deductions accumulated during the Offering (reduced to the extent, if
any, such deductions have been used to acquire stock) shall be distributed to
the participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall at all times make reasonable efforts to keep available the number of
shares of stock required to satisfy such rights, provided that this section
shall not require the Company to take any action that would result in adverse
tax, accounting or financial consequences to the Company.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
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10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock to participants pursuant to rights
granted under the Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shares acquired upon exercise
of rights hereunder are recorded in the books of the Company (or its transfer
agent).
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) the acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then, as determined by the Board in its
sole discretion (i) any surviving or acquiring corporation may assume
outstanding rights or substitute similar rights for those under the Plan, (ii)
such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board or the Committee at any time, and from time to time, may
amend the Plan. However, except as provided in paragraph 12 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company within twelve (12) months before or
after the adoption of the amendment if such amendment
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requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) The Board or the Committee may amend the Plan in any respect the
Board or the Committee deems necessary or advisable to provide eligible
employees with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder relating to
employee stock purchase plans and/or to bring the Plan and/or rights granted
under it into compliance therewith.
(c) Rights and obligations under any rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice in the form prescribed by the Company. In the
event of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its sole discretion, may deliver such shares and/or cash to the spouse or to
any one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board or the Committee in its discretion, may suspend or
terminate the Plan at any time. No rights may be granted under the Plan while
the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the
person to whom such rights were granted, or except as necessary to comply with
any laws or governmental regulation, or except as necessary to ensure that the
Plan and/or rights granted under the Plan comply with the requirements of
Section 423 of the Code.
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16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon the effective date of the initial
public offering of the Common Stock of the Company (the "Effective Date"), but
no rights granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company within twelve (12) months
before or after the date the Plan is adopted by the Board, which date may be
prior to the Effective Date.
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USA.NET, INC.
EMPLOYEE STOCK PURCHASE PLAN OFFERING
ADOPTED APRIL 1, 1999
1. GRANT; OFFERING DATE.
(a) The Board of Directors of USA.NET, Inc. (the "Company"), pursuant
to the Company's 1999 Employee Stock Purchase Plan (the "Plan"), hereby
authorizes the grant of rights to purchase shares of the common stock of the
Company ("Common Stock") to all Eligible Employees (an "Offering"). Subject to
subsection 1(b) below, the first Offering shall begin on the effective date of
the initial public offering of the Company's Common Stock (the "Effective Date")
and shall end on June 30, 2000 (the "Initial Offering"). Thereafter, subject to
subsection 1(b) below, an Offering shall begin on July 1 every year, beginning
on July 1, 2000. An Offering shall end on the day prior to the first day of the
subsequent Offering. The first day of an Offering is that Offering's "Offering
Date." If an Offering Date would fall on a day during which the Company's Common
Stock is not actively traded, then the Offering Date shall be the next
subsequent day during which the Company's Common Stock is actively traded.
(b) Prior to the commencement of any Offering, the Board of Directors
(or the Committee described in subparagraph 2(c) of the Plan, if any) may change
any or all terms of such Offering and any subsequent Offerings. The granting of
rights pursuant to each Offering hereunder shall occur on each respective
Offering Date unless, prior to such date (a) the Board of Directors (or such
Committee) determines that such Offering shall not occur, or (b) no shares
remain available for issuance under the Plan in connection with the Offering.
2. ELIGIBLE EMPLOYEES.
(a) All employees of the Company and each of its Affiliates (as defined
in the Plan) incorporated in the United States, shall be granted rights to
purchase Common Stock under each Offering on the Offering Date of such Offering,
provided that each such employee otherwise meets the employment requirements of
subparagraph 5(a) of the Plan (an "Eligible Employee"). Notwithstanding the
foregoing, the following employees shall not be Eligible Employees or be granted
rights under an Offering: (i) part-time or seasonal employees whose customary
employment is less than 20 hours per week or 5 months per calendar year or (ii)
5% stockholders (including ownership through unexercised options) described in
subparagraph 5(c) of the Plan.
(b) Each person who first becomes an Eligible Employee during any
Offering will, on the first business day of the month of July or January during
the Offering, which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a right under such
Offering, which right shall thereafter be deemed to be a part of the Offering.
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Such right shall have the same characteristics as any rights originally granted
under the Offering except that:
(1) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right; and
(2) the Offering for such right shall begin on its Offering
Date and end coincident with the end of the ongoing Offering.
3. RIGHTS.
(a) Subject to the limitations contained herein and in the Plan, on
each Offering Date each Eligible Employee shall be granted the right to purchase
the number of shares of Common Stock purchasable with up to fifteen percent
(15%) of such Eligible Employee's Earnings paid during such Offering after the
Eligible Employee first commences participation; provided, however, that no
employee may purchase Common Stock on a particular Purchase Date that would
result in more than fifteen percent (15%) of such employee's Earnings in the
period from the Offering Date to such Purchase Date having been applied to
purchase shares under all ongoing Offerings under the Plan and all other Company
plans intended to qualify as "employee stock purchase plans" under Section 423
of the Internal Revenue Code of 1986, as amended (the "Code"). For this
Offering, "Earnings" means the total compensation paid to an employee, including
all salary, wages (including amounts elected to be deferred by the employee,
that would otherwise have been paid, under any cash or deferred arrangement or
other deferred compensation program established by the Company), overtime pay,
commissions, bonuses, and other remuneration paid directly to the employee, but
excluding profit sharing, the cost of employee benefits paid for by the Company,
education or tuition reimbursements, imputed income arising under any Company
group insurance or benefit program, traveling expenses, business and moving
expense reimbursements, income received in connection with stock options,
contributions made by the Company under any employee benefit plan, and similar
items of compensation.
(b) Notwithstanding the foregoing, the maximum number of shares of
Common Stock an Eligible Employee may purchase on a Purchase Date in an Offering
is such number of shares as has a fair market value (determined as of the
Offering Date for such Offering) equal to (x) $25,000 multiplied by the number
of calendar years in which the right under such Offering has been outstanding
any time, minus (y) the fair market value of any other shares of Common Stock
(determined as of the relevant Offering Date with respect to such shares) which,
for purposes of the limitation of Section 423(b)(8) of the Code, are attributed
to any of such calendar years in which the right is outstanding. The amount in
clause (y) of the previous sentence shall be determined in accordance with
regulations under Section 423(b)(8) of the Code based on (i) the number of
shares previously purchased with respect to such calendar years pursuant to such
Offering or any other Offering under the Plan, or pursuant to any other Company
plans intended to qualify as "employee stock purchase plans" under Section 423
of the Code, and (ii) the number of shares subject to other rights outstanding
on the Offering Date for such Offering pursuant to the Plan or any other such
Company plan.
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(c) The maximum aggregate number of shares available to be purchased by
all Eligible Employees under an Offering shall be the number of shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
shares of Common Stock upon exercise of rights granted under the Offering would
exceed the maximum aggregate number of shares available under either of the
limits set forth in this subsection 3(c), the Board shall make a pro rata
allocation of the shares available in a uniform and equitable manner.
4. PURCHASE PRICE.
The purchase price of the Common Stock under the Offering shall be the
lesser of eighty-five percent (85%) of the fair market value of the Common Stock
on the Offering Date or eighty-five percent (85%) of the fair market value of
the Common Stock on the Purchase Date, in each case rounded up to the nearest
whole cent per share. For the Initial Offering, the fair market value of the
Common Stock at the time when the Offering commences shall be the price per
share at which shares of Common Stock are first sold to the public in the
Company's initial public offering.
5. PARTICIPATION.
(a) Except as otherwise provided in this paragraph 5, an Eligible
Employee may elect to participate in an Offering only at the beginning of the
Offering; provided, however, that a person who first becomes an Eligible
Employee during an Offering may elect to participate at the Offering Date
applicable to such Eligible Employee in accordance with subparagraph 2(b). An
Eligible Employee shall become a participant in an Offering by delivering an
agreement authorizing payroll deductions. Such deductions may be in whole
percentages only, with a minimum percentage of one percent (1%) and maximum
percentage of fifteen percent (15%) of Earnings. A participant may not make
additional payments into his or her account. The agreement shall be made on such
enrollment form as the Company provides, and must be delivered to the Company
before the date of participation to be effective for such Offering, as
determined by the Company and communicated to Eligible Employees. As to the
Initial Offering, the time for filing an enrollment form and commencing
participation for individuals who are Eligible Employees on the Offering Date
for the Initial Offering shall be determined by the Company and communicated to
such Eligible Employees.
(b) Generally, a participant may increase or reduce (including to zero)
his or her participation level only as of each July 1 or January 1 during any
Offering (except not during the ten (10) days immediately preceding a Purchase
Date. Any such change in participation shall be made by delivering a notice to
the Company or a designated Affiliate in such form and at such time as the
Company provides. Notwithstanding the foregoing, a participant may reduce his or
her participation level to zero at any time during the course of an Offering
(except not during the ten (10) days immediately preceding a Purchase Date).
Additionally, a participant may withdraw from an Offering and receive his or her
accumulated payroll deductions from the Offering (reduced to the extent, if any,
such deductions have been used to acquire Common Stock for the participant on
any prior Purchase Dates), without interest at any time prior to the end of the
Offering, excluding only each ten (10) day period immediately preceding a
Purchase Date (or such shorter period of time determined by the Company and
3
<PAGE> 13
communicated to participants), by delivering a withdrawal notice to the Company
in such form as the Company provides. A participant who has withdrawn from an
Offering shall not be entitled to again participate in such Offering, but may
participate in other Offerings under the Plan by submitting a new participation
agreement in accordance with the terms thereof.
6. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date,
each participant's accumulated payroll deductions (without any increase for
interest) shall be applied to the purchase of whole shares of Common Stock, up
to the maximum number of shares permitted under the Plan and the Offering.
"Purchase Date" shall be defined as the last day of each December and of each
June. (Notwithstanding the foregoing sentence, June 30, 1999 under the Initial
Offering shall not be a Purchase Date.) If a Purchase Date would not fall on a
day during which the Company's Common Stock is actively traded, then the
Purchase Date shall be the nearest prior day during which the Company's Common
Stock is actively traded.
7. NOTICES AND AGREEMENTS.
Any notices or agreements provided for in an Offering or the Plan shall
be given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering shall be deemed effectively given upon
receipt or, in the case of notices and agreements delivered by the Company, five
(5) days after deposit in the United States mail, postage prepaid.
8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.
The rights granted under an Offering are subject to the approval of the
Plan by the shareholders as required for the Plan to obtain treatment as a
tax-qualified employee stock purchase plan under Section 423 of the Code.
9. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan), the provisions of the Plan
shall control.
4
<PAGE> 1
EXHIBIT 10.8A
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is made and
entered into as of the 3rd day of May, 1999 (the "EFFECTIVE DATE"), by and
between USA.NET, Inc., a Delaware corporation (the "COMPANY"), and John
Gerdelman ("EXECUTIVE").
WHEREAS, the Company desires to employ Executive to provide personal
services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth herein,
the Company agrees to employ Executive as its Chief Executive Officer and
President and Executive hereby accepts such employment. Executive shall serve
in an executive capacity and shall perform such duties as are customarily
associated with his title, consistent with the Bylaws of the Company and as
required by the Board of Directors of the Company. Executive will be based out
of the Company's offices to be located in the District of Columbia metro area
or at such other location mutually agreed to by Executive and the Company.
During the term of his employment with the Company, Executive will devote his
best efforts and substantially all of his business time and attention to the
business of the Company. This Agreement is for at-will employment.
2. SALARY AND BENEFITS
(a) BASE SALARY AND PERFORMANCE BONUS. Executive will receive for services to
be rendered hereunder an annualized base salary of Two Hundred Twenty-Five
Thousand Dollars ($225,000), payable on a bi-weekly basis, subject to
adjustment in accordance with the policies of the Company. Executive may
receive such discretionary performance bonuses as the Compensation Committee of
the Board of Directors of the Company, in its sole discretion and from time to
time, deems appropriate. All such payments are subject to ordinary withholdings
for tax and social security purposes.
(b) VACATION. Executive will accrue paid vacation time pursuant to the
Company's general vacation policy, which will not be less than the vacation
policy in effect on the date of this Agreement.
(c) BENEFITS. Executive will be entitled to participate in the Company's
standard Executive benefit programs, including medical and disability programs,
and in such additional benefit programs, as may in the future be made available
by the Company to the extent that he/she is eligible under the general
provisions thereof. In the case of any Sale of the Company, benefit
1.
<PAGE> 2
programs made available to Executive will be no less favorable than benefit
programs made available to Executive in effect on the date of this Agreement.
(d) STOCK OPTIONS. Executive will receive a non-qualified stock option to
purchase two hundred twenty-five thousand (225,000) shares of the Company's
common stock at a price of Thirty Dollars ($30.00) per share (the "OPTIONS").
Fifty-six thousand two hundred fifty (56,250) of the shares will be fully
vested on the Effective Date with the remainder to vest in equal annual
installments over three years beginning on December 31, 1999 and thereafter on
December 31, 2000 and December 31, 2001. The Options will vest in full
immediately prior to the closing of a Sale of the Company.
(e) MOBILE EMPLOYEE EXPENSES. The Company will reimburse Executive's
business-related cell phone charges, pager, personal digital assistant and
high-speed Internet data connection to his home.
3. TERMINATION.
(a) MUTUAL AGREEMENT. This Agreement may be terminated at any time by the
mutual written agreement of the Company and Executive.
(b) TERMINATION OTHER THAN FOR CAUSE. If Executive is terminated by the Company
for any reason other than for Cause (as defined in Section 5 below), and in
exchange for Executive signing a waiver of claims against the Company as of the
termination date in a form reasonably acceptable to the Company, Executive will
receive the following:
(i) all of Executive's stock options (including the Options)
shall be fully vested and may be exercised by Executive according to their
terms;
(ii) The Company shall pay Executive all accrued
compensation, including payment for accrued but unused vacation days,
unreimbursed expenses to the date of termination as provided herein, as well as
any expenses incurred by the Executive with the Company's prior written
approval, such as expenses incurred in returning Company records; and
(iii) For twelve (12) full calendar months, pursuant to the
provisions of COBRA, the Company shall provide Executive and his family with
all group health benefits which the Company provided immediately prior to such
termination; provided, however, that such benefits will be terminated if
Executive subsequently joins or becomes employed by another organization which
provides Executive and his family with group health benefits comparable to
those provided by the Company under this paragraph. The Company shall be
responsible for paying all COBRA premiums for no more than twelve (12) months.
(c) FOR CAUSE. The Company may terminate this Agreement at any time for Cause
effective immediately upon written notice to Executive (except termination for
Cause which requires advance notice as set forth in the definition of Cause set
forth in Section 5 below). If the Company terminates this Agreement for Cause,
Executive shall not be entitled to any
2.
<PAGE> 3
further payments except (i) unreimbursed expenses to the date of termination
and (ii) any accrued compensation, including accrued benefits and payments for
accrued but unused vacation days, and (iii) the entitlement to COBRA benefits
at the employee's cost for twelve (12) months.
(d) DISABILITY OR DEATH. The Company may terminate this Agreement upon the
death or disability of Executive. For purposes of this Agreement, Executive
shall be considered disabled if he is unable to perform his/her duties under
this Agreement as a result of injury, illness or other disability for a period
of one hundred eighty (180) consecutive days, or one hundred eighty (180) days
in a three hundred sixty-five (365) day period, and shall not have returned to
the performance of duties within thirty (30) days after receiving written
notice of termination. If the Company terminates this Agreement upon the death
or disability of Executive, the Company shall pay Executive or his estate a
lump sum equal to all accrued compensation, including accrued benefits, accrued
but unused vacation days and unreimbursed expenses to the date of termination
as provided herein.
(e) DATE OF TERMINATION; PAYMENT. In each of the foregoing cases, except those
provisions where termination is automatic upon notice to Executive, termination
is the date of actual termination, not the date notice of termination is given.
All payments for unpaid monthly compensation shall be made based upon the
normal payroll processing schedule and all payments for reimbursement shall be
made within forty-five (45) days after the end of the month following the month
in which termination occurred.
(f) TERMINATION OR CONSTRUCTIVE TERMINATION IN CONNECTION WITH A SALE OF THE
COMPANY. In the event of a Sale of the Company, in exchange for Executive
signing a waiver of claims against the Company as of the termination date in a
form acceptable to the Company (or its successor), the Company (or its
successor) will pay Executive cash severance in the amount of two (2) times
Executive's then current annual base salary if either (i) Executive is
terminated or (ii) Executive is not terminated but in the six (6) month period
following the Sale of the Company, without Executive's prior consent, either
(A) the Executive's job responsibilities are significantly changed or (B) the
Executive's business or office location is moved more than fifty (50) miles
from the Executive's job location prior to the Sale of the Company. The
severance will be paid in bi-weekly installments.
(g) FAILURE TO AGREE TO SEVERANCE. If the Executive resigns without executing a
waiver of claims and agreeing to the severance arrangements set forth in
Section 3(b), then the Executive will receive the same payments as if it were a
termination for cause by the Company.
4. MISCELLANEOUS.
(a) ASSIGNMENT. This Agreement may not be assigned by any party hereto;
provided, however, that the Company may assign this Agreement in connection
with a Sale of the Company (as defined below) so long as the assignee assumes
all of the Company's obligations thereunder.
3.
<PAGE> 4
(b) NOTICES. Any notices provided hereunder must be in writing and shall be
deemed effective upon the earlier of personal delivery (including personal
delivery by telex) or the third day after mailing by first class mail to the
recipient at the address indicated below:
To the Company:
USA.NET, Inc.
1155 Kelly Johnson Blvd., Suite 400
Colorado Springs, CO 80920
Attention: President/Chief
Executive Officer
Phone: (719) 265-2930
Fax: (719) 265-2923
To Executive:
John Gerdelman
8304 Summerwood Drive
McClean, Virginia 22102
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(c) WAIVER. A waiver by the Company or Executive of a breach of any provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach by the other party.
(d) GOVERNING LAW. This Agreement shall be deemed a contract made under, and
for all purposes shall be construed in accordance with, the laws of the State
of Colorado.
(e) SEVERABILITY. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the
remaining provisions or portions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.
(f) ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof. This Agreement may be
changed only by an agreement in writing signed by the parties.
(g) COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
(h) ATTORNEY'S FEES. If the Executive brings a lawsuit to enforce the terms of
this Agreement and substantially prevails in such suit, the Company will be
responsible for reimbursing the Executive's reasonable attorneys fees and costs
associated with such litigation.
4.
<PAGE> 5
(i) NON-SOLICITATION. While employed by the Company and for six (6) months
thereafter, Executive agrees that he will not, either directly or indirectly,
solicit or attempt to solicit: any employee, consultant or independent
contractor of the Company to terminate his or her relationship with the Company
in order to become an employee, consultant or independent contractor to or for
any other person or business entity; or the business of any customer, vendor or
distributor of the Company which, at the time of termination or six (6) months
immediately prior thereto, was a customer, vendor or distributor of the
Company.
(j) NON-COMPETITION. Executive acknowledges that he will gain extensive and
valuable experience and knowledge in the business conducted by the Company and
will have extensive contacts with customers of the Company. Accordingly,
Executive covenants and agrees with the Company that he will not compete
directly or indirectly with the Company, either during the time he is employed
by the Company or during the one-year period beginning immediately upon
termination of Executive's employment by the Company. For purposes of this
Section 4(j), the term "the Company" will be deemed to include subsidiaries,
parents and affiliates of the Company, excluding a parent or affiliate engaged
in a different line of business than the Company. Competing directly or
indirectly with the Company, its subsidiaries, parents or affiliates will mean
engaging or having a material interest, directly or indirectly, as owner,
employee, officer, director, partner, venturer, stockholder, capital investor,
consultant, agent, principal, advisor or otherwise, either alone or in
association with others, in the operation of any entity engaged in the business
of electronic mail services. Competing directly or indirectly with the Company,
as used in this Agreement, will not be deemed to include an ownership interest
as a passive investor, which for purposes of this Agreement will mean the
beneficial ownership of less than one percent (1%) of the outstanding shares of
any series or class of securities of any publicly-traded competitor of the
Company.
5. DEFINITIONS. As used herein, the following terms shall have the following
meanings:
(a) "CAUSE" as used herein shall mean: (i) dishonesty which is not the result
of an inadvertent or innocent mistake of Executive with respect to the Company
or any of its subsidiaries; (ii) willful misfeasance or nonfeasance of duty by
Executive that materially injures the reputation, business or business
relationships of the Company or any of its subsidiaries or any of their
respective officers, directors or Executives; (iii) any conduct which would be
sufficient to criminally charge Executive with the commission of a crime
involving moral turpitude or a crime other than a vehicle offense which could
reflect in some material fashion unfavorably upon the business or business
relationships of the Company or any of its subsidiaries or any of their
respective officers, directors or Executives; (iv) prolonged absence from work
by Executive (other than by reason of disability due to physical or mental
illness) or failure, neglect or refusal by Executive to perform his/her duties
and responsibilities without the same being corrected upon thirty (30) days
prior written notice; or (v) if Executive materially violates any term of this
Agreement or the Company's employment policies and procedures (including but
not limited to the Company's policies with respect to sexual harassment and
discrimination) and such action or failure is not remedied or reasonable steps
to effect such remedy are not commenced within thirty (30) days of written
notice.
5.
<PAGE> 6
(b) "SALE OF THE COMPANY" as used herein shall mean any change in control of
the Company, including any (i) sale of all or substantially all of the assets
of the Company, (ii) merger or consolidation in which the Company is not the
surviving corporation or (iii) reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise.
6.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
USA.NET, INC. EXECUTIVE
By: /s/ John Street /s/ John Gerdelman
------------------------------- ------------------------------------
John Street John Gerdelman
Chairman of the
Board of Directors
7.
<PAGE> 1
EXHIBIT 10.8B
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is made and entered into
as of the 11th day of May, 1999 (the "EFFECTIVE DATE"), by and between USA.NET,
Inc., a Delaware corporation (the "COMPANY"), and Kaukab Chaudhry ("EXECUTIVE").
WHEREAS, the Company desires to employ Executive to provide personal
services to the Company, and wishes to provide Executive with certain
compensation and benefits in return for his services; and
WHEREAS, Executive wishes to be employed by the Company and provide
personal services to the Company in return for certain compensation and
benefits.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth herein,
the Company agrees to employ Executive as its Chief Financial Officer and
Executive hereby accepts such employment. Executive shall serve in an executive
capacity and shall perform such duties as are customarily associated with his
title, consistent with the Bylaws of the Company and as required by the
President and the Board of Directors of the Company. Executive will be based out
of the Company's offices in New York City or at such other location mutually
agreed to by Executive and the Company. During the term of his employment with
the Company, Executive will devote his best efforts and substantially all of his
business time and attention to the business of the Company. This Agreement is
for at-will employment.
2. SALARY AND BENEFITS
(a) BASE SALARY AND PERFORMANCE BONUS.
(i) Executive will receive for services to be rendered hereunder an
annualized base salary of One Hundred Fifty Thousand Dollars
($150,000), payable on a bi-weekly basis, subject to adjustment in
accordance with the policies of the Company.
(ii) In the event that (A) the Company has not completed the initial
public offering of its common stock, or (B) the Company has not
entered into a binding letter of intent or agreement for a Sale of
the Company on or before October 31, 1999, then the Company will pay
Executive a one-time cash bonus of Seven Hundred Fifty Thousand
Dollars ($750,000) on or before November 15, 1999.
(iii) In addition to any amounts that may be due under Section 2(a)(iv),
Executive may receive such discretionary performance bonuses as the
Compensation Committee of the Board of Directors of the Company, in
its sole discretion and from time to time, deems appropriate.
1.
<PAGE> 2
(iv) During the term of this Agreement, Executive will receive the
following cash bonuses to be paid at the following times, if
applicable:
A. On or before January 15, 2000 the Company will pay Executive an amount
equal to the lesser of (1) the '99 Floor minus the '99 Spread during
the '99 Measurement Period and (2) $1,500,000 less any bonus paid
pursuant to Section 2(a)(ii). For purposes of this Section 2(a)(iv)(A)
the preceding terms will have the following meanings:
1. "'99 FLOOR" will mean $5,000,000.
2. "'99 SPREAD" will mean the '99 Trading Value less the '99 Option
Value.
3. "'99 MEASUREMENT PERIOD" will mean the thirty (30)-day period
commencing November 1, 1999 and ending November 30, 1999.
4. "'99 OPTION VALUE" will mean the total number of shares originally
subject to the Option times the Option exercise price.
5. "'99 TRADING VALUE" will mean the total number of shares originally
subject to the Option times either (x) the average of the closing
sale prices of the Company's Common Stock during the '99 Measurement
Period if the Company has completed an underwritten public offering
of Common Stock prior to November 1, 1999 or (y) the fair market
value of one share of the Company's Common Stock as of the final day
of the '99 Measurement Period as determined in good faith by the
Board of Directors.
If the '99 Floor minus the '99 Spread is a negative number, then no
payment will be due hereunder.
B. On or before January 15, 2001 the Company will pay Executive an amount
equal to the lesser of (1) the '00 Floor minus the '00 Spread during
the '00 Measurement Period and (2) $750,000. For purposes of this
Section 2(a)(iv)(B) the preceding terms will have the following
meanings:
1. "'00 FLOOR" will mean $5,000,000 less any amounts paid to Executive
pursuant to subsection (A) above or Section 2(a)(ii).
2. "'00 SPREAD" will mean the '00 Trading Value less the '00 Option
Value.
3. "'00 MEASUREMENT PERIOD" will mean the thirty (30)-day period
commencing November 1, 2000 and ending November 30, 2000.
4. "'00 OPTION VALUE" will mean the total number of shares originally
subject to the Option times the Option exercise price.
5. "'00 TRADING VALUE" will mean the total number of shares originally
subject to the Option times either (x) the average of the closing
sale prices of the Company's Common Stock during the '00 Measurement
Period if the Company has completed an underwritten public offering
of Common Stock prior to November 1, 2000 or (y) the fair market
value of one share of the Company's Common Stock as of the final day
of the '00 Measurement Period as determined in good faith by the
Board of Directors.
2.
<PAGE> 3
If the '00 Floor minus the '00 Spread is a negative number, then no
payment will be due hereunder.
C. On or before January 15, 2002 the Company will pay Executive an amount
equal to the lesser of (1) the '01 Floor minus the '01 Spread during
the '01 Measurement Period and (2) $750,000. For purposes of this
Section 2(a)(iv)(C) the preceding terms will have the following
meanings:
1. "'01 FLOOR" will mean $5,000,000 less any amounts paid to Executive
pursuant to subsections (A) or (B) above or Section 2(a)(ii).
2. "'01 SPREAD" will mean the '01 Trading Value less the '01 Option
Value.
3. "'01 MEASUREMENT PERIOD" will mean the thirty (30)-day period
commencing November 1, 2001 and ending November 30, 2001.
4. "'01 OPTION VALUE" will mean the total number of shares originally
subject to the Option times the Option exercise price.
5. "'01 TRADING VALUE" will mean the total number of shares originally
subject to the Option times either the (x) the average closing sale
price of the Company's Common Stock during the '01 Measurement
Period if the Company has completed an underwritten public offering
of Common Stock prior to November 1, 2001 or (y) the fair market
value as of the final day of the '01 Measurement Period as
determined in good faith by the Board of Directors.
If the '01 Floor minus the '01 Spread is a negative number, then no
payment will be due hereunder.
All payments pursuant to this Section 2(a) are subject to ordinary
withholdings for tax and social security purposes.
(b) VACATION. Executive will accrue paid vacation time pursuant to the
Company's general vacation policy, which will not be less than the
vacation policy in effect on the date of this Agreement.
(c) BENEFITS. Executive will be entitled to participate in the Company's
standard Executive benefit programs, including medical and disability
programs, and in such additional benefit programs, as may in the future be
made available by the Company to the extent that he/she is eligible under
the general provisions thereof. In the case of any Sale of the Company,
benefit programs made available to Executive will be no less favorable
than benefit programs made available to Executive in effect on the date of
this Agreement.
(d) STOCK OPTIONS. Executive will receive a non-qualified stock option to
purchase one hundred sixty thousand (160,000) shares of the Company's
common stock at a price of Thirty Dollars ($30.00) per share (the
"OPTIONS"). Forty thousand (40,000) of the shares will be fully vested on
the Effective Date with the remainder to vest in equal annual installments
over three years on December 31, 1999, 2000 and 2001. The Options will
vest in full immediately prior to the closing of a Sale of the Company.
3.
<PAGE> 4
(e) MOBILE EMPLOYEE EXPENSES. The Company will reimburse Executive's
business-related cell phone charges, pager, personal digital assistant and
high-speed Internet data connection to his home.
3. TERMINATION.
(a) MUTUAL AGREEMENT. This Agreement may be terminated at any time by the
mutual written agreement of the Company and Executive.
(b) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate this Agreement
at any time by giving 30 days written notice to the Company.
(c) TERMINATION BY COMPANY OTHER THAN FOR CAUSE. If Executive is terminated by
the Company for any reason other than for Cause (as defined in Section 5
below), and in exchange for Executive signing a waiver of claims against
the Company as of the termination date in a form acceptable to the
Company, Executive will receive the following such termination:
(i) All of Executive's stock options (including the Options) shall be
fully vested and may be exercised by Executive according to their terms;
(ii) The Company shall pay Executive all accrued compensation,
including payment for accrued but unused vacation days, unreimbursed expenses to
the date of termination as provided herein, as well as any expenses incurred by
the Executive with the Company's prior written approval, such as expenses
incurred in returning Company records; and
(iii) For twelve (12) full calendar months, pursuant to the provisions
of COBRA, the Company shall provide Executive and his family with all group
health benefits which the Company provided immediately prior to such
termination; provided, however, that such benefits will be terminated if
Executive subsequently joins or becomes employed by another organization which
provides Executive and his family with group health benefits comparable to those
provided by the Company under this paragraph. The Company shall be responsible
for paying all COBRA premiums for no more than twelve (12) months.
(d) TERMINATION BY COMPANY FOR CAUSE. The Company may terminate this Agreement
at any time for Cause effective immediately upon written notice to Executive
(except termination for Cause which requires advance notice as set forth in the
definition of Cause set forth in Section 5 below). If the Company terminates
this Agreement for Cause, Executive shall not be entitled to any further
payments except (i) unreimbursed expenses to the date of termination and (ii)
any accrued compensation, including accrued benefits.
(e) DISABILITY OR DEATH. The Company may terminate this Agreement upon the
death or disability of Executive. For purposes of this Agreement, Executive
shall be considered disabled if he is unable to perform his/her duties under
this Agreement as a result of injury, illness or other disability for a period
of one hundred eighty
4.
<PAGE> 5
(180) consecutive days, or one hundred eighty (180) days in a three hundred
sixty-five (365) day period, and shall not have returned to the performance of
duties within thirty (30) days after receiving written notice of termination. If
the Company terminates this Agreement upon the death or disability of Executive,
the Company shall pay Executive or his estate a lump sum equal to all accrued
compensation, including accrued benefits, and unreimbursed expenses to the date
of termination as provided herein.
(f) DATE OF TERMINATION; PAYMENT. In each of the foregoing cases, except those
provisions where termination is automatic upon notice to Executive, termination
is the date of actual termination, not the date notice of termination is given.
All payments for unpaid monthly compensation shall be made based upon the normal
payroll processing schedule and all payments for reimbursement shall be made
within forty-five (45) days after the end of the month following the month in
which termination occurred.
4. MISCELLANEOUS.
(a) ASSIGNMENT. This Agreement may not be assigned by any party hereto;
provided, however, that the Company may assign this Agreement in connection with
a Sale of the Company (as defined below) so long as the assignee assumes all of
the Company's obligations thereunder.
(b) NOTICES. Any notices provided hereunder must be in writing and shall be
deemed effective upon the earlier of personal delivery (including personal
delivery by telex) or the third day after mailing by first class mail to the
recipient at the address indicated below:
<TABLE>
<S> <C>
To the Company:
USA.NET, Inc.
1155 Kelly Johnson Blvd., Suite 400
Colorado Springs, CO 80920
Attention: President/Chief
Executive Officer
Phone: (719) 265-2930
Fax: (719) 265-2923
To Executive:
Kaukab Chaudhry
114 East 90th Street
New York, NY 10128
</TABLE>
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(c) WAIVER. A waiver by the Company or Executive of a breach of any provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach by the other party.
5.
<PAGE> 6
(d) GOVERNING LAW. This Agreement shall be deemed a contract made under, and
for all purposes shall be construed in accordance with, the laws of the State of
New York.
(e) SEVERABILITY. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions or portions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
(f) ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof. This Agreement may be changed
only by an agreement in writing signed by the parties.
(g) COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
5. DEFINITIONS. As used herein, the following terms shall have the following
meanings:
(a) "CAUSE" as used herein shall mean: (i) dishonesty which is not the result
of an inadvertent or innocent mistake of Executive with respect to the Company
or any of its subsidiaries; (ii) willful misfeasance or nonfeasance of duty by
Executive that materially injures the reputation, business or business
relationships of the Company or any of its subsidiaries or any of their
respective officers, directors or Executives; (iii) any conduct which would be
sufficient to criminally charge Executive with the commission of a crime
involving moral turpitude or a crime other than a vehicle offense which could
reflect in some material fashion unfavorably upon the business or business
relationships of the Company or any of its subsidiaries or any of their
respective officers, directors or Executives; (iv) willful or prolonged absence
from work by Executive (other than by reason of disability due to physical or
mental illness) or failure, neglect or refusal by Executive to perform his/her
duties and responsibilities without the same being corrected upon thirty (30)
days prior written notice; or (v) if Executive materially violates any term of
this Agreement or the Company's employment policies and procedures (including
but not limited to the Company's policies with respect to sexual harassment and
discrimination) and such action or failure is not remedied or reasonable steps
to effect such remedy are not commenced within thirty (30) days of written
notice.
