<PAGE> 1
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 15, 1999
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 0-24457
BEYOND.COM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7375 94-3212136
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
3200 PATRICK HENRY DRIVE
SANTA CLARA, CALIFORNIA 94054
(408) 855-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the registrant's Common Stock, $.001 par value per
share, outstanding as of October 31, 1999 was 36,249,622. [ ]
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BEYOND.COM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
------------- ------------
<S> <C> <C>
Current assets:
Cash, cash equivalents and short-term investments......... $ 86,959 $ 81,548
Accounts receivable, net.................................. 12,970 8,785
Prepaid partnership agreements............................ 6,914 4,091
Prepaid expenses and other current assets................. 11,526 2,110
Note receivable from a director........................... -- 270
Cost of deferred revenue.................................. 13,460 5,255
--------- --------
Total current assets........................................ 131,829 102,059
Non-current assets:
Property and equipment, net................................. 9,026 3,150
Deposits and other non-current assets....................... 6,674 4,695
Goodwill and other intangible assets, net................... 113,614 --
--------- --------
Total Assets................................................ $ 261,143 $109,904
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 12,356 $ 14,443
Other accrued liabilities................................. 10,985 1,261
Accrued interest expense.................................. 1,528 483
Current obligation under capital leases................... 118 --
Deferred revenue.......................................... 13,584 5,744
--------- --------
Total current liabilities................................... 38,571 21,931
Non-current obligations under capital leases................ 58 --
Convertible notes payable................................... 63,250 63,250
Stockholder's Equity:
Common stock.............................................. 295,262 69,311
Deferred compensation..................................... (3,087) (2,226)
Unrealized gain on investments............................ 207 --
Accumulated deficit....................................... (133,118) (42,362)
--------- --------
Total stockholders' equity.................................. 159,264 24,723
--------- --------
Total Liabilities and Stockholders' Equity.................. $ 261,143 $109,904
========= ========
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date.
See notes to Condensed Consolidated Financial Statements.
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BEYOND.COM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED, NINE MONTHS ENDED,
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues................................. $ 36,599 $ 9,742 $ 82,020 $ 23,511
Cost of revenues............................. 32,285 8,281 70,809 19,943
-------- ------- -------- --------
Gross profit................................. 4,314 1,461 11,211 3,568
Operating expenses:
Research and development................... 2,523 1,266 7,103 2,967
Sales and marketing........................ 24,178 7,928 61,359 14,026
General and administrative................. 3,500 1,062 8,390 2,525
Goodwill and deferred compensation
amortization............................ 12,069 487 25,105 980
-------- ------- -------- --------
Total operating expenses..................... 42,270 10,743 101,957 20,498
-------- ------- -------- --------
Loss from operations......................... (37,956) (9,282) (90,746) (16,930)
Other income (expense), net.................. 174 384 (10) 241
-------- ------- -------- --------
NET LOSS..................................... $(37,782) $(8,898) $(90,756) $(16,689)
======== ======= ======== ========
Accretion of premium on preferred stock...... -- -- -- (51)
-------- ------- -------- --------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS... $(34,782) $(8,898) $(90,756) $(16,740)
======== ======= ======== ========
BASIC AND DILUTED NET LOSS PER SHARE......... $ (1.05) $ (0.33) $ (2.73) $ (1.04)
======== ======= ======== ========
Weighted average shares outstanding used in
computing basic and diluted net loss per
share...................................... 36,042 27,300 33,259 16,089
======== ======= ======== ========
</TABLE>
See notes to Condensed Consolidated Financial Statements.
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BEYOND.COM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(90,756) $(16,689)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,925 419
Amortization of intangible assets and deferred
compensation.......................................... 25,105 1,090
Changes in operating assets and liabilities:
Accounts receivable.................................... (4,015) (7,916)
Prepaid expenses and other current assets.............. (12,405) (7,781)
Cost of deferred revenue............................... (8,205) 1,328
Accounts payable....................................... (3,265) 4,467
Other accrued liabilities.............................. 1,894 2,797
Deferred revenue....................................... 7,836 (1,578)
-------- --------
Net cash used in operating activities................ (81,886) (23,863)
INVESTING ACTIVITIES
Purchases of short-term investments, net.................. (57,798) --
Costs associated with the acquisition of BuyDirect.com.... (5,849) --
Purchases of property and equipment....................... (6,504) (1,949)
-------- --------
Net cash used in investing activities................ (70,151) (1,949)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable................... -- 4,800
Repayment of note payable to shareholder and director..... -- (60)
Repayment of capital leases............................... (92) (57)
Proceeds from sale of redeemable convertible preferred
stock.................................................. -- 2,924
Net proceeds from sale of common stock and exercise of
stock options.......................................... 99,150 48,833
Capitalized costs related to common stock offering........ 524 --
-------- --------
Net cash provided by financing activities............ 99,582 56,440
-------- --------
Net (decrease)/increase in cash and cash equivalents........ (52,455) 30,628
Cash and cash equivalents at beginning of period............ 81,548 2,571
-------- --------
Cash and cash equivalents at end of period.................. $ 29,093 $ 33,199
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Common stock issued in acquisition of BuyDirect.com....... $120,542 $ --
</TABLE>
See notes to Condensed Consolidated Financial Statements.
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BEYOND.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In the
opinion of Management, all adjustments (consisting primarily of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine-month periods ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ending December 31, 1998 filed with the
Securities and Exchange Commission.
NOTE 2 -- ACQUISITION OF BUYDIRECT.COM
On March 30, 1999, a wholly owned subsidiary of Beyond.com merged with and
into BuyDirect.com, an online software retailer for consumers and business
customers. BuyDirect.com was originally launched as a service of CNET and became
a wholly owned subsidiary in March 1998.
Upon the closing of this merger, Beyond.com issued 4,930,123 shares of its
common stock to BuyDirect.com's stockholders in exchange for their outstanding
shares of BuyDirect.com common and preferred stock. Beyond.com assumed options
to purchase 281,757 shares of its common stock in connection with the merger.
The common stock issued was valued at $120.5 million based on the average
closing price of the common stock for the five trading days immediately
preceding the announcement of the acquisition and the five trading days
following the announcement of the acquisition. We accounted for the merger using
the purchase method of accounting. The purchase price of approximately $139.1
million included the fair market value of the common stock of $120.5 million,
the fair value of the fully vested options assumed of $2.7 million, liabilities
assumed of $13.0 million and $2.9 million in acquisition costs incurred in
connection with the merger. The fair value of the unvested options assumed of
$4.6 million has been recorded as deferred compensation.
NOTE 3 -- SECONDARY PUBLIC OFFERING OF COMMON STOCK
On April 14, 1999, Beyond.com completed the sale of 4,000,000 shares of its
common stock in a public offering, which generated net proceeds of $98.5 million
to the Company. Under the terms of this offering, selling shareholders
liquidated 1,000,000 shares of common stock. No proceeds from this portion of
the offering benefited Beyond.com.
NOTE 4 -- CONTRACT WITH INTELLISYS TECHNOLOGY CORPORATION TO SERVE INTERNAL
REVENUE SERVICE
On June 16, 1999, Beyond.com signed a contract with Intellisys Technology
Corporation whereby Beyond.com will be the reseller of electronically delivered
and shrink wrapped software applications to the United States Internal Revenue
Service, will design and implement specialized online software stores, and will
implement proprietary electronic download managers targeting 130,000 IRS
employees and agents. The 65-month agreement is renewable on an annual basis.
Beyond.com recognized approximately $2.9 million of revenue related to this
contract in the nine months ended September 30, 1999.
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BEYOND.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- ACQUISITION OF SOFTGALLERY SARL
Beyond.com entered an agreement effective September 24, 1999 to acquire
SoftGallery SARL, a Paris, France based, leading European online software
reseller of digitally downloadable software products. Upon the closing of this
merger in October 1999, Beyond.com issued 247,000 shares of its common stock to
SoftGallery stockholders in exchange for their outstanding shares of SoftGallery
common and preferred stock; however, 80 percent of the Beyond.com shares issued
in the exchange, or 198,000 shares, are held in escrow and subject to
SoftGallery meeting specific European revenue targets and employment
contingencies. The shares held in escrow will be delivered in various intervals
over the next 48 months as SoftGallery meets the specific European revenue
targets and employment contingencies. The common stock to be issued is initially
valued at $3.2 million based on the average closing price of the common stock
for the five trading days immediately preceding the September 29, 1999
announcement of the acquisition and the five trading days following the
announcement of the acquisition. Beyond.com will adjust the value of the shares
to be issued related to the SoftGallery acquisition to reflect the current fair
market value of the common shares issued at the time the specific European
revenue targets and employment contingencies are met and the related shares are
earned. Beyond.com has not yet determined the total amount or allocation of the
purchase price. Beyond.com will account for the merger using the purchase method
of accounting. The purchase price will also include liabilities assumed of
$167,000, a cash payment of $500,000, and any acquisition costs incurred in
connection with the merger.
NOTE 6 -- LOSS PER SHARE
Net loss per share is presented in accordance with the requirements of
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS
128). Pro forma net loss per share for 1998 has been computed under FAS 128 and
also gives effect to the conversion of redeemable convertible preferred stock
not included in net loss per share that converted upon completion of our initial
public offering. Pro forma net loss per share for the three and nine-month
periods ended September 30, 1998 were $0.33 and $0.72, respectively.
If Beyond.com had reported net income, diluted earnings per share for the
three and nine months ended September 30, 1999 and 1998 would have included the
shares used in the computation of basic and diluted net loss per share as well
as additional common equivalent shares related to options to purchase 7,053,000
and 5,309,000 shares of common stock outstanding as of September 30, 1999 and
1998, respectively. In addition, diluted earnings per share for the three and
nine month periods ended September 30, 1999 would have included 3,449,000
additional common equivalent shares related to the convertible notes payable
(using the if-converted method).
NOTE 7 -- SEGMENT REPORTING
During the year ended December 31, 1998 the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which establishes standards for reporting
information regarding operating segments in annual financial statements and
requires selected information for those segments to be presented in interim
financial statements. For all periods presented, we have viewed our operations
as principally one segment, software sales. As a result, all of the financial
information presented represents all financial information related to our
principal operating segment.