(b) "SALE OF THE COMPANY" as used herein shall mean any change in control of
the Company, including any (i) sale of all or substantially all of the assets of
the Company, (ii) merger or consolidation in which the Company is not the
surviving corporation or (iii) reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
6.
<PAGE> 7
USA.NET, INC. EXECUTIVE
By: /s/ John Street /s/ Kaukab Chaudhry
----------------------------------- ----------------------------
John Street Kaukab Chaudhry
Chairman of the
Board of Directors
<PAGE> 1
EXHIBIT 10.8C
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is made and entered into
as of the ____ day of _____, 1999 (the "EFFECTIVE DATE"), by and between
USA.NET, Inc., a Delaware corporation (the "COMPANY"), and __________
("EXECUTIVE").
WHEREAS, Executive is currently the ______ of the Company; and
WHEREAS, Executive and the Company desire to enter into an agreement
to address certain terms of Executive's continued employment by the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth
herein, the Company agrees to employ Executive as its _____________ and
Executive hereby accepts such employment. Executive shall serve in an executive
capacity and shall perform such duties as are customarily associated with his
or her title, consistent with the Bylaws of the Company and as required by the
President or Board of Directors of the Company. During the term of his or her
employment with the Company, Executive will devote his or her best efforts and
substantially all of his or her business time and attention to the business of
the Company. This Agreement is for at-will employment.
2. SALARY AND BENEFITS
(a) BASE SALARY AND PERFORMANCE BONUS. Executive will receive for services
to be rendered hereunder an annualized base salary of _________ Dollars
($_______), payable on a bi-weekly basis, subject to adjustment in accordance
with the policies of the Company. Executive may receive such discretionary
performance bonuses as the Compensation Committee of the Board of Directors of
the Company, in its sole discretion and from time to time, deems appropriate.
All such payments are subject to ordinary withholdings for tax and social
security purposes.
(b) VACATION. Executive will accrue paid vacation time pursuant to the
Company's general vacation policy, which will not be less than the vacation
policy in effect on the date of this Agreement.
(c) BENEFITS. Executive will be entitled to participate in the Company's
standard Executive benefit programs, including medical and disability programs,
and in such additional benefit programs, as may in the future be made available
by the Company to the extent that he/she is eligible under the general
provisions thereof. In the case of any Sale of the Company, benefit programs
made available to Executive will be no less favorable benefit programs made
available to Executive in effect on the date of this Agreement.
(d) STOCK OPTIONS. Executive has received an incentive stock option to
purchase _____ (_______) shares of the Company's common stock at a price of
_____ ($____) per share (the
1.
<PAGE> 2
"OPTIONS"). The Options will continue to vest according to their terms;
provided, however, that the Options will vest in full immediately prior to the
closing of a Sale of the Company.
(e) CELL PHONE. The Company will reimburse Executive's cell phone charges.
3. TERMINATION.
(a) MUTUAL AGREEMENT. This Agreement may be terminated at any time by the
mutual written agreement of the Company and Executive.
(b) TERMINATION OTHER THAN FOR CAUSE. If Executive is terminated by the
Company for any reason other than for Cause (as defined in Section 5 below),
and in exchange for Executive signing a waiver of claims against the Company as
of the termination date in a form acceptable to the Company, Executive will
receive the following such termination:
(i) all of Executive's stock options (including the Options) shall
be fully vested and may be exercised by Executive according to their terms;
(ii) The Company shall pay Executive all accrued compensation,
including payment for accrued but unused vacation days, unreimbursed expenses
to the date of termination as provided herein, as well as any expenses incurred
by the Executive with the Company's prior written approval, such as expenses
incurred in returning Company records; and
(iii) For twelve (12) full calendar months, pursuant to the
provisions of COBRA, the Company shall provide Executive and her family with
all group health benefits which the Company provided immediately prior to such
termination; provided, however, that such benefits will be terminated if
Executive subsequently joins or becomes employed by another organization which
provides Executive and her family with group health benefits comparable to
those provided by the Company under this paragraph. The Company shall be
responsible for paying all COBRA premiums for no more than twelve (12) months.
(c) FOR CAUSE. The Company may terminate this Agreement at any time for
Cause effective immediately upon written notice to Executive (except
termination for Cause which requires advance notice as set forth in the
definition of Cause set forth in Section 5 below). If the Company terminates
this Agreement for Cause, Executive shall not be entitled to any further
payments except (i) unreimbursed expenses to the date of termination and (ii)
any accrued compensation, including accrued benefits.
(d) DISABILITY OR DEATH. The Company may terminate this Agreement upon the
death or disability of Executive. For purposes of this Agreement, Executive
shall be considered disabled if she is unable to perform his/her duties under
this Agreement as a result of injury, illness or other disability for a period
of one hundred eighty (180) consecutive days, or one hundred eighty (180) days
in a three hundred sixty-five (365) day period, and shall not have returned to
the performance of duties within thirty (30) days after receiving written
notice of termination. If the Company terminates this Agreement upon the death
or disability of Executive, the Company
2.
<PAGE> 3
shall pay Executive or her estate a lump sum equal to all accrued compensation,
including accrued benefits, and unreimbursed expenses to the date of
termination as provided herein.
(e) DATE OF TERMINATION; PAYMENT. In each of the foregoing cases, except
those provisions where termination is automatic upon notice to Executive,
termination is the date of actual termination, not the date notice of
termination is given. All payments for unpaid monthly compensation shall be
made based upon the normal payroll processing schedule and all payments for
reimbursement shall be made within forty-five (45) days after the end of the
month following the month in which termination occurred.
4. MISCELLANEOUS.
(a) ASSIGNMENT. This Agreement may not be assigned by any party hereto;
provided, however, that the Company may assign this Agreement in connection
with a Sale of the Company (as defined below) so long as the assignee assumes
all of the Company's obligations thereunder.
(b) NOTICES. Any notices provided hereunder must be in writing and shall be
deemed effective upon the earlier of personal delivery (including personal
delivery by telex) or the third day after mailing by first class mail to the
recipient at the address indicated below:
To the Company:
USA.NET, Inc.
1155 Kelly Johnson Blvd., Suite 400
Colorado Springs, CO 80920
Attention: President/Chief
Executive Officer
Phone: (719) 265-2930
Fax: (719) 265-2923
To Executive:
-----------------
-----------------
-----------------
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(c) WAIVER. A waiver by the Company or Executive of a breach of any
provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
(d) GOVERNING LAW. This Agreement shall be deemed a contract made under,
and for all purposes shall be construed in accordance with, the laws of the
State of Colorado.
3.
<PAGE> 4
(e) SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions or portions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(f) ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof. This Agreement may be
changed only by an agreement in writing signed by the parties.
(g) COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
5. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
(a) "CAUSE" as used herein shall mean: (i) dishonesty which is not the
result of an inadvertent or innocent mistake of Executive with respect to the
Company or any of its subsidiaries; (ii) willful misfeasance or nonfeasance of
duty by Executive that materially injures the reputation, business or business
relationships of the Company or any of its subsidiaries or any of their
respective officers, directors or Executives; (iii) any conduct which would be
sufficient to criminally charge Executive with the commission of a crime
involving moral turpitude or a crime other than a vehicle offense which could
reflect in some material fashion unfavorably upon the business or business
relationships of the Company or any of its subsidiaries or any of their
respective officers, directors or Executives; (iv) willful or prolonged absence
from work by Executive (other than by reason of disability due to physical or
mental illness) or failure, neglect or refusal by Executive to perform his/her
duties and responsibilities without the same being corrected upon thirty (30)
days prior written notice; or (v) if Executive materially violates any term of
this Agreement or the Company's employment policies and procedures (including
but not limited to the Company's policies with respect to sexual harassment and
discrimination) and such action or failure is not remedied or reasonable steps
to effect such remedy are not commenced within thirty (30) days of written
notice.
(b) "SALE OF THE COMPANY" as used herein shall mean any change in control
of the Company, including any (i) a sale of all or substantially all of the
assets of the Company, (ii) a merger or consolidation in which the Company is
not the surviving corporation or (iii) a reverse merger in which the Company is
the surviving corporation but the shares of Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
USA.NET, INC. EXECUTIVE
By:
---------------------------------- -------------------------------
4.
<PAGE> 1
** CERTAIN CONFIDENTIAL
MATERIAL CONTAINED IN THIS
DOCUMENT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF
1933, AS AMENDED.
EXHIBIT 10.10
CO - MARKETING PROGRAM AGREEMENT
This Co - Marketing Agreement (the " Agreement") is entered into this 8th day of
April 1997, by and between USA.NET, Inc., a Delaware corporation ("Company"),
and American Express Travel Related Services Company, Inc., a New York
corporation ("AMEX").
WHEREAS, Company is engaged in, among other things, the business of promoting,
selling and providing consumer and other services associated with an e-mail
screening and address location; and
WHEREAS, Company and AMEX have entered into agreements with respect to a current
and future investment by AMEX in the Company;
WHEREAS, AMEX desires to have offered, and to participate with Company in the
promotion of such services with unique enhancements to certain of its current
and future holders of an American Express(R) charge, credit or debit card (each
a "Cardmember") and certain other individuals (together with Cardmembers,
"Customers") on the terms and conditions of this Agreement;
NOW THEREFORE, in consideration of the mutual promises and covenants contained
in this Agreement, the parties hereto agree as follows:
1. THE SERVICE:
(a) Description. AMEX hereby retains Company to, and Company agrees to, provide
Customers with an opportunity to enroll in the e-mail service offered to
the Company's customers from time to time (the "Basic Service;" the Basic
Service as offered on the date hereof is more specifically described in
Exhibit A hereto), with changes and enhancements thereto as developed from
time to time specifically for AMEX and approved by AMEX in its sole
discretion (such changes and enhancements, the "Enhancements"; the Basic
Service as changed or enhanced from time to time the "Service"), all in
accordance with the terms hereof. As compared with the Basic Service, the
Service will always have features, including by way of example additional
services, reduced pricing or incentive offers, that will be exclusive to
Customers. In the marketing and promotion of the Service to Customers, AMEX
shall determine which Enhancements and features shall be included in the
Service as so marketed and promoted.
(b) Eligibility. AMEX alone shall determine the eligibility of particular
Customers for enrollment in the Service. Enrollment fees, if any, shall be
charged to the Card Account, if any, for the eligible Customer enrolled in
the Service.
2. PROMOTION OF THE SERVICE:
(a) In accordance with the terms hereof, AMEX will use its best efforts to test
and or assist Company in the definition of the promotion of Service to the
Customers by participating in
1
<PAGE> 2
Programs (as defined below) in the manner and to the extent provided in
this Agreement. From time-to-time AMEX will engage in such other
solicitation activities relating to the Service, or with respect to other
products or services offered by Company, as Company and AMEX may mutually
agree.
(b) AMEX's Conditions: Prior to any participation by AMEX in a Program, (i) the
features of the Service shall be defined to AMEX's satisfaction, (ii) the
service delivery capabilities of the Company shall meet the minimum
operation standards set forth on Exhibit B hereto, and (iii) the customer
service capabilities of the Company shall meet the minimum operation
standards of AMEX set forth on Exhibit B attached hereto as amended from
time to time with Company's consent (the "Customer Service").
(c) Programs: The parties acknowledge that they intend to test market the
Service through various promotional approaches and channels. All marketing,
including initiatives thereof, of the Service shall be deemed to be a
"Program" hereunder. The parties agree that it is impractical to define now
each Program that they may pursue and therefore agree to develop mutually a
written marketing plan defining such Program which will identify the offers
of the Service contemplated hereunder and which will be mutually updated by
the parties no less frequently than once every three (3) months. All
promotional materials (including without limitation, solicitation,
fulfillment, Customer Service and retention materials) developed hereunder
is herein referred to as "Promotional Materials."
(d) Marketing Promotional Expenses and Certain Customer Service: All expenses
and costs (including without limitation marketing research, marketing
tests, public relations, list development, ad agency fees, software
development (related to the user interface of the Service to Customers) and
Customer Service limited to [**] times direct salary costs for incremental
staff for [ ** ] after launch of each program not to exceed [ ** ] for
each of the [ ** ] (the "Marketing Expenses") associated with a
Program, whether conducted by AMEX or by the Company with AMEX's prior
approval, shall be payable by the Company up to [ ** ] (the "Initial
Marketing Dollars"). The restriction on the Initial Marketing Dollars set
forth in the preceding sentence shall not extend beyond the Initial Term
hereof. If AMEX exercises its option under the Series B Preferred Stock
Purchase Agreement dated the date hereof to make the additional investment
in the Company of at least [ ** ], then the Company shall be
responsible for an additional [ ** ] (together with the Initial
Marketing Dollars, the "Marketing Dollars") for the expenses and costs
associated with such Program. The restriction on the Marketing Dollars from
the additional investment shall not extend beyond the [ ** ]
month period from the time of such investment unless the Agreement is
terminated prior thereto.
Upon reasonable notice to the Company, AMEX may make additional
expenditures for Marketing Expenses; provided that AMEX shall be entitled
to receive, and Company shall be obligated to remit to AMEX, a percentage
of the gross revenues from the use of the Service by Customers acquired
through the resulting marketing promotion. [
**
]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
2
<PAGE> 3
[ **
]
(e) Promotional Materials: The Company shall prepare Promotional Materials for
all Programs offered pursuant to this Agreement at its expense (subject to
the limitations set forth in subsection (d) hereof), provided that AMEX
shall prepare Promotional Materials in connection with direct mail
marketing initiatives hereunder at Company's expense (subject to the
limitations set forth in subsection (d) hereof). Such materials shall be
designed to solicit Customers to enroll in the Service. All Promotional
Materials shall be subject to the prior written approval of AMEX. The
Company shall be solely responsible for verifying the accuracy of all
statements relating to the Service contained in the Promotional Materials.
Promotional Materials may include, in AMEX's sole discretion, (i) AMEX's
(or any of its affiliates' or licensees') brand imagery or (ii) Company's
brand imagery in a manner that is acceptable to Company; provided however
so long as the Company is the provider of the Service, AMEX will always
identify the Company as such provider. It is agreed that neither party may
use any of the other party's registered trademarks or service marks in the
Promotional Materials or otherwise in connection with the promotion of the
Service, except with the prior written consent of such other party and,
then, only in accordance with such guidelines as the other party may from
time-to-time reasonably establish concerning such use.
Neither party shall refer to the other party, its services or its customers
in any advertising, press release, marketing materials or other promotional
materials of any kind without the prior written consent of the other party.
The foregoing applies equally to materials relating to the Service and to
materials not relating to the Service.
Notwithstanding anything to the contrary herein, AMEX shall be deemed the
sole and exclusive owner of all Promotional Materials.
3. FINANCIAL ARRANGEMENT:
(a) AMEX shall be entitled to receive, and Company shall remit to AMEX, [
** ] of gross revenues from the use of the Service by Customers
except for Customers who were customers of the Company prior to the
distribution of any Promotional Materials (the "Company Customers").
Company shall remit such payments to AMEX within thirty (30) days after the
end of each calendar month, along with back-up documentation reasonably
acceptable to AMEX showing the calculation of the amount so paid. It is
understood by the parties hereto that gross revenues of the Service shall
be net of reasonable third party commissions for advertising sales directly
relating to the Services (any disagreement relating to the amount of third
party commissions shall be resolved by arbitration pursuant to Section 18)
and shall include (i) revenues generated from advertisement on the Service
as used by Customers (which advertisement shall accord with the AMEX
advertisement policy set forth on Exhibit C hereto, as amended from time to
time, (ii) fees charged to Customers for enrollment in the Service (the
"Enrollment Fees"), which Enrollment Fees shall be
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
3
<PAGE> 4
determined by the parties hereto, and (iii) any other fees approved by the
parties hereto from time to time. AMEX and the Company expressly
acknowledge that the financial terms stated herein may be amended as the
parties may agree in writing.
(b) The parties hereto acknowledge that the revenues generated from the use of
the Service by Company Customers that are provided the Service under the
Domain Name Alternative (defined in Section 15) shall be subject to a
revenue share between the parties hereto as the parties shall reasonably
agree.
(c) Company agrees that it will enter into an agreement ("Acceptance
Agreement") for the acceptance of the American Express cards. Company
understands that it will be responsible for paying any charges incurred in
connection with the Acceptance Agreement, including the payment of any
discount fees. (Any revenues to AMEX generated by the terms of the
Acceptance Agreement shall not be calculated as part of the gross revenues
for purposes of Section 3(a) hereto.) All Enrollment Fees and other fees
payable by Customers will be billed to the Customers' Card Account, if any.
Company shall be responsible for billing and collecting all fees (including
the Enrollment Fee) payable by Customers for use of the Service.
4. EXCLUSIVITY: During the term of this Agreement and for [ ** ] after
the expiration or termination hereof (except in the case of termination by
Company for material breach by AMEX hereunder), Company will not administer
or directly offer Service (as it may exist at the time of such expiration
or termination) or any similar service on behalf of or in conjunction with
[ ** ] without the express written consent of AMEX. For
purposes of this Section, a competitor of AMEX shall be deemed to be any
[ **
] In addition, AMEX agrees not to market the
Enhancements with any third party provider during the Initial Term (as
defined in Section 16) provided that the Company is not in material breach
hereunder.
5. INDEMNIFICATION AND HOLD HARMLESS: Each party (the "Indemnifying Party")
shall indemnify and hold harmless the other party, its respective parent,
subsidiaries and affiliates and their respective successors, assignees,
directors, officers, agents and employees (each an "Indemnitee") from and
against all third party liabilities, losses, damages, costs, expenses,
actions, claims, demands, suits, and proceedings whatsoever, including
losses incurred by them which result directly or indirectly from the
willful or negligent acts or omissions of the Indemnifying Party, its
employees, affiliates, agents or contractors in connection with the
Indemnifying Party's obligations under this Agreement, or in connection
with services performed or to be performed by such party pursuant to a
Program or in connection with the Service (each a "Claim").
Each party seeking indemnification under this Agreement shall give prompt
notice to the Indemnifying Party along with its request for
indemnification, of any Claim for which it is seeking indemnification. The
parties understand and further agree that no settlement of an indemnified
Claim shall be made by an Indemnitee without the concurrence of the
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
4
<PAGE> 5
Indemnifying Party. The Indemnifying Party shall control the settlement or
defense of any Claim; provided, however, that the Indemnitee may, at its
cost, engage its own attorneys. The Indemnitee will fully cooperate with
the Indemnifying Party to enable it to fulfill its obligations with respect
to such Claim. The provisions of this Section shall survive the termination
or expiration of this Agreement.
6. PUBLICITY: No party shall refer to or identify the other party, such other
party's parent, subsidiaries or affiliates, or the respective products or
services of any of them, in advertising, promotional activity or publicity
release relating to the Program without securing the prior written consent
of such other party.
7. CONFIDENTIALITY:
(a) As used herein, "Confidential Data and Information" shall mean any
information, data, or materials obtained by one party to this Agreement
(the "Receiving Party") from, or disclosed to such party by, the other
party (or, in the case of AMEX, disclosed to or by AMEX or any parent,
subsidiary, or affiliated company related to AMEX) (the "Disclosing
Party"), or the other party's customer or service establishment, which
information, data, or materials relate to the aforesaid Program and their
design and processes, or to the past, present, or future business
activities of the Disclosing Party or any of its subsidiaries, affiliates,
or clients, including methods, processes, telephone conversations,
financial data, systems, customer names, account numbers, and other
customer data, lists, apparatus, statistics, programs, and research and
development, or related information of such entities, except such
information as: (i) is previously known to the Receiving Party, free from
any obligation to keep it confidential which Receiving Party can
demonstrate through written records; (ii) is publicly disclosed either
prior to or subsequent to the Receiving Party's receipt of such
information; (iii) is lawfully obtained by the Receiving Party from a third
party who, in making such disclosure, breaches no obligation of confidence;
or (iv) is independently developed by the Receiving Party which Receiving
Party can demonstrate through written records.
(b) With respect to Company's access to customer files and related customer
data ("Files"), Company specifically acknowledges the importance of
maintaining the security and confidentiality of the Files, and agrees to
take whatever steps are necessary to prevent the unauthorized transfer,
disclosure to, or use of the Files by any person or entity not a party to
this Agreement.
(c) Neither party shall disclose, publish, release, transfer, or otherwise make
available Confidential Data and Information of the other party in any form
to, or for the use or benefit of, any person or entity without such party's
prior written consent. Each party, however, shall be permitted to disclose
relevant aspects of the other party's Confidential Data and Information
only to its officers and its employees on a need to know basis to the
extent that such disclosure is reasonably necessary for the performance of
their duties and obligations under the Agreement; provided, that such party
shall take all reasonable measures to ensure that Confidential Data and
information of the other party is not disclosed or duplicated in
contravention of the provisions of this Agreement by such officers and
employees. Company
5
<PAGE> 6
agrees to ensure that the terms and conditions of this Agreement are
strictly adhered to by all of its employees and any third party
representative. The obligations shall not restrict any disclosure by either
party mandated by any applicable law, or by order of any court or
government agency (provided that the disclosing party shall give prompt
notice to the non-disclosing party of such order). In the event Company
will have direct on-line access to American Express Customer data, Company
also agrees to the terms of the AMEX Data Access Document attached hereto
as Exhibit D-1 and will ensure that each Company employee with on-line
access shall read, sign and comply with all Terminal Rules and Regulations
set forth in Exhibit D-2 attached hereto.
(d) Each party or its employees shall: (a) notify the other party promptly of
any material unauthorized possession, use or knowledge, or attempt thereof,
of the other party's Confidential Data and Information by any person or
entity which may become known to such party and encourage its employees to
do the same, (b) promptly furnish to the other party full details of the
unauthorized possession, use or knowledge, or attempt thereof, and use
reasonable efforts to investigate any unauthorized possession, use or
knowledge, or attempt thereof, of Confidential Data and Information, (c)
use reasonable efforts to cooperate with the other party in any litigation
and investigation against third parties deemed necessary by the other party
to protect its proprietary rights, and (d) promptly use all reasonable
efforts to prevent a recurrence of any such unauthorized possession, use or
knowledge of Confidential Data and Information. Each party shall bear the
cost it incurs as a result of compliance with the requirements set forth in
these paragraphs.
(e) AMEX reserves the right to monitor access to Confidential Data and
Information to prevent the improper or unauthorized use of such
Confidential Data and Information. Such monitoring may include, but is not
limited to, on-site inspection of Company's locations providing the Service
for AMEX at any time during normal business hours, and inserting decoy
names and addresses in any lists provided to Company. In addition, during
the term of this Agreement, AMEX reserves the right to visit, unannounced,
any of the locations used by Company that provides the Service for AMEX and
verify security procedures during normal business hours.
(f) Each party agrees that if there is any disclosure of the Confidential Data
and Information by its employees or the employees of any third party, it
will enforce for the other party's benefit through litigation, if
necessary, all rights provided under law to compensate the former party for
any damages arising out of such disclosure and to protect the former party
from additional disclosure.
(g) Each party agrees that if a party, its officers, employees or anyone
obtaining access to the proprietary information of the other party by,
through or under them, breached any provision of this Section, such other
party would suffer irreparable harm and the total amount of monetary
damages for any injury to such other party from any violation of this
Section would be impossible to calculate and would therefore be an
inadequate remedy. Accordingly, each party agrees that the other party
shall be entitled to temporary and permanent injunctive relief against the
breaching party, its officers or employees, and such other rights and
remedies to
6
<PAGE> 7
which such other party may be entitled to at law, in equity and under this
Agreement for any violation of this Section.
(h) Unless expressly limited herein, the provisions of this Section shall
survive the termination or expiration of this Agreement.
8. CUSTOMER SERVICE:
(a) The Company shall provide a year-round Customer Service unit to support the
Service. The Customer Service shall accord with the AMEX standards set
forth on Exhibit B hereto as amended from time to time. The Company shall
train and have available at all times sufficient staff to provide adequate
Customer Service to Customers. The Company's Customer Service unit shall be
dedicated primarily to the Service for AMEX Customers and other Company
staff shall supplement this dedicated staff to handle unanticipated peaks
in the Customer Service needs. In connection with Customer Service, the
Company shall provide, at its sole cost and expense, an e-mail address
dedicated for exclusive use by Customers (the "Dedicated E-Mail Address").
(b) AMEX shall have the right, with reasonable notice, to monitor periodically
the quality of the Company's obligations under this Section. AMEX alone
shall have the right to determine whether the Company's performance
hereunder is acceptable
9. PHONE SYSTEM FOR THE SERVICE:
(a) Company shall be responsible for establishing and maintaining, at its own
expense, (i) a telephone number which is toll-free to Customers and (ii)
one or more local telephone numbers (as reasonably determined by AMEX in
consultation with Company) for Customers to use for collect calls to the
Customer Service centers; provided, however, that AMEX shall be the
customer of record for such telephone numbers and, as between AMEX and
Company, AMEX shall have all rights in and to such telephone numbers.
AMEX's status as customer of record and rights in and to all such telephone
numbers shall survive the termination or expiration of this Agreement. AMEX
shall have the right to inspect, at Company's offices during regular
business hours, any and all telephone bills relating to these numbers.
These telephone numbers shall be dedicated solely to the use by Customers
for Customer Service fulfillment. Company personnel shall answer these
telephone numbers in a manner specified by AMEX, and Company shall not
publicize or use these numbers for any purpose not related to the Service
without the express written consent of AMEX.
(b) Company agrees that it will maintain its telecommunications systems in any
manner reasonably requested by and reasonably acceptable to AMEX given that
Company agrees with the recommendations. If Company does not agree with
such recommendations, both AMEX and Company agree to review and explore
other options. Company will bear all the costs of such upgrading with the
exception of any consulting and services provided by AMEX through its
telecommunications personnel, which shall be free of charge to Company.
7
<PAGE> 8
(c) AMEX shall consider any reasonable request and plan from Company to operate
the phone system for the Service in any legitimate and technically feasible
manner that takes advantage of any volume telecommunications user discounts
available to AMEX. AMEX, however, shall be under no obligation to agree to
such requests and plans, and may reject them with or without cause.
(d) Additionally, all toll-free telephone numbers obtained by AMEX or used in
connection with the performance of the Service by Company for AMEX
hereunder shall be the sole and exclusive property of AMEX. Company hereby
irrevocably assigns to AMEX all its rights, title and interest in and to
such toll-free telephone numbers and will execute any and all documents
necessary to transfer and/or evidence AMEX's ownership rights including,
but not limited to, shared used agreements for the toll-free telephone
numbers.
(e) Upon termination or expiration of this Agreement, the Company shall
transfer to AMEX the Company's rights in and to any of the telephone
numbers described herein and the Dedicated E-Mail Address, including the
rights to the use thereof, and shall assist AMEX in giving effect to such
transfer.
10. NOTICES: All notices, consents, requests, instructions, approvals, and
other communications made, required or permitted hereunder (each herein, a
"Notice") shall be given in writing and delivered to the receiving party to
its respective address set forth below (i) by personal delivery to a
responsible officer of such party, (ii) by certified or registered mail
(return receipt requested), (iii) by a nationally recognized courier
service or (iv) by facsimile transmission (such to be confirmed by mail).
The effective date of such Notice shall be deemed to be the date upon which
any such Notice is personally delivered or, if it is given by mail, courier
service or facsimile transmission, the date upon which it is received by
the addressee. Any party hereto may change its address set forth below by
written notice to the other party hereto in accordance with the terms of
this Section 10.
If to AMEX: American Express Travel Related Services Company, Inc.
3 World Financial Center
AMEX Tower
New York, NY 10285
Attn.: [ ** ]
Copy to: American Express Travel Related Services Company, Inc.
3 World Financial Center
AMEX Tower
New York, NY 10285
Attn.: [ **
]
If to Company: USA.NET, Inc.
102 South Tejon
Suite 220
Colorado Springs, CO 80903
Attention: President
Copy to: Cooley Godward LLP
2595 Canyon Boulevard
Suite 250
Boulder, Colorado 80302-6737
Attention: Carrie Schiff, Esq.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
8
<PAGE> 9
Each party may change its address for receiving Notices under this
Agreement by Notice pursuant to this Section.
11. USE OF LISTS OF ENROLLEES AND CUSTOMERS: The Company understands and agrees
that (a) it will not solicit Cardmembers or enrollees in the Service for
any reason other than in accordance with the terms of this Agreement or as
requested by AMEX and (b) that enrollees in the Service shall be deemed
customers of AMEX and may not be communicated with by the Company or its
designee without the prior written approval of AMEX. Notwithstanding the
foregoing, the Company can market other product and services to Cardmembers
and enrollees in the Service provided that (i) such Cardmembers and
enrollees are not identified as American Express Card holders in any such
marketing and (ii) the source of the individuals and information targeted
by the Company in such marketing is neither AMEX nor the list of enrollees
in the Service.
12. WARRANTIES: Each party represents and warrants that it is under no
obligation or restriction which would cause it to be in breach of this
Agreement. Each party to this Agreement represents and warrants to the
other party that this Agreement, when signed on behalf of a party,
constitutes the legal, valid and binding obligation of such party
enforceable in accordance with its terms.
13. TRADEMARKS. Notwithstanding any other provision of this Agreement, neither
party shall have the right to use the other party's registered or
unregistered trademarks, service marks, or trade names, or to refer to the
other party directly or indirectly, in connection with any product,
promotion or publication without the prior written approval of that party.
14. REPORTS: The Company shall provide AMEX with the following reports, at the
time and in the form and substance mutually agreed upon by the parties
hereto:
(a) With respect to both the Company's customers and AMEX's Customers, customer
reports including the number of: (i) enrolled customers, (ii) active
customers and (iii) advertisement suppression customers.
(b) With respect to both the Company and the Service, revenue report including
revenue from (i) advertisements and (ii) fees for advertisement
suppression.
9
<PAGE> 10
(c) Customer Service report including: (i) number of Customers contacting
Customer Service, (ii) wait/response time for telephone and e-mail, and
(iii) length of telephone calls.
(d) Attrition report including: (i) total attrition rate for the Company, (ii)
Service attrition rate, and (iii) reasons for discontinuing of service.
15. DOMAIN NAME:
(a) The Company hereby represents that it owns the domain name USA.NET and has
registered such domain name with InterNic. The Company hereby covenants to
keep the domain name USA.NET properly and currently registered with
InterNic during the term of this Agreement and during any period that the
Company shall provide the Service to Cardmember.
(b) The Company agrees to use its best efforts to market and promote the domain
name USA.NET for so long as the Service is marketed to or used by the
Cardmembers. AMEX and the Company agree to use their best efforts to
develop and register with InterNic one additional domain name (the "Domain
Name Alternative") which will be owned solely by AMEX. AMEX may without
limitation use the Domain Name Alternative in connection with providing the
Service (i) to Cardmembers and (ii) to non-Cardmembers.
(c) Any non-Cardmembers that enroll under the domain name USA.NET will be the
customer of [ ** ] Any non-Cardmember that enrolls under the Domain
Name Alternative shall be deemed a customer of [**]. Any known Cardmember
that enrolls under either the domain name USA.NET or the Domain Name
Alternative shall be deemed customers of [**].
16. TERM AND TERMINATION:
(a) This Agreement shall take effect on the date hereof (the "Effective Date"),
and continue until the second (2nd) anniversary of the date hereof (the
"Initial Term"). Unless terminated pursuant to this Section ("Term and
Termination"), AMEX may renew this Agreement for successive one year
periods (each, a "Renewal Term"); provided that if, with respect to the
provision of the Service hereunder, the net operating margin of the Company
(the "NOM") is less than [**] at the commencement of such Renewal Term,
then the Company shall have the option to re-negotiate the financial terms
of Section 3(a) hereof to [
**
] If AMEX elects to
renew this Agreement, this Agreement shall renew in accordance with the
then current terms and conditions. If Company elects to renew this
Agreement, this Agreement shall renew in accordance with the then current
terms and conditions except as otherwise modified in accordance with the
Company's exercise of its option stated in this Section 16 (a).
(b) Termination: This Agreement shall terminate on the expiration of the
Initial Term or a Renewal Term. Notwithstanding the foregoing, this
Agreement may be earlier terminated upon a material breach as described
herein.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
10
<PAGE> 11
(c) Early Termination: Upon a material breach of any provision of this
Agreement, or as otherwise provided under this Agreement, the non-breaching
party shall give notice of such breach to the breaching party. The
breaching party shall have thirty (30) days from the receipt of said notice
to cure the breach described in the notice. If the breach is not cured
within said thirty (30) day period, the non-breaching party shall have the
right, thereafter, to terminate this Agreement by giving written notice
thereof to the breaching party.
(d) In the event (1) of a sale or distribution of all or substantially all of
the assets of Company or a sale or distribution of sufficient stock (other
than pursuant to a public offering) of Company to effect a change in
control, to any of the AMEX Competitors or (2) that Company or its
affiliates enters into the business of providing financial services or
provides a financial product or service substantially similar to any of
AMEX's financial products or services, AMEX may terminate this Agreement
immediately. In the event that AMEX terminates this Agreement pursuant to
the first sentence of this Section, Company shall reimburse AMEX for
reasonable out-of-pocket expenses incurred in transferring the Service to
another vendor or to itself. With AMEX's approval, which shall not be
unreasonably withheld, Company may negotiate transfer expenses on behalf of
AMEX with another vendor to ensure the reasonableness of the expenses. With
AMEX's approval, which shall not be unreasonably withheld, Company may
provide components of the transfer.
(e) Termination for Insolvency. Upon notice, either party may terminate this
Agreement with immediate effect: (1) upon the institution by the other
party of proceedings to be adjudicated a bankrupt or insolvent, or the
consent by the other party to institution of bankruptcy or insolvency
proceedings against it or the filing by the other party of a petition or
answer or consent seeking reorganization or release under the Federal
Bankruptcy Act, or any other applicable Federal or state law, or the
consent by the other party to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee, or other similar
official of the other party or of any substantial part of its property, or
the making by the other party of an assignment for the benefit of
creditors, or the admission in writing by the other party of an assignment
for the benefit of creditors, or the admission in writing by the other
party of its inability to pay its debts generally as they become due or the
taking of corporate action by the other party in furtherance of any such
actions; (2) if, within 60 days after the commencement of an action against
the other party seeking any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar relief under any present or future law
or regulation, such action shall not have been dismissed or all orders or
proceedings thereunder affecting the operations or the business of the
other party stayed, or if the stay of any such order or proceeding shall
thereafter be set aside; or if, within 60 days after the appointment
without the consent or acquiescence of the other party of any trustee,
receiver or liquidator or similar official of the other party, or of all or
any substantial part of the property of the other party, such appointment
shall not have been vacated. Each of the foregoing events shall constitute
a material breach to this Agreement.
(f) Termination Assistance. Upon the expiration or termination of this
Agreement, Company shall, upon AMEX's request, for up to [ ** ] (or up to
[ ** ] in the event of material
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
11
<PAGE> 12
breach by AMEX) after such expiration or termination (the "Termination
Assistance Period") (i) continue to provide the Service to the extent
requested by AMEX at the rates and performance standards for such Service
in effect under this Agreement immediately prior to such expiration or
termination and (ii) provide such assistance as required by AMEX to
transfer the Service to another vendor or to AMEX itself as set forth
herein (the "Termination Assistance Services"). Upon expiration or
termination of this Agreement for any reason, Company shall, at AMEX's
direction, use its best efforts to transfer or assign the Service to
another vendor selected by AMEX or to AMEX itself. After the expiration of
the Termination Assistance Period, Company shall (1) answer questions
regarding the Service on an as needed basis for [ ** ] (2)
deliver to AMEX any remaining AMEX-owned reports and documentation still in
Company's possession and (3) at AMEX's direction, destroy all AMEX data and
information in its possession. Company shall provide the Termination
Assistance Services [ ** ] except in the case of material
breach by AMEX in which case AMEX shall be responsible for such costs. In
the event that AMEX terminates this Agreement because of a breach by
Company which is not timely cured, Company shall reimburse AMEX for
reasonable out-of-pocket expenses incurred in connection with transferring
the Service to another vendor or to AMEX itself. With AMEX's approval,
which may not be unreasonably withheld, Company may negotiate transfer
expenses on behalf of AMEX with another entity to insure the reasonableness
of the expenses. With AMEX's approval, which may not be unreasonably
withheld, Company may provide components of the transfer.
(g) E-Mail Forwarding Obligations: The Company and AMEX acknowledge that it is
in their respective best interests to keep all customers enrolled in the
Service (or similar service) at the time of the termination or expiration
of the Agreement -- whether the customers of AMEX or the Company - assigned
to the Domain Name (such customers, the "Expiration Customers") for
provision of the e-mail service expected by the Expiration Customers. The
Company and AMEX further acknowledge that it is impracticable to attempt to
assign the Expiration Customers to a new domain name for the provision of
such service. Therefore, the Company and AMEX agree that upon the
termination or expiration of the Agreement, the Company shall forward (the
"Forwarding Function") all e-mail for Expiration Customers to an e-mail
address designated by AMEX. The Company shall provide such Forwarding
Function at a price it determines and stated in a unit charge for each
e-mail to be forwarded (the "Unit Price") which price shall be effective
for a one year period (the "Forwarding Period"). AMEX, in its sole
discretion, may choose to accept the Unit Price offer and have the Company
provide the Forwarding Function to the Expiration Customers or choose
another vendor or itself to provide such service. In the event AMEX chooses
another vendor or itself to provide the service, the Company shall [
**
] Company agrees to execute all
documentation necessary to give effect to such transfer and to deliver all
materials necessary for AMEX or its designee to operate the Domain Name and
the Alternative Domain Name and to provide the Forwarding Function to the
Expiration Customers. AMEX agrees to require such vendor or itself to
provide the Forwarding Function with respect to the e-mail of Company's
Expiration Customers to a domain name designated by the Company. In such
event, Company shall pay the Unit Price to AMEX or
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
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<PAGE> 13
its designee in connection with the Forwarding Function. At the end of the
Forwarding Period, the party which is performing the Forwarding Function
shall determine a Unit Price for the following year, and the other party
shall have the option to accept such Unit Price or to offer the Forwarding
Function at such Unit Price. Such process shall be renewed at the end of
each renewal Forwarding Period.
17. AMEX SOFTWARE AND PROPRIETARY RIGHTS:
(a) Grant of Non-Exclusive Access: AMEX hereby grants to Company solely for the
purpose of providing the Service described herein, a non-exclusive,
non-transferable right to have access to and (1) operate (i) the AMEX Card
Member information proprietary software operated by AMEX prior to the
Effective Date (or on an interim basis, AMEX will provide Company with a
supplementary method of identification of Card Member information), and
(ii) to the extent agreed upon by the parties, any AMEX Card member
information proprietary software acquired or developed by AMEX, or on
behalf of AMEX, in AMEX's name after the execution of this Agreement for
use in connection with the Service ((i) and (ii) collectively, the "AMEX
Proprietary Software"), (2) operate (A) the software licensed or leased by
AMEX from a third party which was operated by AMEX prior to the date of
execution of this Agreement, and (B) to the extent agreed upon by the
parties, any software (other than Company Software) licensed or leased by
AMEX from a third party after the execution of this Agreement ((A) and (B)
collectively, the "AMEX Third Party Software"), and (3) use any related
documentation in AMEX's possession on or after the date of execution of
this Agreement (the "Documentation"). The AMEX Proprietary Software, the
AMEX Third Party Software and the Documentation shall be collectively
referred to as the "AMEX Software". As part of the Service, Company shall
pay all license and maintenance fees for AMEX Third Party Software that
Company elects to use to perform the Service (to the extent such fees are
disclosed to Company in writing prior to its election to use such third
party software and are deemed reasonable by Company). Company shall notify
AMEX in advance in writing if it determines not to pay such license and
maintenance fees. In the event that Company desires to use other comparable
and compatible third party software and AMEX insists that Company use AMEX
Third Party Software, AMEX shall pay the license and maintenance fees for
such AMEX Third Party Software. Upon expiration of this Agreement or
termination of this Agreement for any reason, the rights granted to Company
in this Section shall terminate and immediately revert to AMEX and Company
shall deliver to AMEX, at no cost to AMEX, a current copy of all of the
AMEX Software in the form in use as of the date of such expiration or
termination and Company shall destroy or erase all other copies of the AMEX
Software in its possession.
(b) AMEX's Rights. All inventions, methods, techniques, works of authorship,
computer software, computer upgrades, computer programs, service providers,
vendors information, training materials, telemarketing scripts, computer
screens, reports, data, any other proprietary or confidential information
made, created, developed or written and intellectual property ("Developed
Materials") shall be deemed AMEX property if paid for or developed by AMEX
(in no event shall the Marketing Dollars be used in the calculation of such
payments). Furthermore, in the event Developed Materials (i) are paid for
by AMEX such
<PAGE> 14
Developed Materials shall be deemed the sole property of AMEX or (ii) are
jointly created by Company and AMEX and not paid for by AMEX, then such
Developed Materials shall be deemed the joint property of AMEX and the
Company. AMEX acknowledges that Company has developed, and will continue to
develop during the term of this Agreement, valuable intellectual property
used by Company in connection with the Service and that Company's ownership
and protection of such property is essential to its competitive success.
Accordingly, irrespective of any other provision of this Agreement, AMEX
expressly agrees that Developed Materials paid for entirely by Company and
created solely and independently by Company (or any agent of Company) shall
be deemed the property of Company ("Company Property"). The Company
Property and Developed Materials shall be deemed Confidential Data and
Information and subject to the confidentiality provisions of this
Agreement.
18. SOURCE CODE ESCROW
On the date hereof, Company shall deliver to an independent third party
escrow agent, selected and designated by AMEX and approved by Company (such
approval not to be unreasonably withheld) ("Escrow Agent"), for deposit in
accordance with an escrow agreement among the Escrow Agent and the parties
hereto and substantially in the form attached as Exhibit E ("Escrow
Agreement"), a current and complete copy of the source code (the "Source
Code") for the Domain Name and any other materials required to operate the
Source Code (the "Escrow Materials").
Within [ ** ] of the installation of any new update to the
Service (or any other substantial modification to the Source Code, the
Domain Name or the Service) or within [ ** ] of the last deposit
hereunder, whichever is sooner, Company shall deliver to the Escrow Agent,
for deposit in accordance with such Escrow Agreement, any and all changes
to the Escrow Materials which correspond to changes, if any, made to the
corresponding Escrow Material or shall notify Escrow Agent that no changes
were made during the preceding period. All materials deposited hereunder
shall be considered "Escrow Materials" as the term is used herein.
In the event of (i) the Company's insolvency (as defined in Section 16(e))
or (ii) the Company's material breach of the terms of this Agreement
specifically because of its gross negligence or willful misconduct and such
breach is not fully remedied within thirty (30) days of AMEX's notice to
Company, then notwithstanding any other rights and remedies to which AMEX
may be entitled, AMEX shall immediately have the right to obtain a copy of
the Escrow Materials from the Escrow Agent upon written notice as provided
in the Escrow Agreement for use in continued provision of the Service.
AMEX shall have the right, at any time upon at least ten (10) days' written
notice to Company and Escrow Agent, to select and designate a new escrow
agent to replace the Escrow Agent hereunder. Upon such notice, Escrow Agent
shall completely, safely and securely transfer the Escrow Materials to the
new escrow agent (which will then become the "Escrow Agent" hereunder) and
confirm such transfer in writing to AMEX and Company.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
14
<PAGE> 15
19. PRIVACY POLICY: The Company agrees to execute and deliver to AMEX the
Privacy Policy Agreement in the form of Exhibit F hereto. Any material
breach of the terms thereunder by the Company shall constitute a breach
under this Agreement and AMEX shall be entitled to the remedies provided
hereunder without exclusion of other rights and remedies available to AMEX.
20. DATA AND REPORTS
a) Ownership of AMEX Data. All data and information submitted to Company by
AMEX and Customers in connection with the Service, including without
limitation any portion thereof (the "AMEX Data"), is and shall remain the
property of AMEX. The AMEX Data shall: (1) not be used by Company other
than in connection with providing the Service, (2) not be disclosed, sold,
assigned, leased or otherwise provided to third parties by Company; and (3)
not be commercially exploited by or on behalf of Company, its employees or
agents except as provided in this Agreement. Company shall take all
appropriate actions to safeguard the AMEX Data. The database of Customers
formerly or currently enrolled in the Service shall remain the sole
property of AMEX.
b) Return of Data. Upon request by AMEX upon the termination or expiration of
this Agreement, Company shall (1) promptly return to AMEX, in a format
agreed upon by the parties hereto and on the media reasonably requested by
AMEX, all AMEX Data and (2) erase or destroy under the supervision of AMEX,
all AMEX Data in Company possession (3) destroy all Developed Materials
notwithstanding the foregoing if this is jointly owned property containing
proprietary data belonging to one of the parties and necessary to the
party, the proprietary data can be retrieved prior to destruction with the
permission of the other party and under the following conditions: a) the
party requesting redaction of its own proprietary information can elect at
its own expense to have its proprietary data culled by an independent third
party from the joint proprietary data base ; b) the party may retain such
culled data to use as it sees fit; the culled data will be reviewed and
approved for release by the other party prior to release. Such approval
shall not be unreasonably withheld; and (4) be required to sign a
certificate of destruction form supplied by AMEX, if requested by AMEX. For
the purposes of clarity the parties agree that case histories without
identifying the Service Provider(s) or process flows maybe retained by AMEX
in accordance with this Section.
c) Database Maintenance. Company agrees to transmit information each month on
use of the Service by Customer (including, Cardmember account number and
service used), to AMEX's database maintenance facility. The mechanism for
this transmission to be agreed to by the parties.
d) Accuracy of Data. As part of the Service, Company shall be responsible for
the accuracy and completeness of the data and information submitted by
Company to AMEX and any errors in and with respect to data and information
submitted to AMEX. Company shall promptly correct any errors or
inaccuracies in the data or information prepared by Company and submitted
to AMEX.
15
<PAGE> 16
e) Corrections of Errors. As part of the Service, Company shall promptly
correct any errors or inaccuracies made known to them either through their
own sources or made known to them by AMEX in the AMEX Data. AMEX shall be
responsible for (1) the accuracy and completeness of the AMEX Data
submitted by AMEX to Company and (2) any errors in and with respect to data
obtained from Company caused by inaccurate or incomplete AMEX Data.
21. ALTERNATIVE DISPUTE RESOLUTION
(a) Negotiation. The parties shall attempt in good faith to resolve any dispute
arising out of or relating to this agreement promptly by negotiations
between executives who have authority to settle the controversy. Any party
may give the other party written notice of any dispute not resolved in the
normal course of business. Within 20 days after delivery of said notice,
executives of both parties shall meet at a mutually acceptable time and
place, and thereafter as often as they reasonably deem necessary, to
exchange relevant information and to attempt to resolve the dispute. If the
matter has not been resolved within 60 days of the disputing party's
notice, or if the parties fail to meet within 20 days, either party may
initiate mediation of the controversy or claim as provided hereinafter. If
a negotiator intends to be accompanied at a meeting by an attorney, the
other negotiator shall be given at least three working days' notice of such
intention and may also be accompanied by an attorney. All negotiations
pursuant to this clause are confidential and shall be treated as compromise
and settlement negotiations for purposes of the Federal Rules of Evidence
and state rules of evidence.
(b) Mediation. If the dispute has not been resolved by negotiation as provided
above, the parties shall endeavor to settle the dispute by mediation under
the then current Center for Public Resources ("CPR") Model Procedure for
Mediation of Business Disputes. One neutral third party will be selected
from the CPR Panels of Neutrals to mediate the dispute. If the parties
encounter difficulty in agreeing on a neutral, they will seek the
assistance of CPR in the selection process.
(c) Arbitration. Any dispute arising out of or relating to this contract or the
breach, termination or validity thereof, which has not been resolved by
non-binding means as provided in subsection (a) and (b) hereof within 60
days of the initiation of such procedure, shall be finally settled by
arbitration conducted expeditiously in accordance with the Center for
Public Resources Rules for Non-Administered Arbitration of Business
Disputes by a sole arbitrator; provided, however, that if one party has
requested the other to participate in a non-binding procedure and the other
has failed to participate, the requesting party may initiate arbitration
before expiration of the above period. Any arbitrator not appointed by a
party shall be selected from the CPR Panels of Neutrals. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. Section
1-16, and judgment upon the award rendered by the Arbitrator may be entered
by any court having jurisdiction thereof. The place of arbitration shall be
New York, N.Y. The arbitrator is not empowered to award damages in excess
16
<PAGE> 17
of compensatory damages and each party hereby irrevocably waives any
damages in excess of compensatory damages.
22. ASSIGNMENTS: This Agreement shall be binding upon and inure solely to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by either party hereto without
the prior written consent of the other party hereto, except that AMEX may
assign this Agreement to its parent, subsidiary or an affiliate company
without Company's consent, provided that (i) AMEX has provided the Company
with at least 30 days prior written notice, (ii) the assignee company has
the assets and facilities to carry out AMEX's obligations under this
Agreement and (iii) assignee is not a direct competitor of the Company.
23. NEW YORK LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
entirely made and performed within the State. Company hereby consents to
the jurisdiction of the state and federal courts sitting in the State of
New York.
24. MISCELLANEOUS:
(a) No failure or delay (in whole or in part) on the part of any party to
exercise any right or remedy, or operate as a waiver thereof, nor effect
any other right or remedy. All rights and remedies hereunder are cumulative
and are not exclusive of any other rights or remedies provided hereunder or
by law.
(b) If any provision contained in this Agreement is or becomes invalid,
illegal, or unenforceable in whole or in part, such invalidity, legality,
or unenforceability shall not affect the remaining provisions and portions
of this Agreement.
(c) This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior
contemporaneous oral or written understandings or agreements among the
parties which relate to the subject matter hereof. No modification or
amendment of this Agreement or any of its provisions shall be binding upon
any party unless made in writing and duly executed by authorized
representatives of all parties.
(d) This Agreement may be executed in any number of counterparts, each of which
shall constitute an original, but all of which together shall constitute
one instrument notwithstanding that all parties are not signatories to the
same counterparts.
17
<PAGE> 18
IN WITNESS WHEREOF, AMEX and Company, intending to be legally bound by the terms
of this Agreement, have caused this Agreement to be executed by their duly
authorized representatives.
AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC.
By: [ ** ]
-------------------------------------------
Name: [ ** ]
Title: [ ** ]
[ ** ]
USA.NET, INC.
By: /s/ John W. Street
-------------------------------------------
Name: John W. Street
Title: President, CEO
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
18
<PAGE> 19
EXHIBIT A
BASIC SERVICE
It is acknowledged and agreed by the parties hereto that the foregoing list are
the Basic Services offered to USA.NET Customer.
1) SERVICE BASED E-MAIL
2) FORWARDING OF E-MAIL
3) FILTERING OF E-MAIL
4) ADVERTISING SUPPRESSION
5) STORAGE AND RETRIEVAL OF E-MAIL
6) CONSOLIDATION OF E-MAIL
7) DATED REMINDER SERVICE
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EXHIBIT B
OPERATIONS STANDARDS
QUALITY ASSURANCE/ACCURACY EXPECTATIONS
Company must strive for 100% accuracy for 100% of calls, enrollee submissions
and service requests handled. Quality/accuracy standards defined below will be
aggregated through weighted measurement to determine overall aggregate
quality/accuracy performance levels attained during each quarter.
To ensure the continuous attainment of quality and service delivery standards
described, Company agrees to do the following:
o Designate a quality assurance individual to measure and report weekly to
AMEX service delivery and quality results against standards in accordance
with the requirements of this Attachment B and any reports requested by
AMEX and mutually agreed upon at a later date.
o Assist AMEX in conducting customer satisfaction research via surveys and
other forms of customer monitoring.
o Dedicate to and maintain a controlled, continuous improvement process to
develop and implement improved service delivery recommendations and
solutions to problems.
TIMELINESS EXPECTATIONS
Company must strive for 100% timely response to 100% of calls, enrollee
submissions and service requests handled.
SERVICE EXPECTATIONS
Company must strive for service availability of 100% of 7 days per week, 24
hours per day. Company must train and have available sufficient staff to provide
adequate customer service to enrollees and enrolling customers. Company must
install and maintain sufficient systems to provide adequate service delivery to
enrollees and enrolling customers.
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[**]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
21
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[**]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
22
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[**]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
23
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EXHIBIT C
ADVERTISMENT POLICY
In order to ensure that visitors to the Service's web site and users of the
Service receive the highest value from advertisements viewed at the site or
viewed through use of the web site and Service, we have established the
following policy regarding all advertisements related to the web site and the
Service.
Advertisements will be deemed inappropriate and unacceptable if they:
1. Contain any unlawful, harmful, threatening, abusive, harassing, defamatory,
vulgar, obscene, profane, hateful, racially, ethnically or otherwise
objectionable material of any kind, including, but not limited to, any
material which encourages conduct that would constitute a criminal offense,
give rise to civil liability or otherwise violate any applicable local,
state, national, or international law.
2. Contain personal attacks on a company or individual.
3. Offer unauthorized downloads of any copyrighted or private information.
4. Purport to be from someone other than the author.
5. [ ** ]
6. [ **
]
Company will work with all advertisers and advertising agencies to ensure that
these guidelines are met.
Company agrees to provide AMEX with a monthly list of advertisers and services
offered through the web site and the Service.
AMEX reserves the right to exclude any specific advertisers and advertisements
at its sole discretion.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
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EXHIBIT D-1
AMEX Data Access Document
Information Security Requirements
The following are provided as minimum requirements or guidelines only. In all
instances, the recommendations resulting from all site audits, as indicated in
writing to Company, will govern.
GENERAL
Each Company employee, subcontractor, agent or representative shall sign a
Confidentiality Agreement or Non-Disclosure Agreement, as applicable, and abide
by all terms contained therein.
Company shall allow site audit visit by AMEX assigned staff during all periods
of the relationship, including unscheduled visits and reviews with 24 hours
notice. AMEX reserves the express right to make unscheduled visits to any and
all Company sites when there is a suspicion of a security breach. Company agrees
to comply with any recommendations from said audit and reviews.
Company shall ensure all regulations and laws are complied with including:
o Conflicts of Interest
o Confidential Information and Trade Secrets
o Insider Trading
o Copyrights, Trademarks, and Intellectual Property
o Money Laundering
o Political Activities
o Federal Banking Regulations
Company shall maintain an adequate level of physical security controls over the
Company Service Location including, but not limited to: appropriate alarm
systems, access controls, fire suppression, video surveillance, staff (describe
allowances for carrying out data) egress searches.
Company shall maintain an adequate level of data security controls including,
but not limited to: proper safeguarding of AMEX data, logical access controls
(e.g. password protection of AMEX applications, data files, libraries), computer
security software, a secure tape library. The controls maintained by Company
shall meet the minimum AMEX Information Security Standards (standards attached).
Company shall maintain an adequately secured computer room facility, with access
restricted to only approved Company staff.
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Company shall provide to AMEX Information Security management copies of all
internal security policies and standards for review prior to the program
commencement. This shall include escalation procedures for non-compliance with
standards.
Company shall provide to AMEX Information Security management a copy of the most
recent third party data processing audit or review, conducted by Company's
external auditors. Company shall provide to AMEX Information Security management
copies of any related data processing audits from their internal audit team.
Company agrees to abide by the AMEX Client Privacy Rules and Practices as
adopted by AMEX for itself. Those requirements are as follows:
1. Limited Collection and Use of Consumer Information
o Collect only relevant information
o Tell Customers how information will be used
2. Consumer Choices
o Yearly list exclusions for most clients
o Individual marketing groups responsible for list exclusion
o Mailing lists screened against internal exclusion lists
o Mailing lists screened against centralized consumer lists
3. Information Quality
o Assure accuracy of our information
4. Internal Security Safeguards
o Restricted access to Customer Information
o "Data and Information Security" policies apply
5. Limited Release of Customer Information
o Limited to authorized agents or affiliates
o As authorized by customer
o Rules for legal process and governmental authorities
6. Responding to Customers
o Prompt reply to consumer queries
o Compliance with applicable laws
7. Extending Privacy Principles In Our Business Relationships
o Company briefing on Privacy Principles
o Company signature on confidentiality agreement
o Business partner briefing on Privacy Principles
o Help our business partners to develop their own privacy codes
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o Encourage development of guidelines by industry associations
o Elimination of unnecessary questions at point of sale
8. Employee Responsibility for These Principles
o Internal audits to review compliance with these principles
o Training on Rules and Practices provided
o Employees encouraged to assist compliance
Disregard of these Standards and regulations shall be cause for termination of
the Agreement.
Company shall have an appropriate sensitive-trash disposal program at each
location.
Company shall return all magnetic media to the appropriate AMEX location within
seven business days of receipt of such magnetic media.
Government requirements should be included (check with GSA compliance).
o Gratuities
o Training on GSA rules
o Kickbacks
o Procurement
o Lobbying
o False Claims and False Statements
o Defective Costs
Company shall ensure at each site that no shared environments exist with other
businesses for all WANs, LANs, Network connections, dial-up connections, DASD,
distributed systems, and that appropriate data controls are implemented.
Company shall follow industry best practices in configuring and operating voice
systems to control fraudulent use of 800 numbers, PBX switches and other voice
networks.
CUSTOMER PRIVACY
Company employees may only access, make maintenance changes, or perform
financial adjustment on those accounts as required by their job. In addition:
1. They may not access their own personal or corporate AMEX
account(s) for any reason.
2. They may not access any AMEX employee's account, except
where it is part of their normal job responsibility.
3. They may not access another Company employee's account.
4. They may not access an account held by anyone they know
outside of work.
5. They may not access any account that they are not required
to access as part of their job responsibility.
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EMPLOYEE RESPONSIBILITIES
Company employees are encouraged to report suspected violations of any Privacy
Rules, or violations of Information Security Standards to their management for
investigation and action.
Company employees shall never share their USERID/PASSWORD with any other person.
Company employees must sign-off when leaving their workstation for any reason.
SECURITY ADMINISTRATION AND RESPONSIBILITIES
Awareness and education of all Privacy Rules and Information Security Standards
shall be provided to all employees and users of any AMEX system.
Company management shall maintain (no delegation) security administration
privileges to grant access and authority to job functions for all Company
employees and users.
Management of user access via USERID/PASSWORD shall be:
1. Unique ownership of USERID by single user.
2. No "Generic" or group USERID's,
3. Immediate revocation or deletion for any terminated or
transferred Company employee.
Company understands that all user accesses to AMEX systems may be monitored at
will for compliance with all regulations.
Company shall document all procedures for USERID requests, transaction
authorization, and system use.
Company shall review all violation reports, and take action as necessary to
prevent unauthorized access and use of AMEX systems.
Company Security Administrators shall be authorized and approved by AMEX
Information Security.
Company shall execute background checks on all employees working on AMEX
programs including drug screening, employment, education and criminal checks as
permitted by all local, state and Federal laws.
In the event that AMEX commences an investigation of possible fraudulent
activity, or otherwise upon AMEX' reasonable request, Company shall provide to
AMEX all employee information maintained by Company for those employees working
on AMEX programs subject to all applicable laws.
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SYSTEM SECURITY
Company shall ensure all system connected terminals are equipped with access
control (password protection), time-out for non-use.
If data is to reside on any Company system, then standards and security
practices must be inserted. Including host access control, Personal Computer
access control and virus protection, LAN access controls.
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EXHIBIT D-2
- -------------------------------------------------------------------------------
[AMERICAN EXPRESS TRAVEL RELATED SERVICES LOGO]
TERMINAL RULES AND REGULATIONS
- -------------------------------------------------------------------------------
Part of our mission is to make changes and adjustments to various Cardmember
accounts. This is done through the use of our computer system. The use of this
system is extremely critical. There are a few very specific rules and
regulations that go along with working with the computer system. These rules
must be followed in detail by every employee who is involved with the computer
system. Therefore, you are being shown the rules and regulations so that you
understand how the system works. It is very important that you understand and
comply with the following operating rules and regulations.
MAINTENANCE CHANGES TO CARDMEMBER ACCOUNTS.
As part of your job, you may be making address changes, maintenance changes, or
issuing replacement cards. You may also be making financial adjustments.
THE RULE IS: You are never to make any type of maintenance changes or financial
adjustments to the following types of Card account:
1. Your own American Express Account.
2. A Card Account held by anyone you know outside of work.
3. Any Account that you are not required to access as part of your job
responsibility.
*Note - If in the normal course of business you need to make any type of
maintenance or financial adjustment on an account held by another
employee of American Express, immediately notify your Team Leader of the
employee account you have just handled and the change or adjustment you
have made.
USE OF YOUR PASSWORD AND IDENTIFICATION NUMBER
THE RULE IS: You are not to give your password to any person and you are not to
use another employee's password or identification number.
This is for your own protection. Your password identifies you to the system. The
computer system tracks all entries that are made by the person who makes them.
If your password were to be use by anyone in such a manner that results in
errors or fraud, you would be held accountable for the error or fraud.
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THE RULE IS: You are to sign off when you leave your terminal and sign back on
when you return to your terminal. This applies to time away from
your desk for breaks, lunch, meetings, etc.
MONITORING
All terminals are subject to monitoring and terminal monitoring may occur
simultaneously with telephone monitoring. In addition, you should understand
that all transactions in the system are recorded by the computer. Print-outs
listing all transactions by employee identification number and password are
monitored on a regular basis.
UNAUTHORIZED ACCESS/VIEWING OF ACCOUNTS
THE RULE IS: You are never to access or view the following types of Card
accounts:
1. Your own American Express Account.
2. A Card Account held by anyone you know outside of work.
3. Any Account that you are not required to access as part of your job
responsibility.
*Note- If in the course of business you need to access an account held by
another employee of American Express immediately notify your Team Leader
of the employee account you have just had to access. Otherwise, you are
never to access or view a Card account held by another employee.
IMPORTANCE OF THE RULES AND REGULATIONS
o These rules are extremely important.
o Any employee who willfully disregards these rules and regulations is
subject to discipline, up to and including discharge from employment.
ACKNOWLEDGMENT
I have read and understand the above regulations and agree to comply with them.
- ---------------------- -------------------------------- ------------
Employee Signature Print Name Date
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EXHIBIT E
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") is made and entered into as of the ___ day
of April, 1997 (the "Effective Date"), by and among the USA.NET, Inc., a
Delaware corporation (referred to in this Agreement as the "Depositor"),
American Express Travel Related Services Company, Inc., a New York corporation
("AMEX") and Data Securities International, Inc., having an address at 101
Cambridge Street, Suite 310, Burlington, Massachusetts 01803-3741 ("Escrow
Agent").
Depositor and AMEX have entered into, inter alia, the Co-Marketing Program
Agreement, dated April ___, 1997 ("Marketing Agreement"), under which AMEX shall
market certain services (the "Service") of the Company to AMEX Customers. The
Marketing Agreement further provides for the escrow of materials relating to the
Service ("Escrow Materials") and this Agreement is entered into for the purpose
of effectuating such an escrow arrangement in connection with the Marketing
Agreement and the Services identified therein. Depositor and AMEX acknowledge
that Escrow Agent has no knowledge of the terms and conditions contained in the
Marketing Agreement and that Escrow Agent's only obligations shall be set forth
herein or in any other writing signed by Depositor, AMEX and Escrow Agent.
ARTICLE 1: Deposit of Escrow Materials; Recordkeeping
1.1 On or before the delivery of the Service to AMEX Customers, Depositor
shall deliver to the Escrow Agent, for deposit under this Agreement, a current
and complete copy of the program source code, documentation and any other
materials required to operate the same to be deposited in escrow ("Escrow
Materials"). A specific description of the Escrow Materials required is set
forth on the attached Annex A, which is incorporated and made a part of this
Agreement. The Escrow Materials shall be subject to authentication by AMEX prior
to deposit thereof with the Escrow Agent. AMEX shall submit a certificate to
Escrow Agent which shall indicate that AMEX has authenticated the Escrow
Materials. Escrow Agent shall be entitled to rely upon such certificate as to
the matters stated therein.
1.2 Within [ ** ] of the installation of any new update to the
Service (or any other substantial modification to the source code, or the
Service) or within [ ** ] of the last deposit hereunder, whichever is
sooner, Depositor shall deliver to the Escrow Agent, for deposit in accordance
with this Agreement, any and all changes to the Escrow Materials which
correspond to changes, if any, made to the Service or shall notify Escrow Agent
that no changes were made during the preceding period. All materials deposited
hereunder shall be considered "Escrow Materials" as the term is used herein and
shall be deposited with a description thereof in the format of the form attached
hereto as Annex A.
1.3 The Escrow Materials may be removed and/or exchanged only on written
instructions signed by Depositor and AMEX, or as otherwise provided in this
Agreement.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
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ARTICLE 2: Location of Escrow Materials
2.1 The Escrow Materials shall be administered by Escrow Agent from the
location specified on Annex B and shall not be moved to any other location
without the express written consent of AMEX. Escrow Agent shall notify Depositor
in writing of any change in location.
2.2 AMEX shall have the right, at any time upon at least ten (10) days'
written notice to Depositor and Escrow Agent, to select and designate a new
escrow agent to replace the Escrow Agent hereunder. Upon such notice and upon
payment of any outstanding fees due Escrow Agent, Escrow Agent shall completely,
safely and securely transfer the Escrow Materials to the new escrow agent (which
will then become the "Escrow Agent" hereunder) and confirm such transfer in
writing to AMEX and Depositor.
ARTICLE 3: Verification of Escrow Materials
3.1 When Escrow Agent receives the Escrow Materials accompanied by a
description of such materials in the form of Annex A attached hereto, Escrow
Agent will conduct a deposit inspection by visually matching the labeling of the
tangible media containing the Escrow Materials to the item descriptions and
quantity listed on Annex A.
3.2 Escrow Agent is entitled to be paid its standard fees and expenses
applicable to the services provided. Escrow Agent shall notify the party
responsible for payment of Escrow Agent's fees at least ninety (90) days prior
to any increase in fees. For any services not listed on Escrow Agent's standard
fee schedule attached hereto as Annex C, Escrow Agent will provide a quote prior
to rendering the service, if requested.
3.2.1 Escrow Agent shall not be required to perform any services unless
the payment for such services and any outstanding balances owed to
Escrow Agent are paid in full. All other fees are due payable within
thirty (30) days of receipt of invoice. If invoiced fees are not paid,
Escrow Agent may terminate this Agreement; provided, however, that any
non-payment of fees is remedied in accordance with the Material Breach
provisions herein. If there is a discrepancy in fees owed to Escrow
Agent, then the party responsible for payment and Escrow Agent shall
agree to discuss this matter on a good faith basis.
3.3 In addition and upon AMEX's request, Escrow Agent shall be authorized
to perform any additional verification services which are available from Escrow
Agent from time to time specified on the attached Annex D, including, without
limitation, services necessary to verify the completeness, accuracy and
functionality of the Escrow Materials and to ensure that the Escrow Materials
conform and correspond to the Product furnished to AMEX under the Marketing
Agreement.
3.3.1 Upon request, Escrow Agent will furnish AMEX with a current copy
of the charges for additional verification services which are available
from Escrow Agent
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hereunder. AMEX shall be responsible for payment of any such charges
directly to Escrow Agent and Depositor shall have no responsibility for
same.
3.4 Escrow Agent shall report to AMEX in writing the results of all
verification services performed on Escrow Materials upon completion of
same and shall send a copy to Depositor.