NOTE 8 -- RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," effective for
fiscal years commencing after June 15, 2000. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain
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BEYOND.COM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
derivative instruments embedded in other contracts, and for hedging activities.
The Company currently does not make use of derivatives and management
anticipates that the adoption of SFAS No. 133 will not have a significant effect
on earning or the financial position of the Company.
NOTE 9 -- FOURTH QUARTER REFUND OF PREPAID ADVERTISING SERVICES
In October 1999, Beyond.com decided to scale back its planned fourth
quarter television and radio advertising campaign. As a result of this decision,
Beyond.com was refunded approximately $8.9 million of prepaid advertising
services.
NOTE 10 -- COMPREHENSIVE INCOME
Accumulated other comprehensive income presented in the accompanying
consolidated balance sheet consists of the accumulated net unrealized gains and
losses on available-for-sale marketable securities.
The components of comprehensive income for the three and nine months ended
September 30, 1999 and September 30, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED, NINE MONTHS ENDED,
------------------------------ ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income............................. $(37,782) $(8,898) $(90,756) $(16,689)
Other comprehensive income
Change in unrealized gain (loss) on
available-for-sale investments.... 68 -- 207 --
-------- ------- -------- --------
Comprehensive income................... $(37,714) $(8,898) $(90,549) $(16,689)
======== ======= ======== ========
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this Quarterly Report on Form 10-Q are forward
looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended. When used in this report or elsewhere by management from time to time,
the words "believes," "anticipates," "intends," plans," estimates," and similar
expressions are forward looking statements. Such forward-looking statements
contained herein include statements relating to our intentions, expectations and
beliefs that we will continue advertising efforts to promote our brand,
arrangements with America Online, Excite@Home and Yahoo! will represent
significant distribution channels for our products, losses will continue at the
rate in which we are incurring in 1999, research and development expenses will
continue to increase in both absolute dollars and as a percentage of revenue, we
will continue to pursue branding, sales and marketing campaigns, that our cash
as of September 30, 1999 will be sufficient to meet our anticipated needs for
working capital and capital expenditures for at least the next 11 months, and
our systems, including components thereof provided by third-party vendors, will
be year 2000 compliant by the year 2000, and are based on current expectations
and entail various risks and uncertainties that could cause actual results to
differ materially from those expressed in such forward looking statements. Such
risks include the risk that actual benefits of arrangements with our strategic
partners will be inconsistent with anticipated benefits, that we cannot meet our
anticipated needs for working capital and capital expenditures as expected and
that we will not be able to access additional capital if required on terms
acceptable to us. For a more detailed discussion of these and other business
risks, see our annual report filed on Form 10-K pursuant to Section 13 or 15(d)
of the Securities Act of 1934 dated March 31, 1999, with the Commission.
OVERVIEW
We are a leading online reseller of commercial off-the-shelf computer
software to the consumer, small business and large enterprise markets. Through
our online store (www.beyond.com), we offer customers a comprehensive selection
of software as well as related computer peripheral products, helpful customer
service, a convenient shopping experience and competitive prices. We believe
that our Beyond.com Web site is one of the most widely known and used sites on
the World Wide Web for the purchase of software. We deliver software to
customers one of two ways: either we physically deliver the shrink-wrap software
package or we deliver the software over the Internet through digital download.
We launched our Web site in November 1994 under the name CyberSource Corporation
and maintained a Web site named software.net. In December 1997, we spun-off our
e-commerce services business and changed our name to software.net Corporation.
In June 1998, we completed the initial public offering of our common stock. In
August 1998, we initiated an aggressive regional radio and national print
advertising campaign to promote the brand. In November 1998, we completed the
offering of $63.25 million aggregate principal amount of our 7 1/4% Convertible
Subordinated Notes. In December 1998, we initiated a regional television
advertising campaign and we changed our legal corporate name to Beyond.com
Corporation. We intend to continue advertising efforts to promote our brand in
1999 and into 2000.
In March 1998, we expanded our third party sales channel by entering into
strategic relationships with America Online and Excite@Home, and in February
1999, we further expanded our third party sales channel by entering into a
relationship with Yahoo!. Under the America Online agreement, we are the
exclusive reseller of software on certain screens on the America Online service
and America Online's Web site, aol.com. On other America Online screens we are a
semi-exclusive reseller of software. Under the Excite@Home and Yahoo!
agreements, we have the right to display banner advertisements and links to our
Web site on certain Excite@Home and Yahoo! screens. In addition, Excite@Home
cannot display paid promotional links or banner advertisements of any other
software reseller on specified Excite@Home screens related to software.
Under these agreements, America Online, Excite@Home and Yahoo! are
obligated to deliver minimum numbers of screen views with links to our Web site.
We call these screen views "Impressions." Under the America Online agreement, we
must make fixed payments originally totaling approximately $21 million. In
addition, under the Excite@Home and Yahoo! agreements, we must make certain
fixed payments to Excite@Home and Yahoo!, respectively, over the three-year and
18-month terms of the respective agreements. We also have agreed to pay America
Online and Excite@Home a percentage of certain transactional
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revenues and, in the case of America Online, advertising revenues we earn in
excess of specified thresholds. In addition, we have agreed to make certain
performance-based payments to Yahoo! The America Online agreement terminates in
August 2001, the Excite@Home agreement terminates when Excite@Home has delivered
a certain number of impressions, but no earlier than April 2001 and the Yahoo!
agreement terminates 18 months after initial activation.
We expect these arrangements with America Online, Excite@Home and Yahoo!,
to represent significant distribution channels for our products. If we, or the
other party to any of these agreements, elect to terminate any of the agreements
it likely would have a material adverse effect on our business. We cannot assure
that we will achieve sufficient online traffic or generate sufficient revenue to
justify our payment obligations to America Online, Excite@Home and Yahoo!, nor
can we assure that we will achieve sufficient online traffic or generate
sufficient revenue to satisfy our contractual obligations necessary to prevent
termination of the America Online, Excite@Home or Yahoo! agreements.
Pursuant to our agreements with America Online, Excite@Home, Network
Associates, Yahoo!, Cnet, ZDNet, @Home, Roadrunner/Service Co. and Xoom we are
obligated to pay a total of approximately $35.4 million from September 30, 1999
through December 31, 2001, of which approximately $8.3 million must be paid
during the remainder of 1999.
Over the past 18 months we entered into various agreements with Network
Associates concerning the online sale of software and the management of Network
Associates' Web sites. Network Associates is a developer of electronic commerce
locations and publisher of certain products marketed under the McAfee and other
names. Our agreements include a Co-Hosting Agreement and a Web Site Services
Agreement entered into in September 1998. Under these agreements, we agreed to
co-host Web sites with Network Associates and agreed to resell Network
Associates' products on Network Associates' Web site at www.mcafeestore.com. We
must make substantial payments to Network Associates for exclusive positioning
of links to our Web site on certain screens on Network Associates' Web sites,
and for rights to resell Network Associates products. If we or they terminate
one or all of these agreements, it would likely have a material adverse effect
on our business. We cannot guarantee that the volume of online traffic,
customers or revenues we obtain as a result of this relationship will justify
our significant fixed financial obligations to Network Associates.
Each year since inception, we have incurred increasingly larger net losses.
These annual net losses increased from $1.5 million in 1996 to $5.4 million in
1997, $31.1 million in 1998 and $90.8 million in the nine months ended September
30, 1999. We anticipate our losses will continue at approximately the rate at
which we are incurring losses in 1999 as we expect to continue to incur costs
and expenses related to:
- brand development, marketing, and promotion;
- Web site content development;
- strategic relationship development and maintenance;
- technology and operating infrastructure development, including improved
digital download capabilities;
- increased headcount, facilities and infrastructure; and
- assimilation of operations and personnel related to potential future
mergers and acquisitions.
In addition, as a result of the BuyDirect.com merger, we recorded a
significant amount of goodwill, the amortization of which will adversely affect
our earnings and profitability for the foreseeable future. We recorded goodwill
and other intangible assets of approximately $137 million, to be amortized
through 2002. We believe it is likely that we will not generate additional
earnings sufficient to recover the amount of goodwill and other intangible
assets recorded during the period in which they are amortized.
Because we have relatively low gross margins, our ability to become
profitable given our planned expenses depends on our ability to generate and
sustain substantially higher net revenues. If we do achieve profitability, we
cannot be certain that we can sustain or increase profitability on a quarterly
or annual basis in the future.
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We base our current and future expense levels, which are largely fixed, on
our operating plans and estimates of future revenues. In view of the rapidly
evolving nature of our business, proposed and possible future acquisitions and
our limited operating history of selling software online, we have little
experience forecasting our revenues. Therefore, we believe that period-to-period
comparisons of our financial results are not necessarily meaningful and you
should not rely upon them as an indication of our future performance. If we
cannot achieve and sustain operating profitability or positive cash flows from
operations, we may be unable to meet our debt service obligations or working
capital requirements, which would adversely effect our business.
We derive our revenues primarily from four sources:
- sales of software to customers using credit cards, checks, and wire
transfers;
- sales of software to corporate customers that are invoiced directly under
credit terms;
- sales of software to various government agencies pursuant to contractual
arrangements; and
- to a lesser extent, amounts received from software publishers, hardware
manufacturers, and other vendors for advertising and promotion.
In addition, we also derive revenues from the sale of certain computer
peripherals, accessories, and internally developed applications. We recognize
our revenues from the sale of software, net of estimated returns, either upon
shipment of the physical product or delivery of the electronic product via
digital download. We defer net revenues associated with the sale of software
pursuant to contracts with the U.S. government that require us to provide
continuing service, support, and performance and recognize these revenues over
the period that we provide service, support, and performance. We recognize
revenues derived from software publishers for advertising and promotional
activities as the services are provided. Our U.S. government contracts are
subject to annual review and renewal by the applicable government agency.