ARTICLE 4: Release and Return of Escrow Materials
4.1 Upon receipt of a duly executed officer's certificate from AMEX
certifying that a Triggering Event (as defined below) has occurred and
requesting the release of the Escrow Materials hereunder, Escrow Agent shall
release and deliver the Escrow Materials to AMEX or its designee set forth in
the officer's certificate. Such officer's certificate shall be delivered in
person or by registered or certified mail, return receipt requested. For
purposes of this Agreement, a "Triggering Event" shall be deemed to be (i) the
Depositor's insolvency (as defined in Section 16(e) of the Marketing Agreement)
or (ii) the Depositor's material breach of the terms of the Marketing Agreement
specifically because of its gross negligence or willful misconduct and such
breach is not fully remedied within thirty (30) days of AMEX's notice to
Depositor.
4.2 Escrow Agent shall be entitled to act in reliance upon any AMEX
instructions, instrument, or signature reasonably believed to be genuine and
shall assume that any AMEX officer giving any written notice or instruction,
which is consistent with this Agreement, has been duly authorized to do so on
behalf of AMEX. Similarly, Escrow Agent shall have no duty to inquire as to
whether AMEX or Depositor is in compliance with the provisions of the Marketing
Agreement relating to the release of Escrow Materials and shall have no
liability to Depositor or AMEX for relying on AMEX's notice.
4.3 If the Marketing Agreement has expired, been terminated or canceled
and if AMEX has not notified Escrow Agent to release the Escrow Materials
hereunder as contemplated under Section 4.1 above, then Escrow Agent may return
or destroy the Escrow Materials at the request of Depositor; provided, however,
that Escrow Agent shall not return or destroy any such Escrow Materials unless
Escrow Agent has received written certification from AMEX that no event or
condition has occurred which would permit AMEX to obtain the release and
delivery of such Escrow Materials under this Agreement. Notwithstanding the
foregoing, if AMEX has not provided said written certification within thirty
(30) days from Escrow Agent's notice of termination, then at Escrow Agent's
option, Escrow Agent may return or destroy the Escrow Materials.
4.4 Each party shall designate an authorized individual as a contact for
the purposes set forth hereunder and individuals shall be specified on the
attached Annex E-1 and Annex E-2.
ARTICLE 5: Confidentiality of Escrow Materials
5.1 Escrow Agent acknowledges that Depositor considers the Escrow Materials
to be confidential and trade secrets of Depositor, and Escrow Agent agrees that
unless Escrow Agent has obtained Depositor's written consent, Escrow Agent shall
keep the Escrow Materials confidential
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and prevent their disclosure to any person, firm or enterprise other than to
employees or representatives of Escrow Agent involved in the performance of
Escrow Agent's obligations under this Agreement, to employees and
representatives of Depositor, and to AMEX under the specific release provisions
specified in this Agreement.
5.2 Escrow Agent may copy Escrow Materials to the extent necessary to
preserve and safely store the Escrow Materials, to perform the verification
services required and permitted under this Agreement, and to provide copies to
AMEX as and when permitted hereunder. On all such copies, Escrow Agent shall
reproduce any proprietary rights and/or confidentiality notices which were on
the Escrow Materials at the time of their deposit with Escrow Agent.
ARTICLE 6: General
Payment: Escrow Agent may invoice AMEX for all fees and/or charges applicable
hereunder and AMEX agrees to pay each invoice properly rendered hereunder within
thirty (30) days after its receipt.
Liability: AMEX and Depositor agree that Escrow Agent is acting as an
independent agent and stakeholder hereunder and, except as regards the
obligations of Escrow Agent under Articles 4 and 5, shall not be held liable by
either party for the proper performance of its obligations under this Agreement.
Except as regards the obligations of the parties under Article 4 and 5, each
party shall be liable for and shall indemnify and hold each other harmless from
and against any loss or damage, including, without limitation, reasonable
attorneys' fees, other costs and/or expenses actually incurred by any other
party hereunder arising from the fault or negligence of such other party, its
officers, directors, employees, agents and/or representatives. Except as regards
liability under Article 4 and 5, none of the parties hereunder shall be liable
to any other party for any indirect, special or consequential damages arising
out of or in connection with this Agreement.
Termination: Upon the release, return, destruction or transfer of the Escrow
Materials as permitted hereunder or upon termination due to a material breach,
all further obligations and/or rights of Escrow Agent under this Agreement shall
terminate; provided, however Escrow Agent is not the party in breach.
Material Breach: In the event of any material breach of this Agreement by one
party, the other parties may (reserving cumulatively all other remedies and
rights under this Agreement and in law and in equity) terminate this Agreement,
by giving thirty (30) days' written notice thereof; provided, however, that any
such termination shall not be effective if the party in breach has cured the
breach of which it has been notified prior to the expiration of said thirty (30)
days.
Notices: Except as otherwise specifically provided, all notices shall be in
writing and delivered personally or mailed to the addresses of the parties set
forth at the beginning of this Agreement, to the attention of the undersigned at
the address(es) set forth at the beginning of this Agreement or to such other
address or addressee as any party may designate by written notice and in the
case of AMEX, to the [ ** ] American Express Travel
Related Services
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
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Company, Inc., AMEX Tower, World Financial Center, New York, New York
10285-4900. Notices shall be deemed given when delivered or when placed in the
mail as specified herein.
Bankruptcy: AMEX, Depositor and Escrow Agent acknowledge that this Escrow
Agreement is an "agreement supplementary to" the Marketing Agreement as provided
in Section 365(n), Title 11 of the United States Code ("Bankruptcy Code"). If
Depositor, as a debtor in possession, or a trustee in bankruptcy appointed
pursuant to the Bankruptcy Code, rejects the Marketing Agreement or this
Agreement, then subject to any other rights AMEX may have, AMEX may elect to
retain its rights under the Marketing Agreement and this Agreement as provided
in the current Bankruptcy Code or any amendments and/or successor statutes.
Unless earlier notified by AMEX, Depositor and Escrow Agent, individually and
collectively, agree that unless they have received notice from AMEX that it does
not wish to make such election or exercise any such rights, neither Escrow Agent
nor Depositor shall interfere with the rights of AMEX in the Marketing Agreement
and/or this Agreement.
Assignment: The parties may not assign this Agreement or any of their rights and
obligations hereunder without the written consent of each of the other parties
involved in this Agreement and any such attempted assignment shall be void;
provided however, that AMEX may require the transfer of Escrow Materials to a
new escrow agent (as permitted hereunder) and/or may assign this Agreement
and/or any of its rights and/or obligations hereunder upon written notice to
Depositor and Escrow Agent, to AMEX's parent, subsidiaries or affiliated company
without the consent of Depositor or Escrow Agent, provided that (i) AMEX has
provided the Depositor and Escrow Agent with at least 30 days prior written
notice, (ii) the assignee has the assets and facilities to carry out AMEX's
obligations under this Agreement and (iii) assignee is not a direct competitor
of the Depositor.
Severability: In the event any provisions of this Agreement are held to be
invalid, illegal or unenforceable, the remaining provisions of this Agreement
shall be unimpaired.
Governing Law: In all respects this Agreement shall be governed by the
substantive laws of the State of New York without regard to conflict of law
principles.
Modification/Amendments: No modification, amendment, supplement to or waiver of
this Agreement or any of its provisions, whether by conduct or otherwise, shall
be binding unless made in writing and duly signed by the parties. A failure or
delay, by any party at any time, to enforce any of the provisions, or to
exercise any option, or to require performance, shall in no way be construed to
be a waiver or modification of this Agreement.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement on the dates
indicated below.
AMERICAN EXPRESS TRAVEL RELATED USA.NET, INC.
SERVICES COMPANY, INC.
By: By:
------------------------- ----------------------------
Name: Name:
----------------------- --------------------------
(Type or Print) (Type or Print)
Title: Title:
---------------------- -------------------------
Date: Date:
----------------------- -------------------------
DATA SECURITIES INTERNATIONAL, INC.
By:
--------------------------------------
Name:
------------------------------------
(Type or Print)
Title:
-----------------------------------
Date:
------------------------------------
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ANNEX A
DESCRIPTION OF ESCROW MATERIALS
Full-tape backup of source and compiled code for all major components of the
Service including without limitation components of (i) Web, (ii) Mail and (iii)
Database.
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ANNEX B
LOCATION OF ESCROW MATERIALS
39
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ANNEX C
ESCROW AGENT'S
STANDARD FEE SCHEDULE
40
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ANNEX D
ADDITIONAL VERIFICATION SERVICES
41
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ANNEX E-1
AUTHORIZED REPRESENTATIVES OF THE COMPANY
NAME SPECIMEN SIGNATURE
------------------------------ ------------------------------
------------------------------ ------------------------------
------------------------------ ------------------------------
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ANNEX E-2
AUTHORIZED REPRESENTATIVES OF AMEX
NAME SPECIMEN SIGNATURE
------------------------------ ------------------------------
------------------------------ ------------------------------
------------------------------ ------------------------------
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EXHIBIT F
PRIVACY POLICY AGREEMENT
This Privacy Policy Agreement is made as of the _______day of April,
1997 by and between USA.NET, Inc., a Delaware corporation (the "Company") and
American Express Travel Related Services Company, Inc., a New York corporation
("AMEX").
WHEREAS, AMEX and the Company have entered into, inter alia, a Series B
Preferred Stock Purchase Agreement and a Co-Marketing Program Agreement of even
date herewith (collectively, the "Transaction Documents"); and
WHEREAS, in order to (i) preserve the goodwill and reputation of AMEX
and to induce AMEX to execute the Transaction Documents and perform its
obligations thereunder and (ii) provide the highest level of personalized
service to customers of the Company and at the same time respect each individual
customer's rights to privacy, the Company agrees to comply with the AMEX Privacy
Policy in effect as of the date hereof and attached hereto as Exhibit A (the
"Policy"), as amended from time to time by AMEX in accordance with the terms
herewith;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein the parties hereto do hereby agree as
follows:
1. (a) The Company hereby agrees to comply with the terms and provisions of
the Policy in connection with the operation of its business in order to (i)
preserve the goodwill and reputation of AMEX and to induce AMEX to execute
the Transaction Documents and perform its obligations thereunder and (ii)
provide the highest level of personalized service to customers of the
Company and at the same time respect each individual customer's rights to
privacy. (b) AMEX may amend the Policy from time to time. Company shall
comply with the terms of the Policy as so amended provided that AMEX
provides Company, when practicable, with thirty (30) days written notice
prior to the date any such amendment shall be complied with by Company.
2. The Company shall provide AMEX with the opportunity to review and approve
the Company's terms and conditions of the subscriber's use (the "Terms and
Conditions of Use") of the Service prior to any marketing of the Service to
Cardmembers. Such Terms and Conditions of Use shall clearly state that
revenues of the Service may be generated by advertisements embedded in the
e-mail forwarded to subscribers in the Service. The Terms and Conditions of
Use shall be accessible to all visitors to the web site for the Service and
those who subscribe to the Service.
3. NOTICES: All notices, consents, requests, instructions, approvals, and
other communications made, required or permitted hereunder (each herein, a
"Notice") shall be given in writing and delivered to the receiving party to
its respective address set forth below (i) by personal delivery to a
responsible officer of such party, (ii) by certified or registered mail
(return receipt requested), (iii) by a nationally recognized courier
service or (iv) by
44
<PAGE> 45
facsimile transmission (such to be confirmed by mail). The effective date
of such Notice shall be deemed to be the date upon which any such Notice is
personally delivered or, if it is given by mail, courier service or
facsimile transmission, the date upon which it is received by the
addressee. Any party hereto may change its address set forth below by
written notice to the other party hereto in accordance with the terms of
this Section 10.
If to AMEX: American Express Travel Related Services Company, Inc.
3 World Financial Center
AMEX Tower
New York, NY 10285
Attn.: [ ** ]
Copy to: American Express Travel Related Services Company, Inc.
3 World Financial Center
AMEX Tower
New York, NY 10285
Attn.: [ **
]
If to Company: USA.NET, Inc.
102 South Tejon
Suite 220
Colorado Springs, CO 80903
Attention: President
Copy to: Cooley Godward LLP
2595 Canyon Boulevard
Suite 250
Boulder, Colorado 80302-6737
Attention: Carrie Schiff, Esq.
Each party may change its address for receiving Notices under this
Agreement by Notice pursuant to this Section.
4. WARRANTIES: Each party represents and warrants that it is under no
obligation or restriction which would cause it to be in breach of this
Agreement. Each party to this Agreement represents and warrants to the
other party that this Agreement, when signed on behalf of a party,
constitutes the legal, valid and binding obligation of such party
enforceable in accordance with its terms.
5. TERM AND TERMINATION: This Agreement shall take effect on the date and
continue so long as AMEX shall have an equity interest in the Company.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
45
<PAGE> 46
6. NEW YORK LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
entirely made and performed within the State. Company hereby consents to
the jurisdiction of the state and federal courts sitting in the State of
New York.
7. MISCELLANEOUS:
(a) No failure or delay (in whole or in part) on the part of any party to
exercise any right or remedy, or operate as a waiver thereof, nor effect
any other right or remedy. All rights and remedies hereunder are cumulative
and are not exclusive of any other rights or remedies provided hereunder or
by law.
(b) If any provision contained in this Agreement is or becomes invalid,
illegal, or unenforceable in whole or in part, such invalidity, legality,
or unenforceability shall not affect the remaining provisions and portions
of this Agreement.
(c) This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior
contemporaneous oral or written understandings or agreements among the
parties which relate to the subject matter hereof. No modification or
amendment of this Agreement or any of its provisions shall be binding upon
any party unless made in writing and duly executed by authorized
representatives of all parties.
(d) Company acknowledges and agrees that, in the event of a breach or
threatened breach of any of the foregoing provisions, AMEX will have no
adequate remedy in damages and, accordingly, shall be entitled to
injunctive relief against such breach or threatened breach; provided,
however, that no specification of a particular legal or equitable remedy
shall be construed as a waiver, prohibition or limitation of any legal or
equitable remedies in the event of a breach hereof.
(e) This Agreement may be executed in any number of counterparts, each of which
shall constitute an original, but all of which together shall constitute
one instrument notwithstanding that all parties are not signatories to the
same counterparts.
(f) Capitalized terms used and not otherwise defined herein shall have the
meanings ascribed thereto in the Transaction Documents.
46
<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
USA.NET, INC. AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC.
By: By:
------------------------------ -------------------------------
Title: Title:
--------------------------- ----------------------------
47
<PAGE> 48
EXHIBIT A to EXHIBIT F
In order to provide the highest level of personalized service to subscribers and
at the same time respect each individual subscribers' rights to privacy, Company
agrees to the following Privacy Policy for all of its service offerings:
Personal Data
For the purposes of this Privacy Policy, Personal Data will include but not be
limited to:
a) Contact information such as name, postal and e-mail addresses
b) Billing information such as charge and credit card numbers
c) Information gathered during registration or through other correspondence
such as surveys and questionnaires initiated by Company
d) Other personal information which may be collected through use of the
Company services such as preferences, interests, purchases, and sources and
destinations of e-mail messages
o Company will not scan the body text of e-mail messages for Personal
Data unless first requested by the subscriber.
Disclosures Regarding Personal Data
VISITORS. Company will at all times provide all visitors to their site who do
not register for Company services (the "Visitors") with full disclosure of
Company capture and use of Personal Data and the opportunity to opt out of any
use of Personal Data for marketing purposes. Furthermore:
o Company will not disclose to third parties for any reason any personal
data of Visitors.
o Company will not send unsolicited e-mail messages to Visitors.
SUBSCRIBERS. Company will, upon registration by a Visitor and thereafter through
the Terms and Conditions of subscriber's use , provide all registered users of
their services (the "Subscribers") with full disclosure of Company uses of
Personal Data for marketing purposes and provided such Subscriber is given the
opportunity to opt out of the use of its Personal Data for such marketing
purposes whether used by the Company or a third party.
Furthermore:
o Company will not disclose any individual Subscriber's e-mail address
to third parties for marketing purposes.
o Company may disclose aggregate Personal Data, such as demographics of
Subscribers, to third parties for the purposes of soliciting
advertisements or other marketing offers which Company feels may be
relevant to its Subscribers.
o Company may itself use individual Subscriber Personal Data to more
effectively provide its services.
o Company may use individual Subscriber Personal Data to provide
marketing offers to Subscribers in the form of:
48
<PAGE> 49
a) Third-party banner advertisements viewed at its site, including
banner ad's embedded in e-mail messages that are viewed at
Company's site using Company's web e-mail reader.
b) Third-party banner advertisements embedded in e-mail messages
forwarded by Company to Subscribers.
c) Third-party marketing offers in the form of direct e-mail
solicitations which will be clearly identified as originating
from Company.
Communication
Company will clearly communicate this Privacy Policy to all Subscribers and
Visitors through the Terms and Conditions of Use, which will be readily
accessible at all times at the Company's web site.
49
<PAGE> 50
FIRST AMENDMENT TO CO-MARKETING PROGRAM AGREEMENT
This FIRST AMENDMENT TO CO-MARKETING PROGRAM AGREEMENT (the
"Amendment") is entered into this 17th day of October, 1997, by and between
USA.NET, Inc., a Delaware corporation (the "Company"), and American Express
Travel Related Services Company, Inc., a New York corporation ("AMEX").
WHEREAS, the Company and AMEX entered into a Co-Marketing Program
Agreement, dated as of April 8, 1997 (the "Main Agreement"), pursuant to which
the Company agreed to provide e-mail services to certain of AMEX's current and
future holders of American Express(R) charge, credit or debit cards and certain
other individuals, and the Company and AMEX agreed to cooperatively promote such
services;
WHEREAS, pursuant to Section 3(a) of the Main Agreement, the Company
and AMEX agreed that the financial terms of the Main Agreement could be amended
by written agreement of the parties; and
WHEREAS, the parties desire to amend the financial terms of the Main
Agreement as more fully set forth below.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. DEFINITIONS: Unless otherwise defined herein, capitalized terms shall
have the meanings set forth in the Main Agreement.
2. SECTION 1: Section 1(a) of the Main Agreement shall be amended to read
in full as follows:
(a) Description. AMEX hereby retains Company to, and Company
agrees to, provide Customers with an opportunity to enroll in
the e-mail service offered to the Company's customers from
time to time (the "Basic Service;" the Basic Service as
offered on the date hereof is more specifically described in
Exhibit A hereto), with changes and enhancements thereto as
developed from time to time specifically for AMEX and approved
by AMEX in its sole discretion, all in accordance with the
terms hereof. The changes and enhancements may include
services which are provided by AMEX or third parties, some of
which may have e-mail components and some of which may not.
These enhancements, including products which may be offered by
AMEX alone are more fully set forth in Section 3 below as
"Applications Products", "Content Products" and "AMEX
Products". The Applications Products and Content Products are
referred to collectively herein as the "Enhancements"; the
Basic Service as changed or enhanced by the Enhancements is
referred to herein as the "Service"). As compared with the
Basic Service, the Service will always have features,
including by way of example additional services, reduced
pricing or incentive offers that will
-1-
<PAGE> 51
be exclusive to Customers. In the marketing and promotion of
the Service to Customers, AMEX shall determine which
Enhancements and features shall be included in the Service as
so marketed and promoted.
3. SECTION 3: Section 3 of the Main Agreement shall be amended to read in
full as follows:
3. FINANCIAL ARRANGEMENT:
(a) The parties shall share Service Revenues (as defined below) with
respect to the following products or services as set forth below:
(i) Basic Service and Applications Products. As used herein,
"Company Customers" shall mean Customers who were customers
of the Company prior to the distribution of any Promotional
Material and "Eligible Customers" shall mean all Customers
who are not Company Customers. AMEX shall be entitled to
receive or retain [ ** ], and the Company
shall be entitled to receive or retain [ **
], of the Service Revenues from the use by Customers of
the Basic Service and any application service enhancement
which is technically integrated with the Basic Service and
which is developed and offered by the Company either alone
or jointly with a third-party (the "Applications Products").
Examples of Applications Products include e-mail based [
** ] The parties
acknowledge and agree that AMEX intends to market and
promote a joint product with Premiere Technologies, Inc. and
the Company, the Connections(TM) Calling Card, which
contains e-mail convergence features and which would be
considered an Applications Product under this Agreement.
However, the parties agree that AMEX shall be entitled to
receive or retain [ ** ] and the Company
shall be entitled to receive or retain [ ** ],
of the Service Revenues received from Eligible Customers
with respect to the e-mail component of the Service provided
by the Connections(TM) Calling Card.
(ii) Content Products. "Content Products" are enhancements which
have an ongoing e-mail service component which generates
Service Revenue and which uses the Company's technology or
platform but which is not an integrated application. AMEX
shall be entitled to receive or retain [ ** ]
of the Service Revenues received from Eligible Customers for
any Content Products which it identifies and for which it
obtains the right to market and sell as part of a Program
(an "AMEX Content Product"), and the Company shall be
entitled to receive or retain [ ** ] of the
Service Revenues received from Eligible Customers for any
AMEX Content Products. An example of an AMEX Content Product
would include InfoBeat. The Company shall be entitled to
receive or retain [ ** ] of the Service
Revenues received from Eligible Customers for any Content
Products which it identifies and for
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
-2-
<PAGE> 52
which it obtains the right to market and sell as part of a
Program (a "Company Content Product"), and AMEX shall be
entitled to receive or retain [ ** ] of the
Service Revenues received from Eligible Customers for any
Company Content Products. An example of a Company Content
Product would include Quote.com.
(b) Payment. The party (the "Collecting Party") who is billing and
collecting the Service Revenues with respect to a particular
product or service shall remit to the other party (the "Receiving
Party") its portion of the Service Revenues as set forth in
subsection (a) above. The Collecting Party shall remit any
payments due the Receiving Party within thirty (30) days after the
end of each calendar month, along with back-up documentation
reasonably acceptable to the Receiving Party showing the
calculation of the amount so paid. Each party agrees to limit any
direct commissions which it pays to a maximum of [ **
] of the Service Revenues which it receives from advertising
sales.
(c) AMEX Products. If AMEX requests that any Program include
advertisement for or promotion of products created by or on behalf
of AMEX which do not generate an ongoing Service Revenue
specifically attributable to an e-mail service component and which
do not use the Company's technology or platform (the "AMEX
Products") then AMEX shall pay the Company as follows: (i) if AMEX
advertises or promotes the AMEX Products using advertisement on
the Company's Basic Services (e.g., banner ads, direct e-mail or
other web-based or e-mail advertisements) the Company's regular
rates for such advertisement on its Basic Services, or (ii) if
AMEX advertises or promotes the AMEX Products using other e-mail
based promotion methods such as web pages or web links,
reimbursement for all of its reasonable Costs (as defined below)
associated with the sale of the AMEX Products (other than
advertising rates) plus [ ** ] of such Costs (other
than advertising rates). AMEX Products may include, without
limitation, features such as American Express Cards, travel
services, financial services, and calling cards (with the
exclusion of e-mail convergence features). AMEX shall remit any
payments due the Company pursuant to this subsection within ten
(10) days after AMEX receives from the Company an invoice and
back-up documentation reasonably acceptable to AMEX showing the
calculation of the costs incurred.
(d) Service Revenues. As used in this Section 3, "Service Revenues"
shall mean revenues generated by the use of the Service which:
(i) includes (1) revenues generated from advertisement on the
Basic Service as used by Customers (which advertisement shall
accord with the AMEX advertisement policy set forth on Exhibit
C hereto, as amended from time to time), (2) fees charged to
Customers for enrollment in the Basic Service, Applications
Products or Content Products (the "Enrollment Fees"), which
Enrollment
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
-3-
<PAGE> 53
Fees shall be determined by the parties hereto, and (3) any
other fees approved by the parties hereto from time to time;
and
(ii) excludes (1) applicable taxes, (2) fees or revenues
generated by AMEX under any AMEX card acceptance agreement,
(3) revenues from Company Customers and (4) any reasonable
commissions for advertising sales directly or indirectly
relating to the Basic Service or any Enhancement (any
disagreement relating to the amount of third party
commissions shall be resolved by arbitration pursuant to
Section 18).
(e) Costs. "Costs" shall include the costs provided in Sections 2(d)
and (e) hereof.
(f) Classification of Products, Services or Enhancements. At the
request of either party, AMEX and the Company expressly agree to
consider and negotiate in good faith the classification of any
product, service or product enhancement under this Section 3 for
purposes of determining the compensation to be paid in connection
with its promotion and sale.
(g) Amendment of Financial Terms. AMEX and the Company expressly
acknowledge that the financial terms stated herein may be amended
as the parties may agree in writing.
(h) Domain Name Alternative Service Revenues. The parties hereto
acknowledge that the Service Revenues generated from Company
Customers that are provided the Service under the Domain Name
Alternative (defined in Section 15) shall be subject to a Service
Revenue share between the parties hereto as the parties shall
reasonably agree.
(i) Acceptance Agreement. Company agrees that it will enter into an
agreement ("Acceptance Agreement") for the acceptance of American
Express(R) Cards. Company understands that it will be responsible
for paying any charges incurred in connection with the Acceptance
Agreement, including the payment of any discount fees. All
Enrollment Fees and other fees payable by Customers will be billed
to the Customers' Card Account, if any. Company shall be
responsible for billing and collecting all fees (including the
Enrollment Fee) payable by Customers for use of the Services.
4. OTHER TERMS: As modified by this Agreement hereby, the Main Agreement
shall remain in full force in accordance with the terms thereof.
-4-
<PAGE> 54
IN WITNESS WHEREOF, AMEX and the Company, intending to be legally bound
by the terms of this Amendment, have caused this Amendment to be executed by
their duly authorized representatives.
AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC.
By: [ ** ]
-------------------------------------------
Name: [ ** ]
Title: [ ** ]
[ ** ]
USA.NET, INC.
By: /s/ John W. Street
-------------------------------------------
Name: John Street
Title: President, CEO
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
-5-
<PAGE> 55
SECOND AMENDMENT TO CO-MARKETING PROGRAM AGREEMENT
This SECOND AMENDMENT TO CO-MARKETING PROGRAM AGREEMENT (this "Second
Amendment") is entered into this _____ day of December, 1998, by and between
USA.NET, Inc., a Delaware corporation (the "Company"), and American Express
Travel Related Services Company, Inc., a New York Corporation ("AMEX").
WHEREAS, the Company and AMEX entered into a Co-Marketing Program Agreement,
dated as of April 8, 1997 (the "Main Agreement");
WHEREAS, the Main Agreement has been amended by the First Amendment to
Co-Marketing Program Agreement, dated as of October 17, 1997, by and between
Company and AMEX (together with the Main Agreement, the "Marketing Agreement");
and
WHEREAS, the parties desire to extend the term of the Initial Term of the
Marketing Agreement in accordance with the terms hereof;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
in this Second Amendment, the parties hereto agree as follows:
1. DEFINITIONS: Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed thereto in the Marketing
Agreement.
2. INITIAL TERM. The first sentence of Section 16(a) of the Marketing
Agreement is hereby amended in its entirety to read as follows:
This Agreement shall take effect on the date hereof (the
"Effective Date"), and continue until July 8, 1999 (the
"Initial Term").
3. OTHER TERMS. As modified by this Second Amendment, the Agreement shall
remain in full force and effect in accordance with the terms thereof.
IN WITNESS WHEREOF, AMEX and the Company, intending to be legally bound by the
terms of this Second Amendment, have caused this Second Amendment to be executed
by their duly authorized representatives.
AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC.
By: [ ** ]
-------------------------------------------
Name: [ ** ]
Title: [ ** ]
[ **
]
USA.NET, INC.
By: /s/ Daniel M. Winokur
-------------------------------------------
Name: Daniel M. Winokur
Title: VP, Business Development
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 56
THIRD AMENDMENT TO CO-MARKETING PROGRAM AGREEMENT
This THIRD AMENDMENT TO CO-MARKETING PROGRAM AGREEMENT (the
"AMENDMENT") is entered into this 7th day of May, 1999, by and between USA.NET,
Inc., a Delaware corporation (the "COMPANY"), and American Express Travel
Related Services Company, Inc., a New York Corporation ("AMEX").
WHEREAS, the Company and AMEX entered into a Co-Marketing Program
Agreement, dated as of April 8, 1997 (the "MAIN AGREEMENT"), as amended in the
First Amendment to Co-Marketing Program Agreement, dated as of October 17, 1997
(the "1997 Amendment"), as amended in the Second Amendment to Co-Marketing
Program Agreement, dated as of December 7, 1998 (the "1998 Amendment"); and
WHEREAS, the parties desire to amend the Main Agreement to extend the
term of the Main Agreement as more fully set forth below.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. DEFINITIONS: Unless otherwise defined herein, capitalized terms shall
have the meanings set forth in the Main Agreement.
2. TERM. The first sentence of Section 16(a) is amended to read in full as
follows:
(a) This Agreement shall take effect on the date hereof (the "Effective
Date"), and continue until December 31, 1999 (the "Initial Term").
3. OTHER TERMS. As modified by this Amendment, the 1997 Amendment and the
1998 Amendment, the Main Agreement shall remain in full force in
accordance with the terms thereof.
IN WITNESS WHEREOF, AMEX and the Company, intending to be legally bound
by the terms of this Amendment, have caused this Amendment to be
executed by their duly authorized representatives.
AMERICAN EXPRESS TRAVEL
RELATED SERVICES COMPANY, INC.
By: /s/ Pierric Beckert
------------------------------
Name: Pierric Beckert
Title: Vice President, Interactive Enterprise Development
USA.NET, INC.
By: /s/ Danny Winokur
-------------------------------
Name: Danny Winokur
Title: Vice President, Business Development
1.
<PAGE> 1
** CERTAIN CONFIDENTIAL
MATERIAL CONTAINED IN THIS
DOCUMENT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF
1933, AS AMENDED.
EXHIBIT 10.11
NETCENTER SERVICES AGREEMENT
COVER SHEET
IMPORTANT NOTICE: THIS NETCENTER SERVICES AGREEMENT INCLUDING EXHIBITS HERETO
("AGREEMENT"), OF WHICH THIS PAGE IS A COVER SHEET ("COVER SHEET"), SETS FORTH
THE TERMS AND CONDITIONS FOR PARTICIPANT'S INCLUSION IN NETSCAPE'S NETCENTER.
Description of Service: A web-based email service that provides end users with
the permanence, privacy, and accessibility of a web-based email account. The
primary service will be a free (advertising supported) web-based email service.
The Service will also offer end users with an array of premium web-based email
services and advanced features set forth in Exhibit D hereof.
Participant Brand Service: Net@ddress - a web-based email service offered by
Participant at URL: http://www.netaddress.com
Territory: North America (US and Canada and Mexico)
Local Language: U.S. English, French Canadian and Spanish
Service Period: 2 years, beginning on the earlier of (i) the Launch Date or
(ii) June 1, 1998.
Addresses for Notice:
<TABLE>
<S> <C>
Participant: Netscape:
USA.NET, Inc. Netscape Communications Corporation
1155 Kelly Johnson Boulevard, Suite 400 501 East Middlefield Road, MS: MV-002
Colorado Springs, CO 80920 Mountain View, CA 94043
Fax: (719) 265-2923 Fax: (650) 528-4123
Attn: Geoffrey Lind Attn: General Counsel
PARTICIPANT:
USA.NET, Inc. NETSCAPE COMMUNICATIONS CORPORATION
a Delaware corporation a Delaware corporation
Signature: /s/ GEOFFREY E. LIND Signature: /s/ MIKE HOMER
------------------------------- -----------------------------------
Name: Geoffrey E. Lind Name: Mike Homer
------------------------------------ ----------------------------------------
Title: COO Title: EVP of Website Division
----------------------------------- ---------------------------------------
Date: April 17, 1998 Date: 4/17/98
------------------------------------ ----------------------------------------
</TABLE>
Attached Exhibits:
Exhibit A: End User Registration
Exhibit B: Payment Terms
Exhibit C: Copy of Mutual Confidential Disclosure Agreement
Exhibit D: Premium Services and Advanced Features
Exhibit E: Best-Of-Breed Service
Exhibit F: Netscape Advertising Guidelines
Exhibit G: IBD Agreement
1.
<PAGE> 2
SERVICES AGREEMENT
This Agreement entered into by and between Netscape Communications Corporation
("Netscape") and the entity ("Participant") identified on the Cover Sheet is
effective as of this _____ day of _________, 1998 (the "Effective Date").
In consideration of the mutual covenants contained herein, the parties agree as
follows:
1. DEFINITIONS
"ADVANCED FEATURES" means components of the Service that provide value in
excess of the Basic Features to the end user and are offered at no charge to
the end user under this Agreement. The initial Advanced Features are set forth
in Exhibit D, and Best of Breed expectations for Advanced Features are set
forth in Exhibit E.
"BASIC FEATURES" means components of the Service that provide value to the end
user and are offered at no charge to the end user under this Agreement. The
initial Basic Features shall mean the features offered by Participant Brand
Service as of the Effective Date.
"BEST-OF-BREED SERVICE" means the Service having the criteria set forth in
Exhibit E hereto, as amended by mutual written agreement from time to time.
"CONFIDENTIAL INFORMATION" means information deemed to be confidential in
accordance with the terms of the Mutual Confidential Disclosure Agreement
attached hereto as Exhibit C.
"CONTENT PROVIDER" means a company, which is participating in the Service by
providing to such Service content and/or a link to a content-related site.
"END USER INFORMATION" means the end user information as defined in Exhibit A.
"LAUNCH DATE" means the date on which Phase 1 of the Service as set forth in
Exhibit D is fully functional and accessible to end users.
"LOCAL LANGUAGE" means the languages specified on the Cover Sheet.
"MILESTONES" means the targets mutually agreed to by the parties as set forth
in Section 6.1.