Although all such contracts presently remain in full force and effect, the
applicable U.S. government agency may terminate such contracts without cause or
prior notice. Because the government contracts may be terminated without cause
or prior notice, we cannot be certain that we will generate any revenues from
U.S. government contracts in any future period. We recognize revenue from sales
of computer peripherals, internally developed software and accessories upon the
shipment of the physical product, at which time collectibility is probable and
we have no remaining obligations.
On July 14, 1999, we launched the first in a chain of worldwide online
software stores in support of Symantec Corporation. These online stores will
offer Symantec's full range of software products to customers via digital
download or physical delivery. The initial online Symantec store was for United
States customers. On September 23, 1999 we opened additional Symantec stores to
serve customers in France, Germany, and the United Kingdom. In October 1999, we
opened additional Symantec stores in the Netherlands, Canada, and Italy. These
six international online stores are the first in a series of 11 planned
international online stores that Beyond.com will develop and manage for
Symantec. These international stores allow customers to purchase products in
local currencies and are written in the local language.
In September of 1999, Beyond.com launched eStore, a service which offers
software publishers, hardware vendors and systems OEMs a full range of
e-commerce solutions including: website design and operation, marketing and
merchandizing support, transaction processing, physical and electronic
fulfillment, as well as customer services. eStore will allow Beyond.com's
business customers to sponsor their own professionally developed and managed
online stores by leveraging off of Beyond.com's proven online sales
infrastructure.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
1998
Net Revenues. Our net revenues increased from $9.7 million in the quarter
ended September 30, 1998 to $36.6 million in the quarter ended September 30,
1999. This increase primarily resulted from increased sales to consumer and
corporate customers and as a result of new U.S. government contracts.
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Our net revenues increased from $23.5 million in the nine-month period
ended September 30, 1998 to $82.0 million in the nine-month period ended
September 30, 1999. This increase primarily resulted from increased sales to
consumer, corporate and government customers.
Cost of Revenues. Our cost of revenues consists primarily of the costs of
software and software licenses sold to consumer and corporate customers, related
credit card processing fees and the costs of software licenses and software
updates provided to the U.S. government. Our total cost of revenues increased
from $8.3 million in the quarter ended September 30, 1998 to $32.3 million in
the quarter ended September 30, 1999. This increase resulted from our increased
software sales.
Cost of revenues increased from $19.9 million in the nine-month period
ended September 30, 1998 to $70.8 million in the nine-month period ended
September 30, 1999. This increase was primarily the result of increased software
sales.
Gross Margin. Our gross margin (gross profit as a percentage of net
revenues) decreased from 15.0% in the quarter ended September 30, 1998 to 11.8%
in the quarter ended September 30, 1999. This decrease primarily resulted from a
higher percentage of revenue coming from lower margin government and consumer
customers. The margin on sales to consumer customers decreased as a result of
marketing rebate programs offered during the quarter ended September 30, 1999.
Our gross margin deceased from 15.2% in the nine month period ended
September 30, 1998 to 13.7% in the nine month period ended September 30, 1999
primarily as a result of a higher percentage of revenue coming from lower margin
government and corporate consumers, offset slightly by a $600,000 sale of
internally developed software to CyberSource which had no corresponding costs in
the 1999 period. In the future, we may expand or increase the discounts we offer
to customers or otherwise alter our pricing structures and policies. If we take
such an action, it may have an adverse impact on gross margin in future periods.
Further, although we strive to increase the percentage of traditionally higher
margin consumer business, higher margin digital download revenues, higher margin
sales of internally developed software applications and higher margin
advertising and promotional revenues as a percentage of our total net revenues
in future periods, there is no guarantee that we will be able to do so. In
future periods our gross margin may decline if the revenues we generate from
sales to the U.S. government or sales to large enterprise customers continue to
increase as a percentage of our total net revenues.
Research and Development Expenses. Our research and development expenses
primarily consist of personnel and other expenses associated with developing and
enhancing our Web sites as well as associated facilities related expenses. Our
research and development expenses increased from $1.3 million in the quarter
ended September 30, 1998 to $2.5 million in the quarter ended September 30,
1999. These expenses decreased as a percentage of net revenues from 13.0% in the
quarter ended September 30, 1998 to 6.9% in the quarter ended September 30,
1999. This increase in absolute dollars primarily was the result of increases in
our personnel and depreciation on computer equipment.
Our research and development expenses increased from $3.0 million, or 12.6%
of net revenues, in the nine months ended September 30, 1998 to $7.1 million, or
8.7% of net revenues, in the nine months ended September 30, 1999. This increase
in absolute dollars primarily was the result of increases in our personnel and
depreciation on computer equipment. We anticipate that our research and
development expenses will continue to increase in absolute dollars in future
periods.
Sales and Marketing Expenses. Our sales and marketing expenses consist
primarily of promotional expenditures and costs associated with operating our
Web sites, including personnel and related expenses. In addition, we include the
expenditures associated with our strategic marketing alliances under sales and
marketing expenses. Our sales and marketing expenses increased significantly
from $7.9 million in the quarter ended September 30, 1998 to $24.2 million in
the quarter ended September 30, 1999. However, as a percentage of revenues,
these expenses decreased from 81.4% in the quarter ended September 30, 1998 to
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<PAGE> 12
66.1% in the quarter ended September 30, 1999. This absolute dollar increase was
primarily the result of costs associated with:
- developing and maintaining our strategic marketing alliances;
- a branding and marketing campaign (including expenses associated with our
re-branding efforts); and
- an increase in personnel to support increased sales and marketing and
advertising expenditures.
Our sales and marketing expenses increased from $14.0 million, or 59.7% of
net revenues, in the nine months ended September 30, 1998, to $61.4 million, or
74.8% of net revenues, in the nine months ended September 30, 1999. This
increase both in absolute dollars and as a percentage of net revenues was
primarily the result of costs associated with developing and maintaining our web
site, our branding and marketing campaign, and an increase in personnel to
support increased sales.
We intend to continue to pursue branding, sales and marketing campaigns. In
addition, our current strategic marketing alliances with America Online,
Excite@Home and Netscape and Yahoo, in addition to the alliances with Cnet,
ZDNet, @Home, Roadrunner/Service Co. and Xoom in the BuyDirect.com merger,
require us to make payments totaling approximately $52.5 million over the terms
of those agreements. As of September 30, 1999, approximately $35.4 million of
this amount remained to be paid. We are expensing the costs associated with the
America Online and Netscape agreements ratably over the terms of the respective
agreements. We are expensing the costs associated with the Excite@Home agreement
as costs are incurred and payments become due. We are expensing the minimum
payment amounts over the three-year term of the Co-Hosting Agreement with
Network Associates. We may enter into similar strategic marketing alliances
requiring significant minimum payments in the future and, as a result, we may
substantially increase our sales and marketing expenditures. Due to our
branding, sales, and marketing efforts and our financial commitments associated
with our strategic marketing alliances, we expect sales and marketing expenses
to continue increasing in absolute dollars in future periods.
General and Administrative Expenses. Our general and administrative
expenses primarily consist of personnel expenses, legal and accounting expenses,
and corporate facility-related expenses. Our general and administrative expenses
increased from $1.1 million in the quarter ended September 30, 1998 to $3.5
million in the quarter ended September 30, 1999. These expenses decreased, as a
percentage of net revenues, from 10.9% in the quarter ended September 30, 1998
to 9.6% in the quarter ended September 30, 1999. This decrease as a percentage
of net revenues was primarily the result of a relatively slower rate of hiring
in the executive, finance, and human resources functions. However, general and
administrative expenses increased in absolute dollars as a result of increased
personnel-related costs and facilities-related expenses.
Our general and administrative expenses increased from $2.5 million, or
10.7% of net revenues, in the nine months ended September 30, 1998, to $8.4
million, or 10.2% of revenues, for the nine months ended September 30, 1999.
This decrease as a percentage of net revenues was primarily the result of a
relatively slower rate of hiring in the executive, finance, and human resources
functions. However, general and administrative expenses increased in absolute
dollars as a result of increased personnel-related costs and facilities-related
expenses. We anticipate that these expenses will continue to grow in absolute
dollars as we incur additional expenses associated with transitioning from a
single site operation to multiple and international site operations.
Amortization of Deferred Compensation and Other Intangible Assets. Expenses
associated with the amortization of deferred compensation and other intangible
assets related to the acquisition of BuyDirect.com in March 1999 and the grant
of stock options, increased from $487,000 in the quarter ended September 30,
1998, to $12.1 million in the quarter ended September 30, 1999.
Expenses associated with the amortization of deferred compensation and
other intangible assets, increased from $980,000 in the nine months ended
September 30, 1998, to $25.1 million in the nine months ended September 30,
1999. This increase was primarily the result of the amortization of intangible
assets related to the acquisition of BuyDirect.com. We expect the amortization
of goodwill and other intangible assets to remain at these levels in future
periods. Additionally, we believe it is unlikely that we will generate
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<PAGE> 13
additional earnings sufficient to recover the amount of goodwill and other
intangible assets recorded during the period in which they are amortized.
Interest Income and Expense, net. Interest income, net, consists of
earnings on our cash investments, net of interest costs related to our financing
obligations. Interest income, net, decreased from $384,000 in the quarter ended
September 30, 1998 to $174,000 in the quarter ended September 30, 1999. This
decrease was primarily a result of interest expense related to the 7 1/4%
Convertible Subordinated Notes offset by higher average cash balances related to
proceeds from our secondary offering.
Interest income and expense, net, decreased from interest income of
$241,000 in the nine months ended September 30, 1998 to interest expense of
$10,000 in the nine months ended September 30, 1999. This decrease was primarily
a result of interest expense related to the 7 1/4% Convertible Subordinated
Notes partially offset by higher average cash balances related to proceeds from
our secondary offering.
Income Taxes. No provision for income taxes has been recorded due to
operating losses with no current tax benefit.
As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $37,000,000 and $31,000,000, respectively.
The Company also had federal and state research credit carryforwards of
approximately $314,000 and $268,000, respectively. The net operating losses and
credit carryforwards will expire at various dates beginning in 2002 through
2018, if not utilized. The net operating loss carryforwards differ from the
accumulated deficit primarily as a result of the accounting for the Spin-off of
CyberSource to the Company's preferred and common stockholders on December 31,
1997.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before utilization.