"NETCENTER" means that area of Netscape's Web Site, which offers online
business services and shopping opportunities to end users.
"NETCENTER LOGOUT" means the process by which a user completely logs out of
Netcenter. Netscape reserves the right to change the functionality of Netcenter
Logout from time to time as outlined in Exhibit A.
"NETCENTER LOGOUT PAGE" means the page served when a user chooses to log out of
Netcenter; the content and functionality of such page will be determined by
Netscape.
"NETCENTER REGISTRATION" means the portion of the registration that is
maintained, hosted, and controlled by Netcenter and applies to multiple
services across Netcenter. Netcenter Registration includes the assignment of a
username, password, and the collection of core Netcenter user profile data
which may include: First name, Last name, Address, City, State, Country, Zip
Code. Since a Netcenter user's username will also be user's email address,
Netcenter Registration will assign all email addresses as well.
"NETSCAPE'S WEB SITE" means the collection of Local Language HTML documents
targeted at end users in the Territory and currently accessible by the public
via the Internet at the URL http://home.netscape.com and/or at such
2.
<PAGE> 3
other URL or locations as Netscape may designate. For purposes of this
Agreement, Netscape's Web Site does not include any future technologies or
future uses of existing technologies which might embody a collection of
documents (other than HTML documents) on the Internet.
"NON AFFILIATED PREMIUM SERVICES" means the premium services offered in the
Service by partners of Netscape's Netcenter other than Participant. These
services are typically offered elsewhere on the Netcenter site and are not
exclusively targeted toward users of the Service.
"PARTICIPANT BRAND SERVICE" means Participant's web-based email service
specified on the Cover Sheet.
"PARTICIPANT'S CONTENT" means Content Provider listings and other information,
materials and/or services supplied by, managed by or under the control of
Participant.
"PARTICIPANT'S WEB SITE" means Participant's primary Local Language web site
and which is accessible by the public via the Internet at the URL
http://www.netaddress.com. Participant's Web Site shall not mean any other web
site.
"PAYMENT" means the amounts specified in Exhibit B.
"PREMIUM SERVICES" means value added services targeted toward users of the
Service requiring payment of fees therefor. Fees may be monthly service fees,
packaged bundled fees, or direct fees for service used. The initial Premium
Services are set forth in Exhibit D, and Netscape and Participant shall have
the right to amend the Premium Services from time to time by mutual written
agreement.
"SERVICE" means the service described on the Cover Sheet, the operation of
which is the subject of this Agreement.
"SERVICE AD INVENTORY" means the electronic advertising inventory within the
Service and any other advertising inventory which Participant will manage as
described in this Agreement.
"SERVICE FRONT PAGE" means the page on the Internet, which is the initial point
of entry for an end user accessing the Service.
"SERVICE LOGOUT" means the process by which a user ends user's session within
the Service. The functionality of the Service Logout will be specified by
Netscape in accordance with Netcenter Registration guidelines which may change
from time to time as described in Exhibit A upon thirty (30) days notice to
Participant.
"SERVICE LOGOUT PAGE" means the page on the Internet a user is served when user
ends user's session within the Service. Ending a Service session does not
automatically log a user out of Netcenter. Netcenter will maintain control of
the Netcenter Logout process and Netcenter Logout Page described above.
"SERVICE PERIOD" means that period of time beginning on the Launch Date and
ending upon the expiration or termination of this Agreement.
"SERVICE REGISTRATION" means the portion of registration that is specific to
the Service, which collects information pertaining to the Service. The
functionality and design of the Service Registration will be determined
mutually by Netscape and Participant provided that such functionality and
design complies with Netcenter service registration guidelines as described in
Exhibit A. Service Registration cannot include data collected in the general
Netcenter Registration as defined above.
"SPONSORSHIPS" means fees paid for the right to have a listing or some form of
exposure incorporated into the Service.
"TERM" means the period of time beginning on the Effective Date and ending on
the last day of the Service Period.
3.
<PAGE> 4
"TERRITORY" means the target geographic area listed on the Cover Sheet.
2. SERVICE OVERVIEW
2.1 THE SERVICE. Netscape shall include Netcenter as part of
Netscape's Web Site. The Service will be included within Netcenter. The Service
shall be offered in the Local Language and targeted toward end users in the
Territory. The Service shall be Best-of-Breed Service, modeled after, yet
differentiated from, Participant Brand Service, in accordance with applicable
then current Netscape guidelines therefor. Netscape may revise such guidelines
therefor and the means whereby end users may access the Service, provided that
the prominence of the Service within Netcenter may not be materially reduced.
Netscape and Participant shall mutually agree upon the time frame for
implementing such changes, which time frame shall be no less than 30 days
(unless otherwise agreed by the parties). The Service shall be targeted at
users in North America who desire a free web-based email account on their own
(without a need to share) or a secondary email account for users to handle
their personal emails. During the Term, provided the Service substantially
conforms to the Best-of-Breed Service requirements, Netscape will not launch a
third party web-based email service, which is substantially similar to the
Service, targeted to customers located in the Territory in the Local Language
on Netscape's Web Site.
2.2 SERVICE FRONT PAGE. Netscape shall host the Service Front Page,
unless otherwise agreed by the parties.
2.3 SERVICE PAGES. The Service will: (i) be produced and managed by
Participant; (ii) have a "Netscape.com" domain name (or such other domain name
as Netscape may determine); and (iii) reside solely on Participant's servers.
All access to the Service shall be deemed to be via Netscape's Web Site, and
therefore shall be Netscape traffic. Every page of the Service shall be
co-branded by Netscape and Participant, and such co-branding shall appear above
the fold. Every page of the Service shall include navigational and branding
elements, which shall appear above the fold and offer end users navigational
controls within Netcenter. Netscape will determine, subject to Participant's
prior approval (which shall not be unreasonably withheld), the design/user
interface, promotions and links in all of the pages of Service, provided that
(i) all pages are consistent with the Netcenter look and feel; (ii) all pages
integrate key aspects of Netcenter navigation and functionality; (iii) branding
on all pages in the Service is consistent with the Netcenter branding scheme;
and (iv) all pages provide links to Netcenter including but not limited to a
Netcenter footer. Trailers (or successors thereto) at the bottom of outbound,
forwarded, POP3, and IMAP messages will also have a link to the Service,
including the full name of the Service. Any additional content for trailers (or
successors thereto) shall be mutually determined by Netscape and Participant.
2.4 PROPRIETARY RIGHTS.
2.4.1 Participant hereby grants Netscape a non-exclusive, royalty
free and fully paid up limited license under Participant's patents,
trademarks, copyrights, and trade secrets, whether presently owned or hereafter
acquired, to make, use, offer for sale, and sell products and services solely
in connection with the Service during the Term. All rights not expressly
granted to Netscape hereunder are reserved by Participant. Participant will
grant Netscape a non-exclusive, perpetual license after the end of the term to
any intellectual property in work product independently developed by
Participant for the Service at a price to be mutually determined in good faith.
Netscape acknowledges and agrees that the foregoing license grant conveys no
ownership interest and that, except for the license grant, Participant retains
all right, title and interest in its patents, trademarks, copyrights and trade
secrets.
2.4.2 Netscape hereby grants Participant a non-exclusive, royalty
free and fully paid up limited license under Netscape's patents, copyrights,
and trade secrets, whether presently owned or hereafter acquired, to make, use,
offer for sale, and sell products and services solely in connection with the
Service during the Term. All rights not expressly granted to Participant
hereunder are reserved by Netscape. Participant acknowledges and
4.
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agrees that the foregoing license grant conveys no ownership interest and that,
except for the license grant, Netscape retains all right, title and interest in
its patents, copyrights and trade secrets.
2.4.3 Participant shall not independently use the Service name
without Netscape's prior written consent unless such use occurs in connection
with Participant's advertising, sales and promotional efforts on behalf of the
Service. If the Service name includes a co-branding component that is not
generic or descriptive, Participant may not use the Service name with the
Netscape name expunged, provided that nothing in this Section is intended to
prevent Participant from using its name or any of its corporate identifiers.
2.4.4 Any intellectual property in work product resulting from
co-development efforts under this Agreement shall be owned by Netscape subject
to a fully paid up, royalty free, perpetual license to Participant to make,
use, offer for sale and sell products and services that incorporate such
intellectual property, provided that Participant shall not make, use, offer for
sale or sell any products incorporating such intellectual property for a period
of 18 months after the termination or expiration of the Agreement (the
"Prohibition"), and such license shall survive termination of this Agreement.
For the purposes of this Agreement, "co-development" shall consist of (a) work,
even if performed solely by Participant, that primarily involves integration of
features and functionality with Netcenter functions and resources (such as the
member directory), unless such work consists of conforming to a published
Netscape API or specification; or (b) all other work where employees of each
party meet the statutory requirements under U.S. patent and copyright law (35
U.S.C. ss.16 and 17 U.S.C. ss.101 and ss.201, respectively) to be deemed
co-inventors or co-authors (including any work product consisting of conforming
to published Netscape APIs or specifications). Participant hereby assigns to
Netscape any and all of its rights, title and interests in any co-developed
work, and shall promptly deliver to Netscape all such co-developed work,
including but not limited to source code and all available documentation
therefor, in a form and manner to be specified by Netscape. Participant shall
cooperate with Netscape at Netscape's expense in perfecting any such rights,
including executing any necessary documentation.
2.4.5 Neither party shall have the right to sublicense any of the
other party's intellectual property, except that each party may sublicense any
intellectual property in work product that has been co-developed subject to
Section 2.4.4 and further provided that Participant complies with the
Prohibition in Section 2.4.4 above.
2.4.6 In the event that third party license fees, royalties, or
other payments are required for any technology in the Service, the parties
agree to negotiate in good faith a mutually acceptable sharing of such third
party payments.
2.4.7 The parties agree that in the event of any alleged
infringement of third party proprietary rights by any component of the Service,
each party shall have the right, in its reasonable judgment, with no liability
to the other party, to suspend or discontinue or cause such suspension or
discontinuance of such allegedly infringing component, including the Service or
a portion thereof, until the alleged infringement claim is resolved.
3. SERVICE IMPLEMENTATION
3.1 PRODUCTION, TECHNOLOGY AND CONTENT DEVELOPMENT. Participant shall
be responsible for developing, producing and implementing the design, user
interface, promotions, links and functionality as determined by Netscape and
approved by Participant pursuant to Section 2.3. The parties agree that the
user interface may change on a fairly regular basis and Participant agrees that
it will respond to such changes within the time frame mutually agreed by the
parties. Participant shall use commercially reasonable efforts to employ
Netscape's technology in the Service, if available, rather than a technology,
which might compete with Netscape products or services, provided that such use
of Netscape's technology does not unduly burden the performance or production
of the Service. If Netscape commercially releases a client-server webmail
solution deemed by Netscape to be optimal for the Service, at Netscape's
request, Participant agrees to use such solution in the Service provided
5.
<PAGE> 6
that the parties are able to agree on pricing therefor and further provided
that such solution is a "best of breed" solution (i.e., contains all of the
features and functionality of, and is of the same or superior quality to, other
available solutions).
On the Launch Date, the Service will consist of a free web-email service,
including Basic Features, and the Premium Services and Advanced Features
identified under Phase 1 in Exhibit D. Following the Launch Date and with
Netscape's prior approval, Participant will deploy the Premium Services and
Advanced Features identified under Phase 2 and Phase 3 in Exhibit D as set
forth therein, or as otherwise mutually agreed by the parties. Notwithstanding
Exhibit D, nothing in this Agreement obligates Netscape to approve any Advanced
Feature or Premium Service for inclusion in the Service; provided, however that
Netscape will not withhold its approval unreasonably.
3.1.1 Netscape acknowledges and agrees that Participant's pre-existing
obligations to American Express Travel Related Services ("AMEX") requires that
Participant offer AMEX's customers any Advanced Features and Premium Services
available in the Participant Brand Services. Netscape further acknowledges and
agrees that Participant's obligations to AMEX require that Participant provide
AMEX's customers for the OEM service provided by Participant at URL:
www.amexmail.com. with at least one unique service or feature to distinguish
such AMEX service from others, provided that Participant does not unreasonably
withhold a service or feature deemed by Netscape to be critical to the Service.
Participant shall cooperate with Netscape to take all possible steps to prevent
any service or feature deemed by Netscape to be critical to the Service from
being excluded from the Service because of such pre-existing commitment. To
ensure Best-of-Breed Service, Participant will use commercially reasonable
efforts to develop or pursue third party relationships to provide new Advanced
Features and Premium Services which Participant will present to Netscape at
least on a quarterly basis. Participant agrees to offer such available new
Advanced Features and Premium Services to Netscape for implementation in the
Service for a period of 60 days (or such longer period if Netscape and
Participant so agree) in advance of offering such available new Advanced
Features and/or Premium Services to any Participant OEM partner other than
AMEX.
3.1.2 Netscape must approve all functionalities, features,
enhancements and premium services before addition to the Service; provided,
however, Netscape will not withhold its approval unreasonably. With the
exception of fax services, Netscape grants Participant the right to provide all
Premium Services in Exhibit D. Netscape and Participant agree to review the
components of the Service to determine whether any functions, features,
enhancements or Premium Services should be added, removed, or replaced
considering changes in the general design or infrastructure of Netcenter,
technical feasibility, both parties' industry experience, cost of the Service
or Netcenter, impact on the Service's or Netcenter's performance, and both
parties' revenue generating opportunities. Participant will use best efforts to
integrate other Netcenter services, Netcenter control functionality, or Non
Affiliated Premium Services into the Service at Netscape's request in order to
provide a more consistent user experience for Netcenter members across the
Netcenter website, provided that these requests do not unreasonably and
materially adversely affect the Participant's costs or revenue generation
opportunities.
3.1.3 Unless otherwise mutually agreed, the parties agree that
promotions and links in the Service shall be allocated as follows:
(a) [**] of total ad banner inventory will be reserved for use at
Netscape's sole discretion to promote other Netcenter services or for
mutually-agreed barter ads of third party partners willing to promote the
Service;
(b) Pop-up ads will be mutually agreed upon, with the initial
allocation of [**] to promote other Netcenter services and [**] to promote
Premium Services, collect additional information, or user surveys;
(c) Advertising on Service Logout Pages will be sold and managed
by Participant;
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
6.
<PAGE> 7
(d) New promotional opportunities will be mutually agreed upon;
and
(e) Advertising portals on the vertical navigational frame on the
left hand side will be mutually agreed upon, with the initial allocation of [**
] for promotions of Premium Services and [ ** ] for advertising revenue
managed by Participant.
3.1.4 Participant will manage, run, and sell slots in a direct
marketing content distribution program to be included in the Service sign-up
process. The direct marketing program will consist of two sections: (a) special
one-time promotions, which are not a subscription to a service or product and
(b) In-Box Direct for web email as it relates to the Service. The parties will
mutually agree on the quantity of (a) and (b). In addition, both (a) and (b)
shall be subject to Netscape's then-current privacy policy and general terms
and conditions of the In-Box Direct agreement, as such agreement may be amended
by Netscape from time to time upon 30 days prior notice to Participant. All use
and collection of End User Information shall be in compliance with Netscape's
privacy policy published at URL:
http://home.netscape.com/netcenter/privacy.html. With respect to (b), no
sponsors other than In-Box Direct partners may participate therein, and
Participant shall not distribute any ongoing email subscription content other
than In-Box Direct without Netscape's prior approval which approval will not be
unreasonably withheld. Netscape reserves the right to add, free of charge,
Netscape content or mutually selected partner content in the direct marketing
program. Participant will transmit to Netscape all end user data for In-Box
Direct per the format specified in the In-Box Direct agreement. Participant
will use commercially reasonable efforts to perform development work required
to ensure that web email subscription data is in sync with the standard In-Box
Direct program on a real time basis. All end user subscription management will
be handled through the In-Box Direct program unless mutually agreed otherwise.
Participant shall use commercially reasonable efforts to improve the process by
which end users of the Service receive In-Box Direct subscriptions. A link to
In-Box Direct shall be at the end of the sign-up process as well as in the user
interface for the Service. Both parties agree that the integration of In-Box
Direct with the Service may be postponed by mutual agreement.
3.1.5 In addition, unless Best-of-Breed Service is breached, or the
parties mutually agree otherwise, Netscape agrees that:
(a) At the Launch Date, the Service will have a link under the
Community section of the Netcenter homepage of Netscape's Web Site or
equivalent promotion if such page is redesigned;
(b) At the Launch Date, the Service will have a link under the
Community section of Netcenter on the Netcenter index page or equivalent
promotion if such page is redesigned;
(c) At the Launch Date, a listing will be given to the Service on
the Netcenter premium services page. This listing will most likely link to a
page in the Service, which describes the Premium Services. Netscape reserves
the right to change this listing or remove it in the future due to changes in
format or positioning of the Netcenter premium services page, provided that an
equivalent promotion is provided;
(d) Netscape will include a one-time story on the Service in a
Netcenter newsletter;
(e) During the first 2 weeks after the Launch Date, Netscape will
allocate [**] of remnant ad space on Netscape's Web Site, if any, to promote the
Service. For 6 weeks thereafter, Netscape will allocate [**] of remnant ad space
on Netscape's Web Site, if any, to the Service;
(f) Netscape will run JavaScript messages targeted toward
Netcenter and non-Netcenter members to promote the Service on the home page of
Netscape's Web Site during the first 2 weeks after the Launch Date;
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
7.
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(g) Within the first 3 months after the Launch Date, Netscape will
also provide one to two weeks of exposure for the Service in the Netscape
newsticker on the home page of Netscape's Web Site as well as flashes on the
corresponding newspage;
(h) Netscape will promote the Service in the Netcenter flash
section of the home page of Netscape's Web Site at least once a week during the
6 weeks after the Launch Date;
(i) Netscape will continue to promote the Service through the
remainder of the Term;
(j) Within 6 months of the Launch Date, and subject to compliance
with all applicable laws relating to Netcenter contests and without Netscape
incurring additional compliance costs for such contests under this subsection,
Netscape will use commercially reasonable efforts to integrate new subscribers
of the Service into such contests in a manner that will incentivize users to
sign up for the Service and/or use the Service;
(k) Netscape will use commercially reasonable efforts to offer a
Netcenter free email button to all In-Box Direct partners for inclusion in
outbound email newsletters at such partners' discretion. The In-Box Direct
program guidelines (which currently require a tag line at the top of the
mailing explaining to users who have mistakenly subscribed to In-Box Direct how
to unsubscribe) will be modified to require the In-Box Direct email messages to
contain language in the tag line to promote the Service;
(l) Within 30 days after the Launch Date, the Service will replace
the current free email program available from In-Box Direct. A link to the
Service will appear on the welcome/what's new page of In-Box Direct. Netscape
reserves the right to discontinue this link if the format of the what's new
page or In-Box Direct changes. In such event, Netscape will replace the link
with another link in an equally prominent position elsewhere in Netcenter. A
link to the Service will also appear on the instructions and user FAQ page of
In-Box Direct. Some level of promotion will be given to the Service on the
thank-you page of the In-Box Direct sign up;
(m) Netscape will promote the Service in pop-up promotions
[ ** ] impressions during the first 6 months following the Launch
Date unless Netscape discontinues pop-ups throughout Netcenter or as otherwise
agreed by the parties;
(n) Within 6 months after the Launch Date, Netscape will include a
button for the Service on the personal toolbar in Netscape Communicator version
4.05, U.S. English language, upon general release on Netscape's Web Site.
Netscape will use commercially reasonable efforts to include an embedded email
message promoting the Service in a future release of the Netscape Communicator,
which message is visible to users after a new email profile is set up. If such
is not commercially reasonable, Netscape will provide an equivalent promotion;
(o) Netscape may promote the Service in other avenues where
possible and appropriate;
(p) Netscape will provide a program manager to work with
Participant to: establish development priorities; specify Advanced Features and
Premium Service offerings; evaluate performance and revenue generating
opportunities; set strategic direction; manage integration of the Service with
other Netcenter services; and develop and implement an advertising and
promotions plan. Netscape will also provide a production resource to assist in
the integration of Participant's email registration with Netcenter as well as
to provide direction on design and user interface functionality at least until
60 days after the Launch Date;
(q) Users registering for Netcenter under Registration 2.0 will
automatically be assigned a Netcenter email address. These users must come to
the Service to "activate" the account by completing
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
8.
<PAGE> 9
the Service Registration. Netscape reserves the right to (i) change this
Service Registration process in future versions of Universal Registration; and
(ii) terminate the automatic assignment of Netcenter email addresses, provided
that Netscape will provide Participant 30 days advance notice of any material
change; and
(r) Notwithstanding the foregoing subsections of this Section
3.1.5, Netscape reserves the unilateral right to change any of these
allocations due to redesign of the home page of the Netscape Web Site or
changes in program allocation methodology provided that such promotions are
replaced with an equivalent promotion elsewhere on Netcenter.
3.1.6 In addition, Participant agrees that:
(a) Participant will dedicate a program manager to overall
program management of the Service. The program manager will be Participant's
central contact person to coordinate activities for Netscape. The program
manager will produce monthly reports/presentations to Netscape with
recommendations on how to improve revenue maximization, service performance,
customer service, and differentiate the Service. The presentation should also
include analyses of performance to date and competitive offerings. The program
manager will write and design content for the what's new page/section of the
Service subject to approval by Netscape. Participant will develop and implement
a Premium Service infrastructure and marketing plan to promote Premium Services
and Advanced Features, including but not limited to a what's new newsletter and
the what's new page. Participant will produce, manage, host and maintain the
Service as Best-of-Breed Service. This includes having sufficient staff and
managing creative, technical, and business staff to produce and operate the
Service as Best-of-Breed Service, including but not limited to advertising
sales/management, engineering, production, design, customer service, and
business development;
(b) Participant will dedicate resources to ensure that the
Service is Best-of-Breed Service, and that the Basic Features, Advanced
Features and Premium Services approved by Netscape are developed and
implemented in a mutually agreed time frame. Participant will also ensure that
Netcenter services, Netcenter functionality, and Non Affiliated Premium
Services as described in Section 3.1.2 are integrated into the Service in a
mutually agreed time frame. Participant will allocate development resources,
which are sufficient to satisfy its obligations under this Agreement.
Participant will dedicate a quality assurance manager to develop, test and
monitor the Service to ensure that the Service is Best-of-Breed Service.
Netscape hereby grants Participant a right and license to use, solely for such
integration, the technology under Netscape's control that is necessary to
integrate any Non Affiliated Premium Service. In the event Netscape chooses a
vendor other than Participant or a Participant partner to provide a particular
Non Affiliated Premium Service, Netscape will pay Participant for the
reasonable cost of integration thereof with the Service provided such cost is
pre-approved by Netscape. The parties will discuss and mutually agree on the
revenue sharing for any Non Affiliated Premium Service as set forth in Exhibit
B. The parties acknowledge that providing a link in the web email interface
does not constitute "integration." "Integration" shall be mutually agreed by
the parties and generally applies to more resource intensive activities on the
part of Participant;
(c) Participant will use commercially reasonable efforts to
support any Netscape initiatives to integrate the Service with current and
future releases of Netscape client software and the Netcenter Web site. If
Participant enters into a Netscape license agreement for the Netscape
Communicator source code and modifies such source code to better integrate the
Service into the Netscape Communicator user interface, Participant shall
promptly deliver such modified source code to Netscape so that Netscape may
promote these modifications or incorporate such changes into a future version
of the Netscape Communicator release by Netscape;
(d) Upon Netscape's request, Participant will, at no additional
charge, commit the resources necessary to work with Netscape to complete a
feasibility/scoping study that looks at web email product improvement in a
long-term co-development of a scaleable full featured web email product. If the
parties agree to move forward following such feasibility study, the parties
agree to conduct further discussions detailing, under separate agreement, the
terms and conditions of the co-development effort therefor;
9.
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(e) Where not prohibited by an agreement in existence as of the
Effective Date between Participant and a third party, Netscape shall receive
more prominent (i.e. larger display, higher on page) promotion and positioning
with respect to any other directly competitive Internet client software
companies or online service companies similarly situated on the page;
(f) Participant will offer to Netscape any functionality,
feature or enhancement integrated into the Participant's Brand Service within a
mutually agreed time frame;
(g) Participant shall be responsible for the operations of the
Basic Features, Advanced Features, Premium Services offerings, allowing end
users to easily configure any Basic Features, Advanced Features, Premium
Service and/or Non Affiliated Premium Services, or manage their email account;
(h) Participant shall promptly respond and resolve any spam
issues on the Service, including but not limited to using commercially
reasonable efforts to block spam; and
(i) Netscape may develop additional Netcenter features and
programs to help promote sales and customer loyalty, and Participant shall
implement such services and features when they are developed, provided such
implementation is reasonable and standard for participants in Netcenter.
3.2 ADVERTISING. Participant shall be responsible for selling
advertising and any other promotions within the Service Ad Inventory, subject
to Netscape's guidelines for advertising attached as Exhibit F. Participant
will consult with Netscape regarding the use of an external advertising sales
force in order to give Netscape the opportunity to assist Participant. If more
than [**] of the total Service Ad Inventory is sold via an external source, the
parties will mutually re-assess the advertising sales strategy. Advertising
services which Participant shall provide include site auditing, traffic
analysis, functionality and other advertising services. Participant will commit
resources to manage the advertising programs and sell the advertising inventory
in accordance with this Section 3.2. Ad management will include innovative
approaches to advertising in order to maximize revenue, track trial program
performances, and respond accordingly in a timely manner. Participant must be
able to serve targeted advertising to users of the Service. Participant shall
track, analyze, and report on ad performance on a monthly basis. Participant
shall design and develop banner ads subject to Netscape's approval, which
approval will not be unreasonably withheld, to promote the Service. The cost of
such promotion will be considered part of the cost of sales in calculating any
revenue sharing under this Agreement. The foregoing applies equally to the
development, management and sales of the direct marketing program described in
Section 3.1.4 above.
3.3 CONTENT PROVIDER PARTICIPATION IN THE SERVICE. Participant shall
determine the guidelines by which Content Providers may participate in the
Service provided such guidelines comply with applicable then current Netscape
guidelines. Participant will be responsible for administering the Content
Provider application and complying with such Netscape guidelines. If a Content
Provider fails to come into compliance after receipt of notification, Netscape
shall direct Participant to reduce or remove the listing of a non-complying
Content Provider.
3.4 TECHNICAL AND CUSTOMER SUPPORT BY PARTICIPANT. During the Term
and at no additional charge, Participant shall provide technical support
services for the Service to Netscape on a timely basis, appoint a technical
contact to whom Netscape may address all technical questions relating to the
Service, and use its best efforts to promptly remedy any material
malfunctioning of the Service in accordance with Best-of-Breed Service.
Participant shall be responsible for the maintenance and support of end users
of the Service in accordance with the Best-of-Breed Service. Participant shall
be solely responsible for the purchase, implementation, maintenance and support
of all software and hardware required to fulfill its obligations under the
Agreement. In addition, Participant shall make commercially reasonable efforts
to support Non Affiliated Premium Services for a mutually agreed fee or other
form of consideration.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
10.
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4. END USER REGISTRATION
End users who wish to engage in certain activities in the Service will have to
register with the Service as described in Exhibit A, as such Exhibit may be
revised by Netscape from time to time. The user registration page will be
linked to the Netcenter front page as well as all other appropriate pages in
the Service as Netscape shall determine. Any and all information regarding end
users that is obtained by Participant through, or in connection with, the
Service will be subject to the terms and conditions of Exhibit A.
Participant shall integrate the Service user interface with the Netscape
membership directory. No other directory service shall be included in the
Service Registration Process. The parties may mutually agree to offer users
other directory services in other portions of the Service.
5. NETSCAPE PRODUCTS AND TECHNOLOGY
5.1 OPTIMIZE FOR NETSCAPE TECHNOLOGY. In consideration of Participant
participating as an integral service partner within a core area of Netcenter
and in order to optimize the efficiency of the Service, during the Term:
5.1.1 Within all aspects of the Service, Participant shall use
commercially reasonable efforts to maintain compatibility with the client
software used by Netcenter members;
5.1.2 Subject to Section 3.1, Participant shall consider the use
of at least one current version of Netscape core Web server software product
(currently Netscape Enterprise Server) to maintain Participant's Web Sites;
5.1.3 Where not prohibited by an agreement in existence as of
the Effective Date between Participant and a third party, Participant shall
display the "Netscape Now" button (or any successor button) prominently on the
home page of Participant's Web Site, and on any page on Participant's Web Site
which contains a virtual button or other text or graphic for any third party
Internet client or server software, software provider or online service. On any
page on which the Netscape Now button is displayed, the Netscape Now button
shall be at least equal in size and prominence to the virtual button, text or
graphic for any third party Internet client or server software, software
provider or online service. Netscape hereby grants Participant a nonexclusive
and nontransferable license to perform and display the Netscape Now button
directly in connection with fulfilling the foregoing obligation. Participant's
use of the Netscape Now button shall be in accordance with the guidelines of
the Netscape Now Program currently published at the URL
http://home.netscape.com/comprod/mirror/netscape_now_guidelines.html;
5.1.4 Participant shall ensure that all web pages that are
located in the Service not endorse any third party client or server software or
online service that is directly competitive with Netscape's over Netscape's or
treat the provider of any such competitive software or online service as
preferred by Participant over Netscape, and use commercially reasonable efforts
to ensure that all web pages that are located one click away from any part of
the Service accord Netscape's products and services a position of prominence,
overall as well as on an element by element basis, at least as great as the
positioning accorded any third-party Internet client or server software or
online service; and
5.1.5 Participant's course of dealing with respect to other
services it may operate shall be governed by the terms of Section 5.2.
5.2 COURSE OF DEALING. In consideration of (i) the use of the
netscape.com domain name for the Service, and (ii)the treatment of the Service
as a fundamental part of the Netcenter service, until such time as Microsoft
fully publicly documents and makes available its operating systems programming
interfaces sufficiently to enable Netscape to make use of all of the facilities
and resources of those operating systems on a basis equal to that of Microsoft,
Participant shall:
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5.2.1 Within Participant's publicly accessible Web sites, other
services (including co-branded and OEM services to the extent Participant can
influence the third parties involved) and marketing materials, accord
Netscape's products and services a position of preference and prominence,
overall as well as on an element by element basis, at least as great as that
accorded any third-party Internet client or server software, software provider
or online service; and
5.2.2 Not make content available solely to users of client
software or services other than Netscape's, or disfavor or disadvantage users
of Netscape client software or services in any way relative to users of other
Internet client software or services.
6. RESEARCH AND REPORTING
6.1 QUARTERLY REVIEWS OF THE SERVICE. Netscape and Participant agree
to establish a committee for quarterly reviews of the Service to evaluate the
success of the Service and agree to modifications and improvements to the
Service. The current Milestones for the Service are set forth below:
6.1.1 BUSINESS/DEVELOPMENT PLAN. Netscape and Participant will
mutually review and develop a quarterly business/development plan for the
Service. Both parties will meet on a regular basis (to be determined by the
parties) to review and prioritize development efforts, track progress against
plan, and map out the implementation and communication of enhancements.
6.1.2 MONTHLY REVIEWS. Netscape and Participant agree to
establish monthly reviews of the Service with the intent to review the
performance and development of the Service and agree to modifications and
improvements to the Service.
6.1.3 TWELVE-MONTH REVIEW. Netscape and Participant agree to
review the business plan after 12 months of operation after the Launch Date for
the purpose of mutually agreeing to revised subscriber and revenue targets.
6.1.4 QUARTERLY REVIEW FOLLOWING YEAR ONE. Netscape and
Participant agree to revise Milestones for future periods during the Term at
each quarterly review of the Service after the first year of the Term. If the
parties cannot mutually agree to revised Milestones, then the Milestones in
place at the time shall remain in effect.
6.1.5 END-OF-TERM REVIEW. Netscape and Participant agree to
review the revised business plan targets three months prior to the end of the
Term for the purpose of (a) discussing the performance of the Service and the
desirability of extending the term of the Agreement, and (b) mutually agreeing
to revised business plan targets for the renewal.
6.2 REPORTING AND USE OF REPORT INFORMATION. (i) On a weekly basis,
Participant shall provide Netscape with a daily user access log report in
common log format describing the total number of hits and page impressions for
each of the pages in the Service, and such other tracking information as the
parties shall mutually agree, and (ii) Within 15 days after the end of each
month during the Term, Netscape shall provide Participant with a report
describing the number of redirects of traffic to the Service from Netscape's
Web Site and such other tracking information as the parties shall mutually
agree. The information contained in the reports shall be deemed the
Confidential Information of both parties, provided, however that (i) Netscape
shall have the right to use the information contained in such reports in
Netscape's private and public reporting of access to the Service or Netscape's
Web Site; and (ii) Participant shall have the right to use the information
contained in such reports solely for Participant's internal uses except as
required for legal, audit or tax purposes unless Netscape otherwise agrees.
12.
<PAGE> 13
6.3 AUDIT RIGHTS. Participant shall retain complete, clear and
accurate records regarding its activities under this Agreement. Each Netscape
fiscal quarter (as set forth in Section 2 of Exhibit B) during the Term, the
parties shall review the financial results for the Service and access logs.
Netscape shall have the right, upon no less than 15 days' prior written notice
to Participant, to cause an independent Certified Public Accountant to inspect
and audit, during Participant's normal business hours, all relevant records of
Participant upon which Participant's revenue reports are based and the access
logs. Netscape may conduct such audit once per year. The costs of such audit
shall be paid by Netscape, provided, however, that if said inspection shall
reveal an underreporting in excess of [**] in monies due to Netscape by
Participant or an underreporting in excess of [**] in traffic to the Service,
Participant shall pay for the audit plus any underpayment and make adjustments
based on the underreporting of traffic, if applicable. Netscape's audit rights
as described herein shall continue for [** ] after the expiration or
termination of this Agreement.