LIQUIDITY AND CAPITAL RESOURCES
From inception through September 30, 1999, we financed our operations
primarily through private sales of preferred stock, proceeds from our initial
public offering of 5,750,000 shares of our common stock, sales of our 7 1/4%
Convertible Subordinated Notes, and proceeds from our secondary public offering
of 4,000,000 shares of our common stock. We raised cumulative net cash proceeds
totaling $14.8 million through private sales of preferred stock. In June 1998,
we received net proceeds of $46.8 million from our initial public offering. We
raised an additional $2.0 million at the closing of our initial public offering
through the sale of common stock to America Online pursuant to a Common Stock
and Warrant Subscription Agreement entered into in March 1998. In May 1998, we
received $4.8 million through a credit agreement that we entered into with
Deutsche Bank AG. We repaid all monies borrowed under that credit agreement in
November 1998. In November and December 1998, we raised net cash proceeds
totaling approximately $63.3 million through the sale of our 7 1/4% Convertible
Subordinated Notes. On April 14, 1999, we completed the sale of 4,000,000 shares
of our common stock in a public offering, which generated net proceeds of $98.5
million.
As of September 30, 1999, we had approximately $87.0 million of cash
compared with $81.5 million at September 30, 1998. Our current strategic
marketing alliances provide for remaining payments of approximately $8.3 million
in 1999, approximately $19.3 million in 2000 and approximately $7.8 million in
2001. Currently, we have no other material commitments other than those under
our operating leases and the U.S. government contracts.
We used net cash of $81.9 million in operating activities in the nine
months ended September 30, 1999. Our cash used in operating activities in the
nine months ended September 30, 1999 was primarily comprised of the net effect
of:
- a net loss of $90.8 million;
- an increase in prepaid expense and other assets totaling $12.4 million
related to advertising;
13
<PAGE> 14
- an increase in accounts receivable totaling $4.0 million related to
invoiced government contract revenues;
- an increase in accounts payable totaling $3.3 million related to costs
associated with our U.S. government contracts, and
- a non-cash charge of $25.1 million related to the amortization of
deferred compensation and other intangible assets.
We used net cash in investing activities in the nine months ended September
30, 1999 of $70.2 million for acquisitions of leasehold improvements and
computer equipment, investments in short-term securities, as well as costs
associated with the acquisition of BuyDirect.com.
We received net cash of $99.6 million in the nine months ended September
30, 1999 from financing activities, primarily from proceeds of our secondary
public offering of our common stock and the exercise of stock options.
We believe that our cash at September 30, 1999 will be sufficient to meet
our anticipated needs for working capital and capital expenditures for at least
the next 11 months. Thereafter, we expect that the cash we generate from
operations likely will not be sufficient to satisfy our cash needs. We will need
significant amounts of cash to make a variety of payments, including:
- payment of the principal and interest on 7 1/4% Convertible Subordinated
Notes when due;
- payment of our financial obligations to America Online, Network
Associates, Excite@Home, Yahoo!, CNET, XOOM, ZDNet and others; and
- payment of increasing sales and marketing expenses.
We may need to sell additional equity or debt securities to raise cash to
meet these obligations. Such sales likely would result in additional dilution to
our stockholders. In addition, we cannot assure you that financing will be
available in amounts or on terms acceptable to us, if at all.
YEAR 2000 RISK MAY ADVERSELY AFFECT OUR COMPANY
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the Year
2000. We assessed our proprietary software and our internally developed systems,
which permit the sale, order, processing and delivery of off-the-shelf software
to our customers to determine Year 2000 compliance. We searched through software
code for each of these applications and believe that we have identified all
instances where date specific information is required. We further investigated
whether these date fields contain two or four digits. Based on our review and
the results of limited testing, we believe our other proprietary software and
internally developed systems are Year 2000 compliant.
In addition to our proprietary software and internally developed systems,
we utilize software, computer technology and other services internally developed
and provided by third-party vendors that may fail due to the Year 2000
phenomenon. For example, we are dependent on the institutions involved in
processing our members' credit card payments for Internet services. We are also
dependent on telecommunications vendors and leased point-of-purchase vendors to
maintain network reliability.
Our software applications run on several hardware platforms and associated
operating systems, primarily those provided by Sun Microsystems. In addition,
our software operates in accordance with several external Internet protocols,
such as HTTP and NNTP. Our software is therefore dependent upon the correct
processing of dates by these systems and protocols. We reviewed information made
publicly available by Sun Microsystems and our other hardware platform providers
regarding Year 2000 compliance and researched the date handling capabilities of
applicable Internet protocols. Based on this research, we do not believe that
the underlying systems and protocols that operate in conjunction with our
software applications contain material Year 2000 deficiencies. We are currently
in the process of conducting our own tests to determine to what
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<PAGE> 15
extent our software running on any of our hardware platforms and in accordance
with any of our supported Internet protocols fails to properly recognize Year
2000 dates.
We use multiple software systems for our internal business purposes,
including accounting, e-mail, development, human resources, customer service and
support, and sales tracking systems. All of these applications have been
purchased within the preceding 12 months. We have made inquiries of vendors of
the systems that we believe are mission critical to our business regarding their
Year 2000 readiness. Each of these vendors has indicated to us that it believes
its applications are Year 2000 compliant. We have received affirmative
documentation in this regard from many of these vendors, however, we have not
performed any operational tests on these internal systems. Based on our vendors
representation, we anticipate that our systems, including components thereof
provided by third-party vendors, will be Year 2000 compliant by the Year 2000.
However, our software applications and the underlying hardware systems and
protocols running the software may contain undetected errors or defects
associated with Year 2000 date functions. Our software applications directly and
indirectly interact with a large number of other hardware and software systems.
We are unable to predict to what extent our business may be affected if our
software or the systems that operate in conjunction with our software experience
a material Year 2000 failure. Known or unknown errors or defects that affect the
operation of our software could result in delay or loss of revenue, interruption
of shopping services, cancellation of customer contracts, interference with
digital download, diversion of development resources, damage to our reputation,
costs, and litigation costs, any of which could adversely affect our business,
financial condition and results of operation. Further, the spending and
purchasing patterns of customers or potential customers may be affected by the
Year 2000 issue as individuals, corporations and government agencies expend
significant resources to correct or update their current systems for Year 2000
compliance or delay purchases of new software until after the Year 2000. We are
establishing contingency plans to handle the most reasonably likely worst case
scenarios.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -- NOT APPLICABLE
ITEM 2. CHANGES IN SECURITIES -- NOT APPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -- NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- NOT APPLICABLE
ITEM 5. OTHER INFORMATION -- NOT APPLICABLE
ITEM 6. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of interest rate changes, foreign currency
fluctuations, and change in the market values of our investments.
Interest Rate Risk. Our exposure to market rate risk for changes in
interest rates relates primarily to our investment portfolio. We have not used
derivative financial instruments in our investment portfolio. We invest our
excess cash in debt instruments of the U.S. Government and its agencies, and in
high-quality corporate issuers and, by policy, limit the amount of credit
exposure to any one issuer. We protect and preserve our invested funds by
limiting default, market and reinvestment risk. Investments in both fixed rate
and floating rate interest earning instruments carry a degree of interest rate
risk. Fixed rate securities may have their fair market value adversely impacted
due to a rise in interest rates, while floating rate securities may produce less
income than expected if interest rates fall. Due in part to these factors, our
future investment income may fall short of expectations due to changes in
interest rates. We may suffer losses in principal if forced to sell securities
which have declined in market value due to changes in interest rates.
Foreign Currency Risk. To date we have not experienced risks associated
with foreign currencies as a result of our operations. However, we intend to
expand internationally and will be exposed to risks associated with fluctuations
in foreign currencies at such time.
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<PAGE> 16
Investment Risk. To date, we have not invested in equity instruments of
companies.
ITEM 7. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1*+ Contract dated June 16, 1999 between registrant and
Intellisys Technology Corporation
10.2* Amended and Restated Electronic Software Reseller/Website
Services Agreement dated May 17, 1999, between Beyond.com
Corporation and Network Associates, Inc.
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Confidential treatment has been requested as to certain portions of this
exhibit.
+ To be filed by amendment.
(b) REPORTS ON FORM 8-K
None.
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<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this quarterly
report on Form 10-Q to be signed on its behalf by the undersigned, thereunto
duly authorized, in Sunnyvale, California, on August 16, 1999.
BEYOND.COM CORPORATION
By /s/ MARK L. BREIER
------------------------------------
Mark L. Breier
President, Chief Executive Officer
and Director
By /s/ GREGORY B. KELLEY
------------------------------------
Gregory B. Kelley
Interim Chief Financial Officer
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<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.1*+ Contract dated June 16, 1999 between registrant and
Intellisys Technology Corporation
10.2* Amended and Restated Electronic Software Reseller/Website
Services Agreement dated May 17, 1999, between Beyond.com
Corporation and Network Associates, Inc.
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Confidential treatment has been requested as to certain portions of this
exhibit.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED ELECTRONIC SOFTWARE RESELLER/WEB SITE SERVICES AGREEMENT
This Amended and Restated Electronic Software Reseller/Web Site Services
Agreement (the "Agreement") is made and entered into effective as of May 17,
1999, by and between Beyond.com Corporation, a Delaware corporation, formerly
known as Software.net Corporation, located at 1195 West Fremont Avenue,
Sunnyvale, California 94087 ("Reseller") and Networks Associates, Inc., a
Delaware corporation, doing business as Network Associates, Inc. located at
3965 Freedom Circle, Santa Clara, California 95054 ("Vendor").
BACKGROUND
(a) Vendor and Reseller are parties to that certain Web Site Services
Agreement dated as of September 21, 1998 and wish to Amend and Restate
such Web Site Services Agreement as set forth herein.
(b) Vendor is the owner of all rights to (or has a license to sell) the
Software and Reseller desires to purchase Software from Vendor for resale
on the Managed Site subject to the terms and conditions of this Agreement.