6.4 PRESS PLANS. Participant and Netscape agree to participate in two
joint press announcements regarding the Service which will take place after
execution of this Agreement and on or around the Launch Date. The parties shall
agree to the form and content of the joint press release. Either party may
issue its own press release, subject to the other party's prior approval of the
content within the release, which approval will not be unreasonably withheld.
With respect to major advertising and marketing deal announcements regarding
the Service, Netscape and Participant shall have 72 business hours to respond,
in writing, to any proposed announcement. In any press announcement regarding
the Service, both Participant's and Netscape's name and logo shall be included
in the press release.
6.5 RESEARCH. If either party conducts any research directly relating
to the Service, such research results shall be shared with the other on a
timely basis. If Participant or Netscape conducts a study on their respective
Web sites, then both parties will include the Service in the study where
appropriate. Participant will conduct substantially the same level and as much
research and data collection regarding the Service as Participant conducts with
respect to the Participant Brand Service.
7. PAYMENT
For the benefits provided to Participant under this Agreement, Participant
shall pay Netscape the Payment in the amount and subject to the terms set forth
in Exhibit B and Netscape shall pay Participant the amounts set forth in
Section 3.1.6 (b).
8. HARMFUL CONTENT
Each party is solely responsible for any liability arising out of or relating
to any content which such party provides or any material which may be accessed
through a link provided by such party ("Content"). Each party represents and
warrants with respect to its content that it holds the necessary rights to
permit the use of such Content by the other party for the purpose of this
Agreement; and that such party's Content and any material to which users can
directly link through such party's Content will not violate any applicable laws
or rights of any third parties of which either party is aware. If either party
is aware that the other party's Content or web site contains any material that
such party deems likely to cause the other party material harm ("Harmful
Content"), such party will inform the party who provided the Harmful Content
and may (i) not include the Harmful Content in the Service, and/or (ii)
terminate this Agreement if the party who provided the Harmful Content has not
revised it to the other party's satisfaction within five business days after
receipt of written notice (as provided in Section 14.3 below) from the other
party. Each party reserves the right not to include in the Service any Harmful
Content.
9. WARRANTIES
9.1 PERFORMANCE. Participant warrants that (i) it has the right to
perform the services set forth in this Agreement, (ii) such performance does
not infringe any third parties' proprietary or personal rights of which it is
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
13.
<PAGE> 14
aware; and (iii) other than as specifically set forth in this Agreement,
Netscape shall not be obligated to pay any fees or royalties for including the
Service in Netcenter. Participant warrants that the Service will function
substantially in accordance with the terms set forth in this Agreement and
Best-of-Breed Service. Netscape warrants that (i) it has the right to perform
the services set forth in this Agreement, (ii) such performance does not
infringe any third parties' proprietary or personal rights of which it is
aware; and (iii) Participant shall not be obligated to pay any fees or
royalties for participating in Netcenter other than as specifically set forth
in this Agreement. Netscape warrants that Netcenter will function substantially
in accordance with the terms set forth in this Agreement. In any given [** ]
period during the Term, Netcenter shall have an uptime of at least [** ] with
industry standard downtime for maintenance, provided that such downtime not
occur at peak traffic times. Netscape shall repair any malfunctions of
Netcenter within a reasonable period of time (not to exceed [** ] after
notice by any party of such condition.
9.2 DISCLAIMER. THE WARRANTIES PROVIDED BY THE PARTIES HEREIN ARE
THE ONLY WARRANTIES PROVIDED BY THE PARTIES WITH RESPECT TO THE SERVICE AND
NETCENTER. SUCH WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES BY THE PARTIES,
EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY
RIGHTS OF THIRD PARTIES WITH RESPECT TO THE SERVICE AND/OR NETCENTER.
10. INDEMNITY
10.1 PARTICIPANT INDEMNITY. Participant shall indemnify, hold
harmless, and defend Netscape from and against any and all claims, liabilities,
losses, damages, expenses and costs (including attorneys' fees and costs)
arising from third party claims arising out of or relating to the Service
(including but not limited to any spam), Participant's Content and any material
to which users can directly link through Participant's Content, other
information supplied or managed by Participant, or the negligence or
intentional wrongdoing of Participant, except to the extent that Netscape is
responsible under Section 10.2. Participant will pay resulting costs, damages
and legal fees finally awarded in such action in a court or in a settlement
which are attributable to such claim provided that: (i) Netscape promptly
notifies Participant in writing of any such claim; (ii) Participant has sole
control of the defense and all related settlement negotiations; and (iii)
Netscape cooperates with Participant, at Participant's expense, in defending or
settling such claim. The foregoing states Participant's sole obligation and
Netscape's sole remedy for third party claims of infringement or
misappropriation.
10.2 NETSCAPE INDEMNITY. Netscape shall indemnify, hold harmless, and
defend Participant from and against any and all claims, liabilities, losses,
damages, expenses and costs (including attorneys' fees and costs) arising from
any third party claims arising out of or relating to any Content provided by
Netscape to Participant for use in the Service, and any material to which users
can directly link through Netscape's Content, other information supplied or
managed by Netscape, or the negligence or intentional wrongdoing of Netscape,
except to the extent that Participant is responsible under Section 10.1.
Netscape will pay resulting costs, damages and legal fees finally awarded in
such action in a court or in a settlement which are attributable to such claim
provided that: (i) Participant promptly notifies Netscape in writing of any
such claim; (ii) Netscape has sole control of the defense and all related
settlement negotiations; and (iii) Participant cooperates with Netscape, at
Netscape's expense, in defending or settling such claim. The foregoing states
Netscape's sole obligation and Participant's sole remedy for third party claims
of infringement or misappropriation.
11. LIMITATION OF LIABILITY
EXCEPT IN CONNECTION WITH A BREACH BY EITHER PARTY OF ITS CONFIDENTIALITY
OBLIGATIONS AS DESCRIBED IN SECTION 14.1, IN NO EVENT WILL EITHER PARTY BE
LIABLE TO THE OTHER FOR LOST PROFITS OR ANY FORM OF INDIRECT, SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER FROM ANY CAUSES OF ACTION
OF ANY KIND
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
14.
<PAGE> 15
WITH RESPECT TO THIS AGREEMENT WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE,
AND WHETHER OR NOT THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGE. THE LIABILITY OF EITHER PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER
(EXCEPT FOR DAMAGES OR ALLEGED DAMAGES ARISING UNDER SECTION 14.1) WHETHER IN
CONTRACT OR TORT OR ANY OTHER LEGAL THEORY IS LIMITED TO AND SHALL NOT EXCEED,
IN THE AGGREGATE, AN AMOUNT EQUAL TO [** ].
12. TERM AND TERMINATION
12.1 TERM. Unless earlier terminated pursuant to the provisions of
Section 8, Section 12.2 or as described in Exhibit A, this Agreement shall
begin on the Effective Date and, unless otherwise terminated, end on the last
day of the Service Period. [** ] prior to the expiration of the Term, the
parties agree to negotiate in good faith the terms of a one-year renewal of the
Agreement. If no agreement is reached as to the terms of the renewal period,
the Agreement shall expire at the end of the Term.
12.2 TERMINATION FOR CAUSE. Either party shall have the right to
terminate this Agreement upon a material default by the other party of any of
its material obligations under this Agreement, unless within 30 calendar days
after written notice of such default the defaulting party remedies such
default.
12.3 RIGHTS UPON TERMINATION OR EXPIRATION.
12.3.1 Following expiration or termination of the Agreement,
either party may produce, have produced, use and offer the same or similar
services as contained in the Service, provided that neither party uses,
infringes or misappropriates any of the other party's intellectual property to
do so (except for co-developed intellectual property owned by Netscape and
licensed by Netscape to Participant pursuant to Section 2.4.4), and further
provided that only Netscape shall have the right to offer web-based email
services as replacement services to users of the Service as of the expiration
or termination date. Participant may market alternative services to persons who
may be users of the Service as of the termination or expiration date only if
Participant became aware of, or established a relationship with, such person
independently of such person's participation in the Service. Participant shall
not have the right to use, offer or produce any Non Affiliated Premium Service
following termination or expiration of the Agreement unless Participant enters
into an agreement for such right directly with the provider of such Non
Affiliated Premium Service. Netscape shall not have the right to use, offer or
produce any Premium Service following termination or expiration of the
Agreement unless Netscape enters into an agreement for such right directly with
the provider of such Premium Service.
12.3.2 If the Agreement is terminated in accordance with its
terms, or if no agreement is reached as to the terms of the renewal period, at
Netscape's option, Participant shall continue to offer and produce the Service
in accordance with the terms of this Agreement for a period [** ], or
such other mutually agreed period, following the termination or expiration
date; [**
]
Participant agrees that Netscape shall be entitled to seek injunctive relief
such as specific performance in the event Participant fails to comply with this
Section 12.3.2 without submitting such dispute to the dispute resolution
procedures set forth in Section 14.3.
12.3.3 Netscape shall solely own and use all end user data and
information obtained in connection with the Service except that Participant:
(i) shall have the right to aggregate such end user data and information and
use such aggregated data only for Participant's internal use except as required
for legal, audit or tax purposes; and (ii) shall not disclose to any third
party such end user data and information without Netscape's prior written
approval. The parties will cooperate to create guidelines for Participant's
disclosure of aggregate statistical information concerning Service demographics
and use to advertisers. Participant agrees not to market to any end
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
15.
<PAGE> 16
user email address obtained in connection with the Service. Upon any expiration
or termination of this Agreement, Participant shall promptly deliver to
Netscape any and all such end user data and information in a form and manner to
be specified by Netscape, and shall certify to Netscape that, except for the
copy delivered to Netscape, Participant has destroyed any and all such data and
information in its possession except for data required for Participant's
internal legal, tax and accounting purposes. In addition to the right to
receive amounts payable at the time of the termination or expiration of this
Agreement, Section 2.4 ("Proprietary Rights"), Section 4 ("End User
Registration"), Section 6.3 ("Audit Rights"), Section 8 ("Harmful Content"),
Section 9 ("Warranties"), Section 10 ("Indemnity"), Section 11 ("Limitation of
Liability"), Section 12.3 ("Rights Upon Termination or Expiration"), Section 13
("Right of First Refusal"), Section 14 ("General"), and provisions in Exhibits
attached hereto that provide for their survival, shall survive the termination
or expiration of this Agreement for any reason. Provisions of other Sections
which, by their nature, must remain in effect beyond the termination or
expiration of this Agreement, shall also survive termination or expiration of
this Agreement for any reason.
12.4 TERMINATION FEES. Netscape represents to Participant that it is
entering into this Agreement in reliance on Participant's representations and
agreement to implement the Service as set forth herein. In the event this
Agreement is terminated at any time during the Term by Participant due to
entering into an agreement with [** ] and such termination is not due to
Netscape's failure to cure a material default as set forth in Section 12.2,
Participant shall, within 3 business days after termination of this Agreement,
pay Netscape, by cashier's check or wire transfer, at the option of Netscape, a
termination fee of [** ] ("Netscape Termination Fee") as liquidated
damages. If some or all of the Netscape Termination Fee is not received by
Netscape within said 3-day period, Participant agrees to pay Netscape a late
fee on the unpaid portion the lesser of (a) 1% per month, or (ii) the maximum
rate allowed by law from the date the Termination Fee was required to be paid
until such unpaid portion is paid in full.
13. RIGHT OF FIRST REFUSAL
[**
]
14. GENERAL
14.1 CONFIDENTIALITY. All disclosures in connection with this
Agreement as well as the contents of this Agreement and, subject to the terms
of Exhibit A, End User Information, shall be deemed Confidential Information
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
16.
<PAGE> 17
and governed by the terms of the mutual confidential disclosure agreement
between the parties effective as of December 3, 1997, a copy of which is
attached hereto as Exhibit C
14.2 INSURANCE. Participant, at its sole cost and expense, shall
secure and maintain adequate insurance coverage as is necessary, as a
reasonable prudent business person, for Participant to bear all of its
obligations under this Agreement. Maintenance of the foregoing insurance shall
in no way be interpreted as relieving Participant of any responsibility or
obligation whatsoever and Participant may acquire, at its own expense, such
additional insurance as Participant deems necessary. Participant assumes full
and complete liability for all injuries to, or death of, any person, or for any
damages to property arising from the acts or omissions of Participant.
Participant shall add Netscape as an additional insured under such coverage and
provide copies thereof within 30 days of the Effective Date or within 30 days
after any change in coverage. Participant's insurance shall be primary to any
other insurance Netscape may have.
14.3 DISPUTE RESOLUTION. Any dispute hereunder will be negotiated
between the parties commencing upon written notice from one party to the other.
Settlement discussions and materials will be confidential and inadmissible in
any subsequent proceeding without both parties' consent. If the dispute is not
resolved by negotiation within 45 days following such notice, the parties will
refer the dispute to non-binding mediation conducted by JAMS/EndDispute. The
parties will share the costs of mediation. If the dispute is not resolved after
45 days of mediation, the parties will refer the dispute to binding arbitration
by JAMS/EndDispute. The location of the arbitration will be Santa Clara County,
California in the case of an arbitration which is initiated by Participant, and
Colorado Springs, Colorado in the case of an arbitration which is initiated by
Netscape. The results of any arbitration will be final and non-appeallable,
except that either party may petition any court of competent jurisdiction to
review any decision relating to intellectual property matters (including the
scope of license rights), vacating or modifying erroneous conclusions of law or
findings of fact not supported by substantial evidence. The arbitrator may
fashion any legal or equitable remedies except punitive or exemplary damages,
which both parties waive. The arbitrator will render a written decision, which
may be entered in and enforced by any court of competent jurisdiction, but
which will have no preclusive effect in other matters involving third parties.
The losing party will pay the costs of the arbitration and the reasonable legal
fees and expenses of the prevailing party, as determined by the arbitrator. The
parties will jointly pay arbitration costs pending a final allocation by the
arbitrator. At any point in the dispute resolution process, either party may
seek injunctive relief preserving the status quo pending the outcome of that
process. Except as noted, the parties waive any right to judicial process.
California law, without regard to its conflict-of-law provisions, will govern
this Agreement. The U.S. Arbitration Act and JAMS/EndDispute rules will govern
the arbitration process. Absent fraudulent concealment, neither party may raise
a claim more than 3 years after it arises or any shorter period provided by
applicable statutes of limitations.
14.4 NOTICES. All notices required or permitted hereunder shall be
given in writing in the English language and shall be addressed to the
respective parties as set forth on the Cover Sheet and shall either be (i)
personally delivered or (ii) transmitted by internationally-recognized private
express courier and shall be deemed to have been given on the date of receipt
if delivered personally, or 2 days after deposit with express courier. Either
party may change its address for purposes hereof by written notice to the other
in accordance with the provisions of this Subsection.
14.5 MISCELLANEOUS. (a) Neither party's waiver of a breach or delay
or omission to exercise any right or remedy shall be construed as a waiver of
any subsequent breach or as a waiver of such right or remedy. (b) This
Agreement may be amended only by a writing signed by both parties. (c) [
** ]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
17.
<PAGE> 18
[
**
] (d) This Agreement creates no agency,
partnership, joint venture, or employment relationship and neither Participant
nor its agents have any authority to bind Netscape in any respect whatsoever.
(e) All rights not expressly granted by one party to the other party hereunder
shall be reserved. (f) The section headings herein are used for convenience
only and shall have no substantive meaning. (g) In the event any provision of
this Agreement is held by a court or other tribunal of competent jurisdiction
to be unenforceable, such provision shall be reformed only to the extent
necessary to make it enforceable, and the other provisions of this Agreement
will remain in full force and effect. (h) Either party shall be excused from
any delay or failure in performance hereunder, except the payment of
(undisputed) monies, caused by reason of any occurrence or contingency beyond
its reasonable control, including but not limited to, acts of nature. The
obligations and rights of the party so excused shall be extended on a
day-to-day basis for the period of time equal to that of the underlying cause
of the delay. (i) This Agreement, including the Cover Sheet and Exhibits
hereto, constitutes the entire agreement between the parties concerning the
subject matter hereof and supersedes all prior and contemporaneous agreements,
and communications, whether oral or written, between the parties relating to
the subject matter of this Agreement and all past courses of dealing or
industry custom. (j) This Agreement is written in the English language only,
which language shall be controlling in all respects. (k) This Agreement may be
executed in counterparts or by facsimile, each of which shall be deemed an
original and all of which together shall constitute one and the same agreement.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
18.
<PAGE> 19
EXHIBIT A
END USER REGISTRATION
REGISTRATION PROCESS. End users who wish to participate in the Service must
subscribe through Netscape's Netcenter Registration and Service Registration.
Participant shall be responsible for the implementation of the Service
Registration and the integration of the Service Registration with Netcenter
Registration. The functionality, design, and, integration of the Service
Registration and Netcenter Registration will be specified by Netscape and
subject to Netscape's terms and conditions as defined in this Agreement. Such
specifications and terms and conditions may be revised by Netscape from time to
time upon 30 days prior notice to the Participant. The participant will
implement the changes within a 30 day period unless mutually agreed to
otherwise. The point of entry to the registration area (Service Front Page)
shall be hosted and controlled by Netscape unless otherwise determined by
Netscape.
REGISTRATION FEATURES. The Service Registration area shall be co-branded and
have a look and feel which is consistent with the implementation of the
registration process in other sections of Netcenter. Participant shall not
launch the Service Registration until Netscape has notified Participant in
writing that Netscape has accepted Participant's implementation. Participant
shall manage site access using Netcenter site access models, as such site
access models shall be determined by Netscape from time to time upon notice to
Participant. Netscape shall transfer to Participant all data necessary to
provide site access to registered Netcenter users. Participant will make
commercially reasonable efforts to implement such changes within a 30 day
period.
DATA COLLECTED BY PARTICIPANT DURING SERVICE REGISTRATION PROCESS. Netscape
will determine the data to be collected in the Service Registration process
considering Participant's recommendations and technical restrictions. Netscape
reserves the right to change such data requirements from time to time.
Participant will make best efforts to implement these changes within 5 working
days unless mutually agreed to otherwise. [
**
]
DATA TRANSFER. Participant shall use commercially reasonable efforts to
transfer all end user data collected during the Service Registration process as
well as data collected by any other means, to Netscape in real time data
transfer, unless otherwise agreed to by the parties. Netscape reserves the
right to request any information collected during the Service Registration to
be supplied in a Netscape specified format and timeframe. If Participant
collects information about users accessing the Service in addition to
information supplied by the users during the registration process, such
information shall be made available to Netscape in a format and timeframe as
the parties shall mutually agree.
NETCENTER CONSIDERATIONS. All third party programs including but not limited to
Premium Services and Non-Affiliated Premium Services participating in the
Service within Netcenter shall register users with Netcenter when the user
completes an order, if such user is not already registered with Netcenter. If a
user is a registered Netcenter member, Participant shall prepopulate relevant
customer data fields in the customer order form based on information in the
Netcenter database or seamlessly pass this information to the third party
provider.
UNSUBSCRIBE. All outbound communications from the Participant to end users
registered for the Service, except special one-time promotions as defined in
Section 3.1.3, must offer the end user the option of "unsubscribing" from the
outbound communication either through the Service or through Netcenter. In
addition, the Participant must offer the end user a central and consistent
interface to "unsubscribe", cancel, renew, or sign up for any Premium Services,
Non-Affiliated Premium Services, and mutually selected advanced features
offered in the Service. This central account management interface must be
mutually designed by the parties. Participant must also offer end users a
streamlined option for "unsubscribing" completely from the Service or
"de-activating" an email account and all associated Premium Services and
Non-affiliated Premium Services.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
19.
<PAGE> 20
PERSONAL DATA CONFIDENTIAL; OWNERSHIP. Netscape shall solely own and use all
end user data and information obtained in connection with the Service except
that Participant: (i) shall have the right to aggregate such end user data and
information and use such aggregated data only for Participant's internal use
except as required for legal, audit or tax purposes; (ii) shall not disclose to
any third party such end user data and information without Netscape's prior
written approval; and (iii) may use information collected about the users
during registration or from any other means ("End User Information") only for
the purpose of marketing Premium Services, Non-affiliated Premium Services,
Advanced Features, and Netcenter programs to the users. The parties will
cooperate to create guidelines for Participant's disclosure of aggregate
statistical information concerning Service demographics and use to advertisers.
Participant shall not resell or disclose such End User Information to any third
party; provided however, that Participant may sell or disclose such End User
Information to third parties upon prior notice to and consent from such end
users. If Netscape determines that Participant or third party in contract with
Participant is not complying with the terms of use of personal data published
on Netscape's Web Site at http://home.netscape.com/netcenter/index.html, or
such other URL as Netscape may determine from time to time Netscape may
terminate this Agreement upon written notice (as provided in Section 13.3) to
Participant if Participant is not in compliance within 5 days of written notice
from Netscape. End User Information shall be owned exclusively by Netscape.
After a given end user has requested to be "unsubscribed" from the Service,
Participant will terminate all Premium Service or Non-Affiliated Premium
Services unless otherwise specified by the user and discontinue any use of the
End User Information associated with the given user. After the termination or
expiration of this Agreement, Participant will transfer all data to Netscape
and destroy all copies as described in Section 12.3.3, other than data required
for Participant's internal legal, tax and accounting purposes.
20.
<PAGE> 21
EXHIBIT B
PAYMENT TERMS
1. PAYMENT: Participant shall pay Netscape the following amounts as the
Payment:
1.1 SCHEDULE FOR NET REVENUE SHARING. Except as set forth below
in Sections 1.2 and 1.3, revenue generated by the Service shall be split
between Participant and Netscape according to the schedule below. Time periods
noted below commence with the Launch Date.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Time Period Netscape Split Participant Split
- -------------------------------------------------------------------------------
<S> <C> <C>
[ ** ** ** ]
- -------------------------------------------------------------------------------
[ ** ** ** ]
- -------------------------------------------------------------------------------
[ ** ** ** ]
- -------------------------------------------------------------------------------
[ ** ** ** ]
- -------------------------------------------------------------------------------
</TABLE>
DEFINITION OF "NET REVENUE." Net Revenue is defined as total gross revenues,
specifically excluding taxes, from the sum of:
(a) advertising net revenue (gross advertising revenues less
reasonable fees and commissions, including but not limited to internal
commissions, [ ** ];
(b) Sponsorships (gross sponsorship fees less commissions,
including but not limited to internal commissions, [ ** ];
(c) Premium Services; and
(d) special one-time offers net revenue (gross promotional
revenues less reasonable fees and commissions, including but not limited to
internal commissions, [ ** ];
and in the case of each of (a) - (d) above, less mutually agreed deductions
such as bad debt, returns, billing costs and/or cost of sales, provided that
the total combined deductions against such revenue [ ** ].
If it appears that the deductions for the items above [ ** ],
Participant shall consult with Netscape regarding which party should sell to
the advertiser or sponsor in question.
1.2 With respect to revenue from In-Box Direct promotions included
in the Service Registration process, the parties will split such revenue
[ ** ], after subtracting mutually agreed deductions
such as bad debt, returns, and/or cost of sales.
1.3 With respect to Non Affiliated Premium Services, the parties
shall negotiate a revenue sharing agreement prior to integrating such service.
In addition, Netscape shall reimburse Participant for the reasonable cost of
integration relating thereto as set forth under Section 3.1.6(b). The parties
agree that if Participant only includes a link in the Service to the Non
Affiliated Premium Service, Netscape will not pay any costs or share any
revenue with Participant for such Non Affiliated Premium Service. If
Participant does perform integration work as defined in Section 3.1.6(b) for a
Non Affiliated Premium Service (other than for In Box Direct, for which
Netscape shall not pay any integration costs or share revenue), Netscape will
reimburse Participant for reasonable integration costs [
** ]. If Participant performs such
integration work and
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
21.
<PAGE> 22
performs other substantial services (such as integrated billing) with respect
to a Non Affiliated premium Service, Netscape will reimburse Participant for
the reasonable costs thereof and the parties will negotiate the revenue-sharing
terms on a case-by-case basis.
1.4 The parties acknowledge that there may be additional revenue
opportunities under this Agreement, and the parties will mutually agree to the
revenue split on a case by case basis.
2. TIMING OF PAYMENT. Within [ ** ] after the end of each Netscape
fiscal quarter during the Term of this Agreement, each paying party
shall deliver to the receiving party a report describing in detail the
calculation of gross revenue actually collected and net revenue
actually collected for such fiscal quarter, and shall pay to the
receiving party such party's portion of such net revenue actually
collected calculated as described above, with no right of set-off. The
Netscape fiscal quarter shall be based on a fiscal year ending October
31.
3. POST-TERM PAYMENTS OF BAD DEBT. After termination or expiration of
this Agreement, each paying party shall pay to the receiving party all
amounts received by the paying party previously charged by the paying
party as "bad debt" ("Bad Debt Payments") and deducted from gross
revenue under Section 1 above to the extent such deducted amounts have
not already been paid to the receiving party. Within 30 days of the
receipt of any Bad Debt Payment, the paying party shall deliver such
payment to the receiving party. This Section shall survive expiration
or termination of this Agreement.
4. CURRENCY AND TAXES. All amounts payable hereunder are denominated in
U.S. Dollars, and all amounts payable hereunder shall be remitted in
U.S. Dollars. Any portion of any payment due which has not been paid
during the applicable time set forth herein shall bear interest at the
lesser of (i) 1% per month or (ii) the maximum rate allowed by law.
All payments due hereunder are exclusive of any applicable taxes. The
collecting party shall be responsible for all applicable national,
state and local taxes, value added or sales taxes, exchange, interest,
banking, collection and other charges and levies and assessments
pertaining to payments other than U.S. taxes based on Netscape's net
income. If the collecting party is required by law to make any
deduction or to withhold from any sum payable to the other party
hereunder, the collecting party shall effect such deduction or
withholding, remit such amounts to the appropriate taxing authorities
and promptly furnish the other party with tax receipts evidencing the
payments of such amounts. For every dollar for revenue sharing under
this Agreement, "collecting party" means the first of Netscape or
Participant to collect such dollar. This Exhibit shall survive
termination or expiration of this Agreement.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
22.
<PAGE> 23
EXHIBIT C
SEE ATTACHED MUTUAL CONFIDENTIAL DISCLOSURE AGREEMENT EFFECTIVE
DECEMBER 3, 1997
23.
<PAGE> 24
MUTUAL CONFIDENTIAL DISCLOSURE AGREEMENT
This Mutual Confidential Disclosure Agreement ("Agreement") is entered into
between Netscape Communications Corporation ("Netscape") and USA.Net
("Company"), and is effective as of the date of execution by Netscape
("Effective Date"). Each party (the "Receiving Party") understands that the
other party (the "Disclosing Party") may disclose certain Confidential
Information (as defined in Section 1 below) under this Agreement. Netscape and
Company agree as follows:
1. DEFINITION. "Confidential Information" shall mean (i) all information
disclosed in tangible form by the Disclosing Party and marked
"confidential" or "proprietary", and (ii) all information disclosed
orally or otherwise in intangible form by the Disclosing Party and
designated as confidential or proprietary at the time of disclosure.
Confidential Information may include, without limitation, computer
programs, code, algorithms, names and expertise of employees and
consultants, know-how, formulas, processes, ideas, inventions (whether
patentable or not), schematics and other technical, business, financial
and product development plans, forecasts, strategies and information.
2. PURPOSE. The Receiving Party shall use the Confidential Information
only for the following purposes:
a) To evaluate whether to enter into a contemplated business
transaction; and
b) if Netscape and Company enter into such contemplated business
transaction, to fulfill each party's commitments under the
agreement for such business transaction.
3. CONFIDENTIALITY OBLIGATION. The Receiving Party agrees to protect the
Confidential Information by using the same degree of care, but not less
than a reasonable degree of care, to prevent the unauthorized use,
dissemination or publication of the Confidential Information as the
Receiving Party uses to protect its own confidential or proprietary
information of a like nature. The Receiving Party shall limit the use
of and access to the Disclosing Party's Confidential Information to the
Receiving Party's employees or independent contractors who need to know
such Confidential Information for the purposes set forth in Section 2
above and who have entered into binding obligations of confidentiality
substantially similar to the obligations set forth herein.
4. TERM. The Receiving Party's obligations to protect Confidential
Information hereunder shall expire 3 years from the date of each such
disclosure of Confidential Information, except when such Confidential
Information disclosed by the Disclosing Party is source code, in which
case the Receiving Party's obligations to protect such Confidential
Information shall be perpetual.
5. EXCLUSIONS. Confidential Information as defined in Section 1 above
shall not include Confidential Information that: (i) is or becomes a
matter of public knowledge through no fault of the Receiving Party; or
(ii) was in the Receiving Party's possession or known by it prior to
receipt from the Disclosing Party; or (iii) was rightfully disclosed to
the Receiving Party by another person
24.
<PAGE> 25
without restriction; or (iv) is independently developed by the
Receiving Party without access to such Confidential Information. The
Receiving Party may disclose Confidential Information pursuant to any
statutory or regulatory authority or court order, provided the
Disclosing Party is given prompt written notice of such requirement and
the scope of such disclosure is limited to the extent possible.
6. INDEPENDENT DEVELOPMENT. The terms of confidentiality under this
Agreement shall not be construed to limit either party's right to
independently develop or acquire products without use of the other
party's Confidential Information. Further, Confidential Information as
defined in Section 1 above shall not include the Residuals resulting
from access to such Confidential Information. The term "Residuals"
means information in intangible form which may be retained in the
unaided memories of Receiving Party's employees or independent
contractors who have had access to the information. An employee's or
contractor's memory will be considered to be unaided if the employee
has not intentionally memorized the Confidential Information for the
purpose of retaining and subsequently using or disclosing it. Neither
party shall have any obligation to limit or restrict the assignment of
such persons or to pay royalties for any work resulting from the use of
Residuals. However, the foregoing shall not be deemed to grant to
either party a license under the other party's copyrights or patents.
7. RETURN OF CONFIDENTIAL INFORMATION. Upon written request by the
Disclosing Party at any time, the Receiving Party shall: (i) turn over
to the Disclosing Party all Confidential Information of the Disclosing
Party, all documents or media containing the Confidential Information,
and any and all copies or extracts thereof, or (ii) destroy the
Confidential Information, and any and all copies or extracts thereof,
and provide the Disclosing Party with written certification of such
destruction signed by an authorized representative of the Receiving
Party.
8. EQUITABLE RELIEF. The Receiving Party acknowledges and agrees that due
to the unique nature of the Disclosing Party's Confidential
Information, there may be no adequate remedy at law for any breach of
its obligations. The Receiving Party further acknowledges that any such
breach may allow the Receiving Party or third parties to unfairly
compete with the Disclosing Party resulting in irreparable harm to the
Disclosing Party and, therefore, that upon any such breach or any
threat thereof, the Disclosing Party shall be entitled to seek
appropriate equitable relief in addition to whatever remedies it may
have at law. The Receiving Party will notify the Disclosing Party in
writing immediately upon the occurrence of any such unauthorized
release or other breach.
9. INTELLECTUAL PROPERTY RIGHTS. Neither party acquires any intellectual
property rights or any other rights under this Agreement or through any
disclosure hereunder, except the limited right to use the Confidential
Information in accordance with this Agreement.
10. WARRANTY. The Confidential Information disclosed under this Agreement
is delivered "AS IS," and all representations or warranties, whether
express or implied, including warranties or conditions for fitness for
a particular purpose, merchantability, title and noninfringement, are
hereby disclaimed.
11. NETSCAPE SUBSIDIARIES. Netscape's wholly owned subsidiaries, by signing
this Agreement on behalf of Netscape and returning a fully executed
original or copy to the Netscape Legal Department, shall be entitled to
disclose Netscape's Confidential Information and receive Company's
Confidential Information on behalf of Netscape under this Agreement,
provided such subsidiaries comply with the terms and conditions of this
Agreement and further provided such disclosures or receipt of
Confidential Information are governed by the terms and conditions of
this Agreement.
25.
<PAGE> 26
12. GENERAL. This Agreement supersedes all prior discussions and writings
with respect to the subject matter hereof, and constitutes the entire
agreement between the parties with respect to the subject matter
hereof. No waiver or modification of this Agreement will be binding
upon either party unless made in writing and signed by a duly
authorized representative of each party and no failure or delay in
enforcing any right will be deemed a waiver. The parties understand
that nothing herein requires either party to proceed with any proposed
transaction or relationship in connection with which Confidential
Information may be disclosed. In the event that any of the provisions
of this Agreement shall be held by a court or other tribunal of
competent jurisdiction to be unenforceable, the remaining portions
hereof shall remain in full force and effect. This Agreement shall be
governed by the laws of the State of California without regard to
conflicts of laws provisions thereof and each party submits to the
jurisdiction and venue of any California State or federal court
generally serving the Santa Clara county area with respect to the
subject matter of this Agreement. The headings to the Sections of this
Agreement are included merely for reference and shall not affect the
meaning of the language included therein. This Agreement is written in
the English language only, which language shall be controlling in all
respects. Les parties aux presentes confirment leur volonte que cette
convention de meme que tous les documents y compris tout avis qui s'y
rattache, soient rediges en langue anglaise (translation: "The parties
confirm that this Agreement and all related documentation is and will
be in the English language.") .
NETSCAPE COMMUNICATIONS COMPANY
CORPORATION
By: /s/ Ken Rutsky By: /s/ David J. Fuino, Jr.
------------------------------- ---------------------------------
Signature Signature
Name: Ken Rutsky Name: David J. Fuino, Jr.
---------------------------- -------------------------------
Print or Type Print or Type
Title: Grp Prgm Mgr Title: VP, Business Development
---------------------------- ------------------------------
Date: 12/3/97 Date: 12/3/97
Address: Address:
501 East Middlefield Road 102 S. Tejon, Suite 220
Mountain View, CA 94043 Colorado Springs, CO 80903
26.
<PAGE> 27
EXHIBIT D
PREMIUM SERVICES AND ADVANCED FEATURES
Phase 1 (April 30, 1998 Launch Date) will consist of the Basic Features with
selected Advanced Features and Premium Services as described under Phase 1
below and integration from a content perspective into Netcenter indexes, home
page of Netscape's Web Site, and registration.
Phase 2 (not later than [ ** ] will expand the Advanced Features as well as
Premium Services, implement a more integrated solution for the user
name/password issue, and integrate a highlights section of In-Box Direct into
the sign up process for the Service.
Phase 3 (not later than [ ** ] will continue to expand the Advanced Features
as well as Premium Services, completely resolve the site access/user
validation user name/password issue, and integrate the Service more thoroughly
into other Netcenter services.
Both parties acknowledge that the above dates may change due to Universal
Registration integration issues. Advanced Features/Premium Services are still
expected to be available per the dates currently reflected for each phase.
Consequently, if the phase dates are delayed, it is expected that the Advanced
Features/Premium Services would be revised accordingly by mutual agreement.
Notwithstanding the foregoing, the Launch Date shall not be more than [ ** ]
beyond April 30, 1998. If the event the Launch Date fails to occur during said
[ ** ] period and such failure is not as a result of Section 12.4 of the
Agreement, either party shall have the right to terminate this Agreement
immediately with no obligation to either party.
[
**
]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
27.
<PAGE> 28
[
**
]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
28.
<PAGE> 29
[
**
]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
29.
<PAGE> 30
[
**
]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
30.
<PAGE> 31
[
**
]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
31.
<PAGE> 32
[ ** ]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
32.
<PAGE> 33
EXHIBIT E
BEST-OF-BREED SERVICE
[ ** ]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
33.
<PAGE> 34
[**]
EXHIBIT F
NETSCAPE ADVERTISING GUIDELINES
Subject to the other terms and conditions of the Agreement, Participant shall
not publish any advertisements or other promotional text and/or graphics
containing content that may be unlawful, inappropriate or otherwise harmful to
Netscape, including but not limited to any advertisement of third party products
and/or services directly competitive with Netscape's software products and
online services or any advertising by mutually agreed competitors. Inappropriate
content shall also include but not be limited to content pertaining to tobacco,
alcohol, gambling, pornography and other adult content.
Netscape has the right to refuse to publish, or direct Participant to refuse to
publish, any advertisement which Netscape deems inappropriate for any reason at
any time (no ads for competitive products).
Netscape has the right to request that any advertisement or other promotional
text and/or graphic be removed from the Service if it is deemed by Netscape to
be inappropriate. Participant will use commercially reasonable efforts to
remove the inappropriate content within a 24 hour period.
Netscape reserves the right to change the Netscape Advertising Guidelines from
time to time provided that notice is given to the Participant within a time
period to be mutually agreed by Netscape and the Participant.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
34.
<PAGE> 35
[ ** ]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
35.
<PAGE> 36
[**]
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
36.
<PAGE> 37
EXHIBIT G
SEE ATTACHED IN BOX DIRECT AGREEMENT
1.
<PAGE> 38
NETSCAPE IN-BOX DIRECT PROGRAM GUIDELINES AND APPLICATION
YOU MUST SUBMIT AN APPLICATION AND COMPLY WITH THE FOLLOWING GUIDELINES TO BE
ELIGIBLE TO BECOME A PARTICIPANT IN NETSCAPE'S IN-BOX DIRECT PROGRAM. NETSCAPE
WILL NOTIFY YOU OF NETSCAPE'S ACCEPTANCE OF YOUR APPLICATION.
GUIDELINES
I. PROGRAM INPUTS
You will send the In-Box Direct (IBD) program manager an email and hard copy of
all inputs listed below by the push deadline as communicated by the In-Box
Direct program manager. To avoid delay, at the time you submit the inputs, you
should have already tested the inputs to ensure that they have been completed to
the listed specifications. If you are currently participating in the IBD
program, you need to ensure you revise your offerings to comply with the Program
Guidelines as outlined below.
A. NAME OF THE SERVICE
1. The title of the service that you would like to have listed on the IBD page.
B. DESCRIPTION OF THE SERVICE
1. A 30-40 word description to be listed on the IBD page. This description is
subject to Netscape's review, and may be edited by Netscape before posting on
the IBD page.
2. The description must differentiate your service from the service of others
listed on the IBD page.
3. The description must indicate the frequency of the mailings, e.g., daily,
weekly, etc.
4. The description must indicate the languages in which the service is
available.
C. DEDICATED EMAIL ADDRESS
1. You must provide a dedicated email address to which subscriber datafeeds
can be emailed by Netscape on a daily basis. (Only datafeeds from Netscape can
arrive at this address).
2. Your system must be able to receive and process data sent from Netscape
once a day, 7 days a week, between 12 a.m. to 4 a.m. PST
D. EXAMPLE MAILING
1. At an early stage of development of the example mailing, you must review
the content and layout of the example mailing with the program manager. The
program manager must give final approval of the example mailing before it can be
included in the push.
2. Two weeks prior to the push deadline, established by the IBD Program
Manager, you must send the IBD program manager a URL which links to an example
mailing. In addition, you must send the program manager an example mailing
served off of your server as if the program manager had signed up for the
service by the push deadline.
1.
<PAGE> 39
3. All mailings must be in HTML; however, the following text must appear in the
header so that an ASCII user who subscribed can view the mailing.
HTML within open and close angle brackets
<!-
*******************************************************************
> Welcome to (your title here), a free service of ( your company,
> publication or service name here). If you can read this message,
> but the rest of the email contains strange characters, your email
> program is not capable of reading HTML mail. Use your browser to read
> the complete (your newsletter or publication) online at http://(your
> address here - full URL). However, if you would like to view this
newsletter
> in HTML, you can upgrade to Netscape Navigator version 3.0 or
Netscape
> Communicator version 4.0, both of which can be downloaded from
> http://home.netscape.com/download/client_download.html?communicator
4.03
*******************************************************************
-->
4. All mailings must provide two forms of unsubscribe functionality: 1) direct
from the mailing and 2) a link back to In-Box Direct with instructions on how to
unsubscribe. SEE SECTION II.C. for more information.
5. All mailings must include the current IBD branding GIF per Netscape's
specifications.
6. You must place the following tag line at the bottom of each mailing to
In-Box Direct subscribers: "This mailing is best viewed through Netscape
Communicator".
E. WELCOME AND/OR REGISTRATION LETTER (USED TO CUSTOMIZE THE SERVICE)
1. You must send the program manager a URL for your welcome mailing. In
addition, two weeks prior to the push deadline, you must send the program
manager a Welcome Letter served off of your server as if the program manager had
signed up for the service.
2. You do not need to include a separate Welcome Letter if its actual content
will be delivered within forty-eight hours after a user subscribes to the
service. Welcome Letters that are not in English need to include, at a minimum,
a button in English saying, "UNSUBSCRIBE".
3. All mailings must be in HTML; however, the following text must appear in
the header so that an ASCII user who subscribed can unsubscribe
HTML within open and close angle brackets
<!-
*******************************************************************
> Welcome to (your title here), a free service of (your company,
> publication or service name here). If you can read this message,
> but the rest of the email contains strange characters, your email
> program is not capable of reading HTML mail. Use your browser to
read
> the complete (your newsletter or publication) online at http:/
/(your
> address here - full URL). However, if you would like to view
this newsletter
> in HTML, you can upgrade to Netscape Navigator version 3.0 or
Netscape
> Communicator version 4.0, both of which can be downloaded from
2.
<PAGE> 40
> http://home.netscape.com/download/client_download.html?communicator
4.03
******************************************************************
-->
4. If you offer the option of customizing the service, then the Welcome Letter
will also serve as a Registration Letter. The Welcome/Registration letter must
give the user the opportunity to select customized features of the service, such
as language, frequency of delivery, topics of interest, and authors.
o You must have a default for all customized publications so that a subscriber
who fails to take action on the Welcome Letter will at least receive some
content from you.
o You may not ask IBD subscribers any questions in your Welcome/Registration
Letter which would have already been answered in the IBD registration process
and forwarded to you through the Netscape daily datafeeds.
5. All mailings must provide two ways to unsubscribe: 1) direct from the
mailing; and 2) a link back to In-Box Direct with instructions on how to
unsubscribe. SEE SECTION II.C. for more information.
6. All mailings must include the current IBD branding GIF per Netscape's
specifications as well as the Netscape Now button.
7. You must place the following tag line at the bottom of each mailing to In-Box
Direct subscribers: "This mailing is best viewed through Netscape Communicator".
F. GOODBYE/UNSUBSCRIBE MESSAGE
1. You must send the program manager a URL for your Goodbye/Unsubscribe mailing
by the push deadline.
2. The Goodbye/Unsubscribe Message serves as a confirmation to end users that
their cancellation requests have been received and processed. The
Goodbye/Unsubscribe Message must be written in HTML, but have a section in
ASCII.
3. Non-English services must include an unsubscribe confirmation in both English
as well as the language of origin.
4. You must send the Goodbye/Unsubscribe Message to all IBD users who
unsubscribe from your service. This includes users who unsubscribe direct from
the mailing, users who unsubscribe through In-Box Direct, and users who
unsubscribe by sending a special request to IBD feedback (handled by IBD
customer service).
5. You must send Goodbye/Unsubscribe Message within twenty-four hours of
receiving notification from the subscriber or Netscape.
6. It is recommended, although not required, that you include an exit survey as
part of your unsubscribe process or goodbye message. This will enable you to
better understand retention issues and revise your service accordingly. Examples
of unsubscribe surveys are available on request from the program manager.
3.
<PAGE> 41
G. SAMPLE PAGE
1. You must send the sample page URL to the program manager by the push
deadline. After the push is executed, all sample pages will be hosted by
Netscape on the Netscape site.
2. It is your responsibility to test thoroughly the sample pages and to verify
compliance with all sample page specifications. You understand that inability to
meet sample page specifications by the push deadline, may result in a delay of
at least one month in the commencement of program participation.
o The Sample Page Checker tool at the following URL will assist you in meeting
these specifications:
HTTP://HOME.NETSCAPE.COM/ESCAPES/IBD/SAMPLE_CHECK.HTML
o Sample pages must be tested on Win95, Windows 3.1, Macintosh, and UNIX. Note
that some sample pages that appear fine on a Macintosh will bleed out of the box
when viewed with Windows 95.
3. The sample page can be no more than three pages. It is suggested that you
use one page to explain the features and benefits of the service and one page to
show the users an example of an actual mailing.
4. The sample page must be sized to fit within 640 x 400 pixels. You must test
the size of the sample on a PC WINDOWS 95 system. The Sample Page Checker URL
will enable you to test the size and verify compliance with the required
dimensions.
5. If multiple pages (maximum 3) are used, all pages must be linked together.
"MORE" and "BACK" links must be implemented. "Back" links ("Back" to the
previous sample page) must be included on all pages, except the first page.
6. A "Return to In-Box Direct" button must be located in the upper right
region of each page. The preferred layout can be seen at The Sample Page Example
which can be accessed from the IN-BOX DIRECT SAMPLE PAGE GUIDELINES page at
HTTP://HOME.NETSCAPE.COM/ESCAPES/IBD/GUIDELINES.HTML.
7. On all pages, clicking on either the "Return to In-Box Direct" words or the
In-Box Direct GIF, must close the sample page window and bring the user back to
the In-Box Direct site.
o NOTE: This sample page window operation requires specific JavaScript. The
return button GIF and JavaScript are provided by Netscape. Refer to The Sample
Page Template (HTTP://HOME.NETSCAPE.COM/ESCAPES/IBD/SOURCE.TXT) which provides
the necessary HTML, GIF, and JavaScript.
8. The sample page may not contain any of the following: outside links, menu
bar, button bar, location entry field, scroll bars, or a resize handle.
9. Sample page must not exceed 25 kilobytes (this includes the HTML file and
all images).
10. Link color must change from blue to red after execution.
II. SERVICE STANDARDS/ONGOING PROVIDER RESPONSIBILITIES
You will make every reasonable effort to work with Netscape to provide the
highest quality service and experience for the end user.
4.
<PAGE> 42
A. HTML MAIL REQUIREMENTS
1. You are responsible for creating and producing a free HTML publication as
approved by the IBD Program Manager, and mailing all content directly to the
subscriber on a regular basis.
2. You must comply to the frequency standards you have established for yourself
and communicated to the subscriber in the description of the service, e.g., if
listed as a daily service in In-Box Direct, mailings must be sent out to
subscribers daily.
3. You must contact the subscribers within forty-eight hours of receiving
subscription information with either a Welcome Letter or an actual mailing.
4. You must contact the subscribers within twenty-four hours of receiving an
unsubscribe request with a written confirmation of the unsubscribe,
5. You must follow the instructions immediately below to insure that the mail
is properly displayed by Netscape Messenger or any other mail clients that read
HTML format mail.
o Include CONTENT-TYPE: TEXT/HTML as the header (first line) of the content to
be delivered. The header must be followed by one blank line.
6. To facilitate user filtering, the subject (header) field of each IBD email
sent by you must begin with a designated prefix (IBD). For example: IBD- People
Daily November 13.
This will enable IBD users to filter for IBD mail and to store such mail in a
separate email folder, thereby reducing the tendency to unsubscribe.
7. All IBD mailings must contain the following components:
o Unsubscribe functionality as defined in the Unsubscribe section in Section
II.c.
o IBD/ Netscape branding as defined in the branding section in Section III.
o IBD indicator in subject field as described above.
8. You must make every reasonable effort to facilitate the collection of user
feedback relative to your service. A hot button or an email address such as,
[email protected], must be included on all IBD mailings. Note: Customer feedback
must only be collected if you have the resources to support it.
B. DATABASE / LIST SERVER REQUIREMENTS
1. You are responsible for setting up and managing your own subscriber
database and mailing list from the data provided by Netscape.
2. Your system must be able to receive and process data sent from Netscape
once a day, 7 days a week, between 2:30 a.m. to 6:30 a.m. PST.
o Netscape provides, on a daily basis, a data feed which contains information
to CREATE new subscriptions, DELETE unsubscribes and UPDATE (changes to)
subscriptions. Your system must be able to recognize status codes (e.g., create,
update, delete), and process the record accordingly. Updates must be processed
within twenty-four hours of receipt.
5.
<PAGE> 43
o Data is always transmitted on the morning after it is collected. For
example, if today is 12/24/97, the daily feed received by 4 a.m. today, is
12/23/97's registration information. Thus, the subject field will read "IBD
Registration for 12/23/97".
3. You must structure your subscription fulfillment processes such that
duplicate email addresses are automatically caught to prevent subscribers from
receiving multiple copies of a mailing. Duplicates in the name field must be
allowed, because individuals may have the same name or individuals may choose to
subscribe from multiple email addresses, that is, office and personal email
addresses.
4. Your list servers must be configured so that subscribers on the list CANNOT
send to the list. Only you should be able to 1) send to the list, and 2) view
the members of the list.
5. You must also ensure that the reply-to and from fields in the email from
the list server point to appropriate email addresses. For example, the reply-to
might be directed to an alias for whoever is maintaining the list, so that the
maintainer of the list can respond to any queries.
6. Ideally, the list server should send one email out at a time
(personalized). If not, it must load multiple subscriber names into the BCC
field (blind carbon copy), NOT the TO or CC fields.
7. You must build a mechanism to monitor that a daily data feed from Netscape
was received. You must notify Netscape immediately if there are any problems
with the data feed. (Currently, problems can be sent to [email protected] with
a copy to [email protected]).
8. You should use a database with send mail capability or a listserve product
to distribute your HTML email. See below for a list of products, outsources, and
prices to find out more information.
o Majordomo - (freeware) at http://www.greatcircle.com/majordomo
o Listserv: http://www.lsoft.com
o UNIX send mail command
o Email Publishing, Inc. is an email broadcasting outsourcing service which
has assisted several IBD providers in the past. Email Publishing can set up and
manage the database, develop the sample page, and even create templates for
ongoing HTML mailings. If interested, contact Andrew Currie, at (303) 440-7550
or [email protected]. For a special rate, you must identify yourself as an
In-Box Direct participant.
o The names of several Internet service providers that manage mailing lists
are posted at http://www.catalog.com/vivian/mailing-list-providers.html
C. "UNSUBSCRIBE" REQUIREMENTS
1. You must support three forms of unsubscribe functionality in every outbound
mailing including the Welcome Letter, with the exception of the unsubscribe
confirmation notice. The first two options must be clearly visible in the HTML
content and communicated to the end user. The last of these options must only be
visible to ASCII users and not HTML readers.
o Option 1: Unsubscribe functionality from the outbound mailing directly to
the you.
6.
<PAGE> 44
o Option 2: A link to In-Box Direct along with an explanation of how the user
can unsubscribe by unchecking the box next to the service offering on the
selections page in In-Box Direct. (Note that this link must be separate from the
IBD branding link.)
o Option 3: Instructions for ASCII users regarding how to unsubscribe if they
have signed up for this mailing in error. The instruction message must be placed
after the /Body with open and close angle brackets and prior to close /HTML
with open and close angle brackets.
2. You must act on the Unsubscribe information received from the IBD data
feed, IBD customer service, or directly from your site, by discontinuing the
service to the subscriber, within twenty-four hours of receipt of such request.
3. Below is the wording that must appear at the bottom of each outbound
mailing:
/Body within open and close angle brackets
<!--
*******************************************************************************
If you've received this message in error or wish to cancel your subscription to
this service, you can either return to Netscape's In-Box Direct page and
`uncheck' the box next to <your service name> or you can <insert process for
unsubscribing directly with the content provider> . A cancellation confirmation
notice will follow.
*******************************************************************************
- -->
HTML within open and close angle brackets.
4. You must ask the users to provide their IBD email addresses in option 1.
The correct IBD email address is not always apparent since many users have
multiple addresses, forwarding, company extensions, etc. If you attempt to use
an incorrect email address, the user's request will not be completed and user
satisfaction will suffer.
5. Subscribers must not be required to remember a special username and a
password in order to cancel their subscription. User email address or actual
name should suffice.
6. You must send a Goodbye/Unsubscribe Message to all IBD users who
unsubscribe from your service. This Goodbye/Unsubscribe Message must be sent to
users who unsubscribe directly from the mailing, users who unsubscribe through
In-Box Direct, and users who unsubscribe by sending a special request to IBD
feedback (handled by IBD customer service).
7. You must send this Goodbye/Unsubscribe Message, within twenty-four hours of
receiving notification from the subscriber or Netscape.
8. You will make reasonable efforts to work with Netscape to improve
continually the unsubscribe process/functionality. You must promptly comply with
any new unsubscribe methodology developed by Netscape.
D. PAID SUBSCRIPTION REQUIREMENTS
1. If you wish to offer subscribers a more in-depth paid service related to
the same content as your free service, you may do so provided that you extend
the offer in the regular free mailing, and you make it clear that the subscriber
can continue to receive the free mailing. You must also continue to provide
content which complies with the Participation Guidelines and has been approved
by the IBD Program Manager to subscribers at no charge.
7.
<PAGE> 45
2. You cannot ask for credit card information up front or solicit your paid
service by telephone or email unless requested by subscriber.
III. BRANDING AND PROMOTIONS
You understand that the list below represents the minimum marketing requirements
with which you must comply. You will make every reasonable effort to work with
Netscape to carryout marketing efforts beyond those listed below to develop and
implement programs which promote your service as well as the In-Box Direct
program as a whole.
1. You will display the Netscape Now and IBD logos (with a link to Netscape's
Home page and IBD page) on your home pages. If the Internet Explorer logo is
displayed in your content, the Netscape logo must be displayed with at least
equal prominence. The logos must be in place the day your content is pushed to
the IBD site.
o The IBD logo can be obtained from:
HTTP://HOME.NETSCAPE.COM/ESCAPES/IBD/IMAGES/IBD_LOGO.GIF
o The IBD logo must link to HTTP://FORM.NETSCAPE.COM/IBD/CGI-BIN/IBD-X.CGI
o The Netscape Now logo can be obtained from the home page of the country
that is most relevant to you. The Netscape Now logo must link to the Netscape
home page of the country that is most relevant to you.
2. You must display the IBD Logo (with a link to Netscape's Home page and IBD
page) on every outbound mailing to In-Box Direct subscribers. In the event that
the IBD logo is updated, you must substitute the new GIF within thirty days of
notification. The IBD Program Manager shall receive a sample of your outbound
mailings containing the IBD and Netscape Now logos. The IBD Program Manager
should receive such sample either prior to or at the same time that the mailing
is sent to IBD subscribers.
o Until the new IBD logo is developed, you must display the mailbox GIF with
the words "To subscribe to other quality publications like this, please go to
Netscape's In-Box Direct page" (with a link to In-Box Direct -
HTTP://FORM.NETSCAPE.COM/IBD/CGI-BIN/IBD-X.CGI).
o You must not alter the GIF or text as provided by Netscape.
3. You must place the following tag line at the bottom of each mailing to
In-Box Direct subscribers: "This mailing is best viewed through Netscape
Communicator".
4. You must send a mailing to your current user-base (or include a feature in
a current mailing) advising your subscribers of your participation in In-Box
Direct and encouraging such subscribers to visit the In-Box Direct website. This
must be done within one month of your signing this agreement. IBD Program
Manager must receive and approve a copy of promotional mailing sent to your
current user base announcing your participation in the In-Box Direct program and
encouraging subscribers to visit the IBD web site. This copy must be provided at
least one week prior to the day of the mailing.
5. During the duration of this Agreement, on your primary Web site you shall
provide a minimum of two days of page impressions per month for a co-branded
banner supporting your service as well as In-Box Direct as a whole. The IBD
Program Manager must be given a schedule of when the page impressions will be on
your site no later than two weeks after signing the agreement. If you do not
offer
8.
<PAGE> 46
paid commercial advertising on your site, you must work with the IBD program
manager to design and implement a program of equivalent value.
o Netscape shall provide a template for the banner.
o You can choose to use a non co-branded Netscape In-Box Direct banner if this
is preferable.
6. During the duration of your participation in the In-Box Direct program, if
you offer the same HTML mailing as offered to In-Box Direct subscribers directly
to users on their Web site, you must include a permanent IBD link or include the
IBD half banner in a minimum of twelve of those mailings. The IBD Program
Manager must be given a schedule of your IBD promotional mailings to your HTML
service subscribers not referred by IBD no later than two weeks after signing
the agreement.
IV. FEEDBACK
1. You should make reasonable efforts to provide Netscape with ideas for
improving the In-Box Direct program including identifying any user/provider
issues that come to your attention. Comments should be sent to
[email protected]
2. You should actively participate in surveys, discussion groups, or ongoing
continuing improvement activities pertaining to In-Box Direct.
3. You should share any tips, tools, best practices developed for IBD with
Netscape and other IBD participants to improve the usefulness and effectiveness
of the In-Box Direct program.
4. You should facilitate the collection of any user feedback relative to your
service. A hot button or an email address such as [email protected] should be
included on all IBD mailings. Note: Customer feedback should only be collected
if you have the resources to support it.
5. Any trends, or issues with the overall IBD program should be forwarded to
the IBD Program Manager at [email protected]. Please include any
proposed solutions as well.
6. You have an obligation to notify Netscape of any changes in your In-Box
Direct technical or business contacts as well as company information within five
working days of the change. All changes must be sent to
[email protected] with "New Contact/Company Information" in the
headline.
9.
<PAGE> 47
NETSCAPE IN-BOX DIRECT
PROGRAM TERMS & CONDITIONS
("AGREEMENT")
Upon acceptance by Netscape, this Agreement and the program guidelines
("Guidelines") for the Netscape In-Box Direct Program ("Program") shall govern
your participation in the then-current Program. You understand and agree that
Netscape reserves the right to modify terms, conditions, and policies of the
Program and Guidelines at any time.
1. You have read and agree to provide a service to be included in the Program
which service meets the conditions stated herein and in the Guidelines. You
understand that Netscape, in its sole discretion, may determine whether to
include, or to continue including you, as a participant in the Program.
2. Netscape may, free of charge, use your company's name, trademarks, logos,
description of service, and sample pages in connection with the Program
including after termination of the Program in conjunction with end user
unsubscribing from the program. If you reasonably object to any use of your
intellectual property, you shall notify Netscape, and Netscape will use
commercially reasonable efforts to suspend such use as soon as practicable.
3. Information about the In-Box Direct subscribers, including but not limited
to name and contact information, provided by Netscape to you at any time
("Subscriber Information") is confidential information, as defined below.
Subscriber Information may only be used for the purposes and according to the
terms and conditions contained herein, and subject to Netscape's policy with
respect to personal data as set forth at
http://home.netscape.com/netcenter/privacy.html or such other URL as Netscape
may specify from time to time. You specifically agree not to:
a. sell, rent, give away, share or otherwise disclose to any third party any
Subscriber Information;
b. send advertisements or other promotional mailings, separate and apart from
the content sent pursuant to the In-Box Direct terms and conditions contained
herein, to any In-Box Direct subscriber unless explicitly and positively
requested by such subscriber and, if requested, only on topic(s) requested by
such subscriber;
c. send mailings beyond the scope of the subjects disclosed in your
description of service or sample pages at the In-Box Direct site;
d. contact any In-Box Direct subscriber in any manner, other than via
electronic mail pursuant to the terms and conditions contained herein, unless
explicitly and positively requested by such subscriber; and
e. send to In-Box Direct subscribers, or target or solicit In-Box Direct
subscribers with, any mailings containing content that may be harmful to
Netscape, including but not limited to any advertisement, link, banner,
promotional piece, or endorsement of third party products and/or services
directly competitive with Netscape's software products and on-line services or
companies which produce any such products and/or services, and any message to
the effect that the content sent to subscriber may best be viewed on such third
party's product(s). The foregoing prohibitions in this Section 3.e are not
intended to restrict in any way: (i) the advertisements contained in any
material which subscribers can view by following one link in the mailings sent
by you; or (ii) the endorsements made by you of such third party's product(s)
which subscribers can view by following two or more links from the mailings sent
by you; provided, however, that such advertisements and endorsements are
included in content sent to all your subscribers; (iii) editorial reviews of
products and services; and (iv) promotions for third party
10.
<PAGE> 48
products and/or services which are not competitive with Netscape's software
products and on-line services.
4. You acknowledge that Netscape is not currently charging you a fee to
participate in the In-Box Direct program, but that Netscape reserves the right
to do so at any time in the future.
5. You understand that your participation in the Program begins on the date
Netscape notifies you of your acceptance into the program and continues for a
period of one (1) year unless earlier discontinued or terminated as specified
below, and is automatically renewed for a period of one (1) year unless either
party provides the other party with thirty (30) days prior written notice.
Without limiting the foregoing, you understand that either you or Netscape may
terminate your participation in the Program for convenience at any time upon
thirty (30) days prior written notice. In the event of breach, the non-breaching
party may terminate its participation upon one (1) week prior written notice to
the breaching party, unless the breaching party has remedied all breaches within
such week. Upon termination of your participation in the In-Box Direct program
by you or Netscape for any reason, you may continue using the Subscriber
Information, provided that you:
a. comply with the terms and conditions of Sections 3, 7, 8, 9 and 10 herein
for a period of five (5) years following such termination,
b. continue offering subscribers the ability to unsubscribe according to the
requirements outlined in the Program Guidelines and responding promptly to
cancellation requests made by subscribers directly to you, or to Netscape and
forwarded to you by Netscape, and
c. either destroy and/or return to Netscape within five (5) days any and all
Netscape Confidential Information, excluding any Subscriber Information, in your
possession or control.
6. You acknowledge that Netscape has the right to change the format,
guidelines, and terms and conditions of participation in the Program or to
discontinue the Program at any time by notifying you by electronic mail of such
changes at least thirty (30) days before such changes become effective. You
understand that you have thirty (30) days to notify Netscape in writing of your
acceptance or rejection of such modifications and your intent to continue
participating in the program under the new format, guidelines or terms and
conditions. If Netscape receives no written response within such thirty (30)
days, you acknowledge that you will be deemed to have accepted the new format,
guidelines and/or terms and conditions of participation and must comply with the
same.
7. You understand that you are solely responsible for any legal liability
arising out of the material sent by you to the Netscape In-Box Direct
subscribers. You represent and warrant that you hold, and will continue to hold,
the necessary rights to permit the use of the material submitted by you for
receipt by the In-Box Direct subscribers and that the permitted use, display,
performance, reproduction, distribution, publication, or transmission of the
material will not violate any criminal laws, any rights of any third parties or
any local, state, national or international laws. You agree to indemnify and
hold harmless Netscape from any and all liability, loss, damages, claims, or
causes of action, including reasonable legal fees and expenses that may be
incurred by Netscape, arising out of or relating to the mailings sent by you or
your breach of any of the foregoing representations and warranties.
8. "Netscape Confidential Information" means any and all Subscriber
Information, the financial arrangements described in Section 4 above, any and
all disclosures marked by Netscape as "CONFIDENTIAL" or "PROPRIETARY" or which
you know or should have reason to know are confidential or proprietary, and the
terms and conditions contained herein. You agree to: (a) maintain the
confidentiality and secrecy of the Netscape Confidential Information, and to
cause your employees and
11.
<PAGE> 49
agents to maintain the confidentiality and secrecy of such Netscape Confidential
Information; and (b) disclose such Netscape Confidential Information only to
your employees and agents with a need to know for the purposes herein and who
are bound by written agreement to keep such information confidential. You
acknowledge that the unauthorized disclosure or use of Netscape Confidential
Information will cause irreparable harm and significant injury to Netscape that
may be difficult to ascertain. Accordingly, you agree that Netscape will have
the right to seek immediate injunctive relief in addition to any other rights
and remedies Netscape may have.
9. WARRANTY. ANY AND ALL INFORMATION AND SERVICE PROVIDED BY EITHER PARTY
UNDER THESE TERMS AND CONDITIONS, INCLUDING THE SUBSCRIBER INFORMATION AND
NETSCAPE CONFIDENTIAL INFORMATION, IS PROVIDED "AS IS" AND WITHOUT WARRANTY OF
ANY KIND INCLUDING MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
10. OTHER TERMS AND CONDITIONS. (a) IN NO EVENT SHALL NETSCAPE BE LIABLE FOR
DIRECT, INCIDENTAL, CONSEQUENTIAL, INDIRECT, OR SPECIAL DAMAGES OF ANY NATURE,
INCLUDING, WITHOUT LIMITATION, LOST BUSINESS PROFITS UNDER THIS AGREEMENT. (b)
This Agreement shall be governed by the laws of the State of California, USA,
without reference to its conflicts of law provisions. (c) Unless otherwise
agreed in writing, all disputes relating to this Agreement (excepting any
dispute relating to intellectual property rights) shall be subject to final and
binding arbitration in Santa Clara County, California, under the auspices of
JAMS/EndDispute, with the losing party paying all costs of arbitration. The
arbitration proceedings and all pleadings and written evidence shall be in
English. Any materials originally in another language shall be submitted with an
English translation. The parties waive any right to appeal under the law of the
forum of the arbitration. (d) This Agreement together with the then-current
Program Guidelines is the entire agreement between you and Netscape relating to
the Program. Any different or additional terms and conditions in any other
document are hereby expressly rejected by Netscape and shall have no force or
effect. (e) The parties hereto confirm that this Agreement and all related
documents shall be in English. (French translation: Les parties aux presentes
confirment leur volonte que cette convention de meme que tous les documents y
compris tout avis qui s'y rattache, soient rediges en langue anglaise.) (f)
Sections 3, 7, 8, 9 and 10 shall survive beyond your participation in the
Program.
Do you agree to the Program Terms and Conditions?
( ) I have read and agree to the Program Terms and Conditions.
( ) I DO NOT agree to the Program Terms and Conditions.
Name:
---------------------------------------------
On behalf of (Company Name):
----------------------
submit application clear application
12.
<PAGE> 50
ADDENDUM NO. 1 TO
NETCENTER SERVICES AGREEMENT
NO: 004241
This Addendum No. 1 (the "Addendum") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
USA.NET, Inc., a Delaware corporation located at 1155 Kelly Johnson Boulevard,
Suite 400, Colorado Springs, CO 80920 ("Participant") and is effective as of the
date of execution by Netscape ("Effective Date").
WHEREAS, the parties have entered into the Netcenter Services Agreement
effective April 17, 1998 (the "Agreement"); and
WHEREAS, the parties desire to implement a similar Service on certain of
Netscape's international websites by supplementing and modifying the provisions
of the Agreement for purposes of this Addendum.
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. Description of Service. The Description of Service, for purposes of
this Addendum, shall include both the Basic Features and Advanced
Features, as well as the following list of Premium Services: forward to
e-mail, extra storage, tagline suppression, virus scanning, email
language translation, greeting cards, POP3, IMAP4 server and ad
suppression. Additional Premium Services may be added by mutual written
agreement of the parties.
2. Territory. For purposes of this Addendum, the Territory shall be the
world, excluding North America and Latin America (which are covered in
the Agreement). Netscape shall notify Participant at least 90 days
prior to the scheduled launch of a localized version of Netcenter in a
new market in the Territory. Participant may choose not to provide the
Service for any markets in the world for which Netscape develops a
localized version of Netcenter by notifying Netscape within 10 calendar
days of receipt of such notice from Netscape. In the event that
Participant fails to respond or chooses not to provide the Service for
such new market, then Netscape may enter into a separate agreement with
a
<PAGE> 51
third party provider to provide the Service in such new market.
Participant hereby agrees that it will launch the Service in [
**
]
3. Local Languages. Local Languages, for purposes of this Addendum, shall
include [
** ]
4. Service Period. The Service Period shall be 2 years from the Phase I
Launch Date.