(c) Vendor and Reseller have entered into a certain Co-Hosting Agreement
relating to the offering of software and computer hardware from Vendor's
United States based public web site (other than the web site maintained by
Vendor at www.mcafeemall.com (or such other name as the site may be given
from time to time, including, without limitation, the "McAfee Store") (the
"Managed Site")).
(d) Vendor desires to enter into this Agreement, whereby Reseller would
purchase Vendor's product from Vendor for the purpose of reselling
Vendor's Products to End-User customers in accordance with the terms and
conditions hereof. To enhance Reseller's marketing opportunities Reseller
shall also operate and manage certain aspects of the Managed Site on behalf
of Vendor [*] as defined herein.
(e) Vendor and Reseller understand that performance requirements, and
definitions in the Co-Host Agreement dated September 21, 1998, related to
the Web Site Services Agreement dated September 21, 1998, remain and to
the extent applicable shall apply to this Amended and Restated Electronic
Software Reseller/Web Site Services Agreement. Exhibit A to this Agreement
shall supercede Exhibit E of the Co-Host Agreement to the extent of any
inconsistent terms.
NOW THEREFORE, in consideration of the foregoing, and of the mutual covenants
and agreements hereinafter set forth, the parties hereby agree that the Web
Site Services Agreement dated as of September 21, 1998 is amended and restated
in its entirety as follows:
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 2
1. DEFINITIONS.
Unless otherwise defined herein, the terms used in this Agreement shall have
the following meanings:
(a) CONTENT: means the text, pictures, sound, graphics, video and other data
that appears on the applicable web page or web site.
(b) CUSTOMIZED CONTENT: means the Vendor-specific content that is set up by
Reseller under this Agreement for the Managed Site. Customized Content shall be
subject to the prior approval of Vendor and its continued placement on the
Managed Site thereafter shall be subject to the results of the quarterly status
meetings described in Exhibit "A".
(c) VENDOR CONTENT: means the content specifically provided by Vendor to be
included in the Managed Site.
(d) RESELLER CONTENT: means content specifically provided by Reseller to be
included in the Managed Site. Reseller Content shall be subject to the prior
approval of Vendor and its continued placement on the Managed Site thereafter
shall be subject to the results of the quarterly status meetings described on
Exhibit "A".
(e) RESELLER PROPRIETARY HOST SYSTEM: means Reseller's proprietary engine that
is maintained on Reseller's servers and that permits Clients to review
literature and place orders to obtain Vendor Products via the world wide web.
(f) RESELLER TRADEMARKS: means the trademarks, service marks, trade names and
logos used and owned by Reseller.
(g) CLIENT: means a customer that utilizes the Managed Site in purchasing
Vendor Products from Reseller.
(h) VENDOR TRADEMARKS: means the trademarks, service marks, trade names and
logos used by and owned by Vendor.
(i) SOFTWARE: means retail desktop software products offered by Vendor under
the "McAfee" brand or other Vendor-owned or licensed brand, which Vendor makes
available for sale via the Internet. Software shall include both electronically
delivered software and packaged software delivered directly to the Client.
Software shall not include any subscription based services managed by Vendor
and offered on NAI Internet Sites other than the Managed Site. The term
"Product" shall have the same meaning as the term "Software".
(j) OTHER TERMS: Other capitalized terms used herein shall have the same
meaning as provided in the Co-Hosting Agreement unless the context requires
otherwise.
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<PAGE> 3
2. VENDOR OBLIGATIONS.
(a) Vendor shall establish and maintain the appropriate hypertext links from
its Online Service Page and the Vendor internet sites to the designated URL or
URLs for the Managed Site under the designation, the McAfee Mall, McAfee Store
or such other designation as may be given to the Managed Site. Such links shall
be of reasonable prominence to give sufficient notice to viewers of Vendor's
Online Service Page.
(b) Other than technical support related to Clients' purchases and downloading
of the Vendor Products, Vendor shall provide all other support to Clients,
including without limitation, the support being provided in accordance with its
current technical support policies.
(c) Vendor shall sell to Reseller, Vendor's product licenses for resale
pursuant to the terms of Exhibit A and, Vendor shall cooperate and work with
Reseller in accordance with the terms of the Miscellaneous section of Exhibit
"A" of this Agreement.
(d) U.S. Sales. Vendor shall sell all software from United States based public
web sites exclusively through the Managed Site or the Destination (as defined
in the Co-Hosting Agreement).
(e) Vendor agrees that any Software offered for sale on the Managed Site and
any Foreign Sites (as defined in Subsection (h)) must be fulfilled, at Vendor's
election, through the Managed Site, the Foreign Sites, the Destination or must
link to the Co-Host Site (as defined in the Co-Hosting Agreement). Vendor will
not advertise on the Managed Site or Foreign Site (whether with banners,
buttons or other forms of online advertising) or link directly to web sites
that are involved in the resale of software from such page on the web sites.
(f) Vendor will display on each page of the Managed Site and any Foreign Sites
a statement to the effect that the Managed Site or Foreign Site is operated by
Vendor in a marketing partnership with Reseller. The parties will agree in good
faith on the prominence and exact format of such statement on each such page
with increasing prominence to be given to such statement on the online order
pages of the Managed Site or Foreign Site with the intent that Clients would
reasonably perceive that they are purchasing Vendor's products from Reseller.
(g) Vendor will reasonably promote and operate the Managed Site and any
Foreign Sites.
(h) Right of First Refusal for [*]
(i) [*]. For each [*], Vendor shall not sell any Software or hardware from
a web site in the [*] unless Vendor first shall have provided Reseller
with written terms addressing the (1) language for displayed text, (2)
currencies supported, (3) language for customer support including
email and telephone, (4) product reseller discounts, (5) fulfillment,
(6) payment options, (7) reporting requirements, (8) uptime
requirements, (9) privacy policy (10) projected sales, (11) the launch
date for each material term [*] from the date of receipt of [*] (the
"[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
-3-
<PAGE> 4
[*]"). A [*] shall mean one of the [*] set forth on Exhibit E.
(ii) First Refusal Exercise Notice. Within twenty (20) days following
Reseller's receipt of the [*] (the "Option Period") Reseller
and/or its assigns shall have the exclusive right to accept the
proposed terms of the [*] (the "Proposed Terms"). Any acceptance
by Reseller shall be made in writing and include a commercially
reasonable and detailed implementation plan. "[*]" shall include
each web sites designated by Reseller and/or its assigns pursuant
to each acceptance of Proposed Terms.
(iii) Non-Exercise. If Reseller and/or its assigns do not accept the
Proposed Terms within the Option Period, then Vendor may initiate
sales of the Software from a web site in the [*] upon the
Proposed Terms within [*] of the [*]. Vendor shall submit to
Reseller a new written [*] in accordance with the requirements of
this Right of First Refusal prior to entering any material
changes in the Proposed Terms.
(iv) Expiration of Transfer Period. Following such [*] period, if
Vendor has not initiated sales of the Software in the [*], then
no sales of the Software and no change in the Proposed Terms
shall be permitted without a new written [*] submitted in
accordance with the requirements of this Right of First Refusal.
3. RESELLER OBLIGATIONS.
(a) Reseller will build, maintain and manage the online order pages of the
Managed Site (the "Order Pages") to process orders for Vendor Products both for
electronic software download ("ESD") and for physical delivery. The structure
of the Order Pages shall be based on Reseller's standard templates, but the
graphical content, including the Customized Content will be subject to the
approval of Vendor. All buttons, links and labels for the Managed Site shall be
labeled McAfee Mall, McAfee Store or other designation approved by Vendor.
(b) Reseller shall be responsible for supporting Clients in the purchase and
fulfillment process from the Managed Site, but will not otherwise provide
product or technical support. Reseller will exercise all commercially
reasonable efforts to distribute the most current version of Vendor's Products
and other products which Vendor makes or desires to make available from the
Managed Site.
(c) Reseller shall purchase from Vendor, Vendor's Product Licenses for resale
pursuant to the terms of Exhibit A and, Reseller shall cooperate and work with
Vendor in accordance with Exhibit "A".
(d) Reseller shall undertake export and licensing restriction management in
accordance with the requirements set forth in the Co-Hosting Agreement and the
Reseller Agreement, which export and licensing restriction requirements are
incorporated herein by reference. Reseller shall
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
-4-
<PAGE> 5
comply with all applicable laws in connection with the operation of the Managed
Site, including without limitation, laws relating to the use of information
concerning Vendor Clients. Subject to the Reseller's rights set forth in
Section 5(c) of this Agreement, Reseller shall also comply with Vendor's
on-line privacy policies to the extent commercially reasonable upon written
notice of such policies.
(e) Vendor shall be responsible for all credit card fraud activity committed
on the Managed Site. The initial risk procedures for the Managed Site are set
forth on Exhibit "C" attached hereto. The risk procedures shall be a subject in
the quarterly meetings between the parties described in Exhibit "A".
4. LICENSE.
(a) CUSTOMIZED CONTENT. Vendor grants Reseller a non-exclusive, royalty-free
license and right during the term of this Agreement, to use, reproduce,
electronically distribute, publicly display, and publicly perform the Customized
Content delivered to Reseller by Vendor only in connection with the Managed
Site. Vendor shall indemnify and hold harmless Reseller for any liabilities,
losses, damages, costs and expenses (including attorneys' fees and costs) based
on any third party claim that Customized Content infringes another's U.S.
patent, copyright, trademark, service mark, or trade secret or that said
Customized Content is defamatory or violates another's right to publicity or
privacy; provided that Reseller promptly notifies Vendor in writing of the
claim and allows Vendor to control, and fully cooperates with Vendor in, the
defense and all related settlement negotiations. Vendor shall have no liability
for any settlement or compromise made without its consent. Upon notice of an
alleged infringement, or if in the Vendor's opinion such a claim is likely,
Vendor shall have the right, at its option, to obtain the right for Reseller to
continue to exercise the rights granted under this Agreement, substitute other
software with similar operating capabilities, or modify the Software so that it
is no longer infringing. The foregoing indemnification shall not apply to
claims of infringement to the extent they arise by reason of the combination of
the software or documentation with any other product if such claim would have
been avoided but for such combination.