5. Launch Schedule. Participant shall provide the Service for launch in
the Territory according to the following schedule:
<TABLE>
<CAPTION>
------------------------ ----------------------------------------- ---------------------------------------
PHASE: TERRITORIES: LAUNCH DATE:
------------------------ ----------------------------------------- ---------------------------------------
<S> <C> <C>
Phase I [ ** ] [ ** ] from the Effective Date
------------------------ ----------------------------------------- ---------------------------------------
Phase II [ ** ] [ ** ] from the Effective Date
------------------------ ----------------------------------------- ---------------------------------------
Phase III [ ** ] [ ** ] from the Effective Date
------------------------ ----------------------------------------- ---------------------------------------
Phase IV [ ** ] [ ** ] from the Effective Date
------------------------ ----------------------------------------- ---------------------------------------
Phase V [ ** ] [ ** ] from the Effective Date
------------------------ ----------------------------------------- ---------------------------------------
</TABLE>
6. Project Planning Meeting. The parties agree to meet at Netscape's
offices in Mt. View, CA, on a mutually agreed upon date in the month of
November, 1998, in order to establish project, technology and strategy
guidelines for utilization by both Participant and Netscape during the
development, deployment, maintenance and support of the Service. A
formal written Project Plan ("Project Plan") will be generated by the
parties as a result of such planing meeting and the terms thereof shall
be deemed part of this Addendum.
6.1 The parties will specifically address the following 2 issues,
among others, at the project planning meeting:
(a) Addressing Scheme. The addressing scheme for the
Services will be mutually agreed upon by the parties.
(b) Registration Scheme. The registration scheme for the
Service will be determined by Netscape choosing one
of the following options: (i) the Netscape Universal
Registration scheme; (ii) the USA.NET standalone
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 52
registration; or (iii) a mutually agreed upon
registration scheme as may be determined by the
parties during the project planning meeting.
7. Netscape's Web Site. For purposes of this Addendum, the URL described
in the definition of Netscape Web Site in the Agreement shall be
replaced with the URL Netscape.com/xx
8. Localization. Participant will be responsible for the translation and
localization of the Service into the Local Languages in the Territory.
Participant may engage third parties to actually perform the
translation and localization services.
9. Quality and Timing. For purposes of this Addendum, if the Service does
not substantially meet expected quality or the Launch Date, Netscape
and Participant agree to meet (via conference call or face-to-face)
within 3 business days to resolve the issue. Both parties will make
best efforts to rectify the situation within 30 days. If the quality or
schedule problem is still not resolved within 30 days, Netscape
reserves the right to contract with a third party provider of the
Service.
10. Best of Breed.
10.1 For purposes of this Addendum, the following items shall be in
added to the Best-of-Breed Service description in Exhibit E of
the Agreement:
(a) Feature Releases. All International releases of
features and or production releases will lag no
longer than 45 days from the US releases unless
otherwise agreed to in writing by the parties.
(b) Latency. The latency of the Service for each language
will be [* *] seconds or less for [* *] of the page
views from anywhere within the primary country or
countries that such localized Service serves.
10.2 For purposes of this Addendum, Exhibit E is hereby amended so
that Participant shall only be required to provide telephone
support to end users if other competitive service providers
provide telephone support.
11. INTENTIONALLY OMITTED
12. Payment. For purposes of this Addendum, the Net Revenue generated by
the Service shall be split equally between Participant and Netscape.
13. Net Revenue. For purposes of this Addendum, the Definition of Net
Revenue shall be as follows:
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 53
DEFINITION OF "NET REVENUE." Net Revenue is defined as total gross
revenues, specifically excluding taxes, from the sum of:
(a) advertising and Sponsorships net
revenue (gross advertising revenues and/or Sponsorship fees less
reasonable fees and commissions, including but not limited to internal
commissions for buying and/or selling agencies, not to exceed [* *];
(b) Premium Services; and
(c) special one-time offers net revenue
(gross promotional revenues less reasonable fees and commissions,
including but not limited to internal commissions, not to exceed [* *];
and in the case of each of (a) though (c) above, less mutually agreed
deductions such as bad debt, returns, billing costs and/or cost of
sales, provided that the total combined deductions against such revenue
do not exceed [* *] thereof. If it appears that the deductions for the
items above may exceed the [* *] cap, Participant shall consult with
Netscape regarding which party should sell to the advertiser or sponsor
in question.
14. Payment Schedule:
<TABLE>
<CAPTION>
----------------------------------------------------------------- ----------------- --------------------------
FEES PAYMENT PAYMENT DUE DATE
AMOUNT
----------------------------------------------------------------- ----------------- --------------------------
<S> <C> <C>
[* *] [* *] [* *]
----------------------------------------------------------------- ----------------- --------------------------
[* *] [* *]
----------------------------------------------------------------- ----------------- --------------------------
----------------------------------------------------------------- ----------------- --------------------------
[* *] [* *]
----------------------------------------------------------------- ----------------- --------------------------
[* *] [* *]
----------------------------------------------------------------- ----------------- --------------------------
[* *] [* *]
----------------------------------------------------------------- ----------------- --------------------------
[* *] [* *]
----------------------------------------------------------------- ----------------- --------------------------
</TABLE>
The Advance Payments Against Future Net Revenues will be credited
against the revenue sharing set forth in paragraph 12 above.
15. Capitalized terms defined in the Agreement shall have the same meaning
in this Addendum as in the Agreement. The modifications and additions
set forth in this Addendum shall apply only to the Territory defined in
the Addendum and do not affect the Territory defined in the Agreement.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 54
16. Except as explicitly modified in this Addendum, all terms, conditions
and provisions of the Agreement shall continue in full force and effect
for purposes of this Addendum.
17. In the event of any inconsistency or conflict between the Agreement and
this Addendum, the terms, conditions and provisions of this Addendum
shall govern and control for purposes of this Addendum only.
18. This Addendum and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter
are superseded by the Agreement and this Addendum.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed
by their duly authorized representatives, effective as of the Effective Date.
NETSCAPE COMMUNICATIONS USA.NET, Inc.
CORPORATION
By: /s/ NOREEN BERGIN By: /s/ DANIEL M. WINOKUR
------------------------------ --------------------------------
Signature Signature
Name: Noreen Bergin Name: Daniel M. Winokur
---------------------------- -------------------------------
Print or Type Print or Type
Title: SVP Finance Title: VP, Business Development
--------------------------- -------------------------------
Date: 11/2/98 Date: October 31, 1998
---------------------------- -------------------------------
<PAGE> 55
AMENDMENT NO. 1 TO
NETCENTER SERVICES AGREEMENT
NO: 004241
This Amendment No. 1 (the "Amendment") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
USA.NET, Inc., a Delaware corporation, with offices at 1155 Kelly Johnson
Boulevard, Suite 400, Colorado Springs, CO 80920 ("Licensee") and is effective
as of the date of execution by Netscape ("Effective Date").
WHEREAS, the parties have entered into a Netcenter Services Agreement effective
April 17, 1998 (the "Agreement"); and
WHEREAS, the parties wish to modify and supplement the provisions of such
Agreement;
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. Local Languages. The Local Languages shall be modified such that
Spanish shall be changed to Mexican Spanish.
2. Territory. The Territory shall be modified such that Mexico shall be
changed to Latin America.
3. Launch Schedule. Participant shall provide the Service for launch in
the Territory according to the following schedule:
<TABLE>
<CAPTION>
--------------------------- ----------------------------------
TERRITORIES: LAUNCH DATE:
--------------------------- ----------------------------------
<S> <C>
[ ** ] [ ** ] from the Effective Date
--------------------------- ----------------------------------
[ ** ] [ ** ] from the Effective Date
--------------------------- ----------------------------------
</TABLE>
In the event that Netscape develops a new Netcenter site that is
intended to service any countries in Latin America other than Mexico,
then those countries shall be covered for all purposes by Addendum No.
1 to Netcenter Services Agreement between Netscape and Participant of
even date herewith.
4. Capitalized terms defined in the Agreement shall have the same meaning
in this Amendment as in the Agreement.
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
1
<PAGE> 56
5. Except as explicitly modified, all terms, conditions and provisions of
the Agreement shall continue in full force and effect.
6. In the event of any inconsistency or conflict between the Agreement and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
7. This Amendment and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter
are superseded by the Agreement and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized representatives, effective as of the Effective Date.
NETSCAPE COMMUNICATIONS USA.NET, Inc.
CORPORATION
By: /s/ NOREEN BERGIN By: /s/ DANIEL M. WINOKUR
------------------------------- -------------------------------
Signature Signature
Name: Noreen Bergin Name: Daniel M. Winokur
----------------------------- -----------------------------
Print or Type Print or Type
Title: SVP Finance Title: VP, Business Development
---------------------------- ----------------------------
Date: 11/2/98 Date: October 31, 1998
----------------------------- -----------------------------
2
<PAGE> 57
AMENDMENT NO. 1 TO
NETCENTER SERVICES AGREEMENT
ADDENDUM NO. 1
NO: 004241
This Amendment No. 1 (the "Amendment") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
USA.NET, Inc., a Delaware corporation, with offices at 1155 Kelly Johnson
Boulevard, Suite 400, Colorado Springs, Colorado 80920 ("Licensee") and is
effective as of the date of execution by Netscape ("Effective Date").
WHEREAS, the parties have entered into Addendum No. 1 to the Netcenter Services
Agreement effective October 31, 1998 (the "Addendum"); and
WHEREAS, the parties wish to modify and supplement the provisions of such
Addendum;
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. Advance Payments Against Future Net Revenues. Section 14 of the
Addendum shall be modified such that the February 1, 1999 payment due
date for advanced payments against future Net Revenues is changed to
February 1, 2000.
2. Capitalized terms defined in the Addendum shall have the same meaning
in this Amendment as in the Addendum.
3. Except as explicitly modified, all terms, conditions and provisions of
the Addendum shall continue in full force and effect.
4. In the event of any inconsistency or conflict between the Addendum and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
5. This Amendment and the Addendum constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter
are superseded by the Addendum and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized representatives, effective as of the Effective Date.
NETSCAPE COMMUNICATIONS USA.NET, Inc.
CORPORATION
By: /s/ NOREEN G. BERGIN By: /s/ DANIEL M. WINOKUR
---------------------------------- --------------------------------
Signature Signature
Name: Noreen G. Bergin Name: Daniel M. Winokur
-------------------------------- ------------------------------
Print or Type Print or Type
Title: Senior Vice President, Finance Title: VP, Business Development
------------------------------- -----------------------------
& Corporate Controller
-------------------------------
Date: November 10, 1998 Date: November 2, 1998
------------------------------- ------------------------------
1
<PAGE> 58
AMENDMENT NO. 2 TO
NETCENTER SERVICES AGREEMENT
NO: 004241-3
This Amendment No. 2 (the "Amendment") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
USA.NET, Inc., a Delaware corporation, with offices at 1155 Kelly Johnson
Boulevard, Suite 400, Colorado Springs, Colorado 80920 ("Licensee") and is
effective as of the date of execution by Netscape ("Effective Date").
WHEREAS, the parties have entered into a Netcenter Services Agreement effective
April 17, 1998, as amended October 31, 1998 (the "Agreement"); and
WHEREAS, the parties wish to modify and supplement the provisions of such
Agreement;
NOW, THEREFORE, the parties, in consideration of the terms and conditions
herein, agree as follows:
1. Service Period. The Service Period for the Territories of [ ** ] and
[ ** ] shall be [ ** ] from the [ ** ] Launch Date.
2. Capitalized terms defined in the Agreement shall have the same meaning
in this Amendment as in the Agreement.
3. Except as explicitly modified, all terms, conditions and provisions of
the Agreement shall continue in full force and effect.
4. In the event of any inconsistency or conflict between the Agreement and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
5. This Amendment and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter
are superseded by the Agreement and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized representatives, effective as of the Effective Date.
NETSCAPE COMMUNICATIONS USA.NET, Inc.
CORPORATION
By: /s/ NOREEN G. BORGIN By: /s/ DANIEL M. WINOKUR
--------------------------------- --------------------------------
Signature Signature
Name: Noreen G. Borgin Name: Daniel M. Winokur
------------------------------- ------------------------------
Print or Type Print or Type
Senior Vice President,
Finance & Corporate
Title: Controller Title: VP, Business Development
------------------------------ -----------------------------
Date: 11/10/98 Date: November 2, 1998
------------------------------ ------------------------------
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 1
** CERTAIN CONFIDENTIAL
MATERIAL CONTAINED IN THIS
DOCUMENT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE
406 OF THE SECURITIES ACT OF
1933, AS AMENDED.
EXHIBIT 10.13A
WEBSITE ADVERTISING AGREEMENT
THIS WEBSITE ADVERTISING AGREEMENT (the "AGREEMENT") is made as of March
31, 1999, by and between USA.NET, Inc., a Delaware corporation ("WEB HOST"), and
Egghead.com, a Washington corporation ("ADVERTISER"), for the purpose of
providing Advertiser with advertising space on Web Host's Net@ddress website
(the "WEBSITE"). In the event that an advertising agent is executing this
Agreement on behalf of Advertiser, such party executing this Agreement as an
agent shall be jointly and severally responsible for all amounts owed hereunder.
1. DELIVERY OF AD.
Advertiser will be solely responsible for, and will deliver to Web Host,
Advertiser's content for display on the Website (each delivery is an "AD"). The
Ad will be displayed on the Website and will be an active hypertext link. Web
Host may, in its sole discretion, refuse to display an Ad or may remove an Ad
or accompanying hypertext link as it deems. All ads must meet the Technical
Specifications outlined in Exhibit A.
2. FEES; IMPRESSIONS.
2.1 FEE AND IMPRESSION SCHEDULE. Advertiser shall pay Web Host advertising
fees, and Web Host shall use commercially reasonable efforts to deliver banner
impressions, button impressions, logout page transfers and inbox direct
signups, according to the following monthly schedule (the "Schedule"):
<TABLE>
<CAPTION>
BANNER BUTTON EMAILS MARKETPLACE LOGOUT LOGOUT TOTAL COST
IMPRESSIONS IMPRESSIONS MARKETPLACE
- ----------- --------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
[ ** ] [ ** ] [ ** ] [ ** ] [ ** ] [ ** ] $ [ ** ]
- ----------- --------------- --------------- --------------- --------------- --------------- ---------------
</TABLE>
2.2 PAYMENT; TAXES. Advertiser shall pay the advertising fees set forth in
the Schedule within thirty (30) days after receipt of the invoice. Such fees
are exclusive of, and Advertiser shall pay, all sales, use, excise and other
taxes which may be levied upon either party in connection with this Agreement
or on activities occurring on the Website, except for taxes based on Web Host's
net income.
2.3 IMPRESSION DELIVERY. In the event Web Host delivers fewer banner
impressions, button impressions, logout page transfers or inbox direct signups
during any month than is required in the Schedule, Web Host shall deliver, in
the subsequent month, in addition to the number of banner impressions, button
impressions, logout page transfers and inbox direct signups specified in the
Schedule for such subsequent month, the number of banner impressions, button
impressions, logout page transfers and inbox direct signups by which it fell
short during the previous month (the "ADDITIONAL IMPRESSIONS"). If Web Host
fails to deliver the Additional Impressions during such subsequent month, then
the advertising fee due for such subsequent month shall be decreased
proportionately.
3. REPORTS.
Within fifteen (15) days following the end of each calendar month, Web
Host shall invoice Advertiser for the fees due for such month. Each invoice
will be accompanied by a report detailing the number of (i) banner impressions,
(ii) button impressions, (iii) logout page transfers and (iv) inbox direct
signups received for each Ad during such month (each a "REPORT"). Advertiser
acknowledges and agrees that information in any such Report will represent
historical data only, and will not be a guarantee of the number of banner
impressions, button impressions, logout page transfers or inbox direct signups
that will be received by Advertiser in the future.
4. LICENSE.
4.1 AD LICENSE. For the term of this Agreement, Advertiser hereby grants
to Web Host a non-exclusive, royalty-free, worldwide license to reproduce,
distribute, create derivative works of, publicly perform, publicly display and
digitally perform the Ad on or in conjunction with the Website. Web Host may
make a reasonable number of archival or back-up copies of the Ad. Title to and
ownership of all intellectual property rights of the Ad shall remain with
Advertiser or its third party licensors.
4.2 TRADEMARKS. Neither party may use the other party's trademarks,
service marks, trade names, logos, or other commercial or product designations
(collectively, "MARKS") for any purpose whatsoever without the prior written
consent of the other party. Notwithstanding the foregoing, Advertiser hereby
grants to Web Host a non-exclusive, nontransferable, royalty-free, worldwide
license to use Advertiser's Marks on the Website for the purposes of marketing,
promotion, and content directories or indexes, and in electronic or printed
advertising, publicity, press releases, newsletters and mailings about the
Website or Web Host.
5. ADVERTISER REPRESENTATION AND WARRANTIES.
Advertiser is solely responsible for any legal liability arising out of or
relating to the Ad and any material to which users can link through the Ad.
Advertiser represents and warrants that no Ad will: (a) infringe on any third
party's copyright, patent, trademark, trade secret
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
1
<PAGE> 2
or other proprietary rights or right of publicity or privacy; (b) violate any
law, statute, ordinance or regulation, including without limitation the laws
and regulations governing export control; (c) be defamatory or trade libelous;
(d) be pornographic or obscene; (e) violate any laws regarding unfair
competition, antidiscrimination or false advertising, or (e) contain viruses,
trojan horses, worms, time bombs, cancelbots or other similar harmful or
deleterious programming routines. Advertiser agrees to defend, indemnify and
hold harmless Web Host and its directors, officers, agents and employees for
any and all losses, costs, liabilities or expenses (including without
limitation reasonable attorneys' and expert witnesses' fees) incurred or
arising from (a) any breach of the foregoing representations and warranties,
(b) any claim arising from the sale or license of Advertiser's goods or
services, or (c) any other act, omission or misrepresentation by Advertiser.
Web Host may participate in the defense at its expense.
6. DISCLAIMER OF WARRANTIES.
Web Host provides the Website and all services performed hereunder "AS IS"
and without any warranty of any kind. Web Host does not guarantee continuous or
uninterrupted display or distribution of the Ad. In the event of interruption
of display or distribution of the Ad, Web Host's sole obligation shall be to
restore service as soon as reasonably possible.
7. LIMITATIONS ON LIABILITY.
IN NO EVENT SHALL WEB HOST BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL
OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO SUCH DAMAGES ARISING
FROM BREACH OF CONTRACT OR WARRANTY OR FROM NEGLIGENCE OR STRICT LIABILITY), OR
FOR INTERRUPTED COMMUNICATIONS, LOSS OF USE, LOST BUSINESS, LOST DATA OR LOST
PROFITS, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. UNDER NO
CIRCUMSTANCES SHALL WEB HOST BE LIABLE TO ADVERTISER OR ANY THIRD PARTIES FOR
AN AMOUNT GREATER THAN THE AMOUNTS RECEIVED FOR THE SPECIFIC AD GIVING RISE TO
LIABILITY.
8. TERM AND TERMINATION.
The term of this Agreement shall commence on April 1, 1999 and shall
continue for a period of twelve (12) months thereafter (the "TERM"); provided,
however, that in the event Web Host fails to deliver the number of banner
impressions, button impressions, logout page transfers or inbox direct signups
during March 2000 specified in the Schedule, Web Host shall have thirty (30)
days after the end of the Term to deliver the required Additional Impressions.
Either party may terminate this Agreement upon [ ** ] written notice,
with or without cause. Additionally, Web Host may, by providing written notice,
terminate this Agreement immediately if the monthly fees are not paid when due.
Sections 5, 6, 7, 8, 9, 10 and 11, and any obligations of any advertising
agent, shall survive termination of this Agreement.
9. GOVERNING LAW.
This Agreement will be governed and construed in accordance with the laws
of the State of Washington without giving effect to principles of conflict of
laws.
10. ENTIRE AGREEMENT.
This Agreement, including Exhibit A attached hereto, sets forth the entire
understanding and agreement of the parties and supersedes any and all oral or
written agreements or understandings between the parties as to the subject
matter of this Agreement. This Agreement may be modified only by a writing
signed by both parties.
11. GENERAL.
If any provision of this Agreement is held to be invalid or unenforceable
for any reason, the remaining provisions will continue in full force without
being impaired or invalidated in any way. This Agreement may not be assigned by
Advertiser without Web Host's prior written consent and any such attempted
assignment shall be void and of no effect. The parties' rights and obligations
will bind and inure to the benefit of their respective successors, heirs,
executors and administrators and permitted assigns. Web Host may subcontract
all or a portion of its responsibilities hereunder. The parties to this
Agreement are independent contractors, and no agency, partnership, joint
venture or employee-employer relationship is intended or created by this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
WEB HOST: ADVERTISER:
By: /s/ STEVEN A. SUSLOW By: /s/ JON BRODEUR
------------------------------------ -----------------------------------
Title: Vice President of Media Sales Title: Chief Marketing Officer
--------------------------------- --------------------------------
Address: 1155 Kelly Johnson Blvd., #400 Address: 521 SE Chaklor Drive
------------------------------- ------------------------------
Colorado Springs, CO 80920 Vancouver, WA 98683
------------------------------- ------------------------------
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
2
<PAGE> 3
EXHIBIT A
TECHNICAL SPECIFICATIONS
<TABLE>
<S> <C>
Run of Site Banner Ad Rotation: 468 x 60, 15k maximum file size
Button Ad Placement on Navigation Bar: 100 x 110, 10k maximum file size
Log-out Screen Jump page Placement: [ ** ]
Opt-In Email Program: [ ** ]
</TABLE>
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
i
<PAGE> 4
WEBSITE ADVERTISING AGREEMENT
THIS WEBSITE ADVERTISING AGREEMENT (the "AGREEMENT") is made as of
March 31, 1999, by and between USA.NET, Inc., a Delaware corporation ("WEB
HOST"), and Egghead.com, a Washington corporation ("ADVERTISER"), for the
purpose of providing Advertiser with advertising space on Web Host's Netscape
WebMail website (the "WEBSITE"). In the event that an advertising agent is
executing this Agreement on behalf of Advertiser, such party executing this
Agreement as an agent shall be jointly and severally responsible for all amounts
owed hereunder.
1. DELIVERY OF AD.
Advertiser will be solely responsible for, and will deliver to Web
Host, Advertiser's content for display on the Website (each delivery is an
"AD"). The Ad will be displayed on the Website and will be an active hypertext
link. Web Host may, in its sole discretion, refuse to display an Ad or may
remove an Ad or accompanying hypertext link as it deems. All ads must meet the
Technical Specifications outlined in Exhibit A.
2. FEES; IMPRESSIONS.
2.1 FEE AND IMPRESSION SCHEDULE. Advertiser shall pay Web Host
advertising fees, and Web Host shall use commercially reasonable efforts to
deliver banner impressions, button impressions, logout page transfers and inbox
direct signups, according to the following monthly schedule (the "SCHEDULE"):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
BANNER BUTTON EMAILS LOGOUT TOTAL COST
IMPRESSIONS IMPRESSIONS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[ ** ] [ ** ] [ ** ] [ ** ] $ [ ** ]
- ------------------------------------------------------------------------------------
</TABLE>
2.2 PAYMENT; TAXES. Advertiser shall pay the advertising fees set
forth in the Schedule within thirty (30) days after receipt of the invoice.
Such fees are exclusive of, and Advertiser shall pay, all sales, use, excise
and other taxes which may be levied upon either party in connection with this
Agreement or on activities occurring on the Website, except for taxes based on
Web Host's net income.
2.3 IMPRESSION DELIVERY. In the event Web Host delivers fewer banner
impressions, button impressions, logout page transfers or inbox direct signups
during any month than is required in the Schedule, Web Host shall deliver, in
the subsequent month, in addition to the number of banner impressions, button
impressions, logout page transfers and inbox direct signups specified in the
Schedule for such subsequent month, the number of banner impressions, button
impressions, logout page transfers and inbox direct signups by which it fell
short during the previous month (the "ADDITIONAL IMPRESSIONS"). If Web Host
fails to deliver the Additional Impressions during such subsequent month, then
the advertising fee due for such subsequent month shall be decreased
proportionately.
3. REPORTS.
Within fifteen (15) days following the end of each calendar month, Web
Host shall invoice Advertiser for the fees due for such month. Each invoice
will be accompanied by a report detailing the number of (i) banner impressions,
(ii) button impressions, (iii) logout page transfers and (iv) inbox direct
signups received for each Ad during such month (each a "REPORT"). Advertiser
acknowledges and agrees that information in any such Report will represent
historical data only, and will not be a guarantee of the number of banner
impressions, button impressions, logout page transfers or inbox direct signups
that will be received by Advertiser in the future.
4. LICENSE.
4.1 AD LICENSE. For the term of this Agreement, Advertiser hereby
grants to Web Host a non-exclusive, royalty-free, worldwide license to
reproduce, distribute, create derivative works of, publicly perform, publicly
display and digitally perform the Ad on or in conjunction with the Website. Web
Host may make a reasonable number of archival or back-up copies of the Ad.
Title to and ownership of all intellectual property rights of the Ad shall
remain with Advertiser or its third party licensors.
4.2 TRADEMARKS. Neither party may use the other party's trademarks,
service marks, trade names, logos, or other commercial or product designations
(collectively, "MARKS") for any purpose whatsoever without the prior written
consent of the other party. Notwithstanding the foregoing, Advertiser hereby
grants to Web Host a non-exclusive, nontransferable, royalty-free, worldwide
license to use Advertiser's Marks on the Website for the purposes of marketing,
promotion, and content directories or indexes, and in electronic or printed
advertising, publicity, press releases, newsletters and mailings about the
Website or Web Host.
5. ADVERTISER REPRESENTATION AND WARRANTIES.
Advertiser is solely responsible for any legal liability arising out
of or relating to the Ad and any material to which users can link through the
Ad. Advertiser represents and warrants that no Ad will: (a) infringe on any
third party's copyright, patent, trademark, trade secret
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
1
<PAGE> 5
or other proprietary rights or right of publicity or privacy; (b) violate any
law, statute, ordinance or regulation, including without limitation the laws
and regulations governing export control; (c) be defamatory or trade libelous;
(d) be pornographic or obscene; (e) violate any laws regarding unfair
competition, antidiscrimination or false advertising, or (e) contain viruses,
trojan horses, worms, time bombs, cancelbots or other similar harmful or
deleterious programming routines. Advertiser agrees to defend, indemnify and
hold harmless Web Host and its directors, officers, agents and employees for
any and all losses, costs, liabilities or expenses (including without
limitation reasonable attorneys' and expert witnesses' fees) incurred or
arising from (a) any breach of the foregoing representations and warranties,
(b) any claim arising from the sale or license of Advertiser's goods or
services, or (c) any other act, omission or misrepresentation by Advertiser.
Web Host may participate in the defense at its expense.
6. DISCLAIMER OF WARRANTIES.
Web Host provides the Website and all services performed hereunder "AS
IS" and without any warranty of any kind. Web Host does not guarantee
continuous or uninterrupted display or distribution of the Ad. In the event of
interruption of display or distribution of the Ad, Web Host's sole obligation
shall be to restore service as soon as reasonably possible.
7. LIMITATIONS ON LIABILITY.
IN NO EVENT SHALL WEB HOST BE LIABLE FOR ANY SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO SUCH DAMAGES
ARISING FROM BREACH OF CONTRACT OR WARRANTY OR FROM NEGLIGENCE OR STRICT
LIABILITY), OR FOR INTERRUPTED COMMUNICATIONS, LOSS OF USE, LOST BUSINESS, LOST
DATA OR LOST PROFITS, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.
UNDER NO CIRCUMSTANCES SHALL WEB HOST BE LIABLE TO ADVERTISER OR ANY THIRD
PARTIES FOR AN AMOUNT GREATER THAN THE AMOUNTS RECEIVED FOR THE SPECIFIC AD
GIVING RISE TO LIABILITY.
8. TERM AND TERMINATION.
The term of this Agreement shall commence on April 1, 1999 and shall
continue for a period of twelve (12) months thereafter (the "TERM"); provided,
however, that in the event Web Host fails to deliver the number of banner
impressions, button impressions, logout page transfers or inbox direct signups
during March 2000 specified in the Schedule, Web Host shall have thirty (30)
days after the end of the Term to deliver the required Additional Impressions.
Either party may terminate this Agreement upon [ ** ] written notice,
with or without cause. Additionally, Web Host may, by providing written notice,
terminate this Agreement immediately if the monthly fees are not paid when due.
Sections 5, 6, 7, 8, 9, 10 and 11, and any obligations of any advertising
agent, shall survive termination of this Agreement.
9. GOVERNING LAW.
This Agreement will be governed and construed in accordance with the
laws of the State of Washington without giving effect to principles of conflict
of laws.
10. ENTIRE AGREEMENT.
This Agreement, including Exhibit A attached hereto, sets forth the
entire understanding and agreement of the parties and supersedes any and all
oral or written agreements or understandings between the parties as to the
subject matter of this Agreement. This Agreement may be modified only by a
writing signed by both parties.
11. GENERAL.
If any provision of this Agreement is held to be invalid or
unenforceable for any reason, the remaining provisions will continue in full
force without being impaired or invalidated in any way. This Agreement may not
be assigned by Advertiser without Web Host's prior written consent and any such
attempted assignment shall be void and of no effect. The parties' rights and
obligations will bind and inure to the benefit of their respective successors,
heirs, executors and administrators and permitted assigns. Web Host may
subcontract all or a portion of its responsibilities hereunder. The parties to
this Agreement are independent contractors, and no agency, partnership, joint
venture or employee-employer relationship is intended or created by this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
WEB HOST: ADVERTISER:
By: /s/ STEVEN A. SUSLOW By: /s/ JON BRODEUR
------------------------------------ -----------------------------
Title: Vice President of Media Sales Title: Chief Marketing Officer
--------------------------------- --------------------------------
Address: 1155 Kelly Johnson Blvd., #400 Address: 521 SE Chaklor Drive
------------------------------- ------------------------------
Colorado Springs, CO 80920 Vancouver, WA 98683
------------------------------- ------------------------------
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
2
<PAGE> 6
EXHIBIT A
TECHNICAL SPECIFICATIONS
<TABLE>
<S> <C>
Run of Site Banner Ad Rotation: 468 x 60, 15k maximum file size
Button Ad Placement on Navigation Bar: 100 x 110, 10k maximum file size
Log-out Screen Jump page Placement: [ ** ]
Opt-In Email Program: [ ** ]
</TABLE>
** INDICATES CONFIDENTIAL TREATMENT REQUESTED.
i
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
May 11, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001039052
<NAME> USA.NET, INC.
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 4,043,316 8,049,567
<SECURITIES> 0 3,458,015
<RECEIVABLES> 289,868 1,508,440
<ALLOWANCES> 29,000 151,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,464,733 13,724,465
<PP&E> 2,907,644 15,201,289
<DEPRECIATION> 363,905 1,751,773
<TOTAL-ASSETS> 7,015,614 33,429,323
<CURRENT-LIABILITIES> 2,247,013 7,270,074
<BONDS> 1,235,158 3,997,147
0 0
12,874,175 44,785,245
<COMMON> 2,549 2,609
<OTHER-SE> (9,343,281) (23,000,752)
<TOTAL-LIABILITY-AND-EQUITY> 7,015,614 33,429,323
<SALES> 782,517 4,702,713
<TOTAL-REVENUES> 782,517 4,702,713
<CGS> 1,614,247 5,329,235
<TOTAL-COSTS> 1,614,247 5,329,235
<OTHER-EXPENSES> 4,967,020 14,055,486
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,247 229,893
<INCOME-PRETAX> (5,673,912) (14,390,723)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,673,912) (14,390,723)
<DISCONTINUED> 699,977 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,973,935) (14,390,723)
<EPS-PRIMARY> (1.95) (5.57)
<EPS-DILUTED> (1.95) (5.57)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0001039052
<NAME> USA.NET, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 392,788
<SECURITIES> 0
<RECEIVABLES> 165,570
<ALLOWANCES> 152,000
<INVENTORY> 0
<CURRENT-ASSETS> 407,596
<PP&E> 465,281
<DEPRECIATION> 49,795
<TOTAL-ASSETS> 1,048,127
<CURRENT-LIABILITIES> 542,669
<BONDS> 0
0
0
<COMMON> 2,549
<OTHER-SE> 502,909
<TOTAL-LIABILITY-AND-EQUITY> 1,048,127
<SALES> 33,564
<TOTAL-REVENUES> 33,564
<CGS> 298,863
<TOTAL-COSTS> 298,863
<OTHER-EXPENSES> 1,809,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,075,072)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,075,072)
<DISCONTINUED> (1,602,778)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,677,850)
<EPS-PRIMARY> (2.55)
<EPS-DILUTED> (2.55)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001039052
<NAME> USA.NET, INC.
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> MAR-31-1998 MAR-31-1999
<CASH> 0 4,856,064
<SECURITIES> 0 2,482,428
<RECEIVABLES> 0 810,348
<ALLOWANCES> 0 29,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 8,552,017
<PP&E> 0 18,254,214
<DEPRECIATION> 0 2,587,543
<TOTAL-ASSETS> 0 29,847,895
<CURRENT-LIABILITIES> 0 8,542,454
<BONDS> 0 4,925,103
0 0
0 44,785,245
<COMMON> 0 2,634
<OTHER-SE> 0 (28,657,541)
<TOTAL-LIABILITY-AND-EQUITY> 0 29,847,895
<SALES> 520,075 1,944,877
<TOTAL-REVENUES> 520,075 1,944,877
<CGS> 709,244 2,180,235
<TOTAL-COSTS> 709,244 2,180,235
<OTHER-EXPENSES> 1,809,650 5,469,162
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 23,309 258,617
<INCOME-PRETAX> (1,986,554) (5,849,521)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,986,554) (5,849,521)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,986,554) (5,849,521)
<EPS-PRIMARY> (0.77) (2.23)
<EPS-DILUTED> (0.77) (2.23)
</TABLE>