(b) RESELLER LINK. Reseller grants to Vendor a non-exclusive,
non-transferable, revocable, royalty-free license and right during the term of
this Agreement, to use, reproduce, electronically distribute, publicly display,
and publicly perform Reseller's hypertext link, including certain of Reseller's
graphic icon buttons and other proprietary content used in conjunction
therewith as authorized in writing by Reseller, to link Vendor's web site to
the Managed Site, provided that Vendor complies with section 9b, below.
Reseller reserves the right to terminate the foregoing right if in its sole
discretion, Vendor's usage of Reseller's hypertext link, graphic icon buttons
and other proprietary content, harms the business, image and goodwill of
Reseller.
5. PROPRIETARY RIGHTS.
(a) Vendor acknowledges that as between the parties, Reseller owns all right,
title and interest in and to all components of the Order Pages and the Co-Host
Site. Reseller acknowledges that as between the parties, Vendor owns all right,
title and interest in and to the Managed Site and its associated URLs. Vendor
acknowledges that the Reseller Trademarks are trademarks
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<PAGE> 6
owned solely and exclusively by Reseller, and agrees to use the Reseller
Trademarks only in the form and manner and with appropriate legends as
prescribed by Reseller. Vendor agrees not to use any other trademark or service
mark in connection with any of the Reseller Trademarks without prior written
approval of Reseller. All use of Reseller Trademarks shall inure to the benefit
of Reseller. Reseller acknowledges that the Vendor Trademarks are trademarks
owned solely and exclusively by Vendor, and agrees to use the Vendor Trademarks
only in the form and manner and with appropriate legends as prescribed by
Vendor. Reseller agrees not to use any other trademark or service mark in
connection with any of the Vendor Trademarks without prior written approval of
Vendor. All use of Vendor trademarks shall inure to the benefit of Vendor.
(b) Nothing in this Agreement shall give Vendor any right or license to use,
reproduce, display or distribute (electronically or otherwise) any technology
or intellectual property rights in the Order Pages and the Co-Host Site.
(c) Except as required by law, Reseller shall be entitled to use any
information that it collects regarding the visitors to and purchasers from the
Managed Site, including e-mail names, such information shall be considered
co-owned by Vendor and Reseller, with the restriction that Reseller may not
sell, license or disclose such information to any competitor of Vendor. Each
End User will be afforded the opportunity to opt-out of either or both parties'
marketing activities involving contacting such End User for promotional
purposes. The form of such opt-out feature will be mutually determined by the
parties. In the event a customer elects to opt-out of either parties' marketing
activities Reseller may not use customer information in a manner that violates
Vendor's privacy policy as published from time to time upon thirty (30) days
notice to Reseller.
6. TERM AND TERMINATION.
(a) TERM. The term of this Agreement as amended and restated on the date
hereof will be deemed to have commenced on [*], and continue in effect until
[*], unless earlier terminated as herein provided ("Initial Term"). This
Agreement will automatically be renewed for an additional one (1) year term
("Renewal Term") unless either party gives the other written notice of
termination at least ninety (90) days prior to the expiration of the Initial
Term or any Renewal Term.
(b) TERMINATION FOR CAUSE. This Agreement may be terminated by a party for
cause [*] by written notice upon the occurrence of any of the following events:
(i) If the other ceases to do business, or otherwise terminates its business
operations (or in the case of Vendor, [*];
or
(ii) If the other shall fail to promptly secure or renew any material license
registration, permit, authorization or approval for the conduct of its business
in the manner contemplated by this Agreement or if any such material license,
registration, permit, authorization or approval is revoked or suspended and not
reinstated within [*]; or
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 7
(iii) If the other breaches any material provision of this Agreement and fails
to fully cure such breach within [*] days in the case of failure to pay) of
written notice describing the breach; or
(iv) By Reseller if the [*]; or
(v) [Deleted]; or
(vi) By Vendor if the [*]; or
(vii) If the other seeks protection under any bankruptcy receivership trust
deed, creditor's arrangement composition or comparable proceeding, or if any
such proceeding is instituted against the other and not dismissed within [*].
(b1) TERMINATION BY RESELLER. Reseller may terminate the Agreement [*] if
[*] other than as a result of a breach of this Agreement by Reseller. As used in
the preceding sentence, [*] shall mean [*] and (ii) [*] shall have the same
meaning as set forth in the Co-Hosting Agreement.
(c) EFFECT OF TERMINATION. Reseller shall remit all fees due under this
Agreement to Vendor within thirty (30) days of such termination.
(d) EFFECT ON END USERS. Termination of this Agreement by either party will
not affect the rights of any End User under the terms of the End-User License
Agreement and shall not affect terms of any other agreement between the parties
except to the extent specifically provided for in such agreement.
7. PAYMENT.
Vendor shall be compensated in accordance with the terms of Exhibit "A".
8. DISCLAIMER; UPTIME REQUIREMENT.
(a) Vendor acknowledges and agrees that Reseller shall not be responsible for
Order Pages unavailability due to (i) outages caused by the failure of public
network or communications components or (ii) errors in the HTML coding in, or
any other aspect of, the electronic files provided by Vendor. [*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 8
[*]. Compliance with the Uptime Requirement shall be determined with respect to
each one month period during the Term. failure to meet the Reseller Uptime
Requirement shall be grounds for termination of this Agreement without notice or
opportunity to cure.
(b) Reseller acknowledges and agrees that Vendor shall not be responsible for
Managed Site unavailability due to (i) outages caused by failure of public
network or communications components or (ii) errors in the HTML coding in, or
any other aspect of, the electronic files provided by Reseller. [*].
9. TRADEMARK USE.
(a) Reseller acknowledges that the Vendor Trademarks are trademarks owned
solely and exclusively by Vendor, and agrees to use the Vendor Trademarks only
in the form and manner and with appropriate legends as prescribed by Vendor.
Reseller agrees not to use any other trademark or service mark in connection
with any of the Vendor Trademarks without prior written approval of Vendor. All
use of Vendor Trademarks shall inure to the benefit of Vendor.
(b) Vendor acknowledges that the Reseller Trademarks are trademarks owned
solely and exclusively by Reseller, and agrees to use the Reseller Trademarks
only in the form and manner and with appropriate legends as prescribed by
Reseller. Vendor agrees not to use any other trademark or service mark in
connection with any of the Reseller Trademarks without prior written approval of
Reseller. All use of Reseller Trademarks shall inure to the benefit of Reseller.
(c) Reseller shall indemnify and hold Vendor harmless from and against any and
all liabilities, losses, damages, costs and expenses (including legal fees and
expenses) associated with any claim or action brought against Vendor that may
arise from Reseller's improper or unauthorized replication, packaging,
marketing, distribution, or installation of the Software, including claims based
on representations, warranties, or misrepresentations made by Reseller.
(d) BOTH PARTIES LIABILITY SHALL BE LIMITED TO DIRECT DAMAGES. IN NO EVENT WILL
EITHER PARTY BE LIABLE FOR INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS) SUFFERED BY THE OTHER PARTY, EVEN IF IT HAS PREVIOUSLY
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. [*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 9
[*]
10. GENERAL PROVISIONS.
(a) ASSIGNMENT. This Agreement may not be assigned by either party (except by
operation of law or in connection with the sale of substantially all of the
assets of such party's business or the acquisition of such party by a third
party, and except by Vendor to McAfee.com Corporation, its majority-owned,
first-tier subsidiary) to any other person, persons, firms, or corporations
without the express written approval of the other party. Any assignee of the
Vendor shall be deemed the "Vendor" for all purposes in this Agreement
including but not limited to Section 2(d).
(b) NOTICES. All notices and demands hereunder shall be in writing and will be
deemed given upon the earlier of actual receipt or two (2) days after being
sent by overnight Federal Express or Express Mail, return receipt requested, to
the appropriate address set forth above, as such contracts and addresses may be
changed by written notice to the other party.
(c) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of California. Each party
hereto expressly consents to the personal jurisdiction of the state and federal
courts located in Santa Clara County, California, and expressly waives any
defense to any action based on inconvenient forum, choice of venue, lack of
personal jurisdiction, sufficiency of service of process or the like.
(d) RELATIONSHIP OF THE PARTIES. Each party is acting as an independent
contractor and not as an agent, partner, or joint venture with the other party
for any purpose. Except as provided in this Agreement, neither party shall have
the right, power, or authority to act or to create any obligation, express or
implied, on behalf of the other.
(e) SURVIVAL OF CERTAIN PROVISIONS. The indemnification and confidentiality
obligations set forth in the Agreement shall survive the termination of the
Agreement by either party for any reason.
(f) HEADINGS. The titles and headings of the various sections and paragraphs
in this Agreement are intended solely for convenience of reference and are not
intended for any other purpose whatsoever, or to explain, modify or place any
construction upon or on any of the provisions of this Agreement.
(g) ALL AMENDMENTS IN WRITING. No provisions in either party's purchase
orders, or in any other business forms employed by either party will supersede
the terms and conditions of this Agreement, and no supplement, modification, or
amendment of this Agreement shall be binding, unless executed in writing by a
duly authorized representative of each party to this Agreement.
(h) ENTIRE AGREEMENT. The parties have read this Agreement and agree to be
bound by its terms, and further agree that this Agreement, the Co-Hosting
Agreement and the Reseller
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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<PAGE> 10
Agreement constitute the complete and entire agreement of the parties and
supersedes all previous communications, oral or written, and all other
communications between them relating to the license and to the subject hereof,
including without limitation, that certain Web Site Services Agreement dated as
of September 21, 1998. No representations or statements of any kind made by
either party, which are not expressly stated herein, shall be binding on such
party.
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<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above.
BEYOND.COM CORPORATION NETWORKS ASSOCIATES, INC.
(Formerly known as Software.net) doing business as Network Associates, Inc.
By: /s/ JAMES R. LUSSIER By: /s/ JEFF PLATON
------------------------------- ---------------------------------------
Name: JAMES R. LUSSIER Name: JEFF PLATON
----------------------------- -------------------------------------
Title: VP and GM Direct e.Commerce Title: VP Sales & Bus. Dev.
Solutions Division ------------------------------------
----------------------------
Date: 9/9/99 Date: 9/9/99
----------------------------- -------------------------------------
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<PAGE> 12
EXHIBIT "A"
1. DEFINITIONS.
a) DOCUMENTATION: all computer readable collateral materials normally
provided from time to time by Vendor to End Users for use of the Software
and all subsequent versions thereof provided to Reseller pursuant to this
Agreement.
b) END-USER LICENSE AGREEMENT: the computer readable license agreement
provided by Vendor, as modified from time to time, that governs the use
of the Software by End Users, and which is to be included with each copy
of the Software sold by Reseller hereunder.
c) RESELLER MATERIALS: computer readable materials provided by Reseller for
inclusion in an electronic package containing the Software,
Documentation, and End-User License Agreement, which materials have been
approved in advance in writing, by Vendor.
d) PRODUCT: a copy of the Software, Documentation, End-User License
Agreement and Reseller Materials, if any, packaged in computer readable
form together for electronic delivery in accordance with this Agreement.
e) END USER: person(s) or entity(ies) that acquires a Product for productive
use rather than resale or distribution.
f) VENDOR TRADEMARKS: trademarks owned or licensed by Vendor.
g) TERRITORY: world wide only via the Internet on the Managed Site except
(i) countries to which export or re-export of any Product, or the direct
products of any Product is prohibited by United States law without first
obtaining the permission of the United States Office of Export
Administration or its successor, and (ii) countries that may be hereafter
excluded pursuant to the terms of this Agreement.
h) AUTHORIZED PRODUCT RETURNS: return requests received from End User
customers pursuant to the terms of the End-User License Agreement and
accompanied by executed Letter of Destruction and or a Return Merchandise
Authorization number, relating to Products distributed by Reseller or
other returns if agreed upon by Vendor.
2. LICENSE.
a) RIGHTS GRANTED TO RESELLER, Vendor grants Reseller a non-transferable,
and non-exclusive license and right to;
1. reproduce the Software, Documentation, and the End-User License
Agreement in computer readable form;
2. package the Software, Documentation, Reseller Materials and the
End-User License Agreement in a computer readable manner specified by
Vendor;
3. utilize the Vendor Trademarks in connection with the replication of
the Software, packaging and distribution of the Products, in a manner
specified by Vendor; and
4. Distribute the Products directly to End Users in the Territory subject
to the restrictions set forth in this Agreement.
b) RIGHTS RESERVED TO VENDOR. Reseller acknowledges that the Software and
Documentation are the property of Vendor or its licensors and that
Reseller has no rights in the foregoing except those expressly granted by
this Agreement. Except as expressly set forth herein and in the Web Site
Services Agreement to which this is attached, nothing shall be construed
as restricting Vendor's right to sell, license, modify, publish or
otherwise distribute the Software or Documentation, in whole or in part,
to any other person.
3. REPRODUCTION BY RESELLER.
a) REPRODUCTION AND PACKAGING. Reseller agrees to accurately replicate the
Software and Documentation provided by the Vendor in computer readable
form, and to package these items as specified by Vendor.
b) VENDOR TRADEMARKS AND LEGENDS. Reseller shall include copies of the
Vendor Trademarks, copyright notices and other proprietary rights
legends, on all copies of the Documentation and Software that it packages
in computer readable form, in the manner specified by the Vendor.
4. DISTRIBUTION BY RESELLER.
a) PACKAGING. Reseller will distribute Products to Clients of the Managed
Site the Co-Host Site and/or Destination and only as packaged in
accordance with this Agreement, with all packaging, warranties,
disclaimers and End-User License Agreements intact. Reseller will make
copies of the current End-User License Agreement available to End User
customers in computer readable form. Products distributed electronically
shall be distributed to End Users with a Vendor approved wrapper which
prohibits use of the Product by the End User prior to approval of the
End-User License Agreement and the submission of payment by End User to
Reseller.
b) PRODUCT RETURNS, SUBJECT TO SECTION 10(a). Reseller agrees to honor any
Authorized Product Returns.
<PAGE> 13
c) COST OF DISTRIBUTION. Costs relating to packing the Product for
shipment to the End User, shipping the Product to the End User, and/or
digitally delivering the Product to the End User shall be borne by
the Reseller.
5. RESELLER OBLIGATIONS.
a) Reseller will conduct its business in a manner that reflects
favorably upon the Products and Vendor. Such marketing, promotion,
sublicensing and distribution shall be performed in accordance with
all applicable laws. Without limitation on the foregoing, Reseller
will comply with all laws relating to the privacy of Internet users.
b) REVERSE ENGINEERING. Reseller agrees not to: (i) disassemble,
de-compile or otherwise reverse engineer the Software or otherwise
attempt to learn the source code, structure, algorithms or ideas
underlying the Software; (ii) take any action contrary to Vendor's
End-User License Agreement except as expressly and unambiguously
allowed under this Agreement.
c) CUSTOMER REGISTRATION. Reseller agrees to provide Vendor with
customer information regarding purchasers of Products, including any
expressed preferences regarding the use and distribution of such
information. The format and frequency of customer registration
information shall be mutually agreed to by the parties.
d) EXPORT COMPLIANCE. Reseller agrees that it will not, directly or
indirectly, export or transmit the Product and technical data (or any
part thereof) or any process or service that is the direct product of
the software and documentation, to any group S or Z country specified
in Supplement No. 1 of Section 770 of the Export Administration
Regulations or to any other country to which such export or
transmission is restricted by such regulation or statute, without the
prior written consent, if required, of the Office of Export
Administration of the U.S. Department of Commerce, or such other
governmental entity as may have jurisdiction over such export or
transmission. Reseller acknowledges that some Products contain
encryption. Some encryption Products may be exportable while others
are export restricted by the U.S. Department of Commerce's Bureau of
Export Administration (BXA). Reseller further acknowledges that for
this reason, the export of such items may subject Reseller or its
executives to fines and/or other severe penalties. Unless all
required permits and/or approvals have been obtained, Reseller shall
not export or re-export the restricted Software outside of the United
States, whether directly or indirectly, and will not cause, approve
or otherwise facilitate others such as agents, subsequent purchasers,
licensees or any other third parties in doing so. The parties agree
to cooperate with each other with respect to any application for any
required licenses and approvals and Vendor agrees to provide Reseller
current information regarding export requirements with respect to the
Products. However, Reseller acknowledges it is their ultimate
responsibility to comply with all exports laws and that Vendor has no
further responsibility after the initial sale to Reseller within the
United States.
6. VENDOR'S DELIVERY OBLIGATIONS.
a) INITIAL DELIVERABLES. Vendor shall promptly deliver the current
version of the Software and Documentation to Reseller (or Reseller's
designated agent). Vendor will provide Reseller (to Reseller's
designated agent) with (i) copies of the Software on CD-ROM or master
diskettes, (ii) Product specification information in HTML format, or
in another computer readable form that can be reproduced by Reseller,
(iii) Product Documentation in a computer readable form that can be
reproduced by Reseller.
b) NEW VERSIONS. Vendor shall provide Reseller with computer readable
copies of all new releases, updates, or revisions of the Software and
Documentation within a reasonable time after each such release is
made generally available by Vendor. Vendor will notify Reseller of
its plans for each new release, update or revision of the Software or
Documentation within a reasonable period of time prior to such
release.
c) NEW PRODUCTS. Reseller understands and acknowledges that Vendor
continues to review software products available on the market and to
conduct its own research and development activities with respect to
the internal development of such new products. Vendor makes no
representations or warranties with respect to continued availability
of any of the Software covered by this Agreement, or the nature or
availability of any future modifications, updates, or enhancements
thereto. Similarly, Vendor makes no representations with respect to
any new product offerings it may make in the future or the
compatibility of such products with the Software covered by this
Agreement.
7. VENDOR'S SUPPORT OBLIGATIONS.
a) SUPPORT FOR END USERS. Vendor will provide support to End Users of
the Software to be distributed hereunder, in accordance with Vendor's
then-current published software support policy, if any. Reseller
assumes no responsibility for Product technical support.
b) SUPPORT FOR RESELLER. Vendor will provide Reseller, without charge,
such technical information, current maintenance documentation, and
telephone assistance as is necessary to enable Reseller to
effectively reproduce, package and distribute the Software. Reseller
is not entitled to source code for the Software.
8. VENDOR'S WARRANTIES.
a) AUTHORITY. Vendor represents that it has the right and authority to
enter into this Agreement and to grant Reseller the rights to the
Software and Documentation granted in this Agreement.
b) NON-INFRINGEMENT. Vendor warrants to Reseller that the Vendor has all
rights, title, and interest in the Products or has
2
<PAGE> 14
obtained the right to grant the licenses set forth in this
Agreement. Vendor represents that to Vendor's knowledge the Product
does not infringe upon or misappropriate the proprietary rights of
any third party arising under the laws of the United States of
America.
c) END USER WARRANTIES. Vendor will provide a warranty for the End
Users of the Software as set forth in the End-User License
Agreement. Reseller is not authorized to make any other warranties
on Vendor's behalf.
d) DISCLAIMER. OTHER THAN EXPRESSLY SET FORTH HEREIN, VENDOR DISCLAIMS
ALL EXPRESS AND IMPLIED WARRANTIES WITH REGARD TO THE PRODUCTS,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY,
NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE.
9. RESELLER WARRANTIES.
a) AUTHORITY. Reseller represents that it has the right and authority
to enter into this Agreement and to perform all of its obligations
hereunder.
b) NON-INFRINGEMENT. Reseller warrants to Vendor that the Vendor has
all rights, title, and interest in any wrapping technology bundled
with the Products and that the same does not infringe upon or
misappropriate the proprietary rights of any third party arising
under the laws of the United States of America.
c) REPLICATION. Reseller agrees that it will accurately replicate the
Software and Documentation, and warrants that all Software
distributed by the Reseller will not contain any viruses, worms,
date bombs, or other code that is specifically designed to cause
the Software to cease operating, or to damage, interrupt, or
interfere with any End User's Software or data.
10. PAYMENTS.
a) AMOUNT. Reseller shall purchase from Vendor and Vendor shall sell
to Reseller Product licenses for resale to End Users, in accordance
with the terms and conditions hereof, on an as-needed basis.
Reseller will purchase the Products pursuant to a purchase order in
a form reasonably acceptable to Vendor. Reseller will pay Vendor a
Per Copy License Fee equal to [*] of the price
set forth in Price List Schedule attached hereto as Exhibit B, for
each copy of a Product delivered to an End User by Reseller,
provided, however, that no fee shall be due for Authorized Product
Returns. Vendor may change, amend, remove or modify the Products on
the Price List and/or the price set forth for any Product in its
sole discretion, upon thirty (30) days prior written notice to
Reseller. However, in the event the parties agree to adjust the
prices on the Price List upon less than 30 days notice to Reseller,
Vendor shall credit Reseller on the purchase order immediately
preceding the price adjustment. Reseller shall collect all moneys
due for sales conducted on the Managed Site and shall solely bear
the risk of collection, except as otherwise set forth in the Web
Site Services Agreement. [*] Gross Sales shall mean total moneys
received by Reseller from Product sales on the Managed Site less End
User Product returns, shipping charges paid by End User [*].
b) PAYMENT AND REPORTS. Within [*], Reseller shall provide Vendor with
a written report specifying the number of copies of Products that
Reseller has shipped during the immediately prior month and the
calculation of the [*] pursuant to Section 10(a) above together with
payment therefor. The Per Copy License Fee shall be due [*] from
invoice by Vendor.
c) TAXES. The Per Copy License Fee shall be exclusive of any tax,
withholding tax, levy or similar government charge that may be
assessed. Such taxes, withholding taxes, levies, and governmental
charges include taxes based on sales, use, excise, import or export
values, value-added, income revenue, net worth, or may be the
result of delivery, possession or use of the Software ("Taxes").
Reseller agrees to pay all such Taxes that become due based on
Reseller reselling the Products. Should any such Taxes be or become
due, Reseller agrees to pay such Taxes and indemnify Vendor for a
claim against Vendor by any taxing authority for Taxes arising in
connection with this Agreement other than Taxes on Vendor's income.
Reseller shall make no deduction from any amounts owed to Vendor
for any Taxes. Reseller agrees to provide Vendor with appropriate
information and/or documentation satisfactory to the applicable
taxing authorities to substantiate any claim of exemption from any
Taxes. If Reseller claims any exemption from Taxes, Reseller shall
provide Vendor with a valid certificate evidencing such exemption.
Reseller will pay, or require its End User customers to pay, all
federal, state and local taxes designated, levied, or based upon
the resale of Products by Reseller. Reseller will collect and remit
to the appropriate authorities all federal, state and local taxes
designated, levied, or based upon the resale of Products by
Reseller as required by applicable law, and shall indemnify Vendor
against all Taxes that arise with respect to the resale of the
Software to End Users.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 15
d) CLIENT INFORMATION. Reseller will provide to Vendor within ten (10)
days after the end of each month, a report for the immediately prior
month showing (i) the name and address of each End User that
purchased the Product from Reseller, and (ii) the name and quantity
of the Product purchased by the End User. The format of this
information shall be mutually agreed to by the parties.
e) BOOK AND RECORDS. Reseller agrees to maintain adequate books and
records relating to the distribution of Products to End User
Customers. Such books and records shall be available at their place
of keeping for inspection by Vendor or its representative, for the
purpose of determining whether the correct fees have been paid to
Vendor in accordance with the terms of this Agreement, and whether
Reseller has otherwise complied with the terms of this Agreement.
Vendor shall have the right to conduct such an audit upon ten (10)
days advance notice twice each year. In the event that such an audit
discloses an underpayment of more than five percent (5%), then
Reseller shall pay the costs of such audit.
11. CONFIDENTIALITY.
Each party agrees that all binary code, inventions, algorithms,
know-how and ideas it obtains from the other and all other business,
technical and financial information it obtains from the other are the
confidential property of the disclosing party ("Confidential
Information"), if conspicuously labeled as "proprietary" or
"confidential" or some similar designation or, if disclosed orally or
visually, is confirmed in writing labeled as "proprietary" or
"confidential" or some similar designation within thirty (30) days of
such oral or visual disclosure. All binary code (including, but not
limited to the Software), binary documentation and underlying
inventions, algorithms, know-how and ideas are hereby identified as
Vendor's Confidential Information. Except as expressly and
unambiguously allowed herein, the receiving party will hold in
confidence and not use or disclose any Confidential Information and
shall similarly bind its employees and contractors in writing. The
receiving party shall not be obligated under this Section 11 with
respect to information the receiving party can document; (1) is or
has become readily publicly available with restriction through no
fault of the receiving party or its employees or agents; or (2) is
received without restriction from a third party lawfully in
possession of such information and lawfully empowered to disclose
such information; or (3) was rightfully in the possession of the
receiving party without restriction prior to its disclosure by the
disclosing party; or (4) is independently developed by the receiving
party by employees without access to the other party's similar
Confidential Information; or (5) is required by law or order of a
court, administrative agency or other governmental body to be
disclosed by the receiving party. The parties obligations with
respect to Confidential Information (other than with respect to any
source code as to which the obligations shall continue for twenty
(20) years) shall continue for the shorter of three (3) years from
the date of termination of this Agreement or until one of the above
enumerated conditions becomes applicable. Each party acknowledges
that its breach of this Section 11 would cause irreparable injury to
the other for which monetary damages are not an adequate remedy.
Accordingly, a party will be entitled to injunctions and other
equitable remedies in the event of such breach by the other.
12. VENDORS TRADEMARKS.
USE. Reseller acknowledges that as between Vendor and Reseller the
Vendor Trademarks are the sole and exclusive property of Vendor or
its licensors. Reseller agrees to use the Vendor Trademarks only
in the form and manner and with appropriate legends as prescribed by
Vendor. Reseller agrees not to use any other trademark or service
mark in connection with any of the Vendor Trademarks without prior
written approval of Vendor. All use of Vendor Trademarks shall inure
to the benefit of Vendor. Reseller shall not remove, alter, cover or
obfuscate any copyright notice or other proprietary rights notice
placed in or on the Software or Documentation by Vendor.
13. INDEMNIFICATION.
a) BY VENDOR. Vendor will defend, indemnify and hold Reseller harmless
from and against any and all liabilities, losses, damages, costs and
expenses (including legal fees and expenses) associated with any
claim or action brought against Reseller for actual or alleged
infringement of any US patent, US copyright, US trademark, US service
mark, trade secret, or other US proprietary rights based upon the
duplication, sale, license, or use of the Software or Documentation
by Reseller in accordance with this Agreement, provided that Reseller
promptly notifies Vendor in writing of the claim and allows Vendor to
control, and fully cooperates with Vendor in, the defense and all
related settlement negotiations. Vendor shall have no liability for
any settlement or compromise made without its consent. Upon notice of
an alleged infringement, or if in the Vendor's opinion such a claim
is likely, Vendor shall have the right, at its option, to obtain the
right for Reseller to continue to exercise the rights granted under
this Agreement, substitute other software with similar operating
capabilities, or modify the Software so that it is no longer
infringing. In the event that none of the above options are
reasonably available, in Vendor's sole opinion, Vendor may terminate
this Agreement.
b) BY RESELLER. Reseller shall indemnify and hold Vendor harmless from
and against any and all liabilities, losses, damages, costs and
expenses (including legal fees and expenses) associated with any
claim or action brought against Vendor that may arise from Reseller's
improper or unauthorized replication, packaging, marketing,
distribution, or installation of the Software, including claims based
on representations, warranties, or misrepresentations made by
Reseller, or any other improper or unauthorized act or failure to act
on the party of Reseller.
<PAGE> 16
14. MISCELLANEOUS
(a) Reseller will provide Vendor with daily reporting on sales numbers via
email. Reseller will make a confidential online reporting tool available
to Vendor for Vendor's own internal use only.
(b) Both Vendor and Reseller will use all commercially reasonable efforts to
maximize product sales through the relationship. The parties shall meet
quarterly within the second two weeks of the first month of each quarter to
(i) determine Managed Site's financial performance against performance
goals; (ii) discuss Vendor's implementation of Beyond.com technologies;
(iii) discuss Vendor purchasing of desktop software from Beyond.com and
(iv) discounts on pricing to Reseller for ESD Products, and (v) discuss
on-going business development opportunities and Managed Site Product sale
growth strategies. The parties shall consult in good faith concerning
financial performance goals for the Managed Site, the location on the
Vendor public sites of links to the Managed Site, risk levels, the Content
on the Managed Site and all other matters pertaining to the operation of
the Managed Site.
(c) Reseller and Vendor will develop mutually desirable programs and offers
targeted to customers visiting the Managed Site.
<PAGE> 17
EXHIBIT "B"
PRICE LIST
<PAGE> 18
EXHIBIT "C"
INITIAL RISK LEVEL
The initial risk level, as defined by Cybersource Corporation in
connection with its IVS fraud service as in existence on the date hereof, shall
be a [*], subject to adjustment by mutual agreement of the parties in writing.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 19
EXHIBIT "D"
FOREIGN TERRITORIES
[*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BEYOND.COM CORPORATION FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 29,092
<SECURITIES> 57,867
<RECEIVABLES> 11,863
<ALLOWANCES> (1,107)
<INVENTORY> 729
<CURRENT-ASSETS> 131,829
<PP&E> 11,344
<DEPRECIATION> (2,319)
<TOTAL-ASSETS> 261,143
<CURRENT-LIABILITIES> 38,571
<BONDS> 63,250
0
0
<COMMON> 295,262
<OTHER-SE> (135,998)
<TOTAL-LIABILITY-AND-EQUITY> 261,143
<SALES> 36,599
<TOTAL-REVENUES> 36,599
<CGS> 32,285
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 42,270
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174
<INCOME-PRETAX> (37,782)
<INCOME-TAX> 0
<INCOME-CONTINUING> (37,782)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,782)
<EPS-BASIC> (1.05)
<EPS-DILUTED> 0
</TABLE>
